0001306965rdsa:BOrdinarySharesMember2018-01-012018-12-310001306965ifrs-full:PresentValueOfDefinedBenefitObligationMemberifrs-full:PensionDefinedBenefitPlansMembercountry:NLifrs-full:WhollyOrPartlyFundedDefinedBenefitPlansMember2022-01-012022-12-31
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 20-F
(Mark one)
☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 20202022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-32575
Royal Dutch Shell plc
(Exact name of registrant as specified in its charter)
England and Wales
(Jurisdiction of incorporation or organization)
Carel van Bylandtlaan 30, 2596 HR, The Hague, The NetherlandsShell Centre
Tel. no: 011 31 70 377 9111London, SE1 7NA
royaldutchshell.shareholders@shell.comUnited Kingdom
(Address of principal executive offices)
Caroline J.M. Omloo, Company Secretary
Shell Centre
London, SE1 7NA
United Kingdom
Telephone Number: 0044-20-7934-1234
E-mail Address: c.omloo@shell.com
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered pursuant to Section 12(b) of the Act
| | | | | | | | |
| Title of Each Class | Trading Symbols | Name of Each Exchange on Which Registered |
American Depositary Shares representing two A ordinary shares
of the issuer with a nominal value of €0.07 each
| RDS.ASHEL | New York Stock Exchange |
American Depositary Shares representing two B ordinary shares
of the issuer with a nominal value of €0.07 each
| RDS.B | New York Stock Exchange |
1.75% Guaranteed Notes due 2021 | RDS/21 | New York Stock Exchange |
1.875% Guaranteed Notes due 2021 | RDS.A/21 | New York Stock Exchange |
2.375% Guaranteed Notes due 2022 | RDS/22 | New York Stock Exchange |
| 0.375% Guaranteed Notes due 2023 | RDS.A/SHEL/23B | New York Stock Exchange |
2.25% Guaranteed Notes due 2023 | RDS/23 | New York Stock Exchange |
3.4% Guaranteed Notes due 2023 | RDS/223A | New York Stock Exchange |
| 3.5% Guaranteed Notes due 2023 | RDS.A/SHEL/23 | New York Stock Exchange |
| Floating Rate Guaranteed Notes due 2023 | RDS.A/SHEL/23A | New York Stock Exchange |
| 2% Guaranteed Notes due 2024 | RDS.A/SHEL/24 | New York Stock Exchange |
2.375%3.25% Guaranteed Notes due 2025 | RDS.A/SHEL/25 | New York Stock Exchange |
3.25% Guaranteed Notes due 2025 | RDS/25 | New York Stock Exchange |
| 2.5% Guaranteed Notes due 2026 | RDS/SHEL/26 | New York Stock Exchange |
| 2.875% Guaranteed Notes due 2026 | RDS.A/26SHEL/26A | New York Stock Exchange |
| 3.875% Guaranteed Notes due 2028 | RDS.A/SHEL/28 | New York Stock Exchange |
| 2.375% Guaranteed Notes due 2029 | RDS.A/SHEL/29 | New York Stock Exchange |
| 2.75% Guaranteed Notes due 2030 | RDS.A/SHEL/30 | New York Stock Exchange |
| 4.125% Guaranteed Notes due 2035 | RDS/SHEL/35 | New York Stock Exchange |
| 6.375% Guaranteed Notes due 2038 | RDS.A/SHEL/38 | New York Stock Exchange |
| 5.5% Guaranteed Notes due 2040 | RDS/SHEL/40 | New York Stock Exchange |
| 2.875% Guaranteed Notes due 2041 | SHEL/41 | New York Stock Exchange |
| 3.625% Guaranteed Notes due 2042 | RDS/SHEL/42 | New York Stock Exchange |
| 4.55% Guaranteed Notes due 2043 | RDS/SHEL/43 | New York Stock Exchange |
| 4.375% Guaranteed Notes due 2045 | RDS/SHEL/45 | New York Stock Exchange |
| 3.75% Guaranteed Notes due 2046 | RDS/SHEL/46 | New York Stock Exchange |
| 4.00% Guaranteed Notes due 2046 | RDS.A/46SHEL/46A | New York Stock Exchange |
| 3.125% Guaranteed Notes due 2049 | RDS.A/SHEL/49 | New York Stock Exchange |
| 3.25% Guaranteed Notes due 2050 | RDS.A/SHEL/50 | New York Stock Exchange |
| 3.00% Guaranteed Notes due 2051 | SHEL/51 | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: none
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: none
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
Outstanding as of December 31, 2020:2022:
4,101,239,499 A ordinary shares with a nominal value of €0.07 each.
3,706,183,836 B6,970,731,057 ordinary shares with a nominal value of €0.07 each.
| | | | | | | | | | | | | | |
| Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. | þ | Yes | ☐ | No |
| If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. | ☐ | Yes | þ | No |
| Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. | þ | Yes | ☐ | No |
| Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). | þ | Yes | ☐ | No |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company.
See definition of “large"large accelerated filer,” “accelerated" "accelerated filer,”" and “emerging"emerging growth company”company" in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | | | | | | | | | | |
| Large accelerated filer | þ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | |
| | | | | Emerging growth company | ☐ | |
| If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. | | ☐ | |
† The term “new"new or revised financial accounting standards”standards" refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
| | | | | | | | | | | | | | | | | | | | |
| Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment on the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issues its audit report. | | þ | | | | |
| If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. | | ☐ | | | | |
| Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). | | ☐ | | | | |
| Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing: | | | U.S. GAAP | ☐ | |
| International Financial Reporting Standards as issued by the International Accounting Standards Board. | þ | | Other | ☐ | |
If “Other”"Other" has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. | Item 17 | ☐ | | Item 18 | ☐ | |
| If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). | | ☐ | Yes | | þ | No |
Copies of notices and communications from the Securities and Exchange Commission should be sent to:
Royal Dutch Shell plc
Carel van Bylandtlaan 30Shell Centre
2596 HR, The Hague, The NetherlandsLondon, SE1 7NA
United Kingdom
Attn: Linda M. Coulter
Tel. no: 011 31 70 377 9111Caroline J.M. Omloo
| | | | | |
| Cover | |
| Cross reference to Form 20-F | |
| Terms and abbreviations | |
| About this Report | |
| Powering Progress Strategy | |
| Our Strategy | |
| How we create value | |
| Powering Progress in action | |
| Outlook | |
| Our organisation | |
| Risk factors | |
| Progress on strategy - Year in review | |
| Performance indicators | |
| Generating shareholder value | |
| - Group Results | |
| - Financial Framework | |
| - Market overview | |
| - Integrated Gas | |
| - Upstream | |
| - Oil and gas information | |
| - Marketing | |
| - Chemicals and Products | |
| - Renewables and Energy Solutions | |
| - Corporate | |
| Our journey to net zero | |
| Respecting Nature | |
| Powering Lives | |
| Safety | |
| The Board of Shell plc | |
| Senior Management | |
| Board Activities | |
| Governance framework | |
| Nomination and Succession Committee | |
| Safety, Environment and Sustainability Committee | |
| Audit Committee Report | |
| Directors' Remuneration Report | |
| Annual Report on Remuneration | |
| Directors' Remuneration Policy | |
| Other regulatory and statutory information | |
| Report of Independent Registered Public Accounting Firm (ID: 1438) | |
| Consolidated Statement of Income | |
| Consolidated Statement of Comprehensive Income | |
| Consolidated Balance Sheet | |
| | | | | |
| Consolidated Statement of Changes in Equity | |
| Consolidated Statement of Cash Flows | |
| Notes to the Consolidated Financial Statements | |
1.Basis of preparation | |
2.Significant accounting policies, judgements and estimates | |
3.Changes to IFRS not yet adopted | |
4.Climate change and energy transition | |
5.Emission schemes and related environmental plans | |
6.Withdrawal from Russian oil and gas activities | |
7.Capital management | |
8.Segment information | |
9.Interest and other income | |
10.Interest expense | |
11.Goodwill and other Intangible assets | |
12.Property, plant and equipment | |
13.Joint ventures and associates | |
14.Investments in securities | |
15.Trade and other receivables | |
16.Inventories | |
17.Cash and cash equivalents | |
18.Assets held for sale | |
19.Trade and other payables | |
20.Debt | |
21.Leases | |
22.Taxation | |
23.Retirement benefits | |
24.Decommissioning and other provisions | |
25.Financial instruments | |
26.Share capital | |
27.Share-based compensation plans and shares held in trust | |
28.Other reserves | |
29.Dividends | |
30.Earnings per share | |
31.Legal proceedings and other contingencies | |
32.Employees | |
33.Directors and Senior Management | |
34.Auditor's remuneration | |
35.Post-balance sheet events | |
| |
| |
| Supplementary information - oil and gas (unaudited) | |
| Supplementary information - EU Taxonomy disclosure | |
| Report of Independent Registered Public Accounting Firm (ID: 1438) | |
| Statement of Income | |
| Statement of Comprehensive Income | |
| | | | | |
| Balance Sheet | |
| Statement of Changes in Equity | |
| Statement of Cash Flows | |
| Notes to the RDS Dividend Access Trust Financial Statements | |
1.The Trust | |
2.Basis of preparation | |
3.Significant accounting policies | |
4.Unclaimed dividends | |
5.Capital account | |
6.Distributions made | |
7.Related parties | |
8.Auditor's remuneration | |
| |
| Shareholder information | |
| Section 13(r) of the US Securities Exchange Act of 1934 disclosure | |
| Non-GAAP measures reconciliations | |
| Index to the exhibits | |
| Signatures | |
| Financial calendar | 337 |
| |
| |
INTENTIONALLY LEFT BLANK
INTENTIONALLY LEFT BLANK
| | | | | |
| CROSS REFERENCE TO FORM 20-F |
| |
| | | | | | | | | | | |
| Part I | | | Pages |
| Item 1. | Identity of Directors, Senior Management and Advisers | N/A |
| Item 2. | Offer Statistics and Expected Timetable | N/A |
| Item 3. | Key Information | |
| A. | Selected financial data[Reserved] | 10, 236 |
| B. | Capitalization and indebtedness | N/A |
| C. | Reasons for the offer and use of proceeds | N/A |
| D. | Risk factors | 18-2221-30 |
| Item 4. | Information on the Company | |
| A. | History and development of the company | 9, 11-17, 26-27, 30-42, 51-54, 57-65, 235, 240-24211,12-15, 18, 20, 33-38, 42-55, 64-81, 326, 330-334 |
| B. | Business overview | 11-27, 30-60, 65-72, 211-228, 23912-32, 42-81, 110-128, 242-244, 288-306, 324 |
| C. | Organizational structure | 11-13,20, Exhibit 8.1 |
| D. | Property, plants and equipment | 11-13, 18-22, 26-27, 30-60, 65-72, 211-22820-30, 34-35, 42-81, 110-128, 242-244, 288-306 |
| Item 4A. | Unresolved Staff Comments | N/A |
| Item 5. | Operating and Financial Review and Prospects | |
| A. | Operating results | 18-22, 26-64, 197-20121-38, 42-81, 273-279 |
| B. | Liquidity and capital resources | 12, 19, 26-27, 30-31, 36-37, 51-52, 57-58, 60-64, 174-176, 187-190, 198-20233-38, 43-44, 49, 65-66, 70-71, 78-79, 81, 220-230, 242-244, 250-262 |
| C. | Research and development, patents and licences, etc. | 13 16, 216, 221 | |
| D. | Trend information | 13, 18-43, 51-54, 57-59, 65-8621-55, 64-80, 82-128 |
| E. | Off-balance sheet arrangementsCritical Accounting Estimates | 64 | |
| F. | Tabular disclosure of contractual obligations | 63-64 |
| G. | Safe harbor | 8-9N/A |
| Item 6. | Directors, Senior Management and Employees | |
| A. | Directors and senior management | 89-95, 150-153129-138, 201-205 |
| B. | Compensation | 146-147, 209171-185, 190, 197-198, 286 |
| C. | Board practices | 89-136, 149-157129-190, 199-210 |
| D. | Employees | 86-88, 208-209119-124, 286 |
| E. | Share ownership | 88, 129, 150, 203, 236123-124, 139, 183, 202, 279-280, 326 |
| F. | Disclosure of a registrant's action to recover erroneously awarded compensation | N/A |
| Item 7. | Major Shareholders and Related Party Transactions | |
| A. | Major shareholders | 236327 | |
| B. | Related party transactions | 149, 173, 185-186, 209, 234200-201, 225, 255, 286, 324 |
| C. | Interests of experts and counsel | N/A |
| Item 8. | Financial Information | |
| A. | Consolidated Statements and Other Financial Information | 61-64, 158-210, 229-23435-38, 211-287, 320-325 |
| B. | Significant Changes | 210287 | |
| Item 9. | The Offer and Listing | |
| A. | Offer and listing details | 150, 153-156, 235326 | |
| B. | Plan of distribution | N/A |
| C. | Markets | 235326 | |
| | | | | | | | |
INTRODUCTION SHELL FORM 20-F 2020 | 2 | |
| | | | | | | | | | | |
| D. | Selling shareholders | N/A |
| E. | Dilution | N/A |
| F. | Expenses of the issue | N/A |
| Item 10. | Additional Information | |
| A. | Share capital | N/A |
| B. | Memorandum and articles of association | 151-156202-209 |
| C. | Material contracts | N/A |
| D. | Exchange controls | 237328 | |
| E. | Taxation | 237-238328-329 |
| F. | Dividends and paying agents | N/A |
| G. | Statement by experts | N/A |
| H. | Documents on display | 911 | |
| I. | Subsidiary Information | N/A |
| | | | | | | | | | | |
| J. | Annual Report to Security Holders | See Form 6-K, filed March 9, 2023 |
| Item 11. | Quantitative and Qualitative Disclosures About Market Risk | 61, 186, 198-20235, 256, 273-279 |
| Item 12. | Description of Securities Other than Equity Securities | |
| A. | Debt Securities | Exhibit 2.32.5 |
| B. | Warrants and Rights | N/A |
| C. | Other Securities | N/A |
| D. | American Depositary Shares | 235, 237,326-328, Exhibit 2.32.5 |
| | | |
| Part II | | | |
| Item 13. | | Defaults, Dividend Arrearages and Delinquencies | N/A |
| Item 14. | | Material Modifications to the Rights of Security Holders and Use of Proceeds | N/A |
| Item 15. | | Controls and Procedures | 148, 161-162, 229-230199, 215, 320-321 |
| Item 16. | | [Reserved] | |
| Item 16A. | | Audit committee financial expert | 94, 109, 151135, 155, 202 |
| Item 16B. | | Code of Ethics | 150201 |
| Item 16C. | | Principal Accountant Fees and Services | 115, 209, 234165, 287, 325 |
| Item 16D. | | Exemptions from the Listing Standards for Audit Committees | 151202 | |
| Item 16E. | | Purchases of Equity Securities by the Issuer and Affiliated Purchasers | 63, 148-14938, 199-200 |
| Item 16F. | | Change in Registrant’s Certifying Accountant | N/A |
| Item 16G. | | Corporate Governance | 150-157202-210 |
| Item 16H. | | Mine Safety Disclosure | N/A |
| Item 16I. | | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | N/A |
| | | |
| Part III | | | |
| Item 17. | | Financial Statements | N/A |
| Item 18. | | Financial Statements | 158-210, 229-234211-287, 320-325 |
| Item 19. | | Exhibits | 243335 |
| | | | | | | | |
| 8 | INTRODUCTION SHELL FORMShell | Form 20-F 20202022 | 3 | |
Terms and abbreviations
Currencies
| | | | | |
|
Currencies |
| $ | US dollar |
| € | euro |
| £ | sterling |
Units of measurement
Units of measurement | | | | | |
| acre | approximately 0.004 square kilometres |
| b(/d) | barrels (per day) |
boe(/d)
| barrels of oil equivalent (per day); natural gas volumes are converted into oil equivalent using a factor of 5,800 scf per barrel |
| GW | gigawatt |
kboe(/d)
| thousand barrels of oil equivalent (per day); natural gas volumes are converted into oil equivalent using a factor of 5,800 scf per barrel |
MMBtukWh | million British thermal unitskilowatt-hours |
| megajoule | a unit of energy equal to one million joules |
| MMBtu | million British thermal units |
| mb/d | million barrels per day |
| mtpa | million tonnes per annum |
| MW | megawatt |
| MWh | megawatt hours |
| per day | volumes are converted into a daily basis using a calendar year |
| scf(/d) | standard cubic feet (per day) |
ProductsTWh | terawatt hours |
Products
| | | | | |
| GTL | gas-to-liquids |
| LNG | liquefied natural gas |
| LPG | liquefied petroleum gas |
| NGL | natural gas liquids |
Miscellaneous
| | | | | |
|
Miscellaneous |
| ADS | American Depositary Share |
| AGM | Annual General Meeting |
| API | American Petroleum Institute |
| CCS | carbon capture and storage |
| CCS earnings | earnings on a current cost of supplies basis |
| CMF | carbon management framework |
CO2 | carbon dioxide |
| EMTN | Euro medium-term note |
| EPS | earnings per share |
| FCF | free cash flow |
| FID | final investment decision |
| GAAP | generally accepted accounting principles |
| GHG | greenhouse gas |
| HSSE | health, safety, security and environment |
| IAS | International Accounting StandardStandards |
| IEA | International Energy Agency |
| IFRS | International Financial Reporting Standard(s) |
IPIECA
| International Petroleum Industry Environmental Conservation Association |
| IOGP | International Association of Oil & Gas Producers |
IPIECA | International Petroleum Industry Environmental Conservation Association (global oil and gas industry association for environmental and social issues) |
| LTIP | Long-term Incentive Plan |
| NCF | Net Carbon Footprint |
| NCI | net carbon intensity |
| OECD | Organisation for Economic Co-operation and Development |
| OML | oil mining lease |
| OPEC | Organization of the Petroleum Exporting Countries |
| OPL | oil prospecting licence |
| PSC | production-sharing contract |
| PSP | Performance Share Plan |
| REMCO | Remuneration Committee |
| RT | real terms |
| SEC | US Securities and Exchange Commission |
| TCFD | Task Force on Climate-related Financial Disclosures |
| TRCF | total recordable case frequency |
| TSR | total shareholder return |
| WTI | West Texas Intermediate |
| | | | | | | | |
| 9 | INTRODUCTION SHELL FORMShell | Form 20-F 20202022 | 4 | |
| | | | | |
Cover | |
Cross reference to Form 20-F | |
Terms and abbreviations | |
About this report | |
Strategic Report | |
Selected financial data | |
Business overview | |
Strategy and outlook | |
Risk factors | |
Market overview | |
Summary of results | |
Performance indicators | |
Integrated gas | |
Upstream | |
Oil and gas information | |
Oil products | |
Chemicals | |
Corporate | |
Liquidity and capital resources | |
Environment and society | |
Climate change and energy transition | |
Our people | |
Governance | |
The Board of Royal Dutch Shell plc | |
Senior Management | |
Governance framework | |
Nomination and Succession Committee | |
Safety, Environment and Sustainability Committee | |
Audit Committee Report | |
Directors' Remuneration Report | |
Annual Report on Remuneration | |
Directors' Remuneration Policy | |
Governance | |
Financial Statements and Supplements | |
Report of Independent Registered Public Accounting Firm | |
Consolidated Financial Statements | |
Consolidated Statement of Income | |
Consolidated Statement of Comprehensive Income | |
Consolidated Balance Sheet | |
Consolidated Statement of Change in Equity | |
Consolidated Statement of Cash Flows | |
Notes to the Consolidated Financial Statements | |
| | | | | | | | |
INTRODUCTION SHELL FORM 20-F 2020 | 5 | |
| | | | | |
1.Basis of Preparation
| |
2.Significant Accounting Policies, Judgements and Estimates
| |
3.Changes to IFRS not yet adopted
| |
4.Segment Information
| |
5.Interest and Other Income
| |
6.Interest Expense
| |
7.Intangible Assets
| |
8.Property, Plant and Equipment
| |
9.Joint Ventures and Associates
| |
10.Investments in Securities
| |
11.Trade and Other Receivables
| |
12.Inventories
| |
13.Cash and Cash Equivalents
| |
14.Debt and Lease Arrangements
| |
15.Trade and Other Payables
| |
16.Taxation
| |
17.Retirement Benefits
| |
18.Decommissioning and Other Provisions
| |
19.Financial Instruments
| |
20.Share Capital
| |
21.Share-Based Compensation Plans and Share Held In Trust
| |
22.Other Reserves
| |
23.Dividends
| |
24.Earnings Per Share
| |
25.Legal Proceedings and Other Contingencies
| |
26.Employees
| |
27.Directors and Senior Management
| |
28.Auditor's Remuneration
| |
29.Emission Schemes and Related Environmental Plans
| |
30. Post-Balance Sheet Events | |
Supplementary information - oil and gas | |
Report of Independent Registered Public Accounting Firm | |
RDS Dividend Access Trust Financial Statements | |
Statement of Income | |
Statement of Comprehensive Income | |
Balance Sheet | |
Statement of Changes in Equity | |
Statement of Cash Flows | |
Notes to the RDS Dividend Access Trust Financial Statements | |
1.The Trust
| |
2.The Basis of Preparation
| |
3.Significant Accounting Policies
| |
4.Unclaimed Dividends
| |
5.Capital Account
| |
| | | | | | | | |
INTRODUCTION SHELL FORM 20-F 2020 | 6 | |
| | | | | |
6.Distributions Made
| |
7.Related Parties
| |
8.Audit's Remuneration
| |
Additional Information | |
Shareholder information | |
Section 13(r) of the US Securities Exchange Act of 1934 disclosure | |
Non-GAAP measures reconciliations | |
Index to the Exhibits | |
Signatures | |
Financial Calendar | |
| | | | | | | | |
INTRODUCTION SHELL FORM 20-F 2020 | 7 | |
This Form 20-F as filed with the US Securities and Exchange Commission for the year ended December 31, 20202022 (this Report)"Report") presents the Consolidated Financial Statements of Royal Dutch Shell plc (the Company)"Company") and its subsidiaries (collectively referred to as Shell)"Shell") (pages 163-210)216-287) and the Financial Statements of the Royal Dutch Shell Dividend Access Trust (pages 231-234)322-325). Except for these Financial Statements, the numbers presented throughout this Report may not sum precisely to the totals provided and percentages may not precisely reflect the absolute figures due to rounding. Cross-references to Form 20-F are set out on pages 2-37-8 of this Report.
The financial statementsConsolidated Financial Statements of Shell plc and its subsidiaries contained in this Report have been prepared in accordance with international accounting standards in conformity with the requirements of the UK Companies Act 2006 (the "Act"), and therefore in accordance with UK-adopted international accounting standards. As applied to Shell, there are no material differences from International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB); therefore, the Consolidated Financial Statements have been prepared in accordance with IFRS as issued by the IASB. IFRS as defined above includes interpretations issued by the IFRS Interpretations Committee. Financial reporting terms used in this Report are in accordance with IFRS.
This Report contains certain following forward-looking non-GAAP measures such as cash capital expenditure and divestments.expenditure. We are unable to provide a reconciliation of these forward-looking Non-GAAPnon-GAAP measures to the most comparable GAAP financial measures because certain information needed to reconcile those Non-GAAPnon-GAAP measures to the most comparable GAAP financial measures is dependent on future events some of which are outside the control of the company,Shell, such as oil and gas prices, interest rates and exchange rates. Moreover, estimating such GAAP measures with the required precision necessary to provide a meaningful reconciliation is extremely difficult and could not be accomplished without unreasonable effort. Non-GAAP measures in respect of future periods which cannot be reconciled to the most comparable GAAP financial measure are calculated in a manner which is consistent with the accounting policies applied in Royal Dutch Shell plc’s consolidated financial statements.
The companiesentities in which Royal Dutch Shell plc directly or indirectly owns investments are separate legal entities. In addition to the term “Shell”"Shell", in this Report “Shell Group”"Shell Group", “we”"Group", “us”"we", "us" and “our”"our" are also used to refer to the Company and its subsidiaries in general or to those who work for them. These terms are also used where no useful purpose is served by identifying the particular entity or entities. “Subsidiaries”"Subsidiaries", "Shell subsidiaries" and “Shell subsidiaries”"Shell companies" refer to those entities over which the Company has control, either directly or indirectly. Entities and unincorporated arrangements over which Shell has joint control are generally referred to as “joint ventures”"joint ventures" and “joint operations”"joint operations", respectively. “Joint ventures”"Joint ventures" and “joint operations”"joint operations" are collectively referred to as “joint arrangements”"joint arrangements". Entities over which Shell has significant influence but neither control nor joint control are referred to as “associates”"associates". The term “Shell interest”"Shell interest" is used for convenience to indicate the direct and/or indirect ownership interest held by Shell in an entity or unincorporated joint arrangement, after exclusion of all third-party interest. Shell subsidiaries’ data include their interests in joint operations.
As used in this Report, “Accountable”"Accountable" is intended to mean:mean: required or expected to justify actions or decisions. The Accountable person does not necessarily implement the action or decision (implementation is usually carried out by the person who is Responsible) but must organise the implementation and verify that the action has been carried out as required. This includes obtaining requisite assurance from Shell companies that the framework is operating effectively. “Responsible”"Responsible" is intended to mean: required or expected to implement actions or decisions. Each Shell company and Shell operatedShell-operated venture is responsible for its operational performance and compliance with the Shell General Business Principles, Code of Conduct, Statement on Risk Management and Risk Manual, and Standards and Manuals.Manuals. This includes responsibility for the operationalisation and implementation of Shell Group strategies and policies.
Shell’s operating plan, outlook and budgets are forecasted for a ten-year10-year period and are updated every year. They reflect the current economic environment and what we can reasonably expect to see over the next ten years. Accordingly, they reflect our Scope 1, Scope 2 and NCI targets over the next 10 years. However, Shell’s operating plans outlooks, budgets and pricing assumptions do notcannot reflect our 2050 net-zero emissions target.target and 2035 NCI target, as these targets are currently outside our planning period. In the future, as society moves towards net-zero emissions, we expect Shell’s operating plans outlooks, budgets and pricing assumptions to reflect this movement.
However, if society is not net zero in 2050 as of today, there would significant risk that Shell may not meet this target.
Shell’s “Net"Net Carbon Footprint”Intensity" referred to in this Report includesinclude Shell’s carbon emissions from the production of our energy products, our suppliers’ carbon emissions in supplying energy for that production, and our customers’ carbon emissions associated with their use of the energy products we sell. Shell only controls its own emissions. The use of the term "Net Carbon Footprint”Intensity" is for convenience only and not intended to suggest these emissions are those of Shell plc or its subsidiaries.
Except where indicated, the figures shown in the tables in this Report are in respect of subsidiaries only, without deduction of any non-controlling interest. However, the term “Shell share”"Shell share" is used for convenience to refer to the volumes of hydrocarbons that are produced, processed or sold through subsidiaries, joint ventures and associates. All of a subsidiary’s production, processing or sales volumes (including the share of joint operations) are included in the Shell share, even if Shell owns less than 100% of the subsidiary. In the case of joint ventures and associates, however, Shell-share figures are limited only to Shell’s entitlement. In all cases, royalty payments in kind are deducted from the Shell share.
Except where indicated, the figures shown in this Report are stated in US dollars. As used herein all references to “dollars”"dollars" or “$”"$" are to the US currency.
This Report contains forward-looking statements (within the meaning of the US Private Securities Litigation Reform Act of 1995) concerning the financial condition, results of operations and businesses of Shell. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements are statements of future expectations that are based on management’s current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in these statements. Forward-looking statements include, among other things, statements concerning the potential exposure of Shell to market risks and statements expressing management’s expectations, beliefs, estimates, forecasts, projections and assumptions. These forward-looking statements are identified by their use of terms and phrases such as “aim”"aim", “ambition”"ambition", “anticipate”"anticipate", “believe”"believe", “could”"could", “estimate”"estimate", “expect”"expect", “goals”"goals", “intend”"intend", “may”"may", “objectives”"milestones", “outlook”"objectives", “plan”"outlook", “probably”"plan", “project”"probably", “risks”"project", “schedule”"risks", “seek”"schedule", “should”"seek", “target”"should", “will”"target", "will" and similar terms and phrases. There are a number of factors that could affect the future operations of Shell and could cause those results to differ materially from those expressed in the forward-looking statements included in this Report, including (without limitation): (a) price fluctuations in crude oil and natural gas; (b) changes in demand for Shell’s products; (c) currency fluctuations; (d) drilling and production results; (e) reserves estimates; (f) loss of market share and industry competition; (g) environmental and physical risks; (h) risks associated with the identification of suitable potential acquisition properties and targets, and successful negotiation and completion of such transactions; (i) the risk of doing business in developing countries and countries subject to international sanctions; (j) legislative, judicial, fiscal and regulatory developments including regulatory measures addressing climate change; (k) economic and financial market conditions in various countries and regions; (l) political risks, including the risks of expropriation and renegotiation of the terms of contracts with governmental entities, delays or advancements in the approval of projects and delays in the reimbursement for shared costs; (m) risks associated with the impact of pandemics, such as the COVID-19 (coronavirus) outbreak; and (n) changes in trading conditions. Also see “Risk factors”"Risk factors" on pages 18-2221-30 for additional risks and further discussion. No assurance is provided that future dividend payments will match or exceed previous dividend payments. All forward-lookingforward-
About this Report continued
looking statements contained in this Report are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Readers should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of this Report. Neither the Company nor any of its subsidiaries undertake any obligation to publicly update or revise any forward-looking statement as a result of new information, future events or other information. In light of these risks, results could differ materially
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INTRODUCTION SHELL FORM 20-F 2020 | 8 | |
from those stated, implied or inferred from the forward-looking statements contained in this Report.
This Report contains references to Shell’s website, the Shell Sustainability Report, Energy Transition Progress Report, Tax Contribution Report, Industry Associations Climate Review and our report on Payments to Governments. These references are for the readers’ convenience only. Shell is not incorporating by reference into this reportReport any information posted on www.shell.com or in the Shell Sustainability Report, Tax Contribution Report, Industry Associations Climate Review or our report on Payments to Governments. The content of any other websites referred to in this Report does not form part of this Report.
Shell V-Power and Shell LiveWire are Shell trademarks.
DOCUMENTS ON DISPLAY
The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. All of the SEC filings made electronically by Shell are available to the public on the SEC website at www.sec.gov (commission file number 001-32575).
This Report is also available, free of charge, at www.shell.com/investors/financial-reporting/sec-filings or at the offices of Shell in London, United Kingdom and The Hague, the Netherlands and London, United Kingdom.Netherlands. Copies of this Report also may be obtained, free of charge, by mail.
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INTRODUCTION SHELL FORM 20-F 2020 | 9 | |
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STRATEGIC REPORT |
SELECTED FINANCIAL DATA |
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The selected financial data set out below are derived, in part, from the “Consolidated Financial Statements”. These data should be read in conjunction with the “Consolidated Financial Statements” and related Notes, as well as with this Strategic Report.
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| Consolidated Statement of Income and of Comprehensive Income data | $ million |
| 2020 | 2019 | 2018 | 2017 | 2016 |
| Revenue | 180,543 | | 344,877 | | 388,379 | | 305,179 | | 233,591 | |
| (Loss)/income for the period | (21,534) | | 16,432 | | 23,906 | | 13,435 | | 4,777 | |
| Income attributable to non-controlling interest | 146 | | 590 | | 554 | | 458 | | 202 | |
| (Loss)/income attributable to Royal Dutch Shell plc shareholders | (21,680) | | 15,842 | | 23,352 | | 12,977 | | 4,575 | |
| Comprehensive (loss)/income attributable to Royal Dutch Shell plc shareholders | (23,512) | | 13,773 | | 24,475 | | 18,828 | | (1,374) | |
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| Consolidated Balance Sheet data | $ million |
| 2020 | 2019 | 2018 | 2017 | 2016 |
| Total assets | 379,268 | | 404,336 | | 399,194 | | 407,097 | | 411,275 | |
| Total debt [A] | 108,014 | | 96,424 | | 76,824 | | 85,665 | | 92,476 | |
| Net debt [A] | 75,386 | | 79,093 | | 51,428 | | 65,944 | | 73,346 | |
| Share capital | 651 | | 657 | | 685 | | 696 | | 683 | |
| Equity attributable to Royal Dutch Shell plc shareholders | 155,310 | | 186,476 | | 198,646 | | 194,356 | | 186,646 | |
| Non-controlling interest | 3,227 | | 3,987 | | 3,888 | | 3,456 | | 1,865 | |
[A] Total debt and net debt figures for 2018 and earlier periods are on an IAS 17 basis.
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| Consolidated Statement of Cash Flows data [A] | $ million |
| 2020 | 2019 | 2018 | 2017 | 2016 |
| Cash flow from operating activities | 34,105 | | 42,178 | | 53,085 | | 35,650 | | 20,615 | |
| Capital expenditure | 16,585 | 22,971 | 23,011 | 20,845 | | 22,116 | |
| Cash flow from investing activities | 13,278 | 15,779 | 13,659 | 8,029 | | 30,963 | |
| Cash dividends paid to Royal Dutch Shell plc shareholders | 7,424 | 15,198 | 15,675 | 10,877 | | 9,677 | |
| Repurchases of shares | 1,702 | 10,188 | 3,947 | — | | — | |
[A] With the exception of Cash flow from operating activities, which are cash inflows, all other items are cash outflows.
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| Earnings per share | $ |
| 2020 | 2019 | 2018 | 2017 | 2016 |
| Basic earnings per €0.07 ordinary share | (2.78) | | 1.97 | | 2.82 | | 1.58 | | 0.58 | |
| Diluted earnings per €0.07 ordinary share | (2.78) | | 1.95 | | 2.80 | | 1.56 | | 0.58 | |
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| Dividend per share | $ |
| 2020 | 2019 | 2018 | 2017 | 2016 |
| Dividend per share | 0.65 | | 1.88 | | 1.88 | | 1.88 | | 1.88 | |
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| Shares | Million |
| 2020 | 2019 | 2018 | 2017 | 2016 |
| Basic weighted average number of A and B shares | 7,795.6 | | 8,058.3 | | 8,282.8 | | 8,223.4 | | 7,833.7 | |
| Diluted weighted average number of A and B shares | 7,795.6 | | 8,112.5 | | 8,348.7 | | 8,299.0 | | 7,891.7 | |
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INTRODUCTION SHELL FORM 20-F 2020 | 10 | |
OUR ORGANISATION
We describe below how our activities are organised. Integrated Gas, Upstream and Downstream focus on our three business pillars (see “Strategy and outlook” on page 14). Our Projects & Technology organisation manages the delivery of Shell’s major projects and drives research and innovation to develop new technology solutions.
INTEGRATED GAS (INCLUDING NEW ENERGIES)
Integrated Gas manages LNG activities and the conversion of natural gas into GTL fuels and other products. It includes natural gas exploration and extraction, and the operation of upstream and midstream infrastructure
necessary to deliver gas to market. It markets and trades natural gas, LNG, electricity and carbon-emission rights and also markets and sells LNG as a fuel for heavy-duty vehicles and marine vessels.
In New Energies, which was rebranded to Renewables and Energy Solutions in 2021, we are exploring emerging opportunities and investing in those where we believe sufficient commercial value is available. We focus on new fuels for transport, such as advanced biofuels, hydrogen and charging for battery-electric vehicles; and power, including from natural gas and low-carbon sources such as wind and solar.
UPSTREAM
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STRATEGIC REPORT SHELL FORM 20-F 2020 | 11 | |
Upstream manages the exploration for and extraction of crude oil, natural gas and natural gas liquids. It also markets and transports oil and gas, and operates infrastructure necessary to deliver them to market.
DOWNSTREAM
Downstream manages different Oil Products and Chemicals activities as part of an integrated value chain that trades and refines crude oil and other feedstocks into a range of products which are moved and marketed around the world for domestic, industrial and transport use. The products we sell include gasoline, diesel, heating oil, aviation fuel, marine fuel, biofuel, lubricants, bitumen and sulphur. We also produce and sell petrochemicals for industrial use worldwide. Our Downstream organisation also manages Oil Sands activities (the extraction of bitumen from mined oil sands and its conversion into synthetic crude oil).
PROJECTS & TECHNOLOGY
Our Projects & Technology organisation manages the delivery of our major projects and drives research and innovation to develop new technology solutions. It provides technical services and technology capability for our Integrated Gas, Upstream and Downstream activities. It is also responsible for providing functional leadership across Shell in the areas of safety and environment, contracting and procurement, wells activities and greenhouse gas management.
Our future hydrocarbon production depends on the delivery of large and integrated projects (see “Risk factors” on pages 18-22). Systematic management of life-cycle technical and non-technical risks is in place for each opportunity, with assurance and control activities embedded throughout the project life cycle. We focus on the cost-effective delivery of projects through commercial agreements, supply-chain management, and construction and engineering productivity through effective planning and simplification of delivery processes. Development of our employees’ project management competencies is underpinned by project principles, standards and processes. A dedicated competence framework, training, standards and processes exist for various technical disciplines. We also provide governance support for our non-Shell-operated ventures or projects.
SEGMENTAL REPORTING
Our reporting segments are Integrated Gas, Upstream, Oil Products, Chemicals and Corporate. Integrated Gas, Upstream, Oil Products and Chemicals include their respective elements of our Projects & Technology organisation. The Corporate segment comprises our holdings and treasury organisation, self-insurance activities, and headquarters and central functions. See Note 4 to the “Consolidated Financial Statements” on pages 177-180.
With effect from January 1, 2020, additional contracts were classified as held for trading purposes and consequently revenue is reported on a net rather than gross basis.
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Revenue by business segment (including inter-segment sales) [A] | | $ million |
| 2020 | 2019 | 2018 |
| Integrated Gas | | | |
| Third parties | 33,287 | | 41,322 | | 43,764 | |
| Inter-segment | 3,410 | | 4,280 | | 5,031 | |
| Total | 36,697 | | 45,602 | | 48,795 | |
| Upstream | | | |
| Third parties | 6,767 | | 9,482 | | 9,459 | |
| Inter-segment | 21,564 | | 35,735 | | 37,125 | |
| Total | 28,330 | | 45,217 | | 46,584 | |
| Oil Products | | | |
| Third parties | 128,717 | | 280,460 | | 316,409 | |
| Inter-segment | 6,213 | | 7,819 | | 10,613 | |
| Total | 134,930 | | 288,279 | | 327,022 | |
| Chemicals | | | |
| Third parties | 11,721 | | 13,568 | | 18,704 | |
| Inter-segment | 2,850 | | 3,917 | | 4,864 | |
| Total | 14,571 | | 17,485 | | 23,568 | |
| Corporate | | | |
| Third parties | 51 | | 45 | | 43 | |
| Total | 51 | | 45 | | 43 | |
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| Revenue by geographical area (excluding inter-segment sales) [A] | | $ million |
| 2020 | 2019 | 2018 |
| Europe | 50,138 | | 98,455 | | 118,960 | |
| Asia, Oceania, Africa | 65,139 | | 139,916 | | 153,716 | |
| USA | 50,856 | | 83,212 | | 89,876 | |
| Other Americas | 14,410 | | 23,294 | | 25,827 | |
| Total | 180,543 | | 344,877 | | 388,379 | |
[A] Historical comparatives are based on prevailing foreign exchange rates for respective years.
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STRATEGIC REPORT SHELL FORM 20-F 2020 | 12 | |
TECHNOLOGY AND INNOVATION
Technology and innovation are essential to our efforts to meet the world’s energy needs in a competitive way. If we do not develop the right technology, do not have access to it or do not deploy it effectively, this could have a material adverse effect on the delivery of our strategy and our licence to operate (see “Risk factors” on pages 18-22). We continually look for technologies and innovations of potential relevance to our business. Our Chief Technology Officer oversees the development and deployment of new and differentiating technologies and innovations across Shell, seeking to
align business and technology requirements throughout our technology maturation process.
In 2020, research and development expenses were $907 million, compared with $962 million in 2019, and $986 million in 2018. Our main technology centres are in India, the Netherlands and the USA, with other centres in Brazil, China, Germany, Oman, and Qatar. A strong patent portfolio underlies the technology that we employ in our various businesses. In total, we have around 8,480 granted patents and pending patent applications.
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| 11 | STRATEGIC REPORT SHELL FORMShell | Form 20-F 20202022 |
Powering
Progress strategy
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| Who we are | 13 | Our stakeholders | |
| Shell is a global group of energy and petrochemical companies, employing 93,000 [A] people and withoperations in more than 70 countries. We use advanced technologies and take an innovative approach as we seek to help the world build a sustainable energy future. Shell is a customer-focused organisation, serving more than 1 million commercial and industrial customers, and around 32 million customers daily at more than 46,000 Shell-branded retail service stations. [A]At December 31, 2022. | | ▪Our investors ▪Our customers ▪Our employees/workforce/pensioners ▪Our strategic partners/suppliers ▪Communities ▪NGOs/civil society stakeholders/academia/think-tanks ▪Governments/regulators
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| | See "Respecting nature", "Powering lives" and "Governance". | |
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| Our purpose | |
| To power progress together by providing more and cleaner energy solutions. | | |
| | See "Powering lives - Our people". | |
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STRATEGY AND OUTLOOK
OUR STRATEGY
In February 2021, Shell launched Powering Progress which sets out our strategy to accelerate the transition of our business to net-zero emissions, in step with society, purposefully and profitably.
CONTEXT
Our strategy is founded on our outlook for the energy sector and the chance to grasp opportunities arising from the substantial changes in the world around us. We believe the rising standard of living of a growing global population will continue to drive demand for energy for years to come. The world will need to find a way to meet this growing demand, while transitioning to a net-zero emissions energy system to counter climate change.
POWERING PROGRESS
In February 2021, Shell launched Powering Progress, which sets out our strategy to accelerate the transition of our business to net-zero emissions, in step with society, purposefully and profitably.
We will build a strong and resilient business by putting customers at the centre of our strategy, innovating the products and solutions customers need on their journey to net zero. This includes partnering with others to reduce carbon emissions, especially in sectors that are hard to decarbonise. We aim to deliver value through our integrated assets and supply chains, optimising value and managing risk for Shell and our customers as we produce, buy, trade, transport and sell energy products across the world. This is a strategy that combines our financial strength and discipline with a dynamic approach to our portfolio of assets and products, so that we are ready to seize the significant opportunities that exist for us in the energy transition.
Powering Progress generates value for our shareholders, customers and wider society. It has four main goals which integrate sustainability with our business strategy. These goals support Shell's purpose, to power progress together by providing more and cleaner energy solutions. They are underpinned by our core values of honesty, integrity and respect for people, and our focus on safety.
Generating shareholder value: We aim to create the conditions for share price appreciation by preparing our business for the future and accessing the opportunities that the future of energy holds. We will do this while providing sustainable distributions today through our progressive dividend policy. The changing energy landscape means that Shell must take a dynamic approach to its portfolio of assets and products. That means continuing to provide the energy the world needs today, and increasing our investments in cleaner energy. We will keep a disciplined approach to capital investment, and a
strong balance sheet, so that our organisation remains strong and resilient. In this way, we will achieve our aim of being a compelling investment case for our shareholders.
Achieving net-zero emissions: Tackling climate change is an urgent challenge. That is why we have set a target to become a net-zero emissions energy business by 2050, in step with society. We are transforming our
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| 12 | STRATEGIC REPORT SHELL FORMShell | Form 20-F 20202022 |
Strategic Report | Powering Progress strategy
Our strategy
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| Our strategy | 14 | We work with sectors that would benefit from the expertise and experience that energy companies can provide to help them find a path to net-zero emissions. Aviation is one of these sectors. Together with our customers, we are working on changing energy demand and developing ways to help increase the use of low-carbon fuels and decrease carbon emissions from this sector. Meanwhile, on the supply side, in Rotterdam in the Netherlands, Shell is building an 820,000-tonnes-a-year biofuels facility. This is expected to be among the largest in Europe, producing sustainable aviation fuel and renewable diesel made from waste and certified sustainable vegetable oils. Powering Progress Our Powering Progress strategy comprises: generating shareholder value, achieving net-zero emissions, powering lives and respecting nature. It is a strategy that integrates sustainability with our pursuit of value through high performance. Our purpose is to power progress together by providing more and cleaner energy solutions. We also expect our employees and contractors to maintain Shell's focus on safety and abide by our core values of honesty, integrity and respect for people. Powering Progress is a strategy that combines our financial strength and discipline with a dynamic approach to our portfolio of assets and products, so we can seize the opportunities of the energy transition. Shell transforms its portfolio continuously to better meet the clean energy needs of its customers today and in the future. Achieving our strategy depends on how we respond to competitive forces. We assess the external environment – the markets and margins, and the underlying economic, political, social and environmental drivers that shape them – to evaluate commercial opportunities and potential new business models. We regularly review the markets where we operate, and assess our competitive position by analysing trends, uncertainties, and the strengths and weaknesses of our traditional and non-traditional competitors. We maintain business plans that focus on actions and capabilities to create and sustain competitive advantage. We maintain a risk management framework that regularly assesses our response to, and appetite for, identified risks. Our Executive Directors’ remuneration is linked to the successful delivery of our strategy, based on performance indicators that we consider to be aligned with shareholder interests. Long-term incentives form the majority of the Executive Directors’ remuneration for above-target performance. In 2022, the Long-term Incentive Plan (LTIP) included conditions relating to cash generation, capital discipline, value created for shareholders, and energy transition. | |
| Powering Progress is our strategy to generate value for shareholders and become a net-zero emissions business by 2050. It is designed to help customers decarbonise and bring benefits for wider society, while respecting nature. Our strategy is underpinned by our focus on safety, and our core values of honesty, integrity and respect for people. Context Climate change is one of the biggest challenges the world faces today. In 2022, geopolitical events showed that a secure supply of energy is crucial, and a growing global population is likely to continue to drive demand for energy, including oil and gas, for years to come. This necessitates society's rapid transition to a low-carbon, multi-source energy system. Shell supports the most ambitious goal of the Paris Agreement, which is to limit the rise in global average temperature this century to 1.5 degrees Celsius above pre-industrial levels. To achieve this, urgent action is needed to reduce emissions across power, transport, buildings, and hard-to-abate industries, such as steel and concrete. Around 140 countries and more than 2,000 companies and organisations have made commitments to get to net-zero emissions by 2050. Shell seeks to play its part, purposefully and profitably, in the energy transition, while helping to maintain energy security. We are building a resilient business by putting customers at the centre of our strategy, and innovating the products and solutions they need. Our integrated assets and supply chains are designed to deliver value for our shareholders and customers. We aim to manage risk for Shell and our customers as we produce, buy, trade, transport and sell energy products and solutions worldwide. The energy transition brings risks, involves confronting complex obstacles, and poses great challenges. The energy transition also offers significant opportunities. We seek to work with our customers to identify available, affordable and low- and zero-carbon energy solutions that meet their changing needs and to help decarbonise the energy system. There will be no single solution that fits all customers. Instead, there will be variations with differing approaches and rates of progress across countries, sectors and markets. Customers’ use of the energy we sell generates most emissions. Helping our customers get to net zero will also reduce our net carbon intensity, and the average amount of greenhouse gas emissions we produce for every unit of energy that we sell and that is used by our customers. | | |
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business and finding new opportunities – selling more low-carbon products such as biofuels, electricity generated by solar and wind power, hydrogen and charging for electric vehicles. We are partnering with customers, businesses and governments to address the energy transition and reduce emissions sector by sector. This includes in sectors that are harder to decarbonise, such as aviation, shipping, commercial road freight, power, heating and certain parts of industry. We also support government policies to reduce carbon emissions in the economy, sector by sector.
Powering lives: Shell helps to power lives and livelihoods by providing vital energy for homes, businesses and transport. The supply of affordable, reliable and sustainable energy is also crucial for addressing global challenges, including those related to poverty and inequality. Our operations support livelihoods by providing employment and training in the communities where we operate. We are working to become one of the most diverse and inclusive companies in the world, a place where everyone feels valued and respected. We are focusing on four areas: gender, race and
ethnicity, LGBT+ and disability. We respect human rights in all parts of our business.
Respecting nature: We are stepping up our environmental ambitions, shaping them to reflect the UN Sustainable Development Goals. Our environmental ambitions include protecting and enhancing biodiversity. We are also focusing on using water and other resources more efficiently across all our activities, reusing as much of them as we can. We are reducing waste from our operations and increasing recycling of plastics. We are helping to improve air quality by reducing emissions from our operations and providing cleaner ways to power transport and industry.
Working with our partners and suppliers and developing new collaborations is key. We will join with others across industry, governments, our customers and supply chains to protect nature.
BUSINESS PILLARS
Powering Progress is a strategy that combines our financial strength and discipline with a dynamic approach to our portfolio of assets and products, so that we are ready to seize the significant opportunities that exist for us in the energy transition. Shell will reshape its portfolio of assets and products to meet the cleaner energy needs of its customers in the coming decades. We will deliver our strategy through three business pillars: Growth, Transition, and Upstream.
Through these three areas, we are creating flexibility in investment opportunities while enabling growth in our customer-facing businesses. Our strategy delivers additional value through trading and optimisation.
Achieving our strategy depends on how we respond to competitive forces. We continually assess the external environment – the markets and the underlying economic, political, social and environmental drivers that shape them – to evaluate changes in competitive forces and business models. We use multiple future scenarios to assess the resilience of our strategy. We regularly review the markets where we operate, assessing our competitive
position by analysing trends, uncertainties, and the strengths and weaknesses of our traditional and non-traditional competitors.
To support the delivery of our strategy, we are redesigning Shell to put customers at the centre. That means organising ourselves to help economic sectors to decarbonise, by providing integrated, lower-carbon energy solutions, sector by sector.
We maintain business strategies and plans that focus on actions and capabilities to create and sustain competitive advantage. We maintain a risk management framework that regularly assesses our response to, and risk appetite for, identified risks.
See "Risk factors" on page 18 and "Governance" on page 89.
Our Executive Directors’ remuneration is linked to the successful delivery of our strategy, based on performance indicators that are aligned with shareholder interests. Long-term incentives form the majority of the Executive Directors’ remuneration for above-target performance. In 2020, the Long-term Incentive Plan (LTIP) included cash generation, capital
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Strategic Report | Powering Progress strategy
Our strategy continued
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| Generating shareholder value | 15 |
| Powering Progress is designed to pursue shareholder value, make disciplined and focused investments to grow our businesses, and help Shell become even more competitive and resilient. We aim to create the conditions for share price appreciation by optimising the performance of our businesses. We are also preparing for the future by seizing the opportunities presented by the energy transition. Shell takes a dynamic approach to its portfolio by continuing to provide the energy the world needs and increasing our investments in low- and zero-carbon energy products and services. We aim to generate value for shareholders by providing sustainable distributions through our progressive dividend policy and share buyback programmes. In 2022, we generated $68.4 billion cash flow from operating activities. Our cash capital expenditure was $24.8 billion and total shareholder distributions amounted to $25.8 billion, whilst we reduced our net debt to $44.8 billion as at December 31, 2022. We completed our share buyback programmes in 2022 with a combined value of $18.4 billion. We increased our dividend to $0.25 per share in the first quarter of 2022 and announced a 15% increase for the fourth quarter of 2022. Total shareholder distributions were in excess of 35% of cash flow from operating activities. We seek to maintain a strong balance sheet and apply a disciplined approach to capital investment. In this way, we believe we will achieve our aim of building a compelling investment case for our shareholders.
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| Achieving net-zero emissions | |
| We have a long-term target to become a net-zero emissions energy business by 2050. The target covers emissions from our operations (Scope 1), emissions from the energy we buy to run our operations (Scope 2), and emissions from our customers’ use of the energy products we sell (Scope 3).
We also have targets to reduce the net carbon intensity of the energy products we sell, with 2016 as our baseline year. These include targets of a 6-8% reduction by the end of 2023, a 9-12% reduction by the end of 2024, and a 9-13% reduction by the end of 2025. Our medium- and longer-term targets are to reduce by 20% by 2030, by 45% by 2035 and 100% by 2050. We achieved our target of a 3-4% reduction by the end of 2022. We also have an absolute emissions reduction target of 50% on all Scope 1 and 2 emissions under Shell’s operational control by 2030 on a net basis. By the end of 2022, Shell had reduced its absolute Scope 1 and 2 emissions by 30%.
We place a high priority on combating methane emissions linked to oil and gas, and we have set a target to keep our methane emissions intensity for operated oil and gas assets (including liquefied natural gas) below 0.2% by 2025. In 2022, methane emissions intensity for operated facilities with marketing gas was 0.05%.
We are transforming our business and selling more low-carbon products and services, such as electricity generated by solar and wind power, hydrogen, biofuels, and charging for electric vehicles. We are helping sectors to decarbonise by working collaboratively with customers, businesses and governments.
Shell engages with governments and other stakeholders, such as international organisations and industry associations, to support robust policies, legislation and regulations designed to accelerate the transition to net-zero emissions. | |
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Our strategy continued
discipline, | | | | | | | | |
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| Powering lives | |
| Shell is dedicated to making a positive impact on the lives of people around the world. We work to improve people’s lives through our products and activities, and by contributing to local communities and championing inclusion. We help to power lives and livelihoods by providing vital energy for homes, businesses and transport. Millions of people live without access to affordable, reliable and sustainable energy, and this has been exacerbated by the geopolitical events of 2022. Energy supply is crucial for addressing global challenges, including those related to poverty and inequality. In line with our Powering Progress strategy, Shell has been striving to bring reliable electricity to those in emerging markets who do not yet have it. We support livelihoods by providing employment and training in the communities where we operate. In addition, we buy and sell goods and services and generate revenues for governments through the taxes and royalties we pay and the sales taxes we collect on their behalf. This helps governments fund health care, education, transport and other essential services. Shell is working to become one of the most diverse and inclusive organisations in the world, a place where everyone feels valued and respected. We are focusing on four areas: gender; race and ethnicity; lesbian, gay, bisexual and transgender (LGBT+); and disability. We seek to respect human rights in all parts of our business. In 2021, Shell published a commitment to worker welfare as part of our approach to human rights and implemented the new Worker Welfare Control Framework requirements based on principles developed by the global, business-led coalition Building Responsibly. These requirements became mandatory in 2022 for Shell and our contractors. | |
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| Respecting nature | |
| Our environmental ambitions include protecting and enhancing biodiversity. We are also focused on using water and other resources more efficiently and reusing as much of them as we can. We are reducing waste from our operations and increasing the recycling of plastics. We are committed to recycling plastic waste in our chemical facilities. Shell’s proprietary technology to improve the quality of pyrolysis oil is a key process in delivering on this ambition. Pyrolysis is a technique whereby hard-to-recycle plastics are broken down into raw materials. We have invested in our first pyrolysis oil upgrader unit at the Shell Energy and Chemicals Park Singapore. In Canada, Shell has been working with the people of Dawson Creek city to manage water use at our nearby natural gas operations at Groundbirch. We worked with the city council to open a plant that treats municipal waste water that would otherwise be discharged to a local river. Our Groundbirch site recycles around 98% of water used for its operations. Across Shell, we are helping to improve air quality by reducing emissions from our operations and providing clean ways to power transport and industry. Our purchasing policies include requirements that reflect our environmental framework and take the energy efficiency, material efficiency and sustainability of products into consideration in our purchases. | |
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Strategic Report | Powering Progress strategy
How we create value created
We aim to meet the world’s growing need for more and sustainable energy solutions in ways that are economically, environmentally and socially responsible. Our Powering Progress strategy is designed to create value for our shareholders, customers and an energy transition condition. For 2021, the weighting of the energy transition condition in the LTIP has been increased to 20%.wider society.
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| Our inputs [A] | | | | Business activities |
| Financial capital Equity attributable to Shell plc shareholders ($ billion) [B]: | | | | |
| 1902021: 172 | | | |
| Non-current debt ($ billion) [B]: | | | |
| 75 2021: 81 | | | |
| Net debt ($ billion) [B][C]: | | | |
| 45 2021: 53 | | | |
| Average capital employed ($ billion) [B]: | | | |
| 270 2021: 265 | | | |
| Cash capital expenditure ($ billion) [C]: | | | |
| 25 2021: 20 | | | |
| Operations Refining and chemicals availability: | | | |
| 96% 2021: 96% | | | |
| Oil & gas production available for sale (kboe/d): | | | |
| 2,864 2021: 3,237 | | | |
| LNG liquefaction volumes (million tonnes): | | | |
| 30 2021: 31 | | | |
| Human capital Number of employees (thousands) [B][D]: | | | |
| 93 2021:83 | | | |
| Number of training days (thousands): | | | |
| 266 2021: 271 | | | |
| Relationships Customers, joint arrangements, government relations, suppliers. Operating countries [B]: | | | |
| >70 2021: >70 | | | |
| Intellectual capital Research and development expenses ($ million): | | | |
| 1,075 2021: 815 | | | |
| Number of patents [B][E]: | | | |
| 10,788 2021: 8,532 | | | |
| Natural resources Proved oil and gas reserves (million boe) [B]: | | | |
| 9,578 2021: 9,365 | | | |
| Energy consumed (million MWh): | | | |
| 199 2021: 223 | | | |
| [A]In 2022 unless stated otherwise. [B]At December 31. [C]See "Non-GAAP measures reconciliations" on pages 331-334. [D]Employee numbers, including comparatives, have been updated from Full Time Equivalents (FTE) to Headcount. [E]Includes granted patents and pending patent applications. | | | |
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Strategic Report | Powering Progress strategy
How we create value continued
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| | | | Our outcomes and impacts [A] | |
| | | | | | Cash flow from operating activities
($ billion): | |
| | | | 68 2021: 45 | |
| | | | Adjusted earnings
($ billion) [C]: | |
| | | | 40 2021: 19 | |
| | | | Shareholder distributions
($ billion) [C]: | |
| | | | 26 2021: 9 | |
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| | | | | Absolute emissions (Scope 1 and 2 – million tonnes of CO₂ equivalent): | |
| | | | 582021: 68 | 2016: 83 | |
| | | | Net carbon intensity (Grams of CO₂ equivalent per megajoule): |
| | | | 76 2021: 77 | 2016: 79 | |
| | | | Methane emissions intensity for operated facilities with marketing gas: | |
| | | | 0.05% 2021: 0.06% | |
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| | | | | Women in senior leadership
positions [B]: | |
| | | | 30% 2021: 30% | |
| | | | Taxes paid and collected
($ billion): | |
| | | | 68 2021: 59 | |
| | | | Total spend on goods and services
($ billion): | |
| | | | 422021: 38 | |
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| | | | | Fresh water consumed by four major facilities in high water-stressed areas (million m³): | |
| | | | 18 2021: 22 | 2018: 25 | |
| | | | Total waste disposed (million tonnes): | |
| | | | 2 2021: 2 | |
| | | | Operational spills of more than 100 kilograms (thousand tonnes): | |
| | | | 0.06 2021: 0.05 | |
| | | [A]In 2022 unless stated otherwise. [B]At December 31. [C]See "Non-GAAP measures reconciliations" on pages 331-334. | |
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Strategic Report | Powering Progress strategy
See the “Directors’ Remuneration Report” on page 116Powering Progress
in action
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| | Working with our customers and across sectors to accelerate the transition to net-zero emissions | |
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| January 2022 Shell started up a hydrogen electrolyser in China with 20 MW production capacity which is critical to decarbonisation in China. | |
| January 2022 Shell completed sale of interest in Deer Park refinery. Shell plans to consolidate its refinery footprint to five or six core energy and chemicals parks. These locations will maximise the integration benefits of conventional fuels and chemicals production while also offering new low-carbon fuels and performance chemicals. | |
| January 2022 Shell and ScottishPower won bids to develop 5 GW of floating wind power to become the world’s first large-scale floating offshore wind farm in UK waters. Once built, it will power the equivalent of 6 million homes in Scotland. | |
| February 2022 Shell's joint venture Atlantic Shores won acreage in New York Bight, which expands Shell’s offshore wind renewable power generation capacity in the USA. This area, subject to a future investment decision, could support around 1.5 GW of commercial wind generation, enough to power nearly 700,000 New York and New Jersey homes. | |
| February 2022 Shell completed the acquisition of Powershop in Australia an online energy retailer serving more than 185,000 customers. This complements Shell’s existing Australian investments in low- and zero-carbon assets and technologies. | |
| June 2022 Shell completed the acquisition of the Landmark fuel and convenience network which provides opportunities to offer customers expanded fuelling options (including electric vehicle charging, hydrogen, biofuels and lower-carbon premium fuels) and allows for the growth of non-fuel sales through an enhanced convenience offering. | |
| July 2022 QatarEnergy selected Shell as a partner in the North Field East (NFE) expansion project in Qatar. In December 2022, QatarEnergy and Shell closed the transaction with Shell purchasing 25% of the joint venture (JV) which owns 25% of the overall project. Shell's ownership of NFE via its JV shareholding is 6.25%. The project will use CCS, helping to reduce emissions. | |
| July 2022 Shell took the final investment decision to build Holland Hydrogen I, which will be Europe’s largest renewable hydrogen plant once operational from 2025. Holland Hydrogen I demonstrates how new energy solutions can help meet society’s need for cleaner energy. It is also an example of Shell’s own efforts and commitment to become a net-zero emissions business by 2050. | |
| August 2022 Shell completed the acquisition of Solenergi Power Private Limited and with it the Sprng Energy group, one of India’s leading renewable power platforms that develops and manages renewable energy facilities and infrastructure assets. | |
| October 2022 QatarEnergy selected Shell to participate in the North Field South project in Qatar. Shell will obtain a 9.375% participating interest in the 16 mtpa project out of a total 25% interest available for international partners. QatarEnergy will hold the remaining 75%. | |
| February 2023 Shell completed the acquisition of Nature Energy which is a producer of renewable natural gas (RNG) from agricultural, industrial, and household waste. This acquisition, announced in November 2022, will increase Shell's ability to help customers decarbonise and accelerate its transition to net-zero emissions. | |
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| | Protecting the environment, reducing waste and making a positive contribution to biodiversity | |
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| Shell’s Upstream business has a project under way to restore two hectares of coral reef in Mexico. The project aims to replant damaged coral reefs that support the marine ecosystem. | |
| Shell Moerdijk’s 39-hectare solar park, in the Netherlands, is designed with optimal habitats for pollinators that resulted in more species of bees than on neighbouring agricultural land, research showed. Future solar parks in the Netherlands, such as Heerenveen, will follow the same design. | |
| Shell and Space Intelligence are maturing an artificial intelligence (AI) techniques to monitor the health of natural ecosystems. At scale, this use of AI can improve how Shell’s nature-based solutions (NBS) business evaluates, tracks and assesses the performance of ecosystems and may augment the value of NBS projects worldwide. | |
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For more details on how the strategic pillars are embedded into our businesses, see “Business Overview” on pages 11-13 | | | | | | | | | | | |
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| | Improving people’s lives through our products and activities, contributing to local communities and championing inclusion | |
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| Access to Energy In September 2022, Shell acquired Daystar Power, a provider of integrated solar power solutions to businesses in West Africa, helping customers reduce power costs and pollution. This deal marks our first power acquisition in Africa and is a fundamental step for Shell in growing our presence in emerging power markets. | |
| Diversity, equity and inclusion (DE&I) In 2022, as part of Shell’s ambition to become one of the most diverse and inclusive organisations in the world, we published data to demonstrate the progress we have made against all our individual commitments for gender, race and ethnicity, LGBT+ and disability inclusion. We published our DE&I roadmap and guiding principles to increase transparency around our approach and to drive leadership accountability and the behaviours we expect. | |
| Communities In 2022, Shell's social investment amounted to almost $260 million. This included programmes supporting education, community development, disaster relief, energy access, community skills and enterprise development, health, biodiversity and road safety. | |
| Human Rights Human rights are fundamental to Shell’s core values of honesty, integrity and respect for people. In 2022, we completed a review of our salient human rights with an external advisor, Business for Social Responsibility (BSR). We published a list grouping these rights according to four focus areas: workplace, supply chains, community and security. | |
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OUTLOOK FOR 2021 AND BEYONDOutlook
We believe that ourOutlook for 2023
and beyond
Our integrated business model is key to driving our strategy. It means that our portfolio is greater than the sum of its parts. ThisShell has a competitive portfolio has a solid track record on cash generation, where Shell is leading its peer group. Weand we intend to evolvemaintain that position as we develop our portfolio of assets and the mix of energy that we sell to meet the cleaner energy needs of our customers in the coming decades, while deliveringfor more affordable, reliable and cleaner energy. By doing so, we aim to generate additional value for our shareholders.
Delivering our strategy will require clear and deliberate capital allocation choices. We approach capital allocation at three levels: enterprise, portfolio and project. The enterprise level is about how
we make choices between increasing distributions to our shareholders, investing in our business and/orand strengthening our balance sheet. The portfolio level is about how we allocate capital between our three business pillars - Growth, Transition and
Upstream.segments. The project level is about how we evaluate and prioritise investment opportunities.
At the enterprise level, we look to achieve the right balance between shareholder distributions today and investing for value-enhancing growth.
For cash capital expenditure we plan to spend between $19 and 22 billion per annum(capex), the 2023 outlook is in the near term. In addition, we expect operating costs to be no higher than $35$23-27 billion and to deliverrange.
Our capital framework target is a divestment programme totalling around $4 billion a year in this period. We remain committed to our progressive dividend policy and focused on targeting AA-equivalent credit metrics through the cycle.
Subject to Board approval, we aim to grow the dividend per share by around 4 percent every year. Once our net debt level has reached $65 billion, we will target the distribution of at least 20-30%
of cash flow from operations to shareholders and we may choose to return cash to shareholders through a combination of dividends and share buybacks.
Once Subject to Board approval, we have achieved thisaim to grow the dividend per share by around 4% every year. When setting the level
of shareholder distributions, additional surplus cash will be allocated between further disciplined capital investments to deliver our strategy and further debt reduction to strengthen the balance sheet.
We fully supportBoard looks at a range of factors, including the Paris Agreement’s goal to keepmacro-environment, the rise in global average temperature this century to well below two degrees Celsius above pre-industrial levels and to pursue efforts to limit temperature increase even further to 1.5 degrees Celsius. We announced a long-term target to become a net-zero emissions energyunderlying business by 2050, in step with society. This includes a target to be net zero on all emissions from the manufacture of all our products – (our Scope 1 and 2 emissions) – by 2050, and also net zero from the end use of all the energy products we sell (Scope 3 emissions). We aim to reduce the net carbon intensity of energy sold by 6-8% by 2023, 20%earnings
by 2030, 45% by 2035
and 100% by 2050,cash flow of the Shell Group, the current balance sheet, future investment, acquisition and divestment plans and existing commitments.
We have announced an increase of our dividend per share of 15% for the fourth quarter of 2022 as part of our progressive dividend policy. Portfolio allocation affects our ability to deliver on targets we have made, and socio-economic, political and market factors sometimes change our outlooks. Existing global targets are currently under review. While no decisions have been made, to ensure our transition to a net-zero energy business is profitable, it is likely that some business targets may be retired, as part of normal strategy evolution and mindful of existing capital allocation in comparison with 2016.the latest operating plan. We expect thatto provide further insights during our total carbon emissions from energy soldCapital Markets Day in June 2023. All targets presented at Capital Markets Day in June will stay below 2018 levels. Further details are inbe filed with the "Climate change and energy transition" section on page 73.
As a result of COVID-19, there continues to be significant uncertainty in the macroeconomic conditions with an expected negative impact on demand for oil, gas and related products. Demand or regulatory requirements and/or constraints in infrastructure may cause Shell to take measures to curtail or reduce oil and/or gas production, LNG liquefaction and utilisation of
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STRATEGIC REPORT SHELL FORM 20-F 2020 | 16 | |
refining and chemicals plants. Sales volumes could be similarly affected. Such measures could impact our earnings, cash flow and financial condition.
The statements in this “Strategy and outlook” section, including those related to our growth strategies and our expected or potential future cash flow from operations, organic free cash flow, share buybacks, capital investment, divestments, production, absolute emissions and Net Carbon Footprint,net carbon intensity, are based on
management’s current expectations and certain material assumptions and, accordingly,assumptions. Accordingly, these statements involve risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied herein. See “About this Report” on pages 8-9 and “Risk factors” on pages 18-22.
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| 19 | STRATEGIC REPORT SHELL FORMShell | Form 20-F 20202022 | 17 | |
Strategic Report | Powering Progress strategy
Our organisation
Our Powering Progress
businesses in 2022
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RISK FACTORS | | | | | | | | | | | | | | |
| | | | | | |
| Integrated Gas, Renewables
and Energy Solutions Integrated Gas manages liquefied natural gas (LNG) activities and the conversion of natural gas into gas-to-liquids (GTL)
fuels and other products. It includes natural gas and liquids exploration and extraction, as well as the operation of the upstream and midstream infrastructure necessary to deliver gas and liquids to market. The marketing, trading and optimisation
of LNG are included within Integrated Gas. Renewables and Energy Solutions (R&ES) manages Shell's integrated power activities. These comprise electricity generation, marketing and trading of power and pipeline gas,
as well as digitally enabled customer solutions. The R&ES business also includes the production and marketing of hydrogen, development of commercial carbon capture and storage hubs, trading of carbon credits, and investment in nature-based projects that avoid or reduce carbon. | | | | Upstream Upstream explores for and extracts crude oil, natural gas and natural gas liquids. It also markets and transports oil and gas, and operates the infrastructure necessary to deliver them to
the market. Upstream business delivers reliable energy from conventional oil and gas operations, as well as deep-water exploration and production activities. We are focusing our Upstream portfolio to become more resilient, prioritising value over volume to provide the energy
the world needs today whilst funding the energy system of tomorrow. Upstream will play a fundamental role in supporting Shell’s transformation to a net-zero business by 2050. Upstream's oil and gas supplies help maintain the world's
energy security. The business is working to provide these
supplies with lower emissions. | |
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| Downstream Marketing manages the Mobility, Lubricants, and Sectors & Decarbonisation activities. Mobility operates Shell's retail network, including electric vehicle charging services. Lubricants produces, markets and sells lubricants for road transport and machinery. Sectors & Decarbonisation sells fuels, speciality products and services including low-carbon energy solutions
to a broad range of commercial customers. Chemicals and Products manages chemical manufacturing plants with their own marketing network and refineries, which turn crude oil and other feedstocks into a range of oil products. These products are moved and marketed around the world for domestic, industrial and transport use. Downstream also includes the pipeline activities, and trading of crude oil, oil products
and petrochemicals. | | | | Projects & Technology Projects & Technology manages the delivery of our major projects and drives research and innovation. It provides technical services for our businesses. It is also responsible for providing functional leadership across Shell in safety and environment, contracting and procurement, wells activities and greenhouse gas management. Technology and innovation are essential to our efforts to meet the world’s energy needs in a competitive way. Our main technology centres are in India, the Netherlands and the USA, with other centres in Brazil, China, Germany, Oman and Qatar. | |
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| On January 30, 2023, Shell announced that the Integrated Gas and Upstream businesses will be combined into a single Integrated Gas and Upstream Directorate. The Downstream business will be combined with Renewables and Energy Solutions to form a new Downstream and Renewables Directorate. The changes are expected to take effect on July 1, 2023. The intention of this change is to simplify the organisation further and improve performance as we deliver our Powering Progress strategy. | |
Strategic Report
Risk Factors
The risks discussed below could have a material adverse effect separately, or in combination, on our earnings, cash flows and financial condition. Accordingly, investors should carefully consider these risks.
Further background and measures that we use when assessing various risks areon each risk is set out in the relevant sections of this Report, indicated by way of cross-referencescross references under each risk factor.
The Board’s responsibility for identifying, evaluating and managing our significant and emerging risks is discussed in “Governance”"Governance framework" on pages 99-101.141-146.
STRATEGIC RISKS | | |
| Strategic risks |
| We are exposed to macroeconomic risks including fluctuating prices of crude oil, natural gas, oil products and chemicals. |
Risk description The prices of crude oil, natural gas, oil products and chemicals can be volatile and are affected by supply and demand, both globally and regionally. Macroeconomic, geopolitical and technological uncertainties can also affect production costs and demand for our products. Government actions may also affect the prices of crude oil, natural gas, oil products and chemicals. These include price caps on gas, the promotion of electric vehicle sales or the phasing-out of future sales of new diesel or gasoline vehicles (as announced in the UK and due to come into force in 2030). Oil and gas prices can also move independently of each other (as seen with European gas prices in 2022). Factors that influence supply and demand include operational issues, natural disasters, weather, pandemics such as COVID-19, political instability, conflicts, such as the Russian invasion of Ukraine, economic conditions, including inflation, and actions by major oil- and gas-producing countries. In a low oil and gas price environment, we would generate less revenue from our Upstream and Integrated Gas businesses, and parts of those businesses could become less profitable or incur losses. Low oil and gas prices have also resulted and could continue to result in the debooking of proved oil or gas reserves, if they become uneconomic in this type of price environment. Prolonged periods of low oil and gas prices, or rising costs, have resulted and could continue to result in projects being delayed or cancelled. Assets have been impaired in the past, and there could be impairments in the future. Low oil and gas prices have affected and could continue to affect our ability to maintain our long-term capital investment and shareholder distribution programmes. Prolonged periods of low oil and gas prices could adversely affect the financial, fiscal, legal, political and social stability of countries that rely significantly on oil and gas revenue. In the past, a high oil and gas price environment has generally led to sharp increases in costs and this could continue. Under high oil and gas prices, our entitlement to proved reserves under some production-sharing contracts could also be reduced. Higher prices could also reduce demand for our products, which could result in lower profitability, particularly in our Chemicals and Products and Marketing businesses. Some of the reduction in demand could be permanent. Higher prices can also lead to more capacity being built, potentially resulting in an oversupplied market which would negatively affect our Upstream, Integrated Gas, Renewables and Energy Solutions, Chemicals and Products and Marketing businesses. Accordingly, price fluctuations could have a material adverse effect on our earnings, cash flows and financial condition. |
| Further information: See "Market overview" on page 39. |
|
| Our ability to deliver competitive returns and pursue commercial opportunities depends in part on the accuracy of our price assumptions. |
Risk description We use a range of commodity price and margin assumptions, which we review on a periodic basis. These ranges help us to evaluate the robustness of our capital allocation for our evaluation of projects and commercial opportunities. If our assumptions prove to be incorrect, this could have a material adverse effect on our earnings, cash flows and financial condition. |
| Further information: See "Market overview" on page 41. |
|
| Our ability to achieve our strategic objectives depends on how we react to competitive forces. |
Risk description We face competition in all our businesses. We seek to differentiate our services and products, though many of our products are competing in commodity-type markets. Accordingly, failure to manage our costs and our operational performance could result in a material adverse effect on our earnings, cash flows and financial condition. We also compete with state-owned hydrocarbon entities and state-backed utility entities with access to financial resources and local markets. Such entities could be motivated by political or other factors in making their business decisions. Accordingly, when bidding on new leases or projects, we could find ourselves at a competitive disadvantage because these state-owned entities may not require a competitive return. If we are unable to obtain competitive returns when bidding on new leases or projects, this could have a material adverse effect on our earnings, cash flows and financial condition. |
| Further information: See "Market overview" on page 41. |
|
We are exposed to macroeconomic risks including fluctuating prices of crude oil, natural gas, oil products and chemicals.
The prices of crude oil, natural gas, oil products and chemicalsare affected by supply and demand, both globally and regionally. Macroeconomic, geopolitical and technological uncertainties can also affect production costs and demand for our products. Government actions may also affect the prices of crude oil, natural gas, oil products and chemicals. This could happen, for example, if governments promote the sale of lower-carbon electric vehicles or even prohibit future sales of new diesel or gasoline vehicles, such as the prohibition in the United Kingdom (UK) that is expected to come into force in 2030. Oil and gas prices can also move independently of each other. Factors that influence supply and demand include operational issues, natural disasters, weather, pandemics such as COVID-19, political instability, conflicts, economic conditions and actions by major oil and gas producing countries. In a low oil and gas price environment, we would generate less revenue from our Upstream and Integrated Gas businesses, and parts of those businesses could become less profitable or incur losses. Low oil and gas prices have also resulted and could continue to result in the debooking of proved oil or gas reserves, if they become uneconomic in this type of price environment. Prolonged periods of low oil and gas prices, or rising costs, have resulted and could continue to result in projects being delayed or cancelled. Assets have been impaired in the past, (including in 2020), and there could be impairments in the future. Low oil and gas prices could also affect our ability to maintain our long-term capital investment programme and dividend payments. Prolonged periods of low oil and gas prices could adversely affect the financial, fiscal, legal, political and social stability of countries that rely significantly on oil and gas revenue. In a high oil and gas price environment, we could experience sharp increases in costs, and, under some production-sharing contracts, our entitlement to proved reserves would be reduced. Higher prices could also reduce demand for our products, which could result in lower profitability, particularly in our Oil Products and Chemicals business. Higher prices can also lead to more capacity being built, potentially resulting in an oversupply of products that can negatively affect our LNG and Chemicals businesses.
Accordingly, price fluctuations could have a material adverse effect on our earnings, cash flows and financial condition.
See “Market overview” on page 23.
Our ability to deliver competitive returns and pursue commercial opportunities depends in part on the accuracy of our price assumptions.
We use a range of oil and gas price assumptions, which we review on a periodic basis. These ranges help us to evaluate the robustness of our capital allocation for our evaluation of projects and commercial opportunities. If our assumptions prove to be incorrect, it could have a material adverse effect on our earnings, cash flows and financial condition.
See “Market overview” on page 24
Our ability to achieve our strategic objectives depends on how we react to competitive forces.
We face competition in all our businesses. In the crude oil, natural gas, Oil Products and Chemicals businesses we seek to differentiate our products, but many of them are competing in commodity-type markets. Accordingly, failure to manage our costs and our operational performance could result in a material adverse effect on our earnings, cash flows and financial condition. We also compete with state-owned oil and gas entities with access to vast financial resources. State-owned entities could be motivated by political or other factors in making their business decisions. Accordingly, when bidding on new leases or projects, we could find ourselves at a competitive disadvantage because these state-owned entities may not require a competitive return. If we are unable to obtain competitive returns when bidding on new leases or projects, this could have a material adverse effect on our earnings, cash flows and financial condition.
See “Strategy and outlook” on page 15.
If we fail to stay in step with the pace and extent of society’s demands with regard to the energy transition to a low-carbon future, we could fail in sustaining and growing our business.
The pace and extent of the energy transition could pose a risk to Shell if our own transition towards decarbonisation moves at a different speed to society. If we are slower than society, customers may prefer a different supplier which would adversely impact our reputation and demand for our products. If we move much faster than society, we risk investing in technologies, markets or low-carbon products that are unsuccessful because there is limited demand for them. This could have a material adverse effect on our earnings, cash flows and financial condition.
See "Strategy and outlook" on page 16 and “Climate change and energy transition” on page 76.
Rising climate change concerns and the effects of the energy transition have led and could lead to a decrease in demand and potentially affect prices for fossil fuels. This may also lead to additional legal and/or regulatory measures which could result in project delays or cancellations, potential litigation, operational restrictions and additional compliance obligations.
Societal demand for urgent action has increased especially after the Intergovernmental Panel on Climate Change (IPCC) 1.5°C special report of 2018 and the Paris Agreement’s goal to keep the rise in global average temperature this century to well below two degrees Celsius above pre-industrial levels and to pursue efforts to limit the temperature increase even further to 1.5 degrees Celsius. Society's increasing focus on climate change and the effects of the energy transition has created a risk landscape that is changing rapidly in response to a wide range of stakeholder actions at global, local and business levels. The potential impact and likelihood of climate change effects on Shell could vary across different time horizons, depending on the specific components of the risk.
We expect that a growing share of our GHG emissions will be subject to regulation, resulting in increased compliance costs and operational restrictions. Regulators may seek to limit certain fossil fuel projects or make it more difficult to obtain required permits. Achieving our target to become net zero on all emissions from our operations will result in additional cost. We also expect that actions by customers to reduce their emissions will continue to lower demand and potentially affect prices for fossil fuels, as will GHG emissions regulation through taxes, fees and/or other incentives. This could be a factor contributing to additional provisions for our assets and result in lower earnings, cancelled projects and potential impairment of certain assets.
The physical effects of climate change such as, but not limited to, increases in temperature and sea levels and fluctuations in water levels could also adversely affect our operations and supply chains.
Some groups are putting pressure on certain investors to divest their investments in fossil fuel companies. If this were to continue, it could have a material adverse effect on the price of our securities and our ability to access capital markets. Groups are also putting pressure on commercial and investment banks to stop financing fossil fuel companies. According to press
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reports, some financial institutions have started to limit their exposure to certain fossil fuel projects. Accordingly, our ability to use financing for these types of future projects may be adversely affected. This could also adversely affect our potential partners’ ability to finance their portion of costs, either through equity or debt.
In some countries, governments, regulators, organisations and individuals have filed lawsuits seeking to hold fossil fuel companies liable for costs associated with climate change. While we believe these lawsuits to be without merit, losing any of them could have a material adverse effect on our earnings, cash flows and financial condition.
In summary, rising climate change concerns and effects of the energy transition have led and could lead to a decrease in demand and potentially affect prices for fossil fuels. If we are unable tofind economically viable, publicly acceptable solutions that reduce our GHG emissions and/or GHG intensity for new and existing projects and for the products we sell, we could experience financial penalties or extra costs, delayed or cancelled projects, potential impairments of our assets, additional provisions and/or reduced production and product sales. This could have a material adverse effect on our earnings, cash flows and financial condition.
We seek to execute divestments in pursuing our strategy. We may be unable to divest these assets successfully in line with our strategy. | | |
Strategic risks continued |
| Rising concerns about climate change and effects of the energy transition could continue to lead to a fall in demand and potentially lower prices for fossil fuels. Climate change could also have a physical impact on our assets and supply chains. This risk may also lead to additional legal and/or regulatory measures, resulting in project delays or cancellations, potential additional litigation, operational restrictions and additional compliance obligations. |
Risk description Societal demand for urgent action on climate change has increased, especially since the Intergovernmental Panel on Climate Change (IPCC) Special Report of 2018 on 1.5°C effectively made the more ambitious goal of the Paris Agreement to limit the rise in global average temperature this century to 1.5 degrees Celsius the default target. This increasing focus on climate change and drive for an energy transition have created a risk environment that is changing rapidly, resulting in a wide range of stakeholder actions at global, local and company levels. The potential impact and likelihood of the associated exposure for Shell could vary across different time horizons, depending on the specific components of the risk. We expect that a growing share of our greenhouse gas (GHG) emissions will be subject to regulation, resulting in increased compliance costs and operational restrictions. Regulators may seek to limit certain oil and gas projects or make it more difficult to obtain required permits. Additionally, climate activists are challenging the grant of new and existing regulatory permits, and protesting at some of our facilities and projects. We expect that these challenges and protests are likely to continue and could delay or prohibit operations in certain cases. Our journey to achieving our target of becoming net zero on all emissions from our operations has resulted in and could continue to require additional costs. We also expect that actions by customers to reduce their emissions will continue to lower demand and potentially affect prices for fossil fuels, as will GHG emissions regulation through taxes, fees and/or other incentives. This could be a factor contributing to additional provisions for our assets and result in lower earnings, cancelled projects and potential impairment of certain assets. The pace and extent of the energy transition could pose a risk to Shell if we decarbonise our operations and the energy we sell at a different speed relative to society. If we are slower than society, customers may prefer a different supplier, which would reduce demand for our products and adversely affect our reputation besides materially affecting our earnings and financial results. If we move much faster than society, we risk investing in technologies, markets or low-carbon products that are unsuccessful because there is limited demand for them. The physical effects of climate change such as, but not limited to, increases in temperature and sea levels and fluctuations in water levels could also adversely affect our operations and supply chains. Certain investors have decided to divest their investments in fossil fuel companies. If this were to continue, it could have a material adverse effect on the price of our securities and our ability to access capital markets. Stakeholder groups are also putting pressure on commercial and investment banks to stop financing fossil fuel companies. Some financial institutions have started to limit their exposure to fossil fuel projects. Accordingly, our ability to use financing for these types of future projects may be adversely affected. This could also adversely affect our potential partners’ ability to finance their portion of costs, either through equity or debt. In some countries, governments, regulators, organisations and individuals have filed lawsuits seeking to hold fossil fuel companies liable for costs associated with climate change. While we believe these lawsuits to be without merit, losing could have a material adverse effect on our earnings, cash flows and financial condition. For example, in May 2021, the District Court in The Hague, Netherlands, ruled that, by 2030, Shell must reduce, from its consolidated subsidiaries, its Scope 1 net emissions by 45% from its 2019 levels and use its best efforts to reduce its Scope 2 and Scope 3 net emissions by 45% from its 2019 levels. In 2019, our Scope 1 emissions from our consolidated subsidiaries were 86 million tonnes carbon dioxide equivalent, rounded. We expect to see additional regulatory requirements to provide disclosures related to climate risks. In summary, rising climate change concerns, the pace at which we decarbonise our operations relative to society and effects of the energy transition have led and could lead to a decrease in demand and potentially affect prices for fossil fuels. If we are unable to find economically viable, publicly acceptable solutions that reduce our GHG emissions and/or GHG intensity for new and existing projects and for the products we sell, we could experience financial penalties or extra costs, delayed or cancelled projects, potential impairments of our assets, additional provisions and/or reduced production and product sales. This could have a material adverse effect on our earnings, cash flows and financial condition. |
| For further explanations of our climate change governance, risk management approach, climate ambition and strategy, and our portfolio and performance, please refer to the section "Our journey to net zero" on pages 82-109. |
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| Investments in our low-carbon products and services may not achieve expected returns. |
We are building our portfolio of low-carbon products and services such as electricity generated from solar and wind power, hydrogen and biofuels, and charging for electric vehicles through organic and inorganic growth.
In expanding our offerings of these low-carbon products and services, we expect to undertake acquisitions and form partnerships. The success of these transactions will depend on our ability to realise the synergies from combining our respective resources and capabilities, including the development of new processes, systems and distribution channels. For example, it may take time to develop these areas through retraining our workforce and recruitment for the necessary new skills. It may take longer to realise the expected returns from these transactions.
The operating margins for our low-carbon products and services may not be as high as the margins we have experienced historically in our oil and gas operations. Some of our acquired companies are not yet in full compliance with the Shell Control Framework.
Therefore, developing our low-carbon products and services is subject to challenges which could have a material adverse effect on our earnings, cash flows and financial condition.
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| Further information: See "Marketing" on pages 64-68 and "Renewables & Energy Solutions" on pages 77-80. |
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We may be unable to divest assets at acceptable prices or within the timeline envisaged because of market conditions or credit risk. This would result in increased pressure on our cash position and potential impairments. In some cases, we have also retained certain liabilities following a divestment. Even in cases where we have not expressly retained certain liabilities, we may still be held liable for past acts, failures to act or liabilities that are different from those foreseen. We may also face liabilities if a purchaser fails to honour their commitments. Accordingly, if any of the above circumstances arise, this could have a material adverse effect on our earnings, cash flows and financial condition.
See “Strategy and outlook” on page 17.
We operate in more than 70 countries that have differing degrees of political, legal and fiscal stability. This exposes us to a wide range of political developments that could result in changes to contractual terms, laws and regulations. We and our joint arrangements and associates also face the risk of litigation and disputes worldwide.
Developments in politics, laws and regulations can and do affect our operations. Potential impacts include: forced divestment of assets; expropriation of property; cancellation or forced renegotiation of contract rights; additional taxes including windfall taxes, restrictions on deductions and retroactive tax claims; antitrust claims; changes to trade compliance regulations; price controls; local content requirements; foreign exchange controls; changes to environmental regulations; changes to regulatory interpretations and enforcement; and changes to disclosure requirements. Tensions between nation states can also affect our business. Any of these, individually or in aggregate, could have a material adverse effect on our earnings, cash flows and financial condition.
In 2020, many governments ran deficits to deal with the economic impacts of the COVID-19 pandemic. Given the ongoing nature of the pandemic, there will be uncertain long-term fiscal consequences, with possible subsequent effects on government policies that affect Shell’s business interests.
From time to time, social and political factors play a role in unprecedented and unanticipated judicial outcomes that could adversely affect Shell. Non‑compliance with policies and regulations could result in regulatory investigations, litigation and, ultimately, sanctions. Certain governments and regulatory bodies have, in Shell’s opinion, exceeded their constitutional authority by: attempting unilaterally to amend or cancel existing agreements or arrangements; failing to honour existing contractual commitments; and seeking to adjudicate disputes between private litigants. Certain governments have also adopted laws and regulations that could potentially conflict with other countries’ laws and regulations, potentially subjecting us to both
criminal and civil sanctions. Such developments and outcomes could have a material adverse effect on our earnings, cash flows and financial condition.
See “Governance” on page 99.
OPERATIONAL RISKS
Our future hydrocarbon production depends on the delivery of large and integrated projects, and our ability to replace proved oil and gas reserves.
We face numerous challenges in developing capital projects, especially those which are large and integrated. Challenges include: uncertain geology; frontier conditions; the existence and availability of necessary technology and engineering resources; the availability of skilled labour; the existence of transportation infrastructure; project delays; the expiration of licences; delays in obtaining required permits; potential cost overruns; and technical, fiscal, regulatory, political and other conditions. These challenges are particularly relevant in certain developing and emerging-market countries, in frontier areas and in deep-water fields, such as off the coast of Mexico. We may fail to assess or manage these and other risks properly. Such potential obstacles could impair our delivery of these projects, our ability to fulfil the full potential value of the project as assessed when the investment was approved, and/or our ability to fulfil related contractual commitments. This could lead to impairments and could have a material adverse effect on our earnings, cash flows and financial condition.
Future oil and gas production will depend on our access to new proved reserves through exploration, negotiations with governments and other owners of proved reserves and acquisitions, and through developing and applying new technologies and recovery processes to existing fields. Failure to replace proved reserves could result in an accelerated decrease of future production, potentially having a material adverse effect on our earnings, cash flows and financial condition.
See “Shell story” on page 12
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| Oil and gas production available for sale | | Million boe [A] |
| 2020 | 2019 | 2018 |
| Shell subsidiaries | 1,104 | | 1,182 | | 1,179 | |
| Shell share of joint ventures and associates | 135 | | 156 | | 159 | |
| Total | 1,239 | | 1,338 | | 1,338 | |
[A] Natural gas volumes are converted into oil equivalent using a factor of 5,800 scf per barrel.
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| Proved developed and undeveloped oil and gas reserves [A][B] (at December 31) | Million boe [C] |
| December 31, 2020 | December 31, 2019 | December 31, 2018 |
| Shell subsidiaries | 8,222 | | 9,980 | | 10,294 | |
| Shell share of joint ventures and associates | 902 | | 1,116 | | 1,285 | |
| Total | 9,124 | | 11,096 | | 11,578 | |
| Attributable to non-controlling interest in Shell subsidiaries | 322 | | 304 | | 331 | |
[A] We manage our total proved reserves base without distinguishing between proved reserves from subsidiaries and those from joint ventures and associates.
[B] Includes proved reserves associated with future production that will be consumed in operations.
[C] Natural gas volumes are converted into oil equivalent using a factor of 5,800 scf per barrel.
The estimation of proved oil and gas reserves involves subjective judgements based on available information and the application of complex rules. This means subsequent downward adjustments are possible.
The estimation of proved oil and gas reserves involves subjective judgements and determinations based on available geological, technical, contractual and economic information. Estimates can change over time due to new information from production or drilling activities, changes in economic factors, such as oil and gas prices, alterations in the regulatory
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policies of host governments, or other events. Estimates also change to reflect acquisitions, divestments, new discoveries, extensions of existing fields and mines, and improved recovery techniques. Published proved oil and gas reserves estimates could also be subject to correction because of errors in the application of published rules and changes in guidance. Downward adjustments could indicate lower future production volumes and could also lead to impairment of assets. This could have a material adverse effect on our earnings, cash flows and financial condition.
See “Supplementary information - oil and gas (unaudited)” on page 211.
The nature of our operations exposes us, and the communities in which we work, to a wide range of health, safety, security and environment risks.
The health, safety, security and environment (HSSE) | | |
Strategic risks to which we and the communities in which we work are potentially exposed cover a wide spectrum, given the geographic range, operational diversity and technical complexity of our operations. These risks include the effects of natural disasters (including weather events), earthquakes, social unrest, pandemic diseases, criminal actions by external parties, and safety lapses. If a major risk materialises, such as an explosion or hydrocarbon leak or spill, this could result in injuries, loss of life, environmental harm, disruption of business activities, loss or suspension of permits, loss of our licence to operate and loss of our ability to bid on mineral rights. Accordingly, this could have a material adverse effect on our earnings, cash flows and financial condition.
Our operations are subject to extensive HSSE regulatory requirements that often change and are likely to become more stringent over time. Governments could require operators to adjust their future production plans, as has occurred in the Netherlands, affecting production and costs. We could incur significant extra costs in the future because of the need to comply with such requirements. We could also incur significant extra costs due to violations of or liabilities under laws and regulations that involve elements such as fines, penalties, clean-up costs and third-party claims. Therefore, if HSSE risks materialise, they could have a material adverse effect on our earnings, cash flows and financial condition.
See “Environment and society” on page 66.
A further erosion of the business and operating environment in Nigeria could have a material adverse effect on us.
In our Nigerian operations, we face various risks and adverse conditions. These include: security issues affecting the safety of our people, host communities and operations; sabotage and theft; our ability to enforce existing contractual rights; litigation; limited infrastructure; potential legislation that could increase our taxes or operating costs; the effect of lower oil and gas prices on the government budget; and regional instability created by militant activities. These risks or adverse conditions could have a material adverse effect on our earnings, cash flows and financial condition.
See “Upstream” on page 40.
An erosion of our business reputation could have a material adverse effect on our brand, our ability to secure new resources or access capital markets, and on our licence to operate.
Our reputation is an important asset. The Shell General Business Principles (Principles) govern how Shell and its individual companies conduct their affairs, and the Shell Code of Conduct tells employees and contract staff how to behave in line with the Principles. Our challenge is to ensure that all employees and contract staff comply with the Principles and the Code of Conduct. Real or perceived failures of governance or regulatory compliance or a perceived lack of understanding of how our operations affect surrounding communities could harm our reputation.
Societal expectations of businesses are increasing, with a focus on business ethics, quality of products, contribution to society, safety and minimising damage to the environment. There is increasing focus on the role of oil and gas in the context of climate change and energy transition. This could negatively affect our brand, reputation and licence to operate, which could limit our ability to deliver our strategy, reduce consumer demand for our
branded and non-branded products, harm our ability to secure new resources and contracts, and restrict our ability to access capital markets or attract staff. Many other factors, including the materialisation of the risks discussed in several of the other risk factors, could negatively affect our reputation and could have a material adverse effect on our earnings, cash flows and financial condition.
See “Governance” on page 150 and "Our people" on page 87.
We rely heavily on information technology systems in our operations.
The operation of many of our business processes depends on reliable information technology (IT) systems. Our IT systems are increasingly concentrated in terms of geography and number of systems. They are dependent on key contractors supporting the delivery of IT services. During 2020, information and cyber-security risks developed and changed rapidly. Globally the COVID-19 pandemic and geopolitical tensions have altered the IT threat landscape, increasing the frequency and ingenuity of malware attacks and increasing the temptation to attack targets for financial gain. Also, the prevalence of remote working introduces additional risk because it expands the IT threat landscape. We have experienced breaches and disruptions to our critical IT services in the past. These factors continue to contribute to potential breaches and disruptions of critical IT services. Additionally, breaches can lead to data privacy issues. If the breaches are not detected early and responded to effectively, they could harm our reputation and have a material adverse effect on our earnings, cash flows and financial condition.
See “Corporate” on page 60.
Our business exposes us to risks of social instability, criminality, civil unrest, terrorism, piracy, cyber-disruption and acts of war that could have a material adverse effect on our operations. continued
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| We operate in more than 70 countries that have differing degrees of political, legal and fiscal stability. This exposes us to a wide range of political developments that could result in changes to contractual terms, laws and regulations. We and our joint arrangements and associates also face the risk of litigation and disputes worldwide. |
Risk description Developments in politics, laws and regulations can and do affect our operations. Potential impacts, which we have experienced in the past, include: forced divestment of assets; expropriation of property; cancellation or forced renegotiation of contract rights; additional taxes including windfall taxes, restrictions on deductions and retroactive tax claims; antitrust claims; changes to trade compliance regulations; price controls; local content requirements; foreign exchange controls; changes to environmental regulations; changes to regulatory interpretations and enforcement; and changes to disclosure requirements. Many parts of the world are facing economic and fiscal challenges and growing pressure on cost-of-living standards. The situation is further exacerbated by Russia’s invasion of Ukraine, which is having an unprecedented impact on gas and power markets in terms of both supply and price. These issues impact our business as governments, in response to political and social pressures, pursue policies that could have a material adverse effect on our earnings, cash flows and financial condition. From time to time, social and political factors play a role in unprecedented and unanticipated judicial outcomes that could adversely affect Shell. Non‑compliance with policies and regulations could result in regulatory investigations, litigation and, ultimately, sanctions. Certain governments and regulatory bodies have, in Shell’s opinion, exceeded their constitutional authority by: attempting unilaterally to amend or cancel existing agreements or arrangements; failing to honour existing contractual commitments; and seeking to adjudicate disputes between private litigants. Certain governments have also adopted laws and regulations that could potentially conflict with other countries’ laws and regulations, potentially subjecting us to criminal and civil sanctions. Such developments and outcomes could have a material adverse effect on our earnings, cash flows and financial condition. |
| Further information: See "Marketing" on pages 64-68 and "Renewables & Energy Solutions" on pages 77-80. |
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As seen in recent years, these | | |
Operational risks can manifest themselves in the countries where we operate and elsewhere. These risks affect people and assets. Potential risks include: acts of terrorism; acts of criminality including maritime piracy; cyber-espionage or disruptive cyber-attacks; conflicts including war, civil unrest and environmental and climate activism (including disruptions by non-governmental and political organisations). |
| Russia’s invasion of Ukraine has affected the safety and security of our people and operations in these and neighbouring countries. The resulting sanctions and export controls and the evolving geopolitical situation have caused wide-ranging challenges to our operations which could continue in the medium to longer term. |
Risk description Russia’s invasion of Ukraine continues to pose wide-ranging challenges to our operations and commercial decisions. The immediate impacts included those relating to the safety and security of our people and operations in these and neighbouring countries. The subsequent sanctions and export controls imposed by countries around the world are having a material impact on a number of our activities, including supply, trading and treasury activities. More sanctions, export controls and taxes are expected. Given the evolving situation, there may be many other unknown factors and events that could materially impact our operations, which may be temporary or more permanent in nature. These risks and future events could impact our supply chain, commodity prices, credit, commodity trading, treasury and legal risks. In addition, there is potential reputational risk associated with how Shell’s decisions in response to evolving challenges are perceived. The tensions also create heightened cyber-security threats to our information technology infrastructure. The geopolitical situation may influence our future investment and financial decisions. Any of these factors, individually or in aggregate, could have a material adverse effect on our earnings, cash flows and financial condition. |
| Further information: See "Post-balance sheet events" on page 287. |
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The above risks can threaten the safe operation of our facilities and the transport of our products. They can harm the well-being of our people, inflict loss of life and injuries, damage the environment and disrupt our operational activities. These risks could have a material adverse effect on our earnings, cash flows and financial condition.
See “Environment and society” on pages 67.
Production from the Groningen field in the Netherlands causes earthquakes that affect local communities.
Shell and ExxonMobil are 50:50 shareholders in Nederlandse Aardolie Maatschappij B.V. (NAM). An important part of NAM’s gas production comes from the onshore Groningen gas field, in which EBN, a Dutch government entity, has a 40% interest and NAM a 60% interest. The gas field is in the process of being closed down due to earthquakes induced by gas production. Some of these earthquakes have damaged houses and other structures in the region, resulting in complaints and lawsuits from the local community. The government has announced it intends to accelerate the close-down, bringing the end of production forward from 2030 to possibly mid-2022. The exact shut-in date depends on security of supply considerations and is still to be decided. While we expect the earlier closing down of the Groningen gas field to further reduce the number and strength of earthquakes in the region, any additional earthquakes could have further adverse effects on our earnings, cash flows and financial condition.
See “Upstream” on page 38.
We are exposed to treasury and trading risks, including liquidity risk, interest rate risk, foreign exchange risk and credit risk. We are affected by the global macroeconomic environment and the conditions of financial and commodity markets.
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Our subsidiaries, joint arrangements and associates are subject to differing economic and financial market conditions around the world. Political or economic instability affects such markets.
We use debt instruments, such as bonds and commercial paper, to raise significant amounts of capital. Should our access to debt markets become more difficult, the potential impact on our liquidity could have a material adverse effect on our operations. Our financing costs could also be affected by interest rate fluctuations or any credit rating deterioration.
We are exposed to changes in currency values and to exchange controls as a result of our substantial international operations. Our reporting currency is the US dollar, although, to a material extent, we also hold assets and are exposed to liabilities in other currencies. While we undertake some foreign exchange hedging, we do not do so for all our activities. Even where hedging is in place, it may not function as expected.
We are exposed to credit risk; our counterparties could fail or be unable to meet their payment and/or performance obligations under contractual arrangements. Although we do not have significant direct exposure to sovereign debt, it is possible that our partners and customers may have exposure which could impair their ability to meet their obligations. Our pension plans invest in government bonds, and could therefore be affected by a sovereign debt downgrade or other default.
If any of the above risks materialise, they could have a material adverse effect on our earnings, cash flows and financial condition.
See “Liquidity and capital resources” on page 61 and Note 19 to the “Consolidated Financial Statements” on pages 198-202.
Our future performance depends on the successful development and deployment of new technologies and new products. | | | | | | | | | | | |
Operational risks continued |
| The estimation of proved oil and gas reserves involves subjective judgements based on available information and the application of complex rules. This means subsequent downward adjustments are possible. |
Risk description The estimation of proved oil and gas reserves involves subjective judgements and determinations based on available geological, technical, contractual, and economic information. Estimates can change over time because of new information from production or drilling activities, changes in economic factors, such as oil and gas prices, alterations in the regulatory policies of host governments, or other events. Estimates also change to reflect acquisitions, divestments, new discoveries, extensions of existing fields and mines, and improved recovery techniques. Published proved oil and gas reserves estimates could also be subject to correction because of errors in the application of rules and changes in guidance. Downward adjustments could indicate lower future production volumes and could also lead to impairment of assets. This could have a material adverse effect on our earnings, cash flows and financial condition. |
| Further information: See "Supplementary information - oil and gas (unaudited)" on pages 288-306. |
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| Our future hydrocarbon production depends on the delivery of large and integrated projects and our ability to replace proved oil and gas reserves. |
Risk description We face numerous challenges in developing capital projects, especially those which are large and integrated. Challenges include: uncertain geology; frontier conditions; the existence and availability of necessary technology and engineering resources; the availability of skilled labour; the existence of transport infrastructure; project delays; the expiration of licences; delays in obtaining required permits; potential cost overruns; and technical, fiscal, regulatory, political and other conditions. These challenges are particularly relevant in certain developing and emerging-market countries, in frontier areas and in deep-water fields, such as off the coast of Mexico. We may fail to assess or manage these and other risks properly. Such potential obstacles could impair our delivery of these projects, our ability to fulfil the full potential value of the project as assessed when the investment was approved, and our ability to fulfil related contractual commitments. This could lead to impairments and could have a material adverse effect on our earnings, cash flows and financial condition. Future oil and gas production will depend on our access to new proved reserves through exploration, negotiations with governments and other owners of proved reserves and acquisitions, and through developing and applying new technologies and recovery processes to existing fields. Failure to replace proved reserves could result in an accelerated decrease of future production, potentially having a material adverse effect on our earnings, cash flows and financial condition. |
| Oil and gas production available for sale |
| Million boe [A] |
| 2022 | 2021 | 2020 |
| Shell subsidiaries | 938 | 1,047 | 1,104 |
| Shell share of joint ventures and associates | 108 | 134 | 135 |
| Total | 1,046 | 1,181 | 1,239 |
[A]Natural gas volumes are converted into oil equivalent using a factor of 5,800 scf per barrel. |
| Proved developed and undeveloped oil and gas reserves [A][B] |
| Million boe [C] |
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 |
| Shell subsidiaries | 8,317 | 8,456 | 8,222 |
| Shell share of joint ventures and associates | 1,261 | 909 | 902 |
| Total | 9,578 | 9,365 | 9,124 |
| Attributable to non-controlling interest of Shell subsidiaries | 365 | 267 | 322 |
[A]We manage our total proved reserves base without distinguishing between proved reserves from subsidiaries and those from joint ventures and associates. [B]Includes proved reserves associated with future production that will be consumed in operations. [C]Natural gas volumes are converted into oil equivalent using a factor of 5,800 scf per barrel. |
| Further information: See "Powering Progress strategy" on page 12-20. |
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Technology and innovation are essential to our efforts to meet the world’s energy demands competitively. If we fail to continue developing or deploying technology and new products, or fail to make full, effective use of our data in a timely and cost-effective manner, there could be a material adverse effect on the delivery of our strategy and our licence to operate. We operate in environments where advanced technologies are used. In developing new technologies and new products, unknown or unforeseeable technological failures or environmental and health effects could harm our reputation and licence to operate or expose us to litigation or sanctions. The associated costs of new technology are sometimes underestimated. Sometimes the development of new technology is subject to delays. If we are unable to develop the right technology and products in a timely and cost-effective manner, or if we develop technologies and products that harm the environment or people's health, there could be a material adverse effect on our earnings, cash flows and financial condition.
See “Shell story” on page 13.
We have substantial pension commitments, the funding of which is subject to capital market risks and other factors.
Liabilities associated with defined benefit pension plans are significant, and the cash funding requirement of such plans can also involve significant liabilities. They both depend on various assumptions. Volatility in capital markets or government policies could affect investment performance and interest rates, causing significant changes to the funding level of future liabilities. Changes in assumptions for mortality, retirement age or pensionable remuneration at retirement could also cause significant changes to the funding level of future liabilities. We operate a number of defined benefit pension plans and, in case of a shortfall, we could be required to make substantial cash contributions (depending on the applicable local regulations). This could result in a material adverse effect on our earnings, cash flows and financial condition.
See “Liquidity and capital resources” on page 61.
We mainly self-insure our risk exposure. We could incur significant losses from different types of risks that are not covered by insurance from third-party insurers.
Our insurance subsidiaries provide hazard insurance coverage to other Shell entities, who may insure a portion of their risk exposures with third parties. Such insurance would not provide any material coverage in the event of a large-scale safety or environmental incident. Accordingly, in the event of a material incident, we would have to meet our obligations without access to material proceeds from third-party insurance companies. Therefore, we may incur significant losses from different types of risks that are not covered by insurance from third-party insurers, potentially resulting in a material adverse effect on our earnings, cash flows and financial condition.
See “Corporate” on page 60.
Many of our major projects and operations are conducted in joint arrangements or with associates. This could reduce our degree of control and our ability to identify and manage risks.
When we are not the operator, we have less influence and control over the behaviour, performance and operating costs of joint arrangements or associates. Despite having less control, we could still be exposed to the risks associated with these operations, including reputational, litigation (where joint and several liability could apply) and government sanction risks. For example, our partners or members of a joint arrangement or an associate, (particularly local partners in developing countries), may be unable to meet their financial or other obligations to projects, threatening the viability of a given project. Where we are the operator of a joint arrangement, the other partner(s) could still be able to veto or block certain decisions, which could be to our overall detriment. Accordingly, where we have limited influence, we are exposed to operational risks that could have a material adverse effect on our earnings, cash flows and financial condition.
See “Governance” on page 99.
CONDUCT RISKS
We are exposed to commodity trading risks, including market and operational risks.
Commodity trading is an important component of our Upstream, Integrated Gas, Oil Products and Chemicals businesses and is integrated with our supply business. Processing, managing and monitoring many trading transactions across the world, some of them complex, exposes us to operational and market risks, including commodity price risks which saw significant levels of volatility in 2020. We use derivative instruments such as futures and contracts for differences to hedge market risks. We do not hedge all our activities and where hedging is in place, it may not function as expected. The risk of ineffective controls and oversight of trading activities, and the risk that traders could deliberately act outside limits and controls, either individually or as a group, could have material adverse effects on our earnings, cash flows and financial condition.
See “Liquidity and capital resources” on page 61 and Note 19 to the “Consolidated Financial Statements” on pages 198-202
Violations of antitrust and competition laws carry fines and expose us and/or our employees to criminal sanctions and civil suits.
Antitrust and competition laws apply to Shell and its joint arrangements and associates in the vast majority of countries where we do business. Shell and its joint arrangements and associates have been fined for violations of antitrust and competition laws in the past. This includes a number of fines by the European Commission Directorate-General for Competition (DG COMP). Because of DG COMP’s fining guidelines, any future conviction of Shell or any of its joint arrangements or associates for violation of EU competition law could potentially result in significantly larger fines and have a material adverse effect on us. Violation of antitrust laws is a criminal offence in many countries, and individuals can be imprisoned or fined. In certain circumstances, directors may receive director disqualification orders. It is also now common for persons or corporations allegedly injured by antitrust violations to sue for damages. Any violation of these laws can harm our reputation and could have a material adverse effect on our earnings, cash flows and financial condition.
See “Governance” on pages 150.
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Violations of anti-bribery, tax-evasion and anti-money laundering laws carry fines and expose us and/or our employees to criminal sanctions, civil suits and ancillary consequences (such as debarment and the revocation of licences). | | |
Operational risks continued |
| The nature of our operations exposes us, and the communities in which we work, to a wide range of health, safety, security and environment risks. |
Risk description The health, safety, security and environment (HSSE) risks to which we and the communities in which we work are potentially exposed cover a wide spectrum, given the geographical range, operational diversity and technical complexity of our operations. These risks include the effects of natural disasters (including weather events), earthquakes, social unrest, pandemic diseases, criminal actions by external parties, and safety lapses. If a major risk materialises, such as an explosion or hydrocarbon leak or spill, which we have experienced in the past, this could result in injuries, loss of life, environmental harm, disruption of business activities, loss or suspension of permits, loss of our licence to operate and loss of our ability to bid on mineral rights. Accordingly, this could have a material adverse effect on our earnings, cash flows and financial condition. Our operations are subject to extensive HSSE regulatory requirements that often change and are likely to become more stringent over time. Governments could require operators to adjust their future production plans, as has occurred in the Netherlands, affecting production and costs. We could incur significant extra costs in the future because of the need to comply with such requirements. We could also incur significant extra costs due to violations of or liabilities under laws and regulations that involve elements such as fines, penalties, clean-up costs and third-party claims. If HSSE risks materialise, they could have a material adverse effect on our earnings, cash flows and financial condition. |
| Further information: See "Respecting nature" on page 113, "Powering lives" on page 117 and "Safety" on pages 125-128. |
|
| A further erosion of the business and operating environment in Nigeria could have a material adverse effect on us. |
Risk description In our Nigerian operations, we face various risks and adverse conditions. These include: security incidents affecting the safety of our people, host communities and operations; sabotage and crude theft; ongoing litigation; limited infrastructure; challenges presented by delayed government and partner funding and budget delays; and regional instability created by militant activities. Some of these risks and adverse conditions, such as security issues affecting the safety of our people and sabotage and theft have occurred in the past and are likely to continue in the future, with a potential material adverse effect on our earnings, cash flows and financial condition. |
| Further information: See "Upstream" on page 53. |
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| An erosion of our business reputation could have a material adverse effect on our brand, our ability to secure new resources or access capital markets, and on our licence to operate. |
Risk description Our reputation is an important asset. The Shell General Business Principles (Principles) govern how Shell and its individual companies conduct their affairs, and the Shell Code of Conduct tells employees and contract staff how to behave in line with the Principles. Our challenge is to ensure that all employees and contract staff comply with the Principles and the Code of Conduct. Real or perceived failures of governance or regulatory compliance or a perceived lack of understanding of how our operations affect surrounding communities could harm our reputation. Societal expectations of companies are increasing, with a focus on business ethics, quality of products, contribution to society, safety and minimising damage to the environment. There is increasing focus on the role of oil and gas in the context of climate change and energy transition. This could negatively affect our brand, reputation and licence to operate, which could limit our ability to deliver our strategy, reduce consumer demand for our branded and non-branded products, harm our ability to secure new resources and contracts, and restrict our ability to access capital markets or attract staff. Many other factors, including the materialisation of other risks discussed in this section, could negatively affect our reputation and could have a material adverse effect on our earnings, cash flows and financial condition. |
| Further information: See "Other regulatory and statutory information" on page 201 and "Powering lives" on page 123. |
|
Anti-bribery, tax-evasion and anti-money laundering laws apply to Shell, its joint arrangements and associates in all countries where we do business. Shell and its joint arrangements and associates have in the past settled with the US Securities and Exchange Commission regarding violations of the US Foreign Corrupt Practices Act. Any violation of anti-bribery, tax-evasion or anti-money laundering laws, including those potential violations associated with Shell Nigeria Exploration and Production Company Limited's investment in Nigerian oil block OPL 245 and the 2011 settlement of litigation pertaining to that block, could harm our reputation or have a material adverse effect on our earnings, cash flows and financial condition.
See “Our people” on pages 87, “Governance” on page 150 and Note 25 to the “Consolidated Financial Statements” on pages 206-208.
Violations of data protection laws carry fines and expose us and/or our employees to criminal sanctions and civil suits.
Data protection laws apply to Shell and its joint arrangements and associates in the vast majority of countries where we do business. Most of the countries we operate in have data protection laws and regulations. In some countries that are key to Shell’s business operations, legislation continues to be amended or introduced. Shell must be able to adapt dynamically to such legislative changes and be capable of updating our internal programmes if necessary. The EU General Data Protection Regulation (GDPR), which came into effect in May 2018, imposed increased financial penalties of up to a maximum of 4% of global annual turnover. It requires mandatory breach notification in certain situations, the standard which is also followed outside the EU (particularly in Asia). Non-compliance with data protection laws could expose us to regulatory investigations, which could result in fines, penalties and harm to our reputation. With regard to data breaches, we have breached the GDPR in the past and some investigations are still ongoing with European regulators. To date, no material fines have been imposed, but no assurance can be provided that future breaches would have similar outcomes. In addition to imposing fines, regulators may also issue orders to stop processing personal data, which could disrupt operations. We could also be subject to litigation from persons or entities allegedly affected by data protection violations.
With data privacy legislation now in force in the USA, the risk of class actions is increased. Class actions after large-scale data breaches are increasingly common in the UK.
The COVID-19 pandemic has increased the level of processing of personal data to track employees, suppliers or other visitors to our premises. Some governments require immediate disclosure of information, including sensitive personal data, to identify infected individuals, with some mandating technologies such as tracing applications on all devices, including corporate mobile phones.
Violation of data protection laws is a criminal offence in some countries, and individuals can be imprisoned or fined. Any violation of these laws or harm to our reputation could have a material adverse effect on our earnings, cash flows and financial condition.
See “Governance” on page 150.
Violations of trade compliance laws and regulations, including sanctions, carry fines and expose us and our employees to criminal sanctions and civil suits.
We use “trade compliance” as an umbrella term for various national and international laws designed to regulate the movement of items across national boundaries and restrict or prohibit trade and other dealings with certain parties. The number and breadth of such laws continue to expand. For example, the EU and the USA continue to impose restrictions and prohibitions on certain transactions involving countries such as Syria, Venezuela, Russia and Cuba. The USA continues to impose comprehensive sanctions against Iran, while the EU and other nations continue to maintain targeted sanctions. The EU and the USA imposed restrictions and controls on defined oil and gas activities in Russia in 2014, and these remain in force.
The USA introduced further restrictions regarding Russia in 2017, expanding them in 2018. The EU and the USA introduced sectoral sanctions against Venezuela in 2017, with the USA expanding them in 2018 and 2019. The US sanctions primarily target the government of Venezuela and the oil industry. Many other nations are also adopting trade-control programmes similar to those administered by the EU and the USA. The expansion of sanctions, the frequent additions of prohibited parties, the number of markets in which we operate and the large number of transactions we process, make compliance with all sanctions complex and sometimes challenging. Shell has voluntarily self-disclosed potential violations of sanctions in the past. The COVID-19 pandemic has increased trade compliance risks, due to factors such as growing state involvement in business dealings, the need to maintain and develop business opportunities and cross-border movement of goods and technologies, and the increasing likelihood that counterparties will change ownership as the economic crisis continues.
Any violation of sanctions could lead to loss of import or export privileges and significant penalties on or prosecution of Shell or its employees. This could harm our reputation and have a material adverse effect on our earnings, cash flows and financial condition
See “Governance” on page 150.
Investors should also consider the following, which could limit shareholder remedies.
OTHER (generally applicable to an investment in securities)
The Company’s Articles of Association determine the jurisdiction for shareholder disputes. This could limit shareholder remedies.
Our Articles of Association generally require that all disputes between our shareholders in such capacity and the Company or our subsidiaries (or our Directors or former Directors), or between the Company and our Directors or former Directors, be exclusively resolved by arbitration in The Hague, the Netherlands, under the Rules of Arbitration of the International Chamber of Commerce. Our Articles of Association also provide that, if this provision is to be determined invalid or unenforceable for any reason, the dispute could only be brought before the courts of England and Wales. Accordingly, the ability of shareholders to obtain monetary or other relief, including in respect of securities law claims, could be determined in accordance with these provisions.
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Operational risks continued |
| We rely heavily on information technology systems in our operations. |
Risk description Our continued focus on digitalising our business processes, and our increasing dependence on information technology (IT) systems for our core operations mean that we are heavily reliant on secure, affordable and resilient IT services. Externally, we observe several dynamics impacting our IT and cyber risk profile: deterioration of the cyber security threat landscape represented by increasing volumes of attacks and sophisticated cyber actors, geopolitical conflicts and increases in regulations across the markets in which Shell operates. We have observed an increase in social engineering (manipulation of individuals) as a method of financially driven cybercrime. Threat actors are targeting bank account changes, invoice settlement and identity fraud to extract money from corporations. Ransomware attacks on corporations continue to be widespread. These contribute to potential breaches and disruptions of critical IT services, such as the security incident involving the transfer of files which Shell experienced in 2021. If the breaches are not detected early and responded to effectively, they could impact our operations and the safety of our staff and/or harm our reputation and/or result in material regulatory fines. This could have a material adverse effect on our earnings, cash flows and financial condition. |
| Further information: See "Corporate" on page 81. |
|
| Our business exposes us to risks of social instability, criminality, civil unrest, terrorism, piracy, cyber disruption and acts of war that could have a material adverse effect on our operations. |
Risk description As seen in recent years, these risks can manifest themselves in the countries where we operate and elsewhere. These risks affect people, our operations and assets. Potential risks, which we have experienced in the past, include: acts of terrorism; acts of criminality including maritime piracy; cyber espionage or disruptive cyber attacks; conflicts including war - such as Russia's invasion of Ukraine; malicious acts carried out by individuals within Shell - such as increased data exfiltration during divestments; civil unrest which for example caused disruptions to our Trading & Supply distribution operations in South Africa, and environmental and climate activism (including disruptions by non-governmental and political organisations) especially in the USA and north-west Europe. The above risks can threaten the safe operation of our assets and the transport of our products. They can harm the well-being of our people, inflict loss of life and injuries, damage the environment and disrupt our operational activities. These risks could have a material adverse effect on our earnings, cash flows and financial condition. |
| Further information: See "Respecting nature" on page 113, "Powering lives" on page 117 and "Safety" on pages 125-128. |
|
MARKET OVERVIEWProduction from the Groningen field in the Netherlands causes earthquakes that affect local communities. |
Risk description Shell and ExxonMobil are 50:50 shareholders in Nederlandse Aardolie Maatschappij B.V. (NAM). An important part of NAM’s gas production comes from the onshore Groningen gas field, in which EBN, a Dutch government entity, has a 40% interest and NAM a 60% interest. The gas field is in the process of being closed down owing to earthquakes induced by gas production. Some of these earthquakes have damaged houses and other structures in the region, resulting in complaints and lawsuits from the local community. The Dutch government has announced it intends to accelerate the close-down, bringing the end of production forward from 2030 to possibly 2023 or 2024. The exact close-down date is still to be decided and depends on the Dutch government’s considerations of security of gas supply. While we expect the earlier close-down of the Groningen gas field to further reduce the number and strength of earthquakes in the region, any additional earthquakes could have further adverse effects on our earnings, cash flows and financial condition. |
| Further information: See "Upstream" on pages 50-51. |
| |
We maintain a large business portfolio across an integrated value chain and are exposed to crude oil, natural gas, hydrocarbon product and chemical prices (see “Risk factors” on page 18). This diversified portfolio helps us mitigate the impact of price volatility. Our annual planning cycle and periodic portfolio reviews aim to ensure that our levels of capital investment and operating expenses are appropriate in the context of a volatile price environment. We test the resilience of our projects and other opportunities against a range of crude oil, natural gas, oil product and chemical prices and costs. We also aim to maintain a strong balance sheet to provide resilience against weak market prices.
GLOBAL ECONOMIC GROWTH
The COVID-19 pandemic has delivered an enormous global economic shock, leading to steep recessions in many countries. In the World Economic Outlook of January 2021, the International Monetary Fund (IMF) estimates that despite unprecedented policy support, global GDP contracted by 3.5% in 2020, one of the deepest global recessions in history. The most severe economic downturns occurred in India, Western Europe, the Middle East, and Latin America. China was the only major economy that recorded economic growth.
Developed countries were particularly vulnerable to lockdown measures, because of their economic structure. Services and consumption, which account for a higher share of GDP in developed countries, were disproportionately affected by restrictions on movement and closures of hospitality and leisure facilities. Developing economies suffered from collapses in capital inflows and commodity prices, and from a sharp compression in consumption and investment.
Massive fiscal and monetary support measures were deployed in the major economies. In China, the authorities funded infrastructure investments. In the USA and Europe, government transfers supplemented incomes and supported businesses, in order to prevent deeper declines in employment and disposable income.
Led by mainland China, the Asia-Pacific region led the recovery during the year, as public health measures helped to contain community transmission of COVID-19. In other countries, the pandemic proved more difficult to control. European countries experienced renewed rises in infection rates during the fourth quarter of 2020. They responded by reinstating restrictions on activities that have a high risk of transmitting COVID-19.
Encouraging news on vaccines and improvements in therapeutics have increased the chances of a recovery in 2021, but the global economic outlook remains precarious, because markets fear that more virulent variants of COVID-19 could trigger additional waves of infections. The deep recessions triggered by the pandemic could leave lasting scars in the form of: lower investment by companies; high unemployment; increased global debt; and a potential retreat from global trade and supply linkages. There is concern that these effects may well restrict growth in the medium term.
GLOBAL PRICES, DEMAND AND SUPPLY
The following table provides an overview of the main crude oil and natural gas price markers to which we are exposed:
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| Oil and gas average industry prices [A] |
| 2020 | 2019 | 2018 |
| Brent ($/b) | 42 | | 64 | | 71 | |
| West Texas Intermediate ($/b) | 39 | | 57 | | 65 | |
| Henry Hub ($/MMBtu) | 2.0 | | 2.5 | | 3.1 | |
| UK National Balancing Point (pence/therm) | 25 | | 35 | | 60 | |
| Japan Customs-cleared Crude ($/b) | 46 | | 67 | | 73 | |
[A] Yearly average prices are based on daily spot prices. The 2020 average price for Japan Customs-cleared Crude excludes December data.
CRUDE OIL
On a daily average basis, Brent crude oil, an international benchmark, traded between $13 per barrel (/b) and $70/b in 2020, ending the year around $50/b. Brent crude oil prices averaged $42/b for the year, 34% (or $22/b ) lower than in 2019.
In 2020, oil markets experienced unprecedented developments in demand driven by the COVID-19 pandemic. At the start of 2020, global oil demand for the year was expected to grow by 1.2 million barrels per day (b/d). Then in January, oil demand started to contract because demand fell in China as lockdown was imposed to contain the virus outbreak. In subsequent months, oil demand contracted further as the outbreak in China evolved into a global pandemic and lockdowns were introduced across the world. In April, oil demand fell to its lowest level, around 22 million b/d below year-average demand in 2019, according to an estimate of the International Energy Agency (IEA). Contraction of such magnitude has never been recorded before. Country lockdowns deeply impacted transportation sectors, especially passenger road and passenger air in Organisation for Economic Co-operation and Development (OECD) economies. In subsequent months, oil demand started recovering, but only partially, because resurgences of COVID-19 triggered re-imposition of social distancing and travel restrictions. By the fourth quarter, global oil demand was still estimated to be around 5.5 million b/d below the 2019 level, according to the Oil Market Report published by the IEA in January 2021. Averaged for the full year, oil demand contracted by around 9 million b/d, or 9%, to 91.2 million b/d. Oil demand fell by 5.7 million b/d in OECD economies, and by 3.2 million b/d in non-OECD economies. By contrast, oil demand in 2019 was 0.8 million b/d higher than in 2018.
In 2020, oil markets also experienced unprecedented developments in supply. In March, there was a serious disagreement within the OPEC+ alliance, which consists of OPEC members and co-operating non-OPEC resource holders such as Russia. Saudi Arabia and Russia failed to agree on what to do about falling demand for oil. Saudi Arabia responded to the disagreement by boosting its production to almost 12 million b/d, a monthly record. By April, storage capacity was filling up quickly and oil prices were falling rapidly. On April 12, the OPEC+ alliance agreed to jointly reduce production by an unprecedented 9.7 million b/d for May and June. For the month of June, Saudi Arabia voluntarily cut production further, by around 1 million b/d. For the rest of the year, the OPEC+ alliance agreed on and complied with a production cut of 7.7 million b/d.
In April, supply from outside the OPEC+ alliance also started to fall, most notably in the USA. The US Energy Information Administration reported a supply contraction of around 2 million b/d by the end of May, from a level of around 13 million b/d at the start of the year. US producers cut budgets, leading to an unprecedented fall in the number of oil drill rigs to around 26% of the total at the start of the year. Supply from the USA occasionally fell even further to around 10 million b/d because of production shut-ins during the hurricane season.
In aggregate, production of oil supply in 2020 is estimated in the Oil Market Report at 93.9 million b/d, which is 6.7 million b/d lower than in 2019. OPEC production is estimated to have fallen by 3.8 million b/d. Supply from the USA fell by 0.8 million b/d from 2019. By contrast, global oil supply in 2019 was 0.1 million b/d higher than in 2018.
Daily average oil prices reached a low at the end of April before the OPEC+ supply curtailments came into effect. Brent crude oil prices fell to around $14/b. Contract prices of some crude grades, such as West Texas Intermediate (WTI), even traded well below $0/b for a short period. Brent crude oil prices started to recover from May and traded in a price range of around $35-45/b from June. Towards the end of 2020, announcements of promising COVID-19 vaccines supported Brent crude oil prices, allowing them to break through the upper end of this range.
On a yearly average basis, WTI crude oil traded at a discount of about $2.5/b to Brent crude oil in 2020, compared with $7/b in 2019. The discount narrowed from 2019 because falling US supply prevented bottlenecks in
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pipeline capacity from the landlocked Cushing storage hub to the US Gulf Coast. According to the US Energy Information Administration, US crude oil exports increased further to a yearly average of around 3.1 million b/d in 2020, up by 0.1 million b/d from 2019. This helped to ensure a narrow price differential between Brent and WTI.
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Operational risks continued Looking ahead, the IMF’s global economic outlook indicates some increase in global economic growth, which should support oil demand growth.
Demand growth could accelerate further if vaccines can help contain COVID-19 and allow a return to pre-pandemic demand patterns in perhaps two or three years. According to the IEA, global oil demand is projected to increase by around 5.4 million b/d for 2021 to reach 96.6 million b/d. This is still 3.4 million b/d less than in 2019. OPEC+ members may have to carefully balance supply growth with sustained production curtailments in order to achieve price stability. In the near term, once demand has recovered to 2019 levels, the need for OPEC+ cuts may diminish. If there is further demand growth, tightness of supply could even develop. This is because any supply growth from the US shale basins could be limited, since US operators have shifted their focus from volume to value. We expect this shift to be permanent.
The supply growth potential from outside OPEC+ and the USA could be limited by industry-wide lack of investment in new supply projects which also tend to have a long lead time.
In the near term, prices could rise if demand is quicker to recover and OPEC+ members successfully constrain supply. On the other hand, the price environment could weaken if the impact of COVID-19 prevents full demand recovery, and/or OPEC and the non-OPEC resource holders relax their production agreement. The price environment could also weaken if there is an increase in supply from other non-OPEC producers, such as US shale producers.
NATURAL GAS
Global gas demand is estimated to have declined by around 2.4% in 2020, in contrast with the 2.5% annual growth rate observed since the start of the century. The deterioration in gas demand for power generation and in industry was mainly caused by lockdowns related to COVID-19. Resilient gas demand for heating helped offset the overall decline. Demand declined across all regions except non-OECD Asia. In non-OECD Asia, demand grew in China, which experienced a robust recovery after mitigating the impacts of COVID-19. Outside China, aggregate gas demand in non-OECD Asia remained flat year-on-year.
In 2020, global LNG imports were almost unchanged from 2019, rising by about 2 million tonnes year-on-year to 360 million tonnes. Growth in LNG supply capacity was mostly limited to the USA, where 21 million tonnes of new liquefaction started commercial operations in 2020. Liquefaction plants already in operation in the USA responded to the weak gas price environment by significantly curtailing production in the middle of the year. Supply from major LNG-exporting countries such as Egypt, Malaysia and Norway was also lower year-on-year because of operational disruptions and shut-ins to prevent economic losses.
Natural gas prices can vary from region to region.
In the USA, the natural gas price at the Henry Hub averaged $2.0 per million British thermal units (MMBtu) in 2020, 21% lower than in 2019. It traded in a range of $1.5 to 3.2/MMBtu. In the earlier part of 2020, there was downward pressure on prices because of decreased demand from a mild winter, lower LNG exports and a weak domestic market caused by COVID-19. Supply fell because activity declined as producers cut investments and because lower oil production meant there was less associated gas. During the summer, prices found support from growing demand for gas that could generate power for cooling during the hotter months of the year. Later in 2020, demand strengthened because of storage ahead of the winter season and increasing US LNG exports.
In Europe, the average price at the UK National Balancing Point (NBP) in 2020 was 28% lower than in 2019. At the main continental gas trading hubs – in the Netherlands, Belgium and Germany – prices were also lower, as reflected by weaker Dutch Title Transfer Facility (TTF) prices. European gas prices were lower because of: the slump in demand in power generation and
industry; robust supply of pipeline gas; well-filled gas storage inventories at the start of the year; and competition with renewables in power.
We also produce and sell natural gas in regions where supply, demand and regulatory circumstances differ markedly from those in the USA or Europe.
Long-term contracted LNG prices in the Asia-Pacific region in 2020 were lower than in 2019 because they are predominantly indexed to oil prices, particularly the Japan Customs-cleared Crude (JCC) index which dropped by an 32% year-on-year, tracking Brent crude prices. Meanwhile, delivered North Asia spot prices, reflected by the Japan Korea Marker, declined by 20% compared with 2019, because of oversupply in the global LNG market and weak demand.
Looking ahead, we expect gas markets in North America, Europe and Asia-Pacific to find support from markets recovering from the pandemic. Price developments are very uncertain and dependent on many factors.
In the USA, Henry Hub gas prices are expected to increase over the next few years. This is because while production of gas is expected to recover by perhaps late 2021, it could lag behind demand, which may grow earlier, to supply LNG exports and exports to Mexico by pipeline, and to supply residential and industrial users. The Henry Hub gas price could rise more than expected if oil prices stay low, leading to the Permian Basin producing less oil and supplying less associated gas as a result.
On the other hand, if producers increase investments substantially, the extra supply could exert downward pressure on prices.
In Europe, we believe gas prices will be increasingly influenced by the cost of LNG imports from the USA. In the Asia-Pacific region, long-term gas prices are expected to continue to be strongly influenced by oil prices. Spot prices are expected to be increasingly influenced by gas supply and demand fundamentals.
CRUDE OIL AND NATURAL GAS PRICE ASSUMPTIONS
Our ability to deliver competitive returns and pursue commercial opportunities ultimately depends on the accuracy of our price assumptions (see “Risk factors” on page 18). We use a rigorous assessment of short-, medium- and long-term market uncertainties to determine what ranges of future crude oil and natural gas prices to use in project and portfolio evaluations. Market uncertainties include, for example, future economic conditions, geopolitics, actions by major resource holders, production costs, technological progress and the balance of supply and demand. See also Note 8 to the “Consolidated Financial Statements” on pages 182-185.
REFINING MARGINS
| | | | | | | | | | | | | | | | | Refining marker average industry gross margins | | $/b | | 2020 | 2019 | 2018 | | US West Coast | 8.5 | | 13.5 | | 11.5 | | | US Gulf Coast Coking | 2.3 | | 4.9 | | 7.0 | | | Rotterdam Complex | 0.4 | | 2.3 | | 2.5 | | | Singapore | (0.5) | | (0.6) | | 1.4 | |
Industry gross refining margins weakened in 2020 because demand for oil products was significantly reduced by the fall in economic activity and increase in travel restrictions caused by COVID-19. Demand for transportation fuels such as gasoline for passenger cars and kerosene for air transportation was hit particularly hard. During most of the second half of the year, mobility and the resulting demand for transportation fuels improved in some parts of the world, especially in China and South-east Asia. At the end of the year, new waves of COVID-19 infections in Europe and the Americas severely limited any global increase in demand for transportation fuels.
On January 1, 2020, the new International Maritime Organization low-sulphur shipping fuel specification came into effect, limiting the sulphur content of maritime fuel to 0.5%. This had a limited effect on margins because of the economic slowdown in 2020 and because companies had prepared for the new regulations by building inventory in the second half of 2019
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| We are exposed to treasury and trading risks, including liquidity risk, interest rate risk, foreign exchange risk and credit risk. We are affected by the global macroeconomic environment and the conditions of financial and commodity markets. |
Risk description Our subsidiaries, joint arrangements and associates are subject to differing economic and financial market conditions around the world. Political or economic instability affects such markets. We use debt instruments, such as bonds and commercial paper, to raise significant amounts of capital. Should access to debt markets become more challenging, the impact on our liquidity could have a material adverse effect on our operations. Group financing costs could also be affected by interest rate fluctuations or any credit rating deterioration. We are exposed to changes in currency values and to exchange controls as a result of our substantial international operations. Our reporting currency is the US dollar, although, to a material extent, we also hold assets and are exposed to liabilities in other currencies. While we undertake some foreign exchange hedging, we do not do so for all our activities. Even where hedging is in place, it may not function as expected. Commodity trading is an important component of our businesses. Processing, managing and monitoring many trading transactions across the world, some of them complex, exposes us to operational and market risks, including commodity price risks. The Russian invasion of Ukraine has led to supply constraints and increased commodity price volatility in 2022, together with additional sanctions and export controls imposed by countries around the world, both of which have an impact on our trading activities. We use derivative instruments such as futures, options and contracts for difference to hedge market risks. Due to differences between derivative instruments available in the market to hedge market risks and the actual market risks we are exposed to, perfect hedging is not always achievable. Therefore, our hedging has from time to time not functioned as expected and may not function as expected in the future. We are exposed to credit risk; our counterparties could fail or be unable to meet their payment and/or performance obligations under contractual arrangements. Our pension plans invest in government bonds, so they could be affected by a sovereign debt downgrade or other default. If any of the above risks materialise, they could have a material adverse effect on our earnings, cash flows and financial condition. |
| Further information: See "Financial framework" on page 35 and Note 25 to the "Consolidated Financial Statements" on page 273-279. |
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| Our future performance depends on the successful development and deployment of new technologies that provide new products and solutions. |
Risk description Technology and innovation are essential to our efforts to help meet the world’s energy demands competitively. If we fail to effectively develop or deploy new technology, products and solutions, or fail to make full, effective use of our data in a timely and cost-effective manner, there could be a material adverse effect on the delivery of our strategy and our licence to operate. We operate in environments where advanced technologies are used. In developing new technologies, products and solutions, unknown or unforeseeable technological failures or environmental and health effects could harm our reputation and licence to operate or expose us to litigation or sanctions. The associated costs of new technology are sometimes underestimated. Sometimes the development of new technology is subject to delays. If we are unable to develop the right technology and products in a timely and cost-effective manner, or if we develop technologies, products and solutions that harm the environment or people's health, there could be a material adverse effect on our earnings, cash flows and financial condition. |
| Further information: See "Powering Progress strategy" on pages 12-20. |
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| We have substantial pension commitments, the funding of which is subject to capital market risks and other factors. |
Risk description Liabilities associated with defined benefit pension plans are significant, and the cash funding requirement of such plans can also involve significant liabilities. They both depend on various assumptions. Volatility in capital markets or government policies could affect investment performance and interest rates, causing significant changes to the funding level of future liabilities and/or short- term liquidity requirements. Changes in assumptions for mortality, retirement age or pensionable remuneration at retirement could also cause significant changes to the funding level of future liabilities. We operate a number of defined benefit pension plans and, in case of a shortfall, we could be required to make substantial cash contributions (depending on the applicable local regulations). This could result in a material adverse effect on our earnings, cash flows and financial condition. |
| Further information: See "Financial framework" on page 35. |
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| We mainly self-insure our hazard risk exposures. Consequently, we could incur significant financial losses from different types of risks that are not insured with third-party insurers. |
Risk description Our Group insurance companies (wholly owned subsidiaries) provide insurance coverage to Shell subsidiaries and entities in which Shell has an interest. These subsidiaries and entities may also insure a portion of their risk exposures with third parties, but such external insurance would not provide any material coverage in the event of a large-scale safety or environmental incident. Accordingly, in the event of a material incident, we would have to meet our obligations without access to material proceeds from third-party insurers. We have in the past incurred adverse impacts from events, such as Hurricane Ida in 2021. We may, in the future, incur significant losses from different types of hazard risks that are not insured with third-party insurers, potentially resulting in a material adverse effect on our earnings, cash flows and financial condition. |
| Further information: See "Corporate" on page 81. |
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Operational risks continued |
| Many of our major projects and operations are conducted in joint arrangements or with associates. This could reduce our degree of control and our ability to identify and manage risks. |
Risk description When we are not the operator, we have less influence and control over the behaviour, performance and operating costs of joint arrangements or associates. Despite having less control, we could still be exposed to the risks associated with these operations, including reputational, litigation (where joint and several liability could apply) and government sanction risks. For example, our partners or members of a joint arrangement or an associate, (particularly local partners in developing countries), may be unable to meet their financial or other obligations to projects, threatening the viability of a given project. Where we are the operator of a joint arrangement, the other partner(s) could still be able to veto or block certain decisions, which could be to our overall detriment. Accordingly, where we have limited influence, we are exposed to operational risks that could have a material adverse effect on our earnings, cash flows and financial condition. |
| Further information: See "Governance framework" on page 144. |
|
The destruction of demand caused by COVID-19 led to industry idling some refinery capacity. Permanent refinery closures were also announced in 2020, but construction of new capacity did occur during the year, especially in the Middle East and Asia. | | |
| Conduct and culture risks |
| We are exposed to regulatory and conduct risk in our trading operations. |
Risk description Commodity trading is an important component of our Upstream, Integrated Gas, Renewables and Energy Solutions, and Chemicals and Products businesses. Our commodity trading entities are subject to many regulations including requirements for standards of conduct. The risk of ineffective controls, poor oversight of trading activities, and the risk that traders could deliberately operate outside compliance limits and controls, either individually or as a group, has occurred. This has resulted in losses in the past and may result in further losses in the future. The rapidly changing regulatory environment creates a risk of insufficient, delayed or incorrect implementation of new or changes to existing regulatory requirements. Violations of such regulatory requirements could also expose us and/or our employees to regulatory fines and have an adverse effect on our licence to operate. These risks could have a material adverse effect on our earnings, cash flows, reputation and financial condition. |
| Further information: See "Other regulatory and statutory information" on page 201 and Note 25 to the "Consolidated Financial Statements" on pages 273-279. |
|
| Violations of antitrust and competition laws carry fines and expose us and/or our employees to criminal sanctions and civil suits. |
Risk description Antitrust and competition laws apply to Shell and its joint arrangements and associates in the vast majority of countries where we do business. Shell and its joint arrangements and associates have been fined for violations of antitrust and competition laws in the past. This includes a number of fines by the European Commission Directorate-General for Competition (DG COMP). Because of DG COMP’s fining guidelines, any future conviction of Shell or any of its joint arrangements or associates for violation of EU competition law could potentially result in significantly larger fines and have a material adverse effect on us. Violation of antitrust laws is a criminal offence in many countries, and individuals can be imprisoned or fined. In certain circumstances, directors may receive director disqualification orders. It is also now common for persons or corporations allegedly injured by antitrust violations to sue for damages. Any violation of these laws can harm our reputation and could have a material adverse effect on our earnings, cash flows and financial condition. |
| Further information: See "Powering lives" on page 123 and "Other regulatory and statutory information" on page 201. |
|
| Violations of anti-bribery, tax-evasion and anti-money laundering laws carry fines and expose us and/or our employees to criminal sanctions and civil suits. |
Risk description Anti-bribery, tax-evasion and anti-money laundering laws apply to Shell, its joint arrangements and associates in all countries where we do business. Shell and its joint arrangements and associates have in the past settled with the US Securities and Exchange Commission regarding violations of the US Foreign Corrupt Practices Act. Any violation of anti-bribery, tax-evasion or anti-money laundering laws, including potential violations associated with Shell Nigeria Exploration and Production Company Limited's investment in Nigerian oil block OPL 245 and the 2011 settlement of litigation pertaining to that block, could harm our reputation or have a material adverse effect on our earnings, cash flows and financial condition. Violations of such laws also could expose us and/or our employees to criminal sanctions, civil suits and other consequences, such as debarment and the revocation of licences. |
| Further information: See "Powering lives" on page 123, "Other regulatory and statutory information" on page 201 and Note 31 to the "Consolidated Financial Statements" on pages 283-285. |
|
The outlook for refining margins for the next few years will be influenced by the uncertainty around the pace of economic and demand recovery from the pandemic, and by the continued addition of new refinery capacity in the Middle East and Asia, often integrated with chemicals production. On balance, refining marker margins are expected to remain under pressure for 2021.
PETROCHEMICAL MARGINS
| | | | | | | | | | | |
| | | |
| Cracker industry margins [A] | | $/tonne |
| 2020 | 2019 | 2018 |
| North East/South East Asia naphtha | 362 | | 302 | | 594 | |
| Western Europe naphtha | 513 | | 528 | | 562 | |
| US ethane | 433 | | 440 | | 412 | |
[A] ICIS data is quoted. Cracker margins have been revised from the fourth quarter 2019 onwards due to updated cracker margin calculation methodology by ICIS. Further revisions based on available market information to external industry data provider up to the end of the period.
Cracker margins were volatile during 2020 because of how COVID-19 affected demand. Overall margins, however, were broadly similar to those in 2019. The effect on chemicals depended on end use. Some sectors, such as automotive, were hit particularly hard, while others, such as packaging, showed robust demand. Chinese demand recovered relatively quickly because the virus was swiftly brought under control. Overall chemicals demand was not hit as hard as GDP. West European cracker margins were supported by the sudden fall in the price of crude oil in March and April. The fact that crude oil was at a lower price than in 2019 reduced naphtha feedstock costs, which reduced product prices. This in turn put pressure on US ethane cracker margins, although plentiful ethane supply helped counter the impact.
The outlook for petrochemical margins in 2021 and beyond depends on feedstock costs and supply and demand balances. Demand for petrochemicals will be affected by the speed and extent of recovery from the COVID-19 pandemic. Supply of petrochemicals will depend on the net capacity effect of new builds and plant closures (taking into account any delays or cancellations in building new plants or closing old ones). Product prices reflect the prices of raw materials, which are closely linked to crude oil and natural gas prices. The balance of all these factors will drive margins.
The statements in this “Market overview” section, including those related to our price forecasts, are forward-looking statements based on management’s current expectations and certain material assumptions and, accordingly, involve risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied herein. See “About this Report” on pages 8-9 and “Risk factors” on pages 18-22.
| | | | | | | | |
| 28 | STRATEGIC REPORT SHELL FORMShell | Form 20-F 20202022 |
Strategic Report
Risk Factors continued
| | |
Conduct and culture risks continued |
| Violations of data protection laws carry fines and expose us and/or our employees to criminal sanctions and civil suits. |
Risk description Data privacy and the management of personal data have become an issue of increasing importance and focus for companies and regulators in recent years. Following the implementation of the EU General Data Protection Regulation (GDPR) in May 2018, we have on a global basis seen updates to, or the introduction of, data privacy laws largely based on the GDPR. More than 100 countries globally now have data privacy laws. Shell companies are increasingly processing large volumes of personal data as we continue to acquire small companies with relatively large amounts of customer data. As we accelerate the delivery of our Powering Progress strategy, we expect to acquire an increasing number of companies. In doing so, we must consider how this is done responsibly, including managing cyber risks and managing personal data effectively. In some countries that are key to Shell’s business operations, such as China, relevant legislation continues to be amended or introduced. Shell must be able to adapt dynamically to such legislative changes and be capable of updating our internal programmes if necessary. Many countries require mandatory notification of data breaches often within short time frames (72 hours under the GDPR) in certain situations. In these circumstances we might be required to report to affected individuals and regulators in the relevant countries. Non-compliance with data protection laws could harm individuals and expose us to regulatory investigations. This could result in fines, which could be up to 4% of global annual turnover if under the GDPR; orders to stop processing certain data; harm to our reputation; and loss of the trust of existing and potential customers, stakeholders, governments, and employees. With regard to data breaches, we notified a number of data privacy regulators in 2022 of personal data breaches and have had fines issued against us. In addition to imposing fines, regulators may also issue orders to stop processing personal data, which could disrupt operations. We could also be subject to litigation from persons or entities allegedly affected by data protection violations. Violation of data protection laws is a criminal offence in some countries, and individuals can be imprisoned or fined. Any violation of these laws could harm our reputation and have a material adverse effect on our earnings, cash flows and financial condition. |
| Further information: See "Other regulatory and statutory information" on page 201. |
|
| Violations of trade compliance laws and regulations, including sanctions, carry fines and expose us and our employees to criminal proceedings and civil suits. |
Risk description We use "trade compliance" as an umbrella term for various national and international laws designed to regulate the movement of items across national boundaries and restrict or prohibit trade, financial flows and other dealings with certain parties, countries and territories. For example, the EU and the USA continue to impose comprehensive sanctions on countries and territories such as Syria, North Korea, and Crimea and other territories in Eastern Ukraine. The USA continues to have comprehensive sanctions against Iran and Cuba. The EU, UK and some other nations such as Canada and Australia continue to maintain targeted sanctions against Iran. The EU and the USA introduced sectoral sanctions against Venezuela in 2017, which the USA expanded in 2018 and 2019. The US sanctions primarily target the government of Venezuela and the oil and gas industry. In 2014, the EU and the USA imposed additional restrictions and controls directed at defined oil and gas activities in Russia, as well as restricting access to EU and USA financing sources for certain Russian state-owned entities and military and dual use controls. These remain in force. The USA introduced further restrictions regarding Russia in 2017, expanding them in 2018. In February 2022, countries around the world began imposing additional sanctions and export controls against Russia over its invasion of Ukraine including regional trade bans, designations of entities (including Russian banks and state-owned entities) and individuals as Specially Designated Nationals and Blocked Parties, and restrictions on access by Russia to financial systems. Export controls have also been introduced targeting Russian defence, aerospace, oil and gas related technology, IT and maritime sectors. The EU, USA and UK have also adopted a significant number of trade controls on oil, petroleum products and a wide range of products and technologies. These restrictions are subject to different wind-down periods and limited exceptions. Furthermore, it is likely that sanctions against Russia will continue to escalate. A number of countries have also implemented significant new sanctions against Belarus for its role in the Russian invasion. Russia has in turn adopted a significant number of countermeasures including making it an offence to take steps to comply with foreign sanctions. Many other nations are also adopting trade compliance programmes similar to those administered by the EU and the USA. Since January 2021, the UK has maintained a legal framework for trade compliance that is separate and distinct from those of the EU and the USA. Abiding by all the laws and regulations on trade compliance and sanctions is often complex and challenging because of factors such as: the expansion of sanctions; the frequent addition of prohibited parties as well as other measures; the number of markets in which we operate; the risk of differences in how jurisdictions apply sanctions; and the large number of transactions we process. Shell has voluntarily self-disclosed potential violations of sanctions in the past. Any violation of sanctions could lead to loss of import or export privileges and significant penalties on or prosecution of Shell or its employees. This could harm our reputation and have a material adverse effect on our earnings, cash flows and financial condition. |
| Further information: See "Other regulatory and statutory information" on page 201. |
|
Strategic Report
Risk Factors continued
Investors should also consider the following, which could limit shareholder remedies.
| | |
Other (generally applicable to an investment in securities) |
| The Company’s Articles of Association determine the jurisdiction for shareholder disputes. This could limit shareholder remedies. |
Risk description Our Articles of Association generally require that all disputes between our shareholders in such capacity and the Company or our subsidiaries (or our Directors or former Directors), or between the Company and our Directors or former Directors, be exclusively resolved by arbitration in The Hague, the Netherlands, under the Rules of Arbitration of the International Chamber of Commerce. At the 2023 AGM, shareholders will be asked to approve updated Articles of Association that change the place of any arbitration to London, the United Kingdom. Our Articles of Association also provide that, if this provision is to be determined invalid or unenforceable for any reason, the dispute could only be brought before the courts of England and Wales. Accordingly, the ability of shareholders to obtain monetary or other relief, including in respect of securities law claims, could be determined in accordance with these provisions. |
|
Progress on strategy –
year in review
| | | | | | | | | | | | | | |
| Performance indicators | | | | |
| | Financial delivery | |
| These indicators enable management to evaluate Shell’s performance against our strategy and operating plans during the year. They are also used as part of the determination of Executive Directors’ remuneration. See "Directors’ Remuneration Report" on pages 166-170. | | | Cash flow from operating activities ($ billion) | |
| | 68 2021: 45 | |
| | Cash flow from operating activities is the total of all the cash receipts and payments associated with our sales of oil, gas, chemicals and other products. The components that provide a reconciliation from income for the period are listed in the "Consolidated Statement of Cash Flows". This indicator reflects our ability to generate cash to service and reduce our debt and for distributions to shareholders and for investments. | |
| | See "Financial framework" on page 36. | |
| | | |
| | | | |
| | | | |
| | | Progress in the energy transition | |
| | | Selling lower-carbon products (%) | |
| | | 60 2021: 65 | |
| | | The percentage of Marketing segment Adjusted Earnings from lower-carbon energy products (on a life cycle basis), defined as biofuels and EV charging, as well as non-energy products, defined as lubricants, bitumen, sulphur, and earnings from convenience retail. | |
| | | See "Our journey to net zero" on pages 105-106. | |
| | | | |
| | | Reducing operational emissions (thousand tonnes CO2) | |
| | | 2,010 2021: 3,988 | |
| | | GHG abatement projects in 2022 that resulted in sustained GHG reductions (e.g. flare reduction projects or energy efficiency projects), site closures and decommissioning or transformations, and use of renewable electricity for Scope 2 reduction. | |
| | | See "Our journey to net zero" on pages 105-106. | |
| | | | |
| | | Electric vehicle (EV) charge points (thousand) | |
| | | 139 2021: 86 | |
| | | All charge points in Mobility organisation which includes both public out-of-home and Shell Recharge Solutions. | |
| | | See "Our journey to net zero" on pages 105-106. | |
| | | | |
Performance indicators continued
| | | | | | | | |
| | |
| SUMMARY OF RESULTSOperational excellence | |
| | | | | | | | |
| Asset management excellence | |
| Upstream controllable availability (%) | |
| 84.72021: 87.8 | |
| Upstream controllable availability performance reflects our ability to optimally run our Upstream assets. Reliability issues, turnarounds and maintenance at own-operated or third-party facilities all impact controllable availability, but it excludes the impact of extreme unexpected events that are outside our control such as government restrictions and hurricanes. Upstream controllable availability includes all Shell-operated assets (excluding Groningen) and selected assets not operated by Shell, but for which Shell has strategic influence. | |
| | |
| Midstream availability (%) | |
| 89.3 2021: 87.3 | |
| Midstream availability shows to what extent liquefied natural gas (LNG) assets are ready to process product as a comparison with capacity, considering the impact of planned and unplanned maintenance. | |
| | |
| Refinery and chemical plant availability (%) | |
| 95.5 2021: 95.6 | |
| Refinery and chemical plant availability is the weighted average of the actual uptime of plants as a percentage of their maximum possible uptime. The weighting is based on the capital employed, adjusted for cash and non-current liabilities. This indicator is a measure of the operational excellence of our refinery and chemical plant facilities. | |
| | |
| | | | | | | | |
| Project delivery excellence | |
| Project delivery on schedule (%) | |
| 69 2021: 87 | |
| Project delivery reflects our capability to complete major projects on time and within budget on the basis of the targets set in our annual business plan. Project delivery on schedule measures the percentage of projects delivered on schedule. | |
| | |
| Project delivery on budget (%) | |
| 1032021: 104 | |
| Project delivery on budget reflects the aggregate cost against the aggregate budget for those projects, where a figure greater than 100% means over budget. |
| | |
| Customer excellence | |
| Customer satisfaction (index) | |
| 8.3 2021: 8.2 | |
| The customer satisfaction index (CSI) score is generated from a transactional survey programme measuring performance (customer interactions). CSI is calculated as the average of customer satisfaction scores from email surveys. | |
| | |
| Brand preference (%) | |
| 13.8 2021: 14.2 | |
| Brand Share Preference is the percentage of customers who answer 'Shell' in response to the question: "Assuming that all the fuel station companies that you would consider are conveniently located, which ONE company do you prefer most?". Responses are taken from survey respondents in more than 60 countries covering both fuel and non-fuel retail B2C customers. | |
| | |
| | |
| | | | | | | | |
| | |
| Personal safety
(SIF-F cases per 100 million working hours) | |
| 1.7 2021: 6.9 | |
| Serious Injury, Illness and Fatality (SIF) is defined as a serious work-related injury or illness that resulted in fatality or a life-altering event, which is defined as a long-term or permanent injury or illness with significant impact on daily activities. Serious Injury and Fatality Frequency (SIF-F) is calculated by dividing the number of employee and contractor SIF by 100 million working hours. | |
| See "Safety" on page 125. | |
| | |
| | | | | | | | |
| | |
| Process safety (number of events) | |
| 66 2021: 103 [A] | |
| A Tier 1 process safety event is an unplanned or uncontrolled release of any material, including non-toxic and non-flammable materials, from a process with the greatest actual consequence resulting in harm to employees, contract staff, or a neighbouring community, damage to equipment, or exceeding a threshold quantity, as defined by the API Recommended Practice 754 and IOGP Standard 456. A Tier 2 process safety event is a release of lesser consequence. | |
| See "Safety" on page 125. | |
| [A]2021 adjustment on Tier 1+2 count from 102 to 103 due to an event identified after publication. | |
| | | | | | | | | | | |
| | | |
| $ million, except where indicated |
| 2020 | 2019 | 2018 |
| (Loss)/income for the period | (21,534) | | 16,432 | | 23,906 | |
| Current cost of supplies adjustment | 1,833 | | (605) | | 458 | |
| Total segment earnings [A][B], of which: | (19,701) | | 15,827 | | 24,364 | |
| Integrated Gas | (6,278) | | 8,628 | | 11,444 | |
| Upstream | (10,785) | | 3,855 | | 6,490 | |
| Oil Products | (494) | | 6,139 | | 6,025 | |
| Chemicals | 808 | | 478 | | 1,884 | |
| Corporate | (2,952) | | (3,273) | | (1,479) | |
| Identified Items [B] | (24,767) | | (1,192) | | 2,429 | |
| Adjusted Earnings [B] | 4,846 | | 16,462 | | 21,404 | |
| Capital expenditure | 16,585 | | 22,971 | | 23,011 | |
| Cash capital expenditure [B] | 17,827 | | 23,919 | | 24,078 | |
| Operating expenses [B] | 34,789 | | 37,893 | | 39,316 | |
| Return on average capital employed [B] | (6.8) | % | 6.7 | % | 9.4 | % |
| Net Debt at December 31 [B] | 75,386 | | 79,093 | | 51,428 | |
| Gearing at December 31 | 32.2 | % | 29.3 | % | 20.3 | % |
| Oil and gas production (thousand boe/d) | 3,386 | | 3,665 | | 3,666 | |
| Proved oil and gas reserves at December 31 (million boe) | 9,124 | | 11,096 | | 11,578 | |
Strategic Report | Progress on strategy – year in review
Generating shareholder value
Group results
| | | | | | | | | | | |
| | $ million, except where indicated |
| 2022 | 2021 | 2020 |
| Income/(loss) attributable to Shell plc shareholders | 42,309 | 20,101 | (21,680) |
| Income attributable to non-controlling interest | 565 | 529 | 146 |
| Income/(loss) for the period | 42,874 | 20,630 | (21,534) |
| Current cost of supplies adjustment | (1,312) | (3,148) | 1,833 |
| Total segment earnings [A][B][C], of which: | 41,562 | 17,482 | (19,701) |
| Integrated Gas | 22,212 | 8,060 | (7,230) |
| Upstream | 16,222 | 9,603 | (9,300) |
| Marketing | 2,133 | 3,535 | 4,081 |
| Chemicals and Products | 4,515 | 404 | (3,821) |
| Renewables and Energy Solutions | (1,059) | (1,514) | (479) |
| Corporate | (2,461) | (2,606) | (2,952) |
| Identified Items [C] | 1,243 | (2,216) | (24,767) |
| Adjusted Earnings [C] | 39,870 | 19,289 | 4,846 |
| Adjusted EBITDA [C] | 84,289 | 55,004 | 36,533 |
| Capital expenditure | 22,600 | 19,000 | 16,585 |
| Cash capital expenditure [C] | 24,833 | 19,698 | 17,827 |
| Operating expenses [C] | 39,477 | 35,964 | 34,789 |
| Underlying operating expenses [C] | 39,456 | 35,309 | 32,502 |
| Return on average capital employed [C] | 16.7% | 8.8% | (6.8)% |
| Net Debt at December 31 [D] | 44,837 | 52,556 | 75,386 |
| Gearing at December 31 [D] | 18.9% | 23.1% | 32.2% |
| Oil and gas production (thousand boe/d) | 2,864 | 3,237 | 3,386 |
| Proved oil and gas reserves at December 31 (million boe) | 9,578 | 9,365 | 9,124 |
| | | |
[A]Segment earnings are presented on a current cost of supplies basis. See Note 48 to the “Consolidated"Consolidated Financial Statements”Statements" on pages 177-180.245-249.
[B]Revised to conform with reporting segment changes applicable from January 1, 2022.
[C]See “Non-GAAP"Non-GAAP measures reconciliations”reconciliations" on pages 240-242.331-334.
EARNINGS 2020-2019Earnings 2022-2021
Income attributable to Shell plc shareholders in 2022 was $42,309 million, compared with $20,101 million in 2021. With non-controlling interest included, income for the period in 2022 was a loss of $21,534$42,874 million, compared with $20,630 million in 2020, compared with earnings of $16,432 million in 2019.2021. After current cost of supplies adjustment, total segment earnings in 2022 were a loss of $19,701$41,562 million, compared with $17,482 million in 2020, compared with earnings of $15,827 million in 2019.
Earnings on a current cost of supplies basis (CCS earnings) exclude the effect of changes in the oil price on inventory carrying amounts, after making allowance for the tax effect. The purchase price of volumes sold in the period is based on the current cost of supplies during the same period, rather than on the historic cost calculated on a first-in, first-out (FIFO) basis. Therefore, whenWhen oil prices are decreasing, CCS earnings are likely to be higher than earnings calculated on a FIFO basis and, when prices are increasing, CCS earnings are likely to be lower than earnings calculated on a FIFO basis.
Integrated Gas earnings in 20202022 were a loss of $6,278$22,212 million, compared with earnings of $8,628$8,060 million in 2019. The decrease was mainly driven by higher impairments, lower realised oil, LNG and gas prices, higher charges related to fair value accounting of commodity derivatives and lower contributions from marketing and trading. These effects were partly offset by lower operating expenses. See “Integrated Gas” on pages 30-35.
Upstream earnings in 2020 were a loss of $10,785 million, compared with earnings of $3,855 million in 2019. The decrease was mainly driven by lower realised oil and gas prices, higher impairments, higher losses on sales of assets, lower production volumes and unfavourable deferred tax movements.This was partly offset by lower operating expenses and lower well write-offs. See “Upstream” on pages 36-42.
Oil Products earnings in 2020 were a loss of $494 million, compared with earnings of $6,139 million in 2019. The decrease was mainly driven by higher impairments, lower combined Refining and Trading margins as well as lower marketing margins. This was partly offset by lower operating expenses and other items mainly including taxation movements. See “Oil Products” on pages 51-56.
Chemicals earnings in 2020 were $808 million, compared with $478 million in 2019.2021. The increase was mainly driven by lower taxthe combined effect of higher realised prices and operating expenses and higher chemicals prices, which was partly offset by higher redundancy and restructuring charges and higher depreciation, depletion and amortisation. See "Chemicals" on pages 57-59.
Corporate segment in 2020 was an expense of $2,952 million, compared with $3,273 million in 2019. The lower expense was mainly driven by the favourable deferred tax movements. See “Corporate” on page 60.
EARNINGS 2019-2018
Income for the period was $16,432 million in 2019, compared with $23,906 million in 2018. After current cost of supplies adjustment, total segment earnings were $15,827 million in 2019, compared with $24,364 million in 2018.
Integrated Gas earnings in 2019 were $8,628 million, compared with $11,444 million in 2018. The decrease was mainly driven by lower gains on sale of assets, lower realised oil, LNG and gas prices, higher impairments, higher operating expenses, negative movements in deferred tax positions and lower liquids production volumes. These effects were partly offset by stronger contributions from LNG marketingtrading and trading,optimisation, and gains related to the fair value accounting of commodity derivatives. See “Integrated Gas” on pages 30-35.
Upstream earnings in 2019 were $3,855 million, compared with $6,490 million in 2018. The decrease was mainly driven by higher impairments, lower realised oil and gas prices, higher depreciation and higher well write-offs. This was partly offset by increased gains on sale of assetslower volumes and higher volumes. See “Upstream” on pages 36-42.operating expenses.
| | |
| See "Integrated Gas" on pages 42-47. |
Oil ProductsUpstream earnings in 20192022 were $6,139$16,222 million, compared with $6,025$9,603 million in 2018.2021. The increase was mainly driven by higher Marketing marginsrealised prices, gains relating to storage and lower operating expensesworking gas transfer effects and impairment reversals. This was partly offset by lower Refiningvolumes, mainly as a result of divestments, and Trading margins . See "Oil Products" on pages 51-56.charges relating to the EU solidarity contribution and UK Energy Profits Levy.
Chemicals earnings in 2019 were $478 million, compared with $1,884 million in 2018. The decrease was mainly driven by lower margins and higher legal provisions. See "Chemicals" | | |
See "Upstream" on pages 57-59.
Corporate segment in 2019 was an expense of $3,273 million, compared with $1,479 million in 2018. The higher loss was mainly driven by the introduction of IFRS 16 and reduced capitalised interest, as well as reduced tax credits from financing and one-off charges. See “Corporate” on page 60.
|
| | | | | | | | |
| 33 | STRATEGIC REPORT SHELL FORMShell | Form 20-F 20202022 | 26 | |
Generating shareholder value | Group results continued
PRODUCTION AVAILABLE FOR SALEMarketing earnings in 2022 were $2,133 million, compared with $3,535 million in 2021. The decrease was mainly driven by higher operating expenses (including the effects of higher volumes), net losses on the sale of assets compared with net gains in 2021, and higher impairment charges. These were partly offset by higher margins.
| | |
See "Marketing" on pages 64-68. |
Chemicals and Products earnings in 2022 were $4,515 million, compared with $404 million in 2021. The increase was mainly driven by higher Products margins (reflecting higher Refining margins and higher contributions from trading and optimisation), and lower impairment charges. These were partly offset by lower Chemicals margins and higher operating expenses.
| | |
| See "Chemicals and Products" on pages 69-76. |
Renewables and Energy Solutions earnings in 2022 were a loss of $1,059 million, compared with a loss of $1,514 million in 2021. The decrease in the loss was mainly driven by higher contributions from trading and optimisation for gas and power. This was partly offset by higher net losses related to the fair value accounting of commodity derivatives and higher operating expenses.
| | |
See "Renewables and Energy Solutions" on pages 77-80. |
Corporate segment earnings in 2022 were an expense of $2,461 million, compared with an expense of $2,606 million in 2021. The lower expense was mainly driven by favourable movements in net interest expense. This was partly offset by lower tax credits and unfavourable currency exchange effects.
| | |
See "Corporate" on page 81. |
Prior year earnings summary
Our earnings summary for the financial year ended December 31, 2021, compared with the financial year ended December 31, 2020, can be found in the Annual Report and Accounts (page 34) and Form 20-F (page 33) for the year ended December 31, 2021, as filed with the Registrar of Companies for England and Wales and the US Securities and Exchange Commission, respectively.
Production available for sale
Oil and gas production available for sale in 20202022 was 1,239 million barrels of oil equivalent (boe), or 3,3862,864 thousand boe per day (boe/d), compared with 1,338 million boe, or 3,6653,237 thousand boe/d in 2019. In 2020, lower production
2021. This net reduction was due to the impact ofmainly driven by divestments, higher maintenance demand reductionactivities, and OPEC+ restrictions. New net field declines, partly offset by new
fields and ramp-ups offset the impact of field declines.ramp-ups.
| | | | | | | | | | | |
| | | |
Oil and gas production available for sale [A] | Thousand boe/d |
| 2020 | 2019 | 2018 |
| Crude oil and natural gas liquids | 1,752 | | 1,823 | | 1,749 | |
| Synthetic crude oil | 51 | | 52 | | 53 | |
| Natural gas [B] | 1,583 | | 1,790 | | 1,863 | |
| Total | 3,386 | | 3,665 | | 3,666 | |
| Of which: | | | |
| Integrated Gas | 911 | | 922 | | 957 | |
| Upstream | 2,424 | | 2,691 | | 2,656 | |
| Oil sands (reported as part of Oil Products) | 51 | | 52 | | 53 | |
| | |
| Oil and gas production available for sale [A] |
| | | | | | | | | | | |
| | Thousand boe/d |
| 2022 | 2021 | 2020 |
| Crude oil and natural gas liquids | 1,460 | 1,685 | 1,752 |
| Synthetic crude oil | 46 | 54 | 51 |
| Natural gas [B] | 1,357 | 1,498 | 1,583 |
| Total | 2,864 | 3,237 | 3,386 |
| Of which: | | | |
| Integrated Gas | 921 | 1,004 | 1,011 |
| Upstream | 1,897 | 2,178 | 2,324 |
| Oil sands (part of Chemical and Products) | 46 | 54 | 51 |
[A]See “Oil"Oil and gas information”information" on pages 43-50.60-61.
[B]Natural gas volumes are converted into oil equivalent using a factor of 5,800 scf
per barrel.
PROVED RESERVESProved reserves
The proved oil and gas reserves of Shell subsidiaries and the Shell share of the proved oil and gas reserves of joint ventures and associates are summarised in “Oil"Oil and gas information”information" on pages 43-5056-58 and set out in more detail in “Supplementary"Supplementary information –
oil and gas (unaudited)”" on pages 211-228.
Before taking production into account, our proved reserves decreasedincreased by 6861,304 million boe in 2020. This comprised decreases of 614 million boe from Shell subsidiaries and decreases of 72 million boe from the Shell share of joint ventures and associates. The decrease from Shell subsidiaries included a net decrease of 607 million boe from revisions and reclassifications, an increase of 88 million from extensions and discoveries and a net decrease of 95 million boe related to purchases and sales of minerals in place. The decrease of 72 million boe from the Shell share of joint ventures and associates
comprises a net decrease of 73 million boe from revisions and reclassifications.
In 2020, total2022. Total oil and gas production was 1,286
1,091 million boe, of which 1,239 million boe was available for sale and 47 million boe was consumed in operations. Production available for sale from subsidiaries was 1,104 million boe and 40 million boe was consumed in operations. The Shell share of the production available for sale of joint ventures and associates was 135 million boe and 7 million boe was consumed in operations.
boe. Accordingly, after taking production into account, our proved reserves decreasedincreased by 1,972213 million boe in 2020,2022, to 9,1249,578 million boe at December 31, 2020, with a decrease of 1,758 million boe from subsidiaries2022.
Cash capital expenditure and a decrease of 214 million boe from the Shell share of joint ventures and associates.
CASH CAPITAL EXPENDITURE AND OTHER INFORMATIONother information
Cash capital expenditure was $17.8 billion$24,833 million in 2020,2022, compared
with $19,698 million in 2021.
Operating expenses were $39,477 million in 2022, compared with $23.9 billion$35,964 million in 2019.
Operating2021. Underlying operating expenses decreased by $3.1 billionwere $39,456 million, compared with $35,309 million in2020, to $34.8 billion.
Our return on average capital employed (ROACE) decreasedincreased to (6.8)%16.7%, compared with 6.7%8.8% in 2019,2021, mainly driven by lower income in 2020.
Net debt was $75.4 billion$44,837 million at the end of 2020,2022, compared with $79.1 billion$52,556 million at the end of 2019,2021, mainly driven by lower share buybacks and dividend payments.
Gearing was 32.2%18.9% at the end of 2020,2022, compared with 29.3%23.1% at the end of 2019,2021, mainly driven by lower earningsnet debt reduction and higher income which resulted in 2020.higher equity.
Significant accounting estimates and judgements
SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS
See Note 2 to the “Consolidated"Consolidated Financial Statements” Statements"
on pages 169-176.220-230.
Legal proceedings
See Note 31 to the "Consolidated Financial Statements"
on pages 283-285.
Strategic Report | Progress on strategy – year in review
LEGAL PROCEEDINGSGenerating shareholder value
Financial framework
We manage our businesses to deliver strong cash flows, sustain our strategy and create profitable growth. Management applies Shell's cash to support disciplined capital expenditure and maintain a resilient balance sheet; target AA credit metrics through the cycle; deliver a progressive dividend to shareholders with growth of around 4% annually (subject to Board approval); and target total distributions to shareholders of a minimum of 20% and (subject to Board approval and prevailing market conditions) potentially more than 30% of our cash flow from operating activities.
The Board may choose to return cash to shareholders through a combination of dividends and share buybacks. When setting the level of shareholder remuneration, the Board looks at a range of factors, including the macro environment, the underlying business earnings and cash flow of the Group, the current balance sheet, future investment, acquisition and divestment plans, and existing commitments.
Liquidity and capital resources
Shell generated cash flow from operations of $68.4 billion, including a negative impact from working capital of $5.4 billion, and free cash flow of $46.0 billion in 2022, aided by the improving global macro environment for oil and gas businesses, and divestments (for more information on free cash flow see "Non-GAAP measures reconciliations" on pages 331-334). Net debt decreased to $44.8 billion at December 31, 2022 (December 31, 2021: $52.6 billion). Gearing fell to 18.9% at December 31, 2022, compared with 23.1% at December 31, 2021, as higher income increased equity and cash flow generation reduced net debt. Note 20 to the "Consolidated Financial Statements" on pages 259-260 provides information on our debt arrangements, including net debt and gearing definitions.
Liquidity
We satisfy our funding and working capital requirements from the cash generated from our operations, the issuance of debt and divestments. In 2022, access to the international debt capital markets remained strong, with our debt principally financed from these markets through central debt programmes consisting of:
▪a $10 billion global commercial paper (CP) programme, with maturities between 183 days and 364 days;
▪a $10 billion US CP programme, with maturities not exceeding 397 days;
▪an unlimited Euro medium-term note (EMTN) programme (also referred to as the Multi-Currency Debt Securities Programme); and
▪an unlimited US universal shelf (US shelf) registration.
The CP, EMTN and US shelf debt is issued by Shell International Finance B.V., the issuance company for Shell, with its debt being guaranteed by Shell plc (the Company).
We also maintain committed credit facilities. The core facilities were extended in December 2022. Of the $9.92 billion total facility, $1.92 billion matures in 2023, $0.32 billion in 2025 and $7.68 billion in 2026. This remained fully undrawn at December 31, 2022. These core facilities and internally available liquidity provide back-up coverage for our CP programmes. Other than certain borrowing by local subsidiaries, we do not have any other committed credit facilities.
Our total debt decreased by $5.3 billion to $83.8 billion at December 31, 2022. The total debt excluding leases matures as follows: 8% in 2023; 8% in 2024; 11% in 2025; 7% in 2026; and 66% in 2027 and beyond. The portion of debt maturing in 2023 is expected to be repaid from some combination of cash balances, cash generated from operations, divestments and the issuance of new debt.
In 2022, we did not issue any bonds under our US shelf registration or EMTN programme. $175 million of CP was issued in the second quarter, and repaid within the same quarter. CP outstanding was zero at the end of 2022. Management believes it has access to sufficient debt funding sources (capital markets) and to undrawn committed borrowing facilities to meet foreseeable requirements.
While our subsidiaries are subject to restrictions, such as foreign withholding taxes on the transfer of funds in the form of cash dividends, loans or advances, such restrictions are not expected to have a material impact on our ability to meet our cash obligations.
Market risk and credit risk
We are affected by the global macroeconomic environment, as well as financial and commodity market conditions. This exposes us to treasury and trading risks, including liquidity risk, credit risk, and market risk (interest rate risk, foreign exchange risk and commodity price risk). See "Risk factors" on page 27 and Note 25 to the “Consolidated"Consolidated Financial Statements”Statements" on pages 206-208.273-279. The size and scope of our businesses require a robust financial control framework and effective management of our various risk exposures.
We use various financial instruments for managing exposure to commodity price, foreign exchange and interest rate movements. Our treasury and trading operations are highly centralised and seek to manage credit exposures associated with our substantial cash, commodity, foreign exchange and interest rate positions. Our portfolio of cash investments is diversified to avoid concentrating risk in any one instrument, country or counterparty. The use of external derivative instruments is confined to specialist trading and central treasury organisations that have appropriate skills, experience, supervision, control and reporting systems. Credit risk policies are in place to ensure that sales of products are made to customers with appropriate creditworthiness, and include credit analysis and monitoring of customers against counterparty credit limits. Where appropriate, netting arrangements, credit insurance, prepayments and collateral are used to manage credit risk.
Pension commitments
We have substantial pension commitments, the funding of which is subject to capital market risks (see "Risk factors" on page 27). We address key pension risks in a number of ways. Principal among these is the Pensions Forum, chaired by the Chief Financial Officer, which oversees Shell’s input to pension strategy, policy and operation. A risk committee supports the forum in reviewing the results of assurance processes in respect of pensions risks. In general, local trustees manage the funded defined benefit pension plans, with contributions paid based on independent actuarial valuations in accordance with local regulations. Our total employer contributions were $0.7 billion in 2022 and are estimated to be $0.8 billion in 2023.
| | |
| See Note 23 to the "Consolidated Financial Statements" on pages 265-271. |
Strategic Report | Progress on strategy – year in review
Generating shareholder value | Financial framework continued
| | | | | | | | |
| $ million |
| December 31, 2022 | December 31, 2021 |
| Equity attributable to Shell plc shareholders | 190,472 | 171,966 |
| Current debt | 9,001 | 8,218 |
| Non-current debt | 74,794 | 80,868 |
| Total debt [A] | 83,795 | 89,086 |
| Total capitalisation | 274,267 | 261,052 |
[A]Of total debt of $83.8 billion (2021: $89.1 billion), $55.2 billion (2021: $61.5 billion) was unsecured and $28.6 billion (2021: $27.6 billion) was secured. $51.0 billion was issued by Shell International Finance B.V., a 100%-owned subsidiary of Shell plc with its debt guaranteed by Shell plc (December 31, 2021: $54.7 billion). See Note 20 to the "Consolidated Financial Statements" on pages 259-260 for further disclosure on debt.
Guarantees and other off-balance sheet arrangements
There were no guarantees or other off-balance sheet arrangements at December 31, 2022, or December 31, 2021, that were reasonably likely to have a material effect on Shell.
Statement of cash flows
Cash flow from operating activities in 2022 was an inflow of $68.4 billion, compared with $45.1 billion in 2021, mainly due to higher earnings, partly offset by unfavourable working capital movements of $5.4 billion (compared with unfavourable working capital movements of $10.4 billion in 2021). The increase in cash flow from operating activities in 2021, compared with $34.1 billion in 2020, was mainly due to higher earnings, partly offset by unfavourable working capital movements.
Cash flow from investing activities in 2022 was an outflow of $22.4 billion, compared with an outflow of $4.8 billion in 2021. The increased cash outflow was mainly due to lower proceeds from sale of property, plant and equipment in 2022. The decreased cash outflow in 2021 compared with $13.3 billion in 2020 was mainly due to higher proceeds from sale of property, plant and equipment in 2021, including the divestment of our Permian assets in the USA.
Cash flow from financing activities in 2022 was an outflow of $42.0 billion, compared with outflows of $34.7 billion in 2021 and $7.2 billion in 2020, mainly due to higher repurchases of shares of $18.4 billion (2021: $2.9 billion; 2020: $1.7 billion) and net repayment of debt of $7.9 billion (2021: $19.7 billion net repayment; 2020: $5.6 billion net issuance).
Cash and cash equivalents were $40.2 billion at December 31, 2022 (December 31, 2021: $37.0 billion; December 31, 2020: $31.8 billion).
| | |
| See Consolidated Statement of Cash Flows on page 219. |
Cash flow from operating activities
The most significant factors affecting our cash flow from operating activities are earnings, which are mainly impacted by: realised prices for crude oil, natural gas and LNG; production levels of crude oil, natural gas and LNG; chemicals, refining and marketing margins; and movements in working capita and derivative financial instruments.
The impact on earnings from changes in market prices depends on: the extent to which contractual arrangements are tied to market prices; the dynamics of production-sharing contracts; the existence of agreements with governments or state-owned oil and gas companies that have limited sensitivity to crude oil and natural gas prices; tax impacts; and the extent to which changes in commodity prices flow through into operating expenses. Changes in benchmark prices of crude oil and natural gas in any particular period provide only a broad indicator of changes in our Integrated Gas and Upstream earnings in that period. Changes in any one of a range of factors, derived from either within the industry or the broader economic environment, can influence refining and marketing margins. The precise impact of any such changes depends on how the oil markets respond to them. The market response is affected by factors such as: whether the change affects all crude oil types or only a specific grade; regional and global crude oil and refined products inventories; and the collective speed of response of refiners and product marketers in adjusting their operations. As a result, margins fluctuate from region to region and from period to period.
Divestment and cash capital expenditure
The levels of divestment proceeds and cash capital expenditure in 2022 and 2021 reflect our discipline and focus on the Powering Progress strategy. Divestment proceeds for 2022 were $2.1 billion, compared with $15.1 billion in 2021, which included the divestment of the Permian assets.
Cash capital expenditure is used to monitor investing activities on a cash basis, excluding items such as lease additions which do not necessarily result in cash outflows in the period.
| | | | | | | | | | | |
| $ million |
| 2022 | 2021 | 2020 |
| Integrated Gas | 4,265 | 3,502 | 3,566 |
| Upstream | 8,143 | 6,168 | 7,099 |
| Marketing | 4,831 | 2,273 | 1,774 |
| Chemicals and Products | 3,838 | 5,175 | 4,198 |
| Renewables and Energy Solutions | 3,469 | 2,359 | 928 |
| Corporate | 287 | 221 | 262 |
| Total cash capital expenditure | 24,833 | 19,698 | 17,827 |
| | |
| See non-GAAP measures reconciliations on pages 331-334. |
| | | | | | | | |
| 36 | STRATEGIC REPORT SHELL FORMShell | Form 20-F 20202022 | 27 | |
Generating shareholder value | Financial framework continued
Contractual obligations
The table below summarises our principal contractual obligations at December 31, 2022, by expected settlement period. The amounts presented have not been offset by any committed third-party revenue in relation to these obligations.
| | | | | | | | | | | | | | | | | |
| $ billion |
| Less than 1 year | Between
1 and 3 years | Between
3 and 5 years | 5 years
and later | Total |
| Debt [A] | 4.6 | 10.6 | 6.5 | 35.7 | 57.4 |
| Leases | 5.9 | 9.1 | 6.5 | 17.9 | 39.4 |
| Purchase obligations [B] | 34.1 | 30.9 | 18.4 | 63.8 | 147.2 |
| Other long-term contractual liabilities [C] | 0.2 | 0.6 | 0.1 | 0.6 | 1.5 |
| Total | 44.8 | 51.2 | 31.5 | 118.0 | 245.5 |
[A]See Note 20 to the "Consolidated Financial Statements" on pages 259-260. Debt contractual obligations exclude interest, which is estimated to be $1.7 billion payable in less than one year, $3.0 billion between one and three years, $2.5 billion between three and five years, and $14.8 billion in five years and later. For this purpose, we assume that interest rates with respect to variable interest rate debt remain constant at the rates in effect at December 31, 2022, and that there is no change in the aggregate principal amount of debt other than repayment at scheduled maturity as reflected in the table. Lease contractual obligations include interest.
[B]Purchase obligations disclosed in the above table exclude commodity purchase obligations that are not fixed or determinable and are principally intended to be resold in a short period of time through sale agreements with third parties. Examples include long-term non-cancellable LNG and natural gas purchase commitments and commitments to purchase refined products or crude oil at market prices. Inclusion of such commitments would not be meaningful in measuring liquidity and cash flow, as the cash outflows generated by these purchases will generally be offset in the same periods by cash received from the related sales transactions.
[C]Includes obligations included in "Trade and other payables" and provisions related to onerous contracts included in "Decommissioning and other provisions" in "Non-current liabilities" in the "Consolidated Balance Sheet" that are contractually fixed as to timing and amount. In addition to these amounts, Shell has certain obligations that are not contractually fixed as to timing and amount, including contributions to defined benefit pension plans (see Note 23 to the "Consolidated Financial Statements" on pages 265-271) and obligations associated with decommissioning and restoration (see Note 24 to the "Consolidated Financial Statements" on page 272-273).
Dividends
Subject to Board approval, Shell aims to grow the dividend per share by around 4% every year. In total, Shell targets the distribution of a minimum of 20% and, subject to Board approval and prevailing market conditions, potentially more than 30% of our cash flow from operations to shareholders. Shell may choose to return cash to shareholders through a combination of dividends and share buybacks.
When setting the level of shareholder distributions, the Board looks at a range of factors, including the macro environment, the earnings and cash flows of the Group, the current balance sheet, future investment, acquisition and divestment plans and existing commitments. We returned $7.4 billion to our shareholders through dividends in 2022.
The fourth quarter 2022 dividend of $0.2875 per share will be paid
on March 27, 2023, to shareholders on the register at February 17, 2023, and represents an increase of 15% compared with the third quarter of 2022.
| | |
PERFORMANCE INDICATORS |
| See Note 29 to the "Consolidated Financial Statements" on page 283. |
Purchases of securities
On February 3, 2022, share buybacks of $8.5 billion for the first
half of 2022 were announced, comprising two programmes which were completed in May 2022 and July 2022. These included the remaining $5.5 billion of the Permian divestment proceeds that had been allocated for share buybacks. On July 28, 2022, and October 27, 2022, the Company announced buybacks of $6 billion and
$4 billion which were completed in October 2022 and January
2023 respectively, leading to a total of $18.4 billion across 2022.
The buybacks were conducted on both London market exchanges
and Amsterdam exchanges.
These indicators enable management to evaluate Shell’s performance against our strategyBetween January 1, 2022, and operating plans. Those that are usedJanuary 28, 2022, 32 million B shares were purchased and cancelled. Over the remainder of 2022, 650 million ordinary shares were purchased and cancelled. Overall,
a total nominal share value of €48 million ($57 million), 9.8% of the Company's total issued share capital at December 31, 2022, was purchased and cancelled during 2022 for a total cost of $18.4 billion, including expenses, at an average price of $26.99 per share.
The buybacks completed in the determinationfirst half of 2022 were in accordance with the Executive Directors’ remuneration are asterisked below and on the following page. See “Directors’ Remuneration Report” on pages 116-119.
FINANCIAL
| | | | | | | | | | | | | | | | | | | | |
| Total shareholder return (%)* | |
| 2020 | (32.7) | | 2019 | 0.5 | | |
Total shareholder return (TSR) is the difference between the share priceauthorities granted by shareholders at the beginning2021 Annual General Meeting (AGM). The buybacks completed in the second half of 2022 were in accordance with the year and the share priceauthorities granted by shareholders at the end2022 AGM. At the 2022 AGM, authority was granted for the Company to repurchase up to a maximum of 10% of its issued ordinary shares, excluding treasury shares, (758 million ordinary shares), both on and off market, allowing purchases on Amsterdam as well as London exchanges. As at December 31, 2022, 416 million ordinary shares could still be repurchased under the year (each averaged over 90 days), plus gross dividends delivered during the calendar year (reinvested quarterly), expressed as a percentagecurrent AGM authorities. The purpose of the share pricerepurchases in 2022 was to reduce the issued share capital of the Company.
New resolutions will be proposed at the beginning of2023 AGM to renew the year (averaged over 90 days). The data used are a weighted average in dollars for A and B shares. The TSRs of major publicly traded oil and gas companies can be compared directly, providing a way to determine how we are performing relative to our industry peers.
| | | | | | | | | | | | | | | | | | | | |
| Cash flow from operating activities ($ million)* | | | |
| 2020 | 34,105 | | 2019 | 42,178 | | |
Cash flow from operating activities is the total of all the cash receipts and payments associated with our sales of oil, gas, chemicals and other products. The components that provide a reconciliation from incomeauthority for the period are listedCompany to purchase its own share capital, up to specified limits, for a further year. These proposals will be described in more detail in the “Consolidated Statement2023 Notice of Cash Flows”. This indicator reflects our abilityAnnual General Meeting.
Shares are also purchased by the employee share ownership trusts and trust-like entities (see Note 27 to generate cash to service and reduce our debt and for distributions to shareholders and for investments. See “Liquidity and capital resources” on pages 61-64.
| | | | | | | | | | | | | | | | | | | | |
| Free cash flow ($ million)* | |
| 2020 | 20,828 | | 2019 | 26,399 | | |
Free cash flow is the sum of "Cash flow from operating activities" and "Cash flow from investing activities", which are listed in the “Consolidated Statement of Cash Flows”. This indicator is used to evaluate the cash available for financing activities, including dividend payments, after investment in maintaining and growing our business. See “Non-GAAP measures reconciliations” on pages 240-242.
| | | | | | | | | | | | | | | | | |
| Organic free cash flow ($ million) |
| 2020 | 17,634 | | 2019 | 20,116 | |
Organic free cash flow is defined as free cash flow excluding the cash flows from acquisition and divestment activities. It is a measure used by management to evaluate the generation of cash flow without these activities. See “Non-GAAP measures reconciliations”"Consolidated Financial Statements" on page 240-242.280) to meet delivery commitments under employee share plans. All share purchases are made in
open-market transactions.
| | | | | | | | | | | | | | | | | | | | |
| Return on average capital employed (%)* | |
| 2020 | (6.8) | | 2019 | 6.7 | | |
ROACE is defined as income forThe table on the period, adjusted for after-tax interest expense, as a percentagenext page provides information on purchases of the average capital employed during the year. Capital employed is the sum of total equityshares in 2022 and total debt. ROACE measures the efficiency of our utilisation of the capital that we employ and is a common measure of business performance. See “Summary of results” on pages 26-27 and “Non-GAAP measures reconciliations” on pages 240-242.
| | | | | | | | | | | | | | | | | |
| Adjusted earnings ($ million) |
| 2020 | 4,846 | | 2019 | 16,462 | |
Adjusted earnings are income/(loss) attributable to shareholders plus cost of sales adjustment and excluding identified items. This measure aims to facilitate a comparative understanding of Shell’s financial performance from period to period by removing the effects of oil price changes on inventory carrying amounts and removing the effects of identified items. These items are in some cases driven by external factors and may, either individually or collectively, hinder the comparative understanding of Shell's financial results from period to period. This measure excludes earnings attributable to non-
controlling interest. See "Note 24 Earnings per Share" on page 206 and “Non-GAAP measures reconciliations” on pages 240-242.
| | | | | | | | | | | | | | | | | |
| Adjusted earnings per share ($) |
| 2020 | 0.62 | | 2019 | 2.04 | |
Adjusted earnings per share is calculated as adjusted earnings, dividedJanuary 2023 by the weighted average number of shares used as the basis for basic earnings per share.See “Non-GAAP measures reconciliations” on pages 240-242.
| | | | | | | | | | | | | | | | | |
| Divestment proceeds ($ million) |
| 2020 | 4,010 | | 2019 | 7,871 | |
Divestment proceeds represent cash received from divestment activitiesCompany and affiliated purchasers. Purchases in the period. This is the sum of the following lines from the "Consolidated Statement of Cash flows": proceeds from sale of property, planteuros and equipment and businesses; proceeds from sale of joint ventures and associates [A]; and proceeds from sale of equity securities.
[A] includes $313 million (2019: $155 million) of long-term loan repayments received from joint ventures and associates
See “Non-GAAP measures reconciliations” on pages 240-242.
| | | | | | | | | | | | | | | | | |
| Cash capital expenditure ($ million) |
| 2020 | 17,827 | | 2019 | 23,919 | |
Cash capital expenditure is the sum of capital expenditure, investments in joint ventures and associates, and investments in equity securities, as reported in the "Consolidated Statement of Cash flows". It is used to monitor investing activities on a cash basis, excluding items such as lease additions that do not necessarily result in cash outflows in the period.See “Non-GAAP measures reconciliations” on pages 240-242.
| | | | | | | | | | | | | | | | | |
| Net debt ($ million) |
| 2020 | 75,386 | | 2019 | 79,093 | |
Net debt is defined as the sum of current and non-current debt, less cash and cash equivalents. The net debt calculation includes the fair value of derivative financial instruments used to hedge foreign exchange, interest rate risks relating to debt and associated collateral balances. The inclusion of these debt-related derivative balances reduces the volatility of net debt caused by fluctuations in foreign exchange and interest rates, and eliminates the potential impact of related collateral payments or receipts.See “Note 14 Debt and Lease Arrangements” on pages 188-190.
| | | | | | | | | | | | | | | | | |
| Gearing (%) |
| 2020 | 32.2 | | 2019 | 29.3 | |
Gearing is defined as net debt as a percentage of total capital (net debt plus total equity) at December 31, and is a measure of the degree to which our operationssterling are financed by debt.See “Liquidity and capital resources” on pages 61-64 and “Note 14 Debt and Lease Arrangements” on pages 188-190.
OPERATIONAL
| | | | | | | | | | | | | | | | | | | | |
| Production available for sale (thousand boe/d)* | |
| 2020 | 3,386 | | 2019 | 3,665 | | |
Production is the sum of all the average daily volumes of unrefined oil and natural gas produced for sale by Shell subsidiaries and Shell’s share of those produced for sale by joint ventures and associates. The unrefined oil comprises crude oil, natural gas liquids (NGLs), synthetic crude oil and bitumen. The gas volume is converted into equivalent barrels of oil to makedollars using the summation possible.See “Summary of results”exchange rate on pages 26-27.
| | | | | | | | | | | | | | | | | | | | |
| LNG liquefaction volumes (million tonnes)* | |
| 2020 | 33.2 | | 2019 | 35.6 | | |
LNG liquefaction volumes is a measure of the operational performance of our Integrated Gas business and LNG market demand.See “Integrated Gas” on pages 30-35.each transaction date.
| | | | | | | | |
| 37 | STRATEGIC REPORT SHELL FORMShell | Form 20-F 20202022 | 28 | |
Generating shareholder value | Financial framework continued
| | | | | | | | | | | | | | | | | | | | |
| Refinery and chemical plant availability (%)* | |
| 2020 | 95.5 | | 2019 | 90.8 | | |
| | |
| Purchases of equity securities by issuer and affiliated purchasers in 2022 [A] |
Refinery | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Euro Shares | | GBP Shares | | ADSs [B] |
| Purchase period | Number
purchased
for employee
share plans | Number
purchased
for cancellation
[C] | Weighted
average
price ($)[D] | | Number
purchased
for employee
share plans | Number purchased for cancellation [C] | Weighted
average
price ($)[D] | | Number
purchased
for employee
share plans | Weighted
average
price ($)[D] |
| January [E] | — | — | — | | — | 31,678,192 | 24.43 | | 1,106,045 | 46.31 |
| February | — | — | — | | — | 46,523,793 | 26.92 | | — | — |
| March | — | — | — | | — | 56,830,503 | 26.32 | | — | — |
| April | — | — | — | | — | 41,502,892 | 27.88 | | — | — |
| May | — | — | — | | — | 74,210,419 | 29.00 | | — | — |
| June | — | — | — | | — | 80,226,377 | 27.43 | | — | — |
| July | — | 2,100,000 | 26.18 | | — | 11,359,217 | 26.07 | | — | — |
| August | — | 37,458,590 | 26.56 | | — | 38,547,931 | 26.55 | | — | — |
| September | — | 46,030,334 | 25.59 | | — | 62,467,606 | 25.70 | | — | — |
| October | — | 10,046,901 | 26.25 | | — | 36,420,460 | 26.12 | | | |
| November | — | 27,532,944 | 27.91 | | — | 21,324,945 | 27.91 | | | |
| December | 13,784,280 | 36,324,940 | 28.42 | | 911,200 | 21,384,292 | 28.29 | | 2,398,670 | 55.63 |
| Total 2022 | 13,784,280 | 159,493,709 | 27.03 | | 911,200 | 522,476,627 | 26.29 | | 3,504,715 | 52.69 |
| January | — | 3,902,011 | 28.34 | | — | 24,834,916 | 28.82 | | 808,490 | 55.87 |
| Total 2023 | — | 3,902,011 | 28.34 | | — | 24,834,916 | 28.82 | | 808,490 | 55.87 |
[A]Reported as at transaction date.
[B]American Depositary Shares.
[C]Under the share buyback programme.
[D]Includes stamp duty and chemical plant availability is the weighted averagebrokers' commission.
[E]On January 29, 2022, one line of shares was established through assimilation of each A share and each B share into one ordinary share of the actual uptimeCompany.
Financial information relating to the Royal Dutch Shell Dividend Access Trust
The results of plants asthe Royal Dutch Shell Dividend Access Trust (the Trust) are included in the consolidated results of operations and financial position of Shell. See "Royal Dutch Shell Dividend Access Trust Financial Statements" on pages 322-325. Certain condensed
financial information in respect of the Trust is given below.
The Shell Transport and Trading Company Limited and BG Group Limited have each issued a percentagedividend access share to Computershare Trustees (Jersey) Limited (the Trustee). For the years 2022, 2021 and 2020, the Trust recorded income before tax of their maximum possible uptime. The weighting is based£nil, £2.2 billion, and £2.8 billion respectively. In each period, this reflected the amount of dividends payable on the capital employed, adjusted for cash and non-current liabilities. This indicator is a measure of the operational excellence of our refinery and chemical plant facilities.See “Oil Products” on pages 51-56 and "Chemicals" on pages 57-59.dividend access shares. Dividends are also classified as unclaimed where amounts have not cleared recipient bank accounts.
| | | | | | | | | | | | | | | | | | | | |
| Project delivery on schedule (%)* | |
| 2020 | 48 | | 2019 | 90 | | |
| Project delivery on budget (%)* | |
| 2020 | 104 | | 2019 | 99 | | |
Project delivery reflects our capability to complete major projects on time and within budget on the basis of the targets set in our annual business plan. Project delivery on schedule measures the percentage of projects delivered on schedule. Project delivery on budget reflects the aggregate cost against the aggregate budget for those projects, where a figure greater than 100% means over-budget.
| | | | | | | | | | | | | | | | | |
| Proved oil and gas reserves (million boe) |
| 2020 | 9,124 | | 2019 | 11,096 | |
Proved oil and gas reserves are the total estimated quantities of oil and gas from Shell subsidiaries and Shell’s share from joint ventures and associates that geoscience and engineering data demonstrate, with reasonable certainty, to be recoverable in future years from known reservoirs, atAt December 31, under existing economic conditions, operating methods2022, the Trust had total equity of £nil (December 31, 2021: £nil; December 31, 2020: £nil), reflecting assets of £6 million (December 31, 2021: £7 million; December 31, 2020: £7 million) and government regulations. Gas volumes are converted into boe usingunclaimed dividends of £6 million (December 31, 2021: £7 million; December 31, 2020: £7 million). The Trust only records a factor of 5,800 scf/b. Reserves estimates are subjectliability for an unclaimed dividend to change owing to a wide variety of factors, some of which are unpredictable.See “Risk factors” on page 18-22, “Summary of results” on pages 26-27, “Oil and gas information” on pages 43-50 and “Supplementary information – oil and gas (unaudited)” on pages 211-228.
SAFETY AND ENVIRONMENT
| | | | | | | | | | | | | | | | | | | | |
| Total recordable case frequency (injuries per million working hours)* | |
| 2020 | 0.7 | | 2019 | 0.9 | | |
Total recordable case frequency (TRCF) is the number of employee and contract staff injuries requiring medical treatmentextent that dividend cheque payments have not been presented within 12 months, have expired or time off for every million hours worked. It is a standard measure of occupational safety.See “Environment and society” on pages 65-72.
| | | | | | | | | | | | | | | | | | | | |
| Number of operational Tier 1 and 2 process safety events* | |
| 2020 | 103 | | 2019 | 130 | | |
A Tier 1 process safety event is an unplanned or uncontrolled release of any material, including non-toxic and non-flammable materials, from a process with the greatest actual consequence resulting in harm to employees, contract staff, or a neighbouring community, damage to equipment, or exceeding a threshold quantity, as defined by the API Recommended Practice 754 and IOGP Standard 456. A Tier 2 process safety event is a release of lesser consequence.See “Environment and society” on pages 65-72.
| | | | | | | | | | | | | | | | | | | | |
| Upstream and Integrated Gas GHG intensity (tonnes of CO₂ equivalent/tonne of hydrocarbon production available for sale)* | |
| 2020 | 0.16 | | 2019 | 0.17 | | |
Upstream/midstream GHG intensity is a measure of GHG emissions (direct and indirect GHG emissions associated with imported energy, excluding emissions from exported energy), expressed in metric tonnes of CO₂ equivalent, emitted into the atmosphere per metric tonne of hydrocarbon production available for sale.See “Climate change and energy transition” on pages 73-85.
| | | | | | | | | | | | | | | | | | | | |
Refining GHG intensity (tonnes of CO₂ equivalent/UEDCTM)* | |
| 2020 | 1.05 | | 2019 | 1.06 | | |
Refining GHG intensity is a measureOn January 29, 2022, one line of GHG emissions (directshares was established through assimilation of each A share and indirect GHG emissions associated with imported energy, excluding emissions from exported energy), expressed in metric tonneseach B share into one ordinary share of CO₂ equivalent, emitted into the atmosphere per unit of Utilised Equivalent Distillation Capacity (UEDCTM). UEDCTM is a proprietary metric of Solomon Associates. It is a complexity-weighted normalisation parameter that reflects the operating cost intensity of a refinery basedCompany. This assimilation had no impact on voting rights or dividend entitlements. Dutch withholding tax, applied previously on dividends on A shares, no longer applies on dividends paid on the sizeordinary shares following the assimilation.
In relation to the assimilation of the Company's A and configurationB shares, the Trust will continue in existence for the foreseeable future to facilitate the payment of its particular mixunclaimed dividend liabilities for shareholders of processthe former B shares until these are either claimed or forfeited in line with the terms outlined.
Strategic Report | Progress on strategy – year in review
Generating shareholder value
Market overview
In 2022, the energy price shock and non-process facilities.See “Climate changerising food prices led to a cost-of-living crisis and energy transition” on pages 73-85.lower economic growth, pushing up inflation to levels not seen for many decades.
| | | | | | | | | | | | | | | | | | | | |
| Chemicals GHG intensity (tonnes of CO₂ equivalent/tonne petrochemicals produced)* | | |
| 2020 | 0.98 | | 2019 | 1.04 | | |
Chemicals GHG intensity is a measure of GHG emissions (direct and indirect GHG emissions associated with imported energy, excluding emissions from exported energy), expressed in metric tonnes of CO₂ equivalent, emitted into the atmosphere per metric tonne of steam cracker, high-value petrochemicals production.See “Climate change and energy transition” on pages 73-85.
| | | | | | | | | | | | | | | | | |
| Number of operational spills of more than 100 kilograms |
| 2020 | 68 | | 2019 | 67 | |
The operational spills indicator is the number of incidents in respect of activities where we are the operator in which 100 kilograms or more of oil or oil productsPrices were spilledalready creeping up as a result of those activitiesthe economic rebound from the pandemic, its lockdowns and reachedrelated supply chain constraints. But inflation soared globally after Russia’s invasion of Ukraine, which triggered the environment. See “Environmentwar that continues today.
Shell maintains a large business portfolio across an integrated value chain and society”is exposed to fluctuating prices of crude oil, natural gas, oil products, chemicals and power (see "Risk factors" on page 65-72.21). This diversified portfolio provides resilience when prices are volatile. Our annual planning cycle and periodic portfolio reviews aim to ensure that our levels of capital investment and operating expenses are appropriate in the context of a volatile price environment.
| | | | | | | | | | | | | | | | | |
| Direct GHG emissions (million tonnes of CO₂ equivalent) |
| 2020 | 63 | | 2019 | 70 | |
Direct GHG emissionsGlobal economic growth
Higher energy and food prices have caused real wages to fall in many countries, slashing purchasing power. This is hurting consumers. In addition, central banks around the world are increasing interest rates to curb inflation and anchor inflation expectations in their economies. Tighter monetary policy and higher interest rates, weak real household income growth and declining confidence have resulted in lower economic growth during 2022.
For 2023, a further growth slowdown for the world economy is projected, as well as high, but declining, inflation in many countries. In the International Monetary Fund's latest global economic prospects report published in January 2023, global growth is forecast to decelerate from facilities operated6.2% in 2021 and 3.4% in 2022 to 2.9% in 2023. Asia is expected to be the main engine of growth in 2023 and 2024,
whereas Europe, North America and South America are expected
to see very low growth.
Risks to the economic outlook remain significant, including new uncertainties about natural gas supplies to Europe, the impact of
the real estate and COVID-19 crises in China, and a resurgence of COVID-19 health scares around the world. Central banks must chart
a difficult path as they face mixed economic signals, such as slowing economic growth with still-tight labour markets and strong pressure for wage growth. In this environment, an insufficient increase in interest rates may prove a mistake. If rates are not adequately raised, inflation could become entrenched, prompting higher interest rates in the future at a significant cost to the economy. On the other hand, increasing interest rates by Shell, expressedtoo much may risk sending many economies into
debt distress and prolonged recession.
Global prices, demand and supply
The following table provides an overview of the main crude oil and natural gas price markers to which we are exposed:
| | |
| Oil and gas average industry prices [A] |
| | | | | | | | | | | |
| 2022 | 2021 | 2020 |
| Brent ($/b) | 101 | 71 | 42 |
| West Texas Intermediate ($/b) | 95 | 68 | 39 |
| Henry Hub ($/MMBtu) | 6.4 | 4.0 | 2.0 |
| EU TTF ($/MMBtu) | 40 | 16 | 3 |
| Japan Customs-cleared Crude ($/b) - 3 months | 98 | 60 | 51 |
[A]Yearly average prices are based on monthly average spot prices. The 2022 average price for Japan Customs-cleared Crude is based on available market information up to the end of the period.
Crude oil and oil products
The global benchmark oil price Brent averaged $101 per barrel (/b) in 2022, the highest annual average price since 2013. This represents an increase of more than 40% increase from the annual average of $71/b recorded in 2021. High prices were mostly realised in the first half of the year, with demand recovering as economies reopened and supply constrained by the capacity of major oil producers. Russia's invasion of Ukraine triggered concerns about supply availability, sending Brent to a high of $133/b on March 8, 2022. Prices stayed at an elevated level until the middle of the year, before falling as recession concerns weighed on the market. Brent averaged $80/b in December, the same price as it was in the fourth quarter of 2021. West Texas Intermediate (WTI) traded at a sharper discount of around $6/b to Brent in 2022, compared with a discount of about $3/b in 2021. This is because of rising demand for Brent as a replacement for Urals, the most common grade of Russian crude exports.
In 2022, global oil product demand rose by more than 2 mb/d to nearly 100 mb/d, approaching the pre-COVID-19 level of 100.5 mb/d in 2019. Growth largely came from jet fuel, supported by the rebound in air travel after the pandemic. Growth in other product segments continued in 2022, albeit at a slower pace. Global diesel/gas oil growth eased from 1.5 mb/d in 2021 to 0.66 mb/d in 2022 based on IEA estimates, reflecting weakening economic activities. Naphtha, after a strong year of growth in 2021, declined by 0.13 mb/d due to a weak petrochemical sector. Regionally, growth has largely come from non-OECD markets, particularly the Middle East and India. Chinese demand dropped by about 0.4 mb/d as lockdowns in the country affected demand. Among OECD markets, European growth was particularly weak. While high gas prices resulted in a switch from gas to oil, this was largely offset by a weak petrochemical sector which struggled with high energy costs.
Global oil production increased to 100 million b/d in 2022, up by
4.7 mb/d from 2021. Growth was largely led by the ramp-up of Saudi Arabian and US shale oil. Saudi Arabia delivered an additional 1.4 mb/d compared with 2021, about half of the OPEC supply growth. Outside OPEC, the USA added 1.2 mb/d, providing about 60% of the non-OPEC growth. During the third quarter, there were concerns about whether OPEC would raise production in step with demand recovery because a number of member countries were producing below quota. But the trend started shifting from the fourth quarter, with OPEC in November reintroducing production cuts of 2 mb/d, in view of the potential surplus should economic conditions worsen.
Strategic Report | Progress on strategy – year in review
Generating shareholder value | Market overview continued
Russia’s invasion of Ukraine has strong ramifications for global crude and oil product supply. Before the invasion, Russian production was expected to surge by more than 0.8 mb/d in 2022, according to the IEA. But actual production growth was about 0.2 mb/d due to OECD market sanctioning. Global crude/product trade flow also shifted as Russian crude/products were redirected to non-OECD markets.
The outlook for 2023 demand is highly uncertain. One key uncertainty is the recession risk in OECD economies, particularly Europe. China's lifting of COVID-19 restrictions to focus on economic growth could provide some support to global oil demand. The main uncertainty on the supply side is the supply from Russia after the embargo on Russian crude and oil products took effect. The EU embargo and G7 price caps on Russian crude oil took effect in early December 2022. Russian oil product embargoes and price caps followed in February 2023. These measures could lead to a further reduction in Russia's oil supply.
Natural gas
Global demand for natural gas in 2022 is estimated to have declined by 1.6% compared with 2021. This was a result of high, volatile prices and shorter supply, particularly in Europe and emerging Asian countries, which led to reduced industrial, commercial and residential consumption. The year-on-year downturn came after gas demand rebounded in 2021 from the historically low levels during the pandemic. Europe’s gas market experienced an unprecedented supply shock from the sharp reduction in Russian pipeline gas imports. Already-elevated spot gas prices in Europe rose further under the threat of Russian supply curtailments and the uncertainty about the LNG market’s ability to make up the difference. This triggered demand curtailment in Europe's industrial sector. It also caused a slowdown in LNG import purchases in China amid economic weakness and COVID-19 lockdowns. Emerging economies, such as Pakistan and Bangladesh, struggled with the affordability of spot LNG.
European gas prices were turbulent in 2022 as almost all pipeline flows from Russia came to a halt. Exports through Gazprom’s pipelines fell from a 2022 peak of just over 300 million cubic metres per day (mcm/d) to about 65 mcm/d in November. On an annual basis, Europe’s imports of Russian pipeline gas almost halved. The European benchmark price Title Transfer Facility (TTF) was volatile, breaching $96/MMBtu at its peak. There were also large disconnections in regional European gas hub prices caused by the reconfiguration of supply flows and regasification capacity reaching maximum utilisation rates. This particularly affected the UK’s National Balancing Point (NBP) and TTF prices, as well as the price of delivered LNG.
The pricing environment was a catalyst for major demand destruction. The residential and commercial consumer sector shed more than 15% of demand year-on-year, assisted by mild temperatures. The industrial sector is estimated to have lost more demand year-on-year than any period for over a decade. But TTF prices experienced a sharp decline at the end of the third quarter after Russian gas pipeline cuts materialised and gas inventories were built beyond government-mandated levels ahead of time. Europe remained the highest-priced global gas market for 2022 and attracted substantial volumes away from other markets, especially in Asia. Higher LNG exports into Europe, coupled with demand curtailment, made up for the lack of Russian pipeline imports, allowing for a comfortable storage situation by the start of the northern hemisphere winter. European LNG imports increased by about 45 million tonnes with north-west Europe accounting for more than 30 million tonnes of CO₂ equivalent.See “Climate changethis growth. A migration of floating storage and energy transition” on pages 73-85.regasification units (FSRUs) to Europe reduced bottlenecks and increased import capacity, specifically to north-west Europe. The commissioning of the Eemshaven FSRU in the Netherlands in September 2022, and the commissioning of several FSRUs for Germany have set Europe up to be a major LNG importer for years to come.
| | | | | | | | | | | | | | | | | | | | |
Net Carbon Footprint (grams of CO₂ equivalent per megajoule)* | |
| 2020 | 75 | | 2019 | 78 | | |
Net Carbon FootprintAsian spot LNG prices, as reflected by the Japan Korea Marker (JKM), traded at a significant discount to European prices for most of 2022, driven largely by lower LNG imports into China. By the end of the year, China had imported about 15 million tonnes less LNG year-on-year, ceding the title of the world's biggest LNG importer back to Japan. South Korea and Japan continued to import LNG despite the high spot prices because of JKM buyers’ high concentration of long-term LNG contract volume. Crude-oil-linked contracts were cheaper than JKM prices by an average of 50% in 2022. This was evidenced by the Japan Landed Cost (JLC), which accounts for imported LNG long-term contract and spot prices averaging about $17/MMBtu versus an average of around $33/MMBtu for the spot price of JKM.
Henry Hub gas benchmark prices in North America were volatile throughout the year, ranging from below $4/MMbtu to nearly $10/MMbtu. Henry Hub cash prices averaged $6.39/MMBtu in 2022, reaching a peak of $9.84/MMBtu in August. The rise in the first half of the year was caused by a structurally tighter market and spill-over effects from the higher prices for LNG exports. The decline towards the end of the year was a result of strong production and comfortable storage expectations for the northern hemisphere winter. US LNG export plants consumed an average of 11.81 bcf (billion cubic feet) per day throughout the year, accounting for 12% of US overall production of around 97 bcf per day. This is a comprehensive measure547% increase from five years ago and a 203% increase from the previous five-year average. Strong power demand for gas in the USA and lagging upstream production supported the rise.
Power
Europe: European power prices were turbulent in 2022. In Germany, for example, the average power price in 2022 was $247/MWh, an unprecedented seven times higher than the average price of
$37/MWh in the period from 2015 to 2019. Prices increased in the first quarter of the life-cycle carbon intensityyear, peaking in August with spot prices of up to $916/MWh. European power prices are strongly influenced by the power plants dependent on natural gas. Widespread unplanned outages of French nuclear power plants and low hydropower availability also pushed up power prices. The high European power prices have triggered a range of regulatory actions, including revenue caps for inframarginal power generators (generators which do not set marginal prices); national demand reduction goals; and a consultation for market reforms by the European Commission.
United States: US power prices were much higher across all major markets in 2022 compared with 2021. One of the energy products we sell.key drivers of higher power prices and volatility in 2022 was gas prices. Henry Hub gas benchmark prices in North America were volatile throughout the year, ranging from below $4/MMbtu to nearly $10/MMbtu. Prices in the second half of the year traded back down to below $4.00/MMBtu as natural gas production steadily increased and the ability to increase storage injections prior to winter picked up. Power prices were also driven higher by weather events throughout the year and across the country. For the eastern part of the USA, cold weather in January led ISO-NE (New England) prices to average around $150/MWh, and a late December cold front led to significantly higher prices in PJM and MISO (Midcontinent) markets. For the ERCOT (Texas) market, a hot July in Texas led to record level demand and North Hub settled at $147/MWh. A heatwave in the western part of the USA in September sent Mid-C (Midcontinent) ISO and CAISO (California) prices to highs of $152/MWh and $118/MWh respectively, and a cold December resulted in even higher prices in Mid-C ($263/MWh) and CAISO ($254/MWh).
Strategic Report | Progress on strategy – year in review
Generating shareholder value | Market overview continued
Australia: In 2022, the (East) Australia power market was volatile with spot prices averaging $191/MWh and $151/MWh in the second and third quarter respectively. This was because of unseasonal weather, unplanned outages of coal-fired power plants, and gas and hydropower supply constraints. High international coal and spot LNG prices pushed up domestic gas and coal prices. The gas market spiked to the $21–28 per gigajoule (GJ) range in the second and third quarters after having started the year at $7/GJ (well below international LNG prices). The spike was caused by a significant demand for uncontracted and unforecasted gas with little or no notice. This demand came primarily from the aforementioned power market disruptions, but also arose from the early onset of the Australian winter and a heavy reliance on spot markets by some industrial and power generation end-users. Prices became more moderate as Australia moved out of winter, but remained volatile as the government implemented gas and coal price caps and controls at the wholesale level for 2023 and beyond.
Crude oil and natural gas price assumptions
Our ability to deliver competitive returns and pursue commercial opportunities depends on the accuracy of our price assumptions (see "Risk factors" on page 21). We use a rigorous assessment of short-, medium- and long-term market uncertainties to determine what ranges of future crude oil and natural gas prices to use in project and portfolio evaluations. Market uncertainties include, for example, future economic conditions, geopolitics, actions by major resource holders, production costs, technological progress and the balance of supply and demand.
| | |
| See also Note 12 to the "Consolidated Financial Statements" on pages 251-254. |
Refining margins
| | |
| Global indicative refining margin [A] |
| | | | | | | | | | | |
| | | $/bbl |
| 2022 | 2021 | 2020 |
| Indicative refining margin | 18.03 | 4.79 | 2.12 |
[A]The indicative margin is an approximation of Shell’s global gross refining unit margin, calculated using price markers from third parties’ databases. It is based on a weighted averagesimplified crude and product yield profile at a nominal level of refining performance. The actual margins realised by Shell may vary due to factors including specific local market effects, refinery maintenance, crude diet optimisation as the crudes in the IRM are indicative benchmark crudes, operating decisions and product demand. Gross refining unit margin is defined as the hydrocarbon margin net of purchased/sold utilities, additives and relevant freight costs, divided by crude and feedstock intake in barrels. It is only applicable to the impact of market pricing on refining business performance, excluding trading margin. Prior period comparatives are calculated on the same basis as the current year.
In 2022, gross refining margins improved in comparison with 2021, especially during the first half of the life-cycle CO₂ intensitiesyear. Economic recovery and disruption caused by the Russian war in Ukraine led to very strong refining margins, especially during the second quarter. With demand falling in sync with the economic slowdown, refining margins fell towards the end of differentthe year. Weak chemical feedstocks and gasoline demand was partially offset by strong middle distillate demand. Middle distillate demand is supported by continued aviation demand recovery and disruptions to Russian product flows to Europe.
Construction of new capacity continued during the year, especially
in the Middle East, Africa and Asia. However, several projects were delayed due to supply chain issues and inflationary cost pressures.
For 2023 and beyond, refining margins are expected to decline as refinery capacity increases and demand growth slows. This would result from weaker economic growth, high energy products, normalisedprices and the tightening of monetary policy by central banks.
Petrochemical margins
| | |
| Global indicative chemical margin [A] |
| | | | | | | | | | | |
| | | $/tonne |
| 2022 | 2021 | 2020 |
| Indicative chemical margin | 48.04 | 216.44 | 184.55 |
[A]The Indicative Chemical Margin (ICM) is an approximation of Shell’s global chemical margin performance trend (including equity-accounted associates), calculated using price markers from third parties’ databases. It is based on a simplified feedstock and product yield profile at a nominal level of plant performance. The actual margins realised by Shell may vary due to factors including specific local market effects, chemicals plants maintenance, optimisation, operating decisions and product demand. Chemical unit margin is defined as the hydrocarbon margin net of purchased/sold utilities, additives and relevant freight costs, divided by a nominal denominator expressed in metric tons. It is only applicable to the impact of market pricing on Chemical business performance.Prior period comparatives are calculated on the same point relativebasis as the current year.
Chemical cracker margins came under pressure in 2022. The Russian war in Ukraine caused volatile energy prices, especially in Europe and Asia, leading to their final end use. It includes emissions fromlower cracker margins. This has also impacted derivative trade and demand. Macroeconomic factors, including inflation and lower economic growth, further contributed to weaker global demand and lockdown restrictions in China resulted in further demand destruction in Asia. New capacity growth primarily in Asia and the extraction, transportationUSA led to global oversupply and processinglower margins. Producers continue to match demand through lower cracker utilisation.
The outlook for petrochemical margins in 2023 and beyond depends on feedstock costs and the balance of supply and demand. Demand for petrochemicals is expected to be affected by energy costs, macroeconomic factors, and any further COVID-19 impacts. A recovery in demand is needed to absorb the excess capacity. The supply of petrochemicals will depend on the net capacity effect of new facilities and plant closures with utilisation balancing the system. Product prices will reflect the prices of raw materials which are closely linked to crude oil and natural gas prices.
The statements in this "Market overview" section, including those related to our price forecasts, are forward-looking statements based on management’s current expectations and certain material assumptions and, accordingly, involve risks and uncertainties that could cause actual results, performance or gasevents to differ materially from those expressed or other feedstocks, transport of products, and our customers’ emissions from the use of products we sell. Also included are emissions from elements of this life cycle not owned by Shell, such as oil and gas processed by Shell but not produced by Shell; or from oil products and electricity marketed by Shell that have not been processed or generated at a Shell facility. Emissions compensated through various measures are also included, such as emissions mitigated by nature-based solutions and carbon capture and storage technology.See “Climate change and energy transition” on pages 73-85.implied herein.
| | |
| See "About this Report" on page 10 and "Risk factors" on page 21. |
| | | | | | | | |
| 41 | STRATEGIC REPORT SHELL FORMShell | Form 20-F 20202022 | 29 | |
Generating shareholder value
| | | | | | | | | | | |
| | | |
| Integrated Gas | |
| Integrated Gas (IG) includes liquefied natural gas (LNG), conversion of natural gas into gas-to-liquids (GTL) fuels and other products. It includes natural gas and liquids exploration and extraction, and the operation of the upstream and midstream infrastructure necessary to deliver these to market. IG also includes the marketing, trading and optimisation of LNG, including LNG as a fuel forheavy-duty vehicles. | |
| | |
| Segment earnings ($ billion) 22.2 2021: 8.1 | |
| | |
| Adjusted Earnings ($ billion) 16.1 2021: 9.0 | |
| | |
| Cash flow from operating activities ($ billion) 27.7 2021: 13.2 | |
| | |
| Production (thousand boe/d) 921 2021: 1,004 | |
| | |
| LNG liquefaction volumes (million tonnes) 30 2021: 31 | |
| | |
| LNG sales volumes (million tonnes) 66 2021: 64 | |
| | |
Strategic Report | Progress on strategy – year in review
Generating shareholder value | Integrated Gas continued
Key statistics
| | | | | | | | | | | |
| $ million, except where indicated |
| 2020 | 2019 | 2018 |
| Segment earnings | (6,278) | | 8,628 | | 11,444 | |
| Including: | | | |
| Revenue (including inter-segment sales) | 36,697 | | 45,602 | | 48,795 | |
| Share of profit of joint ventures and associates | 562 | | 1,791 | | 2,273 | |
| Interest and other income | 14 | | 263 | | 2,230 | |
| Operating expenses [A] | 6,555 | | 6,667 | | 6,014 | |
| Exploration | 611 | | 281 | | 208 | |
| Depreciation, depletion and amortisation | 17,704 | | 6,238 | | 4,850 | |
| Taxation charge | (2,507) | | 2,242 | | 2,795 | |
| Identified Items [A] | (10,661) | | (326) | | 2,045 | |
| Adjusted Earnings [A] | 4,383 | | 8,955 | | 9,399 | |
| Capital expenditure | 3,661 | | 3,851 | | 3,262 | |
| Cash capital expenditure [A] | 4,301 | | 4,299 | | 3,819 | |
| Oil and gas production available for sale (thousand boe/d) | 911 | | 922 | | 957 | |
| LNG liquefaction volumes (million tonnes) | 33.2 | | 35.6 | | 34.3 | |
[A] See “Non-GAAP measures reconciliations” on pages 240-242. | | | | | | | | | | | |
| $ million, except where indicated |
| 2022 | 2021 | 2020 |
| Segment earnings/(loss) | 22,212 | 8,060 | (7,230) |
| Including: | | | |
| Revenue (including inter-segment sales) | 73,163 | 37,994 | 25,222 |
| Share of profit of joint ventures and associates | 1,219 | 1,933 | 612 |
| Interest and other income | (714) | 1,596 | 212 |
| Operating expenses [B] | 5,238 | 4,526 | 5,100 |
| Underlying operating expenses [B] | 4,884 | 4,295 | 4,318 |
| Exploration | 240 | 122 | 616 |
| Depreciation, depletion and amortisation | 2,211 | 5,908 | 19,314 |
| Taxation charge/(credit) | 5,899 | 2,648 | (2,794) |
| Identified Items [B] | 6,075 | (988) | (11,443) |
| Adjusted Earnings [B] | 16,137 | 9,048 | 4,213 |
| Adjusted EBITDA [B] | 26,569 | 16,754 | 11,908 |
| Capital expenditure | 3,432 | 3,306 | 3,491 |
| Cash capital expenditure [B] | 4,265 | 3,502 | 3,566 |
| Oil and gas production available for sale (thousand boe/d) | 921 | 1,004 | 1,011 |
| LNG liquefaction volumes (million tonnes) | 29.7 | 31.0 | 33.2 |
| LNG sales volumes (million tonnes) | 66.0 | 64.2 | 71.9 |
OVERVIEW
OurWith effect from January 1, 2022, our reporting segments are Integrated Gas, segment includes liquefied natural gas (LNG) activitiesUpstream, Marketing, Chemicals and the conversion of natural gas into gas-to-liquids (GTL) fuels and other products, as well as our New Energies businesses which were rebranded toProducts, Renewables and Energy Solutions in 2021. The segment includes natural gas and liquids exploration and extraction, and the operation of upstream and midstream infrastructure that delivers gas and liquids to market. It markets and trades natural gas, LNG, electricity and carbon-emission rights, and markets and sells LNG as a fuel for heavy-duty vehicles and marine vessels.Corporate. Comparative information has been revised.
BUSINESS CONDITIONSBusiness conditions
Global gas demand is estimatedFor the business conditions relevant to have declined by around 2.4% in 2020, in contrast with the 2.5% annual growth rate observed since the start of the century. The deterioration in gas demandIntegrated Gas,
see "Market overview" on pages 39-41.
Production available for power generation and in industry was mainly caused by lockdowns related to COVID-19. Resilient gas demand for heating helped offset the overall decline. Demand declined across all regions except non-OECD Asia. In non-OECD Asia, demand grew in China, which experienced a robust recovery after mitigating the impacts of COVID-19. Outside China, aggregate gas demand in non-OECD Asia remained flat year-on-year.
In 2020, global LNG imports were almost unchanged from 2019, rising by about 2 million tonnes year-on-year to 360 million tonnes. Growth in LNG supply capacity was mostly limited to the USA, where 21 million tonnes of new liquefaction started commercial operations in 2020. Liquefaction plants already in operation in the USA responded to the weak gas price environment by significantly curtailing production in the middle of the year. Supply from major LNG-exporting countries such as Egypt, Malaysia and Norway was also lower year-on-year because of operational disruptions and shut-ins to prevent economic losses.
Natural gas prices can vary from region to region.
In the USA, the natural gas price at the Henry Hub averaged $2.0 per million British thermal units (MMBtu) in 2020, 21% lower than in 2019. It traded in a range of $1.5 to 3.2/MMBtu.
In Europe, the average price at the UK National Balancing Point (NBP) in 2020 was 28% lower than in 2019. At the main continental gas trading hubs – in the Netherlands, Belgium and Germany – prices were also lower, as reflected by weaker Dutch Title Transfer Facility (TTF) prices.
Long-term contracted LNG prices in the Asia-Pacific region in 2020 were lower than in 2019 because they are predominantly indexed to oil prices, particularly the Japan Customs-cleared Crude (JCC) index which dropped by an 32% year-on-year, tracking Brent crude prices. Meanwhile,
delivered North Asia spot prices, reflected by the Japan Korea Marker, declined by 20% compared with 2019.
See “Market overview” on pages 23-25.
PRODUCTION AVAILABLE FOR SALE
In 2020,2022, our production was 333336 million barrels of oil equivalent (boe), or 911921 thousand boe per day (boe/d), compared with 336366 million boe, or 9221,004 thousand boe/d in 2019.2021. Natural gas production was 86% of total production in 2022 and 83% of total production in 2020 and 2019.2021. In 20202022, natural gas production decreased by 1%5% compared with 2019.2021. This was mainly because of extended maintenance at the Prelude floating liquefied natural gas (FLNG) facilityderecognition of Sakhalin-related volumes and maintenance activities at the Gorgon project in Australia, as well as lower wells performance. These were partiallyproduction-sharing contract effects, partly offset by the transfer of Rashpetco operationsnew field ramp-up in Egypt from the Upstream segmentTrinidad and field ramp-ups.Tobago. Liquids production decreased by 2%25%, in line with the decrease in natural gas production.
LNG LIQUEFACTION VOLUMESliquefaction volumes
LNG liquefaction volumes of 33.2were 29.7 million tonnes in 2020 were 6%2022, compared with 31.0 million tonnes in 2021. The decrease was mainly a result of the derecognition of Sakhalin-related volumes, and lower than in 2019, mainly drivenfeedgas supply, partly offset by lower feedgas availability, higher maintenance activities, primarily at Prelude FLNG and Gorgon, as well as cargo timing.maintenance.
LNG sales volumes of 69.67were 66.0 million tonnes in 2020 were 6% lower than2022 compared with 64.2 million tonnes in 2019, driven by lower LNG liquefaction volumes partly offset by2021. This increase was mainly a result of higher purchases from third parties.
Through our Shell Energytrading organisation, we market and sell a portion of our share of equity production of LNG and sell and markettogether with third-party LNG volumes around the world through our hubs in the UK, DubaiUAE and Singapore. Shell has term sales contracts for the majority of our LNG liquefaction and term purchase contracts. We are able to maximizeoptimise the income we generate from our LNG cargoscargoes through our shipping network, regasification terminals and ability to purchase and deliver LNG spot cargoscargoes from third parties. For example, if one customer does not need a scheduled cargo, we can deliver that cargoit to another customer who is in need.does need it. Similarly, if a customer needs an additional cargo not available from our production facilities, we can contract with third parties to deliver the additional cargo. We also conduct paper trades, primarily to manage commodity price risk related to sales and purchase contracts. We also sell trucked LNG for trucks in China, Singapore and Europe.
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| 43 | STRATEGIC REPORT SHELL FORMShell | Form 20-F 20202022 | 30 | |
Generating shareholder value | Integrated Gas continued
INTEGRATED GAS DATA TABLE
LNG liquefaction volumes
| | | | | | | | | | | | | | | | | |
| Million tonnes |
| 2020 | 2019 | | 2018 | |
| Australia | 11.8 | | 12.5 | | | 12.1 | | |
| Brunei | 1.6 | | 1.6 | | | 1.6 | | |
| Egypt | 0.2 | | 0.4 | | | 0.3 | | |
| Malaysia | — | | — | | | 0.6 | | [A] |
| Nigeria | 5.3 | | 5.3 | | | 5.1 | | |
| Norway | 0.1 | | 0.1 | | | 0.1 | | |
| Oman | 2.5 | | 2.6 | | | 2.4 | | |
| Peru | 0.9 | | 0.9 | | | 0.8 | | |
| Qatar | 2.4 | | 2.5 | | | 2.3 | | |
| Russia | 3.1 | | 3.0 | | | 3.1 | | |
| Trinidad and Tobago | 5.4 | | 6.7 | | | 5.8 | | |
| United States | 0.1 | | 0.1 | | | — | | |
| Total | 33.2 | | 35.6 | | | 34.3 | | |
[A] Includes LNG liquefaction volumes related to our share in equity securities of Malaysia LNG Tiga, which were disposed of in 2018. | | | | | | | | | | | |
| Million tonnes |
| 2022 | 2021 | 2020 |
| Australia | 13.2 | 13.1 | 11.8 |
| Brunei | 1.2 | 1.4 | 1.6 |
| Egypt | 0.5 | 0.3 | 0.2 |
| Nigeria | 3.6 | 4.3 | 5.3 |
| Oman | 2.8 | 2.5 | 2.5 |
| Peru | 0.8 | 0.6 | 0.9 |
| Qatar | 2.4 | 2.4 | 2.4 |
| Russia | 0.9 | 2.8 | 3.1 |
| Trinidad and Tobago | 4.3 | 3.6 | 5.4 |
| Other | — | — | 0.2 |
| Total | 29.7 | 31.0 | 33.2 |
EARNINGS 2020-2019Earnings 2022-2021
Segment earnings in 20202022 were $22,212 million, compared with $8,060 million in 2021. The increase was mainly driven by the combined effect of higher realised prices and contributions from trading and optimisation, and gains related to the fair value accounting of commodity derivatives. This was partly offset by lower volumes and higher operating expenses.
Full year segment earnings included identified items of $6,075 million which comprised gains of $6,273 million due to the fair value accounting of commodity derivatives and net impairment reversals
of $779 million, partly offset by other impacts of $608 million, which mainly comprised loan write-downs, and charges of $387 million due to provisions for onerous contracts. The full year 2021 Identified Items were a loss of $6,278$988 million whichand included a net chargelosses of $10,661 million. The net charge reflected$1,423 million due to the fair value accounting of commodity derivatives and impairment charges of $9,282$395 million, partly offset by gains of $1,097 million related to the sale of assets.
Earnings 2021-2020
Segment earnings in 2021 were $8,060 million, compared with a loss of $7,230 million in 2020. The increase was mainly driven by higher realised prices for oil, LNG and gas, favourable tax movements and higher volumes.
Full year 2021 segment earnings included Identified Items of $988 million loss which comprised losses of $1,423 million due to the fair value accounting of commodity derivatives and impairment charges of $395 million, partly offset by gains of $1,097 million related to the sale of assets. Full year 2020 Identified Items were $11,443 million loss, which included impairment charges of $10,152 million mainly reflecting revisions to mid- and long-term price outlook assumptions and primarily related to the Queensland Curtis LNG and Prelude FLNGfloating liquefied natural gas (FLNG) operations in Australia.Australia and unconventional assets in North America. It also comprised a net charge of $969$880 million due tobecause of the fair value accounting of commodity derivatives and a charge of $607 million related to onerous contract provisions.
Segment earnings in 2019 were $8,628 million, which included a net charge of $326 million. The net charge mainly reflected impairment charges of $890 million mostly in Australia, negative movements in deferred tax positions of $292 million in Australia and write-offs of $131 million in Trinidad and Tobago. These were partly offset by a gain of $787 million related to the fair value accounting of commodity derivatives and a gain of $203 million on a sale of assets in Australia.
Excluding the net charge described above, segment earnings were $4,383 million in 2020 compared with $8,955 million in 2019. Earnings were negatively impacted by lower realised LNG, oil and gas prices, and lower contributions from marketing and trading, partly offset by lower operating expenses.
EARNINGS 2019-2018
Segment earnings in 2019 were $8,628 million, which included a net charge of $326 million as described above.
Segment earnings in 2018 were $11,444 million, which included a net gain of $2,045 million. The net gain primarily reflected gains of $1,937 million on sale of assets, mainly related to the divestment of assets in Thailand, New Zealand and India. It also comprised a gain of $481 million related to the fair value accounting of commodity derivatives and impairment charges of $371 million related to investments in Trinidad and Tobago and Shell's investment in a joint venture.
Excluding the net charge above, segment earnings were $8,955 million in 2019 compared with $9,399 million in 2018. Earnings were negatively impacted by lower realised oil, LNG and gas prices, higher operating expenses (of which about 50% related to New Energies, reflecting underlying business growth), and lower liquids production volumes, partly offset by significantly stronger contributions from LNG marketing and trading.
CASH CAPITAL EXPENDITURECash capital expenditure
Cash capital expenditure in 20202022 was $4.3 billion, unchanged from $4.3 billion$4,265 million, compared with $3,502 million in 2019.2021. The increase was mainly due to investment in the North Field East expansion project in Qatar. Our cash capital expenditure is expected to be around $6$5 billion in 2021.2023.
PORTFOLIO AND BUSINESS DEVELOPMENTPortfolio and business development
Key portfolio events in 2020 included the following:
▪Shell announced in the first quarter 2022 its intent to withdraw from its ventures in Russia with Gazprom and related entities, and to end its involvement in the Nord Stream 2 pipeline project. See Note 6
▪In February 2020,March 2022, we announced that we will buildproduced first gas from Block 22 and operate our first industrial-scale solar electricity farm near WandoanNCMA-4 in central Queensland, Australia. The solar farm will generate 120 MW of solar electricitythe North Coast Marine Area in Trinidad and is expected to be completed in early 2021.Tobago.
▪In March 2020, we decided notMay 2022, Shell Australia Pty Ltd and its joint-venture partner, SGH Energy, took a final investment decision to proceed with an equity interest in approve the proposed Lake Charles LNG project. Energy Transferdevelopment of the Crux natural gas field, off the coast of Western Australia, which will take over asbe processed through the project developer.Prelude FLNG facility.
▪In July 2020,2022, QatarEnergy selected us to participate in the CrossWind consortium,North Field East (NFE) expansion project in Qatar. In December 2022 QatarEnergy and Shell closed the transaction resulting in Shell purchasing 25% of the shareholding in a joint venture between Shell(JV) which owns a 25% interest in the Netherlands and Eneco, was awarded the tender for the offshore wind farm Hollandse Kust (noord). Both companies have already taken their final investment decisions (FID) on theoverall NFE project. The consortium plans to have Hollandse Kust (noord) operational in 2023 with an installed capacityThus, Shell's ownership of 759 MW.
The following major milestones were reached in 2020:
▪In April 2020, we took a FID to develop the first phase of Arrow Energy’s Surat Gas Project in Queensland, Australia. This decision will bring up to 90 billion cubic feet per year of new gas by the end of the decade, which will flow to Shell-operated QGC to be sold locally and exported throughNFE via its plant on Curtis Island.
▪In May 2020, we took a FID on a new LNG processing unit known as Train 7 at Nigeria LNG (NLNG)JV shareholding is 6.25%.
▪In August 2020, the tenth and final movable modular liquefaction system (MMLS) unit at the Elba Island export terminal in Georgia, USA, was delivered to the energy infrastructure company Kinder Morgan.
▪In August 2020, the Blauwwind consortium, which is developing offshore wind projectsOctober 2022, we were also selected as a partner in the Netherlands, achieved its first power.
We continued our divestment activities for selected assets during 2020, including:
▪In December, QGC Common Facilities Company Pty Ltd, a wholly-owned subsidiary ofNorth Field South (NFS) project (Shell interest 9.375%). Shell announced it had agreed to the sale of a 26.25% interestparticipation in the Queensland Curtis LNG (QCLNG) Common Facilities to Global Infrastructure Partners Australia. The transaction isNFS project remains subject to regulatory approval in Australia andclearance of remaining customary conditions. It is expected to complete in the first half of 2021.
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| 44 | STRATEGIC REPORT SHELL FORMShell | Form 20-F 20202022 | 31 | |
Generating shareholder value | Integrated Gas continued
BUSINESS AND PROPERTYBusiness and property
Integrated Gas
OurA complete list of LNG and GTL plants in operation and under construction in which we have an interest is provided below.
| | |
| LNG liquefaction plants in operation at December 31, 2022 [A] |
| | | | | | | | | | | | | | | | | |
| Asset | Location | Shell interest (%) | 100% capacity (mtpa) [B] | Shell-operated |
| Asia | | | | | |
| Brunei | Brunei LNG | Lumut | 25 | 7.6 | No |
| Oman | Oman LNG | Sur | 30 | 7.1 | No |
| Qalhat LNG [C] | Sur | 11 | 3.7 | No |
| Qatar | Qatargas 4 [D] | Ras Laffan | 30 | 7.8 | No |
| Oceania | | | | | |
| Australia | Australia North West Shelf [D] | Karratha | 16.7 | 16.9 | No |
| Gorgon LNG [D] | Barrow Island | 25 | 15.6 | No |
| Prelude [D] | Browse Basin | 67.5 | 3.6 | Yes |
| Queensland Curtis LNG T1 [D] | Curtis Island | 50 | 4.3 | Yes |
| Queensland Curtis LNG T2 [D] | Curtis Island | 97.5 | 4.3 | Yes |
| Africa | | | | | |
| Egypt [E] | Egyptian LNG T1 | Idku | 35.5 | 3.6 | No |
| Egyptian LNG T2 | Idku | 38 | 3.6 | No |
| Nigeria | Nigeria LNG | Bonny | 25.6 | 24.1 | No |
| South America | | | | | |
| Peru | Peru LNG | Pampa Melchorita | 20 | 4.5 | No |
| Trinidad and Tobago | Atlantic LNG T1 | Point Fortin | 46 | 3 | No |
| Atlantic LNG T2/T3 | Point Fortin | 57.5 | 6.6 | No |
| Atlantic LNG T4 | Point Fortin | 51.1 | 5.2 | No |
[A]We have offtake rights via a lease to 100% of the capacity (2.5 mtpa) of the Kinder Morgan-operated Elba Island liquefaction plant in Georgia, USA.
LNG liquefaction plants in operation at December 31, 2020
| | | | | | | | | | | | | | | | | | | | |
| Asset | Location | Shell interest (%) | | 100% capacity (mtpa) [A] | Shell-operated |
| Europe | | | | | | |
| Norway | Gasnor | Bergen | 100 | | 0.3 | Yes |
| Asia | | | | | | |
| Brunei | Brunei LNG | Lumut | 25 | | 7.6 | | No |
| Oman | Oman LNG | Sur | 30 | | 7.1 | | No |
| Qalhat LNG | Sur | 11 | [B] | 3.7 | | No |
| Qatar | Qatargas 4 [C] | Ras Laffan | 30 | | 7.8 | | No |
| Russia | Sakhalin LNG [C] | Prigorodnoye | 27.5 | | 10.9 | No |
| Oceania | | | | | | |
| Australia | Australia North West Shelf [C] | Karratha | 16.7 | | 16.9 | | No |
| Gorgon LNG [C] | Barrow Island | 25 | | | 15.6 | | No |
| Prelude [C] [D] | Browse Basin | 67.5 | | 3.6 | | Yes |
| Queensland Curtis LNG T1 [C] | Curtis Island | 50 | | 4.3 | | Yes |
| Queensland Curtis LNG T2 [C] | Curtis Island | 97.5 | | 4.3 | Yes |
| Africa | | | | | | |
| Egypt [E] | Egyptian LNG T1 | Idku | 35.5 | | 3.6 | | No |
| Egyptian LNG T2 | Idku | 38 | | 3.6 | | No |
| Nigeria | Nigeria LNG | Bonny | 25.6 | | 24.1 | No |
| South America | | | | | | |
| Peru | Peru LNG | Pampa Melchorita | 20 | | 4.5 | | No |
| Trinidad and Tobago | Atlantic LNG T1 | Point Fortin | 46 | | 3 | | No |
| Atlantic LNG T2/T3 | Point Fortin | 57.5 | | 6.6 | | No |
| Atlantic LNG T4 | Point Fortin | 51.1 | | 5.2 | No |
[A] 100% capacity represents the total capacity that all trains can process as reported by the operator.
[B] Interest, or part of theC]The interest is held via an indirect shareholding.shareholding through Oman LNG.
[C] D]These assets are clustered as integrated assets and have onshore or offshore upstream production.
[D] Following a number of operational issues and shutdown since February 2020, Prelude continues to progress towards safe and reliable operations with LNG rundown restart in late December 2020.
[E]In January 2014, force majeure notices were issued under the LNG agreements as a result of domestic gas diversions severely restricting volumes available to the ELNGEgyptian LNG (ELNG) plant. These notices remain in place.
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STRATEGIC REPORT SHELL FORM 20-F 2020LNG liquefaction plants under construction at December 31, 2022 | 32 | |
| | | | | | | | | | | | | | | | | |
| Asset | Location | Shell interest (%) | 100% capacity (mtpa) [A] | Shell-operated |
| Africa | | | | | |
| Nigeria | Train 7 [B] | Bonny | 25.6 | 7.6 | No |
| North America | | | | | |
| Canada | LNG Canada T1-2 [C] | Kitimat | 40.0 | 14.0 | No |
| Asia | | | | | |
| Qatar | NFE JV [D] | Ras Laffan | 25.0 | 8.0 | No |
LNG liquefaction plants under construction at December 31, 2020
| | | | | | | | | | | | | | | | | | | | |
| Asset | Location | Shell interest (%) | 100% capacity (mtpa) [A] | Shell-operated |
| Africa | | | | | | |
| Nigeria | Train 7 [B] | Bonny | 25.6 | | | 7.6 | | No |
| North America | | | | | | |
| Canada | LNG Canada T1-2 [C] | Kitimat | 40.0 | | | 14.0 | | No |
[A]100% capacity represents the total capacity that all trains canare expected to process as reported by the operator.
[B]First LNG is expected inaround the middle of the 2020s.
[C]Construction started in October 2018 and first LNG is expected beforearound the middle of the 2020s.
GTL plants in operation at December 31, 2020 | | |
| GTL plants in operation at December 31, 2022 |
| | | | | | | | | | | | | | | | | |
| Asset | Location | Shell interest (%) | 100% capacity (b/d) [A] | Shell-operated |
| Asia | | | | | |
| Malaysia | Shell MDS | Bintulu | 72.0 | 14,700 | Yes |
| Qatar | Pearl | Ras Laffan | 100.0 | 140,000 | Yes |
[A]100% capacity represents the total capacity of the plant.
We also have interests and rights in variousthe regasification terminals listed below. Extension of leases or rights beyond the periods mentioned below will be reviewed on a case-by-case basis.
Generating shareholder value | Integrated Gas continued
| | |
| LNG regasification terminals |
| | | | | | | | | | | | | | |
| Project name | Location | Shell capacity rights (mtpa) | Capacity rights period | Shell interest (%) and rights |
| Costa Azul | Baja California, Mexico | 2.7 | 2008–2028 | Capacity rights |
| Cove Point | Lusby, MD, USA | 1.8 | 2003–2023 | Capacity rights |
| Dragon LNG | Milford Haven, UK | 3.1 | 2009–2029 | 50 |
| Eemshaven | Groningen, the Netherlands | 3.1 | 2022–2027 | Capacity rights |
| Elba Island | Elba Island, GA, USA | 4.6 | 2003–2027 | Leased |
| Elba Island | Elba Island, GA, USA | 2.8 | 2006–2036 | Leased |
| Elba Island Expansion | Elba Island, GA, USA | 4.2 | 2010–2035 | Leased |
| GATE (Gas Access to Europe) | Rotterdam, the Netherlands | 1.5 | 2015–2031 | Capacity rights |
| Lake Charles | Lake Charles, LA, USA | 4.4 | 2002–2030 | Leased |
| Lake Charles Expansion | Lake Charles, LA, USA | 8.7 | 2005–2030 | Leased |
| Singapore SGM | SLNG, Singapore | [A] | 2013–2029 | Import rights |
| Singapore SETL | SLNG, Singapore | [A] | 2018–2035 | Import rights |
| Singapore SETL | SLNG, Singapore | up to 1.0 [B] | 2021–2025 | Import rights |
| Shell Energy India Pvt Ltd (formerly Hazira) | Gujarat, India | 5 | 2005–2035 | 100 |
| Shell LNG Gibraltar | Gibraltar | up to 0.04 | 2018–2038 | 51 |
[A]Licences to import LNG regasification terminalsand sell regasified LNG in Singapore with no volume cap.
| | | | | | | | | | | | | | | | | |
| Project name | Location | Shell capacity rights (mtpa) | Capacity rights period | Status | Shell interest (%) and Rights |
| Altamira | Tamaulipas, Mexico | 3.3 [A] | 2006–2021 | In operation | Leased |
| Costa Azul | Baja California, Mexico | 2.7 | 2008–2028 | In operation | Leased |
| Cove Point | Lusby, MD, USA | 1.8 | 2003–2023 | In operation | Leased |
| Dragon LNG | Milford Haven, UK | 3.1 | 2009–2029 | In operation | 50 | |
| Elba Island Expansion | Elba Island, GA, USA | 4.2 | 2010–2035 | In operation | Leased |
| Elba Island | Elba Island, GA, USA | 2.8 | 2006–2036 | In operation | Leased |
| Elba Island | Elba Island, GA, USA | 4.6 | 2003–2027 | In operation | Leased |
| GATE (Gas Access to Europe) | Rotterdam, The Netherlands | 1.5 | 2015–2031 | In operation | Capacity rights |
| Shell Energy India Pvt Ltd (formerly Hazira) | Gujarat, India | 5 | 2005–2035 | In operation | 100 | |
| Lake Charles | Lake Charles, LA, USA | 4.4 | 2002–2030 | In operation | Leased |
| Lake Charles Expansion | Lake Charles, LA, USA | 8.7 | 2005–2030 | In operation | Leased |
| Singapore SGM | SLNG, Singapore | up to 3.0 [B] | 2013–2029 | In operation | Import rights |
| Singapore SETL | SLNG, Singapore | up to 1.0 [C] | 2018–2035 | In operation | Import rights |
| Shell LNG Gibraltar | Gibraltar | up to 0.04 | 2018–2038 | In operation | 51 |
[A] 100% capacity rights are held by Gas del Litoral joint venture with which Shell has a contract to supply 75% of the volumes. Our capacity rights end in September 2021 and the contract will not be renewed.
[B]Exclusive licence to import LNG and sell regasified LNG in Singapore for up to 3.01.0 mtpa.
[C] Second licence to import LNG and sell regasified LNG in Singapore. | | | | | | | | | | | |
| | | |
| Colibri gas for LNG export and domestic
use in Trinidad and Tobago In 2022, we produced gas for the first time from the Shell-operated Colibri project in Trinidad and Tobago. Most of Colibri’s gas is exported as liquefied natural gas (LNG).
Gas will also be used in the country’s petrochemical sector
and to generate electricity for the country. The final investment decision on Colibri was taken in March 2020. The team continued to implement the project and first gas was reached in March 2022, despite termination of operations by a key supplier. We delivered safely, within budget and ahead of schedule. Colibri is expected to reach about 250 million standard cubic feet of gas per day at peak production through a series of four subsea gas wells. The wells are tied back to the existing Poinsettia platform in the North Coast Marine Area (NCMA). Shell seeks to provide more affordable, reliable, and cleaner energy to our customers. While the vast majority of Colibri’s gas will be exported, about 25% will be supplied to Trinidad and Tobago’s National Gas Company (NGC), which will deliver it to the local power utility, Trinidad & Tobago Electricity Commission, to power homes and businesses. The NGC also supplies gas to petrochemicals plants in Trinidad, a major exporter of ammonia and methanol. | |
| | |
| Photo: Seven Borealis pipelay vessel adjacent to the Poinsettia production facility conducting pipelay activities for the Colibri project. | |
| | |
Strategic Report | Progress on strategy – year in review
Generating shareholder value | Integrated Gas business also includes oilcontinued
Oil and natural gas production, exploration and development in the following locations:
Australia
We have interests in offshore production, LNG liquefaction and exploration licences in the North West Shelf (NWS) and Greater Gorgon areas of the Carnarvon Basin and in the Browse Basin. Woodside is the operator on behalf of the NWS joint venture (Shell interest 16.7%). We have a 25% interest in the Chevron-operated Gorgon LNG joint venture that includes offshore production.
We relinquished positions in asset and exploration areas in the Exmouth Plateau, leading to us relinquishing four exploration permits in the Exmouth Plateau in June 2020.
Our interests in the Browse basin include joint arrangements, with Shell as the operator, for the Prelude field (Shell interest 67.5%), the pre-FID Crux gas and condensate field (Shell interest 82%), and other backfill and contingent resources for Prelude FLNG, including the Bratwurst field (Shell interest 100%). Bratwurst, discovered in 2019, is currently under evaluation as a future backfill opportunity.
We are also a partner in the Browse joint arrangement (Shell interest 27%) covering the Brecknock, Calliance and Torosa gas fields, which are under development and operated by Woodside.
We also operate the Queensland Curtis LNG (QCLNG) venture’s natural gas operations, including wells, compression stations and processing plants, in Queensland’s Surat Basin. We have interests ranging from 44% to 74% in 25 field compression stations and six central processing plants. Our production of natural gas from the onshore Surat Basin supplies the QCLNG liquefaction plant and the domestic gas market.
We have a 50% interest in Arrow, a Queensland-based joint venture with China National Petroleum Corporation (CNPC). Arrow owns coal-bedcoalbed methane assets and a domestic power business.
In the Browse Basin, Shell is the operator for the Prelude field (Shell interest 67.5%); the Crux gas and condensate development field (Shell interest 84.5%), where a final investment decision was taken in May 2022; and other backfill projects for Prelude FLNG.
We are also a partner in the Browse joint arrangement (Shell interest 27%) covering the Brecknock, Calliance and Torosa gas fields, which are under development and operated by Woodside.
Barbados
In 2022, we farmed into two exploration blocks (Shell interest 40%), where our partner is the operator.
Bolivia
We hold a 37.5% participating interest in the Caipipendi block where we produce and explore.deliver natural gas to domestic and export markets. We also have a 25% interest in the Tarija XX West block where we produce from the Itaú field. We have
In 2022, we exited the rights to explore and further develop the onshore HuacaretaIñiguazu exploration block (Shell interest 100% during exploration), and(operated by Repsol) where we are exploring there. We holdheld a 15% participating interestinterest.
Canada
In Canada, we produce and market natural gas, natural gas liquids and condensate. We hold mineral acres, primarily in the Repsol-operated Iniguazu exploration.Montney play in British Colombia and Alberta. We operate four natural gas processing area facilities at our Groundbirch asset in British Colombia.
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STRATEGIC REPORT SHELL FORM 20-F 2020 | 33 | |
China
We jointly develop and produce from the onshore Changbei tight-gas field under a production-sharing contract (PSC) with CNPC. In 2017,
Colombia
We have 50% interests in three blocks that we tookoperate, and 60% interests in two other deep-water blocks where Chevron is the FID on the Changbei II Phase 1 project and started drilling activity in early 2019.
Egypt
We have a 25% interest in the Burullus Gas Company (Burullus), a self-operated joint venture, which operates the West Delta Deep Marine concession (Shell
(Shell interest 50%) and supplies gas to the domestic market and the Egyptian LNG plant. We have a 50% interest in the Rashid Petroleum Company (Rashpetco), a self-operated joint venture, which operates the Rosetta concession (Shell interest 100%).
We have a 60%30% interest in the development rights for
El Burg Offshore Company (EBOC) joint venture, which operates
the Harmattan Deep discoveryEl Burg offshore concession (Shell interest 60%).
We have participating interests in several exploration concessions
in the Nile Delta, the wider East Mediterranean and the Notus discovery offshore the Nile Delta.
Indonesia
We have a 35% interest in the INPEX Masela Ltd joint venture,
which owns and operates the offshore Masela block.
Oman
We have a concession to develop and produce natural gas from
Block 10 (Shell interest 53.45%). We also have a separate gas sales agreement for gas produced from the block. In February 2019, weSeptember 2022,
Shell and its partners signed an interim upstreamexploration and production-sharing agreement that detailed a fundingwith the government of Oman for the exploration, evaluation and work programme for 2019 and 2020 to developdevelopment of natural gas resources for projects to help meet the Sultanate of Oman’s growing need for energy. The other signatories were Petroleum Development Oman (PDO), Oman Oil Company (OOC) and Total. The project covers investments
condensate in gas exploration and production.
Qatar
We operate the Pearl GTL plant (Shell interest 100%) in Qatar under
a development and PSCproduction-sharing contract with the government. The fully integrated facility has the capacity to produce, process and transport 1.6 billion standard cubic feet per day (scf/d) of gas from Qatar’s North Field.
We have a 30% interest in Qatargas 4, which comprises integrated facilities to produce aboutaround 1.4 billion scf/d of gas from Qatar’s North Field, an onshore gas-processing facility.
Russia
We have a 27.5% interest In July 2022, QatarEnergy selected us to participate in Sakhalin-2, the joint venture with Gazprom, an integrated oilNorth Field East (NFE) expansion project in Qatar. In December 2022, QatarEnergy and gas project located on Sakhalin island.
Singapore
We have a 50% interestShell closed the transaction resulting in Shell purchasing 25% of the shareholding in a joint venture with KS Investments (the investment arm of Keppel Group) that holds(JV) which owns a licence to supply LNG fuel for vessels25% interest in the Portoverall NFE project. Thus, Shell's ownership of Singapore. We have aggregator licencesNFE via its JV shareholding is 6.25%. In October 2022, we were also selected as a partner in the North Field South project (Shell interest 9.375%). Shell participation in the North Field South project remains subject to import LNG into Singaporeclearance of remaining customary conditions precedent.
Russia
Shell announced in the first quarter 2022 its intent to withdraw from its ventures in Russia with Gazprom and marketrelated entities, and to end its involvement in the gas to power plants and other customers.Nord Stream 2 pipeline project.
| | |
| See Note 6, which is incorporated by reference into the Strategic Report, on pages 242-244 for the actions we have taken since these announcements and for the impact on the consolidated financial statements. |
Tanzania
We operate and have a 60% interest in Blocks 1 and 4 offshoreoff the coast
of southern Tanzania. In June 2020,Tanzania under a production-sharing agreement with the government granted a 4.5-year licence extension for both blocks. We continue to develop a potential domestic gas and LNG project.of Tanzania that expires in 2024.
Trinidad and Tobago
We have interests in three concessions with producing fields: Central Block (Shell interest 65%), North Coast Marine Area (Shell interest 80.5%), and East Coast Marine Area (ECMA) (Shell interest 100%). In 2022, production started on Block 22 (Shell interest 90%) and NCMA-4 (Shell interest 80%) in the North Coast Marine Area (NCMA) (Shell interest 80.5%). We also own a 100% interest in Block 5(c), 90% interest in Block 22 and 80% interest in NCMA 4 which include five undeveloped discoveries. Area.
Our interests range from 35% to 100% in exploration activities in Blocks 5(d), 5(c)REA, 6(d), and Atlantic Area Blocks 3, 5, and 6.Block 5.
USA
We have offtake rights via a lease to 100% of the capacity (2.5 mtpa) of the Kinder Morgan-operated Elba Island liquefaction plant in Georgia which consists of 10 MMLS units. We also lease regasification capacity on Elba Island with a contracted capacity of 11.6 mtpa.
Other
We have a 17.9% shareIn 2022 we released our exploration licence in the West African Gas Pipeline Company Limited which owns and operates a 678-kilometre pipeline transporting gas from Nigeria to Ghana, Benin and Togo.
We have a 40% interest in a gas pipeline connecting Uruguay to Argentina.
We have a 35% interest in Cyprus Block 12, holding the Aphrodite discovery, which is currently under appraisal. In Colombia, we have a 60% interest in two deep-water blocks that we operate and 50% interests in three other blocks that we operate. We have interests in offshore blocks in Myanmar. We have a 90% interest in one exploration block licence in Namibia.
Renewables and Energy Solutions
Renewables and Energy Solutions includes power generation, trading and supply, hydrogen and nature-based solutions.
The Renewables and Energy Solutions portfolio is being built through organic growth and acquisitions. Most of these opportunities are in sectors that are different from Shell’s existing oil and gas businesses, but have some similarities and/or adjacencies to our downstream and gas and power trading businesses. Shell-controlled Renewables and Energy Solutions companies are subject to the Shell Control Framework. Some are not yet in full compliance with the Shell Control Framework and we are working to bring them into compliance with this framework in a fit-for-purpose manner.
In 2020, cash capital expenditure in Renewables and Energy Solutions amounted to $0.9 billion.
Power
In the UK, through Shell Energy Retail, we supply 100% renewable electricity via the purchase of renewable energy guarantees of origin (REGO) certificates, and natural gas and smart home technology to more than 900 thousand homes. In Germany, we supply electricity and/or gas to more than 80 thousand homes through Shell Energy Retail GmBH.
Through sonnen, we provide battery storage systems to homes with solar panels, with over 60 thousand installations globally. Through our London-based energy technology firm Limejump, we manage distributed, renewable and flexible power generation assets in supplying power to the UK national grid.
Our Shell Recharge electric vehicle (EV) charging service offers ways for drivers to recharge their vehicles at home, at their destination or during their journey. Shell New Energies is also developing charging networks for EV drivers through our NewMotion and Greenlots subsidiaries. NewMotion operates around 60 thousand private electric charge points in the Netherlands, Germany, France and the UK.
Greenlots provides EV charging posts, charging network software and grid services. It operates 8 thousand charge points for businesses and private drivers in the USA, Canada and Singapore.
Through MP2, we provide retail electricity and renewable energy solutions to commercial and industrial customers across the USA.
Silicon Ranch is an independent power producer and Shell’s US solar platform, with a diverse portfolio of operating facilities including utility-scale solar.
In Australia, through ERM, we are the second-largest electricity retailer serving commercial and industrial customers.
| | | | | | | | |
| 47 | STRATEGIC REPORT SHELL FORMShell | Form 20-F 20202022 |
Strategic Report | Progress on strategy – year in review
Generating shareholder value
| | | | | | | | | | | |
| | | |
| Upstream | 34 |
| Upstream explores for and extracts crude oil, natural gas and natural gas liquids. It also markets and transports oil and gas, and operates the infrastructure necessary to deliver them to the market. Shell’s Upstream business delivers reliable energy from conventional oil and gas operations, as well as deep-water exploration and production activities. We are focusing our Upstream portfolio to become more resilient, prioritising value over volume to provide the energy the world needs today whilst funding the energy system of tomorrow. | |
| | |
| Segment earnings ($ billion) 16.2 2021: 9.6 | |
| | |
| Adjusted Earnings ($ billion) 17.3 2021: 8.0 | |
| | |
| Cash flow from operating activities ($ billion) 29.6 2021: 21.6 | |
| | |
| Production (thousand boe/d) 1,897 2021: 2,178 | |
| | |
| | |
Our major renewable power projects in operation and in development are listed below:
Renewable power projects in operation
| | | | | | | | | | | | | | | | | | | | |
| Project | Location | Shell interest (%) | 100% capacity (MW) | Type | Theme | Shell-operated |
| Silicon Ranch | USA | 46.47 | 1,130 | Solar Developer | Solar | No |
| Cleantech Solar | Asia | 24.5 [A] | 252 | Solar Developer | Solar | No |
| Moerdijk | The Netherlands | 100 | 27 | Solar Operations | Solar | Yes |
| Noordzee Wind NL | The Netherlands | 50 | 108 | Offshore Wind JV | Offshore wind | No |
| Brazos, TX | USA | 100 | 160 | Onshore wind Operations | Onshore wind | Yes |
| Whitewater Hill, CA | USA | 50 | 61.5 | Onshore wind Operations | Onshore wind | No |
| Rock River, WY | USA | 50 | 49 | Onshore wind Operations | Onshore wind | No |
| Cabazon Pass, CA | USA | 50 | 41 | Onshore wind Operations | Onshore wind | No |
| Sohar Solar Quabas | Oman | 100 | 34 | Solar Development | Solar | Yes |
| Emmen | The Netherlands | 100 | 12 | Solar Development | Solar | Yes |
| Heerenveen | The Netherlands | 100 | 14.5 | Solar Development | Solar | Yes |
[A] Shell interest in Cleantech is 49% where Cleantech owns 50% of the projects. Therefore 24.5% Shell interest is reported.
Renewable power projects under construction
| | | | | | | | | | | | | | | | | | | | |
| Project | Location | Shell interest (%) | 100% capacity (MW) | Type | Theme | Shell-operated |
| Gangarri | Australia | 100 | 120 | Solar Development | Solar | Yes |
| Silicon Ranch [A] | USA | 46.47 | 1,744 | Solar Developer | Solar | No |
| Cleantech Solar [A] | Asia | 24.5 [B] | 174 | Solar Developer | Solar | No |
| CrossWind | The Netherlands | 79.9 | 759 | Offshore Wind Development | Offshore wind | No |
| Borssele III and IV | The Netherlands | 20 | 731.5 | Offshore Wind Development | Offshore wind | No |
| Sas van Gent | The Netherlands | 100 | 29.6 | Solar Development | Solar | Yes |
[A] These solar projects are shown in Projects in operation and under construction as they are in multiple phases.
[B] Shell interest in Cleantech is 49% where Cleantech owns 50% of the projects. Therefore 24.5% Shell interest is reported.
Renewable power projects in development
Projects in development represent various earlier stages where FID has not yet been taken.
| | | | | | | | | | | | | | | | | | | | |
| Project | Location | Shell interest (%) | 100% capacity (MW) | Type | Theme | Shell-operated |
| GBI | France | 29.5 | 28.5 | Offshore Wind JV | Offshore wind | Yes |
| Mayflower | USA | 50 | 1,600 | Offshore Wind JV | Offshore wind | No |
| Atlantic Shores | USA | 50 | 2,500 | Offshore Wind JV | Offshore wind | No |
| Pottendijk | The Netherlands | 100 | 100 | Solar and Onshore Wind | Onshore Renewable Power | Yes |
Hydrogen
We are part of joint ventures and alliances that have built hydrogen filling stations for passenger cars in Canada, Germany, the UK and the US state of California. We have announced plans to build several hydrogen filling stations in the Netherlands, the first of which opened in the fourth quarter of 2020.
We aim to complete the construction of a 10 MW electrolyser at our Rheinland refinery in Germany by mid-2021. In China, Shell and Zhangjiakou City Transport have signed a joint-venture agreement to build a 20 MW renewable power electrolyser and hydrogen refuelling stations in Zhangjiakou City in the Beijing-Tianjin-Hebei region.
Nature-based solutions
In 2020, we completed the acquisition of Select Carbon, a specialist company that partners with farmers, pastoralists and other landowners in
Australia to develop carbon farming projects, where plants are grown and soil managed to absorb carbon dioxide from the atmosphere. Select Carbon represents the first corporate acquisition for our nature-based solutions programme. This programme invests in forests, grasslands, wetlands and other natural ecosystems around the world to offset emissions by using plants to absorb carbon dioxide. The investment in natural ecosystems also helps biodiversity.
Marketing and Trading
We also market and trade natural gas, power and carbon-emission rights in multiple markets in North and South America, Europe, Asia and Australia, of which a portion includes equity volumes from our upstream operations.
We have set up a power marketing and trading business in the Philippines and China which began operations in 2020.
| | | | | | | | |
| 48 | STRATEGIC REPORT SHELL FORMShell | Form 20-F 20202022 | 35 | |
Generating shareholder value | Upstream continued
| | | | | |
UPSTREAM |
| Key statistics [A] |
| | | | | | $ million, except where indicated |
|
| $ million, except where indicated | | 2022 | 2021 | 2020 |
| 2020 | 2019 | 2018 | |
| Segment earnings | (10,785) | | 3,855 | 6,490 | |
| Segment earnings/(loss) | | Segment earnings/(loss) | 16,222 | 9,603 | (9,300) |
| Including: | Including: | | | Including: | | |
| Revenue (including inter-segment sales) | Revenue (including inter-segment sales) | 28,330 | 45,217 | 46,584 | Revenue (including inter-segment sales) | 60,637 | 44,971 | 27,763 |
| Share of profit of joint ventures and associates | Share of profit of joint ventures and associates | (7) | | 379 | 285 | Share of profit of joint ventures and associates | 2,111 | 632 | (7) |
| Interest and other income | Interest and other income | 542 | 2,180 | 605 | Interest and other income | 726 | 4,592 | 541 |
| Operating expenses [A] | 10,983 | 11,582 | 11,690 | |
| Operating expenses [B] | | Operating expenses [B] | 10,364 | 10,324 | 10,650 |
| Underlying operating expenses [B] | | Underlying operating expenses [B] | 10,802 | 10,086 | 9,894 |
| Exploration | Exploration | 1,136 | 2,073 | 1,132 | Exploration | 1,472 | 1,301 | 1,131 |
| Depreciation, depletion and amortisation | Depreciation, depletion and amortisation | 23,119 | 16,881 | 12,871 | Depreciation, depletion and amortisation | 10,334 | 13,485 | 21,079 |
| Taxation charge/(credit) | Taxation charge/(credit) | (467) | | 5,878 | 8,756 | Taxation charge/(credit) | 14,070 | 6,057 | (103) |
| Identified Items [A] | (7,933) | | (598) | | 19 | | |
| Adjusted Earnings [A] | (2,852) | | 4,452 | | 6,472 | | |
| Identified Items [B] | | Identified Items [B] | (1,096) | 1,587 | (6,874) |
| Adjusted Earnings [B] | | Adjusted Earnings [B] | 17,319 | 8,015 | (2,426) |
| Adjusted EBITDA [B] | | Adjusted EBITDA [B] | 42,100 | 27,170 | 13,045 |
| Capital expenditure | Capital expenditure | 6,911 | | 10,003 | | 12,002 | | Capital expenditure | 8,020 | 6,277 | 6,714 |
| Cash capital expenditure [A] | 7,296 | 10,205 | 12,134 | |
| Cash capital expenditure [B] | | Cash capital expenditure [B] | 8,143 | 6,168 | 7,099 |
| Oil and gas production available for sale (thousand boe/d) | Oil and gas production available for sale (thousand boe/d) | 2,424 | | 2,691 | | 2,656 | | Oil and gas production available for sale (thousand boe/d) | 1,897 | 2,178 | 2,324 |
[A]With effect from January 1, 2022, our reporting segments are Integrated Gas, Upstream, Marketing, Chemicals and Products, Renewables and Energy Solutions and Corporate. Comparative information has been revised.
[B]See “Non-GAAP"Non-GAAP measures reconciliations”reconciliations" on pages 240-242.
OVERVIEWBusiness conditions
OurFor the business conditions relevant to Upstream, business exploressee "Market overview" on pages 39-41.
Production available for and extracts crude oil, natural gas and natural gas liquids. It also markets and transports oil and gas, and operates infrastructure necessary to deliver them to market.sale
BUSINESS CONDITIONS
In 2020, oil markets experienced unprecedented developments in demand driven by the COVID-19 pandemic. At the start of 2020, global oil demand for the year2022, production was expected to grow by 1.2692 million barrels of oil equivalent (boe), or 1,897 thousand boe per day (b/(boe/d). Then in January, oil demand started to contract because demand fell in China as lockdown was imposed to contain the virus outbreak. In subsequent months, oil demand contracted further as the outbreak in China evolved into a global pandemic and lockdowns were introduced across the world. In April, oil demand fell to its lowest level, around 22 million b/d below year-average demand in 2019, according to an estimate of the International Energy Agency (IEA). Contraction of such magnitude has never been recorded before. Country lockdowns deeply impacted transportation sectors, especially passenger road and passenger air in Organisation for Economic Co-operation and Development (OECD) economies. In subsequent months, oil demand started recovering, but only partially, because resurgences of COVID-19 triggered re-imposition of social distancing and travel restrictions. By the fourth quarter, global oil demand was still estimated to be around 5.5 million b/d below the 2019 level, according to the Oil Market Report published by the IEA in January 2021. Averaged for the full year, oil demand contracted by around 9 million b/d, or 9%, to 91.2 million b/d. Oil demand fell by 5.7 million b/d in OECD economies, and by 3.2 million b/d in non-OECD economies. By contrast, oil demand in 2019 was 0.8 million b/d higher than in 2018.
On a daily average basis, Brent crude oil, an international benchmark, traded between $13 per barrel (/b) and $70/b in 2020, ending the year around $50/b. Brent crude oil prices averaged $42/b for the year, 34% (or $22/b ) lower than in 2019.
On a yearly average basis, WTI crude oil traded at a discount of about $2.5/b to Brent crude oil in 2020, compared with $7/b in 2019. The discount narrowed from 2019 because falling US supply prevented bottlenecks in pipeline capacity from the landlocked Cushing storage hub to the US Gulf Coast. According to the US Energy Information Administration, US crude oil exports increased further to a yearly average of around 3.1 million b/d in 2020, up by 0.1 million b/d from 2019. This helped to ensure a narrow price differential between Brent and WTI.
Global gas demand is estimated to have declined by around 2.4% in 2020, in contrast with the 2.5% annual growth rate observed since the start of the
century. The deterioration in gas demand for power generation and in industry was mainly caused by lockdowns related to COVID-19. Resilient gas demand for heating helped offset the overall decline. Demand declined across all regions except non-OECD Asia. In non-OECD Asia, demand grew in China, which experienced a robust recovery after mitigating the impacts of COVID-19. Outside China, aggregate gas demand in non-OECD Asia remained flat year-on-year.
In the USA, the natural gas price at the Henry Hub averaged $2.0 per million British thermal units (MMBtu) in 2020, 21% lower than in 2019. It traded in a range of $1.5 to 3.2/MMBtu. In the earlier part of 2020, there was downward pressure on prices because of decreased demand from a mild winter, lower LNG exports and a weak domestic market caused by COVID-19. Supply fell because activity declined as producers cut investments and because lower oil production meant there was less associated gas. During the summer, prices found support from growing demand for gas that could generate power for cooling during the hotter months of the year. Later in 2020, demand strengthened because of storage ahead of the winter season and increasing US LNG exports.
In Europe, the average price at the UK National Balancing Point (NBP) in 2020 was 28% lower than in 2019. At the main continental gas trading hubs – in the Netherlands, Belgium and Germany – prices were also lower, as reflected by weaker Dutch Title Transfer Facility (TTF) prices. European gas prices were lower because of: the slump in demand in power generation and industry; robust supply of pipeline gas; well-filled gas storage inventories at the start of the year; and competition with renewables in power.
See “Market overview” on pages 23-25.
PRODUCTION AVAILABLE FOR SALE
In 2020, production was 887795 million boe, or 2,424 thousand boe/d, compared with 982 million boe, or 2,6912,178 thousand boe/d in 2019.2021. Liquids production decreased by 4%12% and natural gas production decreased by 19%15%, compared with 2019.2021.
Total production, compared with 2021, decreased as a result of divestments and scheduled maintenance. The decrease in liquids productionimpact of field decline was mainly caused by divestments, OPEC+ curtailment, higher maintenance and hurricanes in the Gulf of Mexico interrupting production. Increased production from ramp-ups and new field start-ups more than offset field decline.by growth from new fields.
Controllable availability of 84.7% was driven mainly by unscheduled deferments in Nigeria (Forcados Oil terminal repairs), extended turnarounds and reliability in the UK (Pierce FPSO, Shearwater and Gannet).
Earnings 2022-2021
Upstream earnings in 2022 were $16,222 million, compared with $9,603 million in 2021. The decrease in gas productionincrease was mainly causeddriven by higher realised oil and gas prices and a gain related to storage and working gas transfer effects and impairment reversals. This was partly offset by lower volumes, mainly as a result of divestments, lower demandand charges related to the EU solidarity contribution and UK Energy Profits Levy.
Full year 2022 segment earnings included a gain from Nederlandse Aardolie Maatschappij B.V. (NAM)net impairment reversals of $853 million and charges of $1,385 million relating to EU solidarity contributions and $802 million relating to the UK Energy Profits Levy. These gains and losses are part of identified items and compare with the full year 2021, which included a net gain of $3,261 million related to the sale of assets (mainly related to the sale of the Permian business in the Netherlands,USA), partly offset by impairment charges of $633 million, losses of $393 million for the fair value accounting of commodity derivatives, and the transferlegal provisions of Rashpetco operations in Egypt from Upstream to Shell's Integrated Gas segment.
$287 million. | | | | | | | | |
STRATEGIC REPORT SHELL FORM 20-F 2020 | 36 | |
We expect that oil production peaked in 2019. Going forward, we expect a gradual reduction in oil production of around 1-2% each year, including divestmentsAdjusted Earnings and natural decline.Adjusted EBITDA were driven by the same factors as the segment earnings and adjusted for identified items.
EARNINGS 2020-2019
SegmentUpstream earnings in 20202021 were a profit of $9,603 million, compared with a loss of $10,785$9,300 million in 2020. Earnings were helped by higher oil and gas prices, mainly driven by the improved macroeconomic conditions and the one-off release of a tax provision in Nigeria and lower depreciation, partly offset by lower production volumes.
Full year 2021 segment earnings included a net gain of $3,261 million related to the sale of assets (mainly related to the sale of the Permian business in the USA), partly offset by impairment charges of $633 million, losses of $393 million for the fair value accounting of commodity derivatives, and legal provisions of $287 million. These gains and losses are part of identified items, and compare with the full year 2020 segment earnings which included a net charge of $6,447$5,387 million related to impairments, primarily in the US Gulf of Mexico, unconventional assets in North America, offshore assets in Brazil and Europe, and a project in Nigeria (OPL245), mainly triggered by revision of Shell's mid- and long-term commodity price and updated Appomattox sub surfacesubsurface understanding. Also included was a net charge of $782 million related to the impact of the weakening Brazilian real on a deferred tax position.
Segment earnings in 2019Adjusted Earnings and Adjusted EBITDA were $3,855 million, which included a net charge of $1,930 million related to impairments, primarily in the US Appalachia unconventional gas assets and a drilling rig joint venture, partly offset by a gain of $1,609 million on sale of assets, mainly in Denmark and the US Gulf of Mexico.
Excluding the net charges described above, segment earnings in 2020 were a loss of $2,852 million, compared with a profit of $4,452 million in 2019. Earnings excluding the net charges were adversely impacted by lower prices and lower volumes, mainly driven by the unfavourable macroeconomic conditionssame factors as described in the business condition section and severe weather conditions in the Gulf of Mexico.
In the second quarter of 2020, we made cost interventions by reducing the size of our contingent workforce and initiating an organisational review in line with Reshape.
EARNINGS 2019-2018
Segment earnings in 2019 were $3,855 million, which included a net charge of $598 million as described above.
Segment earnings in 2018 were $6,490 million, which included a net gain of $19 million. This included a net gain of $888 million on sale of assets, mainly related to our divestments in Iraq, Malaysia, Oman and Ireland, and a gain of $152 million related to the fair value accounting of commodity derivatives. These gains were partly offset by a charge of $561 million related to the impact of the weakening of the Brazilian real on a deferred tax position, a net impairment charge of $350 million mainly related to assets in North America and deep-water rig joint ventures, and a charge of $90 million related to the release of historic currency differences.
Excluding the net charges described above, segment earnings in 2019 were $4,452 million compared with $6,472 million in 2018. Earnings excluding the net charge were adversely impacted by lower realised oil and gas prices, higher depreciation and higher well write-offs, mainly in Albania and Kazakhstan, partly offset by higher sales volumes associated with the timing of liftings.adjusted for identified items.
CASH CAPITAL EXPENDITURECash capital expenditure
Cash capital expenditure in 20202022 was $7.3$8.1 billion, compared with $10.2$6.2 billion in 2019.2021. The increased expenditure in 2022 was mainly a result of the Brazil Atapu Transfer of Rights and a ramp-up in projects, partially offset by the slippage of activities across the portfolio and divestments. Our cash capital expenditure is expected to be around $8 billion in 2021.2023.
Lower cash capital expenditure in 2020 was mainly driven by actions to preserve cash. The lower cash capital expenditurePortfolio and capital investments in 2020 also reflected our continuing efforts to improve capital efficiency by pursuing developments which cost less.
PORTFOLIO AND BUSINESS DEVELOPMENTbusiness development
We took the following key portfolio decisions during 2020:
▪In Argentina, in January 2020, partnering with Equinor, we completed the acquisition of Schlumberger’s 60% interest in the Bandurria Sur block, located in the Vaca Muerta Basin (Shell interest 30%).2022:
▪In Brazil, in August 2020,April 2022, we signed a production-sharing contract (PSC) to formally acquire a 25% stake in the Atapu Field.
Strategic Report | Progress on strategy – year in review
Generating shareholder value | Upstream continued
▪In Brazil, in May 2022, we started production at the FPSO Guanabara in the Mero field, in the offshore Santos Basin.
▪In Malaysia, in September 2022, together with PETRONAS Carigali Sdn Bhd, we took the final investment decision (FID) to contractdevelop the Mero 3 floating production, storage and offloading (FPSO) vessel to be deployed at the Mero field within the offshore Santos Basin.
▪In Brunei, in March 2020, we completed the acquisition of deep-water exploration Block CA-1 (Shell interest 86.95%).
▪In Kazakhstan, in December 2020, we successfully settled a long-running contractual dispute with the Republic of Kazakhstan government about the profit share between the parties in the Karachaganak joint venture. Shell paid $424 million as its share of the settlement.
▪In Norway, in May 2020, partnering with Equinor and Total, we made a final investment decision on the Northern Lights carbon capture and storage (CCS) project. The project will involve the capture, transport and storage of carbon dioxide produced from industrial regions around the Norwegian continental shelf. Equinor is the operator of theRosmari-Marjoram gas project.
▪In Russia,the UK, in April 2020,July 2022, we cancelled our acquisition oftook the 50% participation interest in LLC Meretoyahaneftegaz from Gazprom Neft.
▪In Russia, with Gazprom Neft, we established a joint venture (Shell interest 50%)final investment decision (FID) to explore and develop the Leskinsky and Pukhutsayakhsky blocks in the Gydan peninsula, in north-western Siberia. The deal was completed in November 2020.
▪In September, we agreed to acquire seven exploration licences in four countries from Kosmos Energy. Suriname represents a new country entry for Shell. In São Tomé and Príncipe, we will deepen our position in two blocks and enter two others. In both Namibia and South Africa, we will expand our position in two blocks. Transfer has been completed in Suriname, São Tomé and Príncipe and Namibia. South Africa is expected to complete in 2021.Jackdaw North Sea gas field.
▪In the US Gulf of Mexico, in March 2020,2022, we acquired seven blocks across multiple plays instarted the Gulf of Mexico Lease 254.production at PowerNap, a subsea development.
We achieved the following operational milestones in 2020:
▪In Brazil, Atapu 1, (the FPSO vessel P-70), came on stream and delivered first oilthe US Gulf of Mexico, in June.February 2023, we started production at Vito, a Shell-operated floating production facility.
We continued to divest selected assets during 2020,2022, including:
▪In Brazil,Malaysia, in June 2020, we sold a 30% interest in the Gato do Mato project in the Santos Basin. We are still the project operator, with a 50% interest.
▪In Brazil,December 2022, we agreed to sell our 23% intereststake in two offshore production sharing contracts (PSCs) in the P-71 FPSO vessel,Baram Delta to Petroleum Sarawak Exploration & Production Sdn. Bhd. ("PSEP"). The sale concerns non-operated interests of 40% in the dealAmended 2011 Baram Delta EOR PSC and 50% in the SK 307 PSC. The remaining interests in both PSCs are held by the operator, PETRONAS Carigali Sdn Bhd ("PCSB"). Sale completion is expected to be completed in the first quarter of 2021.2023.
▪In Canada,the Philippines, in August 2020,November 2022, we completed the salesold our 100% shareholding in Shell Philippines Exploration B.V. (SPEX) to Malampaya Energy XP Pte Ltd (MEXP), a subsidiary of our Tourmaline shares.
▪In Canada, we agreed to sell our Duvernay shale light oil position in Alberta. The deal is expected to be completed in the second quarter of 2021.
▪In Nigeria, we agreed to sell our 30% interest in oil mining lease (OML17)Prime Infrastructure Capital Inc (Prime Infra). The deal was completed in January 2021.
▪In the USA, in February 2023, we completed the sale ofsold our Appalachia shale gas position. The deal was completed100% interest in July 2020.Shell Onshore Ventures LLC, which holds a 51.8% membership interest in Aera Energy LLC to IKAV.
▪In Egypt, we agreed to sell our onshore assetsShell announced in the Western Desert. The deal is expectedfirst quarter of 2022 its intent to be completedwithdraw from its ventures in the second half of 2021.Russia with Gazprom and related entities.
| | |
| See Note 6, which is incorporated by reference into the Strategic Report, on pages 242-244 for the actions we have taken since these announcements and for the impact on the consolidated financial statements. |
BUSINESS AND PROPERTYBusiness and property
Our subsidiaries, joint ventures and associates are involved in all aspects of upstream activities, including such matters as land tenure, entitlement to produced hydrocarbons, production rates, royalties, pricing, environmental protection, social impact, exports, taxes and foreign exchange.
The conditions of the leases, licences and contracts under which oil and gas interests are held vary from country to country. In almost all cases outside North America, legal agreements are generally granted by, or entered into with, a government, state-owned company, government-run oil and gas company or agency. The exploration risk usually rests with the independent oil and gas company. In North America, these agreements may also be with private parties that own mineral rights. Of these agreements, the following are most relevant to our interests:
▪Licences (or concessions), which entitle the holder to explore for hydrocarbons and exploit any commercial discoveries. Under a licence, the holder bears the risk of exploration, development and production activities, and is responsible for financing these activities. In principle, the licence holder is entitled to the totality of production less any royalties in kind. The government, state-owned company or government-run oil and gas company may sometimes enter into a joint arrangement as a participant, sharing the rights and obligations of the licence but usually without sharing the exploration risk. In a few cases, the state-owned company, government-run oil and gas company or agency has an option to purchase a certain share of production.
| | | | | | | | |
STRATEGIC REPORT SHELL FORM 20-F 2020 | 37 | |
▪Lease agreements, which are typically used in North America and are usually governed by terms similar to licences. Participants may include governments or private entities. Royalties are either paid in cash or in kind.
▪Production-sharing contracts (PSCs) entered into with a government, state-owned company or government-run oil and gas
company. PSCs generally oblige the independent oil and gas company, as contractor, to provide all the financing and bear the risk of exploration, development and production activities in exchange for a share of the production. Usually, this share consists of a fixed or variable part that is reserved for the recovery of the contractor’s cost (cost oil). The remaining production is split with the government, state-owned company or government-run oil and gas company on a fixed or volume/revenue-dependent basis. In some cases, the government, state-owned company or government-run oil and gas company will participate in the rights and obligations of the contractor and will share in the costs of development and production. Such participation can be across the venture or on a field-by-field basis. Additionally, as the price of oil or gas increases above certain predetermined levels, the independent oil and gas company’s entitlement share of production normally decreases, and vice versa. Accordingly, its interest in a project may not be the same as its entitlement.
Europe
Shell and ExxonMobil are 50:50 shareholders of BEB Erdgas und Erdoel GmbH & Co. KG (BEB) which owns interests in various concessions mainly in Lower Saxony. ExxonMobil Production Deutschland GmbH has a service contract with BEB under which it provides operating services to BEB for most of the concessions.
Italy
We haveShell has a 39% interest in the Val d’Agri producing concession, operated by ENI.ENI S.p.A.
We also have a 25% interest in the Tempa Rossa producing concession, operated by Total.
Netherlands
Shell and ExxonMobil are 50:50 shareholders in Nederlandse Aardolie Maatschappij B.V. (NAM). A significant part of NAM’s gas production comes from the onshore Groningen gas field, in which NAM holds a 60% interest. Theinterest in the onshore low-calorific Groningen gas field (the remaining 40% interest is held by EBN, a Dutch government entity.
Production from the Groningen field induces earthquakes thatwhich have damaged houses and other buildings and structures in the region. This has led to complaintsdamage claims, security concerns, a strengthening operation to make buildings earthquake resistant and claims for compensation for damagecalls from residents and local politicians to close the local community. NAM is working with the Dutch government and other stakeholders to fulfil its obligations to the residents of the area. These obligations include compensating for earthquake damage.
Since 2013, the Dutch Minister of Economic Affairs and Climate (the Minister)government has set anthe annual production leveland capacity target for the Groningen field taking into account all interests, including residents' safety, security of supply in the domestic gas market and supply commitments in EU member states. The production level inwhich for the gas year 2019-20202022-2023 (ending October 1, 2020)2023) was 8.7set at 2.8 billion cubic meters.
In June 2018, NAM’s shareholders and the Dutch government signed a heads of agreement (HoA) to reduce and eventually stop production from the Groningen field, and to ensure the financial robustness of NAM to fulfil its obligations. In thePursuant to this HoA NAM’s shareholders agreed not to declare dividendsno dividend is expected for 2018 and 2019. Dividend2022 as dividend payments in 2020 and beyond willcan only be made only if a solvency ratio of 25% is reached and maintained.
In September 2018, detailed agreements were signed to further implement the HoA. As part of these agreements, Shell guaranteeshas guaranteed 50% of NAM’s payment obligations vis-à-vis60% share of earthquake-related costs for damage claims and the strengthening of buildings. Whilst the Dutch government in relation to earthquake-related damages and costs of strengthening houses, up to a maximum of 30%. This maximum equates to Shell’s indirect interest in thehas responsibility for issuing production instructions for annual Groningen production system.
In conjunctionand has set up public entities for settling damage claims and strengthening buildings, NAM remains liable to pay for damage caused by earthquakes and strengthening required to comply with the safety norm. Under the terms of the HoA, it was agreed that NAM would cease all involvement in handling damage claims or strengthening buildings to make them safe. Thethe Dutch government has stepped into these two roles and has developed legislation and policies to deal with earthquake-related matters. One of the consequences of the legislation is that duty of care has shifted from NAM to the Dutch government. The Dutch government passeswould pass on to NAM the cost of the elements for which NAM is liable. There are escalation and arbitration options to settle any disputes.costs insofar
Strategic Report | Progress on strategy – year in review
as the costs corresponded to NAM’s liability. In 2022, NAM started arbitrations with the Dutch government to have its financial liability determined for costs which the Dutch government compensated to claimants and subsequently charged to NAM.
In September 2019, the Dutch government issued an update announcingannounced that it was able to reducethe reduction of Groningen production faster, stoppingwould be accelerated and that production would cease in 2022, eight years earlier than initially planned. Negotiationsplanned in the HoA. This has been revised to 2023 or 2024, provided that certain conditions are ongoingmet, including the timely start-up of a new nitrogen plant, sufficient reduction in demand for low-cal gas, usage of NAM’s underground gas storages (UGS) in Grijpskerk and Norg, and sufficient supply of high-cal gas. Compensation payments are made by the government to NAM for the revised usage of the Norg UGS. Discussions continue between the Dutch government and the NAM shareholders regarding the compensation payable by the Dutch government to NAM in order to restoregive effect to the balanceterms of the packageHoA.
The parliamentary enquiry into the production of arrangements laid downgas from Groningen and the subsequent effects of the earthquakes moved into the public hearings phase in 2022 and the 2018 HoA. If no agreement can be reachedfinal report was published on such re-balancing,February 24, 2023.
On October 26, 2021, NAM shareholders can goannounced that it would split up its non-Groningen assets into several new legal entities, with the intent to arbitration to resolve the matter.
NAM also has a 60% interest in the Schoonebeek oil field and operates 25 other hydrocarbon production licences. Some of these are onshore and others are offshore in the North Sea.
Norway
We areShell is a partner in 2720 production licences on the Norwegian continental shelf. We areshelf, and the operator of eight of these. We have interests in 14 of these, of which two are producing: the Knarr field (Shell interest 45%), and thegas-producing fields: Shell-operated Ormen Lange gas field (Shell interest 17.8%) and Equinor-operated Troll (Shell interest 8.1%). We haveIn 2022, a non-operatedplan for development and operation was submitted for government approval for the Equinor-operated gas discovery Irpa (Shell interest in10%), as a tie-back to the producing field Troll.
Aasta Hansteen field. We are a partneralso the operator of two fields which are being decommissioned: Knarr (which ceased production in 2022) and Gaupe. In addition, we are the Northern Lights carbon dioxide transport and storage project. In this phasetechnical service provider for the partnership is governed by a collaboration agreement between Equinor, Shell and Total (equal partners).
UK
We operateShell operates a significant number of our interests on the UK continental shelf under 50:50 joint-venture agreements with Neo Energy and has a 50:50 joint-venturejoint venture agreement with ExxonMobil. On February 24, 2021, ExxonMobil announced that it had signed an agreement with HitecVision (through its wholly owned portfolio company Neo Energy) for the sale of most of its non-operated upstreamSEGAL gas transportation system; the Brent Field, which is being decommissioned; and other assets in the UK central and northern North Sea, including a number of interests subject to theSea. Shell ExxonMobil 50:50 joint venture agreement. The sale, which ExxonMobil expects will close later in 2021, is subject to regulatory and third-party approvals. In addition to our oil and gas production from North Sea fields, we have various interests in the Atlantic Margin area where we are not the operator, principallyalso has non-operated positions in the West of Shetland area, (Clair, Shellnamely Clair (Shell interest 28%27.97%), and Schiehallion (Shell interest 44.89%).
In 2020, newMay 2022, the UK’s Offshore Petroleum Regulator for Environment and Decommissioning (OPRED) approved the revised environmental statement for the Jackdaw gas field development and gave production cameconsent in June 2022. In July, Greenpeace applied for a judicial review of the Regulator’s decision. The application has, at Greenpeace’s request, been put on hold pending the decision by the UK Supreme Court on another case which concerns similar legal issues, and which will likely be heard in the second half of 2023. If the hold on Greenpeace’s judicial review application is lifted, we currently believe there is a relatively low risk of disruption to the Jackdaw project, in terms of delays and/or changes to the project. The project is expected to come on stream in the Fram (Shell interest 32%), Shearwater (Shell interest 28%)mid-2020s.
In 2022, Shell drilled five exploration wells on the UK continental shelf.
From April 2022, Shell assumed the role of technical development lead for the CO2 capture, transportation and Pierce (Shell interest 92.52%) fields. We are a participant instorage modules of the Acorn project, which is in its early stages and will involve carbon capture, utilisation and storage (CCUS) and hydrogen production (joint venture, Shell interest 25%).
We continued with decommissioning Heather assets and the Curlew FPSO, and continued Brent decommissioning. In June 2020 the Pioneering Spirit vessel safelyNovember 2022, Shell completed the single-lift removalacquisition of a 100% interest in Corallian Energy Limited. The interest comprises the P.2596 licence containing the Victory field gas discovery west of Shetland which is expected to be a subsea tie-back to existing infrastructure tied into the Shetland Gas Plant. Gas would be exported via existing pipelines to the North Sea Midstream Partners operated plant at St Fergus, helping to ensure longer-term gas supply for the UK.
Decommissioning of the 17,000-tonne Brent Alpha topsideHeather A platform and Curlew floating production, storage and offloading (FPSO) asset continued in 2022. Production from the North Sea. This was followed in August 2020 by the SSCV Sleipnir vessel safely lifting and removing the upper portion of the Brent Alpha jacket. Brent Alpha is the third of four platforms, after Brent Delta and Brent Bravo, to be decommissioned and removed from the Brent oil and gas field. In July 2020, the UK government approved the Brent Alpha decommissioning programme, including the derogation to leave in place the Brent Alpha steel jacket footings. A decision on the proposed derogations to leave in place each of the gravity-based concrete installations of Brent Bravo, Brent Charlie and Brent Delta is expectedceased in the first halfquarter of 2021.2021 and topsides preparations are ongoing in readiness for the lift, removal and recycling of the facilities. OPRED continues to assess the Brent Field decommissioning programme, which pertains to the Brent gravity-based substructures.
Rest of Europe
WeShell also havehas interests in Albania, Bulgaria and Germany.
Asia (including the Middle East and Russia)
Brunei
Shell and the Brunei government are 50:50 shareholders in Brunei Shell Petroleum Company Sendirian Berhad (BSP). BSP has long-term onshore and offshore oil and gas concession rights onshore and offshore Brunei, and sells most of its gas production to Brunei LNG Sendirian Berhad, (see “Integrated Gas” on pages 30-35), with the remainder (23% in 2020) sold in the domestic market.
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| See "Integrated Gas" on pages 42-47. |
In addition to our interest in BSP, we have a 35% non-operating interest in the offshore Block B concession (Shell interest 35%, operated by TotalEnergies), where gas and condensate are produced from the Maharaja Lela field.
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STRATEGIC REPORT SHELL FORM 20-F 2020 | 38 | |
We also have a non-operating interest in a gas holding area for deep-water exploration Block CA-2CA2 (Shell interest 12.5%), operated by Petronas), under a PSC. The exploration acreage in Block CA-2 was relinquished in 2020.
We completed the acquisition of Total E&P Deep Offshore Borneo B.V. on March 31, 2020, and renamed the company Shell Exploration and Production Brunei B.V. The acquisition gives us an operator interest inoperate the deep-water Block CA-1CA1 (Shell interest 86.95%), in which the Jagus-East field is located, under a PSC.
As referred to in the Malaysia section below, the Jagus-East field and the Geronggong field, held by BSP, form part of the unitised GKGJE field.
Iraq
We haveShell has a 44% interest in the Basrah Gas Company, which gathers, treats and processes associated gas that was previously being flared from the Rumaila, West Qurna 1 and Zubair fields. The processed gas and associated products, such as condensate and LPG, are sold to the domestic market. Any surplus condensate and LPG is exported.
Kazakhstan
We areShell is the joint operator with ENI S.p.A. of the onshore Karachaganak oil and condensate field (Shell interest 29.3%), where we have a licence until the end. The Karachaganak field is in north-west Kazakhstan and covers an area of 2037. In December 2020, we successfully settled a long-running contractual dispute with the Republic of Kazakhstan government about the profit share between the parties in the Karachaganak joint venture. Shell paid $424 million as its share of the settlement.
We also have an interest in the North Caspian Sea production-sharing agreementProduction Sharing Agreement (Shell interest 16.8%) which includes the Kashagan field in the Kazakh sector of the Caspian Sea. The North Caspian Operating Company is the operator. This shallow-water field covers an area of around 3,400 square kilometres. Phase 1 development of the field is expected to lead to plateau oil production capacity of around 66 thousand boe/d (Shell interest) by 2021, with the possibility of increases after later phases of development.
Strategic Report | Progress on strategy – year in review
We have a 7.4% interest in the Caspian Pipeline Consortium which owns and operates an oil pipeline running from the Caspian Sea to the Black Sea, across parts of Kazakhstan and Russia.
Malaysia
We exploreShell explores for and produceproduces oil and gas offshoreoff the coast of Sabah and Sarawak under 1621 PSCs, in which our interests range from 20% to 85%92.5%.
Early in 2020, the Malaysian Inland Revenue Board (MIRB) started a tax audit on Sabah and Sarawak Contiguous, which comprises the Sabah and Sarawak upstream businesses. This resulted in preliminary audit findings. The Company has determined it is probable that each uncertain tax treatment used in its income tax filings will ultimately be defensible, either during the next phase of the audit or on appeal to the courts. To date, no notices of additional assessments have been received.
Offshore Sabah we
▪We operate two producing oil fields. These are the Gumusut-Kakap deep-water field (Shell interest 29%), andfields: (i) the Malikai deep-water field (Shell interest 35%), and (ii) the unitised GKGJE field consisting of the Malaysian Gumusut and Kakap fields and the Bruneian Geronggong and Jagus-East fields that straddle the Malaysia-Brunei border and have been made into a single unit. Shell’s interest in the unitised field is 37.89%. In August 2020,June 2022, we took FIDthe final investment decision on phase 3 of the Gumusut-KakapGKGJE Phase 4 oil development project. The project involves drilling four subsea wells, (two oil producers and two water injectors), to enhance Gumusut-Kakap’s expected recoverable oil volumes.
In October 2020, drilling started for phase 2 of the Malikai project. Phase 2 is expected to deliverJuly 2022, we achieved first oil in 2021. for the Phase 3 development.
▪In March 2022, we signed two new exploration PSCs for Block 2W and X (Shell interest 50% each).
▪In our non-operated portfolio:
–We also have a 21% interest in the Siakap North-Petai deep-water field and a 30% interest in the Kebabangan field, both operated by third parties. We also havefield.
–In October 2022, we signed a new exploration interests in Blocks SB-J, SB-G, SB-N, SB-3G, ND-6 and ND-7.PSC for Block SB 2K (Shell interest 25.1%).
–In February 2023, we completed the farm-in to one exploration PSC for Block SB2V (Shell interest 40%).
Offshore Sarawak in 2020 we were
▪We are the operator of eight producing gas fields (Shell interest 30%-50%) and one field producing oil and gas (Shell interest 50%). Shell handed over interest and operations of the E11 field/hub, one of the eight producing gas fields, to Petronas at the end of December 2020. After a binding heads of agreement (HoA) in December 2019 to extend the MLNG PSC, the PSC and joint operating agreement (JOA) were amended on November 16, 2020. Under the extended MLNG PSC, as of January 1, 2021, Shell (with 40% interest) will continue to be the operator of the F6 and F23 hubs and the producing E8, F13 East and F13 West fields. Shell will also continue to be the operator for new exploration acreage and new fields (F22, F27, Selasih).
Shell is also the operator for Block SK318 PSC (Shell interest 75%), which contains the discovered Rosmari, Marjoram and Timi fields.
In Block SK408 (Shell interest 30%), first gas was successfully produced from the Gorek field in May 2020 and from Bakong in June 2020. The block also contains the producing Larak gas field.
For SK308 PSC, first oil and gas for phase 2 of the E6 project is expected in 2021.
First gas is expected from the Pegaga field in Block SK320 (Shell interest 20%) by the fourth quarter of 2021.
Nearly all the gas produced offshore Sarawak is supplied to Malaysia LNG (MLNG) and to our gas-to-liquids plant in Bintulu. See “Integrated Gas” on pages 30-35.The fields are:
Shell has exploration interests in Block SK320. Exploration periods expired in June 2020 for Blocks SK318–gas fields F14 and F28 under the SK308 PSC (Shell interest 50%);
–gas field Gorek under the SK408 PSC (Shell Interest 30%); and
–oil and in December 2020gas field E6 under the SK308 PSC (Shell interest 50%).
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| See "Integrated Gas" on pages 42-47. |
▪We are also the operator for Block SK319. SK318 PSC. This block contains the Timi field (Shell interest 75%) which is under development, and the Rosmari-Marjoram fields (Shell interest 80%). In September 2022, together with PETRONAS Carigali Sdn Bhd, we took the final investment decision to develop the Rosmari-Marjoram natural gas project. Situated around 220 kilometres off the coast of Bintulu, the project comprises a remotely operated offshore platform and onshore gas plant. Rosmari-Marjoram will mainly be powered by renewable energy from solar power offshore and hydroelectric power onshore.
▪In November 2022, we progressed with the execution of the MLNG F22, F27, Selasih (FaS) project, which comprises a single well development in each of the F22, F27 and Selasih fields to be drilled from the wellhead platforms with tie-backs to the F23 hub.
▪In March 2022, we signed one new exploration PSC for Block SK439 and SK440 (Shell interest 92.5%). In February 2023, we signed one new PSC for Block SK3B (Shell interest 45%).
▪In our non-operated portfolio:
–First gas was achieved for SK320 (Shell interest 20%) in April 2022.
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| Using renewables to produce gas in Malaysia In 2022, we took the final investment decision to develop the Rosmari-Marjoram gas production project in Malaysia. The project will be mainly powered by renewable energy, using solar power for its remotely operated offshore platform and hydroelectric power for its onshore gas plant. Rosmari-Marjoram is designed to produce 800 million standard cubic feet of gas per day and is expected to start production in 2026. The project will include one of the longest gas offshore pipelines in the world, stretching more than 200 kilometres from the field to the coast of Sarawak. Once production starts, the gas will be piped to the Malaysia liquefied natural gas (Malaysia LNG) complex. Rosmari-Marjoram will help Shell deliver a reliable supply of gas and do this while reducing the emissions from our operations. This is in line with our Powering Progress energy transition strategy to become a net-zero business by 2050. The project team has demonstrated ingenuity and applied a learner mindset to the design, evolving the project from a conventional offshore processing platform to a carbon-competitive onshore gas plant. Shell focuses on seeking the highest return from investments within the lowest possible carbon emissions budget. Rosmari-Marjoram’s offshore platform will use power from 240 solar panels and the onshore plant is connected to the Sarawak grid system, which is supplied mainly by hydroelectric plants. Batteries and diesel generators will be held in reserve as back-up to ensure the safety of our operations.
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| Photo: The Rosmari-Marjoram gas project will feed the Bintulu LNG export plant in Sarawak, Malaysia. | |
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Strategic Report | Progress on strategy – year in review
Generating shareholder value | Upstream continued
–We have a 30% interest in Jerun which is part of the Block SK408 PSC. Jerun is a gas development with an integrated central processing platform. Block SK408 also contains the producing non-Shell-operated Larak and Bakong fields.
–We also have a 40% interest in the amended 2011 Baram Delta enhanced oil recovery PSC and a 50% interest in Block SK-307.
Oman
We haveShell has a 34% interest in the Block 6 concession and its operator Petroleum Development Oman (PDO);, which operates the OmaniBlock 6 oil concession. Shell is entitled to 34% of oil produced from Block 6 through its interest in Private Oil Holdings Oman Ltd. The government of Oman has a 60% interest.interest in PDO isand the operatorBlock 6 oil concession through its 100% owned company, Energy Development Oman (EDO). PDO operates a concession area of about 90,000 square kilometres and has more than 200 producing oil fields, mainly located in central and southern Oman, over an area of 90,874 square kilometres.
We have a 50% interest in the Block 42 explorationunder an Exploration and production-sharing agreement. Oman Oil (OQ) has the remaining 50% interest.Production Sharing Agreement (EPSA) where Shell is the operator of Block 42, an area of 31,068 square kilometres.operator. The other 50% interest is held by the government through its 100% owned company, OQ. We have signed an exploration and production-sharing agreement that makes us the operator and gives us a 100% working interest in Block 55 under an areaEPSA.
Russia
Shell announced in the first quarter of 7,564 square kilometres.
Russia
We have a 50% interest2022 its intent to withdraw from its ventures in Salym Petroleum Development N.V., a joint ventureRussia with Gazprom Neft that is developing the Salym fields in the Khanty Mansiysk Autonomous District of western Siberia. In March 2020, Salym Petroleum Development N.V. expanded its area of operations by acquiring a 100% interest in LLC Salymsky 2, holder of the licence for the Salymsky 2 block.and related entities.
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| See Note 6, which is incorporated by reference into the Strategic Report, on pages 242-244 for the actions we have taken since these announcements and for the impact on the "Consolidated Financial Statements". |
Shell and Gazprom Neft each have a 50% interest in the Khanty-Mansiysk Petroleum Alliance VOF partnership. Through this, Shell is a holder of 50% of shares in the JSC Khanty-Mansiysk Petroleum Alliance. Acquisition of the 50% participating interest in LLC Meretoyahaneftegaz from Gazprom Neft through the VOF was cancelled in April 2020. Since then, neither Khanty-Mansiysk Petroleum Alliance VOF partnership nor JSC Khanty-Mansiysk Petroleum Alliance has undertaken any significant activities.
Because European Union and US sanctions prohibit certain defined oil and gas activities in Russia, we have since 2014 suspended our support to Salym Petroleum Development N.V. and JSC Khanty-Mansiysk Petroleum Alliance in relation to shale oil activities.
In November 2020, Shell acquired from Gazprom Neft a 50% shareholding in LLC Gazpromneft-Aero Bryansk, which holds the Leskinsky and Pukhutsayakhsky licences on the Gydan peninsula. The joint venture will be managed by Gazprom Neft and Shell on a parity basis aiming to develop an exploration cluster in the north-eastern part of the Gydan Peninsula.
United Arab Emirates
In Abu Dhabi, we have a 15% interest in the licence of ADNOC Gas Processing. ADNOC Gas Processing exports propane, butane and heavier-liquid hydrocarbons, which it extracts from the wet gas associated with the oil produced by ADNOC Onshore.
Syria
Shell holds a 65% interest in Syria Shell Petroleum Development B.V. (SSPD), a joint venture between Shell and the China National Petroleum Corporation (CNPC).Corporation. SSPD holds a 31.3%31.25% interest in Al Furat Petroleum Company, (AFPC), a Syrian joint stock company, which performs operations under SSPD contracts.whose role was to perform petroleum operations. Shell also holds a 70% interest in two exploration licences via Shell South Syria Exploration B.V. In December 2011, in compliance with international
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STRATEGIC REPORT SHELL FORM 20-F 2020 | 39 | |
sanctions on Syria, including European Council Decision 2011/782/CFSP, Shell suspended all exploration and production activities in Syria
Rest of Middle East and Asia
WeShell also havehas interests in Kuwait and the United Arab Emirates.
On November 1, 2022, Shell Petroleum N.V. completed the sale of its 100% shareholding in Shell Philippines Exploration B.V. (SPEX) to Malampaya Energy XP Pte Ltd, a subsidiary of Prime Infrastructure Capital Inc (Prime Infra). SPEX owns a 45% operating interest and Turkey.
Inis operator in Service Contract 38, which includes the Philippines, Shell is exploring optionsMalampaya gas field. The sale completion transferred ownership and control of SPEX to divest its interest in SC 38 (Malampaya).
Africa
Egypt
We have a 50% interest in the Badr Petroleum Company (BAPETCO), a joint venture between Shell and the Egyptian General Petroleum Corporation (EGPC). BAPETCO operates 10 oil- and gas-producing concessions and two exploration concessions, (North East Obaiyed, North Matruh), in the Western Desert. We also have onshore concessions with 100% Shell interest (West El Fayum, South East Horus, South Abu Sennan) and one producing concession extension (Bed 2-17). In 2021, we agreed to sell our onshore upstream assets in Egypt. The deal is expected to be completed in the second half of 2021.
Nigeria
Our shareShell operates a number of production,interests in onshore and offshore oil exploration and production assets in Nigeria was 223 thousand boe/d in 2020, compared with 266 thousand boe/d in 2019. Security issues, sabotage and crude oil theft in the Niger Delta remained significant challenges in 2020.Nigeria.
Onshore
The Shell Petroleum Development Company of Nigeria Limited (SPDC) is the operator of athe SPDC joint venture (Shell(SPDC JV, Shell interest 30%) that,which, after the completion of the salehandover of its interestoperations in OML 17 on11 in 2022, has 15 January 2021, has 16 Niger Delta onshore oil mining leases (OML)(OMLs).
SPDC started litigation in May 2019 against the Federal Government (FGN)also has three shallow-water oil mining leases (OML 74, 77 and 79) and a 40% interest in the domestic court to challenge the non-renewal of oil miningnon-operated Sunlink joint venture which has one shallow-water lease 11 (OML 11)144). In August 2019, the Federal High Court ruled in favour of SPDC, affirming that it has fulfilled its obligations under the law for the renewal of OML 11. The court ordered the FGN to renew OML 11 for 20 years. In December 2019, the court refused to grant an application by the FGN to suspend the implementation of the judgement. The FGN appealed the court's decision and, in February 2021, the Court of Appeal granted a stay of the judgment in favour of FGN thereby suspending implementation pending a determination of the appeal on the merits. SPDC is taking various steps to protect its right to continue operating OML 11 pending a determination of the appeal.
In separate litigation,2021, we announced our intention to reduce our involvement in August 2020, the Rivers State Government (RVSG) obtained judgment against SPDC. This judgement, by the Rivers State High Court, sought to reinforce the RVSG’s purported purchase of SPDC’s interestonshore oil production in OML 11. The purported purchase was said to have occurred through a court-auction sale arising out of the Ejema Ebubu (Ogoniland) community litigation. SPDC has appealed against the judgement of the Rivers State High Court.
Notwithstanding the FGN appeal and the judgementNigeria, in favour of the RVSG, SPDC continues to operate OML 11. In doing so, it is supported by the August 2019 Federal High Court judgement in its favour, which remains in force.
SPDC supplies gas to Nigeria LNG Ltd (see “Integrated Gas” on pages 30-35) mainly through its Gbaran-Ubie and Soku projects.
Offshore
Our main offshore deep-water activities are carried out by Shell Nigeria Exploration and Production Company Limited (SNEPCO,(SNEPCo, Shell interest 100%). SNEPCOSNEPCo has interests in fourthree deep-water blocks three of whichthat are under PSC terms: the producing assets Bonga (OML 118) and Erha (OML 133), and the non-producing asset Bolia Chota (OML 135). SNEPCOSNEPCo operates OMLsOML 118 (including(Shell interest 55%), including the Bonga field FPSO Shellvessel. We also operate OML 135, encompassing the Bolia and Doro fields (Shell interest 55%) and 135 (Bolia and Doro, Shell interest 55%) and has. We have a 43.8% non-operating interest in OML 133 (including the Erha FPSO). Separately, SNEPCO holds a 50% non-operating interest in oil prospecting licence (OPL) 245 (Zabazaba, Etan) under a production-sharing agreement.
In 2022, OML 118 and OML 133 were renewed for 20 years following settlement of disputes regarding historic allocation of production between Nigerian National Petroleum Corporation (NNPC) and the parties to the PSCs.Authorities in various countries are investigating our investmentinvolvement in Nigerian oil blockBlock OPL 245 and the 2011 settlement of litigation pertaining to that block. See Note 25
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| See Note 31 to the "Consolidated Financial Statements" on pages 283-285. |
Business update
In August 2021, the “Consolidated Financial Statements” on pages 206-208.
SPDC also has three shallow-water licences (OMLs 74, 77Petroleum Industry Act (PIA) entered into effect, creating a new regulatory framework for the petroleum industry in Nigeria. The PIA introduces significant changes and 79) and a 40% interestwe are actively engaged in the non-Shell-operated Sunlink joint ventureimplementation process to ensure that has one shallow-water licence (OML 144).these changes are implemented in a timely manner in our operations.
In our Nigerian operations, we face various risks and adverse conditions which could have a significant adverse effect on our operational performance, earnings, cash flows and financial condition (see “Risk factors” on pages 18-22. condition.
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| See "Risk factors" on page 25. |
There are limitations to the extent to which we can mitigate these risks. We liaise with host communities, and governmental and non-governmental organisations to help promote peaceful and safe operations for our people and local communities. We carry out regular portfolio assessments to remain a competitive playerso we can maintain our long-term competitiveness in Nigeria for the long term.Nigeria. We support the Nigerian government’s efforts to improve the efficiency, functionality and domestic benefits of Nigeria’s oil and gas industry. We monitor legislative developments and the security situation. We liaise with host communities, governmental and non-governmental organisations to help promote peace and safe operations. We continue to be transparent about how we manage and
Strategic Report | Progress on strategy – year in review
Generating shareholder value | Upstream continued
report spills, and how we deploy oil-spill response capability and technology.respond to spills. We implement a maintenance strategy to support sustainable equipment reliability and have begun a multi-year programme to reduce routine flaring of associated gas. See “Climate change and energy transition” on pages 73-85.
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| See "Our Journey to net zero" on pages 82-109. |
Rest of Africa
WeShell also havehas interests in Algeria, Mauritania, Namibia, São ToméSao Tome and Principe, South Africa Tanzania and Tunisia.
North America
Bitumen and synthetic crude oil
From January 1, 2020, our interest in bitumen and synthetic crude oil is reported in the Oil Products segment. Comparative information has not been restated.
Canada
We have mineral leases mainlyShales assets in Alberta and British Columbia. We produce and market natural gas, natural gas liquids and condensate.
Shales
We have around 1.3 million net mineral acres, primarily in the Duvernay play in Alberta and the Montney play in British Columbia. Our Groundbirch asset in British Columbia will be an integralCanada are now reported as part of the LNG Canada value chain. We currently operate four natural gas processing area facilities in British Columbia. In 2021 we agreed to sell our Duvernay shale light oil position in Alberta. The deal is expected to be completed inIntegrated Gas segment instead of the second quarter of 2021.Upstream segment.
In 2020, we drilled and brought 17 wells on stream. We have interests in 757 productive wells.
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| See "Integrated Gas" on pages 42-47. |
USA
We produce oil and gas in deep water in the Gulf of Mexico, heavy oil in California and oil and gas in Texas. The majority of our oil and gas production interests are acquired under leases granted byin the owner of the minerals underlying the relevant acreage, including manyUSA comprise leases for federal offshore tracts.tracts in the deep waters of the Gulf of Mexico. Such leases usually run on an initialhave a fixed primary term thatand, once production is automatically extended byestablished, the establishment ofleases remain in effect through continued production, for as long as production continues, subject to compliance with the terms and provisions of the leaseleases (including appurtenant applicable laws and regulations).
In February 2023, we sold our 100% interest in Shell Onshore Ventures LLC, which holds a 51.8% membership interest in Aera Energy LLC to IKAV.
Shell holds one licence interest in the caseNorth Slope area of federalAlaska. In 2020, we received regulatory approval to combine our near-shore leases extensive regulations imposed by federal law). Our total share of production in West Harrison Bay into a single unit. Shell is currently seeking a co-owner to operate the USA was 571 thousand boe/d in 2020.
Gulf of Mexico
The Gulf of Mexico is ourShell’s major production area in the USA and accounts for around 55%is the Gulf of our oil and gas production in the country.Mexico. We have an interest in around 315a total of 327 active federal offshore leases where Shell is the operator and securedan additional 103 active federal offshore leases where Shell has a further 19 blocks as an outcomenon-operated interest.
We are the operator of eight production hubs: Mars (Shell interests ranging from 33.7% to 100%), Olympus (Shell interests ranging from 71.5% to 100%), Auger (Shell interests ranging from 27.5% to 100%), Perdido (Shell interests ranging from 33.3% to 40%), Ursa (Shell interests ranging from 40% to 80%), Enchilada/Salsa (Shell interests ranging from 37.5% to 75%), Appomattox (Shell interest 79%) and Stones (Shell interest 100%). We also have the USWest Delta 143 processing facilities (Shell interest 71.5%).
We continue to produce from Coulomb (Shell interest 100%) which ties into the Na Kika platform (Shell interest 50%) operated by BP.
We continued exploration, development and abandonment activities in the Gulf of Mexico Lease Sale 256 held in November 2020. Our share2022.
In March 2022, we began production at PowerNap (Shell interest 100%), a subsea tie-back to the Shell-operated Olympus tension leg platform (Shell interest 71.5%) in the Mars Corridor. PowerNap is expected to produce up to 20,000 barrels of production averaged 313 thousand boe/d in 2020.oil equivalent per day (boe/d) at peak rates.
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| Vito - delivering value with a smaller, less costly design Upstream seeks to deliver more value for shareholders by producing oil and gas more cost competitively, while striving for lower carbon emissions. Shell has more than 40 years of deep-water experience and we are constantly learning. We planned a new Shell-operated deep-water platform for the Gulf of Mexico, Vito (Shell interest 63.1%), and then redesigned it to be simpler and more cost-efficient. The result: a platform a third of its original planned size at 70% less cost. The Vito team rose to the challenge and achieved first production in February 2023. Peak production is estimated at 100,000 barrels of oil equivalent per day. Vito’s simplified hull design reduces operating expenses since it requires less maintenance. Its simplified mooring design requires less equipment, less capital investment and reduces safety exposures to operators. By limiting the topside scope to a weight less than 9,000 tonnes, this new design focused on being less complex to operate and less expensive to build. Vito has not only delivered shareholder value but will also pave the way for other deep-water developments through innovation and simplification. Our Shell-operated Whale project (Shell interest 60%), also in the Gulf of Mexico and approved in 2021, will follow suit and replicate much of Vito’s smaller, more cost-effective design.
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| Photo: In July 2022, our latest deep-water project, Vito, set sail from Ingleside, Texas to go out for installation in the US Gulf of Mexico. | |
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| 54 | STRATEGIC REPORT SHELL FORMShell | Form 20-F 20202022 | 40 | |
Generating shareholder value | Upstream continued
We are the operator of eight production hubs - Mars, Olympus, Auger, Perdido, Ursa, Enchilada/Salsa, Appomattox and Stones - and the West Delta 143 processing facilities (Shell interests ranging from 33% to 100%). We continue to produce from CoulombTogether with our partner, China National Offshore Oil Corporation (CNOOC), we have reached a final investment decision (FID) on Rydberg (Shell interest 100%80%) which ties into the Na Kika platform, where Shell has a 50% non-operating interest.
We continued exploration, development and abandonment activities in the Gulf of Mexico in 2020.
We continued the ramp-up of the Appomattox floating production system, which started production in May 2019. We also advanced the development of Powernap and Vito, which are both in the execution phase. Powernap,. It is a subsea tie-back to the OlympusShell-operated Appomattox production hub (Shell interest 79%). The project is expected to start production in 2024 and produce up to 16,000 barrels of oil equivalent per day (boe/d) at peak rates.
In June 2022, we acquired a 51% operated interest from Equinor in the North Platte deep-water development project. To reflect Shell’s entry to the project, Shell and Equinor have agreed to rename the North Platte opportunity to Sparta. Front-end engineering and design (FEED) has been well matured, and Shell is working closely with Equinor to progress the opportunity.
In February 2023, we began production at the Shell-operated Vito floating production facility (Shell interest 63.1%). Vito is expected to produce up to 35 thousand boe/d. Vito, Shell’s eleventh deep-water project100,000 barrels of oil equivalent per day (boe/d) at peak rates. We also made progress on the development of Whale (Shell interest 60%), which is a Shell-operated stand-alone host in the Gulf of Mexico, isexecution phase, expected to achieve first oil in 2022 and reach around 100 thousand boe/d at peak rates.
The 20202022 Atlantic hurricane season adversely impacteddid not have a material impact on production at our US Gulf of Mexico assets. We experienced extended shutdowns at our Auger and Enchilada/Salsa production hubs because of the storms and the subsequent recovery efforts.
Shales
We have around 410 thousand net mineral acres. Our activity is focused in the Permian Basin, following our divestment of the Appalachia asset. This was completed in July 2020 and covered the sale of around 443 thousand net leasehold acres across Pennsylvania, with around 358 producing wells in the Marcellus and Utica shale formations, and associated facilities in Tioga County. The transaction also included the transfer of owned and operated midstream infrastructure.
In 2020, we drilled and brought on stream 181 wells. We have interests in 1,588 productive wells and operate eight central processing facilities.
California
We have a 51.8% interest in Aera Energy LLC which operates around 13 thousand wells in the San Joaquin Valley in California, mostly producing heavy oil and associated gas.
Alaska
We have sold or relinquished all frontier licences in Alaska and have no plans for frontier exploration offshore Alaska. We retain two exploration acreage positions in the long-established North Slope area of Alaska. One is a non-operating interest of 50% in 13 federal leases held since 2007 and operated by ENI. The other position consists of 18 state leases in nearby West Harrison Bay that have been held since 2012, which we plan to turn over to an alternative operator.
Rest of North America
Shell also has equity in nine deep-water licences and one shallow-water licence in Mexico (Shell interest 40%-100%). We are currently evaluating these positions through exploration drilling.
In November 2020, we agreed a farm-in transaction with the China National Offshore Oil Corporation (CNOOC) E&P Mexico, acquiring a participating interest (Shell interest 30%) in the deep-water round 1.4 Block 4 exploration licence in the offshore Mexico Perdido. This transaction is subject to regulatory approval.
South America
Argentina
Shales
We have more than 178 thousand net mineral acresShell has interests in the onshore Vaca Muerta Basin a liquids- and gas-rich play located in the Neuquén Province. The operated acreage includes blocks inWe are the operator of the Cruz de Lorena, and Sierras Blancas (Shell interest 90%),and Coiron Amargo Sur Oeste (Shell interest 80%)90% each), and Bajada de Añelo (Shell interest 50%). areas. We have a 45% non-Shell-operated interestnon-operated interests in the areas of Rincon La Ceniza and La Escalonada blocks.
In 2020, we drilled(Shell interest 45% each), both operated by Total Austral S.A., and brought 23 wells on stream. We have interests in 88 producing wells. We have a 90% interest in our operated Sierras Blancas/Cruz de Lorena central processing facility.
In 2020, in a 50:50 partnership with Equinor, we acquired a 60% working interest (Shell 30% interest) in the Bandurria Sur block,area (Shell interest 30%), operated by YPF S.A., We are the operator of a joint venture created for the construction of a pipeline which connects Sierras Blancas and the regional distribution network (Shell interest 60%).
In the north-western Argentina basin, we have a non-operated interest in the Vaca Muerta Basin.onshore Acambuco area (Shell interest 22.5%), operated by Pan American Energy.
Offshore
We haveIn addition to the producing interests, we are the operator of two frontier exploration blocksareas offshore Argentina. For both blocks, Shell is the operator withArgentina (Shell interest 60% each) and we have a 60% interest.non-operated interest in an adjacent area (Shell interest 30%), operated by Equinor.
Brazil
Our total share of productionShell’s operated assets in Brazil was an averageconsist of 394 thousand boe/d in 2020.
Our operated portfolio consists of offshore assets in:
•the Bijupirá and Salema fields (Shell interest 80%) and each), which are being decommissioned; the producing BC-10 field (Shell interest 50%) in the Campos Basin;
•the Gato do Mato field in the Santos Basin and the adjacent Sul de Gato do Mato areaareas in the Santos Basin (Shell interest 50%, after the completed sale of a 30% stake to Ecopetrol in 2020)), subject to unitisation and with development options under evaluation; and
•a total of 17evaluation. We also hold an interest in 13 exploration blocks in the following areas:
–Santos Basin (Shell interests ranging from 45% to 100%), 10 blocks in the Barreirinhas Basin (10 blocks with Shell(Shell interests ranging from 50% to 100%);
–Santos, four blocks in the Campos Basin (Alto Cabo Frio Oeste PSC, Shell interest 55%; Saturno PSC, Shell interest 45%(Shell interests ranging from 40% to 100%);
– and one block in the Potiguar Basin (POT-M-948, Shell interest 100%); and
–Campos Basin (C-M-659, Shell interest 40%; C-M-713, Shell interest 40%; C-M-791, Shell interest 40% and C-M-757, Shell(Shell interest 100%). (Block C-M-757 was awarded to Shell in the National Petroleum Agency (ANP) permanent offer round in December 2020 and is awaiting ratification.)
Our non-operated portfolio consists of the followingeight producing fields in the offshore Santos Basin:
• the Sapinhoá field (Shell interest 30%, operated by Petrobras),Petrobras and straddling the BM-S-9 and Entorno de Sapinhoá blocks already unitised;
•unitised); the Lapa field (Shell interest 30%, in Block BM-S-9A, operated by Total) in Block BM-S-9A;
•TotalEnergies); the Berbigão and Sururu fields (Shell interest 25%, in Block BM-S-11A, operated by Petrobras and subject to ongoing discussions about unitisation agreements, operated by Petrobras) in Block BM-S-11A;
•agreement discussions); the Atapu field (Shell interest 4%16.7% and straddling the BM-S-11A and Atapu PSC area already unitised); the Tupi field (Shell interest 23%, already unitised, in September 2019)in Block BM-S-11A;
•Lula field in Block BM-S-11 recently renamed the Tupi field because of a court decision (subject to unitisation in effect since April 2019, Shell interest 23%,and operated by Petrobras);
• the Iracema field (Shell interest 25% in Block BM-S-11 (Shell interest 25%, not subject to unitisation,and operated by Petrobras); and
• the Mero field in the Libra PSC area (Shell interest 20%, unitisation with an adjoining area still subject to government approval and operated by Petrobras).
In addition to the producing assets, we hold interests in twofour non-operated exploration blocks, two in the Santos Basin:
•BM-S-50, containing the Sagitário discoveryBasin (Shell interest of 20% and 40%, both operated by Petrobras); and
•Tres Marias two in the Potiguar Basin (Shell interest 40%, both operated by Petrobras).
We also hold interests in two non-operated exploration blocksThe FPSO Guanabara production started in the Potiguar Basin:
•POT-M-859 (Shell interest 40%, operated by Petrobras); and
•POT-M-952 (Shell interest 40%, operated by Petrobras).
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STRATEGIC REPORT SHELL FORM 20-F 2020 | 41 | |
The activities of operated and non-operated fields are currently supported by 17 producing deep-water FPSOs, of which the 17th (P-70) delivered first oilMero field in June 2020. Two additional FPSOs areApril 2022, offshore Santos Basin. Mero is expected to be brought online overreceive three more FPSOs and start producing from these between 2023 and 2025.
In April 2022, we signed the period 2022-2023 (Mero 1PSC related to the acquisition of 25% of Atapu Transfer of Rights area (acquired in the ANP bid round in 2021) and Mero 2). In August 2020, we announced the final investment decision to contract the Mero 3 FPSO vessel to be deployed at the Mero field. We agreed to sell our 23%increasing Shell’s interest in the P-71 FPSO, the deal is expectedAtapu field from 4.3% to be completed16.7%.
In December 2022, Shell placed a successful bid in the first quarterANP’s Permanent Offer PSC bid round for the acquisition of 2021.40% of the Sudoeste de Sagitário block in the Santos Basin and is awaiting ratification.
Rest of South America
WeShell also havehas interests in Suriname and Uruguay.
TRADING AND SUPPLY
We marketShell markets and tradetrades crude oil from most of ourits Upstream operations.
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| 55 | STRATEGIC REPORT SHELL FORMShell | Form 20-F 20202022 | 42 | |
Generating shareholder value
Oil and gas information
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OIL AND GAS INFORMATIONProved developed and undeveloped reserves of Shell subsidiaries and Shell share of joint ventures and associates |
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| | | Proved developed and undeveloped reserves of Shell subsidiaries and Shell share of joint ventures and associates | |
| | | Crude oil and natural gas liquids (million barrels) | Synthetic crude oil (million barrels) | Bitumen (million barrels) | Natural gas (thousand million scf) | Total (million boe)[A] | | Crude oil and natural gas liquids
(million barrels) | Synthetic crude oil
(million barrels) | | Natural gas
(thousand million scf) | Total
(million boe)[A] |
| Shell subsidiaries | Shell subsidiaries | | Shell subsidiaries | | | |
| Increase/(decrease) in 2020: | | |
| Increase/(decrease) in 2022: | | Increase/(decrease) in 2022: | | | |
| Revisions and reclassifications | Revisions and reclassifications | (63) | | 57 | | — | | (3,477) | | (607) | | Revisions and reclassifications | 137 | (25) | | (31) | 107 |
| Improved recovery | Improved recovery | — | | — | | — | | — | | — | | Improved recovery | 32 | — | | — | 32 |
| Extensions and discoveries | Extensions and discoveries | 48 | | — | | — | | 228 | | 88 | | Extensions and discoveries | 61 | — | | 1,270 | 280 |
| Purchases and sales of minerals in place | Purchases and sales of minerals in place | 8 | | — | | — | | (599) | | (95) | | Purchases and sales of minerals in place | 66 | 240 | | 662 | 420 |
| Total before taking production into account | Total before taking production into account | (7) | | 57 | | — | | (3,848) | | (614) | | Total before taking production into account | 296 | 215 | | 1,901 | 839 |
| Production [B] | Production [B] | (606) | | (20) | | — | | (3,012) | | (1,144) | | Production [B] | (504) | (17) | | (2,648) | (978) |
| Total | Total | (613) | | 37 | | — | | (6,860) | | (1,758) | | Total | (208) | 198 | | (747) | (139) |
| At January 1, 2020 | 4,374 | | 607 | | — | | 28,992 | | 9,980 | | |
| At December 31, 2020 | 3,761 | | 644 | | — | | 22,132 | | 8,222 | | |
| At January 1, 2022 | | At January 1, 2022 | 3,820 | 533 | | 23,795 | 8,456 |
| At December 31, 2022 | | At December 31, 2022 | 3,612 | 731 | | 23,048 | 8,317 |
| Shell share of joint ventures and associates | Shell share of joint ventures and associates | | Shell share of joint ventures and associates | | | |
| Increase/(decrease) in 2020: | | |
| Increase/(decrease) in 2022: | | Increase/(decrease) in 2022: | | | |
| Revisions and reclassifications | Revisions and reclassifications | (32) | | — | | — | | (234) | | (73) | | Revisions and reclassifications | (25) | — | | (733) | (152) |
| Improved recovery | Improved recovery | — | | — | | — | | — | | — | | Improved recovery | — | | — |
| Extensions and discoveries | Extensions and discoveries | 1 | | — | | — | | 2 | | 1 | | Extensions and discoveries | 4 | — | | 80 | 18 |
| Purchases and sales of minerals in place | Purchases and sales of minerals in place | — | | — | | — | | — | | — | | Purchases and sales of minerals in place | 159 | — | | 2,549 | 599 |
| Total before taking production into account | Total before taking production into account | (31) | | — | | — | | (232) | | (72) | | Total before taking production into account | 138 | — | | 1,896 | 465 |
| Production [C] | Production [C] | (36) | | — | | — | | (615) | | (142) | | Production [C] | (29) | — | | (486) | (113) |
| Total | Total | (67) | | — | | — | | (847) | | (214) | | Total | 109 | — | | 1,410 | 352 |
| At January 1, 2020 | 283 | | — | | — | | 4,829 | | 1,116 | | |
| At December 31, 2020 | 216 | | — | | — | | 3,982 | | 902 | | |
| At January 1, 2022 | | At January 1, 2022 | 228 | — | | 3,949 | 909 |
| At December 31, 2022 | | At December 31, 2022 | 337 | — | | 5,359 | 1,261 |
| Total | Total | | Total | — | | — |
| Increase/(decrease) before taking production into account | Increase/(decrease) before taking production into account | (38) | | 57 | | — | | (4,080) | | (686) | | Increase/(decrease) before taking production into account | 434 | 215 | | 3,797 | 1,304 |
| Production | Production | (642) | | (20) | | — | | (3,627) | | (1,286) | | Production | (533) | (17) | | (3,134) | (1,091) |
| Increase/(decrease) | Increase/(decrease) | (680) | | 37 | | — | | (7,707) | | (1,972) | | Increase/(decrease) | (99) | 198 | | 663 | 213 |
| At January 1, 2020 | 4,657 | | 607 | | — | | 33,821 | | 11,096 | | |
| At December 31, 2020 | 3,977 | | 644 | | — | | 26,114 | | 9,124 | | |
| Reserves attributable to non-controlling interest in Shell subsidiaries at December 31, 2020 | — | | 322 | | — | | — | | 322 | | |
| At January 1, 2022 | | At January 1, 2022 | 4,048 | 533 | | 27,744 | 9,365 |
| At December 31, 2022 | | At December 31, 2022 | 3,949 | 731 | | 28,407 | 9,578 |
| Reserves attributable to non-controlling interest in Shell subsidiaries at December 31, 2022 | | Reserves attributable to non-controlling interest in Shell subsidiaries at December 31, 2022 | — | 365 | | — | 365 |
[A]Natural gas volumes are converted into oil equivalent using a factor of 5,800 standard cubic feet (scf) per barrel.
[B]Included 40 million boe consumed in operations (natural gas: 225228 thousand million scf; synthetic crude oil: 1 million barrels).
[C]Included 75 million boe consumed in operations (natural gas: 4231 thousand million scf).
Strategic Report | Progress on strategy – year in review
Generating shareholder value | Oil and gas information continued
Proved reserves
The proved oil and gas reserves of Shell subsidiaries and the Shell share of the proved oil and gas reserves of joint ventures and associates are set out in more detail in “Supplementary information - oil"Supplementary Information
– Oil and gasGas (unaudited)”" on pages 211-228.
Before taking production into account, our proved reserves decreasedincreased by 6861,304 million boe in 2020.2022. This comprisedconsisted of decreasesan increase of 614
839 million boe from Shell subsidiaries and an increase of decreases of 72465 million boe from the Shell share of joint ventures and associates.
After taking production into account, our proved reserves decreasedincreased by 1,972213 million boe in 2020 2022 to 9,1249,578 million boe at December 31, 2020.2022.
SHELL SUBSIDIARIESShell subsidiaries
Before taking production into account, Shell subsidiaries’ proved reserves decreasedincreased by 614839 million boe in 2020.2022. This comprised decreasesconsisted of 7an increase of 296 million barrels of crude oil and natural gas liquids, and 664an increase of 328 million boe (3,848(1,901 thousand million scf) of natural gas and an increase of 57215 million barrels of synthetic crude oil. The 614839 million boe decreaseincrease is the net
effect of a net decreaseincrease of 607107 million boe from revisions and reclassifications, an increase of 88280 million boe from extensions and discoveries, an increase of 32 million boe from improved recovery, and a net decreaseincrease of 95420 million boe related to purchases and sales of minerals in place. On January 15th 2021 Shell announced that the Shell Petroleum Development Company of Nigeria Limited (SPDC) had completed the sale of its 30% interest in Oil Mining Lease (OML17) in the Eastern Niger Delta, and associated infrastructure. Proved reserves at end-2020 associated with this transaction were 26 million boe
After taking into account production of 1,144978 million boe (of which 40 million boe were consumed in operations), Shell subsidiaries’ proved reserves decreased by 1,758139 million boe in 20202022 to 8,2228,317 million boe. In 2020, Shell subsidiaries’2022, Shell's subsidiaries proved developed reserves (PD) decreased by 872519 million boe to 6,9786,221 million boe and proved undeveloped reserves (PUD) decreasedincreased by 886380 million boe to 1,2442,096 million boe.boe.
SHELL SHARE OF JOINT VENTURES AND ASSOCIATESShell share of joint ventures and associates
Before taking production into account, the Shell share of joint ventures and associates’ proved reserves decreasedincreased by 72465 million boe in 2020.2022. This comprised a decreaseconsisted of 31an increase of 138 million barrels of crude oil and natural gas
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STRATEGIC REPORT SHELL FORM 20-F 2020 | 43 | |
liquids and a decreasean increase of 41327 million boe (232(1,896 thousand million scf) of natural gas. The 72465 million boe decrease comprisesincrease comprised a net decrease of 73152 million boe from revisions and reclassifications, and an increase of 118 million boe from extensions and discoveries.
After taking into account production of 142113 million boe (of which 75 million boe were consumed in operations), the Shell share of joint ventures and associates’ proved reserves decreasedincreased by 214352 million boe to 9021,261 million boe at December 31, 2020.
The Shell share of joint ventures and associates’ PDproved developed reserves (PD) decreased by 169193 million boe to 791608 million boe, and proved undeveloped reserves (PUD) decreasedincreased by 45545 million boe to 111653 million boe.
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| For further information, see "Supplementary Information - oil and gas (unaudited)" on pages 288-306. |
For further information, see "Supplementary Information - oil and gas (unaudited)" on pages 211-228.
PROVED UNDEVELOPED RESERVESProved undeveloped reserves
In 2020,2022, Shell subsidiaries and the Shell share of joint ventures and associates’ PUD decreasedincreased by 932925 million boe to 1,3552,749 million boe. There were decreases of 339331 million boe due toas a result of maturation to proved developed -PD, mainly 9839 million boe in Brazil, 95Mero (Brazil), 31 million boe in the USAPierce (UK), and 146261 million boe spread across other countries. Therefields. This was a decrease of 116 million boe as a result of revisions, reclassifications and entitlement changes, which were also decreasesmainly because of 682the de-recognition of reserves in Russia and de-maturation of some PUD wells in British Columbia, Canada, after regulator authorisations were suspended
in 2022. These were offset by an increase of 301 million as a result of de-maturation of PD to PUD, mainly due to 262 million boe in Kashagan (Kazakhstan), where a new slug catcher needs to be installed, an increase of 32 million boe due to other revisions resulting mainly fromimproved recovery, a combinationnet increase of lower year average price741 million boe due to purchases and reductionssales of minerals in planned capital expenditure (mainly in Australia (354 million boe), USA (121 million boe)place and Brazil (100 million boe)), partly offset bya net increasesincrease of 89298 million boe due to extensions and discoveries.
In addition to the maturation of 339331 million boe from PUD to PD, 75
126 million boe was matured to PD from contingent resources through PUD as a result of project execution during the year.
PUD held for five years or more (PUD5+) at December 31, 2020,2022, amounted to 184156 million boe, a decrease of 7482 million boe compared with the end of 2019.2021. The decrease in PUD5+ during 2022 was driven mainly by changes in Lunskoye (Russia) and Kolo Creek (Nigeria).
The fields with the largest PUD5+ on December 31, 2022, were Gorgon (Australia) and Tupi (Brazil). These PUD5+ remain undeveloped because development either requires the installation of compression equipment and the drilling of additional wells, which will be executed when required to support existing gas delivery commitments (Russia), or will take longer than five years because of the complexity and scale of the project (Australia and(Australia) or because ongoing development requires the UK)ongoing drilling of additional wells (Brazil).
The decrease in PUD5+ during 2020 was driven mainly by changes in Jansz-Io (Australia) and Clair (UK).
The fields with the largest PUD5+ at December 31, 2020, were Lunskoye (Russia), Gorgon and Jansz-Io (Australia) and Clair (UK).
During 2020,2022, we spent $6.5$5.8 billion on development activities related to PUD maturation.
DELIVERY COMMITMENTSDelivery commitments
We sell crude oil and natural gas from our producing operations under a variety of contractual obligations. Most contracts generally commit us to sell quantities based on production from specified properties, although some natural gas sales contracts specify delivery of fixed and determinable quantities, as discussed below.
In the past three years, we met our contractual delivery commitments, with the notable exceptions of Egypt, Trinidad and Tobago, and Malaysia. In the period 2021-2023,2023-2025, we are contractually committed to deliver to third parties, joint ventures and associates a total of 7,4905,870 billion scf of natural gas from our subsidiaries, joint ventures and associates. The sales contracts contain a mixture of fixed and variable pricing formulae that are generally referenced to the prevailing market price for crude oil, natural gas or other petroleum products at the time of delivery.
In the period 2021-2023,2023-2025, we expect to meet our delivery commitments for almost all the areas in which they are carried, with an estimated 71.9%71% coming from PD, 5.5%5% through the delivery of gas that becomes available to us from paying royalties in cash, and 22.6%24% from the development of PUD as well as other new projects and purchases.
The key exceptions are:
▪BGIn Egypt, Development NOV: The government decision to divertthe expected shortfall of 491 billion scf (85% of the promised gas fromdelivery) for the offshore2023-2025 period is mainly caused by the performance of the West Delta Deep Marine fields being insufficient to meet the committed quantities to ELNG. If the government divert more gas to the domestic use has caused a tangible shortfall of 770 billion scf (83% ofmarket, this would increase the promised gas delivery), expected to continue in the near future leaving LNG gas commitment mostly under force majeure; shortfall.
▪In Trinidad and Tobago (East Coast Marine Area and North(North Coast Marine Area), where PD for all fields fail the economic test at the yearly average price for natural gas. But we expect to cover 86%77% of our delivery commitments from existing developed resource volumes and new projects, resulting in an expected true shortfall of some 10362 billion scf; andscf.
▪In Malaysia, one of the third-party gas supply lines which was under maintenance has not been repaired during 2020.2022. Force majeure has been declared, and no penalties have been incurred, resulting in an expected true shortfall of some 7277 billion scf (54%(64% of the promised gas delivery).
Strategic Report | Progress on strategy – year in review
Generating shareholder value | Oil and gas information continued
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| Summary of proved oil and gas reserves of Shell subsidiaries and Shell share of joint ventures and associates (at December 31, 2022) |
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| Based on average prices for 2022 |
| Crude oil and natural gas liquids (million barrels) | Natural gas (thousand million scf) | Synthetic crude oil (million barrels) | Total (million boe)[A] |
| Proved developed | | | | |
| Europe | 143 | 2,635 | — | 597 |
| Asia | 1,153 | 8,959 | — | 2,698 |
| Oceania | 73 | 4,240 | — | 804 |
| Africa | 187 | 984 | — | 356 |
| North America | | | | |
| USA | 356 | 275 | — | 404 |
| Canada | 3 | 712 | 731 | 857 |
| South America | 838 | 1,589 | — | 1,113 |
| Total proved developed | 2,753 | 19,394 | 731 | 6,829 |
| Proved undeveloped | | | | |
| Europe | 52 | 424 | — | 125 |
| Asia | 585 | 5,127 | — | 1,469 |
| Oceania | 33 | 1,878 | — | 356 |
| Africa | 31 | 857 | — | 179 |
| North America | | | | |
| USA | 187 | 246 | — | 229 |
| Canada | 1 | 244 | — | 43 |
| South America | 307 | 237 | — | 348 |
| Total proved undeveloped | 1,196 | 9,013 | — | 2,749 |
| Total proved developed and undeveloped | | | | |
| Europe | 195 | 3,059 | — | 722 |
| Asia | 1,738 | 14,086 | — | 4,167 |
| Oceania | 106 | 6,118 | — | 1,160 |
| Africa | 218 | 1,841 | — | 535 |
| North America | | | | |
| USA | 543 | 521 | — | 633 |
| Canada | 4 | 956 | 731 | 900 |
| South America | 1,145 | 1,826 | — | 1,461 |
| Total | 3,949 | 28,407 | 731 | 9,578 |
| Reserves attributable to non-controlling interest in Shell subsidiaries | | | 365 | 365 |
[A]Natural gas volumes are converted into oil equivalent using a factor of 5,800 scf per barrel.
| | | | | | | | |
| 58 | STRATEGIC REPORT SHELL FORMShell | Form 20-F 20202022 | 44 | |
Generating shareholder value | Oil and gas information continued
| | | | | | | | | | | | | | |
| | | | |
| Summary of proved oil and gas reserves of Shell subsidiaries and Shell share of joint ventures and associates (at December 31, 2020) |
| Based on average prices for 2020 |
| Crude oil and natural gas liquids (million barrels) | Natural gas (thousand million scf) | Synthetic crude oil (million barrels) | Total (million boe)[A] |
| Proved developed | | | | |
| Europe | 108 | | 1,817 | | — | | 421 | |
| Asia | 1,609 | | 12,850 | | — | | 3,825 | |
| Oceania | 68 | | 3,699 | | — | | 707 | |
| Africa | 316 | | 1,341 | | — | | 548 | |
| North America | | | | |
| USA | 539 | | 669 | | — | | 654 | |
| Canada | 12 | | 720 | | 644 | | 780 | |
| South America | 675 | | 925 | | — | | 834 | |
| Total proved developed | 3,327 | | 22,021 | | 644 | | 7,769 | |
| Proved undeveloped | | | | |
| Europe | 76 | | 886 | | — | | 229 | |
| Asia | 174 | | 755 | | — | | 304 | |
| Oceania | 5 | | 520 | | — | | 93 | |
| Africa | 63 | | 1,022 | | — | | 239 | |
| North America | | | | |
| USA | 189 | | 132 | | — | | 212 | |
| Canada | 3 | | 575 | | — | | 102 | |
| South America | 140 | | 203 | | — | | 176 | |
| Total proved undeveloped | 650 | | 4,093 | | — | | 1,355 | |
| Total proved developed and undeveloped | | | | |
| Europe | 184 | | 2,703 | | — | | 650 | |
| Asia | 1,783 | | 13,605 | | — | | 4,129 | |
| Oceania | 73 | | 4,219 | | — | | 800 | |
| Africa | 379 | | 2,363 | | — | | 787 | |
| North America | | | | |
| USA | 728 | | 801 | | — | | 866 | |
| Canada | 15 | | 1,295 | | 644 | | 882 | |
| South America | 815 | | 1,128 | | — | | 1,010 | |
| Total | 3,977 | | 26,114 | | 644 | | 9,124 | |
| Reserves attributable to non-controlling interest in Shell subsidiaries | — | | — | | 322 | | 322 | |
Exploration
[A] NaturalShell's exploration team searches for crude oil and gas, volumes are converted intoboth onshore and offshore. Exploration may result in discoveries of oil equivalent using a factor of 5,800 scf per barrel.
EXPLORATION
We continueand gas that we can develop, helping maintain energy security and contributing to focus and high-grade our portfolio of growth options.
In February 2020:
We acquired a 70% interest as operator of2022, producible hydrocarbons were encountered in Malaysia, the UK Southern North Sea licences P2304 and P1929the Gulf of Mexico. Hydrocarbons were also encountered in Namibia and further appraisal is being undertaken to determine producibility.
Gulf of Mexico
In 2022, Shell acquired 20 blocks in the Gulf of Mexico in Lease Sale 257. We relinquished a lease for one block ahead of expiration.
Brazil
In 2022, the Brazilian government ratified 11 Santos Basin blocks. Shell secured five blocks in the 2021 17th National Petroleum Agency Bid-Round and the remaining six in the 2022 3rd Permanent Offer Concession Bid-Round (Shell interest 70% in seven of them, 100% in the remaining four, operator in all cases). We also secured one Santos block in 2022 1st Production Sharing Permanent Offer Bid-Round in Brazil (Shell interest 40%, non-operated), which containis awaiting government ratification.
Malaysia
In 2022, Shell relinquished one non-operated Sabah block (Shell interest 50%). We signed three exploration PSCs for the Resolution gas discovery. Our appraisal programme consists of 3D seismicoffshore Sarawak and a contingent appraisal well.Sabah blocks (Shell interest 92.5% in two Sarawak blocks, 50% in two Sabah blocks, operator). We also signed an exploration PSC for another non-operated Sabah block (Shell interest 25.1%).
We added 4,553 square kilometres ofIn 2022, Shell farmed into three exploration licences in the UK and Netherlands SouthernUK’s southern North Sea across multiple plays.
We signed a farm-out agreement with Ecopetrol into the Colombia Offshore COL-5, Purple Angel, and Fuerte Sur blocks, as operator with a 50% working interest. Government ratification was obtained in December 2020.
Two exploration blocks, C-M-659 and C-M-713, awarded through Brazil's 16th National Petroleum Agency (ANP) bid round, were ratified. These Shell-operated blocksarea (Shell interest 40%) are located50%, non-operated).
New frontiers
In June 2022, Shell secured two blocks in the outboard Campos BasinOpen Uruguay Round, which are awaiting government ratification (Shell interest 100%, operator).
In September 2022, we took over an additional 50% participating interest in two operated blocks offshore Sao Tome and cover an areaPrincipe, after the withdrawal of around 1,800 square kilometres. The joint venture has a commitment to acquire 3D seismicpartner, giving us a total interest of 85% in both blocks and to drill one well in Block C-M-659.
In March 2020:
WeDecember 2022, we completed the sale and purchase agreement signedfarm-out of a 45% non-operated participating interest in October 2019 for the acquisition of Total E&P Deep Offshore Borneo B.V. and all its interests in thea deep-water exploration Block CA-1 (Shell interest 86.95%) production-sharing agreement (PSA). We assumed operatorshiplicence off the Western Cape of Block CA-1, with a total area of around 5,800 square kilometres which is largely unexplored. The deal also gave us access to the Jagus East oil field which lies within CA-1.
An exploration and production-sharing agreement for Block 55 in the south-east of the Sultanate of Oman was ratified by Royal Decree. Oman Shell now has a 100% working interest and operatorship of Block 55, with a total area of 7,564 square kilometres. The agreement includes a work programme of regional studies, seismic acquisition and other potential exploration activities.
In US Gulf of Mexico Lease Sale 254, we acquired seven blocks across multiple plays in the US Gulf of Mexico.
In July 2020, we signed a sales and purchase agreement for the Esenin deal, a 50% farm-in into two Gazprom Neft-held blocks on the Gydan peninsula in north-west Siberia, Russia. The deal was finalised in November 2020. The blocks cover an area of around 3,850 square kilometres.
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STRATEGIC REPORT SHELL FORM 20-F 2020 | 45 | For further information, see "Supplementary Information - oil and gas (unaudited)" on pages 288-306. |
In September 2020, ShellLocation of oil and Kosmos Energy executed a portfolio transaction under which Kosmos divested seven deep-watergas exploration licences to Shell across four countries: Suriname, São Tomé and Príncipe, Namibia and South Africa. Suriname (Block 42) represents a new country entry for Shell with a 33.33% participating interest. In São Tomé and Príncipe, Shell will expand its position in two blocks – (Block 6 by 25% working interest and Block 11 by 35% working interest) – and enter two others (10 and 13) with a 35% interest in both. In both Namibia and South Africa, Shell will deepen its position by 45% working interest in the two blocks, PEL0039 and NCUD. The agreement received all necessary regulatory approvals and third-party consents in December 2020, with the exception of South Africa which is expected to be completed in 2021.production activities
In November 2020:
We agreed a farm-in transaction with CNOOC E&P Mexico, acquiring a participating interest (Shell interest 30%) in the deep-water round 1.4 Block 4 exploration licence in the offshore Mexico Perdido. This transaction is subject to regulatory approval.
We agreed a farm-in transaction with Impact Africa Limited to acquire a 50% participating interest in the frontier deep-water blocks Transkei/Algoa (ER252) off the east coast of South Africa, with an area of around 46,000 square kilometres. Pursuant to the agreement, we will secure the operatorship from the counterparty. The agreement is subject to customary conditions including regulatory approvals.
In the delayed US Gulf of Mexico Lease Sale 256 held in November 2020, Shell secured a further 19 blocks.
In December 2020:
Our exploration presence in offshore Egypt was bolstered by entries into new blocks in the West Mediterranean and the Red Sea. For the West Mediterranean, Herodotus Block 3 North Ras Kanais (Shell interest 30%) was ratified in December 2020 with more than 4,400 square kilometres of acreage. Red Sea Block 3 (Shell interest 90%, operator) was ratified in December 2020 and covers more than 3,000 square kilometres in an under-explored area south of the Gulf of Suez. Some blocks have been awarded but are yet to be ratified; Red Sea Block 4 (Shell interest 63%, operator) and Herodotus Blocks 6 (North Marina, Shell interest 63%) and 7 (North Cleopatra Offshore, Shell interest 63%) all of which are awaiting government ratification.
In Brazil, we were awarded Block C-M-757 (Outboard Campos Basin) (Shell interest 100%) in the Permanent Offer Bid Round. This is awaiting ratification.
In total, the net undeveloped acreage in our exploration portfolio increased by around 9.4 million acres in 2020. The largest contributions were licence entries in São Tomé and Príncipe, the Sultanate of Oman, the Arab Republic of Egypt, Namibia and the Nation of Brunei. There were some relinquishments and divestments, with the largest being in Australia, Norway and Italy.
For further information, see "Supplementary Information - oil and gas (unaudited)" on pages 211-228
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STRATEGIC REPORT SHELL FORM 20-F 2020 | 46 | |
| | | | | | | | | | | |
LOCATION OF OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES |
| | | |
Location of oil and gas exploration and production activities [A] (at December 31, 2020)2022) |
| | | | | | | | | | | |
| Exploration | Development and/or Production | Shell operator [B] |
| Europe | | | |
| Albania | ● | | ● |
Bulgaria | ● | | ● |
| Cyprus | | ● | |
| Germany | ● | ● | |
| Italy | ● | ● | |
| Netherlands | ● | ● | ● |
| Norway | ● | ● | ● |
| UK | ● | ● | ● |
| Asia | | | |
| Brunei | ● | ● | ● |
| China | | ● | ● |
| Indonesia | | ● | |
| Kazakhstan | ● | ● | |
| Malaysia | ● | ● | ● |
Myanmar | ● | | |
| Oman | ● | ● | ● |
Philippines | ● | ● | ● |
| Qatar | | ● | ● |
Russia | ● | ● | |
Turkey | ● | | ● |
| Oceania | | | |
| Australia | ● | ● | ● |
| Africa | | | |
| Egypt | ● | ● | ● |
| Mauritania | ● | | ● |
Morocco | ● | | |
| Namibia | ● | | ● |
| Nigeria | ● | ● | ● |
| Sao Tome and Principe | ● | | ● |
| South Africa | ● | | ● |
| Tanzania | | ● | ● |
| Tunisia | | ● | ● |
North America - USA | | | |
| Mexico | ● | | ● |
| USA | ● | ● | ● |
North America - Canada | | | |
| Canada | ● | ● | ● |
| South America | | | |
| Argentina | ● | ● | ● |
BoliviaBarbados | ● | | |
| Bolivia | | ● | ● |
| Brazil | ● | ● | ● |
| Colombia | ● | ● | ● |
| Suriname | ● | | ● |
Trinidad &and Tobago | ● | ● | ● |
| Uruguay | ● | | ● |
[A]Includes joint ventures and associates. Where a joint venture or an associate has properties outside its base country, those properties are not shown in this table.
[B]In several countries where “Shell operator”"Shell operator" is indicated, Shell is the operator of some but not all exploration and/or production venturesventures..
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Generating shareholder value | Oil and gas information continued
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| OIL AND GAS PRODUCTION AVAILABLE FOR SALE |
|
| Crude oil and natural gas liquids [A] | Thousand barrels |
| 2020 | | 2019 | | 2018 |
| Shell
subsidiaries | Shell share of
joint ventures
and associates | | Shell
subsidiaries | Shell share of
joint ventures
and associates | | Shell
subsidiaries | Shell share of
joint ventures
and associates |
| Europe | | | | | | | | |
| Denmark | — | | — | | | 7,490 | | — | | | 13,036 | | — | |
| Italy | 11,342 | | — | | | 9,747 | | — | | | 10,921 | | — | |
| Norway | 6,914 | | — | | | 7,025 | | — | | | 13,528 | | — | |
| UK | 30,061 | | — | | | 30,677 | | — | | | 31,431 | | — | |
| Other [B] | 609 | | 1,084 | | | 723 | | 1,135 | | | 795 | | 1,417 | |
| Total Europe | 48,926 | | 1,084 | | | 55,662 | | 1,135 | | | 69,711 | | 1,417 | |
| Asia | | | | | | | | |
| Brunei | 387 | | 17,094 | | | 196 | | 20,002 | | | 283 | | 18,738 | |
| Kazakhstan | 37,769 | | — | | | 34,269 | | — | | | 32,432 | | — | |
| Malaysia | 18,494 | | — | | | 21,993 | | — | | | 24,650 | | — | |
| Oman | 74,854 | | — | | | 76,493 | | — | | | 76,847 | | — | |
| Russia | 20,816 | | 9,050 | | | 22,442 | | 9,413 | | | 22,003 | | 10,403 | |
| Other [B] | 30,101 | | 7,629 | | | 28,796 | | 7,709 | | | 28,769 | | 7,768 | |
| Total Asia | 182,421 | | 33,773 | | | 184,189 | | 37,124 | | | 184,984 | | 36,909 | |
| Total Oceania [B] | 7,416 | | — | | | 10,058 | | — | | | 8,883 | | — | |
| Africa | | | | | | | | |
| Nigeria | 48,620 | | — | | | 56,589 | | — | | | 53,102 | | — | |
| Other [B] | 8,485 | | — | | | 7,802 | | — | | | 8,265 | | — | |
| Total Africa | 57,105 | | — | | | 64,391 | | — | | | 61,367 | | — | |
| North America | | | | | | | | |
| USA | 165,169 | | — | | | 171,204 | | — | | | 140,035 | | — | |
| Canada | 8,128 | | — | | | 11,506 | | — | | | 13,111 | | — | |
| Total North America | 173,297 | | — | | | 182,710 | | — | | | 153,146 | | — | |
| South America | | | | | | | | |
| Brazil | 131,339 | | — | | | 126,366 | | — | | | 118,681 | | — | |
| Other [B] | 5,072 | | 729 | | | 3,900 | | — | | | 3,414 | | — | |
| Total South America | 136,411 | | 729 | | | 130,266 | | — | | | 122,095 | | — | |
| Total | 605,576 | | 35,586 | | | 627,276 | | 38,259 | | | 600,186 | | 38,326 | |
| | |
| Crude oil and natural gas liquids [A] |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Thousand barrels |
| 2022 | | 2021 | | 2020 |
| Shell
subsidiaries | Shell share of
joint ventures
and associates | | Shell
subsidiaries | Shell share of
joint ventures
and associates | | Shell
subsidiaries | Shell share of
joint ventures
and associates |
| Europe | | | | | | | | |
| Italy | 9,091 | — | | 9,677 | — | | 11,342 | — |
| UK | 23,905 | — | | 25,554 | — | | 30,061 | — |
| Other [B] | 3,722 | 621 | | 5,456 | 1,205 | | 7,523 | 1,084 |
| Total Europe | 36,718 | 621 | | 40,687 | 1,205 | | 48,926 | 1,084 |
| Asia | | | | | | | | |
| Brunei | 3,256 | 16,282 | | 1,076 | 17,894 | | 387 | 17,094 |
| Kazakhstan | 29,667 | — | | 35,592 | — | | 37,769 | — |
| Malaysia | 16,759 | — | | 17,983 | — | | 18,494 | — |
| Oman | 82,006 | — | | 78,745 | — | | 74,854 | — |
| Russia | 10,955 | 1,963 | | 21,012 | 7,769 | | 20,816 | 9,050 |
| Other [B] | 24,965 | 7,498 | | 30,061 | 7,548 | | 30,101 | 7,629 |
| Total Asia | 167,608 | 25,743 | | 184,469 | 33,211 | | 182,421 | 33,773 |
| Total Oceania [B] | 9,391 | — | | 11,844 | — | | 7,416 | — |
| Africa | | | | | | | | |
| Nigeria | 27,554 | — | | 35,911 | — | | 48,620 | — |
| Other [B] | 1,855 | — | | 5,540 | — | | 8,485 | — |
| Total Africa | 29,409 | — | | 41,451 | — | | 57,105 | — |
| North America | | | | | | | | |
| USA | 121,690 | — | | 164,811 | — | | 165,169 | — |
| Canada | 687 | — | | 2,640 | — | | 8,128 | — |
| Total North America | 122,377 | — | | 167,451 | — | | 173,297 | — |
| South America | | | | | | | | |
| Argentina | 9,023 | 2,587 | | 4,836 | 1,566 | | 3,371 | 729 |
| Brazil | 127,862 | — | | 126,566 | — | | 131,339 | — |
| Other [B] | 1,583 | — | | 1,620 | — | | 1,701 | — |
| Total South America | 138,468 | 2,587 | | 133,022 | 1,566 | | 136,411 | 729 |
| Total | 503,971 | 28,951 | | 578,924 | 35,982 | | 605,576 | 35,586 |
[A]Reflects 100% of production of subsidiaries except in respect of production-sharing contracts (PSCs), where the figures shown represent the entitlement of the subsidiaries concerned under those contracts.
[B]Comprises countries where 2020 production was lower than 10,100 thousand barrels or where specific disclosures are prohibited.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| Synthetic crude oil | | Thousand barrels |
| 2020 | | 2019 | | 2018 |
| | Shell
subsidiaries | | | Shell
subsidiaries | | | Shell
subsidiaries |
| North America - Canada | | 18,920 | | | | 19,076 | | | | 19,514 | |
| | | | | | | | | | | | | | | | | |
| Thousand barrels |
| 2022 | | 2021 | | 2020 |
| Shell
subsidiaries | | Shell
subsidiaries | | Shell
subsidiaries |
| North America - Canada | 16,949 | | 19,891 | | 18,920 |
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Generating shareholder value | Oil and gas information continued
| | | | | | | | | | | | | | | | | | | | |
| Natural gas [A] | Million standard cubic feet |
| 2020 | 2019 | 2018 |
| Shell subsidiaries | Shell share of joint ventures and associates | Shell subsidiaries | Shell share of joint ventures and associates | Shell subsidiaries | Shell share of joint ventures and associates |
| Europe | | | | | | |
| Denmark | — | | — | | 24,433 | | — | | 45,027 | | — | |
| Germany | 35,918 | | — | | 41,846 | | — | | 40,368 | | — | |
| Ireland | — | | — | | — | | — | | 44,833 | | — | |
| Netherlands | — | | 131,648 | | — | | 244,286 | | — | | 271,303 | |
| Norway | 187,627 | | — | | 182,683 | | — | | 239,253 | | — | |
| UK | 65,012 | | — | | 62,174 | | — | | 82,695 | | — | |
| Other [B] | 13,005 | | — | | 15,062 | | — | | 16,422 | | — | |
| Total Europe | 301,562 | | 131,648 | | 326,198 | | 244,286 | | 468,598 | | 271,303 | |
| Asia | — | | — | | | | | |
| Brunei | 21,025 | | 159,846 | | 22,185 | | 160,648 | | 21,205 | | 157,476 | |
| China | 46,750 | | — | | 44,510 | | — | | 42,419 | | — | |
| Kazakhstan | 86,999 | | — | | 84,499 | | — | | 78,575 | | — | |
| Malaysia | 226,791 | | — | | 226,277 | | — | | 237,102 | | — | |
| Philippines | 40,549 | | — | | 44,374 | | — | | 44,017 | | — | |
| Russia | 4,301 | | 142,418 | | 4,563 | | 134,807 | | 4,044 | | 136,652 | |
| Thailand | — | | — | | — | | — | | 25,973 | | — | |
| Other [B] | 411,979 | | 118,153 | | 407,899 | | 118,253 | | 378,785 | | 117,976 | |
| Total Asia | 838,394 | | 420,417 | | 834,307 | | 413,708 | | 832,120 | | 412,104 | |
| Oceania | — | | — | | | | | |
| Australia | 633,580 | | 20,646 | | 686,956 | | 20,840 | | 648,735 | | 18,923 | |
| New Zealand | — | | — | | — | | — | | 40,153 | | — | |
| Total Oceania | 633,580 | | 20,646 | | 686,956 | | 20,840 | | 688,888 | | 18,923 | |
| Africa | — | | — | | | | | |
| Egypt | 104,946 | | — | | 92,169 | | — | | 148,721 | | — | |
| Nigeria | 190,982 | | — | | 234,332 | | — | | 232,899 | | — | |
| Other [B] | 27,438 | | — | | 30,266 | | — | | 30,669 | | — | |
| Total Africa | 323,366 | | — | | 356,767 | | — | | 412,289 | | — | |
| North America | — | | — | | | | | |
| USA | 255,383 | | — | | 389,130 | | — | | 355,075 | | — | |
| Canada | 164,451 | | — | | 220,005 | | — | | 247,890 | | — | |
| Total North America | 419,834 | | — | | 609,135 | | — | | 602,965 | | — | |
| South America | — | | — | | | | | |
| Bolivia | 45,015 | | — | | 48,501 | | — | | 55,480 | | — | |
| Brazil | 73,914 | | — | | 78,526 | | — | | 68,865 | | — | |
| Trinidad and Tobago | 141,576 | | — | | 159,698 | | — | | 104,454 | | — | |
| Other [B] | 9,609 | | 830 | | 8,662 | | — | | 8,062 | | — | |
| Total South America | 270,114 | | 830 | | 295,387 | | — | | 236,861 | | — | |
| Total | 2,786,850 | | 573,541 | | 3,108,750 | | 678,834 | | 3,241,721 | | 702,330 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Million standard cubic feet |
| 2022 | | 2021 | | 2020 |
| Shell subsidiaries | Shell share of joint ventures and associates | | Shell subsidiaries | Shell share of joint ventures and associates | | Shell subsidiaries | Shell share of joint ventures and associates |
| Europe | | | | | | | | |
| Netherlands | — | 133,210 | | — | 159,107 | | — | 131,648 |
| Norway | 174,523 | — | | 178,577 | — | | 187,627 | — |
| UK | 69,647 | — | | 49,128 | — | | 65,012 | — |
| Other [B] | 45,159 | — | | 47,127 | — | | 48,923 | — |
| Total Europe | 289,329 | 133,210 | | 274,832 | 159,107 | | 301,562 | 131,648 |
| Asia | | | | | | | | |
| Brunei | 15,328 | 138,007 | | 17,989 | 147,865 | | 21,025 | 159,846 |
| China | 56,008 | — | | 55,967 | — | | 46,750 | — |
| Kazakhstan | 57,932 | — | | 72,176 | — | | 86,999 | — |
| Malaysia | 200,249 | — | | 193,871 | — | | 226,791 | — |
| Russia | 2,085 | 37,897 | | 4,113 | 125,973 | | 4,301 | 142,418 |
| Other [B] | 378,313 | 118,435 | | 447,743 | 118,397 | | 452,528 | 118,153 |
| Total Asia | 709,915 | 294,339 | | 791,859 | 392,235 | | 838,394 | 420,417 |
| Oceania | | | | | | | | |
| Australia | 693,293 | 22,577 | | 696,562 | 19,272 | | 633,580 | 20,646 |
| Total Oceania | 693,293 | 22,577 | | 696,562 | 19,272 | | 633,580 | 20,646 |
| Africa | | | | | | | | |
| Egypt | 49,618 | — | | 86,348 | — | | 104,946 | — |
| Nigeria | 118,032 | — | | 161,916 | — | | 190,982 | — |
| Other [B] | 11,966 | — | | 23,473 | — | | 27,438 | — |
| Total Africa | 179,616 | — | | 271,737 | — | | 323,366 | — |
| North America | | | | | | | | |
| USA | 112,560 | — | | 198,578 | — | | 255,383 | — |
| Canada | 122,753 | — | | 116,423 | — | | 164,451 | — |
| Total North America | 235,313 | — | | 315,001 | — | | 419,834 | — |
| South America | | | | | | | | |
| Bolivia | 40,360 | — | | 45,214 | — | | 45,015 | — |
| Brazil | 73,975 | — | | 72,107 | — | | 73,914 | — |
| Trinidad and Tobago | 186,150 | — | | 121,411 | — | | 141,576 | — |
| Other [B] | 12,912 | 2,227 | | 11,006 | 393 | | 9,609 | 830 |
| Total South America | 313,397 | 2,227 | | 249,738 | 393 | | 270,114 | 830 |
| Total | 2,420,863 | 452,353 | | 2,599,729 | 571,007 | | 2,786,850 | 573,541 |
[A]Reflects 100% of production of subsidiaries except in respect of PSCs, where the figures shown represent the entitlement of the subsidiaries concerned under those contracts.
[B]Comprises countries where 2020 production was lower than 41,795 million scf or where specific disclosures are prohibited.
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STRATEGIC REPORT SHELL FORM 20-F 2020 | 49 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| AVERAGE REALISED PRICE BY GEOGRAPHICAL AREA | | |
| | | | | | | | | | |
| Crude oil and natural gas liquids | $/barrel | |
| 2020 | | 2019 | | 2018 | |
| Shell
subsidiaries | Shell share of
joint ventures
and associates | | Shell
subsidiaries | | Shell share of
joint ventures
and associates | | Shell
subsidiaries | Shell share of
joint ventures
and associates | |
| Europe | 39.51 | | 39.05 | | | 65.11 | | | 58.08 | | | 68.23 | | 64.24 | | |
| Asia | 38.73 | | 42.51 | | | 58.16 | | | 65.25 | | | 64.06 | | 70.66 | | |
| Oceania | 21.29 | | — | | | 51.51 | | | — | | | 61.63 | | — | | |
| Africa | 41.23 | | — | | | 65.39 | | | — | | | 71.02 | | — | | |
| North America - USA | 34.17 | | — | | | 54.56 | | | — | | | 61.87 | | — | | |
| North America - Canada | 27.17 | | — | | | 36.61 | | | — | | | 43.72 | | — | | |
| South America | 36.01 | | 37.28 | | | 56.68 | | | — | | | 62.67 | | — | | |
| Total | 36.72 | | 42.31 | | | 57.56 | | | 65.05 | | | 63.96 | | 70.43 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| Synthetic crude oil | $/barrel | |
| | 2020 | | | | 2019 | | | 2018 | |
| | Shell
subsidiaries | | | | Shell
subsidiaries | | | Shell
subsidiaries | |
| North America - Canada | | 31.13 | | | | | 50.27 | | | | 48.90 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| Natural gas | $/thousand scf |
| 2020 | | 2019 | | 2018 |
| Shell
subsidiaries | Shell share of
joint ventures
and associates | | Shell
subsidiaries | | Shell share of
joint ventures
and associates | | Shell
subsidiaries | | Shell share of
joint ventures
and associates |
| Europe | 3.66 | | 3.76 | | | 5.59 | | | 4.95 | | | 7.08 | | | 4.06 | |
| Asia | 2.68 | | 4.19 | | | 2.66 | | | 6.34 | | | 2.99 | | | 7.06 | |
| Oceania | 6.21 | | 3.15 | | | 8.22 | | | 3.91 | | | 8.66 | | | 4.15 | |
| Africa | 2.55 | | — | | | 2.92 | | | — | | | 3.02 | | | — | |
| North America - USA | 1.72 | | — | | | 2.27 | | | — | | | 3.12 | | | — | |
| North America - Canada | 1.61 | | — | | | 1.37 | | | — | | | 1.35 | | | — | |
| South America | 1.35 | | 1.90 | | | 2.33 | | | — | | | 3.50 | | | — | |
| Total | 3.31 | | 4.06 | | | 3.95 | | | 5.80 | | | 4.63 | | | 5.74 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| AVERAGE PRODUCTION COST BY GEOGRAPHICAL AREA |
| | | | | | | | |
| Crude oil, natural gas liquids and natural gas [A] | $/boe |
| 2020 | | 2019 | | 2018 |
| Shell
subsidiaries | Shell share of
joint ventures
and associates | | Shell
subsidiaries | Shell share of
joint ventures
and associates | | Shell
subsidiaries | Shell share of
joint ventures
and associates |
| Europe | 20.50 | | 11.44 | | | 14.14 | | 5.76 | | | 15.03 | | 6.37 | |
| Asia | 5.54 | | 6.83 | | | 6.30 | | 6.17 | | | 6.52 | | 6.24 | |
| Oceania | 8.92 | | 20.23 | | | 9.17 | | 24.49 | | | 8.41 | | 32.18 | |
| Africa | 9.43 | | — | | | 8.44 | | — | | | 8.25 | | — | |
| North America - USA | 12.50 | | — | | | 11.78 | | — | | | 12.78 | | — | |
| North America - Canada | 10.52 | | — | | | 11.88 | | — | | | 11.58 | | — | |
| South America | 5.12 | | — | | | 6.26 | | — | | | 8.60 | | — | |
| Total | 8.49 | | 6.94 | | | 8.95 | | 6.48 | | | 9.66 | | 6.81 | |
[A] Natural gas volumes are converted into oil equivalent using a factor of 5,800 scf per barrel.
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Synthetic crude oil | | $/barrel | |
| | 2020 | | | 2019 | | | 2018 | |
| | Shell
subsidiaries | | | Shell
subsidiaries | | | Shell
subsidiaries | |
| North America - Canada | | 18.28 | | | | 19.29 | | | | 20.15 | | |
| | | | | | | | |
| 61 | STRATEGIC REPORT SHELL FORMShell | Form 20-F 20202022 | 50 | |
Strategic Report | Progress on strategy – year in review
Generating shareholder value | Oil and gas information continued
Average realised price by geographical area
| | |
| Crude oil and natural gas liquids |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| $/barrel |
| 2022 | | 2021 | | 2020 |
| Shell
subsidiaries | Shell share of
joint ventures
and associates | | Shell
subsidiaries | Shell share of
joint ventures
and associates | | Shell
subsidiaries | Shell share of
joint ventures
and associates |
| Europe | 94.52 | 91.26 | | 68.30 | 64.18 | | 39.51 | 39.05 |
| Asia | 88.69 | 100.81 | | 63.82 | 70.09 | | 38.73 | 42.51 |
| Oceania | 78.37 | — | | 63.56 | — | | 21.29 | — |
| Africa | 104.84 | — | | 70.89 | — | | 41.23 | — |
| North America - USA | 92.89 | — | | 62.75 | — | | 34.17 | — |
| North America - Canada | 62.10 | — | | 46.58 | — | | 27.17 | — |
| South America | 85.84 | 71.21 | | 64.28 | 56.91 | | 36.01 | 37.28 |
| Total | 90.06 | 97.80 | | 64.28 | 69.34 | | 36.72 | 42.31 |
| | | | | | | | | | | | | | | | | |
| | | | | $/barrel |
| 2022 | | 2021 | | 2020 |
| Shell
subsidiaries | | Shell
subsidiaries | | Shell
subsidiaries |
| North America - Canada | 86.93 | | 60.11 | | 31.13 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| $/thousand scf |
| 2022 | | 2021 | | 2020 |
| Shell
subsidiaries | Shell share of
joint ventures
and associates | | Shell
subsidiaries | Shell share of
joint ventures
and associates | | Shell
subsidiaries | | Shell share of
joint ventures
and associates |
| Europe | 27.24 | 26.87 | | 10.71 | 9.86 | | 3.66 | | 3.76 |
| Asia | 3.74 | 10.88 | | 2.54 | 6.91 | | 1.88 | [A] | 4.19 |
| Oceania | 13.21 | 6.75 | | 7.74 | 4.04 | | 5.95 | [A] | 3.15 |
| Africa | 7.08 | — | | 3.43 | — | | 2.55 | | — |
| North America - USA | 8.46 | — | | 4.40 | — | | 1.72 | | — |
| North America - Canada | 4.08 | — | | 2.70 | — | | 1.61 | | — |
| South America | 8.71 | 3.90 | | 4.04 | 1.82 | | 1.35 | | 1.90 |
| Total | 10.88 | 14.56 | | 5.39 | 7.60 | | 2.99 | [A] | 4.06 |
[A]As revised, following a reassessment.
Strategic Report | Progress on strategy – year in review
Generating shareholder value | Oil and gas information continued
Average production cost by geographical area
| | |
OIL PRODUCTSCrude oil, natural gas liquids and natural gas [A] |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | $/boe |
| 2022 | | 2021 | | 2020 |
| Shell
subsidiaries | Shell share of
joint ventures
and associates | | Shell
subsidiaries | | Shell share of
joint ventures
and associates | | | Shell
subsidiaries | | Shell share of
joint ventures
and associates |
| Europe | 24.83 | 12.25 | | 21.48 | | 8.59 | | | 20.05 | | 11.44 |
| Asia | 6.75 | 8.06 | | 5.66 | | 7.64 | | | 5.54 | | 6.83 |
| Oceania | 10.32 | 24.97 | | 9.26 | | 24.68 | | | 8.92 | | 20.23 |
| Africa | 13.66 | — | | 11.47 | | — | | | 9.43 | | — |
| North America - USA | 11.03 | — | | 10.88 | | — | | | 12.50 | | — |
| North America - Canada | 11.15 | — | | 10.64 | | — | | | 10.52 | | — |
| South America | 6.91 | 7.74 | | 5.80 | | 5.51 | | | 5.18 | | 9.18 |
| Total | 10.20 | 9.59 | | 9.12 | | 8.23 | | | 9.10 | | 8.02 |
[A]Natural gas volumes are converted into oil equivalent using a factor of 5,800 scf per barrel.
| | | | | | | | | | | | | | | | | |
| $/barrel |
| 2022 | | 2021 | | 2020 |
| Shell
subsidiaries | | Shell
subsidiaries | | Shell
subsidiaries |
| North America - Canada | 23.05 | | 18.87 | | 18.28 |
Strategic Report | Progress on strategy – year in review
Generating shareholder value
| | | | | | | | | | | |
| | | |
| Marketing | |
| Marketing comprises Mobility, Lubricants, and Sectors and Decarbonisation activities. Mobility operates Shell's retail network, including electric vehicle charging services. Lubricants produces, markets and sells lubricants for road transport, and for machinery used in manufacturing, mining, power generation, agriculture and construction. Sectors and Decarbonisation sells fuels, and speciality products and services, including energy solutions that help customers reduce emissions in the aviation, marine, commercial road transport and agricultural sectors, among others. | |
| | |
| Segment earnings ($ billion) 2.1 2021: 3.5 | |
| | |
| Adjusted Earnings ($ billion) 2.8 2021: 3.5 | |
| | |
| Cash flow from operating activities ($ billion) 2.4 2021: 5.0 | |
| | |
| Marketing sales volumes (thousand b/d) 2,503 2021: 2,433 | |
| | |
| | |
| | |
| | | | | | | | | | | |
| | | |
| $ million, except where indicated |
| 2020 | 2019 | 2018 |
| Segment earnings [A] | (494) | | 6,139 | | 6,025 | |
| Including: | | | |
| Revenue (including inter-segment sales) | 134,930 | | 288,279 | | 327,022 | |
| Share of profit of joint ventures and associates [A] | 988 | | 1,179 | | 1,101 | |
| Interest and other income | (93) | | 273 | | 393 | |
| Operating expenses [B] | 13,511 | | 15,730 | | 17,615 | |
| Depreciation, depletion and amortisation | 10,473 | | 4,461 | | 3,165 | |
| Taxation charge [A] | (898) | | 1,319 | | 1,211 | |
| Identified Items [B] | (6,489) | | (93) | | 231 | |
| Adjusted Earnings [B] | 5,995 | | 6,231 | | 5,794 | |
| Capital expenditure | 3,236 | | 4,654 | | 4,389 | |
| Cash capital expenditure [B] | 3,328 | | 4,907 | | 4,643 | |
| Refinery utilisation (%) [C] | 72 | | 78 | | 78 | |
| Refinery processing intake (thousand b/d) | 2,063 | | 2,564 | | 2,648 | |
| Oil Products sales volumes (thousand b/d) | 4,710 | | 6,561 | | 6,783 | |
Strategic Report | Progress on strategy – year in review
Generating shareholder value | Marketing continued
| | | | | | | | | | | |
| $ million, except where indicated |
| 2022 | 2021 | 2020 |
| Segment earnings [B] | 2,133 | 3,535 | 4,081 |
| Including: | | | |
| Revenue (including inter-segment sales) | 121,243 | 83,748 | 55,997 |
| Share of profit of joint ventures and associates | 237 | 385 | 491 |
| Interest and other income | (104) | 278 | 143 |
| Operating expenses [C] | 8,384 | 7,501 | 6,305 |
| Underlying operating expenses [C] | 8,281 | 7,366 | 6,161 |
| Depreciation, depletion and amortisation | 1,900 | 1,700 | 1,499 |
| Taxation charge/(credit) | 903 | 903 | 846 |
| Identified Items [C] | (622) | 68 | 13 |
| Adjusted Earnings [C] | 2,754 | 3,468 | 4,068 |
| Adjusted EBITDA (CCS basis) [C] | 5,324 | 6,021 | 6,455 |
| Capital expenditure | 4,527 | 2,122 | 1,684 |
| Cash capital expenditure [C] | 4,831 | 2,273 | 1,774 |
| Marketing sales volumes (thousand b/d) | 2,503 | 2,433 | 2,276 |
[A]With effect from January 1, 2022, our reporting segments are Integrated Gas, Upstream, Marketing, Chemicals and Products, Renewables and Energy Solutions and Corporate. Comparative information has been revised.
[B]See Note 48 to the “Consolidated"Consolidated Financial Statements”Statements" on pages 177-180.245-249. Segment earnings are presented on a current cost of supplies basis.
[B] C]See “Non-GAAP"Non-GAAP measures reconciliations”reconciliations" on pages 240-242.331-334.
Business conditions
For the business conditions relevant to Marketing, see "Market overview" on pages 39-41.
Marketing sales
In 2022, Marketing sales volumes were 2,503 thousand barrels of oil per day (TBL/day), which was 3% higher than 2021 sales volumes of 2,433 TBL/day mainly as a result of demand recovery in aviation (within Sectors and Decarbonisation).
Earnings 2022-2021
Segment earnings in 2022 of $2,133 million were 40% lower than
in 2021. This was driven by higher operating expenses($704 million) partly offset by higher marketing margins ($171 million).
Segment earnings in 2022 included a net charge of $622 million, comprising:
▪impairment charges of $321 million (mainly related to withdrawal from Russian oil and gas activities);
▪net loss from sale of assets of $135 million (mainly related to the withdrawal from Russian oil and gas activities, partly offset by a gain on the revaluation of the existing 50% share of the Texas Petroleum Group following the acquisition of the remaining 50% share); and
▪provisions for onerous contracts of $62 million.
These net losses are part of identified items and compare with 2021 which included a net gain of $68 million as follows:
▪net gain from disposal of assets of $290 million (mainly related
to the dilution of interest in the Raizen joint venture);
▪redundancy and restructuring costs of $109 million (mainly the cost of Reshape 2020-2021); and
▪impairment charges of $106 million (goodwill impairment on acquisitions of Ubitricity and Multi Service Commercial Road Transport card platform).
Adjusted Earnings compared with 2021 decreased by $714 million, driven by the following:
▪Mobility adjusted earnings were $469 million lower than in 2021, mainly as a result of higher operating expenses and unfavourable tax movements. This was partly offset by better margins.
▪Lubricants adjusted earnings were $266 million lower than in 2021, mainly because of lower margins due to a higher base oil price, lower associate and joint-venture income and higher operating expenses.
▪Sectors and Decarbonisation adjusted earnings were $21 million higher than in 2021, mainly because of better margins (demand recovery in aviation). This was partly offset by higher operating expenses and higher financing expenses in joint ventures.
Earnings 2021-2020
Segment earnings in 2021 of $3,535 million were 13% lower than in 2020. This was driven by higher operating expenses, partly offset by higher volumes.
Segment earnings in 2021 included a net gain of $68 million as described above. This net gain is part of identified items and compares with 2020 which included a net gain of $13 million as follows:
▪net gains of $132 million on sale of assets, mainly related to the acquisition of the remaining 51% equity shares from a joint-venture partner in China;
▪restructuring costs of $90 million (various initiatives across the Marketing segment); and
▪impairment charges of $33 million.
Adjusted Earnings compared with 2020 decreased by $600 million, driven by the same factors as the segment earnings adjusted for identified items.
Strategic Report | Progress on strategy – year in review
Generating shareholder value | Marketing continued
Cash capital expenditure
Cash capital expenditure was $4.8 billion in 2022, of which $1.5 billion was in non-energy products and $1.4 billion in low-carbon energy solutions. Cash capital expenditure was $2.3 billion in 2021, of which $0.7 billion was in non-energy products and $0.5 billion in low-carbon energy solutions.
Cash capital expenditure increased by $2.5 billion, because of higher spend on business acquisitions across Marketing (including the acquisition of certain company-owned fuel and convenience retail sites from the Landmark group of companies in the USA, and the acquisition of EcoOils Limited in Singapore). Our cash capital expenditure is expected to be around $6 billion in 2023.
Portfolio and business developments
Significant portfolio and business developments in 2022 included:
▪In May 2022, we completed the sale of Shell Neft LLC, Shell’s retail stations and lubricants business in Russia, to PJSC LUKOIL. See Note 6 on pages 242-244 for more information.
▪In June 2022, we completed the acquisition of 184 company-owned fuel and convenience retail sites and 107 supply agreements for the independently operated retail fuel and convenience retail sites from the Landmark group of companies in the USA. The agreement to acquire the retail fuel station network (including fuel stations, convenience retail and dealer supply agreements) was signed in October 2021.
▪In December 2022, we completed the acquisition of the Environmentally Considerate Lubricants (ECLs) business of the PANOLIN Group. The transaction includes the PANOLIN brand, ECL product formulations, intellectual property, technical expertise and technology, international customer base and portfolio of products.
▪In February 2023, we completed the acquisition of 100% of the shares of Nature Energy Biogas A/S for nearly $2 billion.
| | | | | | | | |
|
| | |
| Building integrated renewable natural gas (RNG) value chain at global scale On February 20, 2023, Shell announced it had completed the acquisition of Denmark-based Nature Energy, Europe’s largest producer of renewable natural gas (RNG) from biomass, for around $2 billion. The acquisition, which was announced in November 2022, helps accelerate our transition to become a net-zero emissions energy business by 2050 by offering our customers low-carbon fuels, which can help them decarbonise. Nature Energy produces RNG from agricultural, industrial, and household waste. It has 14 operating plants and established supply infrastructure. The company produced around 6.5 million MMBtu in 2022 and has around 30 new plant projects in Europe and North America which could deliver up to 9.2 million MMBtu/year by 2030. RNG, also known as biogas or biomethane, is chemically identical to conventional natural gas and can be used in our existing transmission and distribution infrastructure. This makes it a competitive option to help decarbonise hard-to-abate sectors, including commercial road transport, shipping, heating and heavy industry. The sustainability benefits are amplified by the processing and use of methane that would otherwise be released to the atmosphere from the decomposition of organic byproducts and waste. Shell’s Powering Progress strategy seeks to deliver affordable, reliable, low-carbon energy to our customers.
| |
| | |
| Photos: A truck has delivered manure to Nature Energy’s Korskro plant, in the southwest of Jutland, near the Danish city of Esbjerg. Nature Energy converts waste, like manure, into renewable natural gas. | |
| | |
Strategic Report | Progress on strategy – year in review
Generating shareholder value | Marketing continued
Business and property
Mobility
Shell is one of the world’s largest mobility retailers, by number of sites, with more than 46,000 Shell-branded mobility locations in more than 80 markets at the end of 2022. We operate different models across these markets, from full ownership of retail sites through to brand licensing agreements.
Every day, around 32 million customers visit our mobility locations for an evolving range of quality fuels, including electric vehicle charging, and convenience and non-fuel products and services. We offer our business customers Shell Fleet Solutions, through which they can obtain items including fuel cards, road services and carbon-offset offers. Beyond our mobility locations, we also serve electric vehicle customers at their homes and workplaces through Shell Recharge Solutions, and at on-street locations through Ubitricity.
In addition to fuels, we are expanding our convenience and non-fuel retail offer to cater to more of our customers’ needs. At many of our sites, we offer a range of convenience items, including beverages and fresh food, and services such as lubricant changes and car washes. At the end of 2022, Shell operated 12,500 convenience stores worldwide and we expect to grow this number to 15,000, including Shell-branded mobility locations by 2025. We have upgraded more than 1,500 stores with our Shell Café premium fresh coffee and food offer since launching in 2021.
We remain committed to developing traditional fuels for drivers of internal combustion engine vehicles. Aided by our partnership with Scuderia Ferrari, we have concentrated on developing fuels with special formulations designed to clean engines and improve performance. In 2022, we launched a new and improved formulation of Shell V-Power across multiple markets, with further roll-out planned for 2023. We sold fuels under the Shell V-Power brand in 69 markets in 2022.
We are also expanding networks of refuelling stations of lower-emission fuels, including biofuels, hydrogen, and various gaseous fuels such as LNG and bio-LNG. We have more than 50 hydrogen retail sites in Europe and North America, where drivers can fill up their vehicles with hydrogen fuel. In nine markets, Shell Mobility provides customers with the opportunity to compensate their carbon emissions, including through carbon credits.
Shell Mobility aims to take a leadership position in the energy transition by marketing more and cleaner fuels for our customers. At the end of 2022, Shell owned or operated around 139,000 charge points, including more than 28,000 charge points at Shell forecourts, on-street locations, mobility hubs and destinations like supermarkets.
In January 2022, Shell opened its first electric vehicle charging hub
in the UK in Fulham, London, where petrol and diesel pumps at an existing fuel station have been replaced with charge points. Shell Fulham features nine high-powered, ultra-rapid 175 kW charge points.
Lubricants
Shell Lubricants has been the number one global finished lubricants supplier in terms of market share for 16 consecutive years, according to Kline & Company data for 2021. Shell lubricants are available across more than 160 markets for passenger cars, motorcycles, trucks, coaches, and machinery used in manufacturing, mining, power generation, agriculture and construction.
We also make premium lubricants for conventional vehicles and Shell
E-fluids for electric vehicles using gas-to-liquids (GTL) base oils that are made from natural gas at our Pearl GTL plant in Qatar.
| | |
| See "Integrated Gas" on page 47. |
We have a global lubricants supply chain with a network of 32 blending plants, four base oil plants, ten grease plants and six GTL base oil storage hubs.
Through our marine activities, we primarily provide the shipping and maritime sectors with lubricants. We also provide fuels, chemical products, and related technical and digital services. We supply more than 200 grades of lubricants and seven types of fuel to vessels worldwide, ranging from large ocean-going tankers to small fishing boats. Shell marine lubricant products are currently used in more than 10,000 vessels and are available in over 700 ports across more than 60 countries.
Sectors and Decarbonisation
Sectors and Decarbonisation sells fuels, speciality products and services including energy solutions that help customers reduce emissions in the aviation, marine, commercial road transport, and agricultural sectors, among others.
Shell Aviation provides aviation fuel, lubricants and low-carbon solutions globally. In February 2022, Shell became the first supplier
of sustainable aviation fuel (SAF) to customers in Singapore. Together with Accenture and American Express Global Business Travel (Amex GBT), Shell launched Avelia - one of the world’s first blockchain-powered digital sustainable aviation fuel book-and-claim solutions for business travel. Avelia is designed to help trigger demand for SAF, providing confidence to suppliers like us to further increase investment in production, and in turn lowering the price point for these fuels.
Shell Marine offers a portfolio of marine fuels, lubricants and low-carbon solutions, with a supply network that covers key bunkering locations globally.
Shell is investing in a variety of fuels, technologies and solutions to support a decarbonised future for shipping. In June 2022, Shell and CMA CGM signed a non-binding memorandum of understanding to support the advancement of low-carbon marine fuels and innovative technical solutions, alongside a multi-year LNG supply agreement in the Port of Singapore from the second half of 2023.
Shell Commercial Road Transport provides fuels, lubricants and digital services to customers with heavy-duty vehicles in their fleets. In 2022, Shell expanded its LNG refuelling network to more than 60 operated sites, bringing the number of sites where Shell customers can access LNG in Europe to more than 160. In February 2022, Shell became the first fuel provider to offer customers in the Netherlands a blended product, by feeding a portion of Shell BioLNG into its entire LNG network.
Shell Bitumen supplies customers across 60 markets and provides enough bitumen to resurface 500 kilometres of road lanes every day. It also invests in research and development to create innovative products.
Strategic Report | Progress on strategy – year in review
Generating shareholder value | Marketing continued
Shell Sulphur Solutions manages the complete value chain of sulphur, from refining to marketing. It provides sulphur for use in applications such as fertiliser, mining and chemicals. It also licenses Shell Thiogro technologies to create innovative and custom sulphur-enhanced fertilisers.
In 2022, around 9.5 billion litres of biofuels (2021: 9.1 billion litres) went into Shell's fuels worldwide, which includes sales made by Raízen, our non-operated joint venture in Brazil (Shell interest 44%).
In 2022, Raízen produced around 3 billion litres of ethanol (2021: 2.5 billion litres) and around 4.8 million tonnes of sugar from sugar cane (2021: 4 million tonnes). The cellulosic ethanol plant at Raízen's Costa Pinto mill in Brazil produced 26 million litres of ethanol in 2022 (2021: 19 million litres).
Renewable natural gas (RNG), also known as biogas or biomethane, is gas derived from processing organic waste in a controlled environment until it is fully interchangeable with conventional natural gas.
Shell is constructing two facilities which will convert dairy manure to RNG and which will be co-located at the Bettencourt Dairies in Wendell, Idaho, USA. Once operational, Shell Downstream Bovarius is expected to produce approximately 400,000 MMBtu a year of negative-carbon-intensity RNG. The second facility, Shell Downstream Friesian, is expected to produce approximately 350,000 MMBtu a year of negative-carbon-intensity RNG using cow manure from the dairy once operational.
In Europe, we are offering liquefied renewable natural gas
(bio-LNG) to customers with trucks powered by natural gas. In 2022, in collaboration with Nordsol, we commenced production at our first European bio-LNG plant, in Amsterdam Westpoort, in the Netherlands. This made us the first fuel provider to offer a blend of bio-LNG throughout the entire LNG network in the Netherlands. We also began construction of a bio-LNG plant at our Energy and Chemicals Park Rheinland, scheduled to commence operations in 2023.
Business activities with Syria and Cuba
Syria
We ceased all operations in Syria in 2011. In 2022, we renewed our trademark rights in Syria and paid $381 to the Syrian Arab Republic Ministry of Finance, and $783 in agent and handling fees. The renewal of the trademark rights is not indicative of any sales of products in Syria.
Cuba
We do not have any operations in Cuba.
Marketing data tables
| | | | | | | | | | | |
| 2022 | 2021 | 2020 |
| Europe | 8,260 | 8,178 | 8,071 |
| Asia [B] | 10,470 | 10,753 | 10,387 |
| Oceania [B] | 1,083 | 1,060 | 1,071 |
| Africa | 2,815 | 2,724 | 2,622 |
| Americas [C] | 23,597 | 23,305 | 23,461 |
| Total | 46,225 | 46,020 | 45,612 |
[A]Includes different models, from full-ownership retail sites, and sites operated by joint ventures, through to brand licensing agreements, and excludes sites closed for more than six months.
[B]Asia includes Turkey and Russia; Oceania includes French Polynesia, Guam, Palau and New Caledonia.
[C]Includes around 7,900 retail sites operated by the Raizen joint venture.
| | |
| Marketing sales volumes [A][B][C][D] |
| | | | | | | | | | | |
| Thousand b/d |
| 2022 | 2021 | 2020 |
| Europe | | | |
| Mobility | 296 | 360 | 344 |
| Lubricants | 17 | 16 | 15 |
| Sectors & Decarbonisation | 238 | 121 | 107 |
| Total | 551 | 497 | 466 |
| Asia | | | |
| Mobility | 520 | 512 | 475 |
| Lubricants | 38 | 42 | 30 |
| Sectors & Decarbonisation | 124 | 107 | 111 |
| Total | 682 | 661 | 616 |
| Africa | | | |
| Mobility | 47 | 45 | 40 |
| Lubricants | 3 | 3 | 3 |
| Sectors & Decarbonisation | 8 | 7 | 7 |
| Total | 58 | 55 | 50 |
| Americas | | | |
| Mobility | 797 | 828 | 782 |
| Lubricants | 25 | 24 | 23 |
| Sectors & Decarbonisation | 390 | 368 | 339 |
| Total | 1,212 | 1,220 | 1,144 |
| Total product sales | | | |
| Mobility | 1,660 | 1,745 | 1,641 |
| Lubricants | 83 | 85 | 71 |
| Sectors & Decarbonisation | 760 | 603 | 564 |
| Total | 2,503 | 2,433 | 2,276 |
| Gasolines | 1,160 | 1,165 | 1,090 |
| Kerosines | 321 | 232 | 214 |
| Gas/Diesel oils | 731 | 746 | 698 |
| Fuel oil | 11 | 7 | 8 |
| Other products | 280 | 283 | 266 |
| Total | 2,503 | 2,433 | 2,276 |
[A]With effect from January 1, 2020, Shell discloses utilisation instead2022, the Marketing segment consists of availability to improve transparency on refinery production volumes. Utilisation is defined asMobility, Lubricants, and Sectors and Decarbonisation. Comparative sales volumes have been revised for these businesses, with the actual usageexception of the plants as a percentage of the rated capacity.
OVERVIEW
Our Oil Products business is part of an integrated value chain that refines crude oilCommercial Road Transport sector, which transferred from Mobility to Sectors and other feedstocks into products that are moved and marketed around the world for domestic, industrial and transport use. The products we sell include gasoline, diesel, heating oil, aviation fuel, marine fuel, low-carbon fuels, lubricants, bitumen and sulphur. We also trade crude oil, oil products and petrochemicals. We provide access to electric vehicle charge points at home, at work and on-the-go, including at our forecourts and at a range of public locations.
Our Oil Products activities comprise Refining and Trading, and Marketing. These are referred to as classes of business. Marketing includes Retail, Lubricants, Business-to-Business (B2B), Pipelines and Low-Carbon Fuels (biofuels and renewable natural gas (RNG)). In Trading and Supply, we trade crude oil, oil products and petrochemicals to optimise feedstocks for Refining, to supply our Marketing businesses and third parties, and for our own profit. We also manage Oil Sands activities – the extraction of bitumen from mined Oil Sands and its conversion into synthetic crude oil. Our Oil Sands activities were previously reported under Upstream. As of January 1, 2020, they are reported under Oil Products.
BUSINESS CONDITIONS
In 2020, oil markets experienced unprecedented developments in demand driven by the COVID-19 pandemic. At the start of 2020, global oil demand for the year was expected to grow by 1.2 million barrels per day (b/d). Then in January, oil demand started to contract because demand fell in China as lockdown was imposed to contain the virus outbreak. In subsequent months, oil demand contracted further as the outbreak in China evolved into a global pandemic and lockdowns were introduced across the world. In April, oil demand fell to its lowest level, around 22 million b/d below year-average demand in 2019, according to an estimate of the International Energy Agency (IEA). Contraction of such magnitude has never been recorded before. Country lockdowns deeply impacted transportation sectors, especially passenger road and passenger air in Organisation for Economic Co-operation and Development (OECD) economies. In subsequent months, oil demand started recovering, but only partially, because resurgences of COVID-19 triggered re-imposition of social distancing and travel restrictions. By the fourth quarter, global oil demand was still estimated to be around 5.5 million b/d below the 2019 level, according to the Oil Market Report published by the IEA in January 2021. Averaged for the full year, oil demand contracted by around 9 million b/d, or 9%, to 91.2 million b/d. Oil demand fell by 5.7 million b/d in OECD economies, and by 3.2 million b/d in non-OECD economies. By contrast, oil demand in 2019 was 0.8 million b/d higher than in 2018.
Industry gross refining margins weakened in 2020 because demand for oil products was significantly reduced by the fall in economic activity and increase in travel restrictions caused by COVID-19. Demand for transportation fuels such as gasoline for passenger cars and kerosene for air transportation was hit particularly hard. During most of the second half of the year, mobility and the resulting demand for transportation fuels improved in some parts of the world, especially in China and South-east Asia. At the end of the year, new waves of COVID-19 infections in Europe and the Americas severely limited any global increase in demand for transportation fuels.
On January 1, 2020, the new International Maritime Organization low-sulphur shipping fuel specification came into effect, limiting the sulphur content of maritime fuel to 0.5%. This had a limited effect on margins because of the economic slowdown in 2020 and because companies had prepared for the new regulations by building inventory in the second half of 2019.
The destruction of demand caused by COVID-19 led to industry idling some refinery capacity. Permanent refinery closures were also announced in 2020, but construction of new capacity did occur during the year, especially in the Middle East and Asia.
See “Market overview” on pages 23-25.
REFINERY UTILISATION
WithDecarbonisation with effect from January 1, 2020, Shell discloses utilisation instead of availability2022, but where comparative information is not revised due to improve transparency on refinery production volumes. Utilisation is defined as the actual usage of the plants as a percentage of the rated capacity.impracticability.
U[C]tilisation was 72% in 2020, compared with 78% in 2019. Lower utilisation in 2020 was mainly becauseIncludes the Shell share of lower demandRaízen’s sales volumes and economic optimisation of sites.joint ventures' sales volumes.
OIL PRODUCTS SALES
Oil Products salesSales volumes decreased by 28% in 2020 compared with 2019 The decrease in sales volumes was largely driven by the COVID-19 pandemic affecting Marketing volumes. There was also a reporting change effective from January 1, 2020 and certain additional Oil Products contracts held for trading purposes were reported on a net rather than a gross basis. This reporting change decreased sales volumes by 10%.markets where Shell operates under trademark licensing agreements are excluded.
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| 68 | STRATEGIC REPORT SHELL FORMShell | Form 20-F 20202022 |
Strategic Report | Progress on strategy – year in review
Generating shareholder value
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| Chemicals and Products | 51 |
| Chemicals and Products includes chemicals manufacturing plants with their own marketing network, and refineries which turn crude oil and other feedstocks into a range of oil products. These are moved and marketed around the worldfor domestic, industrial and transport use. Thebusiness also includes pipelines, trading of crude oil, oil products and petrochemicals, and oilsands activities, which involves the extraction ofbitumen from mined oil sands and its conversion into synthetic oil. | |
| | |
| Segment earnings ($ billion) 4.5 2021: 0.4 | |
| | |
| Adjusted Earnings ($ billion) 4.7 2021: 2.1 | |
| | |
| Cash flow from operating activities ($ billion) 12.9 2021: 3.7 | |
| | |
| Refinery processing intake (thousand b/d) 1,402 2021: 1,639 | |
| | |
| Refining & Trading sales volumes (thousand b/d) 1,700 2021: 2,026 | |
| | |
| Chemicals sales volumes (thousand tonnes) 12,281 2021: 14,216 | |
| | |
Generating shareholder value | Chemicals and Products continued
| | | | | | | | | | | |
| $ million, except where indicated |
| 2022 | 2021 | 2020 |
| Segment earnings/(loss) [B] | 4,515 | 404 | (3,821) |
| Including: | | | |
| Revenue (including inter-segment sales) | 147,026 | 118,338 | 85,713 |
| Share of profit of joint ventures and associates | 374 | 989 | 1,064 |
| Interest and other income | 244 | 37 | (236) |
| Operating expenses [C] | 11,361 | 10,347 | 10,514 |
| Underlying operating expenses [C] | 11,368 | 10,298 | 9,916 |
| Depreciation, depletion and amortisation | 3,289 | 5,485 | 10,096 |
| Taxation charge/(credit) | 935 | (210) | (1,754) |
| Identified Items [C] | (204) | (1,712) | (6,656) |
| Adjusted Earnings [C] | 4,719 | 2,115 | 2,835 |
| Adjusted EBITDA [C] | 8,561 | 5,635 | 6,032 |
| Capital expenditure | 3,835 | 5,091 | 4,163 |
| Cash capital expenditure [C] | 3,838 | 5,175 | 4,198 |
| Chemicals manufacturing plant utilisation (%) | 79% | 85% | 88% |
| Refinery utilisation (%) | 86% | 80% | 83% |
| Refinery processing intake (thousand b/d) | 1,402 | 1,639 | 2,063 |
| Refining & Trading sales volumes (thousand b/d) | 1,700 | 2,026 | 2,434 |
| Chemicals sales volumes (thousands tonnes) | 12,281 | 14,216 | 15,036 |
EARNINGS 2020-2019
[B]See Note 8 to the "Consolidated Financial Statements" on pages 245-249. Segment earnings are presented on a current cost of supplies basis.
[C]See "Non-GAAP measures reconciliations" on pages 331-334.
Business conditions
For the business conditions relevant to Chemicals and Products, see "Market overview" on pages 39-41.
Chemical manufacturing plant utilisation
Utilisation is defined as the actual usage of the plants as a percentage of the rated capacity. Chemicals manufacturing plant utilisation was 79% in 2022 (previous methodology: 72%) compared with 85% in 2021 (previous methodology: 78%). The decrease was mainly a result of optimisation for the low-margin environment and higher turnarounds during 2022.
Refinery utilisation
Utilisation is defined as the actual usage of the plants as a percentage of the rated capacity. Refinery utilisation was 86% in 2022 (previous methodology: 74%) compared with 80% in 2021 (previous methodology: 72%) as a result of less unplanned maintenance and lower turnarounds.
With effect from the second quarter 2022, the methodology applied in calculating both Chemicals plantutilisation and Refinery utilisation has been revised to further align with industry disclosures. The revisions include moving from stream days capacity (defined as the maximum throughput, excluding the impact of maintenance or operational outages) to calendar days capacity (defined as the throughput including typical limitations such as maintenance over an extended period of time). Furthermore, Refinery utilisation is now specific to the capacity of the crude distillation unit (except for Scotford Refinery which uses the capacity of the hydrocracker), and no longer the capacity across all refinery units.
Chemicals and Products sales
In 2022, Chemicals sales volumes were 12,281 thousand tonnes, 14% lower than 2021 sales volumes of 14,216 thousand tonnes, due to lower demand.
In 2022, Refining & Trading sales volumes were 1,700 thousand b/d, 16% lower than 2021 volumes of 2,026 thousand b/d due to impact of divestments
Earnings 2022-2021
Segment earnings in 2020 came to a loss of $4942022 were $4,515 million, 108% lower1018% higher than in 20192021, reflected higher Products margins (increase of $5,721 million) reflecting higher Refining margins and higher contributions from trading and optimisation, lower tax charges (decrease of $300 million), as well as lower depreciation charges (decrease of $175 million). EarningsThese were partly offset by lower Chemicals margins (decrease of $2,705 million) and higher operating expenses (increase of $822 million).
Segment earnings in 20202022 included a net charge of $6,489$204 million.
This included:
▪impairment charges of $226 million compared with a net chargemainly related to impairment of $93capital expenditure additions across sites based on the revisions to medium- and long-term price outlook assumptions decision considered in 2020;
▪legal provisions of $149 million;
▪losses of $147 million in 2019 which is described atrelated to the endfair value accounting of this section.commodity derivatives;
▪tax charges relating to the EU solidarity contribution of $74 million;
▪gains of $223 million related to the sale of assets; and
▪gains of $104 million related to the remeasurement of redundancy and restructuring costs (mainly pension curtailments).
Excluding the impact of the net charges, earnings
Strategic Report | Progress on strategy – year in 2020 were $5,995 million, compared with $6,231 million in 2019. Marketing accounted for 76% of these 2020 earnings, Refining for -19% and Trading & Supply for 43%.review
The decrease in Oil Products earnings, excluding the net charge, was $236 million (4%) lower compared withGenerating shareholder value 2019| . This was driven by loweChemicals and Products r Refiningcontinued
These gains and Trading margins (around $2,400 million), lower Marketing margins (around $600 million), partly offset by lower operating expenses (around $2,000 million)losses are part of identified items and other items mainly including tax movements (around $700 million).
The decrease in earnings of $236 million, analysed by class of business was as follows:
▪Refining and Trading earnings were $101 million lower than in 2019, mainly because of lower realised refining margins driven by lower demand because of the pandemic and its effect on the economy. This was partly offset by higher earnings from crude and oil products trading and optimisation, lower operating expenses and favourable deferred tax movements.
▪Marketing earnings were $135 million lower than in 2019, mainly driven by lower sales volumes due to the impact of the pandemic. This was largely offset by strong margins in Retail and Lubricants on account of better margin management, higher penetration of premium fuels and lower operating expenses.
Segment earnings in 2020compare with 2021 which included a net charge of $6,489 million. $1,712 million as follows:
This included:
•▪impairment charges of $5,530$1,814 million mainly related to the divestment of Puget Sound, Mobile and Deer Park refineries in the USA and closure of production unit on Jurong Island, Singapore;
▪provisions for onerous contracts of $82 million; and
▪a net gain of $160 million related to the fair value accounting of commodity derivatives.
Adjusted Earnings in 2022 were $4,719 million, compared with
$2,115 million in 2021. Chemicals accounted for (29)% of these 2022 earnings, Refining for 80% and Trading and Supply for 49%. The increase in Adjusted Earnings of $2,604 million, driven by the following:
▪Products Adjusted Earnings were $5,728 million higher than in 2021, mainly driven by higher realised refining margins due to increased prices and higher contributions from trading and optimisation. These were partially offset by higher operating expenses.
▪Chemicals Adjusted Earnings were $3,125 million lower than
in 2021, mainly because of lower margins due to weak price environment, lower associate income and higher operating expenses.
Earnings 2021-2020
Segment earnings in 2021 were $404 million, 111% higher than in 2020.
Segment earnings in 2021 included a net charge of $1,712 million as described above. This net charge is part of identified items and compares with 2020 which included a net charge of $6,656 million as follows:
▪Impairment charges of $5,500 million (across sites, reflecting revisions to medium- and long-term price outlook assumptions in
light of:of changes in supply and demand fundamentals in the energy market; macroeconomic conditions; the COVID-19 pandemic; expenditure at Pulau Bukom in Singapore including transformation; and the shutdown of the Convent refinery in Louisiana, USA;USA);
•▪restructuring costs of $365$313 million, (mainlymainly shutdown of Convent, Bukom transformation and various initiatives across Oil Products);Chemicals & Products;
•▪other net charges of $552$657 million (mainly onerous contract provisions due to shutdown of Convent)Convent and legal provision); and
•a net charge of $101 million due to the fair value accounting of commodity derivatives.
These charges were partly offset by:
•net gains from disposal of assets of $59 million.
Segment earnings in 2019 included a net charge of $93 million.
This included:
•impairment charges of $337 million (mainly expenditure at Bukom and other assets);
•costs of $84 million relating to restructuring (various initiatives across Oil Products);
•▪net charge of $66$112 million duerelated to the fair value accounting of commodity derivatives; and
▪net loss from sale of assets of $74 million.
Adjusted Earnings were $2,115 million in 2021 compared to $2,835 million in 2020. The decrease in Adjusted Earnings of $720 million was driven by the following:
▪Products adjusted earnings were $1,511 million lower than in 2020, mainly driven by lower contributions from trading and optimisation, higher operating expenses and unfavourable tax movements. These were partially offset by higher margins in Refining, Oil sands (higher average realised price) and lower depreciation.
•▪other net chargesChemicals adjusted earnings were $792 million higher than in 2020, mainly because of $26 million (mainly provision for discount rate change).
The above werehigher margins due to stronger price environment, favourable deferred tax movements, partly offset by:
•net gains of $329 million from disposal of assets; and
•gains from one-off tax items of $91 million (tax rate changes in Alberta, Canada).
EARNINGS 2019-2018Cash capital expenditure
Segment earningsCash capital expenditure was $3.8 billion in 2019 of $6,139 million were 2% higher than in 2018. Earnings in 2019 included a net charge of $93 million described above. Earnings in 2018 included a net gain of $231 million, reflecting gains on disposal of assets of $273 million (mainly our Oil Products assets in Argentina and other smaller disposals), a net gain from fair value accounting of commodity derivatives of $224 million, gains from one-off tax items of $91 million (mainly corporate income tax rate changes in the Netherlands and the USA) and other net gains of $50 million (which included a one-off gain from the Ontario cap-and-trade scheme). These were partly offset by impairment charges of $309 million and redundancy and restructuring charges of $98 million.
Excluding the impact of these items, earnings in 2019 were $6,231 million,2022, compared with $5,794 million$5.2 billion in 2018. Marketing accounted for 75% of these 2019 earnings, Refining for 4% and Trading & Supply for 21%.2021.
The increase in Oil Products earnings, excluding the net charge, was $437 million (8%) compared with 2018. The increase was drivenCash capital expenditure decreased by higher Marketing margins (around $500 million), benefit from foreign exchange (around $250 million) and the change in accounting policy IFRS 16 (around $140 million). This was partly offset by lower Refining and Trading margins (around $400 million) and other impacts resulting in a net charge of around $50 million. Marketing margins benefited from stronger unit margins. These were partly offset by lower earnings from Raízen, the joint venture (Shell interest 50%) in Brazil, caused by adverse foreign exchange and lower fuel margins. Refining and Trading margins were lower than in 2018,$1.4 billion, mainly because of lower realised refining margins caused by adverse price variance across all regions, driven byspend on the construction of our cracker facilities in Pennsylvania, USA, and lower global demand growth and an increase in worldwide refining capacity.
CASH CAPITAL EXPENDITURE
Cash capital expenditure (cash capex) was $3.3 billion in 2020, compared with $4.9 billion in 2019.
Cash capital expenditure in Refining and Trading decreased by $1.3 billion mainly because of cash preservation initiatives (lower capital expenditure spends including turnaround deferrals). In Marketing, cash capital expenditure decreased by $0.3 billion as a result of cash preservation initiatives and reduced spending in US pipelines projects as they are nearing completion.turnaround. Our cash capital expenditure is expected to be around $4-4.5$3 billion to $4 billion in 2021.2023.
PORTFOLIO AND BUSINESS DEVELOPMENTS
Shell announced its plans to reshape its portfolio of assetsPortfolio and products to meet the cleaner energy needs of its customers in the coming decades.
Significant portfolio and business developments during 2020in 2022 included:
▪In theOctober 2022, Shell USA, in February 2020, our subsidiary Equilon Enterprises LLC, doing business asInc. and Shell Oil Products US (Shell)Midstream Partners, L.P. completed the saledefinitive agreement and plan of merger announced in July 2022, pursuant to which Shell USA, Inc. acquired all of the Martinez refinery to PBF Holding Company LLCcommon units representing limited partner interests in theShell Midstream Partners, L.P. not held by Shell USA, for a consideration of $1.2 billion, which included the refinery and inventory.
▪Also in the USA, in March 2020, we announced our intention to sell the Puget Sound refinery in Washington State and Mobile site in Alabama.
▪In August 2020, Pilipinas Shell Petroleum Corporation, a subsidiary of Royal Dutch Shell in which we have an interest of 55%, announced that it will permanently shut downInc. or its Tabangao Refinery in Batangas City, Philippines, and convert it to a full import terminal.affiliates.
▪In November 2020,2022, we announcedcommenced operations of our Pennsylvania Chemical project, Shell Polymers Monaca (SPM). The Pennsylvania facility is the first major polyethylene manufacturing complex in the north-eastern USA and has a designed output of 1.6 million tonnes annually.
Business and property
Chemicals
Our plants produce a range of base chemicals, including ethylene, propylene and aromatics, and intermediate chemicals such as styrene monomer, propylene oxide, solvents, detergent alcohols, ethylene oxide and ethylene glycol. We have the capacity to produce around 8.1 million tonnes of ethylene a year (including the Shell share of capacity entitlement (offtake rights) of joint ventures and associates, which may be different from nominal equity interest). We are expanding our product portfolio to include sustainable chemicals made from bio-based and circular feedstocks, more intermediates and performance chemicals such as polyethylene and polycarbonate. We operate chemical plants worldwide and have a global balance of locations, feedstocks and products that allows us to seize commercial opportunities and withstand cycles of lower margins.
Shell Chemicals is transforming and has integrated further with Refining. In addition to our standalone, chemicals-only production sites, we had begunare transforming our Shell Pulau Bukom manufacturing site in Singaporerefineries into an energy and chemicals park. Thisparks. We expect this to happen at the following sites: Norco in the USA, Scotford in Canada, Pernis in the Netherlands, Rheinland in Germany and Pulau Bukom in Singapore. We are also exploring options for the former Convent Refinery in Louisiana, USA, which is part of our strategy to integrate our refining portfolio with Chemicals, resulting in approximately six high-valuecurrently shut down, and may turn it into a low-carbon fuels facility. The energy and chemicals parks are expected to focus more on meeting customers’ low-carbon and sustainability needs.
In 2022, we supplied more than 12 million tonnes of which Bukom will be one. Bukom will switchpetrochemicals to more than 1,000 industrial customers worldwide. Products made from a crude-oil, fuels-based product slate towards new low-carbon value chains. Crude processing capacity at Bukom will be reducedchemicals are used in everyday life in medical equipment, construction, transport, electronics, agriculture and sports. As global demand for chemicals increases, we plan to increase the size of our business, by around half.understanding and responding to our customers’ needs.
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| 71 | STRATEGIC REPORT SHELL FORMShell | Form 20-F 20202022 | 52 | |
Generating shareholder value | Chemicals and Products continued
▪In November 2020, we announced that we are shutting down the Convent Refinery in Louisiana, USA. Shell continues to assess market interest for the potential divestment of the asset during and after the shutdown, but does not intend to operate it in the future.Products – Refining & Trading
▪In January 2021, Shell reached an agreement with Postlane for the sale of A/S Dansk Shell in Denmark, which consists of the Fredericia Refinery and local trading and supply activities.Refining
▪In January 2021, Shell signed an agreement to acquire 100% of ubitricity, a leading European provider of on-street charging for electric vehicles. The acquisition was completed in February 2021.
▪In January 2021, Shell announced the signing of commercial agreements to invest in Varennes Carbon Recycling, the first waste to low-carbon fuels plant in Québec, Canada. Shell will have a 40% interest in the plant, which will use technology developed by Enerkem. The facility will produce low-carbon fuels and renewable chemicals products from non-recyclable waste. Commissioning of the first phase of the facility is scheduled for 2023.
BUSINESS AND PROPERTY
Refining and Trading
Refining
We have interests in 13eight refineries worldwide, (after converting Tabangao in the Philippines intowith a terminal and deciding in November 2020 to shut down Convent, in Louisiana, USA). We have the capacity
to process a total of 2.21.7 million barrels of crude oil per day (Shell share, before it was announced that Bukom's crude capacity would reduce by around 200 thousand b/d).day. The distribution of our refining capacity is 46%60% in Europe, and Africa, 33%
26% in the Americas and 21%14% in Asia.
Shell’sShell Refining business is transforming. We will further concentrateare concentrating our refineries portfolio to meet our strategic aims and to capitalise on the strong integration between our customers, trading operations, chemical plants and, increasingly, our low-carbon fuels output.
The six We are transforming our refining sites expected to form ourinto energy and chemicals parks include Deer Parkparks. See "Chemicals" on page 71 for details. Transforming our refineries will mean developing new facilities and Norco in the USA, Scotford in Canada, Pernis in the Netherlands, Rheinland in Germanyconverting or dismantling existing units. We plan to process less crude oil and Pulau Bukom in Singapore,use more renewable and recycled feedstocks such as hydrogen, biofuels and plastic waste.
Our Bukom refinery will move from a crude-oil, fuels-based product slate towards new, low-carbon products. It will reduce its crude processing capacity as a result by around 200 thousand b/d sometime in July 2021.
In 2020, Pilipinas Shell Petroleum Corporation (PSPC) approved the transformation of the Tabangao refinery into an import terminal. Shell also decided to shut down the Convent Refinery in Louisiana, USA, starting the process in November 2020.
Trading and Supply
Through our main trading offices in London, Houston, Singapore and Rotterdam, we trade crude oil, low-carbon fuels, refined products, chemical feedstocks and environmental products. Trading and Supply trades in physical and financial contracts, lease storage and transportation capacities, and manages shipping and wholesale commercial fuel activities globally.
Operating in around 25 countries, with more than 125about 180 Shell and joint-venture (including pipeline) terminals, we believe our supply and distribution infrastructure is well positioned to make deliveries around the world.
Shipping and Maritime enables the safe delivery of the Shell Trading and Supply contracts. This includes supplying feedstocks for our refineries and chemical plants, and finished products such as gasoline, diesel and aviation fuel to our Marketing businessessegment and customers.
Shell Wholesale Commercial Fuels provides fuels for transport, industry and heating. Our range of products,heating and from reliable main-grade fuels to premium products.
Pipelines
We own and operate eight tank farms across the USA through Shell Pipeline Company LP (Shell interest 100%). It transports around 1.5 billion barrels of crude oil, refined products is designedand chemicals a year through around 6,000 kilometres of pipelines in the Gulf of Mexico and nine US states. Our non-Shell-operated ownership interests provide another 13,000 kilometres of pipeline.
We carry more than 40 types of crude oil and more than 20 grades of fuel and chemicals, including gasoline, diesel, aviation fuel, chemicals and ethylene.
Shell Midstream Partners, L.P., a master limited partnership headquartered in Houston, Texas, became a wholly owned subsidiary of Shell in October 2022. Accordingly, we now own, operate, develop and acquire pipelines and other midstream and logistics assets. Our assets include interests in entities that own crude oil and refined products pipelines and terminals that serve as key infrastructure to provide tangible vehicle(i) transport onshore and business benefits.offshore crude oil production to USA Gulf Coast and Midwest refining markets and (ii) deliver refined products from those markets to major demand centres. Our assets also include interests in entities that own natural gas and refinery gas pipelines that transport offshore natural gas to market hubs and deliver refinery gas from refineries and plants to chemical sites along the USA Gulf Coast.
| | |
| See "Governance - related party transactions" on page 200 for further information regarding the acquisition of remaining common units held by the public representing limited partner interests in Shell Midstream Partners, L.P. |
Oil Sands
Synthetic crude oil is produced by mining bitumen-saturated sands, extracting the bitumen, and transporting it to a processing facility where hydrogen is added to make a wide range of feedstocks for refineries. The Athabasca Oil Sands Project (AOSP) in Alberta, Canada, includes the Albian Sands mining and extraction operations, the Scotford upgrader and the Quest carbon capture and storage (CCS) project.
We have a 50% interest in 1745844 Alberta Ltd. (formerly known as Marathon Oil Canada Corporation), which holds a 20% interest in the Athabasca Oil Sands Project. With effect from January 1, 2020, Oil Sands is reported under Oil Products. It was previously reported under Upstream. Prior-period information has been restated for comparative purposes.
Marketing
Retail
Shell is the world’s largest mobility retailer, by number of sites,Business activities with almost 46,000 service stations operating in nearly 80 countries at the end of 2020. We operate different models across these markets, from full ownership of retail sites through to brand licensing agreements.
Every day, around 30 million customers visit these sites to buy fuel, convenience items including beverages and fresh food, and services such as lubricant changes and car washes. We offer our business customers Shell Fleet Solutions, through which they can obtain items including fuel cards, road services and carbon-neutral offers.
We have more than 100 years’ experience in fuel development. Aided by our partnership with Scuderia Ferrari, we have concentrated on developing fuels with special formulations designed to clean engines and improve performance. We sold such fuels under the Shell V-Power brand in 64 countries in 2020.
In a growing number of markets, we are offering customers lower-emission products and services, including biofuels, electric vehicle fast charging, hydrogen and various gaseous fuels such as LNG. In 2020, we launched carbon-neutral driving offers in five new countries. Across the seven countries where we now offer carbon-neutral driving, we helped offset customer emissions from more than 1 billion litres of fuel by buying carbon credits linked to projects that plant and protect forests, wetlands and other natural ecosystems.
Shell operates more than 60,000 electric vehicle charge points. This includes over 1,000 charge points at Shell forecourts and new locations as well as operated charge points owned by our individual and business customers.
In January 2021, Shell signed an agreement to acquire 100% of ubitricity, a leading European provider of on-street charging for electric vehicles. The move represents a further step in Shell’s efforts to support drivers as they switch to lower-carbon transport. The acquisition was completed in February 2021.
We have around 50 hydrogen retail sites in Europe and North America, where drivers can fill up their vehicles with hydrogen fuel.
Lubricants
Shell Lubricants has been the number one global finished lubricants supplier in terms of market share for 14 consecutive years, according to Kline & Company data for 2019. Across more than 160 markets, we produce, market and sell technically advanced lubricants for passenger cars, motorcycles, trucks, coaches, and machinery used in the manufacturing, mining, power generation, agriculture and construction sectors.
We also manufacture premium lubricants for conventional vehicles and Shell E-fluids for electric vehicles using gas-to-liquids (GTL) base oils that are made from natural gas at our Pearl GTL plant in Qatar (see “Integrated Gas” on pages 30-35).
We have a global lubricants supply chain with a network of four base oil manufacturing plants, 32 lubricant blending plants, eight grease plants and four GTL base oil storage hubs.
Through our marine activities, we primarily provide the shipping and maritime sectors with lubricants, but also with fuels, chemical products and related technical and digital services. We supply 259 grades of lubricants and six types of fuel to vessels worldwide, ranging from large ocean-going tankers to small fishing boats.
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STRATEGIC REPORT SHELL FORM 20-F 2020 | 53 | |
Business-to-Business
Our Business-to-Business (B2B) activities encompass the sale of fuels, speciality products and services to a broad range of commercial customers.
Shell Aviation provides aviation fuel, lubricants and low-carbon solutions globally. In 2020, we collaborated with many organisations to develop a scalable supply of sustainable aviation fuel made from renewable raw materials and waste products. In partnership with World Energy, Shell Aviation has agreed to supply up to 6 million gallons of sustainable aviation fuel to Amazon Air.
Shell Bitumen supplies customers across 60 markets and provides enough bitumen to resurface 500 kilometres of road lanes every day. It also invests in research and development to create innovative products.
Shell Sulphur Solutions is a business that manages the complete value chain of sulphur, from refining to marketing. The business provides sulphur for use in applications such as fertiliser, mining and chemicals. It also develops new technologies for sulphur that benefit sectors such as agriculture.
Pipelines
Shell Pipeline Company LP (Shell interest 100%) operates 9 tank farms across the USA, owns all of the interest in one such tank farm and, through its subsidiaries, has a majority ownership interest in the other 8 tank farms. It transports around 2 billion barrels of crude oil and refined products a year through around 6,000 kilometres of pipelines in the Gulf of Mexico and five US states. Our various non-Shell-operated ownership interests provide a further 14,000 pipeline kilometres.
We carry more than 40 types of crude oil and more than 20 grades of fuel and chemicals, including gasoline, diesel, aviation fuel, chemicals and ethylene.
Shell Midstream Partners, L.P., a midstream master limited partnership, owns, operates, develops and acquires pipelines and other midstream assets in the USA. Its assets consist of interests in entities that own pipelines and terminals for crude oil and refined products. These serve as key infrastructure that transports crude oil produced onshore and offshore to the refining markets of the US Gulf Coast and Midwest. Shell Midstream Partners also delivers refined products from these markets to major demand centres. Its assets also include interests in entities that own natural gas and refinery gas pipelines. These transport offshore natural gas to market hubs, and deliver refinery gas from plants and refineries to chemical sites along the Gulf Coast. Shell controls the general partner.
See "Governance - Related Party Transactions" on page 149 for information on transactions between Shell and Shell Midstream Partners, L.P.
Low-Carbon Fuels
Biofuels
In 2020, around 9.5 billion litres of biofuels went into Shell's fuels worldwide, which includes Raízen sales.
Raízen, our joint venture in Brazil (Shell interest 50%), produced around 2.5 billion litres of ethanol and around 4.4 million tonnes of sugar from sugar cane in 2020. In 2015, Raízen opened its first cellulosic ethanol plant at its Costa Pinto mill in Brazil. This produced almost 25 million litres of ethanol in 2020.
In February 2021, Raízen announced the acquisition of Biosev, adding an additional 50% of production capacity in low-carbon fuels. It will allow to increase Raízen’s bioethanol production capacity to a 3.75 billion litres a year. The transaction contributes to Shell’s target to be a net-zero emissions energy business by 2050, in step with society.
RNG
Renewable natural gas (RNG), also known as biomethane, is gas derived from processing organic waste in a controlled environment until it is fully interchangeable with conventional natural gas. Shell has taken a final investment decision to construct, own and operate its first renewable compressed natural gas (R-CNG) fuelling site in the USA. This will be at
Shell’s products distribution complex in Carson, California. The R-CNG will be sourced from Shell’s portfolio of anaerobic digestion projects.
BUSINESS ACTIVITIES WITH SUDAN, SYRIA AND CUBA
SudanSyria
We ceased all operational activities in Sudan in 2008. In 2020, we registeredsupplying polyols, via a trademark right in Sudan (north) and paid $8Netherlands-based distributor, to the General Intellectual Property Register Office, and $79 in agent and handling fees.
The renewal of the trademark rights is not indicative of any sales of products in Sudan
Syria
We ceased all operational activitiesprivate-sector customers in Syria in 2011. In 2020, we renewed our trademark rights2018. Polyols are commonly used for the production of foam in Syriamattresses and paid $1,914 to the Directorate of Industrialsoft furnishings.
Chemicals and Commercial Property Protection, and $551 in agent and handling fees. The renewal of the trademark rights is not indicative of any sales of products in Syria.Products data tables
Cuba
We do not have any operational activities in Cuba. In January 2021, we renewed a trademark right in Cuba and paid $300 to the Cuban Industrial Property Office, and $420 in agent and handling fees. The registration of this trademark right is not indicative of any sales of products in Cuba.
OIL PRODUCTS DATA TABLES
The tables below reflect Shell subsidiaries and instances where Shell owns the crude oil or feedstocks processed by a refinery. The tables include Martinez refinery until the date of divestment in February 2020, Tabangao refinery until the date of transformation into a terminal in August 2020 and Convent refinery until the date of shutdown in December 2020. Other joint ventures and associates are only included where explicitly stated.
Oil products - cost of crude oil processed or consumed [A]
| | | | | | | | | | | |
| | | |
| $/barrel |
| 2020 | 2019 | 2018 |
| Total | 35.03 | | 54.97 | | 59.94 | |
[A] Includes Upstream and Integrated Gas margins on crude oil supplied by Shell subsidiaries, joint ventures and associates.
Crude distillation capacity [A]
| | | | | | | | | | | |
| | | |
| Thousand b/stream day [B] |
| 2020 | 2019 | 2018 |
| Europe | 1,059 | | 1,057 | | 1,056 | |
| Asia | 573 | | 767 | | 767 | |
| Africa | 90 | | 90 | | 90 | |
| Americas | 1,028 | | 1,171 | | 1,261 | |
| Total | 2,750 | | 3,085 | | 3,174 | |
[A] Average operating capacity for the year, excluding mothballed capacity.
[B] Stream day capacity is the maximum capacity with no allowance for downtime.
Oil products - crude oil processed [A]
| | | | | | | | | | | |
| | | |
| Thousand b/d |
| 2020 | 2019 | 2018 |
| Europe | 810 | | 829 | | 897 | |
| Asia | 292 | | 498 | | 545 | |
| Africa | 54 | | 55 | | 66 | |
| Americas | 719 | | 1,004 | | 1,041 | |
| Total | 1,875 | | 2,386 | | 2,549 | |
[A] Includes natural gas liquids, share of joint ventures and associates and processing for others.
| | | | | | | | |
STRATEGIC REPORT SHELL FORM 20-F 2020Refining & Trading sales volumes [A][B] | 54 | |
Refinery processing intake [A]
| | | | | | | | | | | |
| | | |
| Thousand b/d |
| 2020 | 2019 | 2018 |
| Crude oil | 1,876 | | 2,342 | | 2,434 | |
| Feedstocks | 187 | | 222 | | 214 | |
| Total | 2,063 | | 2,564 | | 2,648 | |
| Europe | 854 | | 875 | | 896 | |
| Asia | 302 | | 517 | | 543 | |
| Africa | 54 | | 55 | | 66 | |
| Americas | 853 | | 1,117 | | 1,143 | |
| Total | 2,063 | | 2,564 | | 2,648 | |
[A] Includes crude oil, natural gas liquids and feedstocks processed in crude distillation units and in secondary conversion units.
Refinery processing outturn [A]
| | | | Thousand b/d |
| | Thousand b/d | | 2022 | 2021 | 2020 |
| 2020 | 2019 | 2018 | |
| Europe | | Europe | 830 | 426 | 472 |
| Asia | | Asia | 377 | 870 | 974 |
| Africa | | Africa | 39 | 47 | 70 |
| Americas | | Americas | 454 | 683 | 918 |
| Total | | Total | 1,700 | 2,026 | 2,434 |
| Gasolines | Gasolines | 771 | | 952 | | 966 | | Gasolines | 410 | 551 | 660 |
| Kerosines | Kerosines | 158 | | 417 | | 321 | | Kerosines | 117 | 123 | 163 |
| Gas/Diesel oils | Gas/Diesel oils | 774 | | 818 | | 965 | | Gas/Diesel oils | 616 | 735 | 921 |
| Fuel oil | Fuel oil | 140 | | 223 | | 284 | | Fuel oil | 270 | 337 | 346 |
| Other | 279 | | 282 | | 321 | | |
| Other products | | Other products | 287 | 280 | 344 |
| Total | Total | 2,122 | | 2,692 | | 2,858 | | Total | 1,700 | 2,026 | 2,434 |
[A] Excludes own use and products acquired for blending purposes.
Oil Products sales volumes [A][B]
| | | | | | | | | | | |
| | | |
| Thousand b/d |
| 2020 | 2019 | 2018 |
| Europe | | | |
| Gasolines | 224 | | 334 | | 323 | |
| Kerosines | 165 | | 317 | | 294 | |
| Gas/Diesel oils | 610 | | 720 | | 745 | |
| Fuel oil | (42) | | 138 | | 178 | |
| Other products | (19) | | 278 | | 314 | |
| Total | 938 | | 1,787 | | 1,854 | |
| Asia | | | |
| Gasolines | 346 | | 408 | | 373 | |
| Kerosines | 98 | | 208 | | 210 | |
| Gas/Diesel oils | 455 | | 535 | | 543 | |
| Fuel oil | 308 | | 330 | | 407 | |
| Other products | 383 | | 518 | | 620 | |
| Total | 1,590 | | 2,000 | | 2,153 | |
| Africa | | | |
| Gasolines | 43 | | 46 | | 42 | |
| Kerosines | 11 | | 13 | | 10 | |
| Gas/Diesel oils | 59 | | 70 | | 74 | |
| Fuel oil | 1 | | 2 | | 2 | |
| Other products | 6 | | 6 | | 6 | |
| Total | 120 | | 137 | | 134 | |
| Americas | | | |
| Gasolines | 1,136 | | 1,419 | | 1,446 | |
| Kerosines | 103 | | 239 | | 236 | |
| Gas/Diesel oils | 496 | | 582 | | 567 | |
| Fuel oil | 87 | | 120 | | 117 | |
| Other products | 240 | | 277 | | 276 | |
| Total | 2,062 | | 2,637 | | 2,642 | |
| Total product sales [C][D] | | | |
| Gasolines | 1,749 | | 2,207 | | 2,184 | |
| Kerosines | 377 | | 777 | | 750 | |
| Gas/Diesel oils | 1,620 | | 1,907 | | 1,929 | |
| Fuel oil | 354 | | 590 | | 704 | |
| Other products | 610 | | 1,079 | | 1,216 | |
| Total | 4,710 | | 6,561 | | 6,783 | |
[A]Excludes deliveries to other companies under reciprocal sale and purchase arrangements, that are in the nature of exchanges. Sales of condensate and natural gas liquids are included.
[B] Includes the Shell share of Raízen’s sales volumes.
[C] Certain contracts are held for trading purposes and reported net rather than gross. The effect in 20202022 was a reduction in oil productrefining and trading sales of approximately 1,284,0001,197 thousand b/d (2019: 546,000(2021: 1,127 thousand b/d; 2018: 458,0002020: 1,284 thousand b/d). With effect from January 1, 2020 certain contracts held for trading purposes and reported net for Europe and Asia regions are consolidated in Europe.
[D] Reported volumes in 2020 and 2019 include the Shell joint ventures' sales volumes from key countries.
MANUFACTURING PLANTS AT DECEMBER 31, 2020
Refineries in operation
| | | | | | | | |
STRATEGIC REPORT SHELL FORM 20-F 2020Cost of crude oil processed or consumed [A] | 55 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | | | | | | |
| Thousand barrels/stream day, 100% capacity [B] |
| Location | Asset class | Shell interest (%)
[A] | Crude
distillation
capacity | Thermal
cracking/
visbreaking/
coking | Catalytic
cracking | Hydro-
cracking |
| Europe | | | | | | | |
| Denmark | Fredericia | • | 100 | | 74 | | 44 | | — | | — | |
| Germany | Miro [C] | | 32 | | 313 | | 40 | | 96 | | — | |
| Rheinland | ■• | 100 | | 354 | | 49 | | — | | 90 | |
| Schwedt [C] | | 38 | | 233 | | 45 | | 59 | | — | |
| Netherlands | Pernis | ■• | 100 | | 443 | | — | | 53 | | 103 | |
| Asia | | | | | | | |
| Singapore | Pulau Bukom [D] | ■• | 100 | | 504 | | 81 | | 38 | | 61 | |
| Africa | | | | | | | |
| South Africa | Durban [C] | ◆ | 36 | | 180 | | 25 | | 37 | | — | |
| Americas | | | | | | | |
| Argentina | Buenos Aires [C] | •◆ | 50 | | 108 | | 20 | | 22 | | — | |
| Canada | | | | | | | |
| Alberta | Scotford | ◆ | 100 | | 100 | | — | | — | | 83 | |
| Ontario | Sarnia | ◆ | 100 | | 85 | | 5 | | 21 | | 10 | |
| USA | | | | | | | |
| Louisiana | Norco | ■ | 100 | | 250 | | 29 | | 119 | | 44 | |
| Texas | Deer Park | ■• | 50 | | 341 | | 96 | | 75 | | 60 | |
| Washington | Puget Sound | •◆ | 100 | | 149 | | 25 | | 58 | | — | |
[A] Shell interest is rounded to the nearest whole percentage point; Shell share of production capacity may differ.
[B] Stream day capacity is the maximum capacity with no allowance for downtime.
[C] Not operated by Shell
[D] Bukom capacity is as on December 31, 2020 prior to the transformation. Crude processing capacity is expected to decrease by around 200 thousand b/d after the transformation sometime in July 2021.
| | | | | | | | | | | |
| $/barrel |
| 2022 | 2021 | 2020 |
| Total | 84.39 | 60.51 | 35.03 |
■[A]Includes Upstream and Integrated refinery and chemical complex
•Refinery complex with cogeneration capacity
◆Refinery complex with chemical unit(s)
O Other
BRANDED RETAIL SITES [A]
| | | | | | | | | | | |
| 2020 | 2019 | 2018 |
| Europe | 8,071 | | 7,978 | | 7,888 | |
| Asia [B] | 10,387 | | 10,138 | | 9,754 | |
| Oceania [B] | 1,071 | | 1,038 | | 1,030 | |
| Africa | 2,622 | | 2,494 | | 2,502 | |
| Americas | 23,461 | | 23,021 | | 23,223 | |
| Total | 45,612 | | 44,669 | | 44,397 | |
[A] Excludes sites closed for more than six months.
[B] Asia includes Turkey and Russia; Oceania includes French Polynesia, Guam, Palau and New Caledonia.
| | | | | | | | |
STRATEGIC REPORT SHELL FORM 20-F 2020 | 56 | |
| | | | | | | | | | | |
| | | |
| $ million, except where indicated |
| 2020 | 2019 | 2018 |
| Segment earnings [A] | 808 | 478 | 1,884 |
| Including: | | | |
| Revenue (including inter-segment sales) | 14,571 | | 17,485 | | 23,568 | |
| Share of profit of joint ventures and associates [A] | 567 | | 546 | | 684 | |
| Interest and other income | — | | (7) | | (53) | |
| Operating expenses [B] | 3,235 | | 3,430 | | 3,594 | |
| Depreciation, depletion and amortisation | 1,116 | | 1,074 | | 1,034 | |
| Taxation charge [A] | 7 | | (2) | | 339 | |
| Identified Items [B] | (154) | | (263) | | (192) | |
| Adjusted Earnings [B] | 962 | | 741 | | 2,076 | |
| Capital expenditure | 2,608 | | 4,068 | | 3,140 | |
| Cash capital expenditure [B] | 2,640 | | 4,090 | | 3,212 | |
| Chemical plant utilisation(%) [C] | 80 | | 76 | | 84 | |
| Chemicals sales volumes (thousand tonnes) | 15,036 | | 15,223 | | 17,644 | |
[A] See Note 4 to the “Consolidated Financial Statements”Gas margins on pages 177-180. Segment earnings are presented on a current cost of supplies basis.
[B] See “Non-GAAP measures reconciliations” on pages 240-242
[C] With effect from January 1, 2020, Shell discloses utilisation instead of availability to improve transparency on chemicals production volumes. Utilisation is defined as the actual usage of the plants as a percentage of the rated capacity.
OVERVIEW
Our Chemicals business supplies customers with a range of base and intermediate chemicals used to make products that people use every day. We also have major manufacturing plants which are located close to refineries, and our own marketing network.
BUSINESS CONDITIONS
Cracker margins were volatile during 2020 because of how COVID-19 affected demand. Overall margins, however, were broadly similar to those in 2019. The effect on chemicals depended on end use. Some sectors, such as automotive, were hit particularly hard, while others, such as packaging, showed robust demand. Chinese demand recovered relatively quickly because the virus was swiftly brought under control. Overall chemicals demand was not hit as hard as GDP. West European cracker margins were supported by the sudden fall in the price of crude oil in Marchsupplied by Shell subsidiaries, joint ventures and April. The fact that crude oil was at a lower price than in 2019 reduced naphtha feedstock costs, which reduced product prices. This in turn put pressure on US ethane cracker margins, although plentiful ethane supply helped counter the impact.
See “Market overview” on pages 23-25.
CHEMICAL PLANT UTILISATION
With effect from January 1, 2020, Shell discloses utilisation instead of availability to improve transparency on chemicals production volumes. Utilisation is defined as the actual usage of the plants as a percentage of the rated capacity.
Chemicals manufacturing plant utilisation was 80% in 2020 compared with 76% in the full year 2019, mainly because of higher maintenance activities in Asia and Europe in 2019, and the impact of strike actions in the Netherlands in 2019.
CHEMICALS SALES
In 2020, Chemicals sales volumes were 15,036 thousand tonnes, which was 1% lower than 2019 sales volumes of 15,223 thousand tonnes due to lower demand.
EARNINGS 2020-2019
Segment earnings in 2020 of $808 million were 69% higher than in 2019. Earnings in 2020 included a net charge of $154 million, compared with a net charge in 2019 of $263 million, which is described at the end of this section.
Excluding the impact of these charges, earnings in 2020 were $962 million, compared with $741 million in 2019.
The increase in Chemicals earnings, excluding the net charges, was $221 million (30%) compared with 2019. This was driven by higher margins
(around $130 million) because of a favourable price environment, lower operating expenses (around $50 million) as a result of various initiatives, and favourable tax movements (around $60 million) partly offset by other costs (around $20 million).
Segment earnings in 2020 included a net charge of $154 million.
This included:
▪impairment charges of $4 million;
▪costs related to restructuring of $38 million (various initiatives across Chemicals);
▪net loss from disposal of assets of $1 million; and
▪other net charges of $115 million (mainly legal provision).
These charges were partly offset by:
▪a net gain from fair value accounting of commodity derivatives of $4 million.
Segment earnings in 2019 included a net charge of $263 million.
This included:
▪net charges of $247 million (mainly legal provisions);
▪loss of $11 million from disposal of assets;
▪costs of $5 million related to restructuring; and
▪impairment charge of $4 million.
These charges were partly offset by:
▪gain from one-off tax items of $5 million (tax rate changes in Alberta, Canada).
EARNINGS 2019-2018
Segment earnings in 2019 of $478 million were 75% lower than in 2018. Earnings in 2019 included a net charge of $263 million described above. Earnings in 2018 included a net charge of $192 million, reflecting impairment charges of $76 million, a net loss from disposal of $50 million, redundancy and restructuring charges of $2 million, and other net charges of $97 million (related to onerous contracts in connection with decommissioning the Stanlow site). These were partly offset by gains from one-off tax items of $27 million, (mainly corporate income tax rate changes in the Netherlands), and a net gain of $6 million from fair value accounting of commodity derivatives.
Excluding the impact of these items, earnings in 2019 were $741 million, compared with $2,076 million in 2018.
The decrease in earnings, excluding the net charges, was $1,335 million (64%) compared with 2018. This was driven by lower margins (around $1,500 million), partly offset by lower operating costs (around $140 million) and the change in accounting policy relating to IFRS 16 leases (around $20 million). Margins were impacted by lower realised base chemicals and intermediate margins and by higher maintenance activitiesassociates.
| | | | | | | | |
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Generating shareholder value | Chemicals and Products continued
| | |
| Crude distillation capacity [A] |
| | | | | | | | | | | |
| Thousand b/stream day [B] |
| 2022 | 2021 | 2020 |
| Europe | 990 | 1,023 | 1,059 |
| Asia | 237 | 307 | 573 |
| Africa | 23 | 90 | 90 |
| Americas | 449 | 729 | 1,028 |
| Total | 1,698 | 2,149 | 2,750 |
[A]Average operating capacity for the year, excluding mothballed capacity.
[B]Stream day capacity is the maximum capacity with no allowance for downtime.
| | | | | | | | | | | |
| Thousand b/d |
| 2022 | 2021 | 2020 |
| Europe | 715 | 761 | 810 |
| Asia | 184 | 223 | 292 |
| Africa | 16 | 57 | 54 |
| Americas | 353 | 455 | 719 |
| Total | 1,268 | 1,496 | 1,875 |
[A]Includes natural gas liquids, share of joint ventures and associates and processing
for others.
| | |
| Refinery processing intake [A] |
| | | | | | | | | | | |
| Thousand b/d |
| 2022 | 2021 | 2020 |
| Crude oil | 1,267 | 1,496 | 1,876 |
| Feedstocks | 135 | 143 | 187 |
| Total | 1,402 | 1,639 | 2,063 |
| Europe | 763 | 806 | 854 |
| Asia | 184 | 225 | 302 |
| Africa | 16 | 57 | 54 |
| Americas | 439 | 551 | 853 |
| Total | 1,402 | 1,639 | 2,063 |
[A]Includes crude oil, natural gas liquids and feedstocks processed in Asiacrude distillation units and Europe, including the impact of strike action in the Netherlands in 2019.secondary conversion units.
| | |
| Refinery processing outturn [A] |
| | | | | | | | | | | |
| Thousand b/d |
| 2022 | 2021 | 2020 |
| Gasolines | 477 | 624 | 771 |
| Kerosines | 166 | 141 | 158 |
| Gas/Diesel oils | 512 | 611 | 774 |
| Fuel oil | 90 | 108 | 140 |
| Other | 193 | 258 | 279 |
| Total | 1,438 | 1,742 | 2,122 |
[A]Excludes own use and products acquired for blending purposes.
Manufacturing plants at December 31, 2022
Cash capital expenditure (cash capex) was $2.6 billion in 2020, compared with $4.1 billion in 2019. | | | | | | | | | | | | | | | | | | | | | | | |
| Thousand barrels/stream day, 100% capacity [B] |
| Location | Asset class | Shell interest (%) [A] | Crude
distillation
capacity | Thermal
cracking/
visbreaking/
coking | Catalytic
cracking | Hydro-
cracking |
| Europe | | | | | | | |
| Germany | Miro [C] | | 32 | 313 | 40 | 96 | — |
| Rheinland | g n | 100 | 354 | 49 | — | 90 |
| Schwedt [C] | | 38 | 234 | 46 | 57 | — |
| Netherlands | Pernis | g n | 100 | 447 | — | 53 | 104 |
| Asia | | | | | | | |
| Singapore | Pulau Bukom | g n | 100 | 237 | — | — | 61 |
| Africa | | | | | | | |
| South Africa | Durban [C] [D] | | 36 | 180 | 25 | 37 | — |
| Americas | | | | | | | |
| Argentina | Buenos Aires [C] | n c | 44 | 108 | 20 | 22 | — |
| Canada | | | | | | | |
| Alberta | Scotford | g | 100 | 100 | — | — | 83 |
| Ontario | Sarnia | c | 100 | 85 | 5 | 21 | 10 |
| USA | | | | | | | |
| Louisiana | Norco | g | 100 | 250 | 29 | 119 | 44 |
Cash capex decreased[B]Stream day capacity is the maximum capacity with no allowance for downtime.
[C]Not operated by $1.5 billion, mainly because of lower spend on account of the COVID-19 pandemic impact in the construction of our cracker facilities in Pennsylvania and cash preservation initiatives.Our cash capex expenditure is expected to be around $3 billion to $3.5 billion in 2021Shell.
PORTFOLIO AND BUSINESS DEVELOPMENTS
Significant portfolio and business developments during 2020:Refinery operations were paused from Q2 2022.
▪gIn the USA, in March 2020, we announced our intention to sell the Mobile site in Alabama. Integrated refinery and chemical complex
BUSINESS AND PROPERTY
Manufacturing
Our plants produce a range of base chemicals, including ethylene, propylene and aromatics, and intermediate chemicals such as styrene monomer, propylene oxide, solvents, detergent alcohols, ethylene oxide and ethylene glycol. We have the Refinery complex with cogeneration capacity to produce around 6.5 million tonnes of ethylene a year. We are expanding our product portfolio to include sustainable chemicals, more intermediates and performance chemicals such as polyethylene and polycarbonate. We operate chemical plants worldwide and have a global balance of locations, feedstocks and products that allows us to seize commercial opportunities and get through cycles of lower margins.
Shell’sc Refinery complex with chemical unit(s)
Strategic Report | Progress on strategy – year in review
Generating shareholder value | Chemicals business is transforming and will be further integrated with our Refining business. In addition to our standalone, chemicals-only production sites, theProducts six sites (Deer Park and Norco in the USA, Scotford in Canada, Pernis in the Netherlands, Rheinland in Germany and Pulau Bukom in Singapore) are expected to form our energy and chemicals parks. Growth will shift towards performance chemicals and recycled feedstocks.continued
Marketing
In 2020, we supplied more than 15 million tonnes of petrochemicals to around 1,000 industrial customers worldwide. Products made from chemicals improve everyday life in health care, construction, transport, electronics, agriculture and sports. As global demand for chemicals increases, we plan to grow our business, by understanding and responding to our customers’ needs.
BUSINESS ACTIVITIES WITH SUDAN AND SYRIA
Sudan
We ceased all operational activities in Sudan in 2008.
Syria
We ceased supplying polyols, via a Netherlands-based distributor, to private sector customers in Syria in 2018. Polyols are commonly used for the production of foam in mattresses and soft furnishings.
CHEMICALS DATA TABLESChemicals data tables
The tables below reflect Shell subsidiaries and instances where Shell owns the crude oil or feedstocks processed by a refinery. The tables also include Martinez until the date of divestment in February 2020. Other joint ventures and associates are only included where explicitly stated.
Ethylene capacity [A] | | | | | | | | | | | |
| Thousand tonnes/year |
| 2022 | 2021 | 2020 |
| Europe | 1,710 | 1,726 | 1,701 |
| Asia | 2,542 | 2,542 | 2,530 |
| Americas [B] | 3,821 | 2,321 | 2,268 |
| Total | 8,073 | 6,589 | 6,499 |
| | | | | | | | | | | |
| | | |
| Thousand tonnes/year |
| 2020 | 2019 | 2018 |
| Europe | 1,701 | | 1,701 | | 1,701 | |
| Asia | 2,530 | | 2,530 | | 2,529 | |
| Americas | 2,268 | | 2,268 | | 2,268 | |
| Total | 6,499 | | 6,499 | | 6,498 | |
[A]Includes the Shell share of capacity entitlement (offtake rights) of joint ventures and associates, which may be different from nominal equity interest. Nominal capacity is quoted at December 31.
Chemicals sales volumes [A]
| | | | | | | | | | | |
| Chemicals sales volumes [A] | 2020 | 2019 | 2018 |
| Europe | | | |
| Base chemicals | 3,490 | | 3,666 | | 4,069 | |
| Intermediates and others | 1,990 | | 1,872 | | 1,994 | |
| Total | 5,480 | | 5,538 | | 6,063 | |
| Asia | | | |
| Base chemicals | 1,192 | | 1,057 | | 2,140 | |
| Intermediates and others | 2,969 | | 2,848 | | 3,082 | |
| Total | 4,161 | | 3,905 | | 5,222 | |
| Americas | | | |
| Base chemicals | 2,936 | | 3,261 | | 3,842 | |
| Intermediates and others | 2,459 | | 2,519 | | 2,517 | |
| Total | 5,395 | | 5,780 | | 6,359 | |
| Total product sales | | | |
| Base chemicals | 7,618 | | 7,984 | | 10,051 | |
| Intermediates and others | 7418 | 7239 | 7593 |
| | | |
| Total | 15,036 | | 15,223 | | 17,644 | |
[A] Excludes feedstock trading and by-products.
| | | | | | | | | | | |
| | | |
| Converting plastic waste to chemical feedstock at Moerdijk Shell is investing in a new pyrolysis oil upgrader at its Shell Chemicals Park Moerdijk in the Netherlands which will convert plastic waste into chemical feedstock, replacing traditional hydrocarbon raw materials. The new upgrader is expected to start production in 2024 and will help us meet the rising demand from our customers for more low-carbon products that are made from recycled material. The new pyrolysis oil upgrader unit treats liquid made from plastic waste that cannot be mechanically recycled. The upgrader prevents waste that would otherwise have gone to landfill or incineration. The unit will have a capacity of 50,000 tonnes per annum, which is equivalent to the weight of about 7.8 billion plastic bags. This contributes to our circular economy ambition to recycle one million tonnes of plastic waste in our chemical plants by 2025. We will use the treated pyrolysis oil to produce chemicals which are the ingredients used in many end products that are all around us. Over the next 10 years, the Shell Chemicals Park Moerdijk plans to increase the use of circular and bio-based feedstocks, growing its offer of low-carbon products, and aims to become net zero through using hydrogen and implementing carbon capture and storage (CCS) technology.
| |
| | |
| Photo: Pipe racks in one of the many units of Shell Chemicals Park Moerdijk, the Netherlands. | |
| | |
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Generating shareholder value | Chemicals and Products continued
Major chemical plants in operation | | |
| Chemicals sales volumes [A] |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| | | | | | |
| | | Thousand tonnes/year, Shell share capacity [B] | |
| Location | Ethylene | Styrene
monomer | Ethylene
glycol | Higher olefins
[C] | Additional
products |
| Europe | | | | | | |
| Germany | Rheinland | 315 | | — | | — | | — | | A |
| Netherlands | Moerdijk | 971 | | 815 | | 153 | | — | | A, I |
| UK | Mossmorran [D] | 415 | | — | | — | | — | | — |
| Asia | | | | | | |
| China | Nanhai [D] | 1,100 | | 650 | | 415 | | — | | A, I, P |
| Singapore | Jurong Island [E] | 281 | | 1,069 | | 1,159 | | — | | A, I, P, O |
| Pulau Bukom | 1,149 | | — | | — | | — | | A, I |
| Americas | | | | | | |
| Canada | Scotford | — | | 475 | | 548 | | — | | A, I |
| USA | Deer Park | 836 | | — | | — | | — | | A, I |
| Geismar | — | | — | | 400 | | 1,390 | | I |
| Norco | 1,432 | | — | | — | | — | | A |
| Total | | 6,499 | | 3,009 | | 2,675 | | 1,390 | | |
| | | | | | | | | | | |
| Thousand tonnes/year |
| 2022 | 2021 | 2020 |
| Europe | | | |
| Base chemicals | 2,809 | 3,883 | 3,490 |
| Intermediates and other chemicals products | 1,955 | 2,076 | 1,990 |
| Total | 4,764 | 5,959 | 5,480 |
| Asia | | | |
| Base chemicals | 825 | 1,354 | 1,192 |
| Intermediates and other chemicals products | 2,147 | 2,656 | 2,969 |
| Total | 2,972 | 4,010 | 4,161 |
| Americas | | | |
| Base chemicals | 2,125 | 1,984 | 2,936 |
| Intermediates and other chemicals products | 2,420 | 2,263 | 2,459 |
| Total | 4,545 | 4,247 | 5,395 |
| Total product sales | | | |
| Base chemicals | 5,759 | 7,221 | 7,618 |
| Intermediates and other chemicals products | 6,522 | 6,995 | 7,418 |
| Total | 12,281 | 14,216 | 15,036 |
[A]Excludes feedstock trading and by-products.
| | |
| Major chemical plants in operation [A] |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Thousand tonnes/year, Shell share capacity [B] |
| Location | Ethylene | Polyethylene | Styrene
monomer | Ethylene
glycol | Higher olefins
[C] | Additional
products |
| Europe | | | | | | | |
| Germany | Rheinland | 324 | — | — | — | — | A |
| Netherlands | Moerdijk | 971 | — | 815 | 153 | — | A, I |
| UK | Mossmorran [D] | 415 | — | — | — | — | O |
| Asia | | | | | | | |
| China | Nanhai [D] | 1,100 | 605 | 645 | 415 | — | A, I |
| Singapore | Jurong Island [E] | 281 | — | 1,069 | 1,081 | — | A, I, P, O |
| Pulau Bukom | 1,161 | — | — | — | — | A, I |
| Americas | | | | | | | |
| Canada | Scotford | — | — | 475 | 462 | — | A, I |
| USA | Monaca [F] | 1,500 | 1,600 | — | — | — | |
| Deer Park | 889 | — | — | — | — | A, I |
| Geismar | — | — | — | 400 | 1,390 | I |
| Norco | 1,432 | — | — | — | — | A |
| Total | | 8,073 | 2,205 | 3,004 | 2,511 | 1,390 | |
[A]Major chemical plants are large integrated chemical facilities, typically producing a range of chemical products from an array of feedstocks, and are a core part of our global Chemicals business.feedstocks.
[B]Shell share of capacity of subsidiaries, joint arrangements and associates (Shell- and non-Shell-operated), excluding capacity of the Infineum additives joint ventures.
[C]Higher olefins are linear alpha and internal olefins (products range from C4 to C2024).
[D]Not operated by ShellShell.
[E]The polyethylene, polypropylenePolypropylene and olefins production mentioned refers to Shell share of capacity of our non-operated joint ventures Petchem Corporation of Singapore (PCS) and The Polyolefin Company (TPC) which are inon Jurong Island.
[F]Shell Polymers Monaca commenced its operations in November 2022.
AAromatics, lower olefins
IIntermediates
PPolyethylene, polypropylene Polypropylene
OOther
Other chemical locations [A]
Strategic Report | Progress on strategy – year in review
Generating shareholder value | Chemicals and Products continued
| | |
| Other chemical locations [A] |
| | | | | | | | |
| Location | Products |
| Europe | | |
| Germany | Karlsruhe | A |
| Schwedt | A |
| Netherlands | PernisRotterdam | A, I, O |
| Americas | | |
| Argentina | Buenos Aires | I |
| Canada | Sarnia | A, I |
USA | Mobile | A |
| Puget Sound | I |
[A]Other chemical locations reflect locations with smaller chemical units, typically serving more local markets.
A Aromatics, lower olefins
I Intermediates
O Other
Strategic Report | Progress on strategy – year in review
Generating shareholder value
| | | | | | | | | | | |
| | | |
| Renewables and Energy Solutions | |
| Renewables and Energy Solutions (R&ES) includes renewable power generation, the marketing and trading of power and pipeline gas, as well as carbon credits, and digitally enabled customer solutions. R&ES also includes the production andmarketing of hydrogen, development of commercial carbon capture and storage (CCS) hubs, investment in nature-based projects that avoid or reduce carbon emissions (NBS), and Shell Ventures, which invests in companies that work to accelerate the energy and mobility transformation. | |
| | |
| Segment earnings ($ billion) (1.1) 2021: (1.5) | |
| | |
| Adjusted Earnings ($ billion) 1.7 2021: (0.2) | |
| | |
| Cash flow from operating activities ($ billion) (6.4) 2021: 0.5 | |
| | |
| External power sales (terawatt hours) [A] 243 2021: 247 | |
| | |
| Sales of pipeline gas to end-use customers (terawatt hours) [B] 843 2021: 899 | |
| | |
| Renewable capacity (gigawatt) [C] 6.4 2021: 3.0 | |
| [A]Physical power sales to third parties; excluding financial trades and physical trade with brokers, investors, financial institutions, trading platforms, and wholesale traders. [B]Physical natural gas sales to third parties; excluding financial trades and physical trade with brokers, investors, financial institutions, trading platforms, and wholesale traders. Excluding sales of natural gas by other segments and LNG sales. [C]Renewable power generation capacity (Shell Interest) in operation, under construction and/or committed for sale. | |
| | |
Strategic Report | Progress on strategy – year in review
Generating shareholder value | Renewables and Energy Solutions continued
| | | | | | | | | | | |
| $ million, except where indicated |
| 2022 | 2021 | 2020 |
| Segment earnings/(loss) | (1,059) | (1,514) | (479) |
| Including: | | | |
| Revenue (including inter-segment sales) | 59,981 | 27,090 | 13,979 |
| Share of profit of joint ventures and associates | (7) | (27) | (50) |
| Interest and other income | 57 | 200 | (197) |
| Operating expenses [B] | 3,590 | 2,745 | 1,716 |
| Underlying operating expenses [B] | 3,583 | 2,737 | 1,711 |
| Depreciation, depletion and amortisation | 777 | 326 | 424 |
| Taxation charge/(credit) | (303) | (342) | (61) |
| Identified Items [B] | (2,805) | (1,272) | (277) |
| Adjusted Earnings [B] | 1,745 | (243) | (202) |
| Adjusted EBITDA [B] | 2,459 | (21) | 25 |
| Capital expenditure | 2,609 | 2,069 | 363 |
| Cash capital expenditure [B] | 3,469 | 2,359 | 928 |
| External power sales (terawatt hours) | 243 | 247 | 252 |
| Sales of pipeline gas to end-use customers (terawatt hours) | 843 | 899 | 882 |
[A]With effect from January 1, 2022, our reporting segments are Integrated Gas, Upstream, Marketing, Chemicals and Products, Renewables and Energy Solutions and Corporate. Comparative information has been revised.
[B]See "Non-GAAP measures reconciliations" on pages 331-334.
Business conditions
For the business conditions relevant to Renewables and Energy Solutions, see "Market overview" on pages 39-41.
External power sales
In 2022, our external power sales were 243 terawatt hours (TWh), compared with 247 TWh in 2021. The difference was mainly a result of higher volume sales during a Texas winter storm in 2021 and mild weather conditions in 2022. This was partly offset by business growth in the Americas and Europe.
Sales of pipeline gas to end-use customers
In 2022, our sales of pipeline gas to end-use consumers were 843 TWh, compared with 899 TWh in 2021. This difference was also mainly a result of high demand during the Texas winter storm in 2021, and more sales to trading intermediaries versus
end-user counterparties.
Earnings 2022-2021
Segment earnings in 2022 were a loss of $1,059 million, compared with a loss of $1,514 million in 2021. The narrowing of the loss was mainly driven by higher prices and contributions from trading, marketing and optimisation results for gas and power (around $1,900 million). This was partly offset by higher operating expenses as a result of business growth and acquisitions (around $900 million), impairment (around $400 million) and tax charges (around $100 million).
Full year 2022 segment earnings included Identified Items of $2,805 million which comprised losses of $2,443 million due to the fair value accounting of commodity derivatives and impairment charges of $361 million mainly in Europe. The full year 2021 Identified Items were a loss of $1,272 million, mainly as a result of the fair value accounting of commodity derivatives.
Adjusted Earnings were $1,745 million in 2022. Adjusted Earnings from Energy Marketing and Trading and Optimisation accounted for 135% of R&ES 2022 Adjusted Earnings, partially offset by Renewable Power Generation, Hydrogen, CCS, NBS and Shell Ventures that accounted for (35)%.
Adjusted EBITDA was $2,459 million and included the impact of underlying operating expenses of $3,583 million, driven by business growth and the early-development stage of some of the portfolios prior to operating status.
Adjusted Earnings were a loss of $243 million in 2021. Adjusted Earnings from Renewable Power Generation, Hydrogen, CCS, NBS, and Shell Ventures accounted for 155% of R&ES 2021 negative Adjusted Earnings. These were partially offset by a positive Adjusted Earnings contribution from Energy Marketing and Trading and Optimisation (55)%.
Earnings 2021-2020
Segment earnings in 2021 were a loss of $1,514 million, compared with a loss of $479 million in 2020. This bigger loss was mainly driven by higher operating expenses, mainly related to provisions for counterparty risk due to the Texas winter storm (around $1,000 million), and lower contributions from trading, marketing and optimisation results for gas and power (around $300 million). This was partly offset by lower tax charges (around $300 million).
Full year 2021 segment earnings included Identified Items of $1,272 million which comprised losses mainly due to the fair value accounting of commodity derivatives. Full year 2020 Identified Items were a loss of $277 million reflecting impairment charges of $190 million and the fair value accounting of commodity derivatives of $89 million.
| | | | | | | | |
| 78 | STRATEGIC REPORT SHELL FORMShell | Form 20-F 20202022 | 59 | |
Strategic Report | Progress on strategy – year in review
Generating shareholder value | Renewables and Energy Solutions continued
Cash capital expenditure
Cash capital expenditure in 2022 was $3.5 billion, of which $2.9 billion was in low-carbon energy solutions. Cash capital expenditure in 2021 was $2.4 billion, of which $1.8 billion was
in low-carbon energy solutions. This increase was mainly a result
of the development projects in our wind and solar power generation business.
Our cash capital expenditure is expected to be in the range
of $2-4 billion in 2023.
Portfolio and business development
Key portfolio events included the following:
▪In January 2022, Shell and ScottishPower won bids to develop
5 GW of floating wind power in the UK.
▪In January 2022, we started operations at the power-to-hydrogen electrolyser in China.
▪In February 2022, we completed the acquisition of online
energy retailer Powershop Australia which was announced
in November 2021.
▪In April 2022, Atlantic Shores Offshore Wind (ASOW), our 50:50 joint venture with EDF Renewables North America, was awarded the commercial lease for acreage in the New York Bight offshore wind auction, USA. This was after it was announced as provisional winner
in February.
▪In July 2022, we took the final investment decision to build a 200 MW electrolyser, Holland Hydrogen I (Shell interest 100%), which is expected to be operational from 2025.
▪In August 2022, we completed the acquisition of renewable energy platform Sprng Energy group in India, which was announced in
April 2022.
▪In December 2022, Ecowende, our joint venture with Eneco, won
the tender to develop a 760 MW offshore wind farm at Hollandse Kust (west) lot VI in the Netherlands.
Business and property
We are building our R&ES portfolio through organic and inorganic growth. Most of these growth opportunities are in sectors that differ from, but have similarities and links to, Shell's existing oil and gas businesses.
Some acquired companies in new business sectors are not yet in full compliance with the Shell Control Framework. Following specific assessment for each of those companies, dedicated projects were put in place to achieve compliance, with regular updates on the progress.
Energy Marketing
We provide electricity and smart energy solutions to residential, commercial and industrial customers. We do this through direct electricity sales, storage solutions and energy optimisation services.
We sell natural gas and power to more than 2.2 million retail customers mainly in the UK, the USA, Australia, Germany, and the Netherlands.
Our largest markets for commercial and industrial customers are Australia and the USA. In Australia we are one of the largest commercial and industrial retailers of electricity in the market.
In January 2023 we launched a strategic review of our European home energy retail business including our operations in the UK, the Netherlands and Germany. Our priority remains to ensure our customers in those countries continue to receive a reliable and affordable energy supply. No decisions have been taken
at this time. We intend to provide an update on the outcome
of the review in due course.
Trading and Optimisation
We market and trade natural gas and power from our own assets and from third parties. In the USA we are one of the leading power wholesale traders.
Renewable Power Generation
We enable renewable power generation by owning and operating wind farms and solar plants, and participating in joint ventures.
At the end of 2022, our share of renewable generation capacity was 2.2 GW in operation and 4.2 GW in development. Our renewable power capacities are listed below:
| | |
| Renewable power capacity in operation and in development as of December 31, 2022 - by region |
| | | | | | | | | | | | | | | | | |
| In operation [A] | | In development [B] |
| Location | 100% capacity (MW) | Shell interest (MW) | | 100% capacity (MW) | Shell interest (MW) |
| Asia | 2,250 | 1,830 | | 681 | 614 |
| Europe | 932 | 344 | | 1,664 | 1,208 |
| North America | 103 | 51 | | 3,596 | 2,241 |
| Australia | — | — | | 120 | 120 |
| Total | 3,285 | 2,225 | | 6,061 | 4,183 |
| | |
| Renewable power generation capacity in operation and in development as of December 31, 2022 |
| | | | | | | | | | | |
| 2022 | 2021 | 2020 |
| Renewable power generation capacity (Shell interest - gigawatt): | | | |
| In operation [A] | 2.2 | 0.7 | 0.4 |
| In development [B] | 4.2 | 2.3 | 1.7 |
[A]Renewable generation capacity post commercial operation date.
[B]Renewable generation capacity under construction and/or committed for sale under
long-term offtake agreements (PPA).
| | | | | | | | |
| 79 | CORPORATEShell | Form 20-F 2022 |
Strategic Report | Progress on strategy – year in review
Generating shareholder value | Renewables and Energy Solutions continued
Hydrogen
We are part of joint ventures and alliances that have built hydrogen filling stations for passenger cars and trucks. Since July 2021, we have operated an electrolyser (Shell interest 100%) in Germany, which produces green hydrogen (produced using electricity from renewable sources). In China, our joint venture Zhangjiakou City Transport and Shell New Energy Co., Limited (Shell interest 47.5%) developed a renewable power electrolyser and is developing hydrogen filling stations in Zhangjiakou City in the Beijing-Tianjin-Hebei region.
The electrolyser started operations in January 2022. In July 2022,
we announced the final investment decision to build the 200 MW electrolyser Holland Hydrogen I (Shell interest 100%) in the Netherlands, which is expected to be operational from 2025.
Carbon capture and storage
Carbon capture and storage (CCS) is a combination of technologies that capture and store CO2 deep underground, preventing its release into the atmosphere. In the R&ES segment we offer CCS services to our customers. Existing CCS operations that help decarbonise our own assets are reported in the segment where the relevant asset sits.
We have a 33.3% interest in the Northern Lights CCS joint venture, where the other partners are Equinor and TotalEnergies (equal partners). The project is located in Norway and is under construction. Phase One is expected to be operational in 2024.
Nature and Environmental Solutions
Nature and Environmental Solutions include our Nature-Based Solutions (NBS) business and the Environmental Products Trading Business (EPTB). NBS conserve, enhance and restore ecosystems – such as forests, grasslands and wetlands – to prevent greenhouse
gas emissions or reduce atmospheric CO2 levels.
Through EPTB we develop, offtake, trade and supply environmental products across compliance and voluntary markets, and this includes working with our other businesses such as Integrated Gas or Marketing to provide integrated energy solutions to customers.
Shell Ventures
Shell Ventures are corporate venture funds, where we act as an investor and a partner to help commercialise innovative businesses. We aim to accelerate the energy and mobility transformation by investing in companies that lower emissions, electrify energy systems, gain data-based insights and provide innovative consumer solutions.
| | | | | | | | |
|
| | |
| Treasury Wine Estates switches to solar In 2022, Shell helped wine producer Treasury Wine Estates, owner of the Penfolds, 19 Crimes, St Huberts and Wolf Blass labels, get closer to achieving its net-zero target and become
a renewable energy producer by installing a combined 9,500 solar panel modules at two of its Australian sites. The solar modules were installed at the Barossa Winery and packaging centre in South Australia, and the Karadoc Winery
in Victoria. They have been installed on rooftops and in open ground areas, and are expected to generate more than 5,500 megawatt-hours of electricity per year. This is the equivalent of powering 900 homes and offers an example of how the wine industry can navigate the energy transition. Treasury Wine Estates wants to produce wine sustainably and is aiming for net-zero emissions from its own operations and the energy it consumes by 2030. Shell’s Powering Progress strategy seeks to help customers decarbonise by identifying and providing solutions for cleaner, affordable and reliable energy. Shell Energy is working with Treasury Wine Estates, which has 13,000 hectares of vineyards all over the world, to provide renewable energy across the wine company’s operations, from cultivation to cellar door, tasting halls, offices and packaging centres. A further 9,000 solar panels are in the process of being installed at Treasury Wine Estates’ Californian vineyards, including Sterling Winery, TWE Paso Winery, Paris Valley Ranch and Beaulieu Vineyards. | |
| | |
| Photo: Solar panels installed at Treasury Wine Estates, Australia, helping TWE get closer to achieving its net-zero target. | |
| | |
| | | | | | | | | | | |
| | | |
| $ million |
| 2020 | 2019 | 2018 |
| Segment earnings | (2,952) | | (3,273) | | (1,479) | |
| Comprising: | | | |
| Net interest [A] | (2,991) | | (3,080) | | (2,075) | |
| Taxation and other [B] | 39 | | (194) | | 596 | |
| Identified Items | 460 | | 109 | | 327 | |
| Adjusted Earnings | (3,412) | | (3,383) | | (1,806) | |
Strategic Report | Progress on strategy – year in review
Generating shareholder value
Corporate
| | | | | | | | | | | |
| $ million |
| 2022 | 2021 | 2020 |
| Segment earnings | (2,461) | (2,606) | (2,952) |
| Comprising: | | | |
| Net interest [A] | (1,723) | (2,701) | (2,991) |
| Operating expenses and other [B] | (745) | (570) | (943) |
| Taxation credit | 7 | 665 | 982 |
| Identified Items | (90) | 81 | 460 |
| Adjusted Earnings | (2,371) | (2,686) | (3,412) |
| Adjusted EBITDA | (725) | (554) | (933) |
[A]Mainly Shell’s interest expense (excluding accretion expense) and interest income.
[B]Other earnings mainly comprisecomprises net foreign exchange gains and losses on financing activities, headquarters and central functions’ costs not recovered from business segments, and net gains on sale
of properties. This also includes Shell's share of joint ventures and associates' interest income/(expense) and net foreign exchange gains/(losses) on financing activities.
OVERVIEWOverview
The Corporate segment covers the non-operating activities supporting Shell. It comprises Shell’s holdings and treasury organisation, self-insurance activities and headquarters and central functions. All finance expense, and income and related taxes are included in Corporate segment earnings rather than in the earnings of business segments.
The holdings and treasury organisation manages many of the Corporate entities. It is the point of contact between Shell and external capital markets, conducting a wide range of transactions, such as raising debt instruments and transacting foreign exchange. Treasury centres in London and Singapore support these activities.
Headquarters and central functions provide business support in communications, finance, health, human resources, information technology (IT), legal services, real estate and security. They also provide support for shareholder-related activities. The central functions are supported by business service centres, which process transactions, manage data and produce statutory returns, among other services. Most headquarters and central-function costs are recovered from the business segments. Costs that are not recovered are retained in Corporate.
EARNINGS 2020-2018Earnings 2022-2021
Segment earnings in 20202022 were an expense of $2,952$2,461 million, compared with $3,273$2,606 million in 2019 and $1,479 million2021.
This decrease in 2018.
Netexpense was mainly driven by favourable movements in net interest decreased by $89 million compared with 2019.expense. This was primarily due to a decrease in interest expense following reductions in interest rates, partly offset by a reductionan increase in interest income generated on cash balances. In 2019, netbalances, a reduction in interest increased by $1,005 million compared with 2018. This was primarily due to the adoption of IFRS 16 and reduced capitalised interest.
Taxation and other earnings increased by $233 million in 2020, compared with 2019 This largely reflected favourable deferred tax impacts due to the strengthening Brazilian realexpense on financing positionslease liabilities, and a reduction in Shell’s share of financing expenses from joint ventures and associates, partlyinterest expense on debt following repayments in 2021. This was partially offset by alower tax credits on financing items and higher net foreign exchange loss from adverse exchange rate movements. In 2019, taxation and other earnings decreased by $790 million compared with 2018, because of reduced tax credits from financing and one-off charges, andlosses due to unfavourable exchange rate movements producing net foreign exchange losses.movements.
SELF-INSURANCEOur earnings summary for the financial year ended December 31, 2021, compared with the financial year ended December 31, 2020, can be found in the Annual Report and Accounts (page 74) and Form 20-F (page 73) for the year ended December 31, 2021, as filed with the Registrar of Companies for England and Wales and the US Securities and Exchange Commission, respectively.
Self-insurance
We mainly self-insure our hazard risk exposure. Capital is set asideexposures. Our Group insurance companies are adequately capitalised to meet self-insurance obligations and respective regulations, though they may transfer risks to third-party insurers where economical, effective and relevant (see “Risk factors”"Risk factors" on page 21)27). We seekcontinually assess the safety performance of our operations and make risk mitigation recommendations, where relevant, to ensure this capitalminimise the risk of an accident.
Information technology and cyber security
Digitalisation is at leasta key success factor in Shell’s Powering Progress strategy. Shell is fast transforming its IT systems to support the evolving portfolio of businesses and is investing in new technologies to enhance IT capabilities such as much as would be held in third-party insurance markets. Periodic surveys of key assets provide knowledgedata analytics, artificial intelligence, machine learning and best practices aimed at reducing exposurevirtual reality, bringing value to hazards. Follow-up actions are monitored to completion.the business.
INFORMATION TECHNOLOGY AND CYBER-SECURITY
Given our digitalisation efforts and increasing relianceThe growing dependence on information technology (IT) systems forand data also brings risks which could cause significant harm to Shell in the form of loss of productivity, loss of intellectual property, regulatory fines and reputational damage. Cyber security is key to managing those risks, especially in today’s increasingly regulated environment and adverse cyber threat landscape.
Shell operates a multi-level defence strategy underpinned by the Shell IT Control Framework and advanced cyber defence capabilities to prevent, detect, respond to, and evolve with complex cyber and data privacy risks. At the same time, we continuously measure and, where required, further improve our operations, we continuallycyber-security capabilities to reduce the likelihood of successful cyber attacks.
A cyber security mindset across the enterprise forms the first line of defence to protect Shell. Robust governance processes are embedded across Shell to increase cyber awareness, monitor external
developmentskey cyber risks, and actively share information on threatsprovide risk assurance. Cyber risk strategy and security incidents.risk management are regularly reviewed with the Audit Committee and Board of Directors. Shell employees and contract staff are subject to mandatory courses and regular awareness campaigns aimed at protecting us against cyber-threats. We periodically test and adapt cyber-security response processes and seek to enhance our security monitoring capability.cyber threats.
| | |
| See "Risk factors" on page 26. |
Given our dependence on IT systems for our operations and the increasing role of digital technologies across our business, we are aware that cyber-security attacks could cause significant harm to Shell in the form of loss of productivity, loss of intellectual property, regulatory fines and/or reputational damage. As a result, we continuously measure and, where required, further improve our cyber-security capabilities to reduce the likelihood of successful cyber-attacks. Our cyber-security capabilities are embedded into our IT systems, and our IT landscape is protected by various detective and protective technologies. The identification and assessment capabilities are built into our support processes and adhere to industry best practices. The security of IT services, operated by external IT companies, is managed through contractual clauses and additionally through formal supplier assurance reports for critical IT services.
Shell is frequently subjected to cyber-attacks and the pandemic in 2020 caused an increase in such activity. COVID-19 necessitated a switch from office to remote working, which changed and increased the attack surface. Shell’s CyberDefence Team responded by enhancing cyber-security controls for remote connectivity, strengthening its monitoring/detection, and taking additional measures to improve cyber-awareness.
In 2020, malicious actors infiltrated several companies and government agencies through a supply chain attack via SolarWinds Orion software. They injected malware into an update that was distributed to SolarWinds' customers globally, allowing the actors to access SolarWinds systems and from there attempt to access other systems. Shell uses SolarWinds software. We detected the malicious SolarWinds applications in our environment, and isolated and removed them. No evidence has been found that any Shell systems were accessed by the attackers. Shell has followed the US Cybersecurity and Infrastructure Security Agency’s guidance to rebuild and/or patch affected systems.
In 2020, none of the cyber-security events led to known breaches of our business-critical IT landscape and, as such, did not result in any material business impact. When significant incidents happen, they are addressed through a robust incident management framework and, if needed, will result in appropriate follow-up actions, including notifications towards regulators. See "Risk factors" on page 20.
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| 81 | STRATEGIC REPORT SHELL FORMShell | Form 20-F 2020 | 60 | 2022 |
Our journey to net zero
| | | | | |
LIQUIDITY AND CAPITAL RESOURCES | | | | | |
| | | |
| Shell has long recognised that greenhouse gas (GHG) emissions from the use of hydrocarbon-based energy are contributing to the warming of the climate system. We support the more ambitious goal of the UN Paris Agreement, which is to limit the rise in global average temperature this century to 1.5 degrees Celsius above pre-industrial levels. Shell’s Powering Progress strategy is designed to generate shareholder value while meeting our target of becoming a net-zero emissions energy business by 2050. Since 2017, Shell has supported the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). The TCFD aims to improve the disclosure of climate-related risks and opportunities and provide stakeholders with the information they need to undertake robust and consistent analyses of the potential financial impacts of climate change. The TCFD recommends disclosure of qualitative and quantitative information aligned to its four core elements: governance, strategy, risk management, and metrics and targets. We recognise the value that the recommendations bring and, in accordance with UK Listing Rule 9.8.6R, set out below our climate-related financial disclosures consistent with all of the TCFD Recommendations and Recommended Disclosures. By this we mean the four recommendations and the 11 recommended disclosures set out in Figure 4 of Section C of the report entitled "Recommendations of the Task Force on Climate-related Financial Disclosures" published in June 2017 by the TCFD. We also take into account relevant supplemental guidance including, for example, the TCFD’s additional guidance "Implementing the Recommendations of the Task Force on Climate-related Financial Disclosures" (also known as the 2021 TCFD Annex) published in October 2021 by the TCFD. We continue to align and enhance our climate-related disclosures. | |
We manage our businesses to deliver strong cash flows to fund investment for profitable growth. Management's priorities for applying Shell's cash are first the reduction of net debt to $65 billion and,
Strategic Report | Progress on achieving this milestone, distributing a total of 20-30% of cash flow from operations to shareholders. Remaining cash will be allocated to disciplined and measured capital expenditure growth and further debt reduction.
FINANCIAL CONDITION AND LIQUIDITY
Despite the weak macroeconomic and commodity price environment during the COVID-19 pandemic, Shell Group generated cash flow from operations of $34.1 billion and free cash flow of $20.8 billionstrategy – year in 2020. Through the course of the year, Shell took decisive actions (including reducing costs, rebasing the dividends and not continuing with the next tranche of the share buyback programme following completion of the seventh tranche) to increase liquidity and underpin the strength of the balance sheet, positioning the business to navigate the challenging environment and supporting long-term value creation. Reflecting mitigating actions taken, net debt decreased to $75.4 billion at December 31, 2020 (December 31, 2019: $79.1 billion). Gearing increased to 32.2% at December 31, 2020, compared with 29.3% at December 31, 2019 due to the reduction in equity mainly driven by lower earnings in 2020. Note 14 to the Consolidated Financial Statements on pages 188-190 provides information on our debt arrangements, including net debt and gearing definitions.
LIQUIDITY
We satisfy our funding and working capital requirements from the cash generated from our operations, the issuance of debt and divestments. In 2020, access to the international debt capital markets remained strong, with our debt principally financed from these markets through central debt programmes consisting of:
•Our journey to net zero a $10 billion global commercial paper (CP) programme, with maturities not exceeding 270 days;continued
•a $10 billion US CP programme, with maturities not exceeding 397 days;
•an unlimited Euro medium-term note (EMTN) programme (also referred to as the Multi-Currency Debt Securities Programme); and
•an unlimited US universal shelf (US shelf) registration.
All these CP, EMTN and US shelf issuances are issued by Shell International Finance B.V., the issuance company for Shell, with its debt being guaranteed by Royal Dutch Shell plc (the Company). We plan to file a new US shelf registration statement with the Securities and Exchange Commission shortly after the filing of our Annual Report on Form 20-F.
We also maintain committed credit facilities. The core facilities, totalling $10 billion, were extended in December 2020 with $2 billion now expiring in 2021 and $8 billion in 2025. Each facility includes a further one-year extension option at the discretion of each lender. Both remained undrawn at December 31, 2020. These core facilities and internally available liquidity provide back-up coverage for our CP programmes. In addition, in April 2020, to increase liquidity amid COVID-19-related uncertainties, Shell entered into a dual currency $7.2 billion and EUR 4.4 billion revolving credit facility expiring in April 2021, with two six-month extension options at our discretion. This facility remains undrawn. The extension options have not been exercised, and the facility will expire in April 2021. Other than certain borrowing by local subsidiaries, we do not have any other committed credit facilities.
Our total debt increased by $11.6 billion to $108 billion at December 31, 2020. The total debt excluding leases will mature as follows: 16% in 2021; 6% in 2022; 7% in 2023; 6% in 2024; and 64% in 2025 and beyond. The portion of debt maturing in 2021 is expected to be repaid from a combination of cash balances, cash generated from operations, divestments and the issuance of new debt.
In 2020, we issued $6.3 billion of bonds under our US shelf registration and $6.7 billion equivalent under our EMTN programme. Periodically, for
working capital purposes, we issued CP. We believe our working capital is sufficient for current requirements.
While our subsidiaries are subject to restrictions, such as foreign withholding taxes on the transfer of funds in the form of cash dividends, loans or advances, such restrictions are not expected to have a material impact on our ability to meet our cash obligations.
MARKET RISK AND CREDIT RISK
We are affected by the global macroeconomic environment as well as financial and commodity market conditions. This exposes us to treasury and trading risks, including liquidity risk, market risk (interest rate risk, foreign exchange risk and commodity price risk) and credit risk. See “Risk factors” on pages 18-22 and Note 19 to the “Consolidated Financial Statements” on pages 198-202. The size and scope of our businesses require a robust financial control framework and effective management of our various risk exposures.
We utilise various financial instruments for managing exposure to commodity price, foreign exchange and interest rate movements. Our treasury and trading operations are highly centralised and seek to manage credit exposures associated with our substantial cash, commodity, foreign exchange and interest rate positions. Our portfolio of cash investments is diversified to avoid concentrating risk in any one instrument, country or counterparty. Other than in exceptional cases, the use of external derivative instruments is confined to specialist trading and central treasury organisations that have appropriate skills, experience, supervision, control and reporting systems. Credit risk policies are in place to ensure that sales of products are made to customers with appropriate creditworthiness, and include detailed credit analysis and monitoring of customers against counterparty credit limits. Where appropriate, netting arrangements, credit insurance, prepayments and collateral are used to manage credit risk. We maintain a committed credit facility. Management believes it has access to sufficient debt funding sources (capital markets) and to undrawn committed borrowing facilities to meet foreseeable requirements.
PENSION COMMITMENTS
We have substantial pension commitments, the funding of which is subject to capital market risks (see “Risk factors” on page 21). We address key pension risks in a number of ways. Principal among these is the Pensions Forum, chaired by the Chief Financial Officer, which oversees Shell’s input to pension strategy, policy and operation. A risk committee supports the forum in reviewing the results of assurance processes in respect of pensions risks. In general, local trustees manage the funded defined benefit pension plans, with contributions paid based on independent actuarial valuations in accordance with local regulations. Our total employer contributions to funded and unfunded defined benefit pension plans were $0.6 billion in 2020 and are estimated to be $1.6 billion in 2021 See Note 17 to the Consolidated Financial Statements on pages 193-196.
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| $ million |
| December 31, 2020 | December 31, 2019 |
| Equity attributable to Royal Dutch Shell plc shareholders | 155,310 | | 186,476 | |
| Current debt | 16,899 | | 15,064 | |
| Non-current debt | 91,115 | | 81,360 | |
| Total debt [A] | 108,014 | | 96,424 | |
| Total capitalisation | 263,324 | | 282,900 | |
[A] Of total debt, $79.4 billion (2019: $65.7 billion) was unsecured and $28.6 billion (2019: $30.7 billion) was secured. See Note 14 to the “Consolidated Financial Statements” on pages 188-190 for further disclosure on debt.
STATEMENT OF CASH FLOWS
Cash flow from operating activities in 2020 was an inflow of $34.1 billion, compared with $42.2 billion in 2019, mainly due to lower earnings. The
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| 83 | STRATEGIC REPORT SHELL FORMShell | Form 20-F 2020 | 61 | 2022 |
Our journey to net zero continued
decreaseGovernance of climate-related
risks and opportunities
Board oversight of climate-related risks and opportunities
Our governance framework is designed to effectively deliver on the energy transition ambitions of Shell's Powering Progress strategy.
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| For detailed information on our Powering Progress strategy refer to pages 13-15. |
The Board reviews our energy transition strategy periodically and oversees its implementation and delivery. In 2022, the Board considered climate-related matters throughout the year, including the assessment of climate-related risks and the effectiveness of corresponding risk management activities, and challenged and endorsed business plans, including consideration of major capital expenditures, acquisitions and divestments. In 2022, the Board convened eight times and continued to oversee the Powering Progress strategy and net-zero initiatives, including at the Board Strategy Day in cash flow from operating activitiesJune 2022.
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| Find more information in "Governance" (see page 139). |
Three Board committees provide primary oversight of the delivery of our energy transition strategy: the Safety, Environmental and Sustainability Committee (SESCo), the Audit Committee (AC) and the Remuneration Committee (REMCO). The importance of our energy transition strategy means that these committees are informed about climate-related matters on a frequent basis throughout the year. See "Climate change governance organogram" below.
The SESCo provides oversight of our technical delivery when it comes to reducing our carbon emissions, and the potential impacts and adaptation measures related to the physical risks of climate change. This includes reviewing our carbon management framework (CMF) and monitoring progress in 2019, comparedreducing emissions to meet targets. The SESCo
met five times in 2022 and discussed some aspects of climate-related matters at every meeting. After each meeting the SESCo Chair provided updates to the Board.
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| For more information on the SESCo's activities in 2022, see pages 151-152. |
Our AC provides oversight of the effectiveness of the risk management framework and the integrity of our financial reporting to ensure that our financial statements reflect the risks and opportunities associated with $53.1 billion in 2018, was mainly dueour energy transition strategy and climate change. During 2022, the AC convened six times and discussed climate-related matters on each occasion.
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| More information on our Audit Committee's activities in 2022 can be found in the Audit Committee Report on pages 153-165. |
The REMCO develops our remuneration policy and sets performance conditions designed to lower earningschallenge and an unfavourable working capital impact.support the Executive Committee to reduce net carbon emissions while maintaining shareholder value. The REMCO met five times during 2022, with climate-related matters discussed at each meeting.
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| Find more information on our Remuneration Committee’s activities in 2022 in the "Directors' Remuneration Report" on pages 166-170 and the "Annual Report on Remuneration" on page 172. |
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| Climate performance and remuneration Energy transition targets were part of the 2022 annual bonus scorecard (15% weighting) for almost all of Shell’s employees, as well as the 2022 Performance Share Plan (PSP) awards (10% weighting) and the 2022 Long-term Incentive Plan (LTIP) for senior executives (20% weighting), both vesting in 2025. See "Directors' Remuneration Report" on pages 166-170 for further information. | |
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| Find additional information on the Board’s oversight in "Governance framework" on pages 141-142. |
Cash flowManagement's role in assessing climate-related risks and opportunities
[A]Current structure which is subject to change with effect from investing activities in 2020 was an outflow of $13.3 billion, compared with an outflow of $15.8 billion in 2019. The decreased cash outflow was mainly due to lower capital expenditure in 2020. The increased cash outflow in 2019 compared with $13.7 billion in 2018 was mainly due to lower proceeds from the sale of equity securities, partly offset by higher proceeds from sale of assets in 2019.
Cash flow from financing activities in 2020 was an outflow of $7.2 billion, compared with outflows of $35.2 billion in 2019 and $32.5 billion in 2018, due to lower dividends payments to Royal Dutch Shell plc shareholders of $7.4 billion (2019: $15.2 billion; 2018: $15.7 billion), net issuance of debt of $5.6 billion (2019: $3.4 billion net repayment; 2018: $8.3 billion net repayment), and lower repurchases of shares of $1.7 billion (2019: 10.2 billion; 2018: $3.9 billion).
Cash and cash equivalents were $31.8 billion at December 31, 2020 (December 31, 2019: $18.1 billion; December 31, 2018: $26.7 billion).
CASH FLOW FROM OPERATING ACTIVITIES
The most significant factors affecting our cash flow from operating activities are earnings, which are mainly impacted by: realised pricesJuly 1, 2023. See page 85 for crude oil, natural gas and LNG; production levels of crude oil, natural gas and LNG; chemicals, refining and marketing margins; and movements in working capital.
The impact on earnings from changes in market prices depends on: the extent to which contractual arrangements are tied to market prices; the dynamics of production-sharing contracts; the existence of agreements with governments or state-owned oil and gas companies that have limited sensitivity to crude oil and natural gas prices; tax impacts; and the extent to which changes in commodity prices flow through into operating expenses. Changes in benchmark prices of crude oil and natural gas in any particular period therefore provide only a broad indicator of changes in our Integrated Gas and Upstream earnings in that period. Changes in any one of a range of factors, derived from either within the industry or the broader economic environment, can influence refining and marketing margins. The precise impact of any such changes depends on how the oil markets respond to them. The market response is affected by factors such as: whether the change
affects all crude oil types or only a specific grade; regional and global crude oil and refined products inventories; and the collective speed of response of refiners and product marketers in adjusting their operations. As a result, margins fluctuate from region to region and from period to period.
DIVESTMENT AND CASH CAPITAL EXPENDITURE
The level of divestment proceeds and cash capital expenditure in 2020 and 2019 reflects our discipline, and focus on capital efficiency and cash preservation.
Divestment proceeds
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| $ million |
| 2020 | 2019 | 2018 |
| Integrated Gas | 503 | 723 | 3,156 |
| Upstream | 1,909 | 5,384 | 3,364 |
| Oil Products | 1,368 | 1,517 | 540 |
| Chemicals | 26 | 22 | 1 |
| Corporate | 205 | 225 | 3,405 |
| Total divestment proceeds | 4,010 | 7,871 | 10,465 |
Cash capital expenditure is used to monitor investing activities on a cash basis, excluding items such as lease additions which do not necessarily result in cash outflows in the period. The capital discipline demonstrated in 2020 allowed us to deliver cash capital expenditure of less than $20 billion in line with the financial framework initiatives announced in March 2020.
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| $ million |
| 2020 | 2019 | 2018 |
| Integrated Gas | 4,301 | 4,299 | 3,819 |
| Upstream | 7,296 | 10,205 | 12,134 |
| Oil Products | 3,328 | 4,907 | 4,643 |
| Chemicals | 2,640 | 4,090 | 3,212 |
| Corporate | 262 | 418 | 269 |
| Total cash capital expenditure | 17,827 | | 23,919 | | 24,078 | |
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| Cash flow information [A] | $ billion |
| 2020 | 2019 |
| 2018 | |
| Cash flow from operating activities excluding working capital movements | | | | | |
| Integrated Gas | 10.8 | | 14.8 | | | 16.3 | | |
| Upstream | 9.8 | | 19.9 | | | 21.4 | | |
| Oil Products | 7.0 | | 10.7 | | | 8.5 | | |
| Chemicals | 1.8 | | 1.7 | | | 2.8 | | |
| Corporate | 0.1 | | (0.3) | | | 0.7 | | |
| Total | 29.5 | | 47.0 | | | 49.7 | | |
| (Increase)/decrease in inventories | 4.5 | | (2.6) | | | 2.8 | | |
| (Increase)/decrease in current receivables | 9.6 | | (0.9) | | | 2.0 | | |
| Increase/(decrease) in current payables | (9.5) | | (1.2) | | | (1.3) | | |
| (Increase)/decrease in working capital | 4.6 | | (4.8) | | | 3.4 | | |
| Cash flow from operating activities | 34.1 | | 42.2 | | | 53.1 | | |
| Cash flow from investing activities | (13.3) | | (15.8) | | | (13.7) | | |
| Cash flow from financing activities | (7.2) | | (35.2) | | | (32.5) | | |
| Currency translation differences relating to cash and cash equivalents | 0.2 | | 0.1 | | | (0.4) | | |
| Increase/(decrease) in cash and cash equivalents | 13.8 | | (8.7) | | | 6.4 | | |
| Cash and cash equivalents at the beginning of the year | 18.1 | | 26.7 | | | 20.3 | | |
| Cash and cash equivalents at the end of the year | 31.8 | | 18.1 | | | 26.7 | | |
[A] See the “Consolidated Statement of Cash Flows” on page 168.
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| 84 | STRATEGIC REPORT SHELL FORMShell | Form 20-F 2020 | 62 | 2022 |
Our journey to net zero continued
DIVIDENDSThe Chief Executive Officer (CEO) has the delegated authority from the Board to manage Shell’s actions in relation to the Company's strategy, which includes climate change. The CEO is assisted on climate-related matters by members of the Executive Committee to implement Shell's energy transition strategy and ensure that such matters are appropriately monitored:
Subject▪The Director of Strategy, Sustainability and Corporate Relations supports the CEO in developing Shell's energy transition strategy, including climate scenarios development, and augmenting our CMF. The CMF includes the setting of carbon budgets for our businesses, and the implementation of carbon management activities.
▪The Downstream Director is responsible for identifying and delivering climate-related opportunities, as well as managing and mitigating the climate risks of our existing Downstream businesses. The Sectors and Decarbonisation organisation supports the Downstream Director in implementing the sectoral decarbonisation approach.
▪The Integrated Gas, Renewables and Energy Solutions Director is responsible for developing and advancing low-carbon solutions and opportunities, including those across our solar, hydrogen and wind businesses, as well as managing and reducing carbon emissions from our business.
▪The Upstream Director is responsible for identifying and delivering low-carbon and emission-reduction opportunities in our oil and gas business. This includes managing and reducing our carbon emissions, for example, by reducing routine flaring and, in some cases, by using renewable energy to Board approval,power our oil and gas extraction activities.
▪The Projects & Technology (P&T) Director is responsible for setting emissions, climate, and reporting standards that are applicable to all our businesses. The P&T Director is also responsible for developing new technologies that will help our businesses to deliver on net-zero emissions reduction targets through both energy efficiency measures and solutions geared towards decarbonisation.
▪The Chief Financial Officer (CFO) is responsible for monitoring the effective application of the Shell aims to growControl Framework, which provides the dividend per share by around 4% every year,basis for managing our material risks including climate-related risks and onceopportunities, and the Group’s net debt level has reached $65 billion,assurance over our financial information, carbon emissions and climate-related disclosures.
On January 30, 2023, Shell announced it would reduce the Group will target the distribution of 20-30%size of its cash flowExecutive Committee from operationsnine to shareholders.seven members. The changes are expected to take effect from July 1, 2023. The Integrated Gas and Upstream businesses will be combined into a single Integrated Gas and Upstream Directorate. The Downstream business will be combined with Renewables and Energy Solutions to form a new Downstream and Renewables Directorate. The Strategy, Sustainability and Corporate Relations directorate will be discontinued, and Strategy, Sustainability and New Business Development will now report directly to the CFO. The new structure is aimed at enabling more streamlined planning and capital allocation decisions. The intention of this change is to simplify the organisation further and improve performance as we deliver our Powering Progress strategy.
Additional supporting governance
There are two key supporting management committees, with representatives from across Shell, which play a critical role in driving our energy transition strategy:
▪The Capital Investment Committee (CIC) facilitates portfolio management discussions and reviews each investment opportunity that is, due to its size, subject to approval by the CEO or the Board. These reviews ensure that the climate risks and opportunities, together with other defined criteria including shareholder value, are embedded in investment decision-making. This committee is made
up of senior executives, including the CEO, CFO, and individual business directors.
▪The Carbon Reporting Committee (CRC) includes senior management representatives from business units, P&T climate-related disciplines and various functions, such as Strategy, Finance and Legal. This committee is tasked with ensuring that GHG emissions measures, both absolute emissions and carbon intensity, and associated metrics, comply with all regulatory and legal requirements. The CRC is responsible at Group may chooselevel for the calculation methodologies and reporting of GHG emissions
metrics, and the review and approval of external disclosures.
In addition to return cashthese committees, our network of country chairs supports the overall governance and development and deployment of climate-related initiatives. They facilitate the setting of each country’s plans in support of Powering Progress.
Processes by which management is informed about climate-related issues
Several processes are employed across the organisation to shareholders throughensure that management teams can effectively monitor and manage climate-related matters. The management teams are helped by a combination of dividendscarbon-management-related standards and share buybacks.frameworks, forums at various levels of the organisation, and capability development programmes. These include our carbon management framework, carbon pricing, and the Greenhouse Gas (GHG) and Energy Management process, which forms part of our Health, Safety, Security, Environment and Social Performance (HSSE & SP) Control Framework.
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| Carbon management framework Shell's carbon management framework (CMF) helps us set carbon budgets in the operating plans for our businesses. The CMF seeks to manage and reduce emissions in a manner that is similar to how we use our financial framework. Carbon budgets are an effective measure for maintaining absolute emissions below a capped level, however achieving our intensity target is dependent on our energy product mix which is not driven by carbon budgets alone. The CMF allows for carbon budgets to be allocated to our businesses and trade-offs between emitting carbon and generating shareholder value to occur within those budgets. The CMF helps inform portfolio decisions and support our decarbonisation targets. This provides leadership with the information required to make decisions on GHG reduction opportunities and portfolio choices required to achieve our decarbonisation targets. For the 2022 operating plan cycle, our net carbon intensity (NCI) targets were translated into Scope 1, 2 and 3 (see definition on page 86) carbon budgets for each business. These budgets were used to optimise the operating plans for each business. Some examples of how our decarbonisation targets are taken into account in fundamental decisions across the organisation are as follows: ▪Our businesses further embedded carbon emissions objectives in their respective Capital, Portfolio and Carbon forums. The forums consist of the most senior business management representatives who are responsible for active portfolio management through evaluation, and delivery of growth and divestment decisions. ▪Certain assets are required to identify GHG abatement opportunities and reflect them in their annual business plans. | |
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Strategic Report | Progress on strategy – year in review
Our journey to net zero continued
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| Greenhouse gas and energy management Each Shell entity and Shell-operated venture is responsible for the development of its GHG emissions and energy management plans. Our Greenhouse Gas and Energy Management process sets out Shell's requirements for GHG reduction opportunities and portfolio choices to meet our carbon budgets and achieve our decarbonisation targets. These requirements allocate accountabilities for GHG and energy management within businesses, assets and projects, including responsibility for analysing our emissions, benchmarking performance, identifying improvement opportunities, and forecasting future performance. These requirements are applied to capital project delivery and through the asset-level annual business planning process, ensuring it is reflected in both opportunity realisation and strategic asset management planning. A key aspect of the GHG and Energy Management process is the development of an energy efficiency and greenhouse gas reduction opportunity curve, economically assessed against the current and future costs of carbon. This information provides the basis for forecasts of absolute GHG emissions and associated intensities at the asset and project level. These forecasts are then aggregated to inform decisions on potential decarbonisation opportunities across our businesses. A Global Process Council for GHG and Energy Management, led by the Global Process Owner for GHG and including business and functional experts, meets regularly to evaluate opportunities for the ongoing improvement of processes, tools, communications, and capabilities needed within the businesses to achieve our decarbonisation aspirations. The requirements of our GHG & Energy Management Process are integrated into our annual business planning cycle. | |
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| Definition - Scope 1, 2 and 3 emissions We follow the GHG Protocol’s Corporate Accounting and Reporting Standard, which defines three scopes of GHG emissions: ▪Scope 1: direct GHG emissions from sources under Shell's operational control. ▪Scope 2: indirect GHG emissions from generation of purchased energy consumed by Shell assets under operational control. ▪Scope 3: other indirect GHG emissions, including emissions associated with the use of energy products sold by Shell. | |
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| Carbon pricing We consider the potential costs associated with operational GHG emissions when we assess the resilience of new projects. For each region, we have developed short-, medium- and long-term estimates of future costs of carbon. These are reviewed and updated annually. See Note 4 to the "Consolidated Financial Statements" for further details on our regional cost of carbon estimates. Up to 2030, costs for carbon emissions estimates are largely policy driven through emission trading schemes or taxation levied by governments and which varies significantly on a country-by-country basis. Beyond 2030, where policy predictions are more challenging, the costs for carbon emissions are estimated based on the expected costs of abatement technologies required for 2050. The costs are estimated to be at $125 per tonne (RT 2022) under Shell’s mid-price scenario. Under a high-price scenario, the costs are set at $220 per tonne (RT 2022), the top of the bioenergy with CCS cost range and the lower end of the direct air capture cost range. See "The resilience of Shell's strategy" on pages 92-93 for more information on how carbon costs impact Shell's resilience to climate-related risks, including sensitivity analysis. | |
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Strategic Report | Progress on strategy – year in review
Our journey to net zero continued
Energy transition strategy
Powering Progress is our strategy to become a net-zero emissions energy business, purposefully and profitably. Powering Progress aims to deliver value for our shareholders, for our customers and for wider society.
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| For more information, see the "Our strategy" section on pages 13-15. |
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| Our strategy aims to support the more ambitious goal of the Paris Agreement Tackling climate change is an urgent challenge. It requires a fundamental transformation of the global economy and the energy system so that society stops adding to the total amount of greenhouse gases in the atmosphere, achieving what is known as net-zero emissions. That is why Shell has set a target to become a net-zero emissions energy business by 2050. To help us get there, we have set short-, medium- and long-term targets to reduce our carbon intensity, measured using our net carbon intensity (NCI) metric. For more information see "Setting targets for NCI" on page 103. There is no established standard for aligning an energy supplier’s decarbonisation targets with the temperature limit goal of the Paris Agreement. In the absence of a broadly accepted standard, Shell has developed its own approach to demonstrate Paris alignment by setting carbon intensity targets within a pathway derived from scenarios from the IPCC Special Report on Global Warming of 1.5°C (SR 1.5), most of which show the global energy system reaching net zero between 2040 and 2060. This pathway is aligned with the more ambitious temperature goal of the Paris Agreement to limit global mean temperature rise to 1.5°C above pre-industrial levels by 2100. We believe our targets are aligned with the IPCC SR1.5 pathway. When constructing the pathway, we filtered out certain outlying IPCC scenarios to ensure that Shell’s targets are aligned with earlier action, and low-overshoot scenarios. Overshoot refers to the extent to which a scenario exceeds an emissions budget and subsequently relies on carbon sinks to compensate for the excess emissions. Becoming a net-zero emissions energy business means reducing emissions from our operations, and from the fuels and other energy products, such as electricity, that we sell to our customers. It also means capturing and storing any remaining emissions using technology, protecting natural carbon sinks, and providing high quality carbon credits to our customers to compensate for hard-to-abate emissions. An increasing number of countries and companies have announced targets to achieve net-zero emissions by the middle of the century, and we are starting to see some changes in the demand and supply of energy. However, achieving the 1.5 degrees Celsius goal will be challenging and requires unprecedented global collaboration. The pace of change will also vary around the world. | |
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Climate-related risks and opportunities identified by Shell over the short, medium and long term
We are continually enhancing our strategic risk management approach to addressing climate-related risks. Our strategy is shaped in response to risks and opportunities identified across the customer sectors and regions we work in.
The process for identifying and assessing climate-related risks and opportunities is set out under "Climate Risk Management" below. Shell has identified climate change and the associated energy transition as a material risk based on societal concerns and developments related to climate change and managing GHG emissions. The risks could potentially result in changes to the demand for our products, our operational costs, supply chains, markets, the regulatory environment, our licence to operate, and litigation. The risks are composed of a combination of complex and interrelated elements that affect Shell’s overall business value chain, and our asset, product and business portfolio. The risk landscape is evolving rapidly. To achieve our emissions reduction targets, active holistic management of all climate-related risk components is important. The composite risk is broken down into the following sub-components:
▪commercial risk;
▪regulatory risk;
▪societal risk (including litigation risk); and
▪physical risk.
We also seek to identify opportunities for Shell in the energy transition, from our existing position as a leading global energy provider. These risks and opportunities are described below and are also summarised in the "Risk factors" section of the Strategic Report on pages 21-30.
Time horizons: short, medium and long
Due to the inherent uncertainty, and the pervasive nature of the risks across our strategy and business model, we monitor climate-related risks and opportunities across multiple time horizons.
▪Short term (up to three years): we develop detailed financial projections and use them to manage performance and expectations on a three-year cycle. These projections incorporate decarbonisation measures required to meet our short-term targets.
▪Medium term (generally three to 10 years): embedded within our operating plan, with our continued focus on the customer, the investments and portfolio shifts required in the medium term that will fundamentally reshape Shell’s portfolio. At the same time, our existing asset base is expected to provide the cash flow to finance this transition of our revenue in this period.
▪Long term (generally beyond 10 years): it is expected that our portfolio and product mix will look very different, addressing the shift from an asset-based approach to a customer-based business model.
Strategic Report | Progress on strategy – year in review
Our journey to net zero continued
Transition risks
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| Climate-related commercial risk |
▪The transition to a low-carbon economy may lead to lower sales volumes and/or margins due to a general reduction or elimination of demand for oil and gas products, possibly resulting in underutilised or stranded oil and gas assets and a failure to secure new opportunities. ▪Changing preferences of investors and financial institutions could reduce access to and increase the cost of capital. | Relevant time horizon: medium and long |
| Potential material impacts on the organisation |
Lower demand and margins for oil and gas products Changing customer sentiment towards renewable and sustainable energy products may reduce demand for our oil and gas products. An excess of supply over demand could reduce fossil fuel prices. This could be a factor contributing to additional provisions for our assets and result in lower earnings, cancelled projects and potential impairment of certain assets. | Changing preferences of investors and financial institutions Financial institutions are increasingly aligning their portfolios to a low-carbon and net-zero world, driven by both regulatory and broader stakeholder pressures. A failure to decarbonise the business portfolios in line with investor and lender expectations could have a material adverse effect on our ability to use financing for certain types of projects. This could also adversely affect our potential partners’ ability to finance their portion of costs, either through equity or debt. Sensitivity analysis of a 1% shift in Shell's weighted average cost of capital on asset carrying values is presented in 'Carbon pricing and discount rate sensitivities' on page 93. | Remaining in step with the pace and extent of the energy transition The energy transition provides us with significant opportunities, as described in the "Transition opportunities" below. If we fail to stay in step with the pace and extent of change or customers' and other stakeholders’ demand for low-carbon products, this could adversely affect our reputation and future earnings. If we move much faster than society, we risk investing in technologies, markets or low-carbon products that are unsuccessful. Therefore we cannot transition too quickly or we will be trying to sell products that customers do not want. This could also have a material adverse effect on financial results. Technology and innovation are essential to our efforts to help meet the world’s energy demands competitively. If we are unable to develop the right technology and products in a timely and cost-effective manner, or if we develop technologies, products and solutions that harm the environment or people’s health, there could be an adverse effect on our future earnings. |
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| Climate-related regulatory risk |
| The transition to a low-carbon economy will likely increase the cost of compliance for our assets and/or products, and may include restrictions on the use of hydrocarbons. The lack of net-zero-aligned global and national policies and frameworks increases the uncertainty around this risk. | Relevant time horizon: short, medium, and long |
| Potential material impacts on the organisation |
Increased compliance costs Some governments have introduced carbon-pricing mechanisms, which we believe can be an effective way to reduce GHG emissions across the economy at the lowest overall cost to society. Shell’s cost of compliance with the EU Emissions Trading Scheme (ETS) and related schemes was around $493 million in 2022, as recognised in Shell’s Consolidated Statement of Income for 2022. A further $3,512 million of costs were incurred in respect of biofuels ($2,918 million) and renewable power ($594 million) programmes (see Note 5 to the "Consolidated Financial Statements" on pages 241-242). Shell’s annual carbon cost exposure is expected to increase over the next decade because of evolving carbon regulations. The forecasted annual cost exposure in 2023 is estimated to be around $0.8 billion and around $1.5 billion in 2032. This estimate is based on a forecast of Shell’s equity share of emissions from operated and non-operated assets (including joint ventures and associates), and real-term carbon cost estimates using the mid-price scenario (see Note 4 to the "Consolidated Financial Statements" on pages 230-240 for more information). This exposure also takes into account the estimated impact of free allowances as relevant to assets based on their location. | Restrictions on use of hydrocarbons Around 90% of the global economy is now signed up to net-zero commitments as of June 2022, according to the Energy and Climate Intelligence Unit. This brings an increasing risk that governments set future regulatory frameworks that restrict further exploration and production of hydrocarbons, and bring in controls to limit the use of such products. Failure to replace proved reserves could result in an accelerated decrease of future production, which could have a material adverse effect on our earnings, cash flows and financial condition.
| Lack of net-zero-aligned global and national policies and frameworks The lack of net-zero-aligned global and national policies and frameworks increases the uncertainty around how carbon pricing and other regulatory mechanisms will be implemented in the future. This makes it harder to determine the appropriate assumptions to be taken into account in our financial planning and investment decision processes. |
Strategic Report | Progress on strategy – year in review
Our journey to net zero continued
Transition risks continued
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| Climate-related societal risk (including litigation risk) |
| As societal expectations develop around climate change, there is a potential impact on Shell’s licence to operate, reputation, brand and competitive position. This is likely to include litigation. | Relevant time horizon: short, medium and long |
| Potential material impacts on the organisation |
Decline in reputation and brand Societal expectations of businesses are increasing, with a focus on business ethics, quality of products, contribution to society, safety and minimising damage to the environment. There is an increasing focus on the role of the oil and gas sector in the context of climate change and the energy transition. This could negatively affect our brand, reputation and licence to operate, which could limit our ability to deliver our strategy, reduce consumer demand for our branded and non-branded products, harm our ability to secure new resources and contracts, and restrict our ability to access capital markets or attract staff. | Deteriorating relationships with key stakeholders Failure to decarbonise Shell’s value chain in line with societal, governmental and investor expectations is a material risk to Shell’s reputation as a responsible and market-leading energy company. The impact of this risk includes shareholder divestment, greater regulatory scrutiny and potential asset closure resulting from public interest groups' protests. | Litigation There is an increasing risk to oil and gas companies from public, private and governmental lawsuits. Such action may have wide-ranging consequences, including forcing entities to hand over strategic autonomy in part to regulators, divest from hydrocarbon technologies, denial of regulatory approvals and/or paying fines/penalties or large compensation packages to the plaintiff. In some countries, governments, regulators, organisations and individuals have filed lawsuits of a wide variety, including seeking to hold oil and gas companies liable for costs associated with climate change, or seeking court-ordered reductions in emissions, challenging the regulatory approvals and operating licenses, or challenging energy transition strategies and plans. While we believe these lawsuits to be without merit, losing could have a material adverse effect on our earnings, cash flows and financial condition. For example, in May 2021, the District Court in The Hague, the Netherlands, ruled that, by end 2030, Shell must reduce, from its consolidated subsidiaries, its aggregate net Scope 1, 2 and 3 emissions by 45%, compared with 2019 levels. The Scope 1 component is a results-based obligation and the Scope 2 and 3 components are a significant best efforts obligation. In 2019, our Scope 1 emissions from our consolidated subsidiaries were 86 million tonnes of carbon dioxide equivalent (CO2e) (rounded) (financial control basis). |
Physical risks
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| Climate-related physical risk |
| The potential physical effects of climate change may impact Shell’s assets, operations, supply chains, employees and markets. | Relevant time horizon: short, medium and long |
| Potential material impacts on the organisation |
Mitigation of physical risks, whether or not related to climate change, is considered and embedded in the design and construction of assets. The potential impact of physical changes comes from both acute and chronic physical risks. Acute risks, such as flooding and droughts, wildfires and more severe tropical storms, and chronic risks, such as rising temperatures and rising sea levels, could potentially impact some of our facilities, operations and supply chains. The frequency of these hazards and impacts is expected to increase in certain high-risk locations. Extreme weather events, whether or not related to climate change, could have a negative impact on our earnings, cash flows and financial conditions. | We have performed a limited analysis addressing a range of typical climate change features for a select group of assets. As this is an emerging area of risk assessment, we aim to deepen our understanding of these potential future risks. | Additionally, the impact of physical climate change on our operations is unlikely to be limited to the boundaries of our assets. The overall impact including how supply chains, resource availability and markets may be affected also needs to be considered for a holistic assessment of this risk. Our assets manage this risk as part of broad risk and threat management processes as required by our HSSE & SP Control Framework. |
Strategic Report | Progress on strategy – year in review
Our journey to net zero continued
Transition opportunities
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| Climate-related opportunities |
| The transition to a low-carbon economy also brings significant opportunities for us to benefit from changing customer demands, given our position as a leading global energy provider. | Relevant time horizon: short, medium and long |
| Potential material impacts on the organisation |
| As the global energy mix changes, our current infrastructure, know-how and global footprint put us in an ideal position to service the changing energy demands of the market. Our research and development (R&D) activities are key to achieving our net-zero emissions target. |
As we shift from an asset-based to a customer-focused business model our current key focus areas for seizing this opportunity are: 1. Renewables and Energy Solutions This encompasses our wind, solar, hydrogen, electric vehicle charging, nature-based solutions, and carbon capture and storage businesses. Electricity generated by wind and solar power plays a direct role in reducing emissions in passenger transport and parts of industry. It can also be used to create hydrogen. We expect hydrogen to present a business opportunity for heavy-duty road freight over a shorter time horizon and within shipping, industry and, possibly, aviation, over a longer time horizon. Hydrogen also has the potential to become a material part of Shell’s business-to-business (B2B) operations, as heavy industry begins to transition away from energy sourced from hydrocarbons. In 2022, Shell announced the final investment decision to build Holland Hydrogen 1, a 200 MW electrolyser that will be constructed on the Tweede Maasvlakte in the Port of Rotterdam and is expected to produce up to 60,000 kilograms of renewable hydrogen per day. In 2022, Shell's spending on CCS opportunities (operating expenses and cash capital expenditure) amounted to around $220 million, an increase of 51% from the $146 million in 2021. Shell’s equity share of captured and stored CO2 was around 0.4 million tonnes in 2022, in line with the 2021 amount. | 2. Biofuels Shell and the non-operated joint venture Raízen (Shell interest 44%) are together one of the world’s largest blenders and distributors of biofuels. Shell plans to continue to invest in and increase the production of these low-carbon fuels. Our low-carbon fuels projects and operations around the world form part of a wider commitment to provide a range of energy choices for customers. For example, we believe that sustainable aviation fuels (SAF) provide the most effective way of reducing emissions within the aviation sector, with wider adoption of SAF enabling us to provide more low-carbon fuels to our customers. Biofuels may also present opportunities in the shipping, road freight and other sectors. Together with our customers, we are working on changing energy demand and developing ways to help increase the use of low-carbon fuels and decrease carbon emissions from this sector. Meanwhile, on the supply side, in Rotterdam in the Netherlands, Shell is building an 820,000-tonnes-a-year biofuels facility. This is expected to be among the largest in Europe producing sustainable aviation fuel and renewable diesel made from waste and certified sustainable vegetable oils. | 3. Natural gas Demand for liquefied natural gas (LNG) is expected to grow. As one of the world’s largest suppliers of liquefied natural gas (LNG), with around 40 million tonnes of equity capacity, we can ship natural gas to where it is needed. LNG plays an important role in enabling countries to replace coal-fired power generation with a less carbon-intensive alternative. Shell seeks to provide more affordable, reliable and cleaner energy to our customers. In 2022, we produced gas for the first time from the Shell-operated Colibri project in Trinidad and Tobago. While the majority of Colibri’s gas will be exported as LNG, around 25% will be used to power local homes and businesses. 4. Transforming refineries into energy and chemicals parks An important aim of our Powering Progress strategy is to transform refineries into energy and chemicals parks so that we can sell more low-carbon and sustainable products. |
Impact of climate-related risks and opportunities on Shell's businesses, strategy and financial planning
The transformation of the energy system to net-zero emissions will require simultaneous action in three areas – an unprecedented improvement in the efficiency with which energy is used, a sharp reduction in the carbon intensity of the energy mix, and the mitigation of residual emissions using technology and natural sinks. While it is difficult to predict the exact combination of actions that will deliver the net-zero goal, scenarios help us to consider the variables and the potential direction and pace of the transition needed.
We have been developing scenarios within Shell for almost 50 years, helping Shell leaders to explore ways forward and make better decisions. Shell scenarios are designed to stretch management’s thinking when it comes to considering events that may be remotely possible. Scenarios help management make choices in times
of uncertainty and transition as we grapple with tough energy and environmental issues. They are aligned to different energy transition pathways and help in decision-making by guiding the identification
of risks and opportunities.
Different socio-economic and technological parameters are used
to construct these scenarios, such as:
▪sectoral and regional energy demand;
▪future trajectory of oil consumption and demand for natural gas;
▪renewable electricity demand and the pace of the electrification
of the global energy system;
▪supply of solar and wind energy;
▪pace of uptake of electric vehicles;
▪demand for biofuels;
▪growth of the hydrogen economy;
▪level of shareholder remuneration, the Board looks atcarbon capture and storage (CCS);
▪deployment of lower-carbon energy technologies; and
▪global trade of oil and gas.
Management consideration of different climate change outcomes informs a range of factors,areas including, but not limited to, the macro-environment,setting of the underlyinglong-term strategy, business earningsplanning, and cash flow of Shell Group, the current balance sheet, future investment and divestment decisions. The outcomes considered by management vary in relation
to the extent and pace of the energy transition.
Strategic Report | Progress on strategy – year in review
Our journey to net zero continued
Impact on strategic planning
The application of scenario analysis informs our assessment of the impact of a wide range of risks and opportunities, including climate-change related issues, on our strategy and business planning, both at the Group and business unit levels. At the Group level, the potential impacts of the energy transition on our business model are discussed and assessed at the Board and the Executive Committee level as part of the annual strategic and business planning cycle. This assessment allows us to challenge accepted ways of thinking, identify material risks and opportunities, and identify key tensions and trade-offs.
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| Key financial and non-financial components of business planning The Board approves our annual business plan. The plan contains operational and financial metrics, and its objective is to drive the delivery of our Powering Progress strategy. Decarbonisation targets are key to our business planning process. Each business owner offers viable Scope 1, 2 and 3 reduction opportunities as part of this process, in line with the CMF (see page 85). The business plan is underpinned by assumptions about internal and external parameters and includes: ▪commodity prices; ▪refining margins; ▪production levels and product demand; ▪exchange rates; ▪future carbon costs; ▪the schedules of capital investment programmes; and ▪risks and opportunities that may have material impacts on free cash flow. These assumptions are developed with input from our scenarios and internal estimates and outlooks. The level of uncertainty around these assumptions increases over longer time horizons. | |
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Impact on business and financial planning
There is no single scenario that underpins Shell’s business and financial planning. Scenarios are not intended to be predictions of likely future events or outcomes and, therefore, are not the basis for Shell’s operating plans and existing commitments. We returned $7.4 billion tofinancial statements. Our scenarios help in developing our shareholders through dividends in 2020.
future oil and gas pricing outlooks. The fourth quarter 2020 interim dividendoil and gas pricing outlooks takes account of $0.1665 per share will be payable to shareholders on the register at February 19, 2021. See Note 23factors relating to the “Consolidated Financial Statements” on page 206.energy transition, such as potential changes in supply and demand (see details of scenario parameters above). The Board expects thatlow-, medium- and high-pricing outlooks are prepared by a team of experts, reviewed by the first quarter 2021 interim dividend will be $0.1735 per share, representing an increase of around 4% onShell Executive Committee, and approved by the fourth quarter 2020 interim dividend.
PURCHASES OF SECURITIES
On July 26, 2018,CEO and CFO. The medium pricing outlook represents management’s reasonable best estimate and is the Company announced the commencement of a share buyback programme of at least $25 billion, subject to further progress with debt reductionbasis for Shell's financial statements, operating plans and oil price conditions. On March 23, 2020, the Company announced that in light of the economic and oil price environment, it had decided not to continue with the next tranche of the share buyback programme following the completion of the tranche announced on January 30, 2020. On April 14, 2020, the seventh tranche of the share buyback programme was completed, and no further tranches were undertaken in 2020.
As at December 31, 2020, 496 million A shares with a nominal value of €34.7 million ($41.8 million) and 39 million B shares with a nominal valueimpairment testing.
Shell’s targets to reduce absolute Scope 1 and 2 emissions by 50% by 2030, compared with 2016 levels on a net basis (i.e. including carbon credits), and 20% reduction in net carbon intensity by 2030 have been included in Shell's operating plan. We will continue to update our business plan, price outlooks and assumptions as we move towards
net-zero emissions by 2050.
As described in "Climate-related risks and opportunities identified by Shell over the short, medium and long term", the low-pricing outlooks could result in increased commercial, regulatory and societal risks, as well as transition opportunities. How these risks are prioritised is described in "Shell's processes for identifying and assessing climate-related risks". Given our target to become a net-zero emissions energy business by 2050, the use of €2.8 million ($3.2 million) (6.85%low-pricing outlooks is a part of our resilience testing and resulting actions.
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| Our strategy and national net-zero commitments In line with LR 9.8.6FG, we have considered the extent to which country-level net zero commitments have been considered in developing our transition plan. Our Powering Progress strategy aims to deliver a net-zero emissions energy business by 2050. The pace of the energy transition will be heavily influenced by government policy, creating a strong country and regional dimension in seeking to deliver the aims of the Paris Agreement. Our commitment is a global one and, as such, we look to deliver our strategy through a global lens. We seek to translate our energy transition strategy into specific targets and plans at a business segment level, ensuring we take capital deployment and portfolio decisions in the context of the globally integrated nature of our operations. However, we continue to recognise the importance of engagement and collaboration in delivering the fundamental changes to the energy system that are required. This includes supporting and advocating for policies that aim to reduce carbon emissions and working with governments and other stakeholders in the development of policy that supports the transition to a lower-carbon energy system. As national transition plans develop, consideration will be given to the impact on our operations and the associated implications for our energy transition strategy. | |
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Strategic Report | Progress on strategy – year in review
Our journey to net zero continued
Resilience of Shell's strategy to different
climate-related scenarios
Shell’s financial strength and access to capital give us the Company’s total issued shareability to reshape our portfolio as the energy system transforms. They also allow us to withstand volatility in oil and gas markets.
We continue to optimise our capital at December 31, 2020) had been cumulatively purchasedallocation balancing energy security and cancelled sincedemand, as well as internal and external transition considerations and opportunities. We aim to find the beginningright balance between managing our upstream assets – which provide the vital supplies of this programme,oil and gas that the world needs today and produce the returns needed to help us fund the transition – and investing in the energy transition. These activities are essential to identify, build and scale up profitable projects that offer low-carbon energy solutions for our customers.
From January 1, 2022, we have disclosed the financial performance
of our Renewables and Energy Solutions (R&ES) segment. R&ES is a total costbusiness through which we seek to develop commercial opportunities which will be key in supporting the delivery of $15.8
our net-zero emissions target.
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| See Note 8 to the Consolidated Financial Statements "Segment Information" on pages 245-249 for more information. |
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| Cash capital expenditure evolution by segment |
| | |
| Operational expenditure evolution by segment |
Cash capital expenditure by segment for 2023 is expected to be in the range of $8 billion including expenses, atfor Upstream, $6 billion for Marketing, $5 billion for Integrated Gas, $3-4 billion for Chemicals and Products, and $2-4 billion for R&ES.
| | |
| Investing through the energy transition |
|
| Total cash capital expenditure of $25 billion in 2022 |
[A]Products for which usage does not cause Scope 3, Category 11 emissions: Lubricants, Chemicals, Convenience Retailing, Agriculture & Forestry, Construction & Road.
[B]E-Mobility and Electric Vehicle Charging Services, Low-Carbon Fuels (Biofuels/HEFA), Renewable Power Generation (Solar/Wind), Environmental Solutions, Hydrogen, CCUS. We define low-carbon energy products as those that have an average pricecarbon intensity that is lower than conventional hydrocarbon products, assessed on a lifecycle basis (including emissions from production, processing, distribution and end use).
[C]LNG Production & Trading, Gas & Power Trading, and Energy Marketing.
[D]Upstream segment, GTL, Refining & Trading, Marketing fuel and hydrocarbon sales, Shell Ventures, Corporate segment.
Movements in cash capital expenditure versus 2021 were as follows:
▪'Non-energy products' reduced by 9% (from $4.2 billion in 2021) mainly through lower spend at Shell Polymers Monaca as construction came to completion.
▪'Low-carbon energy solutions' increased by 89% (from $2.3 billion in 2021) mainly through higher investments in renewable power generation, low-carbon fuels, and e-mobility.
▪'LNG, gas and power marketing and trading' increased by 17% (from $3.6 billion in 2021) reflecting investment in the North Field East expansion project in Qatar.
▪'Oil, oil products and other' increased by 30% (from $9.6 billion in 2021) mainly through our Upstream deepwater operations, including the acquisition of $29.45 per share.
This wasKey aspects of Shell’s financial resilience in accordance with the authorities granted by shareholders at the 2018 Annual General Meeting (AGM) for the Company to repurchase up to a maximumcontext of 10% of its issued ordinary shares, excluding treasury shares (834 million ordinary shares),climate-related impacts are assessed and at the 2019 AGM, to repurchase up to a maximum of 815 million ordinary shares, such authority to expire at the earlier of the close of business on August 21, 2020 and the end of the 2020 AGM. At the 2020 AGM, shareholders granted a renewal of this authority, to repurchase up to a maximum of 783 million ordinary shares, such authority to expire at the earlier of the close of business on August 19, 2021 and the end of the 2021 AGM. As at December 31, 2020, 783 million ordinary shares could still be repurchased under the current AGM authority. The purpose of the share repurchases in 2018 to 2020 was to reduce the issued share capital of the Company.
A new resolution will be proposed at the 2021 AGM to renew the authority for the Company to purchase its own share capital, up to specified limits, for a further year. This proposal will be described in more detail in Note 4
to the 2021 Notice"Consolidated Financial Statements". This describes how Shell has considered climate-related impacts in key areas of Annual General Meeting.the financial statements and how this translates into the valuation of assets and measurement of liabilities. Shell’s financial statements are based on reasonable and supportable assumptions that represent management’s best estimate of the range of economic conditions that may exist in the foreseeable future.
Sensitivity analysis using external, and often normative, climate scenarios has been performed for the period covering asset life cycles. If these different price outlooks were used, this would impact the recoverability of certain assets recognised in the Consolidated Balance Sheet as at December 31, 2022.
As there is no single scenario that underpins our plans, sensitivity analysis has been conducted using a range of key assumptions to test the resilience of our asset base. This includes sensitivity analysis on asset carrying values using commodity price outlooks from external and often normative climate change scenarios; shifting trends in our portfolio, particularly exploration and evaluation, Upstream production and refineries; risks related to stranded assets; resilience of investments for transformation of the refining portfolio into five energy and chemicals parks; forecasted taxable profits sufficient to recover deferred tax assets; dividend resilience; and limited risk on timing of decommissioning and restoration activities for Integrated Gas and Upstream.
Strategic Report | Progress on strategy – year in review
Our journey to net zero continued
Commodity price sensitivities
Oil and gas prices are one of the key assumptions that underpin Shell’s financial statements, with the mid-price outlook informed by Shell’s scenario planning representing management’s best estimate. Price outlooks reflect a broad range of factors, including, but not limited to, future supply and demand, and the pace of growth of low-carbon solutions. The scenarios have been selected to illustrate the resilience of the asset base under a range of possible outcomes, including the price implications arising from the IEA Net Zero Emissions scenario which provides a potential path for the global energy system to net-zero emissions by 2050. Sensitivities of asset carrying amounts to prices are under the assumption that all other factors in the models used to calculate impacts remain unchanged.
Sensitivity analysis has been performed using price outlooks from:
1.Average prices from three 1.5-2 degrees Celsius external climate change scenarios. In view of the broad range of price outlooks across the various scenarios, the average of three external price outlooks was taken from IHS Markit/ACCS 2022; Woodmac WM AET-1.5 degree; and IEA NZE50.
SharesApplying these prices to Integrated Gas assets of $75 billion and Upstream assets of $88 billion as at December 31, 2022, shows recoverable amounts that are also purchased by$4-6 billionand $1-2 billion lower, respectively, than the employee share ownership trustscarrying amounts as at December 31, 2022.
2. Hybrid Shell Plan and trust-like entities (seeIEA NZE50: for this Shell’s mid-price outlook is applied for the “Governance” section on page 150)next 10 years. Because of greater uncertainty, the IEA normative Net Zero Emissions scenario is applied for the period after 10 years. This weights less price-risk uncertainty to meet delivery commitments under employee share plans. All share purchases are madethe first 10 years reflected in open-market transactionsthe operating plan period and applies more risk to the more uncertain subsequent periods.
Applying this priceline to Integrated Gas assets of $75 billion and Upstream assets of $88 billion as at December 31, 2022, shows recoverable amounts that are $4-6 billion and $1-2 billion lower, respectively, than the carrying amounts as at December 31, 2022.
3. For 2022, we have also included sensitivities based on a 1.5 degree scenario, derived from IEA NZE50. This priceline applies the IEA normative Net Zero Emissions scenario over the whole period under review. This priceline has been applied for the first time in the current year in order to also reflect the sensitivity to a pure net-zero emissions scenario from the IEA.
Applying this priceline to Integrated Gas assets of $75 billion and Upstream assets of $88 billion as at December 31, 2022, shows recoverable amounts that are $9-12 billion and $8-11 billion lower, respectively, than the carrying amounts as at December 31, 2022.
In addition, further sensitivities are provided of -10% or +10% to Shell's mid-price outlook, as an average percentage over the full period. A change of -10% or +10% to the mid-price outlook, as an average percentage over the full period, would result in around $2-5 billion impairment or some $2-4 billion impairment reversal, respectively, in Integrated Gas and Upstream as at December 31, 2022.
Compared with the prior year the impact on recoverable amounts is significantly lower as a result of the higher short- and medium-term commodity prices.
Carbon pricing and discount rate sensitivities
The table belowrisk of stranded assets may increase in a higher carbon price scenario. Sensitivities of our asset carrying values to carbon prices have been based on an IEA NZE 2050 scenario, to illustrate the resilience of asset carrying values to higher long-term carbon prices than those included in the Shell mid-price outlook.
Applying the IEA NZE 2050 carbon price scenario to Integrated Gas assets of $75 billion and Upstream assets of $88 billion, up to the end of life of these assets, shows recoverable amounts that are $2-5 billion and not significantly lower, respectively, than the carrying amounts as at December 31, 2022.
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| See "Carbon pricing" on page 86 for more information on our carbon price assumptions. |
The discount rate applied for impairment testing is based on a nominal post-tax weighted average cost of capital (WACC) of 5% for Power activities and a nominal post-tax WACC of 6.5% for all other businesses. The discount rate includes generic systematic climate change risk. In addition, cash flow projections applied in individual assets include specific asset risks. An increase in systematic climate risk could lead to a higher WACC and consequently to a higher discount rate to be applied in impairment testing. We have used a 1% shift in discount rate for sensitivity analysis purposes as an indicator of the resilience of our asset base to incremental increases in our cost of capital.
An increase of the WACC of 1% under the assumption that all other factors in the models used to calculate recoverability of carrying amounts remain unchanged would lead to an impairment of $1-3 billion for Integrated Gas and up to $1 billion in each of the following segments: Upstream, Chemicals and Products, and Renewables and Energy Solutions. No significant impairment would arise in the Marketing segment.
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| See Note 4 to the Consolidated Financial Statements on page 230 for further information on climate-related impacts in key areas of the financial statements. |
Delivering our energy transition strategy
To ensure the resilience of our Powering Progress strategy, our responses to the risks and opportunities identified are:
▪delivery through our integrated business model;
▪a sectoral decarbonisation approach – recognising that we need to work with our customers to identify low-carbon energy solutions for their energy demands; and
▪decarbonisation of our energy value chains and operations.
Our net-zero target includes emissions from our operations, and the life-cycle emissions from all the energy products we sell. We will seek to reduce emissions from our own operations, including the production ofoil and gas. More than 90% of the total emissions we include within the NCI boundary are indirect emissions associated with third-party products and end use emissions of energy products we sell, so we are also working with our customers to support them in transitioning to low-carbon products and services.
Our integrated approach allows us to withstand volatility in oil and gas markets. Our financial framework is based on sector-leading cash flow, continued capital discipline, capital flexibility and a strong balance sheet.
▪Upstream delivers the cash and returns needed to fund our shareholder distributions and the transformation of our portfolio, and provides informationvital supplies of oil and natural gas to help meet the world's energy needs.
▪Integrated Gas and Chemicals and Products make the products needed to help enable the energy transition. They produce sustainable cash flow and provide us with the asset infrastructure to support our investments in the future of energy.
▪Marketing and R&ES include service stations, sales of gasoline and diesel, fuels for business customers, power, hydrogen, biofuels, charging for electric vehicles, carbon credits, and development of commercial CCS. They focus on purchases of sharesworking with our customers to help accelerate the transition to net zero and are the foundation for the future businesses in 2020 by the Company and affiliated purchasers. Purchases in euros and sterling are converted into dollars using the exchange rate on each transaction date.Shell.
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| See "Outlook" for more information on page 19. |
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|
| Purchases of equity securities by issuer and affiliated purchasers in 2020 [A] |
| A shares | B shares | A ADSs [B] |
| Purchase period | Number purchased for employee share plans | Number purchased for cancellation [C] | Weighted average price ($)[D] | Number purchased for employee share plans | Number purchased for cancellation [C] | Weighted average price ($)[D] | Number purchased for employee share plans | Weighted average price ($)[D] |
| January [E] | — | | 23,106,521 | | | 29.63 | | — | | — | | — | | 1,003,452 | | 59.76 | |
| February | — | | 11,306,918 | | | 25.32 | | — | | 5,518,503 | | 24.45 | | — | | — | |
| March | — | | 12,229,299 | | | 18.48 | | — | | 9,904,356 | | 14.88 | | 133,692 | | 31.25 | |
| April | 813,021 | | 3,905,280 | | | 18.19 | | 1,874,926 | | 7,800,412 | | 17.31 | | — | | — | |
| May | — | | — | | | — | | — | | — | | — | | — | | — | |
| June | — | | — | | | — | | — | | — | | — | | 20,109 | | 35.09 | |
| July | — | | — | | | — | | — | | — | | — | | — | | — | |
| August | — | | — | | | — | | — | | — | | — | | — | | — | |
| September | — | | — | | | — | | — | | — | | — | | 26,570 | | 26.74 | |
| October | — | | — | | | — | | — | | — | | — | | — | | — | |
| November | 3,244,447 | | — | | | 15.68 | | 113,348 | | — | | 13.9 | | 1,509,662 | | 31.36 | |
| December | 2,783,283 | | — | | | 18.52 | | — | | — | | — | | 934,246 | | 36.87 | |
| Total 2020 | 6,840,751 | | 50,548,018 | | | 24.14 | | 1,988,274 | | 23,223,271 | | 17.9 | | 3,627,731 | | 40.62 | |
| January | — | | — | | | — | | — | | — | | | 1,525,265 | | 37.23 | |
| Total 2021 | — | | — | | | — | | — | | — | | — | | 1,525,265 | | 37.23 | |
Strategic Report | Progress on strategy – year in review
Our journey to net zero continued
Our research and development (R&D) activities are also key to achieving our net-zero emissions target. They are an important way to address the technology risk as at settlement datementioned in the "Transition risk and opportunities" section.
[B] American Depositary SharesIn 2022, our R&D expenditure on projects that contributed to decarbonisation was around $440 million, representing about 41% of our total R&D spend, compared with around 40% in 2021. This includes expenditure on reducing greenhouse gas emissions:
[C]▪for our customers through renewable power generation, storage,
e-mobility and other electrification solutions;
▪from our own operations, for example, by improving energy efficiency and electrification;
▪from the fuels and other products we sell to our customers - for example, biofuels, synthetic fuels and products made from low-carbon electricity, and hydrogen produced using renewable sources;
▪by carbon capture, utilisation and storage applied to hydrogen production from natural gas and other carbon emissions; and
▪by researching nature-based solutions to offset emissions.
Examples of R&D activities other than decarbonisation include safety, performance products such as lubricants and polymers, robotics, automation and artificial intelligence.
Supporting our customers in achieving net-zero emissions
Changes to the supply of energy products and decarbonising the energy system require structural changes in the end-use of energy. This requires energy users to improve, update or replace equipment so that they can use carbon-based energy more efficiently, or switch to low- and zero-carbon energy.
For example, in the transport sector, decarbonisation includes replacing internal combustion engine vehicles with electric and hydrogen vehicles. In the industrial sector, replacing oil- and coal-fired furnaces with electrical furnaces would be one solution, carbon capture and storage is another. And in the buildings sector, replacing gas heating systems with electric heating systems would also contribute to decarbonisation.
Such structural changes will help to trigger transitions along the supply chain of individual sectors and across sectors, including the production of energy and emissions over time. The IEA estimates that these changes in the end-use of energy will require substantial investment. Under the share buyback programmeIEA Net Zero Emissions by 2050 scenario, for every one US dollar spent on fossil fuels, a further five US dollars need to be spent on clean energy and a further four US dollars spent on efficiency and end-uses.
[D] Includes stamp dutyHelping to transform energy demand is the focus of our decarbonisation strategy. To help transform demand, we are working with customers sector-by-sector across the energy system. We will seek to change the mix of energy products we sell to our customers as their needs for energy change. This is reflected in Shell's strategy to develop a portfolio that seeks to:
▪provide more electricity to customers, while also driving a shift to renewable electricity;
▪develop low- and brokers’ commissionzero-carbon alternatives to traditional fuel, including biofuels, hydrogen, and other low- and zero-carbon gases;
[E] January 2020 number▪work with customers across different sectors to decarbonise their use of A shares purchased for cancellation has been revisedenergy; and
▪address any remaining emissions from conventional fuels with solutions such as CCS and carbon credits.
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| Energy transition in action - selection of portfolio changes and actions in 2022: Electricity and renewable power ▪acquisition of Sprng Energy Group, a solar and wind platform in India; ▪winning bids with our partners to build offshore wind farms in the UK, the Netherlands and US waters (December: Hollandse Kust west VI with Eneco; July: with Scottish Power in the UK; February: Atlantic Shores in the USA); ▪the acquisition of Powershop Australia, an online energy retailer; and ▪started operations at the power-to-hydrogen electrolyser in China. Develop low- and zero-carbon alternatives to traditionalfuels ▪acquisition of Denmark's Nature Energy - the largest producer of renewable natural gas in Europe, completed on February 20, 2023; ▪final investment decision to build a 200 MW electrolyser, Holland Hydrogen I (Shell interest 100%); ▪agreement to buy sugar-cane ethanol under a long-term agreement with Raízen (Shell interest 44%). The low-carbon fuel is expected to be produced by five plants that Raízen plans to build in Brazil, bringing its total portfolio of ethanol facilities to nine; and ▪began construction of a bio-LNG plant at the Energy and Chemicals Park Rheinland in Germany to make liquefied natural gas from biological waste. Help customers to decarbonise their use of energy ▪launched a programme with our partners called Avelia which will encourage companies to invest in the production of SAF; ▪made progress rolling out our network of charging for electric vehicles and joint venture with Chinese automobile company BYD to operate a network of charging points in Shenzhen; and ▪acquisition of German company SBRS GmbH, which provides electric charging services for e-buses, e-trucks and e-vans. This is a step towards decarbonising the commercial road transport sector. CCS and carbon credits ▪Agreement with Northern Lights CCS joint venture (Shell interest 33.3%) in Norway and Yara for a world-first cross-border carbon capture, transport and storage contract. ▪Investment in Carbonext, a Brazilian company operating carbon-centric preservation projects in the Amazon. | |
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Our journey to net zero continued
Because emissions resulting from customer use of our energy products make up the greatest percentage of Shell's carbon emissions, this is where we believe we can make the greatest contribution to the energy transition, by enabling our customers to transition to low-carbon energy products and services. We intend to increase our share of low-carbon energy sales, which is reflected in our target to reduce the NCI of the energy products we sell by 20% between 2016 and 2030.
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| See "Working to reduce our net carbon intensity" for more information on page 104. |
We have restructured our company so that we can better identify opportunities and the role that we can play in each sector to help transform demand. We are moving from an approach focused on types of products to one where our customer and account management is focused on sectors.
We aim to build on our existing relationships across each sector, with consumers, infrastructure owners, other suppliers and policymakers to help to accelerate change.
Our strategic approach to climate change emphasises the need to work collaboratively. We aim to make strategic alliances with customers, other companies and entire sectors so we and they can make profitable progress towards net zero.
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| Collaborating with our customers We are helping software company SAP move to an emissions-free global car fleet by 2030 in support of its net-zero targets. Through our Accelerate to Zero programme, Shell is providing on-the-go and home charging, as well as other fleet solutions, for SAP employees in several countries. At SAP’s headquarters in Walldorf, Germany, we are working to build solar generation capacity to help the company decarbonise and become more self-reliant in its energy use. | |
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As a founding member of the Oil and Gas Climate Initiative (OGCI) we are part of a group of 12 national and international energy companies. The OGCI supports the climate goals of the UN Paris Agreement and recognises that collective actions will help drive the energy transition.
Decarbonisingour value chains and operations
We will seek to base the decarbonisation of our value chains and operations on a deep understanding of the decarbonisation strategies and plans of our customers and users of our energy products. We are focused on decarbonising our own operations by:
▪making portfolio changes, such as acquisitions of and investments in new, low-carbon projects. We are also decommissioning plants, divesting assets and reducing our production through the natural decline of existing oil and gas fields;
▪improving the energy efficiency of our operations;
▪transforming our remaining integrated refineries into low-carbon energy and chemicals parks, which involves decommissioning plants;
▪using more renewable electricity to power our operations;
▪developing CCS for our facilities; and, if required,
▪using high-quality carbon credits to compensate for any remaining emissions from our operations.
We have set an interim target to achieve a 50% reduction in absolute Scope 1 and 2 emissions under our operational control by 2030 on a net basis, when compared with 2016.
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| See "Working to reduce our absolute Scope 1 and 2 emissions" for more information on page 104. |
Strategic Report | Progress on strategy – year in review
Our journey to net zero continued
Climate risk management
Shell's processes for identifying and assessing
climate-related risks
Identifying climate-related risks
As discussed in "Energy transition strategy", Shell considers climate change and GHG emissions a material risk factor. We monitor the risks related to these across four components:
▪commercial risks;
▪regulatory risks;
▪societal risks (including litigation risk); and
▪physical risks.
These components are monitored and assessed on an integrated basis, necessitated by the interdependence of the risks and the related actions. The different components pose different kinds of exposures spanning different time horizons. Similarly, the responses to the components of the risk are also planned by taking a holistic view.
For example, the increasing cost of complying with emission limits
in some regions is a regulatory risk that may require operational responses in the near term. The reduction in demand for legacy hydrocarbons is a commercial risk that may have a medium- to long-term impact, demanding changes to our strategic portfolio and business models. The risk of physical impacts of climate change may occur in the short, medium and long term and would require actions
to mitigate adverse impacts on our assets and supply chain. As an example, the transformation of our refineries into energy and chemicals parks reduces the level of our operational emissions and medium-
to long-term commercial risks, allowing us to plan for future
adaptation measures.
Our integrated approach to risk management and the resulting changes in our strategy ensure we manage our aggregate climate change risk within our overall risk appetite over different time horizons.
Shell’s processes for identifying and assessing risks are part of our Shell Control Framework.
Our risk management procedures that help us identify climate-related risks and opportunities include:
▪monitoring external developments, including policy changes and new regulations;
▪evaluating the status of risk indicators, which illustrate how well we are managing each component of the risk related to climate change and GHG emissions; and
▪learning from incidents and assurance findings.
We use these procedures to identify risks relating to climate change and GHG emissions, which in turn enables us to determine their significance, both individually and relative to other risks.
Assessing climate-related risks
Processes within the Shell Control Framework that help us assess each identified risk include the evaluation of its impact, likelihood and the level of risk we are willing to accept.
When assessing the likelihood of a risk occurring, we consider factors such as our ability to prevent the risk happening and whether the risk has materialised in the past.
We consider the financial consequences and how it might affect our reputation, our ability to comply with regulations, and possible damage to health, safety, our assets and the environment. The impact, and hence materiality, of a risk is based on how critical it could be to our business model.
We operate in multiple countries and therefore societal risks are material as they are directly linked to our licence to operate.
The impact and likelihood assessment helps us to prioritise risks and determine their relative materiality, based on a comprehensive picture of significant risks to a relevant business's objectives.
To support our risk assessments, we seek to establish the level of risk that we are willing to accept in pursuit of Shell’s strategy and objectives. We consider the amount of resources – such as financial resources, people, processes, systems and controls – that we are willing and able to allocate to manage each risk in pursuit of our objectives and the impact to Shell’s overall risk profile.
The impact and likelihood assessment, combined with risk appetite, determines the type of risk responses, such as controls and assurance activities, that may be required to manage each risk.
Possible responses include:
▪accepting the risk without any further action;
▪mitigating or reducing the risk with appropriate controls, supported by assurance activities;
▪transferring the risk, for example to insurance providers where appropriate; and
▪altogether stopping or forgoing the activity that gives rise to the risk.
In determining our risk responses, we always seek to comply with
our Code of Conduct and other boundaries, such as our financial framework, which set the aggregate level of risk appetite that could
be sustained. The financial framework considers boundaries such
as our net debt levels and our credit rating.
Physical risks
Potential physical impacts to our assets, irrespective of cause, are important for us to manage.
Climate variability is considered in the design and operation of our assets and infrastructure to minimise the risk of adverse incidents to our employees and contractors, the communities where we operate, our equipment and infrastructure. Our new projects consider anticipated weather and climatic events in their design and Metocean (meteorology and oceanography) engineering experts are available, if requested, to assist our assets and project teams in the evaluation of physical risks.
On an ongoing basis, our assets leverage broad risk and threat management processes to identify and respond to emerging challenges to their ongoing safe, compliant and efficient operation, as required by our HSSE & SP Control Framework. We are working to deepen our understanding of this risk and to establish metrics in this area to monitor our exposure across the Group.
Strategic Report | Progress on strategy – year in review
Our journey to net zero continued
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| Classifications of risks We identify and assess three distinct categories of risk across the Group: ▪strategic: we consider current and future portfolio issues, examining parameters such as country concentration or exposure to higher-risk countries. We also consider long-range developments in order to test key assumptions or beliefs in relation to energy markets. ▪operational: we consider material operational exposures across Shell’s entire value chain to provide a more granular assessment of key risks that the organisation is facing. ▪conduct and culture: we consider alignment of our policies, practices and behaviours against our purpose and core values. The four sub-components of risk related to climate change and GHG emissions – commercial, regulatory, societal (including litigation), and physical risks – are assessed across the above three categories to ensure we maintain strategic resilience, have robust day-to-day operational risk responses and that responses align with Shell’s purpose and core values. | |
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Shell's processes for managing climate-related risks
Our climate-related risk management process is carried out at the Group, business, function and asset level, which includes projects.
We apply the Shell Control Framework to ensure that we effectively manage our climate-related risks at all these levels. The framework includes:
▪mandatory risk standards and manuals;
▪project-level risk management processes;
▪management and Board reviews;
▪internal audits and investigations; and
▪annual attestation processes.
Mandatory risk standards and manuals
We have mandatory standards and manuals which establish the requirements on how to effectively manage material risks including the operation of appropriate controls. Our standards and manuals also provide guidance on how to monitor, communicate and report changes in the risk environment. These documents aim to:
▪ensure consistent management and assessment of climate risk
across Shell;
▪clarify expectations for risk management and reporting, including roles and responsibilities of the risk owners;
▪clarify types of assurance activities that may be applicable;
▪strengthen decision-making by ensuring that businesses have better awareness and understanding of climate risks (including their likelihood and potential impact) and mitigation plans; and
▪enable integration of Shell’s reporting.
We periodically review and, if necessary, update our standards and manuals in light of developments in risks, including those associated with climate change. Our approach continues to evolve as we increase our understanding of changing policies and the differing pace of energy transition in different regions.
Project-level risk management processes
At a project level, assessing climate-related risks is an important part
of making initial investment decisions. Projects of a certain size or
which carry unusual risks are required to follow Shell’s Opportunity Realisation Standard, which sets out the rules for managing and delivering opportunities in the organisation. Each project is assisted
by experts from our global subject matter groups during its development, implementation and operation.
Projects under development that are expected to have a material
GHG impact must meet our internal carbon performance standards
or industry benchmarks. Our performance standards are used for measuring a project’s average lifetime GHG intensity or energy efficiency per asset type. Applying these criteria ensures that our projects can compete and prosper in the energy transition. An exception process is in place to manage specific incidental cases. Performance standards are under development for power and hydrogen projects.
The performance standards are approved by the Executive Vice President accountable for implementation in the relevant businesses, and by the Executive Vice President Safety, Environment and Asset Management.
Projects with a material GHG footprint that meet the performance standards or industry benchmarks will often set more ambitious emissions targets for themselves. GHG abatement plans help determine the nature of these targets, and we assess the effects of a project's emissions alongside economic and technical design factors.
We assess the future GHG emissions of projects against performance standards and by considering the GHG emissions from the use of the products that are to be manufactured. These assessments can lead to projects being stopped or designs being changed.
We expect the performance standards to evolve as our portfolio changes in the energy transition.
Management and Board reviews
Management, the Board and Board committees review the risk of climate change and GHG emissions to ensure awareness of emerging issues that may impact our strategy and to ensure the effectiveness of our responses in managing this risk at a more granular, operational level. For example, as part of the annual planning cycle, the Executive Committee and the Board assess how climate change and GHG emissions may affect the pace of the energy transition, business emission reduction plans and the implications for Shell’s current portfolio.
Strategic Report | Progress on strategy – year in review
Our journey to net zero continued
In addition, each business and function regularly reviews its risk profile, risk responses and assurance activities throughout the year to ensure climate-related risks are managed effectively. These insights are used to provide management with updates on the operational management of climate change and GHG emissions risks. During these updates, management considers the significance of the climate change and GHG emissions risks relative to other risks on the Group risk profile and reviews whether our risk responses are effective in addressing the four sub-components of the climate change and GHG emissions risk.
Our management reviews help us to update Shell’s plans and guide our day-to-day operational decisions such as maintenance schedules and our risk response plans.
Internal audits and investigations processes
Shell’s Internal Audit and Investigations (SIAI) team provides independent and objective assurance and advises management and the Board on the adequacy and effectiveness of our risk management and internal controls.
For example, SIAI conducted four GHG audits during 2022 to test whether controls are adequately designed and operating effectively to mitigate the identified risks. The controls tested covered GHG emissions measurement, reporting and forecasting and abatement projects. Additionally, SIAI conducted two audits focused on decarbonisation of industry sectors and nature based solutions.
Annual attestation processes
On an annual basis, all directors are required to provide an attestation of their business’s or function's compliance with our HSSE & SP Control Framework and to report this to Shell’s CEO. This includes the assessment of the effectiveness of the internal controls in managing climate-related risks.
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| Project-level risk management in action: Shell Energy and Chemicals Park Singapore We are transforming our refining business and making it fit for the future. The Pulau Bukom Manufacturing Site in Singapore transformed into the Shell Energy and Chemicals Park Singapore. We have reduced our crude processing capacity by about half and delivered a significant reduction in CO2 emissions. We are repurposing Bukom by making significant changes in our refinery configuration, establishing a foundation for producing low-carbon energy products like biofuels. We are also incorporating circularity, such as waste plastics for feedstock, as well as providing renewable energy. | |
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Integration of the climate-related risk management process into Shell's overall risk management
Our climate-related risk management process follows the approach set out by the Shell Control Framework, ensuring that it is integrated into the overall risk management processes of the Group.
Climate-related risks are considered from a strategic and operational perspective to ensure we maintain a comprehensive view of the different types of climate risks we face and the different time horizons in which they may affect us.
The monitoring and review of risks is a key risk management process in Shell. The Executive Committee, the Board and Board committees review climate-related risks and their impact on the Group. This allows management to take a holistic view and to optimise risk mitigation responses, to ensure that climate-related risk responses are properly integrated into the relevant activities.
Strategic Report | Progress on strategy – year in review
Our journey to net zero continued
Climate-related metrics and targets
Metrics used by Shell to assess climate-related risks
and opportunities in line with its strategy and risk management process
This section describes our energy product and carbon emissions performance and metrics used to monitor our progress in respect of significant climate-related transition risks and opportunities, including targets reflected in remuneration of senior management and employees.
Key metrics we use to track progress against our energy transition strategy are the NCI of our portfolio and our absolute emissions. Additional metrics associated with the resilience of Shell's strategy to transition risks and opportunities are included in "Resilience of Shell's strategy to different climate-related scenarios" from page 92. This includes information on capital allocation between our business segments and the sensitivity of our assets to carbon, discount rate
and commodity price assumptions.
Another potentially significant climate-related risk relates to Shell’s physical risk exposure at an asset level. We are working to establish metrics in this area to monitor our exposure to this risk across the Group.
Our overall climate target is to become a net-zero emissions business by 2050. It includes net-zero emissions from our operations (Scope 1 and 2 emissions), as well as net-zero emissions from the end-use of all the energy products we sell (Scope 3 emissions). We have set short-, medium- and long-term targets to track our performance against our overall climate target over time.
We believe our total absolute emissions peaked in 2018 at 1.73 gigatonnes of carbon dioxide equivalent (GtCO2e).
In October 2021, in support of our 2050 net-zero emissions target,
we set a target to reduce Scope 1 and 2 absolute emissions from assets and activities under our operational control (including divestments) by 50% by 2030 compared with 2016 levels on a net basis. We monitor our progress against these targets using the key metrics described.
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| 99 | STRATEGIC REPORT SHELL FORMShell | Form 20-F 2020 | 63 | 2022 |
Our journey to net zero continued
Net carbon intensity (NCI)
CONTRACTUAL OBLIGATIONSShell’s NCI is the average intensity, weighted by sales volumes, of the energy products sold by Shell. It is tracked, measured and reported using the Net Carbon Footprint (NCF) methodology.
The table below summarises
We have received third-party limited assurance on our principal contractual obligations at December 31, 2020, by expected settlement period. The amounts presented have not been offset by any committed third-party revenuenet carbon intensity for the period 2016 to 2022.
[A]To be read in relation to these obligations.
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| $ billion |
| Less than 1 year | Between
1 and 3 years | Between
3 and 5 years | 5 years
and later | Total |
| Debt [A] | 12.8 | | 10.3 | | 12.9 | | 42.3 | | 78.3 | |
| Leases | 6.1 | | 9.6 | | 7.1 | | 20.0 | | 42.8 | |
| Purchase obligations [B] | 21.4 | | 24.9 | | 18.1 | | 47.8 | | 112.2 | |
| Other long-term contractual liabilities [C] | 0.1 | | 0.7 | | 0.6 | | 1.2 | | 2.6 | |
| Total | 40.4 | | 45.5 | | 38.7 | | 111.3 | | 235.9 | |
[A] See Note 14 to the “Consolidated Financial Statements” on pages 188-190. Debt contractual obligations exclude interest, which is estimated to be $1.8 billion payable in less than one year, $3.3 billion between one and three years, $2.9 billion between three and five years, and $16.0 billion in five years and later. For this purpose, we assume that interest ratesconjunction with respect to variable interest rate debt remain constant at the rates in effect at December 31, 2020, and that there is no change in the aggregate principal amountBasis of debt other than repayment at scheduled maturity as reflected in the table. Leases definition follows IFRS 16, which was implemented as of January 1, 2019. Lease contractual obligations include interest.
[B] Purchase obligations disclosed in the above table exclude commodity purchase obligations that are not fixed or determinable and are principally intended to be resold in a short period of time through sale agreements with third parties. Examples include long-term non-cancellable LNG and natural gas purchase commitments and commitments to purchase refined products or crude oil at market prices. Inclusion of such commitments would not be meaningful in measuring liquidity and cash flow, as the cash outflows generated by these purchases will generally be offset in the same periods by cash received from the related sales transactions.
[C] Includes all obligations included in “Trade and other payables” and provisions related to onerous contracts included in "Decommissioning and other provisions" in “Non-current liabilities” in the “Consolidated Balance Sheet” that are contractually fixed as to timing and amount. In addition to these amounts, Shell has certain obligations that are not contractually fixed as to timing and amount, including contributions to defined benefit pension plans (see Note 17 to the “Consolidated Financial Statements” on pages 193-196) and obligations associated with decommissioning and restoration (see Note 18 to the “Consolidated Financial Statements”preparation on page 197).
GUARANTEES AND OTHER OFF-BALANCE SHEET ARRANGEMENTS
There were no guarantees and other off-balance sheet arrangements at December 31, 2020, or December 31, 2019, that were reasonably likely to have a material effect on Shell.
FINANCIAL INFORMATION RELATING TO THE ROYAL DUTCH SHELL DIVIDEND ACCESS TRUST
The results of operations and financial position of the Royal Dutch Shell Dividend Access Trust (the Trust) are included in the consolidated results of operations and financial position of Shell. Certain condensed financial information in respect of the Trust is given below. See “Royal Dutch Shell Dividend Access Trust Financial Statements” on pages 231-234.
The Shell Transport and Trading Company Limited and BG Group Limited have each issued a dividend access share to Computershare Trustees (Jersey) Limited (the Trustee). For the years 2020, 2019 and 2018, the Trust recorded income before tax of £2,777 million, £5,484 million and £5,328 million respectively. In each period, this reflected the amount of dividends received on the dividend access shares.
At December 31, 2020, the Trust had total equity of £nil (December 31, 2019: £nil; December 31, 2018: £nil), reflecting assets of £7 million (December 31, 2019: £3 million; December 31, 2018: £3 million) and unclaimed dividends of £7 million (December 31, 2019: £3 million; December 31, 2018: £3 million). The Trust only records a liability for an unclaimed dividend, to the extent that dividend cheque payments have not been presented within 12 months, have expired or have been returned unpresented.
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| 100 | STRATEGIC REPORT SHELL FORMShell | Form 20-F 2020 | 64 | 2022 |
Strategic Report | Progress on strategy – year in review
Our journey to net zero continued
Performance – NCI
In 2022, Shell’s NCI was 76 grams of carbon dioxide equivalent per megajoule of energy (gCO2e/MJ), a 1.3% decrease from the previous year and a 3.8% reduction compared with 2016, the reference year. The decrease in Shell’s NCI in 2022 was primarily due to an increased proportion of renewable power and corresponding reduction in the carbon intensity of our power sales. Shell’s 2022 NCI includes 4.1 million tonnes of carbon credits, compared to the 5.1 million tonnes which were included in Shell’s 2021 NCI.
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NCI reference year: 2016
(equity boundary) | 2022 | 2021 | 2020 | 2016 |
| NCI [E] | gCO2e/MJ | 76 | 77 | 75 | 79 |
| Estimated total energy delivered by Shell [A] | trillion (10^12) MJ | 16.29 | 17.89 | 18.40 | 20.93 |
| Estimated total GHG emissions included in NCI (net) [B] | million tonnes CO2e | 1,240 | 1,375 | 1,384 | 1,645 |
| Carbon credits | million tonnes CO2e | 4.1 | 5.1 | 3.9 | 0.0 |
| Estimated total GHG emissions (gross) [C][D] | million tonnes CO2e | 1,244 | 1,381 | 1,388 | 1,645 |
[A]The NCI calculation uses Shell’s energy product sales volumes data, as disclosed in the Annual Report and Sustainability Report. This excludes certain contracts held for trading purposes and reported net rather than gross. Business-specific methodologies to net volumes have been applied in oil products and pipeline gas and power. Paper trades that do not result in physical product delivery are excluded. Retail sales volumes from markets where Shell operates under trademark licensing agreements are also excluded from the scope of Shell´s net carbon intensity metric.
[B]These numbers include well-to-wheel emissions associated with energy products sold by Shell, on an equity boundary basis; they also include the well-to-tank emissions associated with the manufacturing of energy products by others that are sold by Shell. Emissions associated with the manufacturing and use of non-energy products are excluded.
[C]All figures disclosed are rounded.
[D]While the NCI is an intensity measure and not an inventory of absolute emissions, a notional estimate of the amount of GHG emissions covered by the scope of the NCI calculation can be derived from the final NCI value for any year. Similarly, a fossil-equivalent estimate of the total amount of energy sold included in the calculation can also be determined.
[E]Acquisitions and divestments are included in the actual performance tracking with
the target and baseline year unchanged. Note that acquisitions and divestments
could have a material impact on meeting the targets.
As we implement our Powering Progress strategy, we are increasing the share of low-carbon products in our energy product sales, which is the biggest driver for reducing our NCI.
Our ability to change the emissions intensity of each energy product varies depending on the product type:
▪Hydrocarbon fuels - emissions from end-use by customers are by far the biggest contributors to the carbon intensity of the product. As a result, the emissions intensity of hydrocarbon fuels is expected to stay relatively unchanged over time. This is why we are focused on helping our customers decarbonise.
▪Power - the emissions intensity of power can be highly variable depending on how it has been generated. The proportion of our renewable power sales and the generation mix in countries where we sell power to the market both affect Shell’s overall power mix and its resulting emissions intensity.
▪Biofuels - can vary significantly in intensity depending on the feedstock and production process used.
Scope 1, Scope 2 and Scope 3 GHG emissions
and related risks
In assessing progress against our target to be a net-zero emissions energy business by 2050, we report our performance against our operational Scope 1 and 2, and Scope 3 emissions. Scope 1, 2 and 3 emissions are among the metrics we use to mitigate climate risks and seize opportunities in the energy transition.
Shell’s absolute emissions in 2022
In 2022, our total combined Scope 1 and 2 absolute GHG emissions (from assets and activities under our operational control) were 58 million tonnes on a CO2 equivalent basis, a 15% reduction compared with 2021, and a 30% reduction compared with 2016, the base year. Our Scope 3 emissions from energy products included in our net carbon intensity were 1,174 million tonnes CO2e.
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| Absolute emissions [D], [F] million tonnes of CO2e | Targets [E] |
| Scope | 2016 | 2020 | 2021 | 2022 | Target 2030 | Target 2050 |
| Scope 1 [A] | 72 | 63 | 60 | 51 | 50% reduction compared with 2016 levels on a net basis | 0 |
| Scope 2 [B] | 11 | 8 | 8 | 7 | 0 |
| Scope 3 [C] | 1,545 | 1,305 | 1,299 | 1,174 | No target | 0 |
[A]Total direct (Scope 1) GHG emissions from assets and activities under our operational control. It includes emissions from production of energy and non-energy products.
[B]Total indirect GHG emissions from imported energy (Scope 2) from assets and activities under our operational control using the market-based method. It includes imported energy used for production of energy and non-energy products.
[C]Indirect GHG emissions (Scope 3) based on the energy product sales included in NCI using equity boundary. The NCI calculation uses Shell’s energy product sales volumes data, as disclosed in the Annual Report and Sustainability Report. This excludes certain contracts held for trading purposes and reported net rather than gross. Business-specific methodologies to net volumes have been applied in oil products and pipeline gas and power. Paper trades that do not result in physical product delivery are excluded. Retail sales volumes from markets where Shell operates under trademark licensing agreements are also excluded from the scope of Shell´s net carbon intensity metric.
[D]Emissions are reported gross without the inclusion of carbon credits.
[E]Our 2030 and 2050 targets are on a net basis (i.e. including carbon credits). Acquisitions and divestments have been included in the actual performance tracking with the target unchanged. Note that acquisitions and divestments could have a material impact on meeting the targets.
[F]Oil and gas industry guidelines from IPIECA indicate that several sources of uncertainty can contribute to the overall uncertainty of a corporate emissions inventory. We have estimated the overall uncertainty for our direct GHG emissions (Scope 1) to be around 3% and for our energy indirect GHG emissions (Scope 2) to be around 7% for the market-based method and 6% for the location-based method for 2022. IPIECA also notes that due to the diversity of Scope 3 emissions, sources and the fact that these emissions occur outside the company’s boundaries, the emissions estimates may be less accurate or may have high uncertainty.
Our Scope 3 emissions reported above can be categorised as follows, using the definitions from the GHG Protocol's Corporate Value Chain (Scope 3) Standard:
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GHG emissions, million tonnes CO2e | 2022 | 2021 |
| Scope 3, category 1: purchased goods and services | 144 | 147 |
| Scope 3, category 3: fuel and energy-related activities | 115 | 136 |
| Scope 3, category 9: downstream transport and distribution | 5 | 6 |
| Scope 3, category 11: use of sold products | 910 | 1,010 |
| 1,174 | 1,299 |
Scope 3 emissions from categories 1, 3 and 11 make up the majority of Shell’s Scope 3 emissions. Shell reports Scope 3 emissions across all 15 categories annually.
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| For further details see: www.shell.com/ghg |
Strategic Report | Progress on strategy – year in review
Our journey to net zero continued
The Scope 3 emissions from the energy products we sell account forthemajority of the total emissions we report. When we calculate our emissions, we include emissions not only from the products that we produce ourselves but also from the oil and gas that others produce and we sell as products to our customers. We sell more energy products than the energy we produce ourselves, therefore, to account for Shell’s full effect, we include energy products sold in the measurement of our carbon emissions as shown in the chart on page 100.
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Scope 1 & 2 – performance [A] million tonnes carbon dioxide equivalent (CO₂e) |
[A]Total direct (Scope 1) and energy indirect (Scope 2) GHG emissions from assets and activities under operational control boundary. It includes emissions from production of energy and non-energy products. For Scope 2, we used the market-based method.
[B]Other covers Renewables and Energy Solutions, Marketing, P&T and Real Estate.
| | |
Share of energy delivered per energy product type
[A]-[F] |
[A]Percentage of delivered energy may not add up to 100% because of rounding.
[B]Total volume of energy products sold by Shell, aggregated on an energy basis, with electricity represented as fossil equivalents. This value is derived from energy product
sales figures disclosed by Shell in the Annual Report and the Sustainability Report.
[C]Lower heating values are used for the energy content of the different products and a fossil-equivalence approach is used to account for electrical energy, so that it is assessed on the same basis as our other energy products.
[D]The NCI calculation uses Shell’s energy product sales volumes data, as disclosed in the Annual Report and Sustainability Report. This excludes certain contracts held for trading purposes and reported net rather than gross. Business-specific methodologies to net volumes have been applied in oil products and pipeline gas and power. Paper trades that do not result in physical product delivery are excluded. Retail sales volumes from markets where Shell operates under trademark licensing agreements are also excluded from the scope of Shell’s carbon intensity metric.
[E]Emissions included in the carbon intensity of power have been calculated using the market-based method.
[F]The carbon intensity of biofuels provided in the graph "Share of energy delivered per energy product type" reflects the global average for biofuels sold by Shell for 2022.
We undertake external verification of our GHG emissions annually. Our Scope 1 and 2 GHG emissions from assets and activities under our operational control and emissions associated with the use of our energy products (Scope 3) included in our NCI have been verified to a level
of limited assurance by LRQA Group Limited.
Drivers of absolute Scope 1 and 2 emissions change
| | |
Scope 1 and Scope 2 GHG emissions changes from 2016 to 2021 and from 2021 to 2022 million tonnes carbon dioxide equivalent (CO₂e) |
[A]Total Scope 1 and Scope 2 emissions, rounded to the closest million tonnes. Scope 2 emissions were calculated using the market-based method.
[B]In addition to reductions from GHG abatement and energy efficiency projects, this category also includes reductions from permanent shutdown of Convent and Tabangao refineries and the impact of transformational activities at our Shell Energy and Chemicals Park in Singapore.
[C]Excludes 5.80 million tonnes of CO₂ captured and sequestered by the Shell-operated Quest CCS facility in Canada in 2016-2021. Scope 1 and 2 GHG emissions from operating Quest are included in our total emissions.
[D]Excludes 0.97 million tonnes of CO₂ captured and sequestered by the Shell-operated Quest CCS facility in Canada in 2022. Scope 1 and 2 GHG emissions from operating Quest are included in our total emissions.
[E]Of the 2,010 thousand tonnes of reduction activities and purchased renewable electricity in 2022, around 80 thousand tonnes related to purchased renewable electricity.
[F]Change in output relates to changes in production levels, including those resulting from shutdowns and turnarounds as well as production from new facilities.
Strategic Report | Progress on strategy – year in review
Our journey to net zero continued
Our direct GHG emissions (Scope 1) (consolidated using the operational control boundary) decreased from 60 million tonnes ofcarbon dioxide equivalent (CO2e) in 2021 to 51 million tonnes CO2e in 2022, driven by several factors including:
▪divestments in 2021 and 2022 (e.g. the Deer Park and Puget Sound refineries in the USA) and the handover of operations in OML 11 in Nigeria in 2022;
▪shutdowns or conversion of existing assets, including the shutdown of some units at the Shell Energy and Chemicals Park Singapore;
▪GHG abatement projects (see examples in the list of energy efficiency projects on page 109) and purchase of renewable electricity.
These decreases were partly offset by the commissioning of Shell Polymers Monaca.
Total routine hydrocarbons flaring reduced from 0.2 to 0.1 million tonnes of hydrocarbon flared from 2021 to 2022.
Around 50% of flaring in our Upstream and Integrated Gas facilities in 2022 occurred in assets operated by the Shell Petroleum Development Company of Nigeria Limited (SPDC) and Shell Nigeria Exploration and Production Company (SNEPCo). We will continue to work in close collaboration with joint-venture partners and the Federal Government of Nigeria to make progress towards the objective of ending the continuous flaring of associated gas.
Our target to keep methane emissions intensity below 0.2% was met in2022 with Shell’s overall methane emissions intensity at 0.05% for facilities with marketing gas and 0.01% for facilities without marketing gas. We believe our methane emissions are calculated using the best methods currently available. This target covers all Shell-operated oil and gas assets in our Upstream and Integrated Gas businesses. Methane emissions include those from unintentional leaks, venting and incomplete combustion, for example in flares and turbines.
Our indirect GHG emissions associated with imported energy (Scope 2) (consolidated using the operational control boundary) decreased from 8 million tonnes CO2e in 2021 to 7 million tonnes CO2e in 2022 (using the market-based method), in part, due to divestments.
Drivers of absolute Scope 3 emissions change in 2022
Emissions associated with the use of energy products sold by Shell account for the majority of our reported carbon emissions. The reported Scope 3 emissions within the NCI boundary have reduced from 2021. The decrease is largely due to a reduction in oil product and gas sales, and a decrease in the intensity of power sold.
There was a decrease in 2020 from 2019 related to volumes associated with additional contracts being classified as held for trading purposes with effect from January 2020. We estimate that netting of oil products sales volumes resulted in a reduction in GHG emissions of 102 million tonnes CO2e.
Our strategy is based on working with our customers to address the emissions from the use of our products and to help them find ways to reduce their emissions to net zero by 2050.
Targets used by Shell to manage climate-related risks and opportunities and performance against targets
Shell’s material climate-related risks and opportunities are set out in
the "Climate-related risks and opportunities identified by Shell over the short, medium and long term" section. Our response to the energy transition risk focuses on decarbonising our value chain. Our climate targets are focused on reducing our NCI and our absolute emissions.
Setting targets for NCI
There is no established standard for aligning an energy supplier’s decarbonisation targets with the temperature limit goal of the Paris Agreement. In the absence of a broadly accepted standard, we have
developed our own approach for demonstrating Paris alignment by setting carbon intensity targets within a pathway derived from the IPCC SR 1.5 scenarios. This pathway is aligned with the more ambitious temperature goal of the Paris Agreement to limit global average temperature rise to 1.5°C above pre-industrial levels by 2100.
When constructing the pathway, we started by filtering out certain scenarios to ensure that Shell’s targets are aligned with earlier action, and low-overshoot scenarios. Overshoot refers to the extent to which a scenario exceeds an emissions budget and subsequently relies on sinks to compensate for the excess emissions. Next, we calculated the carbon intensity (gCO2e/MJ of energy) for each of the remaining scenarios by dividing net emissions by total final energy consumption, with electricity represented as a fossil fuel equivalent.
To set a starting point, we then indexed the resulting carbon intensities to a common value of 100 in 2016 to remove the impact of differences between Shell’s historical net carbon intensity and the intensities calculated from the IPCC scenarios. Finally, the pathway was constructed using the range of carbon intensity reductions over time. Outlying values at the top and bottom of the range were removed, which had the effect of narrowing the final pathway.
By using the 1.5°C pathway produced by this approach to set our targets, we aligned them with the necessary reduction in carbon intensity shown in the 1.5°C scenarios. This is illustrated in the table, which shows that our targets are positioned within the range of the 1.5°C pathway. The upper and lower limits represent the upper and lower boundaries of the 1.5°C pathway derived using the approach described above.
| | | | | | | | | | | | | | | | | | | | |
| 2023 | 2024 | 2025 | 2030 | 2035 | 2050 |
| IPCC derived upper limit | -4% | -5% | -7% | -15% | -34% | -68% |
| IPCC derived lower limit | -10% | -13% | -17% | -36% | -64% | -104% |
| Shell target range | 6-8% | 9-12% | 9-13% | 20% | 45% | 100% |
Until 2035, our calculation of the total net emissions of each scenario includes only the expected mitigation actions by Shell, such as CCS and offsetting using natural sinks including any use of offsets included in the carbon-neutral energy products we offer our customers. After that date, we included mitigation actions taken separately by our customers. This is because we expect that customers will need to take action to mitigate their emissions from the use of our products, if society is to achieve the goals of the Paris Agreement.
To account for reductions in emissions across full energy value chains, it is necessary to build new protocols to include mitigation actions by both energy suppliers and users. Energy suppliers report the Scope 3 emissions from the use of their products, which are equivalent to the Scope 1 emissions reported by the users of those products. However, when users of energy products mitigate their Scope 1 emissions by the use of CCS or offsets there is no protocol for reflecting a corresponding reduction in the Scope 3 emissions reported by the energy supplier. We will continue to engage stakeholders on these carbon protocols and will seek to align with new frameworks as they evolve.
Shell has set a target to reduce the NCI of the energy products it sells by 20% by 2030. We believe this target is aligned with a 1.5°C pathway derived from the IPCC SR 1.5 scenarios. We also believe that the pace of change will vary around the world by region and by sector, taking into consideration the time needed for energy users to invest in large-scale equipment and the energy infrastructure changes needed for Shell to deliver more low- and zero-carbon energy.
Strategic Report | Progress on strategy – year in review
Our journey to net zero continued
The chart below shows our progress since 2016 in reducing our Scope 1 and 2 emissions and gives an indication of how we expect to achieve our target in 2030. The actions we will take to achieve our target will depend on the evolution of our asset portfolio and the continued development of technologies which reduce carbon emissions. Following divestment activity in 2022, we expect that on a net portfolio basis, new investments across our portfolio will increase our Scope 1 and 2 emissions between 2023 and 2030 and that they will exceed reductions associated with planned divestments and natural decline. Our investments in producing low-carbon energy such as biofuels will increase our Scope 1 and 2 emissions, while reducing the net carbon intensity of the products we sell. Subsequent reductions in our emissions are reflected in the mechanisms outlined below and reflect an expected path to meeting our target in 2030.
| | |
| Working to reduce our absolute Scope 1 and 2 emissions |
| Scope 1 and 2 emissions in million tonnes per annum [A],[B] |
[A]The 2016 Base Year was not recalculated in 2022. The 2016 Base Year may be recalculated in future years if an acquisition or a divestment has an impact of more than 10% on the total Scope 1 and 2 emissions.
[B]Operational control boundary.
[C]Including nature-based solutions.
The biggest driver for reducing our NCI is increasing the sales of and demand for low-carbon energy. The chart below illustrates how changes in the volume of products and services we sell could result in NCI reductions to 2030. The change in our sales of these products and services will also reflect the development and adoption of new technologies and infrastructure, and the adoption of public policies designed to encourage the energy transition.
| | |
| Working to reduce our net carbon intensity |
Net carbon intensity in gCO2e/MJ [A] |
[A]Grams of carbon dioxide equivalent per megajoule.
[B]Hydrocarbon sales reflect the effect of lower sales of oil products, and higher sales of natural gas. Emissions associated with gas are lower than those of oil products.
[C]Electricity sales show the expected growth of our integrated power business and increasing sales of renewable electricity.
[D]Sales of low-carbon fuels reflect higher sales of biofuels and hydrogen, which are low- and zero-carbon products.
[E]Carbon capture and storage (CCS) reduces carbon emissions by capturing them at source.
[F]Carbon credits such as nature-based solutions can be used to offset remaining carbon emissions, particularly in hard-to-abate sectors such as aviation and industries including cement and steel.
Strategic Report | Progress on strategy – year in review
Our journey to net zero continued
Linking Shell’s emissions targets to remuneration policies
We have established remuneration policies which are designed to support us in achieving our net-zero emissions targets:
▪Our Performance Share Plan (PSP) and Long-term Incentive Plan (LTIP) are linked to net carbon intensity targets; and
▪Our PSP, LTIP and annual bonus scorecard are linked to performance indicators that guide an assessment of our success in delivering our energy transition strategy.
| | |
| See also "Directors' Remuneration Report" on pages 166-170. |
The LTIP and PSP are designed to ensure that remuneration is clearly aligned with Shell’s operating plan and longer-term strategic ambitions. The same measures apply to Executive Directors and Senior Management and to a significantly broader employee base.
The LTIP (measured over a three-year performance period) is used to make long-term share incentive awards to Executive Directors, Executive Committee members and Senior Executives.
PSPs are long-term incentives, also measured over a 3 year performance period, designed to retain key employees and ensure
they have a greater investment in Shell’s future.
Energy transition performance condition and the vesting ofthe2020 LTIP and PSP awards
The following performance outcomes for the energy transition performance condition were considered in the assessment of the
2020 LTIP and PSP vest, covering the performance cycle 2020-2022:
| | | | | |
| ENVIRONMENT AND SOCIETYOutcome |
| Reduce net carbon intensity | Performance indicator met |
| Grow a material power business | Substantively met |
| Grow low-carbon products | Performance indicator met |
| Develop emissions sinks | Performance indicator met |
In addition to the above, a number of broader indicators of Shell's progress in the energy transition were considered. Overall, it was determined that the energy transition measure (accounting for 10%
of the LTIP award and 5% of the PSP award) should vest at 180%.
| | |
| See also "Annual Report on Remuneration" on pages 176-180. |
Energy transition performance condition in the 2022 LTIP andPSP awards
For LTIP and PSP awards granted in 2022, the energy transition performance condition had a weighting of 10% for the PSP and 20% for the LTIP. The energy transition performance condition for these awards includes a mix of leading and lagging indicators on the following strategic measures:
▪Build a valuable power business: our ambition is to expand our power business through selective investments in generation and
by reselling power generated by others;
▪Grow new lower-carbon energy product offerings: continue to invest in low- and zero-carbon products, such as renewable electricity, hydrogen, biofuels and chemicals;
▪Develop emission sinks: invest in carbon capture and storage opportunities, to reduce emissions where there are no currently scalable low-carbon alternatives, and in the development of high-quality nature-based projects, to compensate for emissions; and
▪Reduce the NCI of the energy products sold by Shell.
The vesting outcome of the LTIP awards is at the discretion of the REMCO, and will be guided by performance indicators set at the outset of the scheme alongside a more holistic assessment of progress.
Proposed energy transition performance condition for 2023 LTIP awards
For 2023 LTIP awards, assessment of performance against energy transition measures will be based on NCI reduction, plus supporting strategic themes including:
▪Reducing Scope 1 and 2 emissions;
▪Building a renewable power business;
▪Growing new lower-carbon energy offerings; and
▪Developing emission sinks and offsets.
The REMCO assesses progress against the NCI target and Shell’s longer-term goals for each strategic theme when making the vesting decision for each reward cycle.
| | |
| See "Annual Report on Remuneration" on page 189 for more information on the proposed performance framework. |
Energy transition targets in the annual bonus scorecard
Delivering on our net-zero emissions target is a part of the annual scorecard, which helps determine annual performance bonus outcomes for senior management and almost all of Shell’s employees.
The energy transition progress measures in our annual scorecard have, until 2022, focused on managing and reducing our operational emissions. However, succeeding in the energy transition requires us to change what we sell. In 2022, we widened the scope of the energy transition progress measures in the annual bonus scorecard:
▪Selling lower carbon products – we help customers to reduce their emissions by supplying low-carbon products. We measure our success by the earnings share of our Marketing activities from low-carbon energy products as well as non-energy products and convenience retail.
▪Reducing operational emissions – our target is to achieve a 50% reduction by 2030; and this measure is based on reducing our Scope 1 and 2 operational emissions.
▪Partnering to decarbonise – we seek to collaborate with our customers to help them reduce their emissions. In 2022, we measured success in this area in terms of our progress in rolling
out our electric vehicle charging network.
Strategic Report | Progress on strategy – year in review
Our journey to net zero continued
| | |
| 2022 Scorecard: Shell's journey in the energy transition |
| | | | | | | | | | | |
| 2022 Target | 2022 Performance | 2022 Status |
Selling lower-carbon products % of Marketing Adjusted Earnings from lower-carbon products | 60 | 60 | on target |
Reducing operational emissions thousand tonnes of CO2 absolute emissions reduction | 1,700 | 2,010 | outstanding |
EV charge points Number | 130,000 | 138,610 | above the target |
In 2022, the score for operational emission reductions was above the top end of the range. It reflects the cumulative effects of actions taken across the portfolio, including GHG abatement projects, permanent shutdowns and conversions of some facilities such as the shutdown of some units at the Shell Energy and Chemicals Park Singapore, flaring reduction and energy efficiency projects (page 109). The above reductions do not include CO2 reduced by CCS projects.
We have set annual targets measuring our roll-out of electric vehicle charge points, in line with Shell’s target of having more than 500,000 by 2025. We outperformed the 2022 target, with a significant increase in the second half of the year.
The full year score for providing lower-carbon products was on target. We will continue to deliver decarbonisation solutions sector by sector enabled by innovation and collaboration.
| | |
| See also "Annual Report on Remuneration" on page 175. |
Metrics and targets in respect of climate-related environmental risks
We have set targets to reduce our consumption of fresh water in water-stressed areas by 15% by 2025, compared with 2018 levels. We also monitor the level of waste disposed of from our operations, and the amount of plastic waste generated.
| | |
| See "Respecting Nature" on pages 112-113 and "How we create value" on page 17 for more information. |
Basis of preparation – net carbon intensity
Shell’s NCI provides an annual measure of the life-cycle emissions intensity of the portfolio of energy products sold. The intended use of the NCI metric is to track progress in reducing the overall carbon intensity of the energy products sold by Shell. The NCI is calculated on a life-cycle basis and as such includes GHG emissions – on an equity basis – from several sources, including:
▪direct GHG emissions from Shell operations;
▪indirect GHG emissions from generation of energy consumed by Shell; and
▪indirect GHG emissions from the use of the products we sell.
Emissions from other parts of the product life cycle are also included, such as those from the extraction, transport and processing of crude oil, gas or other feedstocks and the distribution of products to our customers. Also included are emissions from parts of this life cycle not owned by Shell, such as the extraction of oil and gas processed by Shell but not produced by Shell; or from the production of oil products and electricity marketed by Shell that have not been processed or generated at a Shell facility.
We also take into account emissions mitigated through various measures, such as by creating carbon sinks by working with nature – including through protecting forests and wetlands – and by using CCS technology.
| | |
| Refer to scope of NCI on page 100 for details of the supply chains and steps in the product life cycles that are included in the Net Carbon Footprint methodology. |
The following GHG emissions are not included in the NCI:
▪emissions from production, processing, use and end-of-life treatment of non-energy products, such as chemicals and lubricants;
▪emissions from third-party processing of sold intermediate products, such as the manufacture of plastics from feedstocks sold by Shell;
▪emissions associated with the construction and decommissioning of production and manufacturing facilities;
▪emissions associated with the production of fuels purchased to generate energy on site at a Shell facility;
▪other indirect emissions from waste generated in operations, business travel, employee commuting, transmission and distribution losses associated with imported electricity, franchises and investments; and
▪emissions from capital goods, defined by the GHG Protocol as including fixed assets or property, plant and equipment (PP&E), and other goods and services not related to purchased energy feedstocks sourced from third parties or energy products manufactured by third parties and sold by Shell.
The NCI calculation uses Shell’s energy product sales volume data, as disclosed in the Annual Report and Sustainability Report. This excludes certain sales volumes such as:
▪certain contracts held for trading purposes reported net rather than gross. Business-specific methodologies to net volumes have been applied in oil products and pipeline gas and power. Paper trades that do not result in physical product delivery are excluded; and
▪retail sales volumes from markets where Shell operates under trademark licensing agreements.
Important notes on the NCF methodology
1.The NCF is not a mathematical derivation of total emissions divided by total energy, nor is it an inventory of absolute emissions.
2.It is a weighted average of the life-cycle CO2 intensities of different energy products, normalising them to the same point relative to their final end-use. The use of a consistent functional unit, grams of carbon dioxide equivalent per megajoule (gCO2e/MJ), allows like-for-like comparisons and the aggregation of individual life-cycle intensities for a range of energy products including renewables.
| | |
| For further information see our detailed NCF methodology documentation (www.shell.com/ghg). |
Basis of preparation – absolute Scope 1, 2 and 3 emissions
We follow the GHG Protocol’s Corporate Accounting and Reporting Standard, which defines three scopes of GHG emissions:
▪Scope 1: direct GHG emissions from sources under Shell's operational control.
▪Scope 2: indirect GHG emissions from generation of purchased energy consumed by Shell assets under operational control.
▪Scope 3: other indirect GHG emissions, including emissions associated with the use of energy products sold by Shell.
GHG emissions comprise carbon dioxide (CO2), methane (CH4), nitrous oxide, hydrofluorocarbons, perfluorocarbons, sulphur hexafluoride and nitrogen trifluoride, with carbon dioxide and methane being the most significant contributors. Our GHG inventory was prepared in line with the requirements outlined in the ISO 14064-1:2018 Specification with Guidance at the Organisational Level for Quantification and Reporting of Greenhouse Gas Emissions and Removals and the GHG Protocol’s Corporate Accounting and Reporting Standard.
Strategic Report | Progress on strategy – year in review
Our journey to net zero continued
In line with external standards, Shell aggregates its GHG emissions into tonnes of CO2 equivalent by applying global warming potential (GWP) factors to each greenhouse gas. These factors are taken from the IPCC Fourth Assessment Report (AR4) over a 100-year time horizon, in line with the UK Government GHG Conversion Factors for Company Reporting.
GHG emissions are aggregated using a bottom-up approach: emission source -> asset -> operating unit -> business -> Group. GHG emissions in this Report include emissions from Upstream, Integrated Gas, Renewables and Energy Solutions, Downstream (Chemicals and Products and Marketing), and Projects & Technology, plus Shell's functions. All operated assets are included in the GHG inventory
in the reporting period.
Basis of preparation – Scope 1 emissions
Sources included in Scope 1 emissions comprised:
▪combustion of carbon-containing fuels in stationary equipment
(e.g. boilers, gas turbines) for energy generation;
▪combustion of carbon-containing fuels in mobile equipment
(e.g. trucks, vessels, mobile rigs);
▪flares;
▪venting and emissions from industrial processes (e.g. hydrogen plants, catalytic cracking units); and
▪fugitive emissions, including piping and equipment leaks and
non-routine events.
Our Scope 1 emissions follow the GHG protocol guidance. As a result,
the following are not included in our reported Scope 1 emissions:
▪CO2 emissions from biogenic sources (for example, biofuels, biomass). Instead, they were captured separately. Methane and nitrous oxide emissions from biogenic sources were included in our Scope 1 emissions.
▪Captured CO2 that was subsequently sold or otherwise transferred to third parties.
▪CO2 captured and sequestered using CCS technologies. However, the emissions from operating CCS were included in our Scope 1 and 2 emissions.
▪Carbon credits.
All significant sources were included in the Scope 1 inventory.
Basis of preparation – Scope 2 emissions
Sources included in Scope 2 emissions comprised indirect emissions from purchased and consumed electricity, steam and heat. We did not identify any assets with imported cooling or compressed air used for energy purposes.
Scope 2 emissions were calculated using the market- and location-based methods separately as defined by the GHG Protocol Scope 2 Guidance.
All significant sources were included in our Scope 2 inventory.
Basis of preparation - Scope 3 emissions
This Report provides Scope 3 emissions included in our NCI. They were consolidated using the equity boundary approach. Under this approach, we reported the Shell share of emissions from energy products sold by Shell to end-users, including those sourced from third parties. Scope 3 categories included in the total number in this Report include the following:
Scope 3, Category 1: purchased goods and services
This category includes well-to-tank emissions from purchased third-party unfinished and finished energy products excluding electricity (which was reported separately under Category 3: Fuel and energy-related activities (not included in Scope 1 or Scope 2)).
Emissions in this category were estimated using well-to-tank emission factors for crude oil, natural gas, refined oil products (such as gasoline, and diesel), LNG and biofuels. Because the emission factors include transport, we did not estimate emissions from transport of purchased third-party products separately.
Emissions from purchased non-energy products were not included in this Report.
Scope 3, Category 3: fuel and energy-related activities (notincluded in Scope 1 and 2)
This category includes well-to-wire emissions from purchased third-party electricity sold by Shell, calculated using the market-based method. Emissions were not adjusted for any potential double-counting of sold natural gas that may have been used for generating this electricity.
This category does not include:
▪indirect emissions from generation of imported energy (steam, heat or electricity consumed by our assets). These emissions were reported separately as Scope 2 emissions; and
▪well-to-tank emissions from purchased electricity, steam and heat consumed by our assets (i.e. Scope 3 emissions from extraction, refining and transport of primary fuels before their use in the generation of electricity or steam).
Scope 3, Category 9: downstream transport and distribution
This category includes estimated emissions from transport and distribution of energy products produced or refined by Shell. It does not include the emissions associated with transporting third-party products, which are included in Scope 3, Category 1. In order to avoid double counting the emissions from transport, Scope 1 and 2 emissions from transport included in our equity emissions were subtracted from the total in this category.
Scope 3, Category 11: use of sold products
This category includes estimated emissions from the use of sold energy products, such as LNG, GTL, pipeline gas, refined oil products and biofuels. The emissions consist of two sub-categories: products manufactured and sold by Shell, and third-party products sold by Shell.
This category does not include non-energy products that may have been combusted during use (for example, lubricants).
Biogenic CO2 emissions from combustion of sold biofuels
Biogenic CO2 emissions from combustion of sold biofuels were estimated and reported separately outside of scopes. Methane and nitrous oxide have been included in Scope 3, Category 11 in line with the ISO 14064-1:2018 and GHG Protocol requirements.
We did not estimate biogenic CO2 emissions in other Scope 3 categories. It is assumed that the presence of biogenic emissions in other categories is negligible at present.
Other Scope 3 categories
As noted above, this Report only covers Scope 3 GHG emissions included in the boundary of our NCI metric.
| | |
Other Scope 3 GHG emissions can be found on our website:
www.shell.com/ghg. |
Strategic Report | Progress on strategy – year in review
Our journey to net zero continued
Other regulatory disclosures
GHG emissions and energy consumption data - information provided in accordance with UK regulations
Data in this section are consolidated using the operational control approach. Under this approach, we account for 100% of the GHG emissions and energy consumption in respect of activities where
we are the operator, irrespective of our ownership percentage.
Reporting on this operational control basis differs from that applied
for financial reporting purposes in the "Consolidated Financial Statements". We acknowledge the strong preference of the UK’s Financial Reporting Council (FRC) for companies to report the
GHG emissions and energy consumption data using the financial consolidation boundary and are working on including the data
and information on this boundary in our Annual Report in the future.
| | |
| See "Basis of preparation – absolute emissions" on page 106. |
| | |
GHG emissions in million tonnes of CO2 equivalent |
| | | | | | | | | | | |
| 2022 | 2021 | 2020 |
| Total global direct (Scope 1) [A] | 51 | 60 | 63 |
| UK including offshore area [B] | 1.7 | 1.7 | 2.0 |
| Market-based | | | |
| Total global energy indirect (Scope 2) [C] | 7 | 8 | 8 |
| UK including offshore area | 0 | 0 | 0 |
| Location-based | | | |
| Total global energy indirect (Scope 2) [D] | 8 | 9 | 10 |
| UK including offshore area | 0.04 | 0.05 | 0.06 |
| Intensity ratio in tonnes per tonne | | | |
| Intensity ratio of all facilities [E] | 0.27 | 0.27 | 0.25 |
[A]Emissions from the combustion of fuel and the operation of our facilities globally, calculated using global warming potentials from the IPCC’s Fourth Assessment Report.
[B]Emissions from the combustion of fuels and the operation of our facilities in the UK and
its offshore area, calculated using global warming potentials from the IPCC´s Fourth Assessment Report.
[C]Emissions from the purchase of electricity, heat, steam and cooling for our own use globally, calculated using a market-based method as defined by the GHG Protocol Corporate Accounting and Reporting Standard.
[D]Emissions from the purchase of electricity, heat, steam and cooling for our own use globally, calculated using a location-based method as defined by the GHG Protocol Corporate Accounting and Reporting Standard.
[E]In tonnes of total direct and energy indirect GHG emissions per tonne of crude oil and feedstocks processed and petrochemicals produced in downstream manufacturing, oil
and gas available for sale, LNG and GTL production in Integrated Gas and Upstream.
For an additional breakdown by segment, see Scope 1 and 2 GHG intensity by segment section below.
The activity data used to calculate GHG intensity ratios at a portfolio level shown in the table above are reported on an operational control basis. As a result, they are not directly comparable with the production
data reported elsewhere in this Report, which are reported
on a financial control basis. The table below shows the numbers
used in the calculation of the intensity:
| | |
| Inputs used for calculating the GHG emissions intensity ratio |
| | | | | | | | | | | | | | |
| 2022 | 2021 | 2020 |
| A | 8.1 Scope 1 - Direct GHG emissions [A] | 51 | 60 | 63 |
| B | 8.2 Scope 2 - Energy Indirect GHG emissions [A] | 7 | 8 | 8 |
| C=A+B | Total Scope 1 and 2 GHG emissions [A] | 58 | 68 | 71 |
| D | 6.5 Total oil and gas production available for sale [B] | 111 | 128 | 149 |
| E | 6.6 Refinery crude and feedstock processed [B] | 63 | 84 | 99 |
| F | 6.3 Chemicals total production [B] | 23 | 25 | 26 |
| G | 6.4 LNG production [B] | 9 | 10 | 8 |
| H | 6.6 GTL production [B] | 6 | 6 | 6 |
| I=D+E+F+G+H | Total Upstream, Integrated Gas and Downstream activity [B] | 212 | 253 | 288 |
| J=C/I | GHG intensity ratio [C] | 0.27 | 0.27 | 0.25 |
[A]In million tonnes CO2 equivalent.
[B]In million metric tonnes of production.
[C]In tonnes of CO2 equivalent per tonne of production.
Energy use in our operations
The energy consumption data provided below comprise own energy, generated and consumed by our facilities, and supplied energy (electricity, steam and heat) purchased by our facilities for our use.
Energy consumption data reflect primary (thermal) energy (e.g. the energy content of fuels used to generate electricity, steam, heat, mechanical energy, etc.). This includes energy from renewable and
non-renewable sources. Own energy generated was calculated by multiplying the volumes of fuels consumed for energy purposes by
their respective lower heating values. Own energy generated that was exported to third-party assets or to the power grid is excluded. Thermal energy for purchased and consumed electricity was calculated using actual electricity purchased multiplied by country-specific electricity generation efficiency factors (from IEA statistics). Thermal energy for purchased and consumed steam and heat was calculated from actual steam/heat purchased multiplied by a supplier-specific conversion efficiency, or a generic efficiency factor where supplier-specific data were not available.
Strategic Report | Progress on strategy – year in review
Our journey to net zero continued
Our energy consumption decreased from 223 billion kilowatt-hours (kWh) in 2021 to 199 billion kWh in 2022, in line with the decrease in our Scope 1 and 2 GHG emissions. Around 1% of the energy we used in 2022 for our operations came from low-carbon and renewable sources.
| | |
| Energy consumption in billion kilowatt-hours |
| | | | | | | | | | | |
| 2022 | 2021 | 2020 |
| Own energy generated and consumed | | | |
| Total energy generated and consumed | 168 | 189 | 205 |
| UK including offshore area | 6.1 | 6.2 | 7.6 |
| Purchased and consumed energy | | | |
| Total purchased and consumed energy | 31 | 33 | 36 |
| UK including offshore area | 0.2 | 0.2 | 0.2 |
| Energy consumption | | | |
| Total energy consumed | 199 | 223 | 241 |
| UK including offshore area | 6.3 | 6.4 | 7.8 |
In 2022, we implemented a variety of measures to reduce the energy use and increase the energy efficiency of our operations.
Examples of some of the principal measures taken in 2022 (with estimated total savings of around 1,155 million kWh in 2022):
▪At our GTL asset in Qatar, we completed several projects to reduce energy use and improve efficiency, e.g. by making improvements to catalyst performance which resulted in reduced generation of off-gas leading to lower energy consumption.
▪At our Gulf of Mexico operations in the USA, we have implemented a project to reduce energy use and improve efficiency by using waste heat to generate steam.
▪At our Upstream operations in the UK, we have completed several projects to reduce energy use and improve efficiency, for example by implementing an online model at Shearwater to optimise fuel gas usage.
▪At our Scotford site in Canada, we have implemented several projects to reduce energy use and improve efficiency, for example by using analysers to optimise fuel usage.
▪At our Geismar site in the USA, we have implemented several projects to reduce energy use and improve efficiency, for example by making changes to how some equipment operates.
▪At our QGC operations in Australia, we implemented several projects to reduce energy use and improve efficiency, for example by introducing a CO2 / energy performance dashboard for control room operators, which allowed operators to see gap to potential in efficiency savings based on real time operating data.
Examples of some of the principal measures taken in 2021 are
listed below (with estimated total savings of around 675 million kWh
in 2021):
▪At our Scotford upgrader facility in Canada, we completed several projects to minimise energy use and improve efficiency, for example by installing new equipment and making changes to how some equipment operates.
▪At our Gannet asset in the UK, we completed a project to enhance the efficiency of the fuel gas compressors by fine-tuning their performance to the specific needs of the platform.
▪At our Jurong Island site in Singapore, we installed a second stage flash vessel to recover the heat for reuse in other equipment, and completed a project to minimise power consumption by one of the incinerators.
▪At our Rheinland site in Germany, we completed several projects to reduce energy use and improve efficiency, for example, by installing more efficient equipment and changing maintenance schedules to improve efficiency.
▪At our Bukom site in Singapore, we completed a project to reduce the consumption of natural gas in flare purge.
▪At our Scotford refinery and chemical site in Canada, we completed several projects to reduce energy use and improve efficiency,
for example, by enabling the reduction of steam usage.
▪At our QGC operations in Australia, we implemented a project
to reduce power requirements for gas compression.
The targets in this "Our journey to net zero" section, including those relating to the NCI targets, are forward-looking targets based on management’s current expectations and certain material assumptions and, accordingly, involve risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied herein.
EU Taxonomy Regulation
The EU Taxonomy Regulation is a classification system that translates the European Union’s environmental objectives into criteria for determining when an economic activity can be considered environmentally sustainable for investment purposes. As a UK company with its registered office and headquarters in London, Shell plc is not currently subject to the Taxonomy Regulation. Nevertheless, we elect to report against the taxonomy voluntarily because we recognise
the importance of increasing transparency about how companies
are progressing in the energy transition, even if the regulation is evolving and not yet mature.
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| For further information, see "Supplementary Information - EU Taxonomy Disclosure" on pages 307-319. |
OUR APPROACH TO SUSTAINABILITYRespecting nature
Our core values of honesty, integrity and respect for people – first laid out in the Shell General Business Principles more than 40 years ago – underpin our approach to sustainability.sustainability
AOur commitment to contribute to sustainable development was added inhas been part of the Shell General Business Principles since 1997. Theseprinciples, together with our Code of Conduct, apply to thewaywe dobusiness and to our conduct with the communities wherewe operate.
Since 1997, we We have worked to embedembedded this sustainability commitment intoin our Powering Progress strategy, and our business processes and decision-making. Sustainability is core to our project planning and operational activities. We aim to provide more and cleaner energy solutions in a responsible manner – in a way that balances short- and long-term interests, and that integrates economic, environmental, and social considerations into decision-making.
Today, we continue to build on these foundations while driving change across the organisation to help society meet its most pressing challenges, including those related to climate change, the environment, diversity and inclusion, and human rights. We seek the views of various groups and individuals about the role of an organisation like Shell in addressing these challenges. | | |
| For more information on our Powering Progress strategy, see page 12. |
Sustainability reporting boundary and guidelines
Data in this section are reported on a 100% basis in respect of activities where a Shell company is the operator (unless noted otherwise). Reporting on thisan operational control basis differs from that applied for financial reporting purposes in the “Consolidated"Consolidated Financial Statements”Statements" on pages 163-210. Detailed216-287. Additional data and information on our 20202022 environmental and social performance are expected tocan be publishedfound in the Shell Sustainability Report in April 2021.Report.
We use certain guidelines to inform ourOur reporting on sustainability issues:follows certain guidelines. For example:
•▪As a member of the World Business Council for Sustainable Development, we support the organisation’sits updated criteria for membership from 2022, which includesinclude requirements for corporate transparency.
•▪We report in line withOur reporting is informed by guidelines developed by IPIECA,Ipieca, the global oil and gas industry association for advancing environmental and social performance.performance across the energy transition.
•▪TheWe map our disclosures against the Sustainability Accounting Standards Board’s Oil & Gas - Exploration & Production Standard.
▪In the "Our journey to net zero" section of this Report, we set
out our climate-related financial disclosures consistent with all the recommendations and recommended disclosures of the Task Force on Climate-related Financial Disclosures (TCFD) help to guide and inform our reporting. For more information, see the "Climate change and energy transition" section..
•In January 2021, we agreed to adopt the Stakeholder Capitalism Metrics, a set of environmental, social and governance metrics released by the World Economic Forum and its International Business Council.
OUR STRATEGY: POWERING PROGRESS
In February 2021, we announced our updated business strategy, called Powering Progress. It has four main goals in support of our purpose – to power progress together by providing more and cleaner energy solutions:
•generating shareholder value: growing value through a dynamic portfolio and disciplined capital allocation;
•achieving net-zero emissions: working with our customers and across sectors to accelerate the transition to net-zero emissions;
•powering lives: powering lives through our products and activities, and by supporting an inclusive society; and
•respecting nature: protecting the environment, reducing waste and making a positive contribution to biodiversity.
Powering Progress is underpinned by our core values and our focus on safety. These include our commitment to doing business in an ethical and transparent way.
For more information on what we mean by becoming a net-zero emissions business, please refer to "Climate change and energy transition" on pages 73-85.
IMPACT OF THE COVID-19 PANDEMIC - HELPING COLLEAGUES, CUSTOMERS AND COMMUNITIES
The COVID-19 pandemic continues to have a serious impact on people’s health and livelihoods around the world. During 2020, we worked hard to assist in the global fight against the virus, and to support recovery efforts while taking care of our employees, our customers and the communities we work with.
In January 2020, Shell set up our Global Health Alert Monitoring Team to equip Shell staff and companies with information and guidance to remain operational in a responsible way. Certain elements of this approach were adopted as the industry standard by the joint health committee of two acknowledged industry associations: the International Association of Oil & Gas Producers (IOGP), and IPIECA, the global oil and gas industry association for advancing environmental and social performance.
More information on the steps we took to protect our staff is expected to be published in the Shell Sustainability Report in April 2021.
UNITED NATIONS SUSTAINABLE DEVELOPMENT GOALSUnited Nations Sustainable Development Goals
The UN’s 17 Sustainable Development Goals (SDGs) seek to address the world’s biggest challenges, including tackling climate change, ending poverty, improving health and education, and making cities sustainable and tackling climate change.
sustainable. Governments are responsible for prioritising and implementing approaches that meet the SDGs, but achieving these tasks will require unprecedented collaboration and collective action across businesses, governments and civil society.
We willstrive to play our part in helping governments and societies to achieve the SDGs. The goals were one
of the considerations in the development of our Powering Progress strategy. ActionsWe believe the actions we take as part of our Powering Progress strategy can help directly contribute to 13 of the SDGs, while indirectly contributing to others.
| | |
| See our website shell.com for information on how Shell is contributing to the SDGs. |
Board oversight for information on how Shell and our Powering Progress strategy are contributing to the SDGs.
BOARD OVERSIGHT FOR SUSTAINABILITY
We describe Shell´sShell’s overall governance framework on pages 96-102. It provides141-142 and provide information on the roles of the Board, its committees, and the Executive Committee. The Safety, Environment and Sustainability Committee (SESCo) advisesis one of the four standing committees of the Board onof Directors of Shell plc. The (SESCo) assists the Board in reviewing the policies, practices, targets and performance of Shell, primarily with respect to safety, the environment including climate change, and Shell´s overall sustainability performance. More information on the SESCo´s role and activities during 2020 is provided on pages 106-107.broader sustainability.
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| More information on SESCo's role and activities in 2022 is provided on pages 151-152. |
The Annual Report on Remuneration (see page 134)pages 171-190) provides details of how the Shell scorecard captures key performance indicators for safety, environment and climate.
SHELL GENERAL BUSINESS PRINCIPLESShell General Business Principles
The Shell General Business Principles set out our responsibilities to shareholders, customers, employees, business partners and society. They set the standards for how we conduct business with integrity,
care and respect for people, while seekingpeople. As part of these principles, we commit to protect the environmentcontribute to sustainable development, balancing short- and establish mutually beneficial relationships with communities.long-term interests and integrating economic, environmental and social considerations into our decision-making. All Shell employees and contractors, and those at joint ventures that a Shell company operates must conduct their activitieswe operate, are expected to behave in line with our business principles.
HSSE & SP CONTROL FRAMEWORKControl Framework
In Shell, health, safety, security, environment, and social performance (HSSE & SP) are vitally important to generating value. They are indispensable elements of our organisation. The Shell HSSE & SP Control Framework (CF) consists of mandatory manuals, which align with the Shell Commitment and Policy on HSSE & SP. Guidance documents, assurance protocols, and training materials support
the implementation of the manuals.
The HSSE & SP CF applies to every Shell entity and Shell-operated venture. It defines requirements and accountabilities at each organisational level, setting expectations for the management of HSSE & SP risks. We aim to ensure that significant HSSE & SP risks associated with our business activities are assessed and managed to minimise them as far as reasonably practicable. Our HSSE & SP functions provide expert advice and support businesses to improve HSSE & SP performance. The applicability of specific HSSE & SP CF requirements to contract staff depends on the defined HSSE & SP risks of the material or services procured as determined by the contracting Shell entity in
the context of the HSSE & SP CF. Contractors are required through appropriate contract provisions to adhere to either Shell requirements and standards or applicable industry standards.
We aim to minimise the environmental impact of new projects and existing operations, and we engage with local communities and non-governmental organisations (NGOs) to understand and respond to their concerns.operations. Shell conducts an environmental, social and health impact assessment for every major project. We determine whether a project qualifies as major by considering its costengage with local communities and capacity, including the potential consequences of adverse incidents. This helps usnon-governmental organisations (NGOs) in order to understand and manage how our projects could affect the surrounding environmentrespond to their concerns in a timely and local communities. We have standards and a governance structure to help manage potential impacts. Wesuitable manner.
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Respecting nature continued
are committed to the safety of our people and contractors. Assurance
The Shell Internal Audit & Investigations (SIAI) team is the single independent assurance organisation within Shell. Within SIAI, the HSSE & SP Control Framework (CF) specifies the standards for health, safety, security, environment and social performance (HSSE & SP) and the scope for applying these standards. The CF consists of a series of mandatory manuals that align with the Shell Commitment and Policy on HSSE & SP
and the Shell Code of Conduct. They are supported by guidance documents and complemented by assurance protocols.
The CF applies to every Shell entity and Shell-operated venture, including all employees and contract staff. The CF defines standards and accountabilities at each organisational level and sets out the procedures and processes that we require people to follow. We require that all significant HSSE & SP risks associated with our business activities are assessed and managed to make them as low as reasonably practicable. Our HSSE & SP functions provide expert advice and support for our businesses.
The Process Safety and HSSE & SPAsset Management Assurance team provides assurance to the Board on the effectiveness of the HSSE & SP CFControl Framework (CF) through an audit programme. The full Shell portfolio comprises about 200 organisational groups covered by this programme. Audits are performed with a frequency of between three and five years, depending on the overall risk and complexity of a particular facility or organisational group. Overall, this results in a rolling five-year plan, with every annual plan being approved by the Board. On average, the assurance team conducts about 50 audits per year. The scope of the audits is designed to test risk areas as defined in the CF. This includes the overall HSSE & SP management system and specific requirements for areas such as personal safety, environment and contractor management. Based on audit outcomes, the audit frequency for an entity may be increased. Audit findings and action items identified are documented and tracked to completion by the relevant business.
We expect joint ventures not operated by Shell to apply standards and principles substantially equivalent to our own. We support these joint ventures in their implementation of theseimplementing such standards and principles, and weprinciples. We also offer to assisthelp them in their review of the effectiveness of their implementation. Even if such a review is not conducted, we periodically
evaluate HSSE & SP risks faced by the ventures that we do not operate. If one of thesea joint venturesventure does not meet our HSSE & SP expectations, we seek to improve performance by working with our partners to develop and implement remedial action plans. We take care to invest responsibly in the energy transition and screen our investments against multiple criteria.
When considering divestments, we collaborate with in-house and external experts, where appropriate, to conduct checks and examine key attributes of potential buyers. These attributes may include their financial strength, operating culture, HSSE policies, and approach to ethics and compliance. We also consider risk- and people-management processes and standards, community liaison practices, and social performance programmes.
Applicable attributes are assessed against Shell’s policies and the requirements of relevant local regulations. Divestments are often subject to the approval of regulatory authorities, which may in part depend on potential buyers’ HSSE capacity, compliance record, and asset-stewardship capabilities.
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| See the section "Risk management and controls" on page 25 for more information. |
Shell aimsDecommissioning and restoration
Decommissioning is part of the normal life cycle of every oil and gas structure. We work hard to work with suppliers that behaveclose and dispose of installations in a safe, economically,efficient, cost-effective and environmentally and socially responsible manner. Our approach to suppliers is set outThis includes restoring the surroundings of platforms and facilities in line with relevant legislation, while taking our Shell General Business Principlesown standards into account. We have decommissioning and Shell Supplier Principles. These cover expectationsrestoration activities under way in areas such as business integrity, health and safety, environment, and human rights.
SAFETY
A focus on safety is one ofBrazil, Brunei, India, the pillars that supports our Powering Progress strategy. We build and operate our facilities withNetherlands, the aim of preventing incidents that may damage or harm our employees, contract staff, nearby communities, the environment or our assets. We strive to help improve safety throughout the energy industry by sharing our safety standards and experience with other operators, contractors and professional organisations, including the International Association of Oil & Gas Producers (IOGP)UK and the Energy Institute.
Safety risks are managed across our businesses through the use of standards, controls and compliance systems. We combine this with a culture of care and an ambition to learn and continually improve. We strive to reduce risks and to minimise the potential impact of any incident.
Our standards also apply to any joint ventures we operate.USA. We seek to improve safetyreuse, repurpose and recycle materials in decommissioning. At the end of 2022, we reported $20 billion on our balance sheet for current and non-current decommissioning and other provisions (see Note 24 to
the Consolidated Financial Statements on pages 272-273).
Shell invests in innovative technologies for decommissioning and restoration which are developed in-house or by focusing onfunding third parties. For instance, our Local Expander technology is used throughout the three areas whereindustry to plug unused wells and stop methane and liquids from escaping over time. The expander is easy to deploy and typically reduces greenhouse gas emissions by at least half compared to the safety risks associated with our activities are highest: personal, process and transport.alternative method of plugging.
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| See the business sections on pages 42-81 for more information. |
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Respecting nature continued
Respecting Nature
We requirerecognise there is a growing urgency to protect and assure ourselves that people responsible for tasks involving a significant safety hazard haveenhance biodiversity, preserve water quality and availability, improve air quality and use resources more efficiently. Nature loss and climate change are interconnected and need to be tackled together, as recognised at COP27 and COP15.
Respecting the necessary training, skills and competencies. We also take human performance into account when deciding how to approach safety. This means that in order to minimise the riskenvironment has been an integral part of people being harmed, we seek to optimise the way people, culture, equipment, work systems and processes interact.
we
We employdo business for many contractors and we work with them so that they understand our safety requirements. Together we seek to improve safety performance by building skills and expertise, and by creating an inclusive and safe work environment. We expect everyone working for us to comply with our mandatory Life-Saving Rules whichyears, as set out simple "do´s and don´ts" for activities with the highest potential safety risks. Employees are expected to discuss, coach and intervene so that everyone understands how the rules apply to a particular work task. If employees break these rules, we seek to understand why, but individuals may face disciplinary action up to and including termination of employment if they do not follow the Life-Saving Rules. If contract staff break the Life-Saving Rules, they can be removed from the worksite.
The COVID-19 pandemic necessitated new kinds of risk assessments beyond those that are normally conducted in our industry. The results led to us adopting extra measures to take care of our employees, our contractors, our customers and the communities we work with. We identified potential impacts beyond our local operations, and we continue to work hard to help the global fight against the virus and to support recovery efforts.
We took many practical steps to protect the health of our staff, including requiring or encouraging office-based staff to work from home, based on the advice of local authorities. From March 2020, the average occupancy rate of our 18 largest offices fell to around 10% for the rest of the year. Our information technology (IT) teams ensured that thousands of people could work from home each day. At the same time, measures were taken to protect colleagues´ health where operations had to be maintained by staff on sites. We created a wide range of tools and resources which also addressed potential mental, physical and social health issues. For example, we set up a programme called Care for Self to encourage staff to pay attention to their physical and mental well-being, and to support them as they did so.
Safety strategy
In 2019, the Board and the Executive Committee spent considerable time reflecting on the worrying safety performance, measured by the number of fatalities, and what needed to change across Shell to prevent fatalities and all other serious incidents. This included conducting a full review of Shell’s safety approach, which covered the effectiveness of current preventative tools, such as the Life-Saving Rules and Goal Zero ambition.
We have made progress in improving the safety of operations since the early 2000s. This was largely because of a stronger safety culture, guided by our Goal Zero ambition to achieve no harm and no leaks, more effective standards, and requirements such as the Life-Saving Rules. In recent years the vast majority of fatalities had no link to a breach of the Life-Saving Rules. Sadly, we have been unable to eliminate all fatal incidents involving Shell employees and contractors.
In 2020, we started what is expected to be a multi-year effort to refresh our approach to safety. The purpose is to avoid life-changing injuries and fatalities by building on existing strong foundations. We aim to achieve this with an increased and deliberate focus on human performance. We recognise that people are key to executing complex tasks and to finding solutions to problems. We call the belief that we can always improve, enhance individual capabilities, learn from mistakes and successes, and speak up without being punished a learner mindset. We seek to create conditions that encourage employees and contractors to share ideas and concerns without fear of rejection or punishment. In addition to specific training, events like our annual Safety Day 2020 provided Shell teams and contractors with the chance to reflect on this concept.
We are now building on our current approach to safety with a more consistent focus on the way people, culture, equipment, work systems and processes all interact. The majority of our fatalities over the last five years were down to the complex interaction between these elements. We aim to better understand the gap between how we anticipate work will be done
safely and how the work is actually carried out. We continue to work to prevent incidents by maintaining safety barriers and providing training. We acknowledge that people make mistakes and not all incidents may be preventable. As a result, we started to focus more on how people can “fail safely”, and on their response in the moment to avoid the risk of a serious injury. This approach is a change of philosophy, put into practice by improving processes for planningShell General Business Principles and completing work,Shell Commitment and debriefing afterwards. In 2020, tangible changes were piloted and deployed for application by employees and contractors. For example, in 2020, we used earlier experience with drones, remote sensing technology, robots and digital technology, such as augmented reality, as lockdowns caused by the COVID-19 pandemic disrupted the movement of people. This technology enabled us to carry out more remote monitoring and to continue to assure data to meet safety and environmental performance reporting standards.
Personal and process safety
We continue to strengthen the safety culture and leadership among our employees and contract staff. This aligns with our focusPolicy on caring for people. Our safety goal is to achieve no harm and no leaks across all Shell company operations. We call this our Goal Zero ambition.
We expect everyone to consider two aspects of their tasks: the hazards that could potentially cause serious harm, and the effectiveness of the barriers in place to avoid serious harm if an incident occurs. In addition to our ongoing safety awareness programmes, we hold an annual global Safety Day to give employees and contractors time to reflect on how to prevent incidents. During Safety Day 2020, we asked all our staff and contractors to reflect on the importance of showing care for each other and ensuring that we are in control of risks with robust barriers in place, particularly under the current challenges of the pandemic. More information on how we implement these measures is expected to be published in our Shell Sustainability Report in April 2021.
Process safety management is about keeping hazardous substances inside pipes, tanks and vessels, and ensuring that well fluids are contained during well construction and well intervention so that they do not harm people or the environment. It starts at the design and construction stage of projects and continues throughout the life cycle of facilities to ensure they are safely operated, well maintained and regularly inspected. Our global standards and operating procedures define our expectations for the controls and physical barriers required to mitigate risks of incidents. For example, to mitigate the risk of an uncontrolled release of hydrocarbons, offshore wells are to be designed with at least two independent barriers in the direction of flow. We regularly inspect, test and maintain these barriers to ensure they meet our standards. In the event of a loss of containment such as a spill or a leak, our standards require the use of independent recovery measures to stop the release from becoming catastrophic. This system of barriers and recovery measures is called a “bow-tie”, a model that visually represents a system where personal and process safety hazards are managed through prevention and response barriers.
We have embedded a set of process safety fundamentals to strengthen barriers that involve critical safety tasks carried out by frontline staff. These fundamentals provide guidelines for good operating practice that should prevent unplanned releases.
We routinely prepare and practise our emergency response to potential incidents such as a spill or a fire. This involves working closely with local
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STRATEGIC REPORT SHELL FORM 20-F 2020 | 67 | |
services and regulatory agencies to jointly test our plans and procedures. These tests continually improve our readiness to respond. If an incident does occur, we have procedures to reduce the impact on people and the environment.
Transport safety
Transporting large numbers of people, products and equipment by road, rail, sea and air poses safety risks. We seek to reduce these risks by developing best-practice standards within Shell. We also work with specialist contractors, industry bodies, NGOs and governments to find ways of reducing transport safety risks.
Shell employees and contractors drove a combined distance of around 470 million kilometres on business in 2020 in over 50 countries. We run road safety programmes that promote safe driving techniques and behaviour in a number of countries where we operate, for example in India, Malaysia, and the UK. We require everyone driving more than 7,500 kilometres a year on Shell company business on public roads and those who drive in countries with higher road safety risks to take a defensive driving course. We also run an annual online defensive driving course for all who drive on public roads while on Shell company business. FatigueHSSE & SP. Respecting Nature is one of the most significant risks when on the road. In 2020, at the Shell-operated QGC facility in Queensland, Australia, we worked with four universities and eight contracting companies to evaluate fatigue detection devices and to find the one that performed best in testing. The collaboration was the largestpillars of its kind and involved evaluating around 100 devices on long stretches of Australia’s road network. As a result, we aim to start introducing recommended devices in Malaysia in 2021.
We also work to improve general road safety in several communities and countries where we operate, through organisations such as the Global Road Safety Partnership. For example, in India, we continue our road safety campaignPowering Progress strategy, which includes eye testing of third-party professional drivers. In 2020, around 20,000 Shell employees and contractors completed such testing.
Safety performance
In 2020, despite the unprecedented challenges faced, Shell and its contractor partners had the safest year that we have ever experienced. It was the first year with zero fatal injuries, and also the best ever process safety performance at ventures operated by Shell. Tragically, two contractors died after they caught COVID-19 during the course of their work for Shell.
Our Total Recordable Case Frequency (injuries per million working hours) was 0.7 in 2020, compared with 0.9 in 2019. There were 103 operational Tier 1 and 2 process safety events in 2020, compared with 130 in 2019. Detailed information on our 2020 safety performance is expected to be published in the Shell Sustainability Report in April 2021.
From 2021, the Total Recordable Case Frequency (TRCF) will be replaced on the Group scorecard by Serious Incidents and Fatalities Frequency (SIF-F). The new metric reflects the number of serious incidents and fatalities per 100 million working hours. The Executive Committee and the Safety, Environment and Sustainability Committee (SESCo) have endorsed the change. Several industry safety leadership groups confirm that root causes for serious and high-potential incidents are often different from the majority of lower-consequence events. Shell's shift is intended to help focus attention on improving its safety systems, and it targets the prevention of life-altering injuries, which aligns with the emphasis on human performance and Goal Zero. We will continue to report on TRCF for benchmarking purposes.
We require incidents to be investigated so we can understand the underlying causes, including technical, behavioural, organisational and human factors. We share learnings and implement mitigations at the site and in the country and business where the incident occurred. We seek to turn incident findings into improved standards or better ways of working that can be applied widely across similar Shell facilities. This is part of embedding the learner mindset approach across the organisation and engaging with contractors to share these learnings.
For example, in 2020, we continued to implement learnings from a tragic roll-over incident that occurred in Pakistan in 2017 and which was not under
our operational control. Pakistan continues to be among the countries with the highest risks for road transport. The investigation offered several learnings. Our focus has now moved from technical standards to driver professionalism, including aspects such as fitness to work, training and coaching on the job. One of the most significant risks when on the road is fatigue. Shell Pakistan Limited is managing this through the creation of enhanced awareness for this topic, reduced duty hours and better rest facilities.
In 2021, Shell will take a further step to focus our efforts to enhance safety. We will transition from applying our 12 Life-Saving Rules to using the simplified set of nine Life-Saving Rules of the International Association of Oil & Gas Producers (IOGP). A common approach across the industry makes working within the supply chain easier and can accelerate the adoption of safety measures.
ENVIRONMENT
For many years we have had guiding principles and standards that seek to protect the environment. Now we are stepping up our environmental ambitions and shaping them to contribute to the UN Sustainable Development Goals.
Our environmental ambitions include protecting and enhancing biodiversity – the plant and animal life that is vital for the planet. We are also focusing on using water and other resources more efficiently across all our activities, reusing as much of them as we can.
We are reducing waste from our operations and increasing recycling of plastics. We are helping to improve air quality by reducing emissions from our operations and providing cleaner ways to power transport and industry. Working with our partners and suppliers and developing new collaborations is key. We will join with others across industry, governments, our customers and supply chains to protect nature.
In February 2021, we launched our new environmental framework which focusesin 2021 (see page 12). Our commitments focus on four priority areas: biodiversity (land and marine environments), water, circular economy and waste, and air quality. We haveThey set environmentalout our ambitions for 2030 and later, as well as shorter-term goals:goals.
•We will reduce the amount of fresh water consumedhave included our commitments in our facilities, starting by reducing fresh-water consumption by 15% by 2025 compared with 2018 levels in areas where thereperformance management and reporting systems and have been working to define baselines and track progress. Our Executive Committee is high pressure on fresh-water resources.accountable for delivery
of the Respecting Nature goal.
•By 2030, we will increase the amount of recycled plasticWe have made a commitment to include requirements in our packaging to 30%purchasing policies that reflect our environmental framework and ensure that
take the packaging we use for ourenergy efficiency, material efficiency and sustainability
of products is reusable or recyclable.
•We are aiming for zero waste by increasing reuse and recyclinginto consideration in our business and supply chains.purchases.
•We will demonstrate an overall positive impact on biodiversity from our new projects in areas rich in biodiversity, called critical habitats. This will include investing in conservation and taking steps to safeguard and, where possible, enhance local environments.
We will continue to look forseek opportunities to go further further. Our environmental ambitions are underpinned by collaboration with our supply chains
and will reporttransparent reporting.
Environmental standards
Shell's global environmental standards are set out in our progress in a transparent way. We useHSSE & SP Control Framework and we seek to apply them wherever we operate. Our approach draws on external standards and guidelines, such as those developed by the World Bank and the International Finance Corporation, to inform our approach. We follow globalCorporation. Our environmental standards for managing our emissions and discharges, for conserving biodiversity, and for minimising our water use and impact on water resources.
Shell´s global environmental standards cover our environmental performance. They include details of how to manage emissions of greenhouse gases (GHG),; consume energy more efficiently,efficiently; reduce gas flaring and monitor and improve air quality; prevent spills and leaks of hazardous materials,materials; use less fresh waterwater; and conserve biodiversity. We seek to apply our global environmental standards wherever we operate.
When planning new major projects, we conduct detailed environmental, social and health impact assessments.
See also “Control Framework” on page 65, more information on how we manage our GHG emission in "Climate change and energy transition" on page 73, and read about our new environmental framework on our website shell.com.
We believe some areas are too sensitive to enter. Therefore, we made the commitment The Shell HSSE & SP Standards require that we will not explore for or developcertify our major installations against an internationally recognised independent environmental management system standard if they have significant environmental risks. Major installations are crude oil and natural gas resourcesterminals; gas plants; manned offshore and onshore production platforms or flow stations; floating production and storage vessels; refineries; chemicals manufacturing facilities; mines; or upgraders. For the purpose of this Report, we did not count each major installation in natural and/Upstream and Integrated Gas separately. They were aggregated into their respective operating unit or cultural World Heritage Sites.
operating company, such as Shell Upstream UK or Nederlandse Aardolie Maatschappij (NAM), in line with the scope of their certifications. At the end of 2022, 100% of major installations within that scope and operated by Shell were certified against the ISO 14001:2015 Environmental Management System or were in compliance with equivalent environmental frameworks required by local regulations. In addition, many installations that are not classified as major, such as lubricant plants or supply terminals, are also certified against ISO 14001 but are not included in the data above. | | | | | | | | |
STRATEGIC REPORT SHELL FORM 20-F 2020 | 68 | See also "Control Framework" on page 111 and "Our journey to net zero" on page 86 for more information on how we manage our GHG emissions. |
We aim to minimise the impact of our onshore and offshore projects on biodiversity and ecosystems, bywhether life on land or life below water.
Since 2021, all projects in critical habitats and nature-based solutions projects must have measures in place to achieve a net-positive biodiversity result. If we decide to go ahead with a project that is in
a critical habitat, we develop a biodiversity action plan. This includes applying the mitigation hierarchy, a decision-making framework that involves a sequence of four key actions: avoid, minimise, restore and offset. We first aim to avoid impactsassess the potential impact of projects on biodiversity
as part of our impact assessment process. If there is an impact on biodiversity, and ecosystems. Wherethe plan outlines the actions required to help achieve
a net-positive outcome for biodiversity. For example, in our operations have affectedrecently announced Jackdaw project in the UK, our impact assessment determined there were no significant environmental or socio-economic impacts identified after implementation of mitigation measures.
Our commitments include replanting forests, achieving net-zero deforestation from new activities, while maintaining biodiversity and communities that rely on biodiversity for their livelihoods,conservation value. Deforestation occurs when forests are converted to non-forest uses. We use the definition of forest used by the Food and Agriculture Organization of the United Nations.
In 2022, around 145 hectares were deforested as a result of our new activities. Reforestation plans are in development which we seekintend to implement to help restore damaged habitats.achieve biodiversity and contribute to conservation. We work with partners and stakeholders to create robust and credible plans unique to each reforestation project.
In 2003, we committed not to explore for, or develop, oil and gas resources in natural and mixed World Heritage Sites.
Circular economy and waste
We are aiming for zero waste by reducing waste generated and increasing reuse and recycling in our businesses and supply chains. In 2022, we completed 19 assessments on waste across our businesses, adding to five that were completed in 2021. These assessments determined a high number of varied waste sources. Further review is required before setting additional waste reduction, reuse and recycling goals. In 2023, we plan to take action to help address reductions across the most significant of Shell's waste streams.
In 2022, we disposed of 1,982 thousand tonnes of hazardous and non-hazardous waste, which is relatively flat compared with 1,993 thousand tonnes in 2021. We also looksent 457 thousand tonnes of residual materials for opportunitiesreuse, recycling or beneficial use as a raw material in another process. For example, waste that might otherwise go to landfill can be incinerated to generate energy.
We continue to explore ways to reduce, reuse and recycle packaging across our supply chains, and introduce sustainable packaging. We have also set commitments to work with our suppliers and contractors to help end plastic waste in the environment:
▪By 2030, we will increase the amount of recycled plastic in our
Shell-branded packaging to 30% and ensure that the packaging we use for our products is reusable or recyclable.
▪We will increase the amount of recycled materials used to make our products, starting with plastics. Our ambition is to use 1 million tonnes of plastic waste a positive contributionyear in our global chemical plants by 2025.
We are focusing on chemical recycling where we break down hard-to-recycle plastics into raw materials through a technique called pyrolysis. The technique breaks down hard-to-recycle plastics into raw materials. The pyrolysis oil can then be used as feedstock in our chemical plants, replacing traditional hydrocarbon feedstock. This contributes to conservation,our circular economy ambition and prevents waste that would otherwise have gone to landfill or incineration.
Strategic Report | Progress on strategy – year in review
Respecting nature continued
At the Shell Chemicals Park Moerdijk in the Netherlands, we are building a new pyrolysis oil upgrader. The plant will have the capacity to process up to 50,000 tonnes of pyrolysis oil per year.
At our Shell Energy and Chemicals Park Singapore, we are also known asbuilding a net-positive impact (NPI). For example, to offset and compensate for clearing vegetation and habitat while developing gas resources, the Shell-operated QGC gas project in Australia manages the Valkyrie property, an areapyrolysis oil upgrader, with a rich ecosystem. We monitor and measurecapacity of 50,000 tonnes per year.
In 2021, we announced plans - along with our joint-venture partner BlueAlp - to build two hard-to-recycle plastic waste conversion units in the impact and seek waysNetherlands. Since the signing, we have worked together to improve the mitigation strategy.operational set-up and process safety. The plant is expected to convert more than 30,000 tonnes of plastic waste a year into pyrolysis oil.
Water
Managing our impacts on water and ensuring the availability of fresh water for our operations is a growing challenge in some parts of the world. Increasing demand for water resources, growing stakeholder expectations and concerns, and water-related legislation may reduce theour access to water for our operations. water.
We manage water use carefully, and tailor our use of fresh water to local conditions and requirements. We sometimes use alternatives to fresh water in our operations. These include water that has been recycled from our operations, processed sewage water and desalinated water. For example, the QGC project in Australia produces liquefied natural gas (LNG) from natural gas in a water-scarce region of the Surat Basin in Queensland. Water is produced as a natural by-product during the extraction of gas. Two water plants treat the produced water so that it is suitable for use by local farmers, industry and town water suppliers. We require that all Shell company facilities and projects are assessed to see what risks they might pose to water availability. In places where water is scarce, we develop water-management action plans for using less fresh water, increasing water recycling and closely monitoring water use.
We aim to reduce our consumption of fresh water in water-stressed areas by 15% by 2025 compared with 2018 levels.
At the end of 2022, four of our major facilities were in areas where there is a high level of water stress, based on analysis using water stress tools, including the World Resources Institute’s Aqueduct Water Risk Atlas and local assessments. These four facilities are the Pearl GTL (gas-to-liquids) plant in Qatar, the Shell Energy and Chemicals Park in Singapore, the Shell Jurong Island chemical plant, also in Singapore, and the Tabangao Import Terminal in the Philippines. In 2022, these four facilities consumed 18 million cubic metres of fresh water, compared with 22 million cubic metres in 2021 and their baseline
of 25 million cubic metres in 2018.
In 2020,2022, we continued to review our water use and stewardship.
We are applying procedures across our businesses to improve water efficiency and reduce fresh-water use. This has involved detailed assessments at six Shell sites: QGC upstream and midstream, Australia; Shell MDS, Malaysia; Shell Hazira LNG Terminal, India; Shell Energy and Chemicals Park Rheinland, Germany; and Shell Chemicals Park Moerdijk. The assessments involved desktop analysis and detailed site evaluations conducted with external organisations. A key learning from the assessments was that Water Stewardship principles can be applied to Shell’s onshore facilities. We expect to update our approach further in 2023.
In 2022, our overall intake of fresh water decreased to 156 million cubic metres, compared with 166 million cubic metres in 2021, mainly driven by divestments and the shutdown of some units at theShell Energy and Chemicals Park Singapore, and at Jurong IslandSingapore.
Around 85% of our intake of fresh water was 171 million cubic metres, compared with 192 million cubic metres in 2019. The reduction was partly because of divestments in Canada and the USA. Around 90% of our fresh water intake2022 was used for manufacturing oil products and chemicals, with the rest mainly used for oil and gas production. Around 35%30% of fresh waterour fresh-water intake was from public utilities, such as municipal water supplies, with thesupplies. The rest was taken from surface water such as rivers and lakes (around 55%) and groundwater (around 10%15%).
DetailedAdditional information on our 20202022 environmental performance is expected to be published in the Shell Sustainability Report in April 2021.March 2023.
Air quality
We are helping to improve air quality by reducing emissions from our operations and providing clean ways to power transport and industry. We follow our own standards and those of local regulators to manage airborne pollutants in our oil and gas production and processing, including emissions of nitrogen oxides, sulphur oxides and volatile organic compounds.
See “Climate changeOur nitrogen oxide (NOx) emissions decreased from 105 thousand tonnes in 2021 to 93 thousand tonnes in 2022, in part because of the handover of OML 11 operations in Nigeria, divestment of our Permian assets in the USA, and energy transition” on page 73 for more information on how we manage our GHG emissions.fewer ships operated by Shell.
SPILLS | | |
| For more information about our approach to biodiversity, circular economy and plastic waste, and water see our website shell.com. |
Spills
Large spills of crude oil, oil products and chemicals associated with
our operations can harm the environment, and result in major clean-up costs, fines and other damages. They can also affect our licence to operate and harm our reputation.
We have requirements and procedures designed to prevent spills. We design, operate and maintain our facilities with the intention of avoiding spills. To further reduce the risk of spills, Shell has routine programmes to reduce failures and maintain the reliability of facilities and pipelines. Our business units are responsible for organising and executing spill responses in line with Shell guidelines and relevant legal and regulatory requirements. Our offshore installations have spill response plans for when an incident occurs. These plans set out response strategies and techniques, available equipment, and trained personnel and contracts. We can engage specialist contracted services for oil-spilloil spill response, including vessels, aircraft or other equipment and resources, if required, for large spills. We conduct regular exercises that seek to ensure these plans remain effective and fit for purpose.
We have further developed our ability to respond to spills to water, and we maintainsurface water. We have a global response supportworldwide network of trained staff to support our worldwide response capability. This ishelp with
this. We also supported by ourhave a global oil spill expertise centre, which tests local capability and maintains our ability globally to respond to a significant spill
into a marine environment.
We are involved in several industry consortia formed to improve well-containment capabilities. Shell Offshore Response Company LLC is a founding member of the Marine Well Containment Company, a non-profit industry consortium providing a well-containment response system for the Gulf of Mexico. Shell Response Limited was a founding member of the Subsea Well Response Project, an industry cooperative effort to enhance global well-containment capabilities, which has since become Oil Spill Response Limited, an industry consortium.
Site-specific emergency response plans are maintained in case there is an onshore spill. Like the offshore response plans, these are designed to meet Shell guidelines and relevant local legal and regulatory requirements. The onshore response plans also provide for the initial assessment of incidents and the mobilisation of resources to manage them. In the event of spills on land, businesses are supported by our global Soil & Groundwater team which reviews and implements appropriate remedies. The global Soil & Groundwater Team is engaged throughout the life cycle of our assets. For example, during acquisition and divestment of assets, the team conducts due diligence to identify land contamination liabilities. Through research and development initiatives, the team collaborates with regulators in developing, modifying, and applying sustainable remediation techniques.
Spills still occur for reasons such as operational failure, accidents or unusual corrosion. In 2020,2022, there were 6854 operational spills of more than 100 kilograms compared with 6742 in 2019.2021. The weight of operational spills of oil and oil products in 20202022 was 0.40.06 thousand tonnes, compared with 0.20.05 thousand tonnes in 2019. At2021. In 2022, all of the time of publication of thisspills caused by sabotage and theft were in Nigeria. The number
Strategic Report there were four spills under investigation| Progress on strategy – year in Nigeria that may result in adjustments.review
of these spills decreased to 75 in 2022 from 106 in 2021, with the volume also decreasing to 0.6 thousand tonnes from 3.3 thousand tonnes in 2021.
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| See "Safety" section on page 125 for more information on emergency response. |
Spills in Nigeria
In the Niger Delta, over the last 1012 years, the total number of operational hydrocarbon spills and the volume of oil spilled from
them into the environment have been significantly reduced.
Most oil spills in Nigeria'sthe Niger Delta region continue to be caused by crude oil theft, orthe sabotage of oil and gas production facilities, and by illegal oil refining, including the distribution of illegally refined products.
In 2020,2022, the Shell Petroleum Development Company of Nigeria Limited (SPDC) managed to reduce, as operator of the number ofSPDC joint venture (JV, Shell interest 30%), reported 10 operational spillsspill incidents of more than 100 kilograms to around 0.02 thousand tonnes of crude oil, (10 incidents) compared withmore than the nine reported in 2021. The volume of around 0.01 thousand tonnes was less than the 0.03 thousand tonnes of crude oil (seven incidents)recorded in 2019. This was a year-on-year reduction in operational spills of one-third by weight.2021.
To reduce the number of operational spills, SPDC [A] has an ongoing work programme to appraise, maintain and replace key sections of pipelines and flow lines. Overlines, in order to reduce the last nine years, about 1,330number of operational spills. In 2022, around 27 kilometres
of pipelines and flow lines have been replaced. This work is organised through a proactive pipeline and flow line integrity management system. The system that proactively addresses pipeline integrity. It putsinstalls barriers in place where necessary, and recommends when and where pipeline sections should be replaced to prevent failures. In 2018,
[A]Unless otherwise stated, all activities reported for or as relating to Shell Petroleum Development Company Limited (SPDC) in this integrity management system was enhanced to manage threats arising from frequent pipeline sabotage or vandalism.
section should be understood as SPDC acting as the operator of the SPDC joint venture (SPDC JV). SPDC, as the corporate
entity, owns 30% of the JV.
Spills caused by sabotage reduced in 20202022
In 2020,2022, about 90%88% of the oil spills of more than 100 kilograms from the SPDC joint venture'sSPDC-operated facilities were caused by the illegal activities of third parties. In 2020,2022, the volume of crude oil spills of more than 100 kilograms caused by sabotage was 1.4around 0.6 thousand tonnes (122(75 incidents), compared with 2.3around 3.3 thousand tonnes (156(106 incidents) in 2019.2021. The decreasedecreased number of incidents in incidents and volumes was2022 correlates with a shut-down of production for about six months because of improved security and surveillance, including community-based pipeline surveillance.
an unprecedented increase of crude oil theft from the Trans Niger
Pipeline (TNP), which is operated by SPDC on behalf of the SPDC JV. SPDC continues to undertake initiativeswork with the government security agencies to preventmaintain surveillance and reduce spills caused by theft from or sabotageaddress illegal activities of third parties, primarily along the SPDC JV pipeline and its facilities in the Niger Delta. operational areas.
In 2020,2022, SPDC continued on-ground surveillance of its areas of operation, including its pipeline network, to mitigate third-party interference and ensure that spills are detected and responded
to as quickly as possible.
There are also daily overflights of the most vulnerable segments of the pipeline network to identify any new spills or illegal activity. SPDC has also introduced anti-theft protection mechanisms for key infrastructure such as wellheads and manifolds. The programme to protect wellheads with steel cages continues to help deter theft.
By the end of 2020, 3642022, a total of 311 steel cages were installed, including 38 that had been installed. including 73 cages upgraded with CCTV. Only 15 breaches were successfulThis compared with a total of 283 installed cages at the end of 2021. In 2022, out of 1,706732 registered attempts.
attempts, 47 were successful. | | | | | | | | |
STRATEGIC REPORT SHELL FORM 20-F 2020 | 69 | |
Faster responseResponse and remediation
IrrespectiveRegardless of the cause of a spill, SPDC works to cleancleans up and remediateremediates areas affected by spills originating from its facilities. In 2022, the time that SPDC reduced the average timeneeded to complete the recovery of free-phase oil -– oil that forms a separate layer and is not mixed with water or soil - from about 13 days in 2016 to about– remained at around one week in 2020.week. This is the average time it takes to safely access
a damaged site, initiate containment to prevent further spread of the spill, and to start joint investigation visits (JIV) with regulators, impactedaffected communities, and in some cases with non-governmental organisations,NGOs, to clean up oil not
mixed with water or soil.
Clean-up activities include bio-remediation which stimulates micro-organisms that naturally break down and use carbon-rich oil as a source of food and energy, effectively removing it. Once clean-up and remediation operations are completed, the work is inspected and, if satisfactory, approved and certified by the Nigerian regulators. With operational spills, SPDC also pays compensation to affected people and communities.
SPDC has been working with the International Union for Conservation of Nature (IUCN) since 2012 to enhance remediation techniques and protect biodiversity at sites affected by oil spills in SPDC’sits areas of operation in the Niger Delta. Based on this collaboration, SPDC has launched further initiatives to help strengthen its remediation and restoration efforts. In 2020,2021, SPDC, IUCN, the Nigerian Conservation Foundation, and Wetlands International workedbegan working together on the Niger Delta Biodiversity Technical Advisory Group (BTAG), which continues to monitor biodiversity recovery at remediated sites.
SPDC also works with a range of stakeholders in the Niger Delta
to build greater trust in spill response and clean-up processes. LocalFor example, local communities participate in remediation work for operational spills. Due to the restrictions of COVID-19 there were fewer opportunities to collaborate but the engagement and partnership with communities continued. Various NGOs have sometimes gone on joint investigation visits with SPDC, government regulators, and members
of affected communities to establish the cause and volume of oil spilled.
SPDC has also implemented several programmessustained efforts to raise awareness of and counter the negative effects of crude oil theft and illegal oil refining. Examples include awareness and education programmes, community-based pipeline surveillance, and promoting of alternative livelihoods through Shell’s flagship youth entrepreneurship programme, Shell LiveWIRE.
Bodo clean-up process
In 2015, SPDC on behalf of the SPDC joint venture and the Bodo community signed a memorandum of understanding (MOU) granting SPDC access to begin cleaning up areas affected by two operational spills that occurred in 2008. The MOU also provided for the selection of two international contractors to conduct the clean-up under the oversight of an independent project director. The clean-up project was delayed in 2016 and for most of 2017 because of access challenges from the community. Engagement with the Bodo community and other stakeholders began in September 2015 and was managed by the Bodo Mediation Initiative. The clean-up project was delayed in 2016 and for most of 2017 because of access challenges from the community.
After two years of engagement, inIn September 2017, it was possible to start the first phase of clean-up and remediation activities. The clean-up consists of three phases:
1) removal of oil floating on water surfaces;from shoreline surfaces and mud flat beds;
2) remediation of soil;soil and sediments; and
3) planting of mangroves and monitoring.
The first phase was completed in August 2018. ThePhase two's contract procurement process for phase two was completed in 2019. Remediation activities in the field started in November 2019. During 2020, work had to be put on holdpaused until November because of COVID-19 restrictions. Currently, we expect to finalise the activities by about May 2023.
Strategic Report | Progress on strategy – year in review
Respecting nature continued
During 2021 and 2022, the Niger Delta Biodiversity Technical Advisory Group assessedremediation of soil and sediments continued. By the initial field reports fromend of 2022, remediation work was completed on more than 87% (about 60% by end of 2021) of about 1,000 hectares that had been designated for clean-up. Remediation is expected to be completed by the end of the third quarter of 2023.
The planting of mangrove seedlings (phase 3) started in 2021. Around two pilot sites containing freshwatermillion mangrove seedlings need to be planted and swamp forests.survive to 2025 to fulfil the project’s goal. By the end of 2022, close to 340,000 seedlings had been planted. The advisory group set out its aimsNational Oil Spill Detection and timelineResponse Agency (NOSDRA) had completed the certification for work at both sites. Field visits to these remote locations were disrupted by COVID-19 restrictions. The advisory group is also analysing other potential pilot sites identified by SPDC, and planning an engagement session with regulatory agencies in Nigeria.
Ogoniland: commitment to the United Nations Environment Programme
SPDC remains committed to the implementation of the 2011 United Nations EnvironmentalEnvironment Programme (UNEP) Report on Ogoniland
which assessed contamination from oil operations in the region and recommended actions to clean it up. Over the last nine11 years, SPDC has acted on all and completed most of the UNEP recommendations that were specifically addressed to it as the operator of the joint venture.
The clean-up efforts are led by the Hydrocarbon Pollution and Remediation Project (HYPREP), an agency established by the federal government. In 2018, HYPREP awarded contracts for the first set of remediation projects. In 2019, 21 contractors started operations on 21 lots which add up to 12 of the 67 polluted sitesThe UNEP report had recorded in the UNEP report. Of those 67 sites, of which two arewere classified as waste sites without hydrocarbon pollution. This left 65 sites to be remediated, with all completed sites to be certified by
NOSDRA. In January 2020, HYPREP2021, for nine sites, remediation and certification was completed, work on 11 sites continued in 2022. In 2022, remediation of another nine sites and certification of four were completed. Work on two sites continues in 2023. Also, for 13 sites, NOSDRA certified that - in contrast to the original report - remediation was not needed. For the 17 sites, contracts have been awarded a further 29 contracts forand field work is expected to commence in 2023. For the remaining 15 sites, remediation on 29 lots covering eight polluted sites. The contractors took up remediation activities in the fourth quarter of 2020. Although remediation works continue to make progress, challenges remain. These include re-pollution, lack of contractor funding, land disputes and security issues in Ogoniland.
The UNEP report recommended creating an Ogoni Trust Fund (OTF) with $1 billion capital, to be co-funded by the Nigerian government, the SPDC joint venture and other operators in the area. The SPDC joint venture remains fully committed to contributing $900 million to the fund as its share over five years. SPDC JV partners contributed the first instalment of $180 million for the clean-up byin July 2018, and released the second instalment of $180 million in 2019. HYPREP did not request the release of any funds in 2020. The In 2021, HYPREP requested the release of funds for 2020 and 2021 ($360 million). SPDC paid $212 million in 2022, which brought the total contribution to the OTF to $572 million at the end of 2022.
Although remediation works continue to make progress, challenges remain. These include re-pollution, land disputes, environmental issues such as flooding caused by excessive rainfall, and security issues in Ogoniland.
UNEP continues to monitor the progress of the clean-up exercise viathrough its observer status at both the HYPREP´s Governing Council and the Ogoni Trust Fund. ItsUN agencies such as UNDP, UNITARthe United Nations Development Programme and UNOPSthe United Nations Institute for Training and Research provide services to HYPREP in the areas of livelihood programmes, training and project services.
HYDRAULIC FRACTURING
Shale oil and gas resources remain a critical part of a modern energy system as we move towards renewable sources. Shale resources are abundant and offer a relatively affordable source of energy. According to US Energy Information Administration (EIA) estimates, there are 7,576.6 trillion cubic feet of unproven technically recoverable wet shale gas resources and 418.9 billion barrels of unproven technically recoverable tight oil resources spread across 46 countries. We believe that developing these resources is critical for meeting the energy needs of growing societies around the world.
The oil and gas industry has used hydraulic fracturing to unlock tight/shale oil and gas resources in vertical wells for decades. In the past 20 years, hydraulic fracturing has also been used in horizontal wells to recover natural gas and oil. The technology has opened up vast resources that were previously thought to be unrecoverable. Hydraulic fracturing has been used by the industry in more than 2.5 million oil and gas wells, many of them in the USA. Hydraulic fracturing involves pumping a fluid that is typically 99.9% water and sand and around 0.1% chemical additives into tight sand or shale rock at high pressure. This creates threadlike fissures - typically the diameter of a human hair - in the rock, making space through which the hydrocarbons can flow more easily.
At Shell, we believe we can explore, develop and produce tight/shale oil and gas resources safely and responsibly. Our operations are underpinned by our Principles for Producing Tight/Shale Oil and Gas (known as Onshore Operating Principles). These provide a framework for protecting the environment and the communities in which we operate. ThesePrinciples
We use five aspirational operating principles coverwhich focus on safety, air quality, water protection and usage, land useenvironmental safeguards, and engagement with nearby communities to address concerns and help develop local communities.economies. We revieware working towards making all of our Shell-operated onshore projects where hydraulic fracturing is used to produce gas and oil from tight sandstone or shale consistent with these principles.
We consider each project – from the Onshore Operating Principles annuallygeology to the surrounding environment and update them as new technologies, challengescommunities – and regulatory requirements emerge.design our activities using technology and innovative approaches best suited to local conditions. We also support appropriate and fit-for-purpose regulations.
We workgovernment regulations consistent with these principles that are designed to reduce greenhouse gas (GHG) emissions associated with our oil and gas development and production. Shell´s shale assets implement GHG management plans and have a robust Leak Detection and Repair (LDAR) programme. We are working on multiple fronts to develop cutting-edge technologies that enhance our LDAR programme and enable earlier detection and repair of leaks. As per the Onshore Operating Principles, we seek to minimise routine gas flaring at shale assets. See our website
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STRATEGIC REPORT SHELL FORM 20-F 2020 | 70 | |
shell.com for more information about the GHG management practices, such as the "Onshore Operating Principles in Action: Methane Fact Sheet".
See also "Climate Change and energy transition" on page 73.
The availability and quality of water, local environmental conditions and regulatory requirements vary from basin to basin. Therefore, each shale asset develops a tailor-made water management strategy, identifying short- and long-term water needs, options for water sourcing, recycling and sharing, options for treatment and disposal, and options for transportation and storage. The people operating our shale assets aim to minimise the use of water. Depending on local hydro-geologic conditions, they typically use a combination of fresh water, brackish groundwater, produced water and waste water. They actively strive to reduce and ideally eliminate freshwater intake for drilling and hydraulic fracturing operations, by increasing recycling capacity and using municipal water.
Potable groundwater aquifers are isolated from the hydrocarbon-producing shale formations by hundreds of metres of impermeable rock. We often need to drill through potable groundwater aquifers to reach shale formations. We therefore design our drilling, hydraulic fracturing and production activities in ways that aim to maintain isolation from potable groundwater aquifers. Before drilling a well, we conduct a hazard assessment in which we analyse risks to groundwater aquifers the environment
and develop control measures to reducekeep those risks. When we drill, we have at least two physical barriers, consisting of steel casing and cement, between the wellbore and potable groundwater aquifers. We continuously monitor wellbore integrity before, during and after hydraulic fracturing and during production activities.living near operations safe.
Chemical additives are needed in hydraulic fracturing fluid to carry sand, reduce friction and prevent the growth of bacteria. We have been working to optimise the composition of our hydraulic fracturing fluids since 2015. As a result, we have reduced chemical additive volumes by around 50-60% compared with 2015. Currently, on a volume basis, around 0.1% of our hydraulic-fracturing fluid is chemical additives. We support disclosure of the chemical additives used in hydraulic-fracturing fluids for Shell-operated wells. See our website shell.com for more information about our water management practices, such as the "Onshore Operating Principles in Action: Water Fact Sheet".
SEISMICITY
As oil and gas fields mature, seismic activity may occur, depending on the unique geology of individual fields. An example is the Groningen onshore gas field in the Netherlands, where induced earthquakes have occurred since the 1990s. Some of these earthquakes have damaged houses and other structures in the region, resulting in complaints, claims and lawsuits from local home-owners and residents. Actions have been taken to improve safety, liveability and economic prospects in the region. Nederlandse Aardolie Maatschappij B.V. (NAM, Shell interest 50%) operates the gas field. The Dutch government has taken over policy setting and execution of these mitigating actions and the "duty of care" from NAM. NAM continues to carry the costs. The government is also currently instructing NAM on production levels. Production from the onshore Groningen gas field in the Netherlands is expected to stop by 2022 or shortly thereafter.
See "Upstream" on page 36.
Overall, we believe it is relatively unlikely that hydraulic fracturing or well operations for disposing of produced water will induce seismicity that is felt on the surface. Despite this, Shell still takes precautionary measures around induced seismicity, and proactively managesWe would also expect any such impact to be limited to a relatively small area. The geology of some places, though, does increase the risk of inducing seismicity that can be felt on the surface. With the production from the Groningen onshore gas field in accordance with, and sometimes beyond, regulatory requirements. We have added precautionary measures around inducedthe Netherlands, seismicity to our Onshore Operating Principles and developed internal guidelines that we apply to our shale assets. They outline a risk assessment process and provide a framework for risk management. Subsurface and surface conditions vary from basin to basin, which means that management practices need to reflectwas felt.
Shell assesses the risk profile of each basin before entering and provide customised responsesmanages operations accordingly, often beyond regulatory requirements. We assess the subsurface formation and surface environment around our operations and have developed appropriate mitigation plans to the risks. We support fit-for-purpose, science-based state and provincial regulations. See our website shell.com for more information about our induced seismicity management practices, such as the "Onshore Operating Principles in Action: Induced Seismicity Fact Sheet".follow if needed.
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| For information about our induced seismicity management practices, such as the "Onshore Operating Principles in Action: Induced Seismicity Fact Sheet", see our website Shell.com. |
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| For information on the Groningen onshore gas field in the Netherlands, see "Upstream" on pages 50-51. |
ENVIRONMENTAL COSTSEnvironmental costs
We are subject to a variety of environmental laws, regulations and reporting requirements in the countries where we operate. Infringing any of these laws, regulations and requirements could harm our reputation and ability to do business, and result in significant costs, including clean-up costs, fines, sanctions and third-party claims.
Ongoing operating expenses include the costs of preventing unauthorised discharges into the air and water, and the safe disposal and handling of waste.
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| For information about our environmental costs, see Note 24 "Decommissioning and other provisions" on pages 272-273. |
We place a premium on developing effective technologies that are also safe for the environment. But when operating at the forefront of technology, there is always the possibility that a new technology has environmental impacts that were not assessed, foreseen or determined to be harmful when originally implemented. While we believe we take reasonable precautions to limit these risks, we could be subject to additional remedial, environmental and litigation costs as a result of operations’ unknown and unforeseen impacts of operations on the environment. Although these costs have so far not been material
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| For information about risk management, see section "Risk management and controls" on page 27. |
Strategic Report | Progress on strategy – year in review
Powering lives
Contribution to us, no assurance can be given that this will always be the case.society
SECURITY
Our operations expose usWe work to criminality, civil unrest, activism, terrorism, cyber-disruption and acts of war that could have a material adverse effect onimprove people’s lives through our business (see “Risk factors” on pages 18-22). We seek to obtain the best possible information to enable us to assess threats and risks. This includes building strong and open relationships with government security agencies. Risk mitigation includes strengthening the security of sites, reducing our exposure as appropriate, journey management, information risk management, crisis management and business continuity measures. We conduct training and awareness campaigns for staff, and provide them with travel advice and access to 24/7 assistance while travelling. We consistently verify the identity of our employees and contract staff, and control their access to our sitesproducts and activities, both physical and logistical. We manageby contributing to local communities and exercise crisis response and management plans.championing inclusion.
CONTRIBUTION TO SOCIETY
Shell´sShell's businesses are part of society and contribute to it by buying and selling goods and services across economies in various countries and jurisdictions.many countries. Our employees, suppliers and contractors are part of the local communities where Shell operates. Our activities also generate revenues for governments through the taxes and royalties we pay and the sales taxes we collect on their behalf. This helps governments fund health care, education, transport and other essential services.
In 2020,2022, Shell paid $47.3$68.2 billion to governments (2019: $61.3(2021: $58.7 billion). We paid $3.4$13.4 billion in corporate income taxes and $3.5$8.2 billion in government royalties, and collected $40.4$46.6 billion in excise duties, sales taxes and similar levies on our fuel and other products on behalf of governments. In 2020,2022, Shell spent $39.3$41.5 billion (2019: $44.9(2021: $37.5 billion) on goods and services from more than 29,000about 24,000 suppliers globally. For more information about
Social and economic impacts
We continue to assess our approachsocial and economic impact in a number of countries and regions. To do this, we have enlisted the help of Oxford Economics using its Global Sustainability Model.
In 2021, Shell had published its first report based on 2019 social and economic performance data. It detailed the impacts of our activities
in five countries: the Netherlands, UK, USA, Nigeria and India.
In 2023, we are working to complete further reports, based on 2021 social and economic performance data for the 27 European Union member states. This work includes a combined report for Poland, Bulgaria, Hungary, Czech Republic, and Slovakia, as well as individual reports on these five countries.
These new reports aim to provide performance data on Shell’s contribution to in-country gross domestic product, job numbers, tax payments to governments, and transparency, see Shell's Tax Contribution Report, available via our website shell.com.
Supply chain engagement
OurBuilding strong relationships with our suppliers, are criticalincluding contractors, is essential to delivering new projects and running our ability to run our businesses. They are involvedoperations. Suppliers often play an important part in almost every step of our operations – and are often key toShell having a positive impact on local communities and achieving successful business outcomes. success.
Shell aims to work with suppliers including contractors, that behave in an economically, environmentally and socially responsible manner, as set out in our Shell General Business Principles and Shell Supplier Principles.
The way we engage with our contractors and suppliers is based on our Shell Supplier Principles, which are embedded in contracts. They require contractors and suppliers:
•▪to commit to protect the environment in compliance with all applicable environmental laws and regulations;
•▪to use energy and natural resources efficiently; and
•▪to continually look for ways to minimise waste, emissions and discharge offrom their operations, products and services.
More information about howWe will include requirements in our purchasing policies to reflect our environmental framework, and take the energy efficiency, material efficiency and sustainability of products into consideration in our purchases.
We also work with our partners and industry peers to include worker welfare in industry standards, guidance, and best practice. This helps raise expectations and levels of consistency across the industry. We participate in organisations such as:
▪the Building Responsibly group of engineering and construction companies working together to raise the bar in promoting the rights and welfare of workers across the industry;
▪the International Association of Oil and Gas Producers (IOGP); and
▪Ipieca, the global oil and gas industry association for advancing environmental and social performance across the energy transition.
We also work closely with our key contractors. As a result, by the end of 2022, 23 of our biggest contractors had signed up to the Building Responsibly principles, which cover more than 1 million workers.
Helping our suppliers decarbonise
We continually work with our suppliers to find ways to reduce greenhouse gas emissions across our supply chains. We seek to understand their energy needs and jointly identify potential
low-carbon solutions that are economically sustainable.
In 2021, we engage with contractors and suppliers is expected to be published inrolled out a new digital platform, the Shell Sustainability ReportSupplier Energy Transition Hub, free of charge to our supply chain and any other interested company. The platform enables them to set emission ambitions and track performance, share best practice and exchange emissions data with their own supply chains. By the end of 2022, 1,039 of our suppliers had joined the platform, 460 of which have already set emission reduction targets. This is more than a fourfold increase on 2021 in April 2021.both instances.
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| See our website shell.com for more information about how we engage with contractors and suppliers. |
NEIGHBOURING COMMUNITIESSocial investment
Engaging with communitiesWe make social investments in areas determined by local community needs and priorities. This investment is sometimes voluntary, sometimes required by governments, or part of our approach to managing human rights and providing access to remedy. Our global requirements fora contractual agreement. In 2022, we spent almost $260 million on social investment, of which 30% was required by government regulations or contractual agreements. We spent the remaining $182 million (70%) on voluntary social programmes.
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| 2022 Social Investment spend by theme |
[A]CSED – Community Skills & Enterprise Development.
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performance aimAround $92 million of our total social investment spend in 2022 was in countries that, according to ensure that wethe UN Development Programme’s Human Development Index 2021, have a gross national income of less than $15,000 a year per person.
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| 2022 Social Investment spend by region |
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| See our website shell.com for more information about our social investment. |
Neighbouring communities
We engage with communities as part of our approach to managing human rights and providing access to remedy. Shell's HSSE & SP Control Framework helps us operate responsibly by avoidingand avoid or minimising theminimise potentially negative social effectsimpacts of our operations. The requirements set out in the framework also help us in our aim to maximisebe a positive presence in the benefits of our activities, such ascommunities through, for example, local employment and contractual opportunities that can support local economies.
opportunities. When we divest assets or exit areas,
we apply well-established processes systematically to guide our risk assessment with the aim of leaving a positive legacy.
The requirements set clear rules and expectations for how weare supplemented by guidance that helps practitioners on the ground to engage with and respect communities that may be affected byaround our operations. We require majorMajor projects and facilities operated by Shell to have a social performance plan that defines actions for managing potentialpotentially negative impacts, such as noise pollution, and positive effects on communities. A key part of thesemaximising benefits, such as using local suppliers. These plans is identifyingtypically begin with defining the social environment, and stakeholdersfocusing in particular on people who may be especially vulnerable to the potential impacts of our operations. Another key component is an appropriateIn larger facilities, we implement a community feedback mechanism for listening to queries and responding to them, orquestions and resolving complaints in a timely manner. We have specific requirements to avoid, minimise or mitigate potential impacts on the traditional lifestyles and cultural heritage of indigenous people. orIndigenous Peoples. We also have specific requirements to avoid, minimise or mitigate their involuntary resettlement.
Early in 2020, we launched a new globalWe use our online community feedback tool, (CFT). This enables uslaunched in 2020, to globally track and respond to all queries,questions, complaints and positive and negative feedback that we receive. It allows our network of about 100121 community liaison officers (CLO)engagement practitioners to document all typesfeedback and outcomes. They are the face of feedback. It is accessible via a mobile app and can be used to send feedback receivedShell in the field to those who can act to resolve issues. Asset managers can generate reports to help them analyse trends, detect underlying causes,communities and decide appropriate action.
The CLOs continue to act as a bridge between local communities and our businesses. The CLOs are inactivities.
We continually seek to improve our community centresengagement and to align with the UN Guiding Principles on workdays, receiving visitorsBusiness and listening to questions or complaints. MembersHuman Rights. As part of the community can also contact CLOs via dedicated telephone lines. It is the job of CLOs to take any concerns back to the Shell facility and involve people who are best placed to take action.
We are using a tool based on the United Nations Guiding Principles' criteria to measure the effectiveness of our mechanisms for managing community feedback on our operations.
In 2019,this we had assessed the community feedback mechanisms (CFMs) of 32 sites, and in 2020, we helped 14 of thesework with selected sites to improve their CFMs. The improvement measures involved included:community feedback mechanisms in the following areas:
•▪promoting public access to and transparency of the sites´ CFMs;sites' community feedback mechanisms;
•▪improving written procedures so they are better aligned with global good practice and more reflective of local circumstances;
•▪providing clear steps for recognising alternative options for communities to seek remedy; and
•▪respecting people's anonymity and data privacy.
In 2020,2022, we also developed a guidenew community feedback mechanism procedures for four additional sites, bringing the total number of sites with operational feedback procedures aligned with the effectiveness criteria spelled out in the UN Guiding Principles to help16. Several more sites make their CFMs effectivehave procedures in place which are not specifically aligned with those criteria.
In 2022, we used the data in our online reporting tool to analyse how feedback was addressed. We found that most issues were resolved directly by the community engagement practitioners and address local needs. In 2021, we plan to further improve the quality of sites’ CFMs.remainder were resolved by site management.
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| See our website shell.com for more information about our work with communities. |
See our website shell.com for more information about our work with communities.Human rights
HUMAN RIGHTS
Human rights are fundamental to Shell´sShell's core values of honesty, integrity and respect for people. Our approach is informed by the UN Guiding Principles on Business and Human Rights. Respect for human rights is embedded in ourthe Shell General Business Principles and in our Code of Conduct. Our approach is informed by the United Nations Guiding Principles on Business and Human Rights.
We work closely with other companies and non-governmental organisations to improve how we apply these principles. We focus our efforts on four prioritykey areas, where respect for human rights is critical to howthe way we operate: communities, security, labour rights,operate and supply chain. For each of these areas,where we have systems to identifyidentified the highest risk of potential impacts and to avoid and mitigate them. For example, our HSSE & SP Control Framework (CF) contains our mandatory standards and manuals that set out how we identify, assess, and manage our impacts on communities where we operate, including any impact on human rights. These four key areas are the workplace, communities, supply chains and security. In 2022, we continued to take steps to improve our approach to human rights.
We require allexpect joint ventures not operated by Shell to apply standards
and principles substantially equivalent to our companiesown. The Shell Supplier Principles outline how we expect our contractors and contractorssuppliers to respect the human rights of ourtheir workforce, and to manage the social impacts of their activities on Shell's neighbouring communities. Our joint-venture partners are
In 2021, we published Shell's Approach to Human Rights, which increases transparency by providing our staff and external stakeholders with important information about our approach and commitment to human rights. The publication includes Shell’s position on respecting and promoting worker welfare. It also contains information on how we provide access to remedy. In 2022, supported by an external advisor, we developed recommendations to further improve our approach to human rights. We do this, for example, by expanding the disclosure of our human rights due diligence strategy and salient issues, seeking opportunities to expand the scope of contracting and procurement human-rights-related controls in our supply chain beyond Tier 1 suppliers, and opportunities for a more integrated approach to human rights due diligence.
In 2021, we launched an updated human rights training course and by the end of 2022, about 460 Shell staff had completed the course and the roll-out is expected to implement our CF or an equivalent.continue through 2023. The course is mandatory for selected staff working in higher-risk focus areas, such as social performance, human resources, and contracting. We encourage all staff to do the course, regardless of their role, to build greater understanding of human rights across Shell.
An internal Human Rights Working Group consisting ofwith experts from different functions, advisesincluding an external adviser, guides Shell businesses on best practice when implementing and supports the businesses with the implementation and review ofreviewing our approach to human rights. The group includes an external adviser. A steeringIn 2022, a committee composed of senior executives, provides steerchaired by the Director of Strategy, Sustainability and support toCorporate Relations, supported the work of the Human Rights Working Group.
Strategic Report | Progress on strategy – year in review
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Shell Supplier Principles
Human rights due diligence is informed by the United Nations Guiding Principles on Business and Human Rights. Due diligence in each focus area, including human rights, is typically exercised in countries where there may be a risk of an impact on people's human rights. It is supported by experts working within the applicable functions in Shell. We recognise how due diligence helps usparticularly relevant when it comes to act on our commitment to respect human rights.supply chains. For example, in our supply chains, where contractors andwe engage with suppliers are considered towho may be at risk of having issues with labour rights we engage with them to assess their management systems before deciding whether to award a contract. ResultsIf we are dissatisfied with the results of these supplier assessments, are evaluated, and where gaps are found, we may work with suppliers and contractors to help them implement corrective action.actions. We may also conduct on-site audits or consider terminating contracts if serious or persistent shortcomings are found.
The most common shortcomings found during our supplier assessments typically relate to policy rather than performance gaps in the following areas:
•▪freely chosen employment;
•▪avoiding child labour avoidance;labour;
•▪working hours, wages and benefits;
•▪dormitory, housing and working conditions;
•▪humane treatment, equal opportunities and freedom of association; and
•▪supply chain and performance management.
The Shell Supplier Principles include specific labour and human rights expectations for contractors and suppliers.suppliers, including contractors. Shell companies use a joint industry supplier capability assessment that is delivered in collaboration with other operators. This sharing mechanism is intended to support the improvement of working conditions in the participating companies’ supply chains.
SeeSalient human rights are those that are most at risk from a company's operations. We focus on four areas where respect for human rights is particularly critical to the way we operate and where we have identified the highest risk of potential impacts on human rights.
In 2022, we completed a review of our website shell.comsalient human rights issues with the support of an external advisor, Business for more information aboutSocial Responsibility (BSR). As a result, we have grouped Shell's salient human rights issues into the focus areas, reflected in the table alongside.
The exercise of reassessing and identifying our current most salient issues is part of our continued effort to ensure our human rights approach is effective and fit for purpose. As our business evolves, our salient issues profile might change. We will continue to assess risks and adapt our approach to human rights.
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CLIMATE CHANGE AND ENERGY TRANSITIONHuman rights
focus areas | Salient issues |
| At the workplace | ▪Health and safety ▪Discrimination ▪Decent living conditions in workers' accommodation ▪Access to adequate and readily available channels to voice concerns |
| In supply chains | ▪Labour rights in our supply chains, e.g. prevention of forced labour, access to remedy ▪Safe and healthy working conditions ▪Decent living conditions in worker accommodation |
| In communities | ▪Social impact management ▪Vulnerable persons/communities ▪Land access, livelihoods, and cultural heritage ▪Engagement and access to remedy |
| In security | ▪Human rights impact on communities by private security and/or government security forces we rely on ▪Security of employee and contract staff in high-risk environments where we work |
Shell has long recognised that greenhouse gas (GHG) emissions from the use of hydrocarbon-based energy are contributing to the warming of the climate system. In December 2015, 195 nations adopted the Paris Agreement. We welcomed the efforts made to reach this global climate agreement, which came into force in November 2016. We fully support the Paris Agreement’s goal to keep the rise in global average temperature this century to well below two degrees Celsius above pre-industrial levels and to pursue efforts to limit the temperature increase even further to 1.5 degrees Celsius. In pursuit of this goal, we also support the vision of a transition towards a net-zero emissions energy system. Shell agrees with the statement of the Intergovernmental Panel on Climate Change (IPCC) special report, Global Warming of 1.5°C that says that in order to limit global warming to 1.5 degrees Celsius above pre-industrial levels, the world economy would need to transform in complex and interconnected ways. Meeting this challenge would require an even more rapid escalation in the scale and pace of change in the coming decades than was foreseen in the Paris Agreement.
Society faces a dual challenge: it must transition to a low-carbon energy future to manage the risks of climate change, while also extending the economic and social benefits of energy to everyone on the planet. This requires, among other things, reducing emissions while also changing how energy is produced, stored, used and made accessible to more people.
Shell recognises that society's attitude towards climate change is shifting rapidly and that it is different in different locations. Regulators in some advanced economies such as the EU and the UK have already started pushing for net-zero emissions by 2050 in an effort to achieve the 1.5 degrees Celsius stretched goal of the Paris Agreement. Potential similar developments in other key locations might lead to similar or more stringent regulatory conditions on Shell’s operations and products.
On February 11, 2021, we announced Powering Progress, our new strategy. Powering Progress is our strategy to accelerate progress to net-zero emissions, purposefully and profitably. One of the pillars of this strategy is for Shell to become a net-zero emissions energy business by 2050, in step with society. We believe our net-zero target supports the most ambitious goal of the UN Paris Agreement, to limit warming to 1.5 degrees Celsius above pre-industrial levels. This will require us to transform our business, working with our customers and others, in sectors that are difficult to decarbonise. This includes aviation, shipping, road freight and heavy industries. We also believe that our total oil production peaked in 2019 and our total emissions (Scope 1, 2 and 3) peaked in 2018 at around 1.73 gigatonnes per annum.
Shell’s target is to be a net-zero emissions energy business by 2050, in step with society. This means net-zero emissions from our operations – our Scope 1 and 2 emissions – and also net zero from the end use of our products that we sell – our Scope 3 emissions. Our Scope 3 emissions include our customers’ emissions from the energy products we produce and sell as well as the life-cycle emissions of the energy products produced by other companies that we resell to our customers. This means that our target covers all the energy we sell, not just the oil and gas we produce and refine ourselves.
But Shell cannot get to net zero without society also being net zero. While we aim to transition slightly ahead of society, where we expect to see higher margins for our low-carbon and renewable energy products, we cannot transition too quickly or we will be trying to sell products that our customers do not want. Accordingly, other than our short-term remuneration targets, all targets are conditional on being in step with society. If society is not on the path to net zero for 2050, it is unlikely that Shell will meet its emissions targets.
We believe it is important for the Board and the management to understand what our shareholders think. Accordingly, in 2021, Shell intends to submit its energy transition strategy to shareholders for an advisory vote at our Annual General Meeting. We will submit our energy transition strategy to such an advisory vote every three years. We will also seek an advisory vote
on the progress we make each year, as disclosed in our Annual Report, starting in 2022.
SHELL’S ABSOLUTE EMISSIONS AND CARBON INTENSITY TARGETS
Our target is to be a net-zero emissions energy business by 2050, in step with society.
Shell´s 2050 absolute emissions targets
We aim to achieve these targets in step with society. They are:
•net-zero Scope 1 and Scope 2 emissions from our operations by 2050; and
•net-zero Scope 3 emissions from the energy products we sell by 2050.
Shell´s net carbon intensity targets
We aim to achieve these targets in step with society. They are measured by our Net Carbon Footprint (NCF) metric, and are:
•2030 NCF reduced by 20% from 2016 NCF;
•2035 NCF reduced by 45% from 2016 NCF; and
•2050 NCF reduced by 100% from 2016 NCF.
The updated 2035 and 2050 targets reflect that we will start to include all actions taken to reduce emissions when we calculate our net carbon intensity. This includes the actions we take ourselves and actions taken by the users of the energy products we sell.
Remuneration targets
We have set specific carbon intensity targets for the following years:
•2021 NCF reduced by 2-3% from 2016 NCF;
•2022 NCF reduced by 4-6% from 2016 NCF; and
•2023 NCF reduced by 6-8% from 2016 NCF.
See below, in this section, for more detail on:
•How we plan to deliver;
•Our climate target;
•Our net carbon intensity targets; and
•Our performance.
See also the Directors' Remuneration Report on page 116.
Business milestones
We are taking steps to cut emissions from our existing oil and gas operations, and to avoid generating more in the future.
•We believe our annual oil production peaked in 2019, and we expect our total oil production to decline by 1-2% a year until 2030.
•We do not anticipate any new frontier exploration entries after 2025.
•Natural gas is the least polluting hydrocarbon. We expect the percentage of total gas production in our portfolio to gradually rise to 55% or more by 2030.
•By 2030, we will end routine flaring of gas, which generates carbon emissions, from the assets we operate.
•By 2025, we expect to have kept the methane emissions intensity of Shell-operated assets to below 0.2%.
HOW WE PLAN TO DELIVER
Getting the energy system on a path to net zero will require co-ordinated action between energy providers, energy users and governments. They will need to work together over the coming decades to define rapid, realistic decarbonisation pathways, sector by sector.
We will work with our customers to address the emissions created when they use products bought from us (Scope 3) and help them find ways to reduce their emissions and overall carbon footprint to net zero by 2050.
We are already taking steps to cut emissions from our existing oil and gas operations, and to avoid generating more in the future. We aim to reduce the
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GHG intensity of our portfolio and we continue to work on improving the energy efficiency of our existing operations. One element of our target is to achieve net-zero emissions from all our operations, as well as from the energy we need to power them.
Shell believes that society must accelerate and increase the scale of all forms of GHG reduction. We are increasing the proportion of lower-carbon products such as natural gas, biofuels, electricity and hydrogen in the mix of products we sell. For example, Amazon Air has secured up to six million gallons of sustainable aviation fuel – made partly from biomass and waste – supplied by Shell Aviation and produced by World Energy. Similarly, we have formed an alliance with Microsoft which includes supply of renewable energy to help them meet their commitment of 100% renewable energy consumption by 2025.
Our shift to energy and chemicals parks means we will reduce our production of traditional fuels by 55% by 2030, from around 100 mtpa to 45 mtpa. We plan to build on Shell’s leading position in hydrogen by developing integrated hydrogen hubs to serve industry and heavy-duty transport, aiming to achieve double-digit share of global clean hydrogen sales.
It is not enough for Shell to take action on its own. We can only meet our net-zero target as part of a world that is also heading to net zero. That will require a reduction in the global supply of carbon-based energy, which can only happen if demand for carbon-based energy also reduces. So Shell, as a supplier, must work with customers on a sector-by-sector basis, to develop the right pathways to transition each sector from carbon-based energy to low-carbon solutions.
Shell’s marketing business is being restructured on a sectoral basis. This in turn will help us to make progress in working with customers on a sector-by-sector basis.
Our mission is to help the millions of brand-loyal customers whom we serve every day – from individual energy consumers to large businesses – to decarbonise. We have the scale and the competitive advantage to generate profit from this shared ambition.
Our marketing platform is one of the best in the energy industry. Spanning 160 markets, every day we serve more than 30 million customers at our retail sites; and one million businesses.
Our customer access gives us first-hand insights, helping us to deliver what our customers want rather than offering what others think they need.
This will help us to grow our existing marketing platforms profitably, while also increasing the decarbonisation choices across sectors and countries.
Our global ambition is that by 2025 we are operating more than half a million electric-vehicle charging points for businesses, fleets and customers, at our retail sites and people’s homes. This number is expected to rise to 2.5 million charging points operated by Shell by 2030. For drivers who are unable to switch to an electric vehicle immediately, we also offer carbon-neutral driving using nature-based carbon offsets, in seven countries including the UK.
We are positioning ourselves to profitably deliver integrated offers by cross-selling to motorists and home energy customers. Our integrated solutions will help our business customers to navigate the challenges and opportunities of decarbonisation.
One such customer is Penske Corporation in the USA. We work closely with this customer across truck leasing, logistics and automotive retail. We provide Penske Corporation with products and services ranging from fuels and lubricants, to electric-vehicle charging and renewable power.
Our approach to commercial road transport is similar to how we work with other hard-to-decarbonise sectors such as shipping and aviation. We are working with transport companies, truck manufacturers and policymakers to identify profitable pathways to decarbonisation.
We are already one of the world’s largest blenders and distributors of biofuels, and we will continue to invest in and increase the production of these low-carbon fuels. Over the next decade, we will help customers in Europe, China and on the US West Coast to transition to liquefied natural gas (LNG) and biogas.
Hydrogen also offers a route to lowering emissions. We are part of the H2Accelerate consortium, which looks at ways to create infrastructure for generating and supplying hydrogen across Europe.
In Power, we are working with our customers in different markets, finding commercial ways to meet their specific needs. Our scale, reach, brand strength and trading capability set us up to succeed. An example is our deal to supply Amazon with renewable power, which is helping it to fulfil its climate pledges.
We are also supporting infrastructure development through our investments in Silicon Ranch and Cleantech Solar. Combined, these two companies have over 350 solar farms in the USA and South-east Asia. In Australia and in Oman, Shell is building its first large-scale solar farms.
Shell’s infrastructure, systems integration, experience and people put us in a strong position to profitably meet the current and future needs of our customers, helping them and society to decarbonise for a net-zero emissions future.
We are restructuring so that we have marketing teams facing individual sectors. We are also developing a carbon management framework to guide decision-making on investments in assets and businesses that align with our climate target. We intend to have carbon budgets for customer-facing businesses to motivate them to find value growth by switching from high-carbon income to low-carbon income.
Shell believes that the need to reduce GHG emissions will continue to be an important driver in transforming the energy system in this century. This transformation will generate both challenges and opportunities for our existing and future portfolio.
TRANSPARENCY AND COLLABORATION
We support efforts to increase transparency and investors' understanding of companies' strategies for responding to the risks and opportunities of climate change. We do this through engagement with external stakeholders such as industry associations beyond the energy industry, standard setters, non-governmental organisations (NGOs), investors, and initiatives on different topics including climate change. With publications such as our 2020 Sustainability Report and our 2020 Industry Associations Climate Review update (both planned to be published in April 2021) we aim to provide additional information to that in this Report to address requests and recommendations from different reporting frameworks and standards. Some examples of those frameworks and engagements are described below.
•We continue to support the Task Force on Climate-related Financial Disclosures (TCFD) recommendations and apply them to our reporting. We aim to address the recommendations with this Report and other Shell publications such as the 2020 Sustainability Report and 2020 Industry Associations Climate Review update (both due to be published in April 2021), and our latest scenarios Islands, Waves, and Sky 1.5.
•As a member of the Oil and Gas Climate Initiative (OGCI) we are one of a group of 12 national and international energy companies that focus on action that has real impact now and delivers on decarbonisation in the coming decades (see Methane initiatives and collaborations, page 80).
•In December 2020, eight leading energy companies including Shell announced that they had jointly developed and agreed to apply six Energy Transition Principles. These principles aim to support the collective industry acceleration to contribute to the Paris Agreement objectives by delivering progress on reducing GHG emissions, the role of carbon sinks, and the importance of transparency and alignment on climate change with trade associations. The companies are building further on this collaboration to drive more consistency and transparency in greenhouse gas reporting, and in measurement of the emissions which may occur at different points in the value chain.
•We continue to engage with the Science Based Targets initiative (SBTi), and we are a member of its Technical Working Group that is currently working to define the methodology for the oil, gas and integrated energy sector.
•Some governments have introduced carbon pricing mechanisms, which we believe can be an effective way to reduce GHG emissions across the economy at the lowest overall cost to society. We expect more governments to follow. Shell is
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encouraging carbon pricing mechanisms so that businesses and consumers are further incentivised to improve energy efficiency, provide and switch to lower-carbon options, and reduce carbon emissions. Such mechanisms can also help encourage projects such as CCS facilities and nature-based solutions like the planting of forests. Shell continues to work with governments to produce effective transition plans and policies.
OUR GOVERNANCE OF CLIMATE CHANGE
Climate change and risks resulting from GHG emissions are a significant risk factor for Shell. They are managed in accordance with other significant risks through the Board and the Executive Committee.
Shell´s climate change risk management structure includes the work of the Board. In 2020, the Board discussed a variety of energy transition and climate change-related subjects. These included environmental topics ahead of Responsible Investment Day and Shell´s announcement of its target to be a net-zero emissions energy business by 2050, in step with society. Directors received information on opportunities and priorities in the New Energies area. Throughout the year, Directors were also informed about topics of interest among investors and other stakeholder groups. These included sustainability, governance and the energy transition. During the annual strategy meeting, in virtual format, the Board discussed various topics including the energy transition and its implications.
For more information on the activities of the Board see "Board activities and evaluation" on pages 96-102.
The Board committeesOur people play an important role in assisting the Board with regard to governance and oversight of management of climate change risks and opportunities, as described in "Governance" on page 99.
The Safety, Environment and Sustainability Committee (SESCo) assists the Board in reviewing the practices and the performance of the Shell Group of companies, primarily with respect to safety, environment including climate change, and sustainability. When reviewing these areas and deciding how to advise the Board, SESCo takes into accountaccelerating Shell's General Business Principles, Code of Conduct, and HSSE & SP Control Framework. SESCo´s duties include reviewing Shell's progress towards meeting our climate targets and the energy transition. SESCo also advises the Remuneration Committee on metrics relating to sustainable development and energy transition.
For more information about SESCo´s activities around climate change and energy transition see page 106.
The Remuneration Committee (REMCO) is responsible for determining the Directors’ Remuneration Policy, in alignment with our business strategy.
Annual scorecard
Starting in 2021, we are increasing the weight associated with GHG emissions management. The GHG emissions intensity metric and its weight (10%) will remain unaltered, but we will add a new metric that measures the execution of GHG-abatement projects with a weight of 5% (see page 134 for more information).
Performance Share Plan and Long-term Incentive Plan
For 2021 awards made under the Performance Share Plan (PSP), the weighting of the energy transition condition has doubled from 5% to 10%. For 2021, the weighting of the energy transition condition in the Long-term Incentive Plan (LTIP) will also double from 10% to 20%. The target range is a 6-8% reduction in net carbon intensity against the 2016 baseline NCF of 79 grams of carbon dioxide (CO₂) equivalent per megajoule. The other targets linked to our strategic ambitions will also evolve, with the metric connected to commercialising advanced biofuel technology broadening to a measure of growing new cleaner energy product offerings. The targets for the leading energy transition measures are commercially sensitive and will be disclosed retrospectively.
The energy transition condition was included again in the 2020 LTIP awards for Executive Directors and senior executives and was also incorporated into the Performance Share Plan awards made to around 16,500 employees globally.
See “Directors’ Remuneration Report” on pages 116-119 for further information. An update on progress on the 2019 and 2020 awards is provided on page 128.
The Audit Committee has key responsibilities in helping the Board to maintain oversight of areas such as the effectiveness of risk management and internal control. For more information on the work of the Audit Committee see page 108.
The CEO is the most senior individual with accountability for climate change risk. Shell has established specialist forums at different levels of the organisation where climate change and GHG-related matters are addressed, monitored and reviewed. Each Shell entity and each Shell-operated venture is responsible for implementing climate change policies and strategies.
The Executive Vice President (EVP) Safety and Environment, a senior manager who reports directly to the Projects & Technology Director, is accountable for the oversight of GHG issues. This manager´s department includes the Group Carbon team and the HSSE & SP Assurance and Reporting team.
Group Carbon is accountable for monitoring and examining the strategic implications of climate change for Shell. Group Carbon also reviews the effects of governmental policy and regulation. It proposes policy positions based on analysis by Shell and external organisations. The team also advises Shell companies to ensure that they are consistent in how they apply our core principles and policies when interacting with policymakers.
Group Carbon also has oversight of Shell’s GHG management programme. It helps our lines of business to adopt strategies for managing greenhouse gases. The team includes managers who advise projects on the risks and opportunities of GHG-related issues.
The HSSE & SP Assurance and Reporting team is accountable for the delivery of Shell’s non-financial reporting. It is also responsible for auditing the performance of Shell businesses with regards to our HSSE & SP Control Framework requirements, which include climate change risk management.
REORGANISATION IN LINE WITH UPDATED STRATEGY
During 2020, we worked on a comprehensive organisational review in order to enable our new strategy to be effective. We call this project Reshape. The governance of topics around sustainability, including climate change, will not change at the most senior levels of Shell. We are introducing changes at specific levels of the organisation to better address the effects of the strategy update. We expect to adjust the initial structure as we go through the process. Currently, we are working towards going live with the revised organisational structure in the second half of 2021.
For more information, see Strategy and outlook on page 14, and Our people on page 86.
CLIMATE CHANGE RISK MANAGEMENT PROCESS
The framework for managing the climate change and GHG emissions risk is underpinned by Shell’s Control Framework and Statement on Risk Management.
For the climate change and GHG emissions risk, several global teams support our businesses in GHG and energy management, comprising a network of experts in subjects related to GHG and risk management. They work globally across our lines of business and assist in:
•identifying and assessing risks;
•planning and implementing responses;
•sharing best practices; and
•monitoring, improving and completing action that affects the objectives and performance of projects and assets.
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These teams have created a set of mandatory manuals and complementary guidance documents that are updated periodically and are ultimately based on our HSSE & SP Control Framework (CF). These manuals and documents provide guidance on how to monitor, communicate and report changes in the risk environment, and how to review the effectiveness of actions taken to manage identified risks, including ways to:
•ensure consistent assessment of climate risk across Shell;
•clarify expectations for risk management and reporting, including roles and responsibilities of the risk owners;
•clarify types of assurance activities that may be applicable;
•strengthen decision-making by ensuring that businesses have better awareness and understanding of climate risks (including their likelihood and potential impact) and mitigation plans; and
•enable integration of Shell’s reporting.
For more detail on our definition of risk categories and their relationship to different time horizons, see page 77.
The GHG and Energy Management Manual is one of the mandatory manuals of our HSSE & SP Control Framework. It requires that effective steps are taken to track the GHG emissions from Shell’s operated and non-operated facilities and the life-cycle emissions of its energy products. The manual also focuses on the efficient operation of existing equipment. This means, for example, using monitoring systems to get real-time information that we can use to make energy-saving changes and identify opportunities for energy-saving investments in the medium term. Shell’s scorecard includes GHG measures that create additional incentives for our employees to reduce GHG emissions in our portfolio.
See “Directors’ Remuneration Report” on page 116-119.
The global teams mentioned above support the businesses in monitoring and addressing certain physical risks of climate change. This support includes the input of specialist teams who provide direct technical assistance to facilities, based on their analysis of the potential impacts of climate change in different operating environments. For example, the specialist teams support facilities
on an ad hoc basis to address potential operational issues such as flooding of a site that may affect its drainage system.
The teams also provide expertise on how to include considerations of certain potential physical climate change risks in the internal Design and Engineering Practice (DEP) requirements for new projects. The DEPs for new projects are reviewed periodically to take account of changes in the risk environment, including emerging weather and climate factors.
We review our portfolio annually to identify emerging risks from changes in GHG emissions regulations and changing physical conditions. Shell´s Group Carbon team provides management with strategic insights on Shell's exposures, risks and opportunities, and recommends actions for Shell to take. Each of Shell´s businesses and functions has an assurance committee that considers this risk on a regular basis and coordinates the applicable assurance activities.
At the Group level, the climate change and GHG emissions risk has been identified as a significant risk factor for Shell – see “Risk factors” on pages 18-22. The Executive Committee and Board regularly review this risk in the same way that they do for other significant Group risk factors. Potential impacts and likelihoods are considered and discussed bi-annually. Similarly, the effectiveness of risk responses is also considered and discussed on a regular basis. Where necessary, these reviews are further supplemented by additional in-depth reviews with the relevant management teams. These reviews help to guide operational decisions, maintenance schedules and response planning.
Climate change risk management at project level
Shell requires that the GHG emissions of certain assets and projects are addressed in specific ways. This is described in our internal, mandatory GHG and Energy Management Manual which is part of our HSSE & SP Control Framework (see Environment and society, page 65). This manual specifies the requirements for managing the risks associated with GHGs and energy use, and is owned and signed off by the Vice President Group Carbon. It states that projects with a material GHG footprint must get their targets approved by the Executive Vice President Safety and Environment at certain defined stages. The project’s GHG-abatement plan helps to determine the nature of these targets.
Projects under development that are expected to have a material GHG footprint must meet our internal carbon performance standards or industry benchmarks. This indicates that they will be able to compete and prosper in a future where society aims to limit overall GHG emissions.
The performance standards are used as our screening criteria for measuring projects´ average lifetime GHG intensity or energy efficiency per asset type. We are working to develop a complete set of standards for our businesses. Performance Standards for the Upstream and Transition pillars are in place, while those for the Growth pillar are under development. The complete set is expected to continue to evolve to incorporate new types of projects that support Shell’s portfolio changes in alignment with our NZE energy business target. Our current standards are reviewed and updated annually, based on changes to legislation and external and/or internal benchmarking. The latest update was in 2020. The performance standards were signed off by the Executive Vice President (EVP) accountable for implementation in the relevant businesses, and by the EVP Safety and Environment, who represented the view of a risk owner from outside the relevant business.
We estimate the GHG emissions of facilities in two ways. We apply the performance standards, and we consider the GHG emissions from the use of the products that are manufactured. We assess GHG emissions´ impacts alongside economic and technical design factors. These assessments can lead to projects being stopped or designs being changed.
During project development, we consider ways to reduce GHG emissions and whether to include them in the design. Measures considered and adopted have included:
•flaring reduction;
•carbon capture and storage (CCS) capabilities;
•exclusion of high-intensity process equipment;
•using renewable energy; and
•electrification.
Our approach continues to evolve as we increase our understanding of the shifting policy landscape and the differing paces of energy transitions in different regions.
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We continue to develop our project managers´ and practitioners´ competencies for effective GHG emissions management in projects. The Shell Project Academy has been set up to provide competence development programmes that include different ways of learning, such as courses on specific topics and on-the-job training. These courses also aim to ensure sharing of good practice and to encourage collaboration across businesses.
CLIMATE-RELATED RISKS AND OPPORTUNITIES
Our approach for assessing and managing the risks and opportunities associated with climate change includes considering different time horizons. The time horizons and their relevance to risks, opportunities and business planning are as follows:
•Short term (up to three years): we develop detailed financial projections and use them to manage performance and expectations on a three-year cycle.
•Medium term (generally three to 10 years): most of our expected production and earnings in this period come from our existing assets.
•Long term (generally beyond 10 years): for this period, it is expected that the current Shell portfolio will change and evolve with the energy transition. Decision-making and risk identification on the thematic structure of the future portfolio are guided by the pace of society's progress and the aim of being in step with society as it moves towards the goals of the Paris Agreement.
The overall climate change risk consists of four components, based on the nature of our exposure and the options for our mitigation responses. The four components are regulatory risks, commercial risks, physical risks and societal risks:
•Regulatory risks (time horizon: short term) include increased compliance costs for assets and/or products such as carbon costs; restrictions on the use of fossil fuels; and lack of net-zero-aligned global and national policy and frameworks.
•Commercial risks (time horizon: medium to long term) include lower sales volumes and/or margins because of generally reduced or eliminated demand; the possibility of underutilised or stranded oil and gas assets; changing preferences of investors and financial institutions; and additional costs for decarbonisation of operations.
•Physical risks (time horizon ranging from short to long term) include structural damage to assets and downtime caused by acute events; reduced efficiency because of changing ambient conditions; increased operations and maintenance costs; and value-chain disruptions.
•Societal risks (time horizon: continuous) include the potential for a deteriorating relationship with the public, other companies, and governments in countries where Shell operates; class action lawsuits or similar litigation; potential stakeholder criticism related to transparency and clarity around plans and actions to achieve climate targets; and decline in reputation, brand value and competitive advantage.
See "Risk Factors" on page 18-22.
Climate change and the energy transition have also created some business opportunities for Shell. See also "Our portfolio and climate change" on page 80.
Impact of climate-related risks and opportunities on strategy, planning and business decisions
For Powering Progress, we must evolve our portfolio of assets and the mix of energy that we sell, so we can meet the cleaner energy needs of our customers in the coming decades. We aim to achieve this by repositioning our traditional businesses for resilience and taking advantage of the growth opportunities created by emerging customer needs.
We assess our portfolio decisions, including investments and divestments, against the potential impacts of the energy transition to the use of lower-carbon energy. These include higher regulatory costs linked to carbon emissions and lower demand for oil and gas. We continue to transform our organisation, ensuring that our portfolio is well positioned for the future of energy. In February 2021, we announced our updated strategy (see Strategy and outlook, page 14).
We believe that our business strategy is resilient and adapted to the current implementation of the Paris Agreement, which is now progressing through
the mechanism of countries developing their individual nationally determined contributions (NDCs). The Paris Agreement does not stipulate that emissions must fall in all sectors or countries simultaneously, or that all actors within the system will reduce their emissions at the same time or to the same degree. It acknowledges that emissions might even increase in some parts of the world. What is important is that overall emissions fall.
The transition to lower-carbon energy requires major changes to industrial, commercial and residential infrastructure. This takes time and substantial investment. Our annual planning cycle and periodic portfolio reviews aim to ensure that our levels of capital investment and operating expenses are appropriate in the context of an uncertain and changing external environment.
The annual business plan is our way of putting the strategy into effect. A business plan is created, which is then approved by the Board. The plan contains forecasts of Shell’s cash flows, and seeks to ensure that we can service financing requirements, pay dividends and fund investment activities.
Shell’s business plan includes assumptions about internal and external parameters. Some of the key assumptions relate to:
•commodity prices;
•production levels and product demand;
•exchange rates;
•future carbon costs;
•the schedules of growth programmes; and
•risks and opportunities that may have material impacts on free cash flow.
Shell’s strategy recognises that the world is transitioning to a lower-carbon energy system, but acknowledges that the pace and specific path forward remain uncertain and may differ across regions and countries. This means that Shell will need to make agile business decisions in step with society.
Scenario planning is a well-established process for exploring possible future outcomes. Many factors and variables are considered in this exercise. These include the future size and cost of resource bases and macroeconomic, geopolitical, social, technological and regulatory developments. Our portfolio and strategy have been assessed against a wide range of outlooks. These include the potential impacts of various possible energy transition pathways, and changes in societal expectations around climate change. Our latest set of Shell scenarios was one of the many variables used in guiding the updated strategy which we announced in February 2021. One of the key aspects that underpin Shell’s financial statements are the oil and gas price and refining margin assumptions. These price assumptions are developed with input from our scenarios and other factors.
GHG elements in the business plans consist of a GHG-emissions forecast, GHG-abatement plan and GHG costs. To assess the resilience of new projects, we consider the potential costs associated with operational GHG emissions. We have developed country-specific short-, medium- and long-term estimates of future carbon costs which are reviewed and updated annually. By 2050, our real-terms carbon cost estimates for all countries are expected to increase to at least $100 per tonne of GHG emissions.
The process for developing our cost of carbon estimates uses short-term policy outlooks and long-term scenario forecasts, both of which reflect the current nationally determined contributions (NDCs) submitted by countries as part of the Paris Agreement and evolving national policy developments. NDCs under the Paris Agreement are subject to revisions every five years. The United Nations estimate that the current NDCs are consistent with limiting the rise in global average temperature to around three degrees Celsius above pre-industrial levels. In the coming decades, we expect countries to tighten their NDCs to meet the goals of the Paris Agreement. We expect to update our estimates as countries update their NDCs and climate policies. Accordingly, we believe our estimates appropriately reflect society’s current implementation of the Paris Agreement. We continue to test the robustness of our projects with a material GHG footprint by using long-term carbon cost estimates that are consistent with limiting the rise in global average temperature to well below two degrees Celsius.
Shell´s annual carbon cost exposure is expected to increase over the next decade because of evolving carbon regulations. This expected increase is based on forecasts of Shell’s equity share of emissions from operated and non-operated assets, and real-terms carbon cost estimates which range from $5 to $110 per tonne of GHG emissions in 2030. This exposure also takes into account the estimated impact of free allowances as relevant to assets
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based on their location. The regulatory carbon cost estimate is refreshed on an annual basis as part of the development of our business plan.
OUR CLIMATE TARGET
As indicated at the beginning of this section, our long-term climate target is to be a net-zero emissions energy business by 2050, in step with society's progress towards achieving the goal of the UN Paris Agreement on climate change. This target supports the most ambitious goal of the Paris Agreement on climate change to limit the global temperature rise to 1.5 degrees Celsius. We referred to the database developed for the IPCC special report Global Warming of 1.5°C while setting this target. We started with all the 1.5 degrees Celsius scenarios and then selected the scenarios which focused on earlier action and placed less reliance on the use of carbon sinks to produce the 1.5 degrees Celsius pathway we have used for target setting.
OUR NET CARBON INTENSITY TARGETS
Shell’s carbon intensity is the average intensity, weighted by sales volume, of the energy products sold by Shell. This is tracked, measured and reported using the Net Carbon Footprint (NCF) metric and methodology. Our NCF calculation includes the life-cycle greenhouse gas emissions associated with each unit of energy we sell that is used by our customers. This includes the emissions associated with the production, processing, transport and end use of these products. Also included are emissions from other elements of this life cycle not owned or controlled by Shell, such as oil and gas that we process but do not produce, or emissions from oil products and electricity marketed by Shell that have not been processed or generated at a Shell facility. The calculation also subtracts emissions for those that are stored by using carbon capture and storage (CCS) or are offset using natural carbon sinks, such as forests and wetlands. Chemicals and lubricants products, which are not used to produce energy, are excluded from the scope of this metric. The carbon intensity of the energy products we sell is expressed in grams of carbon dioxide equivalent (CO₂e) per megajoule consumed.
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Impact of physical risks and adaptation measures
The physical effects of climate change may increase Shell’s exposure to hazards that could potentially include, for example, higher air and sea temperatures, rising sea levels, an increased chance of flooding and droughts, wildfires and more severe tropical storms. They could potentially impact our operations and supply chains. There could also be potential financial implications, such as increased operating costs and lower revenue because of decreased efficiency.
The potential impacts of physical risks to Shell facilities, where processes, equipment and safety could be affected, are reasonably understood in Shell’s oil and gas businesses. For example, rising temperatures could potentially impact the efficiency of our plants, increase equipment corrosion and decrease gas pipeline capacity. Rising sea levels could potentially impact our coastal facilities through increased coastal erosion and flooding, damage to jetties, and salt-water intrusion in freshwater intake.
The potential impacts of physical risks to the wider environment and their indirect effect on our facilities is an area that we continue to monitor and evaluate within the local context. Such risks could potentially disrupt our operations by affecting people, infrastructure or supply chains. For example, wildfires and droughts could disrupt feedstock supply for biofuels or make it difficult to access assets, including areas that support our nature-based solutions programme. Floods, meanwhile, could affect staff and communities in low-lying areas.
Measures to adapt to climate change could help reduce the impact of some of these physical climate change risks. These measures can range from local actions for a specific facility, to more general changes, such as adjustments to engineering design codes and alterations to the set limits and conditions within which facilities are deemed safe to operate. For example, Shell has already completed or started to implement solutions like pumping sand on beaches in to order to stabilise them, dredging works, and using a hovercraft for transport between islands.
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OUR PORTFOLIO AND CLIMATE CHANGE
We aim to grow our business in areas that will be essential in the energy transition, and where we see growth in demand over the next decade.
We are seeking cost-effective ways of managing GHG emissions in line with our NCF ambition. We also intend to help customers choose options with lower carbon intensity by bringing to market products with lower carbon intensity, in line with demand. We seek to help reduce global GHG emissions by:
•supplying more natural gas to replace coal for power generation;
•developing carbon capture and storage (CCS);
•implementing energy-efficiency measures in our operations where reasonably practicable;
•developing new fuels for transport such as advanced biofuels and hydrogen;
•maintaining a focus on using natural gas and renewable electricity to generate power; and
•working with nature-based solutions.
See further information on portfolio decisions in "Integrated Gas" on page 31, "Upstream" on page 37, "Oil Products" on page 52, and "Chemicals" on page 58.
NATURAL GAS
Natural gas is the least polluting hydrocarbon. It produces less than one-tenth of the air pollution that coal does when burned to generate electricity. Increasing the role that gas plays in the energy mix is one way countries can take action as the world moves to a net-zero emissions future.
Natural gas is an abundant, secure and readily available source of energy, one of the few that can be used across power generation, industry, the built environment and transport. Gas has significant advantages when used to generate power alongside renewables: it can quickly compensate for dips in supply from solar or wind generation, and can rapidly respond to surges in demand.
In 2020, gas accounted for around 47% of Shell’s total production. We are a leading producer, marketer and trader of liquefied natural gas (LNG) and gas-to-liquids (GTL) products. In our new strategy, launched in February 2021, one ofbusiness, while also helping us address the energy transition milestonesneeds of today. We aim to develop the talent of our people within a diverse and inclusive environment where we can empower them to be their best.
All metrics throughout this section exclude the employees in portfolio companies, except for the metrics reflecting total employee numbers, actual number of employees by 2030 is that we expect thegeography, percentage of total gas production in our portfolio to gradually rise to around 55% or more.women employees, and mandatory training courses.
See “Integrated Gas” part on page 30.
Methane emissions
Natural gas consists mainly of methane. Methane is a potent greenhouse gas and has a much higher global warming impact than CO2. Efforts to address climate change therefore require the industry to reduce both deliberate and unintended methane emissions.
The IEA estimates that natural gas operations have an average methane leakage rate of 1.7%. At this rate, natural gas emits between 45% and 55% less GHG than coal when burned at a power plant. Higher levels of methane emissions reduce this benefit.
In 2018, Shell announced an industry-leading target of keeping its methane emissions intensity below 0.2% by 2025. This target covers all the Shell-operated oil and gas facilities in our Upstream and Integrated Gas businesses. The baseline and target intensities are expressed as percentage figures, representing estimated methane emissions from Shell-operated oil and gas facilities as a percentage of the total amount of gas marketed, or the quantity of marketed oil and condensate where facilities have no marketed gas (for example, those that re-inject produced gas). Methane emissions include those from unintentional leaks, venting and incomplete combustion, for example, in flares and turbines.
The largest contributor to our reported methane emissions in 2020 was the flaring and venting of gas (including equipment venting) in our upstream oil and gas operations. We are working to reduce methane emissions from these sources by reducing the overall level of flaring and venting. We also continue to implement programmes across our sites to identify and stop unintended leaks and to replace or repair high-emission equipment, such as high-bleed pneumatic devices. We continue to work on confirming that we
have identified all potential methane sources and reported our emissions from these sources in line with regulations and industry standards.
Since 2018, we have tested drone-based leak detection cameras and sensors in our Permian Basin shales asset, where we have more than 400 sites. In 2020, we signed a contract with Avitas, a GE Venture, to expand the use of drones to enhance our existing leak detection and repair programme in the Permian Basin. As a result, we started the drone programme on one of our shales businesses, across sites that have the potential to emit methane.
We played an active role in the advisory committee of The University of Texas at Austin´s Project Astra which plans to establish a proof-of-concept network of methane detection sensors in the Permian Basin for high-frequency monitoring.
We have also tested fixed-based methane detection sensors in our Rocky Mountain House (Canada) asset.
At our Shell ONEgas facilities in the North Sea, we have reduced methane emissions by around 55%, (around 2,000 tonnes) since 2017. We have done this through improvements that reduce gas venting, such as minimising valve leakage and substituting nitrogen for natural gas when purging potentially explosive oxygen from equipment. ONEgas also continues efforts to improve the accuracy of its measurement of methane emissions. It is planning a trial of drone-mounted sensors in 2021, to see whether they provide a better way of quantifying emissions from platforms.
Methane initiatives and collaborations
We participate in a number of voluntary initiatives to encourage industry-wide action to reduce methane emissions.
In 2017, we joined the Climate and Clean Air Coalition Oil and Gas Methane Partnership. This brings together industry, governments and NGOs to improve the quantification of methane emissions globally and to work on reducing them.
Also in 2017, Shell formed an industry coalition, supported by organisations such as the Environmental Defense Fund, the UN Environment Programme and the World Bank, to develop a set of Methane Guiding Principles. These principles focus on:
•continually reducing methane emissions;
•advancing strong performance across gas value chains;
•improving the accuracy of methane emissions data;
•advocating sound policies and regulations on methane emissions; and
•increasing transparency.
Shell has been involved in developing all actions associated with the Methane Guiding Principles, including the establishment of a major global outreach programme. This programme seeks to address gaps in knowledge about managing methane emissions. It provides high-quality educational material and courses covering methane science, methane reduction strategies and planning, measurement techniques, technology, policy, and where to get guidance and support. The publicly accessible programme consists of two courses: an executive course for senior managers and executives, and masterclasses for managers of frontline staff. By the end of 2020, the Methane Guiding Principles had been signed by 23 companies.
In 2020, we became a founding signatory to the Oil and Gas Methane Partnership 2.0, the new gold-standard reporting framework that is designed to enhance reporting accuracy and transparency on methane emissions in the oil and gas sector.
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Shell is a member of the Oil and Gas Climate Initiative (OGCI), a CEO-led effort to lead the industry’s response to climate change. One of OGCI’s focus areas is methane management. In 2018, OGCI announced a target of reducing the collective average methane intensity of its members’ aggregated upstream gas and oil operations by one-fifth, to below 0.25% by 2025, with an ambition to achieve 0.2%, which would be a reduction of one-third.
Methane emissions performance
In 2020, our overall methane intensity was 0.06% for facilities with marketed gas and 0.01% for facilities without marketed gas. Intensities at facility level ranged from below 0.01% to 0.6%. We believe our methane emissions are calculated using the best methods currently available: a combination of industry-standard emission factors (established emission rates per throughput or per piece of equipment), engineering calculations and some actual measurements. There are still uncertainties associated with quantifying methane emissions with the available methodologies. To reduce these uncertainties, our Upstream and Integrated Gas businesses are rolling out methane improvement programmes to further improve data quality and reporting. The improvement programmes will also continue leak detection and repair initiatives, and make use of methane abatement opportunities. By 2025, all Shell-operated facilities are expected to have implemented more robust quantification methodologies. Externally, we continue to work on new technologies and improved quantification methods through partnerships and other initiatives such as the OGCI.
Detailed information on our approach to managing methane emissions and performance is expected to be published in the Shell Sustainability Report in April 2021.
RENEWABLES AND ENERGY SOLUTIONS
Renewables and Energy Solutions, formerly New Energies, encompasses Shell’s low-carbon businesses. These include Shell’s activities in integrated power, hydrogen, nature-based solutions (NBS) and carbon capture and storage (CCS). We want to find ways of helping customers – be they households or businesses – to switch to low-carbon and renewable electricity. That is why we are also developing digitally-enabled platforms that will provide customers with services that make it easier for them to decarbonise and accelerate their progress in this area. We could invest on average $2-3 billion each year in our Renewables and Energy Solutions business.
See “Integrated Gas” on page 34.
Power
Electricity is the fastest-growing part of the energy system and when generated from renewable sources has a major role to play in reducing GHG emissions. Shell is building an interconnected power business that is designed to be sustainable and offer long-term opportunities. We aim to sell some 560 terawatt hours of electricity a year by 2030, which is twice as much electricity as we sell today. Our integrated power strategy will help Shell in its broader aim to accelerate its transformation into a provider of net-zero emissions energy products and services.
See “Integrated Gas” on page 34.
Low-carbon fuels
Shell believes that low-carbon fuels will play a valuable role in reducing carbon dioxide (CO2) emissions from the transport sector in the coming decades. Low-carbon fuels projects and operations around the world form part of a wider commitment to provide a range of energy choices for customers.
In 2020, around 9.5 billion litres of biofuels went into Shell’s petrol and diesel worldwide. This helped us to make progress towards achieving our climate ambition while complying with applicable mandates and targets in the markets where we operate. Through our own long-established sustainability clauses in supply contracts, we request that all biofuels we buy are produced in ways that are environmentally and socially responsible throughout the production chain. Currently, most available biofuels are produced from cereals, vegetable oils and sugar cane. From cultivation to use, biofuels can emit significantly less CO2 compared with conventional gasoline. This depends on several factors, such as how the feedstock is cultivated and the way the biofuels are produced. Other challenges include concerns over labour rights, the amount of water used in the production process, and competition for land use between biofuels and food crops.
Over three-quarters of the biofuels we buy are from North American or European feedstock producers. Both regions have regulations for agricultural practices including in relation to sustainability.
We continue to support the adoption of international sustainability standards, including those of the Round Table on Responsible Soy (RTRS), the Roundtable on Sustainable Palm Oil (RSPO) and Bonsucro, an organisation for the certification of sugar cane. We also support the Roundtable on Sustainable Biomaterials (RSB) and the International Sustainability and Carbon Certification (ISCC) scheme for feedstocks. We aim to increase the percentage of volumes that are certified according to these robust multi-stakeholder standards.
Currently, more than 97% of our purchased volumes of biofuels are either covered by our supplier-agreed contract sustainability clauses or certified as sustainable by an independent auditor. We aim to increase the percentage of volumes that are certified according to robust multi-stakeholder standards.
The Raízen joint venture (Shell interest 50%, not operated by Shell) in Brazil has produced low-carbon biofuel from sugar cane since 2011. Through Raízen, Shell is a significant biofuels producer. Raízen hosts the first commercial advanced bioethanol facility and the fourth largest renewable natural gas (RNG) facility in the world.
As part of our target to be a net-zero energy business by 2050, in step with society, we seek to reduce the carbon intensity of the products we sell. This means transforming our refining footprint, keeping sites in key locations but manufacturing low-carbon fuels suitable for use as aviation, road transport and shipping fuels or as a chemical feedstock (for liquid crackers). In 2020, our Rheinland refinery in Germany produced nearly 100 million litres of renewable diesel, produced from sustainably sourced vegetable fats and oils Our production strategy is anchored around access to competitive feedstock, commercialisation of advanced technology, supportive government policy, and building internal capability.
We are also investing in new facilities that are able to produce sustainable low-carbon fuel suitable for use as aviation, road transport and shipping fuels or chemical feedstock for liquid crackers. Shell’s hydro-processed esters and fatty acids (HEFA) technology yields up to 65% low-carbon fuels compared
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to fossil diesel and aviation equivalent. If HEFA technology is used with green hydrogen – produced by using renewable electricity to split water into hydrogen and oxygen through electrolysis – it can increase the energy content and further reduce the carbon content of the fuels produced.
We are working on a project to add a HEFA facility at our Pernis refinery in the Netherlands. If this project went ahead, production would start in around three to four years. The proposed facility could convert waste fats and oils and other sources into sustainable low carbon vehicle and aviation fuels. A final investment decision has not yet been taken.
In January 2021, Shell announced the signing of commercial agreements to invest in Varennes Carbon Recycling, a plant in Québec, Canada, that will turn waste into chemicals and biofuels. This plant, a joint venture with Enerkem, Proman, Suncor and Invest Quebec (Shell interest 40%), will produce biofuels and renewable chemical products using non-recyclable waste from the industrial, commercial and institutional sectors, from construction, renovation and demolition debris and from residual forest biomass.
In line with our strategy of developing more sustainable feedstocks for transport, we are investing in renewable natural gas (RNG) for use in natural-gas-fuelled vehicles in the USA and Europe. RNG is produced from biogas collected from landfill sites, or via the anaerobic digestion of food waste or manure. It is then processed until it is fully interchangeable with conventional natural gas. The use of RNG in natural-gas vehicles, either in the form of compressed natural gas (CNG) or LNG, offers customers a way to lower their carbon footprint.
The heavy-duty road transport sector is starting to use RNG in its efforts to decarbonise. Shell recently won tenders to supply RNG to fuel around 300 of the Los Angeles (LA) bus fleet and vehicles of the West LA waste haulers fleet.
Shell has taken a final investment decision (FID) to construct, own and operate its first renewable compressed natural gas (R-CNG) fuelling site in the USA. This will be at Shell’s products distribution complex in Carson, California. The R-CNG will be sourced from Shell’s renewable natural gas projects in the USA, which are currently Shell Junction City in Oregon and Shell Galloway in Plains, Kansas. These convert wastes, such as dairy cow manure and agricultural residues, into pipeline-quality natural gas. Shell will be able to substantially decarbonise the transport of its products from the Carson complex by providing 100% R-CNG to its haulage partners, who are equipped with ultra-low nitrogen oxide natural gas vehicles.
CARBON CAPTURE AND STORAGE
CCS is a technology used for capturing carbon dioxide (CO2)before it is emitted into the atmosphere, then transporting it, and injecting it into a deep geological formation for permanent storage. The majority of climate change scenarios produced by organisations such as IEA, IPCC and Shell require a large component of CCS in order to achieve the goals of the Paris Agreement. We recognise the scale of the challenge in developing CCS globally as quickly as is required.
In 2020, we refreshed our CCS strategy. We placed greater emphasis on how CCS could enable the energy transition for low-carbon fuels and power, and for industrial hub developments where CO2 from different industrial sources is routed to a single storage location. We seek to have access to an additional 25 million tonnes a year CCS capacity by 2035.
In 2020, Shell invested around $70 million in CCS. This included progressing opportunities and operating costs for CCS assets in which Shell has an interest.
By the end of 2020, our Quest CCS project in Canada (Shell interest 10%) had captured and safely stored more than 5.5 million tonnes of CO2 since it began operating in 2015. Quest CCS was designed to capture about 1 million tonnes of CO2 each year. The storage reservoir proved to have a significant capacity for CO2 injection and strong capture reliability with less than 1% downtime annually. This means the facility could exceed its target and reduce estimated costs.
The Gorgon CCS project in Australia (Shell interest 25%, operated by Chevron) started operating in August 2019. It had stored more than 4 million tonnes of CO2 by the end of 2020.
In Norway, Shell, our project partners and the Norwegian government took the final investment decision (FID) on the Northern Lights CCS project in 2020. This project aims to become the first carbon storage facility with capacity to transport and store CO2 from industrial facilities in Norway and potentially from across Europe.
Shell is also involved in the Technology Centre Mongstad (TCM), in Norway. TCM is a centre for testing and improving carbon capture technology.
In the Netherlands, we have signed a joint-development agreement to assess the potential to export CO2 from our Pernis refinery to a Rotterdam-based CO2 transport and storage provider.
In the UK, we are collaborating with other companies to further understand the potential of CCS. Projects include how to decarbonise our own facilities, to deliver gas power and low-carbon hydrogen.
In other regions, we are pursuing opportunities which are currently in early development phases.
Shell recognises the role of policy as a key enabler for implementing CCS. We are a member of several industry organisations that actively advocate CCS, such as the Zero Emissions Platform in the EU, the American Petroleum Institute in the USA, and the Carbon Capture and Storage Association in the UK. Shell makes representations and contributes to technical and policy papers through these organisations. In 2020, Shell submitted responses to a number of consultations on aspects of CCS, individually and through industry associations, in the EU, USA, UK and other jurisdictions.
Shell is participating in the OGCI's KickStarter initiative to unlock large-scale investment in CCS. The initiative is designed to help decarbonise industrial hubs around the world and started with hubs including North America, North-west Europe and China.
NATURE-BASED SOLUTIONS
We believe that nature will play an important role in the transition to a low-carbon world. Using nature to absorb carbon dioxide helps to limit the overall stock of greenhouses gases in the atmosphere. This can serve as a temporary solution until other low-carbon alternatives are deployed at scale, or it can compensate for emissions that are unavoidable.
As customers´ and society's demand for the use of low-carbon products and services grows, nature-based solutions are becoming an increasingly attractive option for emissions offsetting for a range of industries and operators.
Nature-based projects typically involve protecting or redeveloping natural ecosystems such as forests and wetlands, so they can capture and store more carbon. These projects generate carbon emission rights that can be bought by energy consumers around the world. They also support conservation of biodiversity and offer alternative sources of income to local communities.
Nature-based solutions are expected to contribute to meeting our target to be a net-zero emissions energy business by 2050, in step with society.
We have been running a nature-based solutions programme to invest in natural ecosystems since 2019. As well as investing directly in projects that protect or restore nature, we are also working with projects that already generate carbon credits for our customers. In 2020, Shell invested around $90 million in nature-based projects that reduce or avoid emissions and can also benefit ecosystems by improving biodiversity, water quality and flood protection. This in turn can improve the livelihoods ofemployed 93,000 people in local communities.
Our ambition is to invest around $100 million per year in nature-based projects that reduce or avoid CO2 emissions and offer other valuable ecosystem benefits. We aim to use nature-based solutions, in line with the philosophy of avoid, reduce and only then mitigate, to offset emissions of around 120 million tonnes a year by 2030, through projects of the highest independently verified quality.
In 2020, we developed a screening process with clear criteria to help ensure that we invest in nature-based solutions projects that are of high quality and integrity. The criteria include but are not limited to:
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STRATEGIC REPORT SHELL FORM 20-F 2020 | 82 | |
•selecting only projects that are certified under credible, high-quality and independent carbon-credit standards;
•selecting projects that deliver wider environmental and social benefits;
•working to ensure project developers maintain appropriate health, safety, security and social governance standards; and
•having an independent third party audit our internal nature-based project screening review and management processes.
In 2019, we started offering what we called "carbon-neutral driving" to our retail customers. We offered service-station customers in the Netherlands and the UK nature-based carbon credits to offset the CO₂ emissions generated by the extraction, refining, distribution and use of the Shell fuel they buy. By the end of 2020, around 18% of Shell's retail customers in the Netherlands and around 15% of our UK service-station customers were driving carbon neutral. So too were more than 200 fleet customers in 12 countries who took advantage of similar offers for businesses.
In 2020, we continued to roll out our carbon-neutral retail offer in Germany, Austria, Switzerland, and Canada, and via a third-party reseller agreement in Denmark. We also offer a growing range of products with nature-based carbon credits, including home energy in the UK, LNG in Asia, bitumen in Europe, and selected lubricants.
In 2020, we took another step to scale up our activities in natural ecosystems by acquiring Select Carbon, a specialist company that partners with farmers, pastoralists and other landowners in Australia to develop carbon farming projects, where plants are grown and soil managed to absorb carbon dioxide from the atmosphere.
For more information, see the Shell Sustainability Report, due to be published in April 2021.
OUR PERFORMANCE
SHELL´S CARBON INTENSITY
Shell’s carbon intensity provides an annual measure of the life-cycle emissions intensity of the portfolio of energy products sold. Specifically, we calculate the carbon intensity (gCO₂e/MJ) in terms of the grams of carbon dioxide equivalent (gCO₂e) per unit of energy (MJ) sold. This is measured, tracked and reported using the Net carbon Footprint (NCF) metric and methodology.
Shell’s NCF is not calculated by simply dividing total emissions by total energy, nor is it an inventory of absolute emissions. Instead, Shell calculates the life-cycle carbon intensity of each of the different energy products it sells. Once we have calculated the carbon intensity for each individual energy product, we then calculate the overall carbon intensity by taking a weighted average of the individual product intensities, with the weighting based on their sales volumes. This approach enables like-for-like comparisons across a range of energy products and allows us to establish the average carbon intensity for all the energy products we sell, including renewables.
Finally, we deduct, or "net off", any emissions that are stored in carbon sinks. For example, we subtract emissions that are stored using carbon capture and storage in our own operations. We also subtract any carbon dioxide emissions that are removed from the atmosphere and stored using natural carbon sinks created using nature-based solutions, such as reforestation.
While Shell’s NCF is an intensity measure and not an inventory of absolute emissions, a notional estimate of the amount of CO₂e emissions covered by the scope of the Net Carbon Footprint calculation can be derived from the final Net Carbon Footprint value for any year.
Net carbon intensity performance
Our NCF performance
| | | | | | | | | | | | | | |
| NCF in the reference year (2016) = 79 gCO₂e/MJ |
| | 2018 | 2019 | 2020 |
| NCF | g CO₂e/ MJ | 79 | 78 | 75 |
| Estimated total energy delivered by Shell [A] | trillion (10^12) MJ | 22.00 | 21.05 | 18.4 |
| Estimated total GHG emissions included in NCF [B], [C] | million tonnes CO₂e | 1,731 | | 1,646 | | 1384 |
[A] Retail sales volumes from markets where Shell operates under trademark licensing agreements are excluded from the scope of Shell´s carbon intensity metric
[B] The 2.2 million tonnes of carbon offsets used in 2019, and 3.9 million tonnes of carbon offsets used in 2020 have been subtracted from the estimated total GHG emissions
[C] These numbers include well-to-wheel emissions associated with energy products sold by Shell; they also include the well-to-tank emissions associated with the manufacturing of energy products by others that are sold by Shell. Emissions associated with the manufacturing and use of non-energy products are excluded
We have received third-party limited assurance on our carbon intensity, measured and reported using the Net Carbon Footprint, for the years from 2016 to 2020. Shell’s NCF in 2020 was 75 gCO2e/MJ, a 4% reduction from the previous year and a 5% reduction from the 2016 reference year. One of the major causes of this larger than expected reduction in 2020 was lower demand for energy, especially for oil and gas. Demand for oil products experienced the most significant reduction, followed by natural gas and LNG. Another important factor contributing to the reduction of the NCF was the increase in our power sales in absolute terms as well as their share of the energy mix sold by Shell. The power we sold also had a lower average emissions intensity than in previous years, which further contributed to the overall NCF reduction.
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STRATEGIC REPORT SHELL FORM 20-F 2020 | 83 | |
Carbon intensity of Shell´s energy product types
The graph below illustrates the carbon intensity of our delivered energy per product type from 2016 to 2020. Our NCF is calculated by taking a weighted average of these individual carbon intensities, with the weighting based on their sales volumes.
For hydrocarbon fuels, emissions from end use by customers are by far the biggest contributors to the carbon intensity of the product. As a result, the emissions intensity of hydrocarbon fuels is expected to stay relatively unchanged over time.
This contrasts with the emissions intensity of power, which can be highly variable depending on how it has been generated. To a lesser extent, there is also a contrast between hydrocarbon fuels and biofuels, which can vary significantly in intensity depending on the feedstock and production process used.
The proportion of our renewable power sales and countries where we sell power to the market both affect Shell´s overall power mix and its resulting emissions intensity. The carbon intensity of biofuels provided in the graph "Carbon intensity of Shell´s energy product types" reflects the global average for biofuels sold by Shell.
Our strategy is to reduce our Net Carbon Footprint, mainly by increasing the proportion of lower-carbon products such as natural gas, biofuels, electricity and hydrogen in the mix of products that we sell to our customers.
GREENHOUSE GAS EMISSIONS
Data in this section are reported on a 100% basis in respect of activities where we are the operator. Reporting on this operational control basis differs from that applied for financial reporting purposes in the “Consolidated Financial Statements” on pages 163-210. Detailed data and information on our 2020 environmental and social performance are expected to be published in the Shell Sustainability Report in April 2021.
GHG Performance
Our direct GHG emissions (Scope 1) decreased from 70 million tonnes of CO₂ equivalent in 2019 to 63 million tonnes of CO₂ equivalent in 2020. The main contributors to this decrease were divestments, (for example, in Canada and the USA), and reduced utilisation at a number of assets caused by lower demand driven by COVID-19. The level of flaring in our Upstream and Integrated Gas businesses combined decreased by around 35% compared with 2019. In 2019, our Prelude floating LNG facility in Australia had experienced an unanticipated spike in flaring during its start-up. In February 2020, we had to shut down Prelude which resulted in a decrease of its GHG emissions by around 80% compared with 2019.
In 2015, we signed up to the World Bank’s Zero Routine Flaring by 2030 initiative. This seeks to ensure that all stakeholders, including governments and companies, work together to address routine flaring. Flaring, or burning off, of gas in our Upstream and Integrated Gas businesses contributed around 6% of our overall direct GHG emissions in 2020. Around 35% of this flaring
occurred at facilities where there was no infrastructure to capture the gas produced with oil, known as associated gas.
Around 45% of flaring in our Upstream and Integrated Gas facilities in 2020 occurred in assets operated by the Shell Petroleum Development Company of Nigeria Limited (SPDC). Flaring from SPDC-operated facilities decreased by around 15% in 2020 compared with 2019. SPDC, in close collaboration with its joint-venture partners and the Federal Government of Nigeria, continues to make progress towards the objective of ending the continuous flaring of associated gas. Two new gas-gathering projects (Adibawa and Otumara) came on stream at the end of 2017, followed by two more (the Forcados Yokri Integrated Project and Southern Swamp Associated Gas Gathering Solutions) in 2019.
Our indirect GHG emissions associated with imported energy (Scope 2) were 9 million tonnes in 2020 (using market-based method), down from 10 million in 2019, in part driven by divestments (for example in Canada) and lower demand for imported electricity due to reduced utilisation.
Our GHG emissions
| | | | | | | | | | | | | | |
| | 2018 | 2019 | 2020 |
| Scope 1 [A] | million tonnes CO₂ | 71 | 70 | 63 |
| Scope 2 [B] | million tonnes CO₂ | 11 | 10 | 9 |
| Scope 3 [C] | million tonnes CO₂ | 1637 | 1551 | 1305 |
[A] total direct (Scope 1) GHG emissions from assets and activities under operational control boundary
[B] total indirect GHG emissions from imported energy (Scope 2) from assets and activities under operational control boundary
[C] indirect GHG emissions (Scope 3) based on the energy product sales included in the NCF boundary. See our website shell.com for more information on our NCF methodology
Greenhouse gas intensity
In 2020, the three GHG intensity metrics included in the Performance Indicators on page 29 covered over 80% of our total Scope 1 and 2 GHG emissions from assets and activities under our operational control.
The Upstream and Integrated Gas GHG intensity - measured in tonnes of CO₂ equivalent per tonne of hydrocarbon production available for sale - decreased from 0.17 in 2019 to 0.16 in 2020. This was partly because of our Prelude FLNG asset being shut down in February 2020.
The Refining GHG intensity - measured in tonnes of CO₂ equivalent per Solomon’s Utilised Equivalent Distillation Capacity (UEDCᵀᴹ) - decreased from 1.06 in 2019 to 1.05 in 2020. This was mainly driven by divestment of our Martinez refinery in the USA.
The Chemicals GHG intensity - measured in tonnes of CO₂ equivalent per tonne of high value chemicals – decreased from 1.04 in 2019 to 0.98 in 2020. This was mainly because of increased utilisation following turnarounds on three of our sites in 2019.
GHG emissions and energy consumption data and information in accordance with UK regulations
GHG emissions comprise CO2, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, sulphur hexafluoride and nitrogen trifluoride. The data are calculated using locally regulated methods where they exist. Where there is no locally regulated method, the data are calculated using the 2009 American Petroleum Institute (API) Compendium of Greenhouse Gas Emissions Methodologies, which is the recognised industry standard under the GHG Protocol Corporate Accounting and Reporting Standard. There are inherent limitations to the accuracy of such data. Oil and gas industry guidelines (API/International Association of Oil & Gas Producers (IOGP)/IPIECA, the global oil and gas industry association for advancing environmental and social performance) indicate that a number of sources of uncertainty can contribute to the overall uncertainty of a corporate emissions inventory.
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STRATEGIC REPORT SHELL FORM 20-F 2020 | 84 | |
| | | | | | | | |
| | |
| Greenhouse gas emissions | | |
| 2020 | 2019 |
Emissions (million tonnes of CO2 equivalent) | | |
| Total global direct (Scope 1) [A] | 63 | | 70 | |
| UK including offshore area [B] | 2.0 | | 2.1 | |
| Total global energy indirect (Scope 2) [C] | 9 | | 10 | |
| UK including offshore area [D] | 0.0 | 0.0 |
| Intensity ratio (tonne/tonne) | | |
| All facilities [E] | 0.25 | | 0.24 | |
[A] Emissions from the combustion of fuel and the operation of our facilities globally, calculated using global warming potentials from the IPCC’s Fourth Assessment Report.
[B] Emissions from the combustion of fuels and the operation of our facilities in the UK and its offshore area, calculated using global warming potentials from the IPCC´s Fourth Assessment Report.
[C] Emissions from the purchase of electricity, heat, steam and cooling for our own use globally, calculated using a market-based method as defined by the GHG Protocol Corporate Accounting and Reporting Standard. Using location-based methods, indirect GHG emissions from generation of purchased and consumed energy (electricity, steam, heat and cooling) were 11 million tonnes CO₂e in 2019 and 11 million tonnes CO₂e in 2020.
[D] Emissions from the purchase of electricity, heat, steam and cooling for use by our facilities in the UK including its offshore area, calculated using a market-based method as defined by the GHG Protocol Corporate Accounting and Reporting Standard. Using location-based methods, indirect GHG emissions from generation of purchased energy consumed by our facilities were 0.06 million tonnes CO₂e in 2019 and 0.06 million tonnes in 2020.
[E] In tonnes of total direct and energy indirect GHG emissions per tonne of crude oil and feedstocks processed and petrochemicals produced in downstream manufacturing, oil and gas available for sale, LNG and GTL production in Integrated Gas and Upstream. For an additional breakdown by segment, see Greenhouse gas intensity section above.
The energy consumption data provided below comprise own energy, generated and consumed by our facilities, and supplied energy (electricity, steam and heat) purchased by our facilities for our own use. Energy consumption data reflect primary (thermal) energy (e.g. the energy content of fuels used to generate electricity, steam, heat, mechanical energy etc.). This includes energy from renewable and non-renewable sources. Own energy generated was calculated by multiplying the volumes of fuels consumed for energy purposes by their respective lower heating values. Own energy generated that was exported to third-party assets or to the power grid is excluded. Thermal energy for purchased and consumed electricity was calculated using actual electricity purchased multiplied by country-specific electricity generation efficiency factors (from IEA statistics). Thermal energy for purchased and consumed steam and heat was calculated from actual steam/heat purchased multiplied by a supplier-specific conversion efficiency, or generic efficiency factor where supplier-specific data were not available.
Energy consumption (billion kilowatt-hours)
| | | | | | | | |
| 2020 | 2019 |
| Own energy generated and consumed |
| Total energy generated and consumed | 202 | 220 |
| UK including offshore area | 7.6 | 7.6 |
| Purchased and consumed energy |
| Total purchased and consumed energy | 38 | 44 |
| UK including offshore area | 0.2 | 0.2 |
| Energy consumption |
| Total energy consumed | 240 | 264 |
| UK including offshore area | 7.8 | 7.8 |
.
In 2020, we implemented a variety of measures to reduce the energy use and increase the energy efficiency of our operations. Examples of some of the principal measures taken are listed below:
•At our Clipper facility in the UK, we completed a project to optimise the use of compressors.
•At our Bukom facility in Singapore, we completed two projects to minimise energy loss from steam.
•At our Scotford upgrader facility in Canada, we completed several projects to minimise energy use and improve efficiency, for example by removing equipment from service or replacing it with more efficient equipment.
•At our Geismar facility in the USA, we improved flare staging and temperature control which resulted in lower levels of natural gas consumption.
•At our Mobile facility in the USA, we installed new equipment to increase heat transfer between heat exchangers in order to improve the energy efficiency of the units.
•At our GTL facility in Qatar, we completed several projects to reduce energy use and improve efficiency, for example by minimising the generation of excess steam and converting excess energy into electricity for export to the public grid.
•In Brazil, we reduced fuel usage of vessels by optimising how they operate in dynamic position, stand-by and navigation modes.
Detailed information on our 2020 GHG emissions and energy use is expected to be published in the Shell Sustainability Report in April 2021 and on our website.
The statements in this “Climate change and energy transition” section, including those relating to the Net Carbon Footprint targets, are forward-looking statements based on management’s current expectations and certain material assumptions and, accordingly, involve risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied herein.
See “About this Report” on pages 8-9 and “Risk factors” on pages 18-22.
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STRATEGIC REPORT SHELL FORM 20-F 2020 | 85 | |
Performing competitively in the evolving energy landscape requires competent and empowered people working safely together across Shell.
We recruit, train and remunerate people according to a strategy that aims to organise our businesses effectively. Our people are essential to the successful delivery of the Shell strategy and to sustaining business performance over the long term. Strong engagement helps us to accelerate our people's development, enhance our leadership capabilities and improve employee performance.
EMPLOYEE OVERVIEW
The employee numbers presented here are the full-time equivalent number of people employed by Shell on a full- or part-time basis at the end of 2022. This compares with 83,000 at the end of 2021 and 88,000 at the end of 2020. The data include people working in Shell subsidiaries, Shell-operated joint operations,ventures and those seconded to non-Shell-operated joint operations, or joint ventures and associates.
At December 31, The employee numbers for 2021 and 2020 there were a total of 87,000 employeesreflect headcount in Shell. This total consisted of employees inthe Shell HR system and employees in certain Upstream, Downstream and Renewables and Energy Solutions (formerly New Energies)full-time equivalent numbers for portfolio companies, that operate more autonomously than other Shell subsidiaries andwhich maintain their own HR systems.
The total of 87,000 employees at December 31,In Shell companies, excluding portfolio companies, headcount fell by 5,000 from 82,000 to 77,000 between 2020 was the same as at December 31, 2019.and 2021.
There were 81,000 employees in Shell, excluding those in companies with their own HR systems, at December 31, 2018.
As part of the Reshape initiative, Shell expects to reduce between 7,000 and 9,000 jobs byAt the end of 2022, as it seeksafter the implementation of our Reshape strategy which saw a reduction of more than 7,300 jobs in Shell, headcount grew by 2,000 to reduce costs79,000 people because of the recruitment of employees in Information and restructures with the aim of becoming a more streamlined, more competitive organisation that is nimblerDigital Technology and better ableTrading and Supply.
The Reshape job reduction includes 3,500 employees who elected to respond to customers. The job reductions will include around 1,500 people who have already decided to take voluntary redundancy in 2020, but will exclude anybody who may leave Shell becauseon selective voluntary severance (SVS), thereby reducing the number of divestments. Shell willenforced redundancies. We have always sought to conduct the job reductions process in accordance with our core values of honesty, integrity, and respect for people. We will seek at all timesThroughout the Reshape process, we supported those facing job reductions by helping them to show care for anyone who losesfind internal and external opportunities to retrain or learn new skills.
In Shell portfolio companies which maintain their role. Jobown HR system, full-time equivalent employee numbers remained constant between 2020 and cost reductions are2021. At the end of 2022, the employee headcount in comparison with December 31, 2019.
The table below shows actualpresents the breakdown of employee numbers by geographical area. Note 26 to the “Consolidated Financial Statements” on page 208
| | |
| Note 32 to the "Consolidated Financial Statements" on page 286 provides the average number of employees by business segment. |
| | |
| Actual number of employees by geographical area |
| | | | | | | | | | | |
| | | Thousand |
| 2022 | 2021 | 2020 |
| Europe | 30 | 27 | 28 |
| Asia | 32 | 30 | 31 |
| Oceania | 3 | 2 | 3 |
| Africa | 4 | 4 | 4 |
| North America | 23 | 18 | 20 |
| South America | 1 | 2 | 2 |
| Total | 93 | 83 | 88 |
Voluntary turnover is a reliable indicator of the effectiveness of Shell’s people management policies. In 2022, our voluntary resignations remained low compared with a range of industries. Around 5.0% of all Shell employees voluntarily resigned in 2022. This compared with 4.4% in 2021.
Strategic Report | Progress on strategy – year in review
Powering lives continued
The tables below present the breakdown of employees by business segment.type of employment contract and age group.
| | | | | | | | | | | | | | | | | |
| | | | | |
| Actual number of employees by geographical area | Thousand |
| 2020 | 2019 | | 2018 [A] | |
| Europe | 27 | | 27 | | | 24 | | |
| Asia | 31 | | 31 | | | 28 | | |
| Oceania | 3 | | 2 | | | 2 | | |
| Africa | 4 | | 4 | | | 4 | | |
| North America | 20 | | 21 | | | 21 | | |
| South America | 2 | | 2 | | | 2 | | |
| Total | 87 | | 87 | | | 81 | | |
| | |
| Percentage of employees by contract types |
| | | | | | | | | | | |
| 2022 | 2021 | 2020 |
| Permanent Contract/employment at-will [A] | 98% | 98% | 98% |
| Fixed Term Contract | 2% | 2% | 2% |
[A]A] As revised, numbersEmployment at-will is used in the USA to describe employment contracts.
| | |
| Percentage of employees by age group |
| | | | | | | | | | | |
| 2022 | 2021 | 2020 |
| Under 30 years old | 14% | 13% | 14% |
| Between 30-50 years old | 64% | 65% | 64% |
| Above 50 years old | 22% | 22% | 22% |
Shell aims to be an attractive employer to its existing and prospective employees. Across the more than 70 countries we operate in, we provide competitive remuneration with a range of benefits, such as global minimum maternity leave of 16 weeks. From January 2023, we offer at least eight weeks paid parental leave for non-birthing parents.
People are our most important asset and we believe in developing our employees. Career progression tools, such as an internal job portal, individual development plans, coaching and formal training have been changed from average numberin place for many years. We offer employees the opportunity to actual numbers. These numbers exclude those in companies withdevelop their own HR systems.
In 2020,2022, 10,300 Shell employees were promoted (40% of which were women and 60% men), compared with 10,000 promotions (44% of which were women and 56% men) in 2021.
People development is a totalpriority in company-wide and leadership communications. We account for learning as part of 234,000annual budget planning and we aim to ensure our learning curricula are updated
and accessible to all employees.
In 2022, 266,000 formal training days were provided fordelivered to employees, and joint-venture partners comparedand contractors. This compares with 373,000271,000 in 2019. The decrease2021 and 234,000 in formal2020. We aim to build the confidence of our employees in their employability throughout the energy transition.
Shell has increased learning offerings related to new skills that may be needed. In 2022, around 4,000 Shell employees completed courses on various topics, including hydrogen production, carbon capture and storage, and energy management.
We have focused efforts on expanding access to virtual courses and on a return to in-person training was caused by COVID-19-related travel restrictions,workshops, which significantly affectedwere paused due to the pandemic.
Team leadership plays a key role in driving employee engagement. We seek to develop leaders through learning programmes, domestic and international assignments, and project opportunities. In 2022, 25% of team leaders in Shell received access to a classroom learning.
Employee engagement and blended training plans. In responsesupport
Hearing from employees provides valuable information for management and contributes to this, we rapidly increased the numbergovernance of courses that could be attended virtually,Shell. Insight into employee needs and created more digital resourcesperspectives enables Shell to help our peoplecontinually learn train and develop their skills. This allowed us to continue to invest in peopleimprove its policies, processes, and capabilities, while maintaining our focus on safety.
EMPLOYEE COMMUNICATION AND INVOLVEMENT
We striveManagement regularly engages with employees, including through internal and external elected employee representatives, and a range of local formal and informal channels. Our employee engagement forums also include webcasts and all-employee messages from our CEO and other senior leaders; town halls and team meetings; virtual coffee/chai connects; interviews with senior management, and internal social platforms. These engagements enable Shell to maintain a healthylocally constructive employee and industrial relations environment. We seek to ensure that our work practices involve dialogue between management and employees – both directly and, where appropriate, through employee representative bodies. Management regularly engages
In June 2022, the Chair of the Board, Sir Andrew Mackenzie, met with our employees through a range of formal and informal channels. These include webcasts and all-staff messages from our Chief Executive Officer (CEO) Ben van Beurden, senior leader webcasts, town halls, team meetings, virtual coffee/chai connects, interviews with Senior Management and online publications via our intranet.
We promote safe reporting of views about our processes and practices. In addition to local channels, the Shell Global Helpline enables our people and third parties to report potential breachesrepresentatives of the Shell General Business Principles andEuropean Workers Council (SEWC) as part of their annual plenary meeting at Shell Code of Conduct, confidentially and anonymously,Centre in a variety of languages. In 2020, 1,425 cases were reported via the Shell Global Helpline: 1,153 allegations and 272 inquiries. In 2019, 1,686 cases were reported via the Shell Global Helpline: 1,278 allegations and 408 inquiries. Shell Internal Audit (SIA) is the custodianLondon. Also in 2022, various members of the Shell Global Helpline process, which is managed by an independent third party. SIA is accountable for ensuring that the Shell Global Helpline functions as intended and that all allegations of Code of Conduct breaches (including bribery and corruption) are investigated and followed up appropriately. The Board has formally delegated to the Audit Committee the responsibility for reviewing the functioning of the Shell Global Helplinevisited sites in Singapore and the reports arising from its operation. The Audit Committee is also authorised to establish and monitor the implementation of procedures for the receipt, retention, proportionate and independent investigation and follow-up action of reported matters.UK, where they engaged with Shell employees.
Strong employee engagement is especially important in maintaining strong business delivery in times of change. The Shell People Survey is one of the principalkey tools usedwe use to measure employee engagement, motivation, affiliation and commitment to Shell. It provides insights into employees’ views and has had a consistently high response rate.rate of above 80% since 2016. In 2020,2022, the survey attained its highest ever response rate was 86.1%, our highest ever level and an increase of 0.687% (up 3.4 percentage points compared with 2019.from 2021). We believe that increased employee engagement can result in better business performance and safety. The Shell People Survey 2022 showed a positive, upward trajectory across all Shell businesses and functions. The average employee engagement score wasrose three points to 78 points out of 100,from the same as in 2019. This result gives Shell one of the leading employee engagement scores across a range of industries.
In 2020, we faced the worldwide COVID-19 pandemic. In response, we strengthened the country chair network so we could respond locally2021 level and returned to the challengeslevel seen in 2019 and 2020, our highest engagement score in the last 10 years, reflecting the resilience of the pandemic as experienced by our staff, businesses, supplierspeople during a time of change. Across Shell, employees also have access to senior leaders, local employee forums and customers.employee resource groups. The Shell Global Helpline is available for employees to raise concerns or dilemmas, anonymously if they wish.
Employee well-being
Shell believes people perform at their best when they feel cared for. We operate in locations with different local regulations and we seek
to comply with all applicable local laws and regulations, including
on working hours. Across Shell operations, we aim to eliminate discrimination in employment, forced labour, and child labour. We also provided global support on health. respect the right to collective bargaining and freedom of association.
We offered a home-working ergonomics programme, which involved more than 50,000 staff having a health-based risk assessment, receiving advicetake pride in fostering an environment that provides employees with the flexibility and if necessary receiving support to buy officefocus on their mental, social, physical, and IT equipment. We established afinancial well-being. Shell has implemented initiatives and programmes to raise awareness of well-being at work, such as our Be Well, Care for Self, programmeand I’m Not OK campaigns. We aim to encourage staffdevelop individual and team skills, mindsets, and behaviours to paycreate attention safe working environment, to their physical and mental well-being, and to support them as they did so. This was considered particularly important, given the stresses placed on staff by the COVID-19 pandemic and lockdowns.
DIVERSITY AND INCLUSION
Our diversity and inclusion approach focuses on hiring, developing and retaining the best people.
Embedding the principles of diversity and inclusion in the way we do business improves our understanding of the needs of our people, partners, suppliers and customers. A diverse workforce, and an inclusive, caring environment that respects and nurtures diverse people, help us to improve our safety and business performance.
We continue to focus on recruiting, developing and promoting more women, and we are supporting initiatives that encourage girls to study science, technology, engineering and mathematics (STEM). We also do this by creatingnurture a culture of respectcare, and inclusion. Our CEO Ben van Beurden joinedto continuously improve the Catalyst CEO Champions for Change,support Shell offers employees.
Flexible work
Shell’s offices remain essential to business performance. Through
them we seek to build a groupsense of more than 50 CEOs who pledgecommunity, foster affiliation, and collaboration, and create a place where employees feel welcomed and valued. Shell wants individuals and teams to support women’s advancementperform at all levelstheir best and key to this is to enable people to balance their work and personal lives. Following the pandemic, Shell launched its Future of leadership. Our CEO actively supports the Shell global gender gap campaign, which seeksWork guide to close the gender gapgive employees and teams advice and greater choice in STEM roles.
determining how, when and where they work to better meet business and their
In 2020, 49% of our graduate recruits were female, compared with 48% in 2019. At the end of 2020, the proportion of women in senior leadership positions was 27.8 %, an increase of 1.4 percentage points compared with the end of 2019. “Senior leadership positions” is a Shell measure based onown needs.
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| 120 | STRATEGIC REPORT SHELL FORMShell | Form 20-F 20202022 | 86 | |
Powering lives continued
salaryWe provide our people with what they need to work in our offices and other locations, with flexibility based on their reasonable business and personal needs. We also seek to provide what they need if they are working remotely. In 2022, we continued our home-working ergonomics programme, providing funding for proper office equipment for home use by existing employees and new joiners. We also provided tips on setting up and maintaining good ergonomics, working with others virtually and maintaining productivity. In 2022, more people chose to make use of Shell’s flexible working options.
Mental well-being
At Shell we strive to reduce the stigma related to mental ill health through open conversations, planned campaigns at country and global level, communications from senior leaders, engagement with elected employee representatives, and our experience-sharing portal for employees. In 2022, we developed and piloted our Global Mental Health Strategy and Programme designed to build a culture that promotes good mental health and protects against mental ill-health. The programme includes timely access to quality mental health support through Shell’s Employee Assistance Programme, which is available in most locations, and delivers professional counselling services. It also offers resources to help reduce the risk of stress and burnout.
Financial well-being
In 2022, Shell published its Fair Pay Principle, which provides transparency internally and externally on the criteria Shell uses to pay employees fairly and competitively. The Fair Pay Principle includes our pay adjustment approach, assurance processes for paying a living wage and how we seek to mitigate bias in pay-related decisions. The cost-of-living crisis in 2022 has caused concerns for many people and during the year we have sought to help our employees navigate these challenging times. One of the ways in which we have done this is by sharing pay-related information more frequently in a bid to remove as much uncertainty as possible.
Diversity, equity and inclusion
Our Powering Lives ambition is to become one of the world’s most diverse and inclusive organisations, a place where everyone – including employees, customers, partners and suppliers – feels valued, respected and has a strong sense of belonging. This ambition underpins our strategy and we believe it is the right thing to aspire to, making
us a stronger organisation. We have set goals for diversity, equity
and inclusion (DE&I), and our CEO and Executive Committee are accountable for our progress. In 2022, we launched new external DE&I content on shell.com/DEI which includes data and proof points
to show our progress against our DE&I ambitions.
Living by our values
Our core values of honesty, integrity and respect for people underpin our DE&I approach. The Shell General Business Principles, Code of Conduct and Ethics and Compliance Manual help everyone at Shell act in line with our values.
All Shell employees and contractors with access to our HR systems
are required to complete two mandatory training courses on DE&I, Conscious Inclusion and Respect in the Workplace, which reinforce expected behaviours for a respectful, inclusive workplace and Shell’s stance against discrimination and harassment, including bullying and sexual harassment.
Our inclusion strategy is about everyone. In 2022, our Shell People Survey showed a result of 82 points out of 100 for all questions relating to DE&I (up two points from 2021).
We also started rolling out voluntary self-identification for employees in our HR system. Employees now have the option to voluntarily declare their gender, sexual orientation, race and ethnicity, and disability, where relevant and legal. This data can enable us to better track and improve our progress.
We are focusing on removing barriers and taking targeted action to create equity of opportunity in four strategic priority areas: gender; race and ethnicity; lesbian, gay, bisexual and transgender (LGBT+); and enablement and disabilities inclusion. These focus areas are sponsored by various members of the Executive Committee.
Gender
We strive for gender equality across Shell and we have signed the World Economic Forum declaration on closing the gender gap in the oil and gas sector. We have also endorsed the Catalyst CEO Champions for Change initiative, where more than 70 chief executives seek to accelerate the advancement of women, especially those from ethnic minorities, into senior leadership and board positions.
As at December 31, 2022, 55% of the members of Shell plc's Board were women up from 50% in 2021, with one woman also being the Deputy Chair and Senior Independent Director. This exceeds the FTSE Women Leaders Review target of 40% women on boards by 2025 and is on track with our own ambition. Representation of women on the Executive Committee was 22% at the end of 2022.
At the end of 2022, the representation of women within our Senior Executive [A] positions was 25% compared with 27% in 2021. Our ambition is to improve women's representation in this group every year to achieve gender equality.
[A]Senior Executives include the Executive Committee.
By 2025, we aim to have 35% representation of women in our Senior Leadership [A] and at least 40% representation by 2030. In 2022, 30.4% of Senior Leadership were women, up from 29.5% in 2021.
[A]Senior Leadership is a Shell measure based on compensation grade levels and is distinct from the term “senior manager”"senior manager" in the statutory disclosures set outin the table below.
Gender diversity data (at December 31, 2020) | | |
| Gender diversity data (at December 31, 2022) |
| | | Number | |
| Men | Women | |
| Gender diversity data | | Gender diversity data | Men | Women |
| Directors of the Company | Directors of the Company | 8 | | 62 | % | 5 | | 38 | % | Directors of the Company | 5 | 45% | 6 | 55% |
| Senior managers [A] | Senior managers [A] | 632 | | 71 | % | 258 | | 29 | % | Senior managers [A] | 827 | 68% | 381 | 32% |
| Employees (thousand) | Employees (thousand) | 59 | | 68 | % | 28 | | 32 | % | Employees (thousand) | 62 | 67% | 31 | 33% |
[A]A] Senior manager is defined in section 414C(9) of the Companies Act 2006 and, accordingly, the number disclosed comprises the Executive Committee members who were not Directors of the Company, and other directors of Shell subsidiaries.
In 2022 the proportion of women amongst experienced hires was 40%, compared with 44% in 2021. Our graduate hires number has consistently been 48% or 49% women, against our 50% ambition since 2019. In 2022, 49% of our graduate hires were women and 51% were men. Our overall representation of women in Shell was 33% at the end of 2022.
Powering lives continued
A crucial element of improving gender balance is addressing any gender pay gap and we are working on this. For example, in the UK, our 2022 average differences of pay of all men and women across all in-scope [A] Shell companies in the UK narrowed to 11.7% - 20.7%, compared with 7.3% - 21.8% in 2021. In parallel, the average differences of bonuses between men and women ranged from -0.2%-54.2% in 2022. In 2021, the top of this range was 54.9%. This gap exists for several reasons, including fewer women in senior leadership positions and fewer women in higher-paid specialist roles. More information about the UK gender pay gap at Shell can be found on our website.
[A]Shell companies in the UK with 250 or more employees in line with UK government requirements on gender pay gap reporting.
We also conduct an annual global gender pay equity review using a robust statistical approach. Countries in this review include Australia, France, the UK and South Africa. We take immediate action if required.
Race and ethnicity
We are creatingworking to address racial inequity and create an inclusive work environment where everyone feels valued. In 2020, we created the Shell Global Council for Race supported by a 20-member Employee Advisory Board composed of members from a diverse mix of racial and ethnic backgrounds. The Council, which is sponsored by the CEO, aims to advance diversity in our workforce so that it better reflects communities where we work and from which we draw talent,
and focuses on the USA, the UK and the Netherlands.
At December 31, 2022, Shell had one director from an minority ethnic group on its Board of Directors. At the time of publication of this report, Shell plc’s Board had three members from a minority ethnic background, which exceeds the UK's Parker Review recommendation of at least one. In addition, one of our Executive Committee members identifies as being from a minority ethnic group.
In the USA:
▪In 2022, 13.7% of our US employees were Asian, 8.7% Black or African American, 11.9% Hispanic Latino, 63.5% White and 2.2% from other racial and ethnic groups, as reported to the US Department of Labor.
In the UK:
▪In 2022, 14.5% of our UK employees identified as Asian, 3.7% Black, 2.4% Mixed, 76.5% White and 3.0% from other ethnic minority background.
[A]As ethnicity declaration is voluntary, our ethnicity declaration rate is not 100% and all calculations are based on a declaration rate of 82.7% in the UK. The 17.3% of our workforce who have not provided data or have chosen not to declare their ethnicity were not included in our calculations.
▪We have set a recruitment ambition to have 8% Black representation in our graduate and experienced hires by 2025, to increase representation in line with UK society through actions such as mentoring and outreach.
▪Shell in the UK was one of the first FTSE 100 companies to voluntarily publish its ethnicity pay gap data in November 2020.
In the Netherlands, we continued to implement our first Ethnic Inclusion plan. We launched voluntary self-identification for race and ethnicity for employees in our HR system in 2022.
In addition, Shell is working with key suppliers to ensure they understand Shell’s DE&I ambitions and expectations. For more information on our progress in the UK, the USA, and the Netherlands, see our website shell.com/DEI.
LGBT+
We are working to advance lesbian, gay, bisexual and transgender plus (LGBT+) inclusion within Shell and the communities where we work. We promote equal opportunity and aim to create an environment where people feel included, regardless of sexual orientation or gender identity. Our approach reinforces respect for people and provides psychological safety for our LGBT+ employees. Most of our work around LGBT+ inclusion happens at a country level in line with local policies, laws and regulations.
In 2022, we published our Global LGBT+ Inclusion Guidelines, which are based on best practice and are designed to help country teams develop their own plans.
We benchmark ourselves externally. In 2022, we were recognised as well advanced in our LGBT+ Workplace inclusion journey in the Workplace Pride Global 2022 Benchmark. We also received a 100% score from the Human Rights Campaign Foundation's Corporate Equality 2022 Index and have earned this 100/100 award every year since 2016.
Shell's LGBT+ forum has 15 chapters globally, with the most recent employee resource groups established in Singapore and Spain.
Disability inclusion and enABLEment
We aim to create an inclusive, psychologically safe and accessible environment where people with disabilities can excel. We will provide support and can make adjustments for people with disabilities throughduring the recruitment process and throughout their careers with Shell, includingShell. This includes equal access to valuable educational resources, training programmes, and emphasis on personal and professional development.
In 2022, we rolled out our Global enABLEment priorities which set out the actions we intend to deliver in countries around the world to support Disability Inclusion and enABLEment. We now have 15 enABLE employee resource groups around the world.
Our workplace accessibility (WPA) service currently serves 83covers 81 locations globally. The service is designedaround the world to ensure that all employees have access to reasonable physical workplace or other adjustments so that they can work effectivelyeffectively. The team is supported by functions such as Shell Health, Human Resources, Real Estate and productively.IT. During the pandemic we combined our home-working ergonomics programme with WPA to help all employees to continue to work from home.
To further supportIn collaboration with Purple Space, a professional development hub for disability network leaders, we piloted a personal development course for our employees with disabilities we have created internal employee networks, including the enABLE networks that support and highlight the work of disabled employees in Shell. First launchedbased in the UKUK. We also launched a LinkedIn learning path called "Spotlight – Disability Inclusion: A Guide for Line Managers".
We are part of the Valuable500, which connects 500 of the world’s most influential global businesses to create a tipping point for large-scale disability inclusion. We are also active members of the Business Disability Forum.
Strategic Report | Progress on strategy – year in 2005, we now have 13 enABLE networks in countries including Brazil, Canada, France, India, the Netherlands, the UK and the USA. The disability and enablement focus area is sponsored by Harry Brekelmans, Executive Director for Projects & Technology and Huibert Vigeveno, Executive Director for Downstream.review
Code of conduct
Shell is a member of the disability campaign The Valuable 500, which seekscommitted to eliminate the exclusion of disabled people worldwide and ensure disability remains a priority for global business leaders. We are also members of Business Disability Forum, a membership organisation that exists to create a disability smart world by linking businesses, disabled people, and government, and Purplespace, a networking and professional development hub for disabled employees, employee network leads and allies from all sectors and trades.
At Shell, we support and enable remarkable people from every background, and strive to be a leader in lesbian, gay, bisexual and transgender (LGBT+) inclusion in the workplace. We have pledged support for the UN LGBTI Standards of Conduct for Business. We benchmark ourselves externally, with consistent top-tier results. For example, in 2020, in the USA we earned a 100% score in the Human Rights Campaign Foundation’s Corporate Equality Index, a recognition we have earned annually since 2016. In 2020, Shell has again been benchmarked as a top employer in the Workplace Pride Global Benchmark inclusive workplace survey, scoring 94.2% compared with a median score of 50-60%.
We have also created a global LGBT+ forum consisting of LGBT+ colleagues and allies and backed by members of the Executive Committee. The forum is taking action in a number of areas, for example, strengthening our approach to talent development and industry collaborations, including with non-governmental organisations.
Shell has established a global D&I Council for Race, sponsored by our CEO Ben van Beurden. The council aims to build on our actions to advance diversity in our workforce so it better reflects communities where we work and from which we draw talent. While seeking to drive change across the organisation, the council has identified the USA and the UK as the focus of much of its initial efforts to address diversity and inclusion challenges.
The local national coverage is the number of senior local nationals (both those working in their respective base country and those expatriated) as a percentage of the number of senior leadership positions in their base country. The total number of senior leadership roles has reduced which resulting in the drop of local national coverage.
Local national coverage (at December 31)
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| Local national coverage (at December 31) |
| Number of selected key business countries |
| | December 31, 2020 | December 31, 2019 | December 31, 2018 |
| Greater than 80% | 10 | | 12 | | 10 | |
| Less than 80% | 10 | | 8 | | 10 | |
| Total | 20 | | 20 | | 20 | |
[A] These numbers exclude those in companies with their own HR systems.
CODE OF CONDUCT
In line with the UN Global Compact Principle 10 (businesses should work against corruption in all its forms, including extortion and bribery), we maintain a global anti-bribery and corruption/anti-money laundering (ABC/AML) programme designed to prevent, detect, remediate and learn from potential violations. The programme is underpinned by our commitment to prohibitprohibiting bribery, money laundering and tax evasion, and to conductconducting business in line with our Shell General Business Principles and Code of Conduct.
We do not tolerate the direct or indirect offer, payment, solicitation or acceptance of bribes in any form.form, nor the facilitation of tax evasion. Facilitation payments are also prohibited. The Shell Code of Conduct includes specific guidance for Shell staff, (which comprises employees and contract staff),contractors on requirements to avoid or declare actual, potential or perceived conflicts of interest, and on offering or accepting gifts and hospitality.
Communications from our leaders emphasise the importance of these commitments and compliance with requirements. These are reinforced with both global and targeted communications to ensure that Shell staff are frequently reminded of their obligations. To support the Code of Conduct, we have mandatory risk-based procedures and controls that address a range of compliance risks and ensure that we focus resources, reporting and attention appropriately. By making a commitment to our core values of honesty, integrity and respect for people, and by following the Code of Conduct, weemployees and contractors help protect Shell’sShell's reputation.
In 2020, the COVID-19The pandemic brought additionalled to an increase in hybrid working and this has required Shell to focus even more on conduct risk. Our core valuesManagerial duties have increased to maintain oversight of employees more frequently working from locations outside of an office and where information must continue to be safeguarded. All employees and contractors are undermined if decisions are taken which fall short of the expected standards of ethical behaviour and compliance. Conduct risk arises from human behaviour and is influenced by factorsrequired to undertake mandatory training courses in the external environment. The COVID-19 pandemic has impacted individualsCode of Conduct and businesses globally, resulting in a human health crisis, widespread lockdownsSafeguarding Information every four and a severe economic recession. As a general position, our response to the pandemic has beentwo years respectively. We continue to reiterate and emphasise that adherence to Shell’sShell's compliance rules (including the Code of Conduct) remainsrequirements is essential to protectprotecting our business and to help us make the right decisions for the future. While maintaining this basic position, pragmatic, risk-based mitigations have been implemented where appropriate to increase response speed and efficiency without undermining the intended purpose of our controls.
Our ethics and compliance requirements are articulated through our policies, standards and procedures.procedures and supported by the Ethical Decision-Making Framework, a tool to help employees think through and discuss, in a structured way, the potential legal, ethical and external consequences of decisions. They are communicated to Shell employees and contract staffcontractors and, where necessary and appropriate, to agents and business partners. We monitor and report internally on adherence withto select ethics and compliance requirements, such as mandatory training completion and due diligence screening. We pay particular attention to our due diligence procedures when dealing with third parties. We also make our requirements clear to third parties through a variety of measures, such as standard contract clauses. We publishoffer a good practice anti-bribery and corruption e-learning course to third parties that may not have a training programme in place. We have published our Ethics and Compliance Manual on shell.com to demonstrate our commitment in this area.
The Shell Ethics and Compliance Office, with assistance from Legal, helps the businesses and functions to implement the ABC/AML and other programmes, assess risks, and monitors and reports on progress. Legal counsel providesIn 2022, lawyers and compliance professionals supported Shell businesses and functions in addressing the implications of the war in Ukraine. They provided legal, advice globally and supports the implementation of programmes.ethics and compliance support, including in relation to Shell’s intention to withdraw from Russian hydrocarbons. The Shell Ethics and Compliance Office regularly reviews and revises all ethics and compliance programmes to ensure they remain up to date with applicable laws, regulations and best practices. This includes incorporating results from relevant internal audits, assurance reviews and investigations, and periodically commissioning external reviews and benchmarking.
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STRATEGIC REPORT SHELL FORM 20-F 2020 | 87 | |
A structured framework for ethical decision-making, expanding on the formulation “Is it legal, is it ethical, is it wise?”, was developed and tested during the course of 2020 and subsequently reviewed by an independent third-party panel. The framework will be implemented broadly across Shell from 2021. It will support decision-making by requiring Shell staff to think through, in a structured manner, the legal, ethical and external dimensions of the various opportunities and decisions they face in their daily work.
We investigate all good-faith allegations of breaches of the Code of Conduct, however they are raised. We are committed to ensuring all such incidents are investigated by specialists in accordance with our Investigation Principles. Allegations may be raised confidentially and anonymously through several channels, including a Shell Global Helpline operated by an independent provider. We align with local reporting and investigation channels where required by law.
Violation of the Code of Conduct or its policies can result in disciplinary action, up to and including contract termination or dismissal. In some cases, we may report a violation to the relevant authorities, which could lead to legal action, fines or imprisonment.
Internal investigations confirmed 252183 substantiated breaches of the Code of Conduct in 2020. As a result, we dismissed or terminated the contracts of a total of 542022. Disciplinary action was taken against 216 group employees and contractors, including 53 contract staff.terminations. In 2022, most violations of our Code concerned the categories of Harassment, Conflict of Interest and Protection of Assets.
EMPLOYEE SHARE PLANSEmployee share plans
We have a number of share plans designed to align employees’employees' interests with our performance through share ownership.
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| For information on the share-based compensation plans for Executive Directors, see the "Directors' Remuneration Report" on pages 166-170. |
Performance Share Plan, Long-term Incentive Plan and exchanged awards under the share-based compensation plans for Executive Directors, see the “Directors’ Remuneration Report” on pages 116-119.
PERFORMANCE SHARE PLAN, LONG-TERM INCENTIVE PLAN AND EXCHANGED AWARDS UNDER THE BG LONG-TERM INCENTIVE PLANLong-term Incentive Plan
Under the Performance Share Plan (PSP), 50% of the award is linked to certain indicators described in “Performance indicators”"Performance indicators" on pages 28-29,31-32, averaged over the performance period. From 2017 toFor 2019, 12.5% of the award was linked to free cash flow (FCF) and the remaining 37.5% was linked to a comparative performance condition which involves a comparison with four of our main competitors over the performance period, based on three performance measures. For 2020, onwards, 11.25% of the award iswas linked to the FCF measure and 5% iswas linked to an energy transition measure. The remaining 33.75% iswas linked to the comparative performance condition. From 2021 and 2022, 10% of the award is linked to the FCF measure and 10% is linked to an energy transition measure. The remaining 30% is linked to the comparative performance condition.
Under the LTIP awards made in 2017 and 2018, 25% From 2023, 12.5% of the award is linked to thean organic FCF measure and the12.5% is linked to an energy transition measure. The remaining 75%25% is linked to the comparative performance conditions mentioned above. Forcondition, which is based on two performance measures.
Under the Long-term Incentive Plan (LTIP) awards made in 2019 and 2020, 22.5% of the award is linked to the FCF measure and 10% is linked to an energy transition measure. The remaining 67.5% is linked to the comparative performance condition mentioned above. From 2021 and 2022, 20% of the award is linked to the FCF measure and 20% is linked to an energy transition measure. The remaining 60% is linked to the comparative performance condition. From 2023, 25%
of the award is linked to an organic FCF measure and 25% is linked
to an energy transition measure. The remaining 50% is linked to the comparative performance condition, that is based on two performance measures.
Strategic Report | Progress on strategy – year in review
Separately, following the BG acquisition, certain employee share awards made in 2015 under BG’sBG's Long-term Incentive Plan were automatically exchanged for equivalent awards over shares in the Company. The outstanding awards take the form of nil-cost options.
Under all plans, all shares that vest are increased by an amount equal to the notional dividends accrued on those shares during the period from the award date to the vesting date. In certain circumstances, awards may be adjusted before delivery or subject to clawback after delivery. None of the awards result in beneficial ownership until the shares vest.
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| See Note 27 to the "Consolidated Financial Statements" on page 280. |
See Note 21 to the “Consolidated Financial Statements” on page 203.
RESTRICTED SHARE PLANRestricted share plan
Under the Restricted Share Plan (and the Free Share Schedule to the Shell Share Plan 2014), free share awards are made on a highly selective basis to senior staff. Shares are awarded subject to a two- or three-year retention period. All shares that vest are increased by an amount equal to the notional
dividends accrued on those shares during the period from the award date to the vesting date. In certain circumstances, awards may be adjusted before delivery or subject to clawback after delivery.
GLOBAL EMPLOYEE SHARE PURCHASE PLANGlobal Employee Share Purchase Plan
Eligible employees in participating countries may participate in the Global Employee Share Purchase Plan. This plan enables them to make contributions from net pay towards the purchase of the Company’sCompany's shares at a 15% discount to the market price, either at the start or at the end of an annual cycle, whichever date offers the lower market price.
UK SHELL ALL EMPLOYEE SHARE OWNERSHIP PLANShell All Employee Share Ownership Plan
Eligible employees of participating Shell companies in the UK may participate in the Shell All Employee Share Ownership Plan, under which monthly contributions from gross pay are made towards the purchase of the Company’sCompany's shares. For every six shares purchased by the employee, one matching share is provided at no cost to the employee.
UK SHARESAVE SCHEME
EligibleThis was a one-off share award granted to all eligible employees of participating Shell companieson June 18, 2021. This award supports employee engagement in the UKPowering Progress strategy. These awards vested on June 20, 2022.
Strategic Report | Progress on strategy – year in review
Safety
Our approach to safety
Shell's Powering Progress strategy is underpinned by our focus on safety. We aim to do no harm to people and to have been ableno leaks across our operations. We call this our Goal Zero ambition.
We seek to improve safety by focusing on the three areas where the safety risks associated with our activities are highest: personal, process and transport. We strive to reduce risks and to minimise the potential impact of any incident, with a particular emphasis on the risks with the most serious consequences if something goes wrong.
In 2020, we started a multi-year process of refreshing our approach to safety for all employees and contractors. Our updated approach is rooted in a consistent focus on human performance. We aim to better understand the gap between how we anticipate work will be done safely and how the work is actually carried out. We work to prevent incidents by maintaining safety barriers and providing training. We acknowledge that people make mistakes and not all incidents may be preventable. We continue to focus more on installing adequate controls to create capacity to fail safely. With that, we believe that we will enhance our safeguards and reduce the likelihood of serious injuries.
People are key to executing complex tasks and to finding solutions to problems. We aim to apply a learner mindset, by which we mean the belief that we can always improve, enhance individual capabilities, learn from mistakes and successes, and speak up without being punished. We seek to create conditions that encourage employees and contractors to share ideas and concerns without fear of rejection or punishment.
In 2022, as part of our new approach to our safety programme, we focused on conducting detailed change impact assessments across the Group to assess the extent to which our new safety principles are being integrated. These assessments covered all change areas, including mindset and behaviours, pre-work processes, and relationships with third-party contractors. We completed 49 of 52 assessments of assets, projects, functions and businesses within Shell (the remaining assessment to be completed in 2023). In addition, seven non-operated joint ventures (NOVs) elected to embed elements of our approach to safety in their improvement plans.
We work with a large number of our contractors and suppliers so they understand our safety requirements. We strive to help improve safety throughout the energy industry by sharing our safety standards and experience with other operators, contractors and professional organisations. This helps lead to the standardisation of safety practices within the industry, such as the IOGP Life-Saving Rules, Helicopter Recommended Practices, Site Construction Safety, and programmes from the Energy Institute, e.g. Hearts and Minds for fair event handling.
On November 1, 2022, we welcomed safety leaders from BP, Chevron, ExxonMobil, IOGP, TotalEnergies and many others active in the field of capital projects and wells to participate in the UK Sharesave Scheme. Options have been granted overfirst industry Safety Collaboration Forum (SCF) in Houston. Delegates declared their intent to continue to play an active role in making the Company’s sharesindustry safer and more efficient.
Personal safety
We continue to strengthen the safety culture and leadership among our employees and contractor staff. This aligns with our focus on caring for people. The set of nine industry Life-Saving Rules came into effect at market valueShell on January 1, 2022. By the end of 2022, around 126,000 staff and contractors had completed our mandatory e-learning on the invitation date. These optionsnew rules.
We expect everyone to consider two aspects when performing their tasks: the hazards that could potentially cause serious harm, and the effectiveness of the barriers in place to avoid serious harm if something goes wrong. We have ongoing safety awareness programmes, and hold an annual global Safety Day to give employees and contractors time to reflect on how to prevent incidents and how to work together to improve performance.
In 2022, our annual Safety Day explored how we are normally exercisableall connected to the work that we do, and how our actions can create a chain of events that can influence the decisions and actions of others, including at the frontline.
We continue to learn from safety incidents. For example, in 2021, six contractor personnel and one government security agent lost their lives after completiontheir convoy came under attack on the way to the Assa North Project site in Nigeria. After the investigation into the incident, we shared information materials across Shell to raise awareness and encourage reflection and learning.
In 2022, we completed the construction of the Pennsylvania Petrochemicals Complex in the USA with more than 67 million work hours without fatality. During the building of a three-year or five-year contractual savings period. From 2017 no further grants were made under this plan.
Separately, followingfloating production storage and offloading vessel for the acquisition of BG, certain participantsShell-operated Penguins field (Shell interest 50%) in the BG Sharesave Scheme choseUK North Sea, the China Offshore Oil Engineering Company (COOEC) achieved 16 million hours without fatality or serious injury.
Process safety
Process safety management is about keeping hazardous substances inside pipes, tanks and vessels, and ensuring that well fluids are contained during well construction and well intervention so that they do not harm people or the environment. It starts at the design and construction stage of projects and continues throughout the life cycle of facilities to roll over their outstanding BG share options into options overensure they are safely operated, well maintained and regularly inspected.
Our global standards and operating procedures define our expectations for the Company’s shares. The BG option price (at a discountcontrols and physical barriers required to reduce the risks of 20%incidents. For example, offshore wells must be designed with at least two independent barriers in the direction of flow, in order to market value) was converted intoreduce the risk of an equivalent Company option price at a ratio agreed with Her Majesty’s Revenue and Customs. These options are normally exercisable after completionuncontrolled release of hydrocarbons. For the event of a three-year contractual savings period.loss of containment such as a spill or a leak, our standards require the use of independent recovery measures to stop the release from becoming catastrophic. We regularly inspect, test and maintain these barriers to ensure they meet our standards.
Working with industry stakeholders, customers and suppliers is critically important to achieve our process safety ambitions.
We strive to learn not only from leaks that have happened, but also from potential events that were prevented by our barriers, such as avoided leaks which might have caused significant harm to assets and people.
We routinely prepare and practise our emergency response to potential incidents, such as a spill or a fire. This involves working closely with local emergency services and regulatory agencies to jointly test our plans and procedures. Shell requires key operating assets to test their emergency response preparedness every three years. In 2022, we held four large-scale emergency response exercises to ensure we have the required preparedness at assets we operate in Brazil, Nigeria, the Philippines and the US Gulf of Mexico.
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Safety continued
GOVERNANCETransport safety
Transporting large numbers of people, products and equipment by road, rail, sea and air poses safety risks. We seek to reduce these risks by developing best-practice standards within Shell. We also work with specialist contractors, industry bodies, non-governmental organisations and governments to find ways of reducing transport safety risks.
Road safety
In 2022, Shell employees and contractors drove around 456 million kilometres on business in more than 50 countries, a decrease of around 3% compared with 2021.
In Pakistan, a contractor colleague died during road transport activities under operational control of Shell. The number of severe motor vehicle incidents increased from nine in 2021 to 14 in 2022.
In 2022, around 40,000 Shell employees and contractors completed some form of in-vehicle or virtual defensive driving training.
In 2022, we installed active fatigue and distraction detection (AFDD) devices in around 2,400 vehicles operated by Shell or our contractors in countries where road transport risks are highest. By end of 2024, we aim to complete the installation of AFDD devices in vehicles operated by Shell, including both contractor and Shell-owned vehicles.
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THE BOARD OF ROYAL DUTCH SHELL PLC |
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| People are key to executing complex tasks and to finding solutions to problems. | |
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Safety at sea
At the end of 2022, we managed and operated a global fleet of 25 tankers, liquefied natural gas carriers, and the world's first liquefied hydrogen carrier, the Suiso Frontier.
Air safety
In 2022, for Shell-operated ventures, our owned and contracted aircraft flew more than 35,000 hours and safely carried more than 266,000 Shell employees and contractors to destinations all over the world. In addition, remotely piloted aircraft safely completed close to 1,000 hours of survey and inspection flights.
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| See our website shell.com for more information on transport safety. |
Safety and technology
Shell has been a pioneer in the development and deployment of digital technologies for decades, including those that help keep people and our operations safe. For example, we use smart sensors, which can be fixed, robot-mounted or carried by personnel, and are inter-connected so that they can gather and share data. Sensors can scan large areas across an asset to help detect leaks. Data analytics can reveal trends, which enables real-time risk assessment and timely interventions. Data analytics can reveal trends, which enables real-time risk assessment and timely interventions.
Strategic Report | Progress on strategy – year in review
Safety continued
Contractor safety
Executives from Shell and our major contractor companies have collaborated on Shell’s contractor safety leadership (CSL) programme since 2014. The programme seeks to identify strategies and practical ways to improve a shared safety culture and achieve our Goal Zero ambition of no harm and no leaks.
We have worked with contractors on standardisation and simplification of safety procedures, and collaborated to develop a contractor safety leadership initiative called Declared Future. We believe these efforts have helped to align our organisations and improve frontline safety.
Our transition to the industry Life-Saving Rules also brings us closer to the standard shared by most of the main contractor companies in our contractor safety leadership programme which was something they had requested of us.
Strategic Report | Progress on strategy – year in review
Safety continued
Safety performance
Regrettably, in 2022, two of our contractor colleagues in Shell-operated ventures lost their lives in the course of their work for Shell. One contractor colleague in Nigeria died from injuries sustained during a fire incident. In Pakistan, a contractor colleague died during road transport activities under operational control of Shell.
On March 3, 2023, in Nigeria at the site of an illegal connection used for crude theft a fire incident occurred on the Rumuekpe - Nkpoku trunk line which was not operational at the time. There are confirmed fatalities and investigations are ongoing.
The Shell organisation feels these losses deeply. We are determined to learn from these incidents and do everything possible to prevent anything similar from happening again. We continue to work closely with our contractors to help build a strong safety culture at the frontline.
Several industry safety leadership groups confirm that serious and high-potential incidents often have different root causes than most lower-consequence events. To improve insights from incident investigations and data analysis, we changed how we report incidents. Since 2021, we measure the number of serious injuries and fatalities per 100 million working hours, instead of the Total Recordable Case Frequency, which measured injuries per million working hours. The Serious Injury, Illness and Fatality Frequency (SIF-F) allows us to focus our investigations on the most serious incidents. The aim is to collect and analyse relevant, high-quality data that can help us improve our efforts to prevent serious injuries and fatalities.
In 2022, the SIF-F was 1.7 injuries and illnesses per 100 million working hours, compared with 6.9 in 2021.
The number of Tier 1 and 2 operational process safety events in 2022 decreased significantly compared with 2021. There were 66 incidents reported during the year compared with 103 in 2021.
For reporting on process safety, in this Report, we combine Tier 1 and 2 events. A Tier 1 process safety event is an unplanned or uncontrolled release of any material from a process, including non-toxic and non-flammable materials, with the greatest actual consequence resulting in harm to employees, contract staff or a neighbouring community, damage to equipment, or exceeding a defined threshold quantity. A Tier 2 process safety event is a release of lesser consequence.
As part of Shell's learner mindset approach, we investigate all serious incidents so we can understand the underlying causes, including technical, behavioural, organisational and human factors. We share what we learn widely, including with contractors. We implement mitigations at the site and in the country and business where the incident occurred. We seek to turn incident findings into improved standards or better ways of working that can be applied widely across similar facilities.
Additional information on our 2022 safety performance is expected to be published in the Shell Sustainability Report in March 2023.
Security
Our operations expose us to criminality, civil unrest, activism, terrorism, cyber-disruption and acts of war that could have a material adverse effect on our business (see "Risk factors" on page 26). We seek to obtain the best possible information to enable us to assess threats and risks. To help us understand the threats, we build strong and open relationships with government, law enforcement, armed forces, industry peers and specialist security information providers. On the basis of these threat assessments, we identify security risks to staff, assets including information technology equipment, and operations. We then seek to manage the risks so they are as low as reasonably practicable. Risk mitigation includes strengthening the security of sites, reducing our exposure to threats as appropriate, journey management, information risk management and cyber-defence operations, crisis management and business continuity measures. We conduct training and awareness campaigns for staff, and provide them with travel advice and access to 24/7 assistance while travelling. We consistently verify the identity of our employees and contract staff, we control physical access to our sites and activities, and we document access with digital tools.
We take steps to have clear and planned responses to security incidents, so that we are able to react quickly and effectively
if they occur.
Shell is a member of the Voluntary Principles on Security and Human Rights initiative. This is a multi-stakeholder initiative of governments, extractive sector industries and NGOs that gives guidance on how to respect human rights while providing security for business operations. Shell implements this guidance across its companies, concentrating on countries where the risks of working with state and private security forces are greatest.
The Board’s Safety, Environment and Sustainability Committee (SESCo) has oversight of Shell’s security risk management activities. In the Executive Committee, accountability for security matters sits with the Chief Human Resources and Corporate Officer.
CHARLES O. HOLLIDAYGovernance
ChairThe Board of Shell plc
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| | Career Sir Andrew Mackenzie was appointed Chair of the Board of Shell plc with effect from May 18, 2021. Prior to joining Shell, Sir Andrew joined BHP in 2008, and served as Group CEO from 2013 to 2019, during which time he simplified and strengthened the business. He also made BHP the first miner to pledge to tackle emissions caused when customers use its products. From 2004 to 2007 at Rio Tinto, he was Head of Industrial Minerals, then Head of Industrial Minerals and Diamonds. Prior to this, Sir Andrew spent 22 years with BP, joining in 1982 in research and development, followed by international operations and technology roles across most business streams and functions – principally in exploration and production, and petrochemicals, including as Chief Reservoir Engineer and Chief Technology Officer. Latterly he was Group Vice President for Chemicals in the Americas, then Olefins and Polymers globally. From 2005 to 2013 Sir Andrew served as a Non-executive Director of Centrica. He has also served on many not-for-profit boards, including public policy think-tanks in the UK and Australia. He was knighted in 2020 for services to business, science, technology and UK-Australia relations. Relevant skills and experience Sir Andrew is a highly experienced leader who has managed major international FTSE 100 businesses, and has more than 30 years’ experience in the oil and gas, petrochemicals and minerals industries. Following early academic distinction, Sir Andrew made important contributions to geochemistry, including groundbreaking methods for oil exploration and recovery. He was recognised as "one of the world’s most influential earth scientists" and made a Fellow of the Royal Society in 2014. Having lived and worked on five continents, Sir Andrew has applied his deep understanding of the energy business and geopolitical outlook to create public-private partnerships and advise governments around the world. As an earth scientist, Sir Andrew has consistently pursued sustainable action on climate change in the interests of access to affordable energy and global development. Sir Andrew has brought the wealth of his experience and insights to Shell, where his expertise is helping Shell navigate the energy transition. Sir Andrew is also a committed champion of gender balance, the rights of Indigenous Peoples, and of the power of large companies to support social change – all of which align closely with Shell’s purpose, strategy and values. In June 2021, Sir Andrew was appointed the chair of UK Research and Innovation. Sir Andrew has been tasked with driving forward the government's ambitious research and innovation agenda. |
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| Sir Andrew Mackenzie Chair | | |
| Tenure Chair - One year and nine months
(appointed May 18, 2021)
On Board - Two years and five months
(appointed October 1, 2020) Board committee membership Tenure
Chair - five years and nine months (appointed Chair May 19, 2015)
On Board - 10 years and six months (appointed September 1, 2010)
(Chad will be standing down from the Board following the 2021 Annual General Meeting. See page 105 for further information)
Board committee membership
Chair of the Nomination and Succession Committee
Outside interests/commitments Presiding Director of HCA Holdings, Inc. Director of Deere & Company. Member of the Critical Resource’s Senior Advisory Panel. MemberFellow of the Royal Academy of Engineering (UK).
Age
73
Nationality
US citizen
Career
Charles (Chad) Holliday was appointedSociety (FRS); Chair of the Board of Royal Dutch Shell plc with effect from May 19, 2015.
He was Chief Executive Officer of DuPont from 1998 to 2009,UK Research and Chairman from 1999 to 2009. He joined DuPont in 1970 after receiving a BS in industrial engineering from the University of Tennessee and held various manufacturing and business assignments, including a six-year Tokyo-based posting as President of DuPont Asia/Pacific.
He has previously served as Chairman of the Bank of America Corporation, The Business Council, Catalyst, the National Academy of Engineering, the Society of Chemical Industry (American Section) and the World Business Council for Sustainable Development. He is a founding member of the International Business Council.
Relevant skills and experience
Chad has a distinguished track record as an international and well-respected businessman. He was originally appointed to the Board as a Non-executive Director in September 2010 and, prior to his May 2015 appointment as Chair of the Board, served as Chair of the Safety, Environment and Sustainability Committee and Member of the Remuneration Committee.
He has a deep understanding of international strategic, commercial and environmental issues, and gained extensive experience in the areas of safety and risk management during his time with DuPont. In his role as Chair, Chad is committed to developing and maintaining a strong dialogue with investors and other key stakeholders. He ensures that their views are considered during Board discussions and decision-making. Chad has a strong interest in, and has demonstrated a strong commitment to, ensuring that the highest standards of corporate governance, safety, ethics and compliance are maintained. Chad is a particularly avid advocate of greater diversity, which is reflected in the Board’s current diversity mix and enhanced diversity goals across the Shell Group.
EULEEN GOH
Deputy Chair and Senior Independent Director
Tenure
Six years and six months (appointed September 1, 2014).
Euleen was appointed Deputy Chair and Senior Independent Director on May 20, 2020.
Board committee membership
Member of the Nomination and Succession Committee and member of the Remuneration Committee
Outside interests/commitments
Chairman of SATS Ltd. Trustee of the Singapore Institute of International Affairs Endowment Fund. Chairman of the Singapore Institute of Management Pte Ltd and Non-executive Director of Singapore Health Services Pte Ltd, both of which are not-for-profit organisations.
AgeNationality 6566 British
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| | Nationality
Singaporean
Career Euleen Goh is an Associate of the Institute of Chartered Accountants in England and Wales, a Fellow of the Singapore Institute of Chartered Accountants, and has professional qualifications in banking and taxation. SheEuleen has held various senior management positions within Standard Chartered Bank and was Chief Executive Officer of Standard Chartered Bank, Singapore, from 2001 until 2006. She is also a Fellow of the Singapore Institute of Directors.
She has also held non-executive appointments on various boards including Aviva plc, MediaCorp Pte Ltd, Singapore Airlines Ltd, Singapore Exchange Ltd, Standard Chartered Bank Malaysia Berhad, Standard Chartered Bank Thai plc, CapitaLand Ltd, Temasek Trustees Pte Ltd, DBS Bank Ltd and DBS Group Holdings Ltd. She was previously Non-executive ChairmanChair of the Singapore International Foundation, and ChairmanChair of International Enterprise Singapore and the Accounting Standards Council, Singapore.
Relevant skills and experience Euleen’s current roles as chair of the board of directors of various international organisations provide significant experience in the area of strategy development and international businesses. She is highly regarded both externally and within Shell as a champion of diversity anddiversity. She consistently, but constructively challenges the Board and management to continue to progress in this area.
Based in Singapore and having been Chair of the Risk Committee of the largest bank in South-east Asia, Euleen is close to key emerging/growth markets for our business. Euleen’s risk management expertise has elevated the Board’s deep deliberations around risk governance, and her voice is regularly heard on discussions regarding appropriate risk appetite. Her extensive travel around the world through her various executive and non-executive roles has equipped her with broad geopolitical insight and significant knowledge of operating in the Asian market.
Euleen uses her financial acumen and advocacy for diversity to pose probing and insightful questions, both in and beyond the boardroom. This contributes to well-rounded, incisive and inclusive Board discussions. |
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BEN VAN BEURDENDeputy Chair and Senior Independent Director
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| Tenure Chief Executive Officer
Tenure
SevenEight years and twosix months (appointed JanuarySeptember 1, 2014). Euleen was appointed Deputy Chair and Senior Independent Director on May 20, 2020.
On February 1, 2023, the Board committee membership N/A
Outside interests/commitments
Theannounced that Euleen would not be seeking re-election at the 2023 AGM, and would step down from the Board of Daimler AG has proposed to its shareholders that Ben join its Board asShell plc, having reached a Supervisory Board member (Non-Executive Director). Daimler AG shareholders are scheduled to vote on this proposal at its AGM, scheduled for March 31, 2021.
Age
62
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Nationality
Dutch
Career
Ben was Downstream Director from January to September 2013. Before that, he was Executive Vice President Chemicals from 2006 to 2012. In this period, he also served on the boardstenure of a number of leading industry associations, including the International Council of Chemicals Associations and the European Chemical Industry Council. Prior to this, he held a number of operational and commercial roles in Upstream and Downstream, including Vice President Manufacturing Excellence. He joined Shell in 1983, after graduating with a master’s degree in chemical engineering from Delft University of Technology, the Netherlands.
Relevant skills and experience
Ben has more than 37 years' experience of working for Shell. He has built a deep understanding of the industry and proven management experience across the technical and commercial roles.
Ben has led Shell to build resilience and deliver strong financial results. In 2016, he steered the Company through the acquisition and integration of the BG Group, which accelerated Shell’s business strategy and led to a streamlining divestment programme of $30 billion of non-core assets.
Under his leadership, Shell has positioned itself to help tackle climate change. In April 2020, Shell set a target of becoming a net-zero emissions energy business by 2050, in step with society.
In 2020, in the unprecedented circumstances of the COVID-19 pandemic, Shell took decisive action to maintain its financial resilience. Ben also led plans for a strategic reorganisation, due to take effect in August 2021, aimed at setting up Shell to succeed in the energy transition by making the business nimbler and better able to respond to customers. In February 2021, Shell set out a detailed strategy to create value for shareholders and society and to achieve its net-zero emissions target.
JESSICA UHL
Chief Financial Officer
Tenure
Four years (appointed March 9, 2017)
Board committee membership
N/A
Outside interests/commitments
No external appointments
Age
53
Nationality
US citizen
Career
Jessica was Executive Vice President Finance (EVP) for the Integrated Gas business from January 2016 to March 2017. Previously, she was EVP Finance for Upstream Americas from 2014 to 2015, Vice President Finance for Upstream Americas Unconventionals from 2013 to 2014, VP Controller for Upstream and Projects & Technology from 2010 to 2012, VP Finance for the global Lubricants business from 2009 to 2010, and Head of External Reporting from 2007 to 2009. She joined Shell in 2004 in finance and business development, supporting the Renewables business.
Prior to joining Shell, Jessica worked for Enron in the USA and Panama from 1997 to 2003 and for Citibank in San Francisco, USA, from 1990 to 1996. She obtained a BA from UC Berkeley in 1989 and an MBA at INSEAD in 1997.
Relevant skills and experience
Jessica is a highly regarded executive with a track record of delivering key business objectives, from cost leadership in complex operations to mergers and acquisitions. Jessica’s professional background combines an external perspective with more than 16 years of Shell experience: she has held finance leadership roles in Europe and the USA, in Shell’s Upstream, Integrated Gas and Downstream businesses, as well as in Projects & Technology and Corporate.
Jessica was appointed CFO in the year following the BG acquisition, when Shell’s debt, gearing and development costs were high and when the oil price was still recovering from the lower levels of 2016. Jessica responded to these challenging conditions with enthusiasm, clarity and discipline and has overseen Shell’s delivery of industry-leading cash flow from operating activities.
In 2020, Jessica drove decisive counter-measures to protect the long-term financial health of the organisation, strengthen its balance sheet and preserve cash while ensuring the safe continuity of the business.
Jessica has also been a leading voice for transparency in the energy industry, including on taxes and climate change. Under her tenure, Shell has continued to expand and enhance disclosures related to climate change in line with the principles of the Task Force on Climate-Related Financial Disclosures. Under her guidance, from 2019, Shell began publishing an annual Tax Contribution Report. This includes country-by-country report data, a standard set by the Organisation for Economic Co-operation and Development (OECD).
DICK BOER
Independent Non-executive Director
Tenure
Nine months (appointed May 20, 2020)
Board committee membership Member of the AuditNomination and Succession Committee
Outside interests/commitments Chair of SATS Ltd; Trustee of the Singapore Institute of International Affairs Endowment Fund; Chair of the Singapore Institute of Management Pte Ltd; and Non-executive Director of Singapore Health Services Pte Ltd, both of which are not-for-profit organisations; Member of the Singapore Public Service Commission AgeNationality 67 Singaporean | | |
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Governance
The Board of Shell plc continued
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| | Career Wael Sawan was appointed CEO at the start of 2023. He was previously Shell's Director of Integrated Gas, and Renewables and Energy Solutions, and has been a member of the Executive Committee since 2019, when he was appointed Upstream Director. Wael joined Shell in 1997. Prior to being appointed Upstream Director, he was Executive Vice President of Deep Water, driving its transformation into a leading business for NestléShell, and SHV Holdings;Managing Director and Chairman of Shell Qatar, where he oversaw Shell’s business in Qatar, including its liquefied natural gas (LNG) and gas-to-liquids (GTL) divisions. Relevant skills and experience Wael holds an MEng from McGill University in Montreal and an MBA from Harvard Business School. During his Shell career, spanning more than 25 years, he has worked in Europe, Africa, Asia and the Advisory BoardAmericas, and has held roles across all of Shell's businesses. He has led several major commercial transactions, including mergers, acquisitions and divestments as well as New Business Development projects. His track record of commercial, operational and transformational success reflects not only his broad, deep experience and understanding of Shell and the energy sector, but also his strategic clarity. He combines these qualities with a passion for G-Star RAW; Chairmanpeople. He has been a trustee of the Supervisory Board of Royal Concertgebouw; Chairman of Rijksmuseum Fonds.Shell Foundation since 2019.
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| AgeWael Sawan
63Chief Executive Officer
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| Tenure Two months (appointed January 1, 2023) Board committee membership N/A Outside interests/commitments No external appointments AgeNationality 48 Lebanese and Canadian | | |
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| | Career Sinead Gorman joined Shell in 1999 and has held key leadership roles in Finance. She started her Shell career in the Shell International Trading and Shipping Company (STASCO) based in London, UK, and then moved to the Coral Energy joint venture, in Houston, Texas, USA. She worked in Mergers and Acquisitions and Treasury, based in the Netherlands, before moving back to Houston as Vice President Finance for Shales. In recent years, Sinead has held the position of Executive Vice President (EVP) Finance for Projects & Technology, and Integrated Gas and New Energies. Most recently, she was the EVP Finance for Upstream. Sinead has an MEng in Engineering, Economics and Management from the University of Oxford, and an MSc in Finance from London Business School. Relevant skills and experience Sinead has more than two decades' experience of working for Shell. She has built a deep understanding of finance across the industry, spanning a wide range of businesses, and possesses a breadth of experience in trading, new business development and capital projects. Sinead has held regional and global finance leadership roles across Europe and the USA, and latterly, in Shell’s Upstream, Integrated Gas and Renewables and Energy Solutions businesses, and in Projects & Technology and Corporate. Highly regarded for her commercial abilities and external focus, Sinead has a strong track record in cost leadership, principle-based decision making, detailed capital stewardship and paying close attention to the performance of the bottom line.
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| NationalitySinead Gorman
DutchChief Financial Officer
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| Tenure 11 months (appointed April 1, 2022) Board committee membership N/A Outside interests/commitments No external appointments
45 British | | |
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Governance
The Board of Shell plc continued
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| | Career Dick Boer was President and Chief Executive Officer of Ahold Delhaize from 2016 to 2018. Prior to the merger between Ahold and Delhaize, he served as President and CEO of Royal Ahold from 2011 to 2016. From 2006 to 2011 he was a member of the Executive Board of Ahold and served as Chief Operating Officer of Ahold Europe from 2006 to 2011.
Dick joined Ahold in 1998 as CEO of Ahold Czech Republic and was appointed President and CEO of Albert Heijn in 2000. In 2003, he also became President and CEO of Ahold’s Dutch businesses.
Prior to joining Ahold, Dick spent more than 17 years in various retail positions, for SHV Holdings N.V. in the Netherlands and abroad, and for Unigro N.V.
Relevant skills and experience Dick is a highly regarded, recently retired chief executive, who has a deep understanding of brands and consumers, and extensive knowledge of the US and European markets, from his time leading one of the world’s largest food retail groups. He brings a career’s worth of experience at the forefront of retailing and customer service, which extended in more recent years to e-commerce and the digital arena. This experience is most timely as Shell focuses on the growth of our marketing businessesactivities and increasing consumer choices in energy products.
Dick is a balanced leader with sound business judgement and a proven track record in strategic delivery, evidenced by the combination of Ahold and | | | | | | | | | GOVERNANCE SHELL FORM 20-F 2020 | 90 | |
Delhaize. He also has a passion for sustainability and is well aware of the importance of the various stakeholder interests in this area. |
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NEIL CARSON OBE
Independent Non-executive Director | | |
| Tenure
Tenure
One yearTwo years and nine months (appointed June
(appointed May 20, 2020).
On February 1, 2019)2023, the Board announced that Dick would be appointed Deputy Chair and Senior Independent Director from the conclusion of the 2023 AGM.
Board committee membership ChairMember of the RemunerationAudit Committee and member of the Safety, EnvironmentNomination and SustainabilitySuccession Committee. Dick will also become a member of the Remuneration Committee from the conclusion of the 2023 AGM.
Outside interests/commitments Non-executive ChairmanDirector of Oxford Instruments plc
AgeNationality 6365 Dutch
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| | Nationality
British
Career Neil Carson is a former FTSE 100 chief executive. After completing an engineering degree, Neil joined Johnson Matthey in 1980 where he held several senior management positions in the UK and the USA, before being appointed Chief Executive Officer in 2004. Since retiring from Johnson Matthey in 2014, Neil has focused his time on his non-executive roles. He was ChairmanChair of TT Electronics plc from 2015 until May 6, 2020.
Relevant skills and experience Neil is highly experienced, and has a broad industrial outlook and a highlythorough commercial approach combined with a practical perspective on businesses. He brings a track record of strong operational exposure, familiarity with capital-intensive business and a first-class international perspective on driving value in complex environments. Neil was awarded an OBE for services to the chemical industry in 2016. Neil has useduses his current and past experience in non-executive positions to bring fresh insight and despite being relatively new to the Shell Board, he has already made significant contributionsindustry understanding to Board discussions. He has also provided valuable insight based on his former executive position and operational experience. Neil was appointed Chair of the Remuneration Committee onin May 20, 2020. |
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ANN GODBEHERE
Independent Non-executive Director | | |
| Tenure
Tenure
TwoThree years and nine months (appointed May 23, 2018)
(appointed June 1, 2019)
Board committee membership Chair of the AuditRemuneration Committee and member of the Safety, Environment and Sustainability Committee
Outside interests/commitments Non-executive Director and audit committee chairChair of Stellantis N.V., Fellow of the Institute of Chartered Professional Accountants and a Fellow of the Certified General Accountants Association of Canada.
AgeNationality 65 British | | |
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Governance
The Board of Shell plc continued
Nationality | | | | | | | | | | | | | | |
| | Canadian and British
Career Ann Godbehere started her career with Sun Life of Canada in 1976 in Montreal, Canada. She joined M&G Group in 1981, where she served as Senior Vice President and Controller for both life and health, and property and casualty businesses throughout North America. She joined Swiss Re in 1996, after it acquired the M&G Group, and served as Chief Financial Officer from 2003 to 2007. From 2008 to 2009, she was interim Chief Financial Officer and an Executive Director of Northern Rock bank in the initial period following its nationalisation.
Ann has also held several non-executive directorNon-executive Director positions at Prudential plc, British American Tobacco plc, UBS AG, and UBS Group AG. Ann served as a non-executive directorNon-executive Director of Rio Tinto plc and Rio Tinto Limited until May 2019, and she was also Senior Independent Director of Rio Tinto plc. In January 2021, Ann joined the Board of the newly formed Stellantis NV,N.V., and she chairs its Audit Committee.
Relevant skills and experience Ann is a former CFO, a Fellow of the Institute of Chartered Professional Accountants, and has more than 25 years of experience in the financial services sector. She has worked her entire career in international business and has lived in or served on boards in nine countries. Ann makes significant contributions and adds exceptional value by bringing both her extensive experience and a global perspective to Board discussions.
Ann's long and varied international business career powered by her financial acumen is reflected in the insights and constructive challenges she brings to the boardroom. As Audit Committee Chair, Ann leverages her background to ensure robust discussions are consistently held as the Audit Committee delivers its remit. |
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CATHERINE J. HUGHES
Independent Non-executive Director | | |
| Tenure
Tenure
ThreeFour years and nine months (appointed June 1, 2017)
(appointed May 23, 2018)
Board committee membership Chair of the Audit Committee and member of the Nomination and Succession Committee Outside interests/commitments Non-executive Director and Audit Committee Chair of Stellantis; Fellow of the Institute of Chartered Professional Accountants and a Fellow of the Certified General Accountants Association of Canada. AgeNationality 67 Canadian and British | | |
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| | Career Jane Holl Lute was President and Chief Executive Officer of the North American operations of SICPA security inks from 2017 to 2021, when she assumed the role of Non-executive Strategic Director. From 2018 to 2021, Jane was a Non-executive Director of Atlas Air Worldwide Holdings Inc. In 2013 Jane established and led the Council on CyberSecurity, an independent, expert not-for-profit organisation with a global scope, committed to the security of an open internet. From 2015 to 2016, Jane held the role of Chief Executive Officer of the Center for Internet Security, an independent not-for-profit organisation that works to improve cyber security worldwide. Before this, from 2009 to 2013 Jane served as Deputy Secretary of the US Department of Homeland Security, functioning as the Chief Operating Officer for the third-largest US Federal department. From 2003 to 2009 she held various roles at the United Nations, including Acting Under-Secretary and Assistant Secretary-General for Peacekeeping, Field Support and Peacebuilding. She also served as Executive Vice President and Chief Operating Officer of the United Nations Foundation and Better World Fund. In recent years, Jane has returned to working with the United Nations, serving as a Special Adviser to the Secretary-General. Jane started her career in the US Army in 1978, serving in Berlin during the Cold War, on the US Central Command Staff during Operation Desert Storm, and on the National Security Council Staff under Presidents George H.W. Bush and William J. Clinton. After retiring from the Army in 1994, she joined the Carnegie Corporation as an Executive Director of its Commission on Preventing Deadly Conflict. Relevant skills and experience Jane is a proven and effective leader, who has held significant leadership roles in public service, the military and the private sector. She brings a wealth of expertise in matters of public policy, cyber security and risk management to our Board. She has also made significant contributions to strategic discussions and overseeing the day-to-day business and management of a significant public security department. Jane is an experienced board director, having served on the boards of large-market-capitalisation companies since 2016. These appointments have provided her with wide experience and given her business perspectives across different sectors and geographical regions. She has also served on various committees including those which focus on audit, environmental and sustainability, nomination and governance issues. |
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| Jane Holl Lute Independent Non-executive Director | | |
| Tenure One year and nine months
(appointed May 19, 2021) Board committee membership Member of the Safety, Environment and Sustainability Committee andCommittee. Jane will become a member of the Remuneration Committee. On March 11, 2021Committee with effect from the Board announced that Catherine would become Chairclose of the Safety, Environment and Sustainability Committee, effective May 19, 2021.2023 AGM.
Outside interests/commitments -.
AgeNationality 5866 US Citizen
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Governance
The Board of Shell plc continued
Nationality | | | | | | | | | | | | | | |
| | Canadian and French
Career Catherine Hughes was Executive Vice President International at Nexen Inc., from January 2012 until her retirement in April 2013, where she was responsible for all oil and gas activities including exploration, production, development and project activities outside Canada. She joined Nexen in 2009 as Vice President Operational Services, Technology and Human Resources.
Prior to joining Nexen Inc., she was Vice President Oil Sands at Husky Oil from 2007 to 2009 and Vice President Exploration & Production Services, from 2005 to 2007. She started her career with Schlumberger in 1986 and held key positions in various countries, including France, Italy, Nigeria, the UK and the USA, and was President of Schlumberger Canada Ltd for five years. She was a Catherine has also held several Non-executive Director of Statoil from 2013 to 2015. Catherine was up until May 2020, a non-executive Director ofpositions at SNC-Lavalin Group Inc, Statoil ASA and Precision Drilling Inc.
Relevant skills and experience Catherine contributes through her knowledge of industry and the ease with which she engages with other Directors and managers in the boardroom. With over 30 years of oil and gas sector experience, she brings a geopolitical outlook and deep understanding of the industry. An engineer by training, she has also spent a significant part of her career working in senior human resources roles. The Board highly regards her perspectives on our industry and our most important asset, our people.
Catherine has a strong track record of executing operational discipline with a focus on performance metrics and a continual drive for excellence. Her | | | | | | | | | GOVERNANCE SHELL FORM 20-F 2020 | 91 | |
knowledge of the technology underpinning oil and gas operations, logistics, procurement and supply chains benefits the Board greatly as it considers various projects and investment or divestment proposals.
She also uses her industry knowledge – combined with her commitment to the highest standards of corporate governance and safety, ethics and compliance – in her membershiprole as Chair of our Safety, Environment and Sustainability Committee, while using her human resources experience in her membership of the Remuneration Committee. |
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MARTINA HUND-MEJEANCatherine J. Hughes
Independent Non-executive Director
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| Tenure NineFive years and nine months (appointed May 20, 2020)
(appointed June 1, 2017)
Board committee membership MemberChair of the Safety, Environment and Sustainability Committee and member of the Remuneration Committee. Catherine will become a member of the Audit Committee
Outside interests / interests/commitments Non-executive Director of Prudential Financial Inc, Colgate-Palmolive Company,Valaris Limited AgeNationality 60 Canadian and Truata Ltd.French | | |
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Age
60
Nationality
German and US citizen
| | Career Martina Hund-Mejean was Chief Financial Officer of Mastercard IncInc. from 2007 to 2019. From 2002 to 2007 she was Senior Vice President, Corporate Treasurer at Tyco International LtdLtd. and from 2000 to 2002 she was Senior Vice President, Treasurer at Lucent Technologies.
Prior to this, Martina spent 12 years with General Motors, undertaking a number of senior roles within their finance operations.
Relevant skills and experience Originally from Germany, Martina has spent more than 30 years in the USA and is an experienced global executive. Her financial and operational leadership of technology-focused companies is extremely relevant as Shell explores new technology-enabled business models. Martina also brings diverse sector experience to the Board, most recently from operating at a large global organisation in the highly regulated finance industry.
Martina is known for her straightforward and direct approach. She maintains the highest standards of leadership, strategic thinking and financial stewardship. She also has a strong track record as a mentor and in promoting diversity.
Martina's deep financial knowledge and unique perspective also enablesenable her to make robust, demanding and constructive challenges to our investment considerations to help ensure that our projects are aligned with our strategic intent. |
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SIR ANDREW MACKENZIEMartina Hund-Mejean
Independent Non-executive Director [A]
| | |
| Tenure FiveTwo years and nine months (appointed October 1,
(appointed May 20, 2020)
Board committee membership Member of the Nomination and SuccessionAudit Committee
Outside interests / interests/commitments Fellow of the Royal Society (FRS)
Age
64
Nationality
British
Career
Sir Andrew joined BHP, the world's largest mining company, in 2008, becoming Group CEO from 2013 to 2019, when he systematically simplified and strengthened the business, and created options for the future. He also made BHP the first miner to pledge to tackle emissions caused when customers use its products.
From 2004 to 2007 at Rio Tinto, he was Head of Industrial Minerals, then Head of Industrial Minerals and Diamonds. Prior to this, Sir Andrew spent 22 years with BP, joining in 1982 in research and development, followed by international operations and technology roles across most business streams and functions – principally in exploration and production and petrochemicals, including as Chief Reservoir Engineer and Chief Technology Officer. Latterly he was Group Vice President for Chemicals in the Americas, then Olefins and Polymers globally.
From 2005 to 2013 Sir Andrew served as a Non-executive Director of Centrica. He has also served on many not-for-profit boards, including public policy think-tanks in the UKPrudential Financial Inc.; Colgate-Palmolive Company, and Australia. He was knighted in 2020 for services to business, science, technology and UK-Australia relations.
Relevant skills and experience
Sir Andrew is a highly experienced leader who has managed major international FTSE 100 businesses, and has more than 30 years’ experience in the oil and gas, petrochemicals and minerals industry. Following early academic distinction, Sir Andrew made important contributions to geochemistry, including groundbreaking methods for oil exploration and recovery. He was recognised as "one of the world’s most influential earth scientists" and made a Fellow of the Royal Society in 2014.
Having lived and worked on five continents, Sir Andrew applies his deep understanding of the energy business and geopolitical outlook to create public-private partnerships and advise governments around the world. As an earth scientist, Sir Andrew has consistently pursued sustainable action on climate change in the interests of access to affordable energy and global development. Sir Andrew brings the wealth of his experience and insights to Shell, where his expertise is already contributing to help Shell navigate the energy transition. Sir Andrew is also a committed champion of gender balance, the rights of indigenous peoples, and of the power of large companies to support social change – all of which align closely with Shell’s purpose, strategy and values.
[A] On March 11, 2021, the Board announced the appointment of Sir Andrew Mackenzie as Chair with effect from the conclusion of the 2021 AGM.
ABRAHAM SCHOT
Independent Non-executive Director
Tenure
Five months (appointed October 1, 2020)
Board committee membership
Member of the Safety, Environment and Sustainability Committee
Outside interests/commitments
.
AgeNationality 6662 German and US Citizen
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Governance
The Board of Shell plc continued
Nationality | | | | | | | | | | | | | | |
| | Career Dutch
Career
BramAbraham ("Bram") Schot has been a member of the group Board of Volkswagen AG, responsible for the Premium Car Group, CEO of Audi AG, ChairmanChair of Lamborghini and Ducati, responsible for the VW group Commercial Operations and Vice-ChairmanVice-Chair of Porsche Holding Salzburg.
From 2011 to 2016, he was a Member of the Board of Volkswagen CV, Executive Vice President responsible for Global Marketing, Sales & Services, New Business Models. In 2017 he became a member of the Board of Audi AG. From 2006 to 2011, Bram was President & CEO of Daimler/Mercedes-Benz Italia & Holding S.p.A. From 2003 to 2006, he was President & CEO of DaimlerChrysler in the Netherlands.
| | | | | | | | | GOVERNANCE SHELL FORM 20-F 2020 | 92 | |
Prior to this, Bram held a number of Director and senior leadership roles within Mercedes-Benz in the Netherlands, having joined the business in 1987 on an executive management programme.
Relevant skills and experience Bram has over 30 years' experience working in the automotive industry at all levels of the business.
He gained a wealth of knowledge on far-reaching cost optimisation programmes at Audi AG. These helped transform the car company into a provider of electric vehicles that could offer sustainable mobility and succeed in the energy transition. He is well placed to leverage this knowledge in the Shell boardroom as Shell navigates its own transformation and pathway through the energy transition.
Bram has strong principles and regards integrity and compliance as the basis for doing business.
His studies have encompassed innovation and organisational effectiveness, geopolitical environments, shareholder value, corporate social responsibility and risk management, in several countries, which are all highly valued management tools and are already evident in the questions he raises in the boardroom. |
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SIR NIGEL SHEINWALD GCMG
Independent Non-executive Director | | |
| Tenure
Tenure
EightTwo years and eightfive months (appointed July
(appointed October 1, 2012)2020)
On March 11, 2021 the Board announced that Sir Nigel Sheinwald would not be seeking re-election at the 2021 AGM.
Board committee membership ChairMember of the Safety, Environment and Sustainability Committee and member of the Nomination and SuccessionRemuneration Committee
Outside interests/commitments Non-executive Director of Invesco Ltd. Senior Adviser to Tanium Inc. and the Universal Music Group. Visiting Professor of King’s College, London.
AgeNationality 6761 Dutch
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| | Career
Nationality
British
Career
Sir NigelCyrus Taraporevala was President and Chief Executive Officer of State Street Global Advisors from 2017 to 2022. Prior to his joining State Street, Cyrus held numerous leadership roles in asset management including at Fidelity, BNY Mellon, Legg Mason, and Citigroup. Earlier in his career Cyrus was a senior British diplomat whopartner at McKinsey & Company, based in New York and Copenhagen.
Cyrus was a founding member of the New York Stock Exchange Board Advisory Council, which proactively addresses the critical need for inclusive leadership on corporate boards by connecting diverse candidates with companies seeking new directors. He serves as a Board member of The Trustees of Reservations, a Massachusetts-based non-profit conservation organisation, and chaired the investment committee of the trustees for seven years. Cyrus previously served as British Ambassador toa trustee on the USA from 2007 to 2012, before retiring fromWK Kellogg Foundation Trust, one of the Diplomatic Service. Prior to this, he served as Foreign Policyworld’s largest endowments and Defence Adviser to the Prime Minister and as British Ambassador and Permanent Representative to the European Union in Brussels. He joined the Diplomatic Service in 1976 and served in Brussels, Moscow, Washington and in a wide range of policy roles in London. Since 2012, he has taken on a number of international business roles, and has supported organisations involved in higher education and international affairs.foundations.
Relevant skills and experience Sir Nigel’s distinguished track record, which encompasses threeCyrus is a highly regarded, recently retired chief executive, with a unique mix of strategic perspectives and execution skills. He has deep experience in driving organic and inorganic growth, transformations, and turnarounds. He is one of the most senior international rolesprofessionals in Britishthe asset management industry and has successfully led and grown global businesses of scale. He played a critical role in affirming State Street’s reputation as both a stalwart and pioneer within the sector, and, at times, was implementing changes in the context of market uncertainty caused by geopolitical friction and an evolving regulatory environment.
Cyrus also possesses a unique vantage point on core board-related issues impacting public service,companies including ESG, and has given him broad geopoliticalspoken and public policy experience,published multiple articles on climate risk and knowledgeother aspects of regulatory issues, communicationsESG. He is credited with strengthening the ESG credentials of State Street Global Advisors and stakeholder management. Heis highly credible in providing perspectives on these topics. A true citizen of the world, over the course of his career Cyrus has a globalworked and strategic outlook which enables him to identify emerging issues that could present geopolitical or reputational challenges.lived on three continents.
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| Sir Nigel continues to bring a unique government policy perspective to our strategic discussions, particularly on topics such as the energy transition that are strongly influenced by the views of governments and a complex range of interested parties. His many contributions to the Board on this and other strategic and operational topics often reflect the interconnections between geopolitics, business and external stakeholder engagement.Cyrus Taraporevala
He is accustomed to operating in challenging environments and is committed to active external engagement. This, and his understanding of public policy
and regulatory issues through his career in government service and membership of think-tank and university boards, has made him well suited to the role of Chair of our Safety, Environment and Sustainability Committee.
GERRIT ZALM
Independent Non-executive Director | | |
| Tenure
Tenure
Eight years and two months (appointed January 1, 2013)
Board committee membership Member of the Audit Committee and Outside interests/commitments Board member of the Remuneration CommitteeBridgepoint Group plc.
Outside interests/commitments
DirectorBoard member of Moody’s Corporation Inc. and Danske Bank A/S
AgeNationality 6856 US Citizen
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Governance
The Board of Shell plc continued
Nationality | | | | | | | | | | | | | | |
| | Career Dutch
Career
Gerrit was an adviser to PricewaterhouseCoopers during 2007, Chairman of the Trustees of the International Accounting Standards Board from 2007 to 2010, and an adviser to Permira from 2007 to 2008. He was Chief Economist of DSB Bank from July 2007 to January 2008, Chief Financial Officer from January 2008 to December 2008, and Chairman of the Managing Board of ABN AMRO Bank N.V. from 2010 to 2016. He was Minister of Finance of the Netherlands, twice, from 1994 to 2002 and from 2003 to 2007. In between, he was Chairman of the parliamentary party of the VVD.
Prior to 1994, he was head of the Netherlands Bureau for Economic Policy Analysis, a professor at Vrije Universiteit Amsterdam, andCaroline Omloo worked in private practice with law firm Nauta Dutilh before joining Shell in 1999. She has held various positions at the Ministry of Finance and the Ministry of Economic Affairs. He studied general economics at Vrije Universiteit Amsterdam, from where he also received an honorary doctorate in economics.
Relevant skills and experience
An economist by background, Gerrit’s distinguished 12-year service as the Minister of Finance of the Netherlands, and his experience gained from his time with ABN AMRO Bank, bring a deep and valuable understanding of Dutch politics and financial marketsShell, including Secretary to the Board. His international financial management expertise and strategic development experience also benefit the Audit Committee.
A highly regarded and seasoned leader in both the public and private spheres, his significant experience in analysing financial commitments from a wider public stakeholder and a global business standpoint serves the Board well, particularly when considering investment proposals. Gerrit consistently and concisely articulates the logic and reasoning behind his views, which he regularly and directly provides to the benefit of the Board and management. His questions often trigger other analytical questions from fellow Directors, deepening and widening Board discussions.
LINDA M. COULTER
Company Secretary
Tenure
Four years and two months (appointed January 1, 2017)
Age
53
Nationality
US citizen
Career
Linda wasCommittee, Associate General Counsel of the Upstream Americas businessCorporate Finance NL, Chief Privacy Officer and Head of Legal US, based inand management team member of the USA, from 2014 to 2016. Previously, she was Group Chief Ethics and Compliance Officer, based in the Netherlands, from 2011
| | | | | | | | | GOVERNANCE SHELL FORM 20-F 2020 | 93 | |
to 2014. Since joining Shell in 1995, she has also held a variety of legal positions in the Shell OilDownstream Operating Company in the USA, including ChemicalsNetherlands. She has also been a member of the board of Stichting Shell Pensioenfonds, one of Shell’s Dutch pension funds.
Caroline took up her previous role as Head of Legal Managing Counsel and other senior rolesCompliance of Shell Asset Management Company in employment, litigation,2017 and commercial practice.was a board member of this company from 2018 to 2022. From 2009- 2019, Caroline sat on the board of Stichting Beroepsopleiding Bedrijfsjuristen, the foundation providing education for in-house lawyers in the Netherlands. She also served as a board member of Missie Verkeersmiddelen Actie, a Dutch charitable organisation, from 2007 to 2017.
Relevant skills and experience LindaCaroline is ourShell's Company Secretary and also plays an important role as Shell’s Generaloverseeing the Corporate Secretariat and the Group Securities Counsel Corporate, overseeing corporate legal teams in Canada, the Netherlands, the UK, USA and the USA.
The various legal roles LindaCaroline has undertaken at our headquarters, and in supporting both the Upstream and Downstream businesses, have provided her with a strong understanding of our global operations and people. Her experience of engaging with the Board in previous roles, coupled with her broad understanding and engagement across Shell’s businesses, functions and functions,her legal background, helps to ensure that the right matters come to the Board at the right time. |
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| Caroline J.M. Omloo Company Secretary | | |
| Tenure Seven months (appointed August 1, 2022)
53 Dutch | | |
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| | Attendance The Board met eight times during 2022. Seven of the eight meetings were held physically, one meeting in Singapore and six in London, United Kingdom. One meeting was held via videoconference. Attendance during 2022 for all Board meetings is given in the table [A]. [A]For attendance at Committee meetings during the year, please refer to individual Committee Reports. [B]Sinead Gorman was appointed as Chief Financial Officer (CFO) with effect from April 1, 2022. [C]Jessica Uhl retired from her role as Chief Financial Officer (CFO) with effect from March 31, 2022. [D]Gerrit Zalm retired from the Board following the conclusion of the AGM in May 2022.
| | | Board member | Meetings attended | | |
| | | | Ben van Beurden | 8/8 | | |
| | | | Dick Boer | 8/8 | | |
| | | | Neil Carson | 8/8 | | |
| | | | Ann Godbehere | 8/8 | | |
| | | | Euleen Goh | 8/8 | | |
| | | | Sinead Gorman [B] | 6/6 | | |
| | | | Jane Holl Lute | 7/8 | | |
| | | | Catherine J. Hughes | 8/8 | | |
| | | | Martina Hund-Mejean | 8/8 | | |
| | | | Sir Andrew Mackenzie | 8/8 | | |
| | | | Bram Schot | 7/8 | | |
| | | | Jessica Uhl [C] | 2/2 | | |
| | | | Gerrit Zalm [D] | 2/2 | | |
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| RETIREMENTS IN 2020Director independence
Gerard Kleisterlee
Retired: May 19, 2020. In line with best practice, Gerard choseAll the Non-executive Directors are considered by the Board to be independent in character and judgement. The Chair is not subject to seek re-election at the 2020 AGM following completion of his third three-year term and retired from the Board.
Linda Stuntz
Retired: May 19, 2020. In line with best practice, Linda chose not to seek re-election at the 2020 AGM following completion of her third three-year term and retired from the Board.
Roberto Setubal
Retired: May 19, 2020. Roberto chose not to seek re-election at the 2020 AGM due toCode’s independence test other business commitments in his home country of Brazil and retired from the Board.than on appointment.
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Governance The Board of Shell plc continued Directors joining the Board On February 1, 2023 the Board announced that the following Directors will be joining the Board on March 13, 2023. | | | | | | | | | | | | | | | | | Career Sir Charles has most recently held the position of Second Permanent Secretary, one of the most senior positions within His Majesty’s Treasury (HMT). As Second Permanent Secretary at HMT he was responsible for all issues relating to growth, productivity, infrastructure, financial services and financial stability. Prior to his career at HMT, Sir Charles spent over 25 years at McKinsey & Company, and holds an MBA from Harvard Business School. Whilst at McKinsey, he held positions including but not limited to a Director of the McKinsey Global Institute, the Head of the UK Financial Institutions Group and the Co-Head of McKinsey’s Global Investment Banking Practice. Sir Charles has serviced large banks, insurance companies, hedge funds and private-equity investors in strategy, risk management, and organisation. Sir Charles also led a number of major research efforts at McKinsey and authored a number of articles on strategy and scenario planning. On leaving the private sector, Sir Charles became Director General, Financial Services at HMT and led the legislative process for the biggest reforms in the UK banking sector in a generation, before being appointed Second Permanent Secretary. During his time as Second Permanent Secretary, Sir Charles was responsible for policy and oversight across a range of functions within HMT including financial services, financial stability, infrastructure, energy, science/R&D, business investment, venture and growth capital, transport, and culture/creative industries and was Chair of the HMT Operating Committee. Relevant skills and experience Sir Charles’ succession of roles placed him at the nexus between industry and government, and most recently included his active participation in forging and delivering energy policies. He was an influential figure within the HMT in pioneering energy policy, including for COP26, and providing funding for innovative organisations to support the energy transition. A former executive board member for one of the world’s pre-eminent consultancies, Sir Charles continued to drive innovation whilst deftly navigating the intricate stakeholder landscape of UK government. | | | | | | Sir Charles Roxburgh Independent Non-executive Director | | | | Tenure Appointment effective March 13, 2023 Board committee membership Member of the Audit Committee Outside interests/commitments Board member of Folger Shakespeare Library AgeNationality 63 British | | | | | | | | | | | | | | | | | | | Career Leena Srivastava has devoted a significant part of her career to research and policy matters in sustainability and has already sat on several boards of scale. Until recently, Leena was the Deputy Director General for Science of the International Institute for Applied Systems Analysis (IIASA). Prior to this, she was an Executive Director, then the Vice Chancellor of the School of Advanced Studies, at The Energy and Resources Institute (TERI), a not-for-profit policy research organisation working in energy, environment and sustainable development. Leena has also previously served on the sustainability advisory boards of various multinational companies such as The Coca Cola Company, Caterpillar Inc and Suez Environment and as a non-executive director of companies, including those involved in manufacturing and infrastructure. Leena has served various committees and organisations both at the international and national levels, with prior roles including energy and climate advisor for the United Nations and the Co-Chair of the Advisory Committee at Future Earth. Relevant skills and experience Leena recognises the challenges large organisations face in managing different stakeholder priorities and in particular the challenges in balancing business, government and societal needs, while pursuing a sustainability agenda. Leena was a research associate at TERI during a time when the first serious discussions on climate change were emerging. Later, as a member of the Cement Sustainability Initiative of World Business Council for Sustainable Development, she provided a pragmatic perspective on how to support the sector through its decarbonisation journey. With a strong network of relationships in multiple global institutions focused on sustainability and an understanding of the issues the energy sector faces in pursuing decarbonisation while serving the energy needs of the society, Leena believes she can contribute to the organisation during this period of transformation.
| | | | | | Leena Srivastava Independent Non-executive Director | | | | Tenure Appointment effective March 13, 2023 Board committee membership Member of the Safety, Environment and Sustainability Committee Outside interests/commitments Board member of Climate-KIC AgeNationality 62 Indian | | | | | | |
| | | | | | SENIOR MANAGEMENT | | | | 136 | Shell | Form 20-F 2022 |
Governance Senior management | | | | | | | | | | | | | | | | | | | | | | | | The Senior Managementmanagement of the Company comprises the Executive Directors, Ben van BeurdenWael Sawan and Jessica Uhl,Sinead Gorman, and those listed below. All are members of the Executive Committee (see “Governance Framework”"Governance Framework" on page 98)141). | | | | | | | | | | | |
HARRY BREKELMANSHarry Brekelmans
Projects & Technology Director | | | |
Tenure
Six years and five months (appointed October 2014)
Age
55
Nationality
Dutch
Career
Harry was previously Executive Vice President for Upstream International Operated, based in the Netherlands. He joined Shell in 1990 and has held various management positions in Exploration and Production, Internal Audit, and Group Strategy and Planning. From 2011 to 2013, he was Country Chair Russia and Executive Vice President for Russia and the Caspian region.
RONAN CASSIDY
Chief Human Resources and Corporate Officer
Tenure
Five years and two months (appointed January 2016)
Age
54
Nationality
British
Career
Ronan was previously Executive Vice President Human Resources, Upstream International. He joined Shell in 1988 and has held various human resources positions in Upstream and Downstream.
DONNY CHING
LegalChair of the Nomination and Succession Committee
Outside interests/commitments Fellow of the Royal Society (FRS); Chair of UK Research and Innovation (UKRI) AgeNationality 66 British | | | | | | | | | | | | | | | | | | | Career Euleen Goh is an Associate of the Institute of Chartered Accountants in England and Wales, a Fellow of the Singapore Institute of Chartered Accountants, and has professional qualifications in banking and taxation. Euleen has held various senior management positions within Standard Chartered Bank and was Chief Executive Officer of Standard Chartered Bank, Singapore, from 2001 until 2006. She is also a Fellow of the Singapore Institute of Directors. She has also held non-executive appointments on various boards including Aviva plc, MediaCorp Pte Ltd, Singapore Airlines Ltd, Singapore Exchange Ltd, Standard Chartered Bank Malaysia Berhad, Standard Chartered Bank Thai plc, CapitaLand Ltd, Temasek Trustees Pte Ltd, DBS Bank Ltd and DBS Group Holdings Ltd. She was previously Non-executive Chair of the Singapore International Foundation, and Chair of International Enterprise Singapore and the Accounting Standards Council, Singapore. Relevant skills and experience Euleen’s current roles as chair of the board of directors of various international organisations provide significant experience in the area of strategy development and international businesses. She is highly regarded both externally and within Shell as a champion of diversity. She consistently, but constructively challenges the Board and management to continue to progress in this area. Based in Singapore and having been Chair of the Risk Committee of the largest bank in South-east Asia, Euleen is close to key emerging/growth markets for our business. Euleen’s risk management expertise has elevated the Board’s deep deliberations around risk governance, and her voice is regularly heard on discussions regarding appropriate risk appetite. Her extensive travel around the world through her various executive and non-executive roles has equipped her with broad geopolitical insight and significant knowledge of operating in the Asian markets. Euleen uses her financial acumen and advocacy for diversity to pose probing and insightful questions, both in and beyond the boardroom. This contributes to well-rounded, incisive and inclusive Board discussions. | | | | | | Euleen Goh Deputy Chair and Senior Independent Director | | | Tenure Eight years and six months (appointed September 1, 2014). Euleen was appointed Deputy Chair and Senior Independent Director on May 20, 2020. On February 1, 2023, the Board announced that Euleen would not be seeking re-election at the 2023 AGM, and would step down from the Board of Shell plc, having reached a tenure of almost nine years. Board committee membership Member of the Nomination and Succession Committee and member of the Remuneration Committee Outside interests/commitments Chair of SATS Ltd; Trustee of the Singapore Institute of International Affairs Endowment Fund; Chair of the Singapore Institute of Management Pte Ltd; and Non-executive Director of Singapore Health Services Pte Ltd, both of which are not-for-profit organisations; Member of the Singapore Public Service Commission AgeNationality 67 Singaporean | | | | | | |
Governance The Board of Shell plc continued | | | | | | | | | | | | | | | | | Career Wael Sawan was appointed CEO at the start of 2023. He was previously Shell's Director of Integrated Gas, and Renewables and Energy Solutions, and has been a member of the Executive Committee since 2019, when he was appointed Upstream Director. Wael joined Shell in 1997. Prior to being appointed Upstream Director, he was Executive Vice President of Deep Water, driving its transformation into a leading business for Shell, and Managing Director and Chairman of Shell Qatar, where he oversaw Shell’s business in Qatar, including its liquefied natural gas (LNG) and gas-to-liquids (GTL) divisions. Relevant skills and experience Wael holds an MEng from McGill University in Montreal and an MBA from Harvard Business School. During his Shell career, spanning more than 25 years, he has worked in Europe, Africa, Asia and the Americas, and has held roles across all of Shell's businesses. He has led several major commercial transactions, including mergers, acquisitions and divestments as well as New Business Development projects. His track record of commercial, operational and transformational success reflects not only his broad, deep experience and understanding of Shell and the energy sector, but also his strategic clarity. He combines these qualities with a passion for people. He has been a trustee of Shell Foundation since 2019.
| | | | | | Wael Sawan Chief Executive Officer | | | | Tenure Seven yearsTwo months (appointed January 1, 2023)
Board committee membership N/A Outside interests/commitments No external appointments AgeNationality 48 Lebanese and one month (appointed February 2014)Canadian | | | | | | | | | | | | | | | | | Age
56
Nationality
Malaysian
| | Career Donny was previously General CounselSinead Gorman joined Shell in 1999 and has held key leadership roles in Finance. She started her Shell career in the Shell International Trading and Shipping Company (STASCO) based in London, UK, and then moved to the Coral Energy joint venture, in Houston, Texas, USA. She worked in Mergers and Acquisitions and Treasury, based in the Netherlands, before moving back to Houston as Vice President Finance for Shales.
In recent years, Sinead has held the position of Executive Vice President (EVP) Finance for Projects & Technology, basedand Integrated Gas and New Energies. Most recently, she was the EVP Finance for Upstream. Sinead has an MEng in Engineering, Economics and Management from the Netherlands. He joined ShellUniversity of Oxford, and an MSc in 1988 basedFinance from London Business School. Relevant skills and experience Sinead has more than two decades' experience of working for Shell. She has built a deep understanding of finance across the industry, spanning a wide range of businesses, and possesses a breadth of experience in Australiatrading, new business development and then movedcapital projects. Sinead has held regional and global finance leadership roles across Europe and the USA, and latterly, in Shell’s Upstream, Integrated Gas and Renewables and Energy Solutions businesses, and in Projects & Technology and Corporate. Highly regarded for her commercial abilities and external focus, Sinead has a strong track record in cost leadership, principle-based decision making, detailed capital stewardship and paying close attention to Hong Kong and later to London. In 2008, he was appointed Headthe performance of Legal at Shell Singapore, having served as Associate General Counsel for Gas & Power in Asia-Pacific.the bottom line.
| | | | | | Sinead Gorman Chief Financial Officer | | | | Tenure
WAEL SAWAN
Upstream Director
Tenure
One year and eight11 months (appointed July 2019)April 1, 2022)
Board committee membership N/A Outside interests/commitments No external appointments
Age45 British
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Governance The Board of Shell plc continued
| | | | | | | | | | | | | | | Nationality
Lebanese and Canadian
| | Career WaelDick Boer was previouslyPresident and Chief Executive Officer of Ahold Delhaize from 2016 to 2018. Prior to the Executive Vicemerger between Ahold and Delhaize, he served as President and CEO of Shell's Deep Water business andRoyal Ahold from 2011 to 2016. From 2006 to 2011 he was a member of the Upstream Leadership Team.Executive Board of Ahold and served as Chief Operating Officer of Ahold Europe from 2006 to 2011.
Dick joined Ahold in 1998 as CEO of Ahold Czech Republic and was appointed President and CEO of Albert Heijn in 2000. In 2003, he also became President and CEO of Ahold’s Dutch businesses. Prior to joining Ahold, Dick spent more than 17 years in various retail positions, for SHV Holdings N.V. in the Netherlands and abroad, and for Unigro N.V. Relevant skills and experience Dick is a highly regarded, retired chief executive, who has a deep understanding of brands and consumers, and extensive knowledge of the US and European markets, from his time leading one of the world’s largest food retail groups. He brings a career’s worth of experience at the forefront of retailing and customer service, which extended in more recent years to e-commerce and the digital arena. This experience is most timely as Shell focuses on the growth of our marketing activities and increasing consumer choices in energy products. Dick is a balanced leader with sound business judgement and a proven track record in strategic delivery, evidenced by the combination of Ahold and Delhaize. He also has a passion for sustainability and is well aware of the importance of the various stakeholder interests in this area. | | | | | | Dick Boer Independent Non-executive Director | | | | Tenure Two years and nine months
(appointed May 20, 2020). On February 1, 2023, the Board announced that Dick would be appointed Deputy Chair and Senior Independent Director from the conclusion of the 2023 AGM. Board committee membership Member of the Audit Committee and member of the Nomination and Succession Committee. Dick will also become a member of the Remuneration Committee from the conclusion of the 2023 AGM. Outside interests/commitments Non-executive Director of Nestlé, and SHV Holdings; Chair of the Supervisory Board of Royal Concertgebouw; Chair of Rijksmuseum Fonds and Chair of the Supervisory Board of Just Eat Takeaway.com AgeNationality 65 Dutch | | | | | | | | | | | | | | | | | | | Career Neil Carson is a former FTSE 100 chief executive. After completing an engineering degree, Neil joined ShellJohnson Matthey in 19971980 where he held several senior management positions in the UK and the USA, before being appointed Chief Executive Officer in 2004. Since retiring from Johnson Matthey in 2014, Neil has focused his time on his non-executive roles. He was Chair of TT Electronics plc from 2015 until May 2020. Relevant skills and experience Neil is highly experienced, and has a broad industrial outlook and a thorough commercial approach combined with a practical perspective on businesses. He brings a track record of strong operational exposure, familiarity with capital-intensive business and a first-class international perspective on driving value in complex environments. Neil was awarded an OBE for services to the chemical industry in 2016. Neil uses his current and past experience in non-executive positions to bring fresh insight and industry understanding to Board discussions. He has also provided valuable insight based on his former executive position and operational experience. Neil was appointed Chair of the Remuneration Committee in May 2020. | | | | | | Neil Carson OBE Independent Non-executive Director | | | | Tenure Three years and nine months
(appointed June 1, 2019) Board committee membership Chair of the Remuneration Committee and member of the Safety, Environment and Sustainability Committee Outside interests/commitments Non-executive Chair of Oxford Instruments plc AgeNationality 65 British | | | | | | |
Governance The Board of Shell plc continued | | | | | | | | | | | | | | | | | Career Ann Godbehere started her career with Sun Life of Canada in 1976 in Montreal, Canada. She joined M&G Group in 1981, where she served as Senior Vice President and Controller for both life and health, and property and casualty businesses throughout North America. She joined Swiss Re in 1996, after it acquired the M&G Group, and served as Chief Financial Officer from 2003 to 2007. From 2008 to 2009, she was interim Chief Financial Officer and an Executive Director of Northern Rock bank in the initial period following its nationalisation. Ann has also held several Non-executive Director positions at Prudential plc, British American Tobacco plc, UBS AG, and UBS Group AG. Ann served as a Non-executive Director of Rio Tinto plc and Rio Tinto Limited until May 2019, and she was also Senior Independent Director of Rio Tinto plc. In January 2021, Ann joined the Board of the newly formed Stellantis N.V., and she chairs its Audit Committee. Relevant skills and experience Ann is a former CFO, a Fellow of the Institute of Chartered Professional Accountants, and has more than 25 years of experience in the financial services sector. She has worked her entire career in international business and has lived in or served on boards in nine countries. Ann makes significant contributions and adds exceptional value by bringing both her extensive experience and a varietyglobal perspective to Board discussions. Ann's long and varied international business career powered by her financial acumen is reflected in the insights and constructive challenges she brings to the boardroom. As Audit Committee Chair, Ann leverages her background to ensure robust discussions are consistently held as the Audit Committee delivers its remit. | | | | | | Ann Godbehere Independent Non-executive Director | | | | Tenure Four years and nine months
(appointed May 23, 2018) Board committee membership Chair of the Audit Committee and member of the Nomination and Succession Committee Outside interests/commitments Non-executive Director and Audit Committee Chair of Stellantis; Fellow of the Institute of Chartered Professional Accountants and a Fellow of the Certified General Accountants Association of Canada. AgeNationality 67 Canadian and British | | | | | | | | | | | | | | | | | | | Career Jane Holl Lute was President and Chief Executive Officer of the North American operations of SICPA security inks from 2017 to 2021, when she assumed the role of Non-executive Strategic Director. From 2018 to 2021, Jane was a Non-executive Director of Atlas Air Worldwide Holdings Inc. In 2013 Jane established and led the Council on CyberSecurity, an independent, expert not-for-profit organisation with a global scope, committed to the security of an open internet. From 2015 to 2016, Jane held the role of Chief Executive Officer of the Center for Internet Security, an independent not-for-profit organisation that works to improve cyber security worldwide. Before this, from 2009 to 2013 Jane served as Deputy Secretary of the US Department of Homeland Security, functioning as the Chief Operating Officer for the third-largest US Federal department. From 2003 to 2009 she held various roles at the United Nations, including Acting Under-Secretary and Assistant Secretary-General for Peacekeeping, Field Support and Peacebuilding. She also served as Executive Vice President and Chief Operating Officer of the United Nations Foundation and Better World Fund. In recent years, Jane has returned to working with the United Nations, serving as a Special Adviser to the Secretary-General. Jane started her career in the US Army in 1978, serving in Berlin during the Cold War, on the US Central Command Staff during Operation Desert Storm, and on the National Security Council Staff under Presidents George H.W. Bush and William J. Clinton. After retiring from the Army in 1994, she joined the Carnegie Corporation as an Executive Director of its Commission on Preventing Deadly Conflict. Relevant skills and experience Jane is a proven and effective leader, who has held significant leadership roles in eachpublic service, the military and the private sector. She brings a wealth of Shell's coreexpertise in matters of public policy, cyber security and risk management to our Board. She has also made significant contributions to strategic discussions and overseeing the day-to-day business units: Upstream, Integrated Gas and Downstream.management of a significant public security department.
| | | | | | Jane Holl Lute HUIBERT VIGEVENO
DownstreamIndependent Non-executive Director
| | | | Tenure One year and twonine months (appointed January 2020)
(appointed May 19, 2021)
Member of the Safety, Environment and Sustainability Committee. Jane will become a member of the Remuneration Committee with effect from the close of the 2023 AGM. Outside interests/commitments Non-executive Director of Marsh & McLennen and the Union Pacific Corporation; Strategic Director of Sicpa Securink Corp. AgeNationality 5166 US Citizen
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Governance The Board of Shell plc continued Nationality | | | | | | | | | | | | | | | Dutch
| | Career HuibertCatherine Hughes was previously Executive Vice President Global Commercial. HeInternational at Nexen Inc. from January 2012 until her retirement in April 2013, where she was responsible for all oil and gas activities including exploration, production, development and project activities outside Canada. She joined ShellNexen in 19952009 as a business analyst and led many Downstream businesses across Shell in Europe, Africa, North and South America as well as Asia. In 2009, Huibert was appointed Vice President SupplyOperational Services, Technology and Human Resources.
Prior to joining Nexen Inc., she was Vice President Oil Sands at Husky Oil from 2007 to 2009 and Vice President Exploration & Distribution, EuropeProduction Services, from 2005 to 2007. She started her career with Schlumberger in 1986 and Africa. In 2012 he became Executive Chairmanheld key positions in various countries, including France, Italy, Nigeria, the UK and the USA, and was President of ShellSchlumberger Canada Ltd for five years. Catherine has also held several Non-executive Director positions at SNC-Lavalin Group Inc, Statoil ASA and Precision Drilling Inc. Relevant skills and experience Catherine contributes through her knowledge of industry and the ease with which she engages with other Directors and managers in China,the boardroom. With over 30 years of oil and gas sector experience, she brings a geopolitical outlook and deep understanding of the industry. An engineer by training, she has also spent a significant part of her career working in 2016 ledsenior human resources roles. The Board highly regards her perspectives on our industry and our most important asset, our people. Catherine has a strong track record of executing operational discipline with a focus on performance metrics and a continual drive for excellence. Her knowledge of the integrationtechnology underpinning oil and gas operations, logistics, procurement and supply chains benefits the Board greatly as it considers various projects and investment or divestment proposals. She also uses her industry knowledge – combined with her commitment to the highest standards of BG Group.corporate governance and safety, ethics and compliance – in her role as Chair of our Safety, Environment and Sustainability Committee, while using her human resources experience in her membership of the Remuneration Committee. | | | | | | Catherine J. Hughes
MAARTEN WETSELAAR
Integrated Gas, Renewables and Energy SolutionsIndependent Non-executive Director
| | | | Tenure Five years and twonine months (appointed January 2016)
(appointed June 1, 2017) Board committee membership Chair of the Safety, Environment and Sustainability Committee and member of the Remuneration Committee. Catherine will become a member of the Audit Committee from the conclusion of the 2023 AGM, and stand down from the Remuneration Committee on the same date. Outside interests/commitments Non-executive Director of Valaris Limited
Age60 Canadian and French
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Nationality
Dutch
| | Career MaartenMartina Hund-Mejean was previously ExecutiveChief Financial Officer of Mastercard Inc. from 2007 to 2019. From 2002 to 2007 she was Senior Vice President, Corporate Treasurer at Tyco International Ltd. and from 2000 to 2002 she was Senior Vice President, Treasurer at Lucent Technologies.
Prior to this, Martina spent 12 years with General Motors, undertaking a number of Integrated Gas, basedsenior roles within their finance operations. Relevant skills and experience Originally from Germany, Martina has spent more than 30 years in Singapore. He joinedthe USA and is an experienced global executive. Her financial and operational leadership of technology-focused companies is extremely relevant as Shell explores new technology-enabled business models. Martina also brings diverse sector experience to the Board, most recently from operating at a large global organisation in 1995the highly regulated finance industry. Martina is known for her straightforward and direct approach. She maintains the highest standards of leadership, strategic thinking and financial stewardship. She also has held variousa strong track record as a mentor and in promoting diversity. Martina's deep financial commercialknowledge and general management roles in Downstream, Tradingunique perspective also enable her to make robust, demanding and Upstream.constructive challenges to our investment considerations to help ensure that our projects are aligned with our strategic intent. | | | | | | Martina Hund-Mejean Independent Non-executive Director | | | | Tenure Two years and nine months
(appointed May 20, 2020) On February 1, 2023, the Board announced that Martina had decided to not seek re-election at the 2023 AGM, and would step down from the Board of Shell plc. Board committee membership Member of the Audit Committee Outside interests/commitments Non-executive Director of Prudential Financial Inc.; Colgate-Palmolive Company, and Truata Ltd
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Governance The Board of Shell plc continued | | | | | | | | | | | | | | | | | Career Abraham ("Bram") Schot has been a member of the group Board of Volkswagen AG, responsible for the Premium Car Group, CEO of Audi AG, Chair of Lamborghini and Ducati, responsible for the VW group Commercial Operations and Vice-Chair of Porsche Holding Salzburg. From 2011 to 2016, he was a Member of the Board of Volkswagen CV, Executive Vice President responsible for Global Marketing, Sales & Services, New Business Models. In 2017 he became a member of the Board of Audi AG. From 2006 to 2011, Bram was President & CEO of Daimler/Mercedes-Benz Italia & Holding S.p.A. From 2003 to 2006, he was President & CEO of DaimlerChrysler in the Netherlands. Prior to this, Bram held a number of Director and senior leadership roles within Mercedes-Benz in the Netherlands, having joined the business in 1987 on an executive management programme. Relevant skills and experience Bram has over 30 years' experience working in the automotive industry at all levels of the business. He gained a wealth of knowledge on far-reaching cost optimisation programmes at Audi AG. These helped transform the car company into a provider of electric vehicles that could offer sustainable mobility and succeed in the energy transition. He is well placed to leverage this knowledge in the Shell boardroom as Shell navigates its own transformation and pathway through the energy transition. Bram has strong principles and regards integrity and compliance as the basis for doing business. His studies have encompassed innovation and organisational effectiveness, geopolitical environments, shareholder value, corporate social responsibility and risk management, in several countries, which are all highly valued management tools and are evident in the questions he raises in the boardroom. | | | | | | Abraham Schot Independent Non-executive Director | | | | Tenure Two years and five months
(appointed October 1, 2020) Board committee membership Member of the Safety, Environment and Sustainability Committee and member of the Remuneration Committee Outside interests/commitments Non-executive Director of Signify. AgeNationality 61 Dutch | | | | | | | | | | | | | | | | | | | Career Cyrus Taraporevala was President and Chief Executive Officer of State Street Global Advisors from 2017 to 2022. Prior to his joining State Street, Cyrus held numerous leadership roles in asset management including at Fidelity, BNY Mellon, Legg Mason, and Citigroup. Earlier in his career Cyrus was a partner at McKinsey & Company, based in New York and Copenhagen. Cyrus was a founding member of the New York Stock Exchange Board Advisory Council, which proactively addresses the critical need for inclusive leadership on corporate boards by connecting diverse candidates with companies seeking new directors. He serves as a Board member of The Trustees of Reservations, a Massachusetts-based non-profit conservation organisation, and chaired the investment committee of the trustees for seven years. Cyrus previously served as a trustee on the WK Kellogg Foundation Trust, one of the world’s largest endowments and foundations. Relevant skills and experience Cyrus is a highly regarded, recently retired chief executive, with a unique mix of strategic perspectives and execution skills. He has deep experience in driving organic and inorganic growth, transformations, and turnarounds. He is one of the most senior professionals in the asset management industry and has successfully led and grown global businesses of scale. He played a critical role in affirming State Street’s reputation as both a stalwart and pioneer within the sector, and, at times, was implementing changes in the context of market uncertainty caused by geopolitical friction and an evolving regulatory environment. Cyrus also possesses a unique vantage point on core board-related issues impacting public companies including ESG, and has spoken and published multiple articles on climate risk and other aspects of ESG. He is credited with strengthening the ESG credentials of State Street Global Advisors and is highly credible in providing perspectives on these topics. A true citizen of the world, over the course of his career Cyrus has worked and lived on three continents.
| | | | | | Cyrus Taraporevala Independent Non-executive Director | | | | Tenure Appointed March 2, 2023 Board committee membership Member of the Audit Committee Outside interests/commitments Board member of Bridgepoint Group plc. Board member of The Trustees of Reservations AgeNationality 56 US Citizen | | | | | | |
Governance The Board of Shell plc continued | | | | | | | | | | | | | | | | | Career Caroline Omloo worked in private practice with law firm Nauta Dutilh before joining Shell in 1999. She has held various positions in Shell, including Secretary to the Audit Committee, Associate General Counsel Corporate Finance NL, Chief Privacy Officer and Head of Legal and management team member of the Downstream Operating Company in the Netherlands. She has also been a member of the board of Stichting Shell Pensioenfonds, one of Shell’s Dutch pension funds. Caroline took up her previous role as Head of Legal and Compliance of Shell Asset Management Company in 2017 and was a board member of this company from 2018 to 2022. From 2009- 2019, Caroline sat on the board of Stichting Beroepsopleiding Bedrijfsjuristen, the foundation providing education for in-house lawyers in the Netherlands. She also served as a board member of Missie Verkeersmiddelen Actie, a Dutch charitable organisation, from 2007 to 2017. Relevant skills and experience Caroline is Shell's Company Secretary and also plays an important role overseeing the Corporate Secretariat and the Group Securities Counsel in the UK, USA and the Netherlands. The various roles Caroline has undertaken have provided her with a strong understanding of our global operations and people. Her experience of engaging with the Board in previous roles, coupled with her broad understanding and engagement across Shell’s businesses, functions and her legal background, helps to ensure that the right matters come to the Board at the right time. | | | | | | Caroline J.M. Omloo Company Secretary | | | | Tenure Seven months (appointed August 1, 2022) AgeNationality 53 Dutch | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Attendance The Board met eight times during 2022. Seven of the eight meetings were held physically, one meeting in Singapore and six in London, United Kingdom. One meeting was held via videoconference. Attendance during 2022 for all Board meetings is given in the table [A]. [A]For attendance at Committee meetings during the year, please refer to individual Committee Reports. [B]Sinead Gorman was appointed as Chief Financial Officer (CFO) with effect from April 1, 2022. [C]Jessica Uhl retired from her role as Chief Financial Officer (CFO) with effect from March 31, 2022. [D]Gerrit Zalm retired from the Board following the conclusion of the AGM in May 2022.
| | | Board member | Meetings attended | | | | | | | Ben van Beurden | 8/8 | | | | | | | Dick Boer | 8/8 | | | | | | | Neil Carson | 8/8 | | | | | | | Ann Godbehere | 8/8 | | | | | | | Euleen Goh | 8/8 | | | | | | | Sinead Gorman [B] | 6/6 | | | | | | | Jane Holl Lute | 7/8 | | | | | | | Catherine J. Hughes | 8/8 | | | | | | | Martina Hund-Mejean | 8/8 | | | | | | | Sir Andrew Mackenzie | 8/8 | | | | | | | Bram Schot | 7/8 | | | | | | | Jessica Uhl [C] | 2/2 | | | | | | | Gerrit Zalm [D] | 2/2 | | | | | | | | | | | | | | | | | | | | | | Director independence All the Non-executive Directors are considered by the Board to be independent in character and judgement. The Chair is not subject to the Code’s independence test other than on appointment. | | | | | | | | | | |
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Governance
The Board of Shell plc continued
Directors joining the Board
On February 1, 2023 the Board announced that the following Directors will be joining the Board on March 13, 2023.
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GOVERNANCE
MANAGEMENT AND DIRECTORS
The CompanySir Charles has a single-tier Boardmost recently held the position of Directors headed by a Chair, with management led by a CEO. See “The Board of Royal Dutch Shell plc” on page 89 and Senior Management on page 95.
EXECUTIVE COMMITTEE
The current compositionSecond Permanent Secretary, one of the Executive Committee is as follows:most senior positions within His Majesty’s Treasury (HMT). As Second Permanent Secretary at HMT he was responsible for all issues relating to growth, productivity, infrastructure, financial services and financial stability.
| | | | | | Executive Committee | Ben van Beurden | CEO [A] [B] | Jessica Uhl | CFO [A] [B] | Harry Brekelmans | Projects & Technology Director [B] | Ronan Cassidy | Chief Human Resources & Corporate Officer [B] | Donny Ching | Legal Director [B] | Wael Sawan | Upstream Director [B] | Huibert Vigeveno | Downstream Director [B] | Maarten Wetselaar | Integrated Gas, Renewables and Energy Solutions Director [B] |
[A]Prior to his career at HMT, Sir Charles spent over 25 years at McKinsey & Company, and holds an MBA from Harvard Business School. Whilst at McKinsey, he held positions including but not limited to a Director of the Company.
[B] Designated an Executive Officer pursuant to US Exchange Act Rule 3b-7.Beneficially owns less than 1%McKinsey Global Institute, the Head of outstanding classes of securities.
Corporate governance requirements outside the UK Financial Institutions Group and the Co-Head of McKinsey’s Global Investment Banking Practice. Sir Charles has serviced large banks, insurance companies, hedge funds and private-equity investors in strategy, risk management, and organisation. Sir Charles also led a number of major research efforts at McKinsey and authored a number of articles on strategy and scenario planning.
In addition to complying with applicable corporate governance requirementsOn leaving the private sector, Sir Charles became Director General, Financial Services at HMT and led the legislative process for the biggest reforms in the UK banking sector in a generation, before being appointed Second Permanent Secretary. During his time as Second Permanent Secretary, Sir Charles was responsible for policy and oversight across a range of functions within HMT including financial services, financial stability, infrastructure, energy, science/R&D, business investment, venture and growth capital, transport, and culture/creative industries and was Chair of the HMT Operating Committee.
Relevant skills and experience Sir Charles’ succession of roles placed him at the nexus between industry and government, and most recently included his active participation in forging and delivering energy policies. He was an influential figure within the HMT in pioneering energy policy, including for COP26, and providing funding for innovative organisations to support the energy transition. A former executive board member for one of the world’s pre-eminent consultancies, Sir Charles continued to drive innovation whilst deftly navigating the intricate stakeholder landscape of UK government. |
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| Sir Charles Roxburgh Independent Non-executive Director | | |
| Tenure Appointment effective March 13, 2023 Board committee membership Member of the Audit Committee Outside interests/commitments Board member of Folger Shakespeare Library AgeNationality 63 British | | |
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| | Career Leena Srivastava has devoted a significant part of her career to research and policy matters in sustainability and has already sat on several boards of scale. Until recently, Leena was the Deputy Director General for Science of the International Institute for Applied Systems Analysis (IIASA). Prior to this, she was an Executive Director, then the Vice Chancellor of the School of Advanced Studies, at The Energy and Resources Institute (TERI), a not-for-profit policy research organisation working in energy, environment and sustainable development. Leena has also previously served on the sustainability advisory boards of various multinational companies such as The Coca Cola Company, compliesCaterpillar Inc and Suez Environment and as a non-executive director of companies, including those involved in manufacturing and infrastructure. Leena has served various committees and organisations both at the international and national levels, with prior roles including energy and climate advisor for the rules of Euronext Amsterdam as well as Dutch securities laws because of its listing on that exchange. The Company likewise adheres to US securities lawsUnited Nations and the New York Stock Exchange (NYSE) rulesCo-Chair of the Advisory Committee at Future Earth. Relevant skills and regulations becauseexperience Leena recognises the challenges large organisations face in managing different stakeholder priorities and in particular the challenges in balancing business, government and societal needs, while pursuing a sustainability agenda. Leena was a research associate at TERI during a time when the first serious discussions on climate change were emerging. Later, as a member of the Cement Sustainability Initiative of World Business Council for Sustainable Development, she provided a pragmatic perspective on how to support the sector through its securities are registereddecarbonisation journey. With a strong network of relationships in multiple global institutions focused on sustainability and an understanding of the USA and listed onissues the NYSE.
BOARD ACTIVITIES
A rolling Board agenda is reviewed at Board meetings, enabling effective forward managementenergy sector faces in pursuing decarbonisation while serving the energy needs of meetings and focused discussions. Forthcoming Board agenda items are categorised as: Strategy & Portfolio, Delivery & Performance, External Environment, Corporate & Miscellaneous or Standard items. Of the standard items, Board agendas regularly include reports fromsociety, Leena believes she can contribute to the Chief Executive Officer, the Chief Financial Officer, other Executive Committee members and from each Board committee. "Core values" moments also feature regularly led by a Director or Executive Committee member. In 2020, "Shell Heroes" vignettes were added to highlight extraordinary staff actions including those exemplifying care for people, society and/or the environment. Updates are also provided from the various businesses and key functions, including Investor Relations; Health and Safety, Security and Environment; Human Resources; and Legal, as well as the Company Secretary. The Board also considers and approves the quarterly, half-year and full-year financial results, shareholder distributions and the associated announcements, and, at most meetings, considers investment, divestment and/or financing proposals. To enable purposeful debates and/or focus on particular aspectsorganisation during this period of agenda topics, including the impact on key stakeholders, Directors have an opportunity to specify information they require to be provided in advance of Board meetings.transformation.
As in previous years and despite COVID-19 travel restrictions, certain Board committees and Non-executive Directors conducted site visits of various Shell operations and overseas offices - albeit virtually in 2020. These virtual visits were designed to provide Directors with first-hand insights into certain businesses, including into key projects and energy transition initiatives. Directors also held various virtual workforce engagements, as well as virtual external stakeholder engagements.
Someof the activities and areas of Board focus over the year are summarised below. The information below is not exhaustive. Information on other topics discussed by the Board and details of the resulting decisions are covered elsewhere. In some cases, a brief outline has been provided below and reference given to where additional and more comprehensive information can be found.
June strategy days
In lieu of the traditional physical June Strategy off-site meetings or Board’s Strategy Day, virtual meetings were held over the course of three days. As these meetings are usually an opportunity for the Board, and particularly new Directors, to strengthen collegial relationships among Directors and with the Executive Committee, considerable efforts were invested into making these meetings as innovative and engaging as possible. This included incorporating break-out sessions, staff engagements and an external engagement. The Board members were also asked to share light-hearted insights about themselves in advance of the meetings which were woven into informal quizzes. Virtual social events rounded out the end of each day's programme.
The Board Strategy Days included discussions on various topics including the proposed direction for Shell, with strategic alternatives. Topics covered at the sessions included:
•2020-2022 outlook and responses;
•Project Reshape (Shell’s reorganisation);
•strategic pathway and underlying strategic premises;
•energy transition strategy;
•implications of energy transition strategy;
•exploring alternative strategies;
•financial framework;
•strategic alignment next steps;
•staff engagements; and
•external engagement with a significant customer/supplier.
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|  Board committee membership | | | | | | | | | GOVERNANCE SHELL FORM 20-F 2020 | 98 | |
| | | Senior Succession and Resourcing Review | The annual Senior Succession and Resourcing Review focused on the strength of senior leadership and plans for its development and succession, while highlighting the breadth, depth and diversity of its pipeline, the developing profile of the leadership cadre, and recruitment and attrition levels. | The Nomination and Succession Committee noted the effectiveness of succession planning, the impact of its associated execution, and the professional, data-driven, integrated approach to leadership and leadership development. It welcomed the continued focus on performance management, proactive management of Shell’s talent pipeline, and the focus on advancing Shell’s diversity agenda with increased attention on race. Overall this year’s insights provided a deeper understanding of the interplay between culture, identity, leadership talent and employee engagement across Shell. |
Risk management
The “Statement on Risk Management” is a foundation element of Shell’s Control Framework and a key enabler of many of its management processes. We assess risks across the Shell Group in terms of three distinct categories:
•Strategic risks: we consider current and future portfolio considerations, examining parameters such as country concentration or exposure to higher-risk countries. We also consider long-range developments in order to test key assumptions or beliefs in relation to energy markets.
•Operational risks: we consider material operational exposures across Shell’s entire value chain, and promote a more granular assessment of key risks facing the organisation.
•Conduct and culture risks: we consider alignment of our policies, practices and behaviours against our purpose and core values.
To support risk assessment across each category, Shell has developed a risk appetite framework, which helps management establish and articulate the level of risk that they are willing to accept in pursuit of Shell’s strategy and objectives, noting that there are also risks that Shell accepts
or does not seek to fully mitigate. The financial framework sets an overarching boundary condition in the consideration of risk appetite, as the financial resilience of Shell should logically inform the aggregate level of risk appetite that could be sustained.
Shell’s principal risks and the broad array of measures used to manage each risk are described on pages 18 - 22. During the year, management regularly reviews these principal risks and associated risk responses and implements further remedial actions as appropriate. The Executive Committee and the Board regularly consider Group-level risks, framed across the three categories above, together with the associated control mechanisms and risk responses. In 2020, specific attention was given to our response to the COVID-19 pandemic (see "Responding to the COVID-19 Pandemic" on page 100.
Management and the Board also consider emerging risks, defined as risks where the scope, impact and likelihood are still uncertain, but which could have a material effect on achieving Shell’s strategy and objectives in the future. These risks are identified through, (among other procedures), the monitoring of external developments, scenario planning, the status of risk indicators, learnings from incidents and assurance findings, and the appraisal of Shell’s forward-looking plans. Once identified, we undertake activities to monitor, prepare for and/or reduce the future impact, where possible, should such emerging risks materialise.
The system of risk management and internal control over financial reporting is an integral part of the Control Framework. Regular reviews are performed to identify the significant risks to financial reporting and the key controls designed to address them. These controls are documented, responsibility is assigned, and they are monitored for design and operating effectiveness. Controls found to be ineffective are remediated.
Shell has a climate change risk management structure which is supported by standards, policies and controls (see “Risk factors” on page 18 and “Climate change and energy transition” on pages 73 - 85). Climate change and risks resulting from greenhouse gas emissions have been identified as significant risk factors for Shell and are managed in accordance with other significant risks through the Board and Executive Committee.
Many of our major projects and operations are conducted in joint arrangements or associates, which may reduce the degree of control and ability to identify and manage risks (see “Risk Factors” on page 21). In each case, Shell appoints a representative to manage its interests who seeks to ensure that such projects operate under equivalent Shell standards to Shell.
We operate in more than 70 countries that have differing degrees of political, legal and fiscal stability. This exposes us to a wide range of political developments that could result in changes to contractual terms, laws and regulations. In addition, we and our joint arrangements and associates face the risk of litigation and disputes worldwide (see “Risk Factors” on page 19). We continuously monitor geopolitical developments and societal issues relevant to our interests. Employees who engage with government officials are subject to specific training programmes, procedures and regular communications, in addition to Shell General Business Principles and Shell Code of Conduct compliance. We are prepared to exit a country if we believe we can no longer operate in that country in accordance with our standards and applicable law, and we have done so in the past.
The Board confirms it has carried out a robust assessment of Shell's principal risks, including a robust process for identifying, evaluating and managing Shell’s principal risks. The Board confirms it has carried out a robust assessment of Shell’s emerging risks, the procedures in place to identify the emerging risks, and how risks are being managed or mitigated to help Shell achieve its strategy and objectives. This has been in place throughout 2020 and up to the date of this Report; is regularly reviewed by the Board; and accords with the FRC Guidance on risk management, internal control and related financial and business reporting.
Review of the effectiveness of risk management and internal control
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The Board has delegated authority to the Audit Committee to assist it in fulfilling its responsibilities in relation to the effectiveness of the risk management framework and internal control system, the integrity of financial reporting as well as consideration of compliance matters. (see “Audit Committee Report” on pages 108-115).
The Audit Committee met six times this year and received regular reports from the Chief Internal Auditor on notable internal audits and those with a significant impact on control effectiveness. The Audit Committee also reviewed significant financial, business and compliance control incidents and received regular reports on business integrity issues. The Audit Committee also requested updates on specific financial, operational and compliance control issues throughout the year. The Audit Committee Chair provided an update to the Board after every Audit Committee meeting.
During and after such reports, the Board has an opportunity to request further information and/or ask clarifying questions, which it does to varying degrees depending on the issue. Similarly, the ChairsMember of the Safety, Environment and Sustainability Committee (SESCo) and
Outside interests/commitments Board member of Climate-KIC AgeNationality 62 Indian | | |
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Governance
Senior management
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The Senior management of the Nigeria Special Litigation Committee, an ad hoc Board committee, also provide regular updates after each of their respective meetings covering, among other matters, the respective aspects of controls that they monitor pursuant to their Terms of Reference. The Audit Committee and SESCo minutes, once approved, are further provided to the Board and incorporated into Board minutes to ensure full access to and review by all Directors. These aspects, together with the 2020 Reports respectively produced byCompany comprises the Executive Vice President TaxationDirectors, Wael Sawan and ControllerSinead Gorman, and Chief Internal Auditor, the External Auditors, the Chairs of the Disclosure Committee and the Financial Reporting Control Committee and the Chief Ethics and Compliance Officer, as well as summaries of the Annual Proved Reserves Disclosure and the Full Year HSSE & Social Performance Assurance Report, enable the Board’s ongoing monitoring and annual review of material controls.
An annual review of the effectiveness of risk management and internal control was carried out by both the Executive Committee and the Audit Committee. This was based on their own insights and experience throughout the year as well as outcomes from the Group-level risk reviews and the Group Assurance Letter process, a structured internal assessment of compliance with legal and ethical requirements and the Shell Control Framework carried out by each Executive Director. As part of their annual review, the Executive Committee and Audit Committee also considered input from the Chief Internal Auditor, Chief Ethics and Compliance Officer and the External Auditor. The insights and conclusions from this annual assessment were reviewed and discussed by the Board.
The Board confirms that it has conducted its annual review of the effectiveness of Shell’s system of risk management and internal control in respect of 2020, such review covering all material controls, including financial, operational and compliance controls.
Responding to the COVID-19 pandemic
The COVID-19 pandemic has transformed economies, government policies, markets and businesses globally. Shell has been responding to the pandemic with a broad, structured approach to ensure we support our colleagues, suppliers, customers and the communities where we work, while ensuring resilience in our day-to-day operations and overall financial framework. A dedicated Group Coordination Team, under the direct supervisionthose listed below. All are members of the Executive Committee has been in place to oversee Shell’s risk response plans globally.
We have taken many steps to protect the health of our colleagues, including requiring or encouraging office-based staff to work from home, depending(see "Governance Framework" on the advice of local authorities. We are providing the technology support to ensure up to 70,000 colleagues can work remotely each day. We have developed comprehensive COVID-safe return to site approaches across Shell’s offices with small-scale proof-of-concept tests.page 141).
| | | For people working on our platforms offshore, or our facilities onshore, we enforce social distancing, carry out health screening and have procedures in place to allow the safe evacuation of any suspected cases of COVID-19.
To keep our customers safe at our retail sites we launched Clean+, a global initiative to provide enhanced cleaning, regular sanitation of common touchpoints, free sanitiser and/or wipes, protection for staff and reminders to maintain safe distancing.
Management at all levels continue to engage extensively with staff to understand and respond to the stresses placed on them as a result of the pandemic. A confidential counselling service is available to help colleagues experiencing the psychological impact of the pandemic, and we continue to provide extra online resources to help people manage their physical and mental well-being.
To sustain our operations and supply chains, which in turn support our suppliers and customers, we have business continuity plans in place across all our businesses, functions and operating sites. These plans are adjusted as needed by considering short- and medium-term “likely” and “worst case” scenarios developed by the Group Coordination Team. Examples of specific enhanced controls include the strengthening of our global web content filtering capability in response to the switch from office to remote working and additional measures to improve cyber-awareness. We have reiterated and emphasised adherence to Shell’s compliance rules (including the Code of Conduct). Shell’s Crisis Management Standard is also being used to guide our operational risk responses, and our country chair network has been strengthened to address specific challenges that arise at local levels.
Throughout the pandemic, we have maintained a strong focus on our cash allocation framework, using a bespoke COVID-19 risk register to monitor the effectiveness of our risk responses to ensure the financial resilience of our portfolio. These responses included the implementation of certain cash preservation measures. More details are provided in the "Liquidity and Capital Resources" section on pages 61-64.
We expect many of our risk response measures to stay in place in 2021. We continue to adjust and apply our learnings from this experience to ensure we remain resilient in this new macroeconomic environment. Detailed information about the impact of the pandemic on Shell’s principal risks and our responses to these impacts is provided in "Risk Factors" on pages 18 - 22.
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| Projects & Technology Director | | | | | | | Risks | The Board reviews reports on strategic and conduct and culture risks annually, and considers reports on operational risks twice a year. These reports assess current business activities against risk appetite. | Chief Ethics and Compliance Officer Report | Data and insights include information from the Global Helpline, Shell Ethics and Compliance organisation and the Shell People Survey. SESCo continues to strongly support the work of the Chief Ethics and Compliance Officer, including the efforts to ensure a safe working environment where staff feel confident to raise any concerns in good faith. | The Audit Committee is kept updated when matters highlighted through the Global Helpline are investigated, and on the associated remediation. For more information see page 111 of the Audit Committee report. | Assurance activities | Assurance activities, including items raised by businesses and functions (through the Group Assurance Letters process) and independent assurance (from Internal Audit, HSSE, Ethics and Compliance, Reserves Assurance and Reporting), provide additional evident to the Board of the commitment to high standards of risk management and internal control. The assurance activities ensure that work can be done safely, within regulatory frameworks. | The information provided within these reports further supports the Board’s annual review of the effectiveness of the Group’s system of risk management and internal control and feeds into the Group scorecard, against which staff bonuses are calculated. |
Donny ChingBoard Evaluation
 Insight
The feedback from Board Directors was positive throughout their responses to the evaluation.
Board dynamics – the Non-executive Directors’ support and challenge of management was rated very highly, with the quality of the interaction and the openness of the leadership team being commended.
Board oversight – the Board’s effectiveness in adjusting its focus and priorities in response to the COVID-19 pandemic was rated very highly. Board oversight of various specific aspects of risk was also rated highly overall, with retention of focus on risk appetite continuing to be a priority. The Board’s oversight of the Company’s processes for managing and developing senior executive talent, including with regard to diversity, was rated very highly, and will be a continued area of focus.
Management and focus of meetings – themes included: shortening and simplifying Board papers further, and a desire for returning to physical
meetings when circumstances permit. The measures implemented to facilitate virtual meetings, induction/onboarding, and ongoing training were rated highly and viewed as very effective.
Stakeholder oversight – the mechanisms by which the Board obtains the views and needs of major investors and employees were highly rated, while noting that the mechanisms for obtaining the views of customers, private/retail investors, communities and suppliers could be enhanced, as feasible and relevant. The Board’s effectiveness in monitoring and assessing culture throughout the organisation was rated positively overall.
Delivery against the 2020 ambitions
The COVID-19 pandemic drove unprecedented change throughout 2020, impacting both the short- and longer-term business outlook. Through the use of additional meetings, the Board balanced its focus on short-term operational matters and long-term strategy. Principal decisions made in 2020 were bold and decisive and, where possible, discussions were initiated well in advance of final Board decisions. Acquisitions/
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divestments and critical strategy shifts were all key agenda items for 2020, and these aligned with the Board ambitions set at the start of the year.
The Board’s ambitions on succession were tested during 2020 with the appointment and induction of four Non-executive Directors and the retirement of three Non-executive Directors – all in the context of a virtual environment. Planned improvements to the Director onboarding process were implemented despite the COVID-19 crisis. Simultaneous adaptations were made to ensure there was as much dynamism as feasible within the constraints of having to work virtually. The development of a Board travel calendar was inevitably put on hold. The intention to share details of other induction sessions and committee trips was put into effect, albeit virtually.
On our Board papers ambition, efforts were made to focus information provided to the Board (for example, through optional briefing sessions, one-on-one engagements and advance “polling” of questions/information needs) to enable decision-making on key topics.
Planned enhancements for 2021
The 2020 Board evaluation findings provided areas of focus or priorities for 2021.
Monitoring execution and strategic implementation
This is an area of undeniable importance for the years ahead. The Board will continue to monitor strategic execution with support to management, enabled by a performance tracking approach.
Company culture and Project Reshape
The Board will continue to monitor the Reshape transformation, enabled by the performance-tracking approach referenced above. It will strengthen its emphasis on culture and workforce engagement (particularly after COVID-19).
Completion of improvement items already in progress
Ensuring smooth Chair succession, oversight of ongoing litigation and potential further optimisation of the induction processes for Non-executive Directors once travel is safely resumed. Likewise, sharing other Director induction sessions, committee trips and Chair visits will continue.
Chair
Ongoing performance evaluation – the Board was very appreciative of the Chair's strong leadership (both of the full Board and individual Directors) during an extremely difficult year. He ensured thoughtful and interactive agendas (despite the required virtual format). It was also considered that he invested purposeful time with all, particularly with new Non-executive Directors, and continued to facilitate strong Board engagement and strong relationships with management. The Directors considered the Board very fortunate to have a Chair functioning at his peak. Board members added that the careful and thorough way in which all decisions this year have been framed, debated and made owes a great deal to the Chair’s experience and care, and his relationships with the CEO and Non-executive Directors.
The Chair’s focus on strengthening individual Director performance through coaching and feedback continues to be rated highly. His regular contact with Directors between meetings provides continued real-time feedback and reflection. This way of working continues to be regarded as an outstanding aspect of his leadership.
The Deputy Chair communicated the feedback to the Chair, along with requests to:
•ensure knowledge transfer of the Chair's insights and learnings to his successor; and
•continue to carefully balance the airing of divergent views with the need to appropriately converge on Board decisions.
The Chair fully accepted the feedback and agreed to reflect and act upon it.
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NOMINATION AND SUCCESSION COMMITTEE
CHAD HOLLIDAY
Chair of the Nomination and Succession Committee Outside interests/commitments Fellow of the Royal Society (FRS); Chair of UK Research and Innovation (UKRI) AgeNationality 66 British | | |
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| | Career Euleen Goh is an Associate of the Institute of Chartered Accountants in England and Wales, a Fellow of the Singapore Institute of Chartered Accountants, and has professional qualifications in banking and taxation. Euleen has held various senior management positions within Standard Chartered Bank and was Chief Executive Officer of Standard Chartered Bank, Singapore, from 2001 until 2006. She is also a Fellow of the Singapore Institute of Directors. She has also held non-executive appointments on various boards including Aviva plc, MediaCorp Pte Ltd, Singapore Airlines Ltd, Singapore Exchange Ltd, Standard Chartered Bank Malaysia Berhad, Standard Chartered Bank Thai plc, CapitaLand Ltd, Temasek Trustees Pte Ltd, DBS Bank Ltd and DBS Group Holdings Ltd. She was previously Non-executive Chair of the Singapore International Foundation, and Chair of International Enterprise Singapore and the Accounting Standards Council, Singapore. Relevant skills and experience Euleen’s current roles as chair of the board of directors of various international organisations provide significant experience in the area of strategy development and international businesses. She is highly regarded both externally and within Shell as a champion of diversity. She consistently, but constructively challenges the Board and management to continue to progress in this area. Based in Singapore and having been Chair of the Risk Committee of the largest bank in South-east Asia, Euleen is close to key emerging/growth markets for our business. Euleen’s risk management expertise has elevated the Board’s deep deliberations around risk governance, and her voice is regularly heard on discussions regarding appropriate risk appetite. Her extensive travel around the world through her various executive and non-executive roles has equipped her with broad geopolitical insight and significant knowledge of operating in the Asian markets. Euleen uses her financial acumen and advocacy for diversity to pose probing and insightful questions, both in and beyond the boardroom. This contributes to well-rounded, incisive and inclusive Board discussions. |
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| Euleen Goh Deputy Chair and Senior Independent Director | |
| Tenure Eight years and six months (appointed September 1, 2014). Euleen was appointed Deputy Chair and Senior Independent Director on May 20, 2020. On February 1, 2023, the Board announced that Euleen would not be seeking re-election at the 2023 AGM, and would step down from the Board of Shell plc, having reached a tenure of almost nine years. Board committee membership Member of the Nomination and Succession Committee and member of the Remuneration Committee Outside interests/commitments Chair of SATS Ltd; Trustee of the Singapore Institute of International Affairs Endowment Fund; Chair of the Singapore Institute of Management Pte Ltd; and Non-executive Director of Singapore Health Services Pte Ltd, both of which are not-for-profit organisations; Member of the Singapore Public Service Commission AgeNationality 67 Singaporean | | |
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| | Career Wael Sawan was appointed CEO at the start of 2023. He was previously Shell's Director of Integrated Gas, and Renewables and Energy Solutions, and has been a member of the Executive Committee since 2019, when he was appointed Upstream Director. Wael joined Shell in 1997. Prior to being appointed Upstream Director, he was Executive Vice President of Deep Water, driving its transformation into a leading business for Shell, and Managing Director and Chairman of Shell Qatar, where he oversaw Shell’s business in Qatar, including its liquefied natural gas (LNG) and gas-to-liquids (GTL) divisions. Relevant skills and experience Wael holds an MEng from McGill University in Montreal and an MBA from Harvard Business School. During his Shell career, spanning more than 25 years, he has worked in Europe, Africa, Asia and the Americas, and has held roles across all of Shell's businesses. He has led several major commercial transactions, including mergers, acquisitions and divestments as well as New Business Development projects. His track record of commercial, operational and transformational success reflects not only his broad, deep experience and understanding of Shell and the energy sector, but also his strategic clarity. He combines these qualities with a passion for people. He has been a trustee of Shell Foundation since 2019.
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| Focus areasWael Sawan
Chief Executive Officer | | |
| Tenure Two months (appointed January 1, 2023) Board committee membership N/A Outside interests/commitments No external appointments AgeNationality 48 Lebanese and Canadian | | |
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| | Career Sinead Gorman joined Shell in 1999 and has held key leadership roles in Finance. She started her Shell career in the Shell International Trading and Shipping Company (STASCO) based in London, UK, and then moved to the Coral Energy joint venture, in Houston, Texas, USA. She worked in Mergers and Acquisitions and Treasury, based in the Netherlands, before moving back to Houston as Vice President Finance for 2020Shales. In recent years, Sinead has held the position of Executive Vice President (EVP) Finance for Projects & Technology, and Integrated Gas and New Energies. Most recently, she was the EVP Finance for Upstream. Sinead has an MEng in Engineering, Economics and Management from the University of Oxford, and an MSc in Finance from London Business School. Relevant skills and experience Sinead has more than two decades' experience of working for Shell. She has built a deep understanding of finance across the industry, spanning a wide range of businesses, and possesses a breadth of experience in trading, new business development and capital projects. Sinead has held regional and global finance leadership roles across Europe and the USA, and latterly, in Shell’s Upstream, Integrated Gas and Renewables and Energy Solutions businesses, and in Projects & Technology and Corporate. Highly regarded for her commercial abilities and external focus, Sinead has a strong track record in cost leadership, principle-based decision making, detailed capital stewardship and paying close attention to the performance of the bottom line. ▪
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| Sinead Gorman Chief Financial Officer | | |
| Tenure 11 months (appointed April 1, 2022) Board committee membership N/A Outside interests/commitments No external appointments AgeAppointment and onboarding of four new Non-executive DirectorsNationality 45 British | | |
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| | Career Dick Boer was President and Chief Executive Officer of Ahold Delhaize from 2016 to 2018. Prior to the merger between Ahold and Delhaize, he served as President and CEO of Royal Ahold from 2011 to 2016. From 2006 to 2011 he was a member of the Executive Board of Ahold and served as Chief Operating Officer of Ahold Europe from 2006 to 2011. Dick joined Ahold in 1998 as CEO of Ahold Czech Republic and was appointed President and CEO of Albert Heijn in 2000. In 2003, he also became President and CEO of Ahold’s Dutch businesses. Prior to joining Ahold, Dick spent more than 17 years in various retail positions, for SHV Holdings N.V. in the Netherlands and abroad, and for Unigro N.V. Relevant skills and experience Dick is a highly regarded, retired chief executive, who has a deep understanding of brands and consumers, and extensive knowledge of the US and European markets, from his time leading one of the world’s largest food retail groups. He brings a career’s worth of experience at the forefront of retailing and customer service, which extended in more recent years to e-commerce and the digital arena. This experience is most timely as Shell focuses on the growth of our marketing activities and increasing consumer choices in energy products. Dick is a balanced leader with sound business judgement and a proven track record in strategic delivery, evidenced by the combination of Ahold and Delhaize. He also has a passion for sustainability and is well aware of the importance of the various stakeholder interests in this area. |
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| Dick Boer Independent Non-executive Director | | |
| Tenure Two years and nine months
(appointed May 20, 2020). On February 1, 2023, the Board announced that Dick would be appointed Deputy Chair and Senior Independent Director from the conclusion of the 2023 AGM. Board committee membership Member of the Audit Committee and member of the Nomination and Succession Committee. Dick will also become a member of the Remuneration Committee from the conclusion of the 2023 AGM. Outside interests/commitments Non-executive Director of Nestlé, and SHV Holdings; Chair of the Supervisory Board of Royal Concertgebouw; Chair of Rijksmuseum Fonds and Chair of the Supervisory Board of Just Eat Takeaway.com AgeContinuedNationality 65 Dutch | | |
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| | Career Neil Carson is a former FTSE 100 chief executive. After completing an engineering degree, Neil joined Johnson Matthey in 1980 where he held several senior management positions in the UK and the USA, before being appointed Chief Executive Officer in 2004. Since retiring from Johnson Matthey in 2014, Neil has focused his time on his non-executive roles. He was Chair of TT Electronics plc from 2015 until May 2020. Relevant skills and experience Neil is highly experienced, and has a broad industrial outlook and a thorough commercial approach combined with a practical perspective on businesses. He brings a track record of strong operational exposure, familiarity with capital-intensive business and a first-class international perspective on driving value in complex environments. Neil was awarded an OBE for services to the chemical industry in 2016. Neil uses his current and past experience in non-executive positions to bring fresh insight and industry understanding to Board discussions. He has also provided valuable insight based on his former executive position and operational experience. Neil was appointed Chair of the Remuneration Committee in May 2020. |
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| Neil Carson OBE Independent Non-executive Director | | |
| Tenure Three years and nine months
(appointed June 1, 2019) Board committee membership Chair of the Remuneration Committee and member of the Safety, Environment and Sustainability Committee Outside interests/commitments Non-executive Chair of Oxford Instruments plc AgeNationality 65 British | | |
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| | Career Ann Godbehere started her career with Sun Life of Canada in 1976 in Montreal, Canada. She joined M&G Group in 1981, where she served as Senior Vice President and Controller for both life and health, and property and casualty businesses throughout North America. She joined Swiss Re in 1996, after it acquired the M&G Group, and served as Chief Financial Officer from 2003 to 2007. From 2008 to 2009, she was interim Chief Financial Officer and an Executive Director of Northern Rock bank in the initial period following its nationalisation. Ann has also held several Non-executive Director positions at Prudential plc, British American Tobacco plc, UBS AG, and UBS Group AG. Ann served as a Non-executive Director of Rio Tinto plc and Rio Tinto Limited until May 2019, and she was also Senior Independent Director of Rio Tinto plc. In January 2021, Ann joined the Board of the newly formed Stellantis N.V., and she chairs its Audit Committee. Relevant skills and experience Ann is a former CFO, a Fellow of the Institute of Chartered Professional Accountants, and has more than 25 years of experience in the financial services sector. She has worked her entire career in international business and has lived in or served on boards in nine countries. Ann makes significant contributions and adds exceptional value by bringing both her extensive experience and a global perspective to Board discussions. Ann's long and varied international business career powered by her financial acumen is reflected in the insights and constructive challenges she brings to the boardroom. As Audit Committee Chair, Ann leverages her background to ensure robust discussions about are consistently held as the Audit Committee delivers its remit. |
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| Ann Godbehere Independent Non-executive Director | | |
| Tenure Four years and nine months
(appointed May 23, 2018) Board committee membership Chair of the Audit Committee and member of the Nomination and Succession Committee Outside interests/commitments Non-executive Director and ExecutiveAudit Committee successionChair of Stellantis; Fellow of the Institute of Chartered Professional Accountants and a Fellow of the Certified General Accountants Association of Canada. AgeNationality 67 Canadian and British | | |
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| | Career Jane Holl Lute was President and Chief Executive Officer of the North American operations of SICPA security inks from 2017 to 2021, when she assumed the role of Non-executive Strategic Director. From 2018 to 2021, Jane was a Non-executive Director of Atlas Air Worldwide Holdings Inc. In 2013 Jane established and led the Council on CyberSecurity, an independent, expert not-for-profit organisation with a global scope, committed to the security of an open internet. From 2015 to 2016, Jane held the role of Chief Executive Officer of the Center for Internet Security, an independent not-for-profit organisation that works to improve cyber security worldwide. Before this, from 2009 to 2013 Jane served as Deputy Secretary of the US Department of Homeland Security, functioning as the Chief Operating Officer for the third-largest US Federal department. From 2003 to 2009 she held various roles at the United Nations, including Acting Under-Secretary and Assistant Secretary-General for Peacekeeping, Field Support and Peacebuilding. She also served as Executive Vice President and Chief Operating Officer of the United Nations Foundation and Better World Fund. In recent years, Jane has returned to working with the United Nations, serving as a Special Adviser to the Secretary-General. Jane started her career in the US Army in 1978, serving in Berlin during the Cold War, on the US Central Command Staff during Operation Desert Storm, and on the National Security Council Staff under Presidents George H.W. Bush and William J. Clinton. After retiring from the Army in 1994, she joined the Carnegie Corporation as an Executive Director of its Commission on Preventing Deadly Conflict. Relevant skills and experience Jane is a proven and effective leader, who has held significant leadership roles in public service, the military and the private sector. She brings a wealth of expertise in matters of public policy, cyber security and risk management to our Board. She has also made significant contributions to strategic discussions and overseeing the day-to-day business and management of a significant public security department. Jane is an experienced board director, having served on the boards of large-market-capitalisation companies since 2016. These appointments have provided her with wide experience and given her business perspectives across different sectors and geographical regions. She has also served on various committees including those which focus on audit, environmental and sustainability, nomination and governance issues. |
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| Jane Holl Lute Independent Non-executive Director | | |
| Tenure One year and nine months
(appointed May 19, 2021) Board committee membership Member of the Safety, Environment and Sustainability Committee. Jane will become a member of the Remuneration Committee with effect from the close of the 2023 AGM. Outside interests/commitments Non-executive Director of Marsh & McLennen and the Union Pacific Corporation; Strategic Director of Sicpa Securink Corp. ▪AgeContinued talent engagements with key staff and succession candidatesNationality
66 US Citizen | | |
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| | Career Catherine Hughes was Executive Vice President International at Nexen Inc. from January 2012 until her retirement in April 2013, where she was responsible for all oil and gas activities including exploration, production, development and project activities outside Canada. She joined Nexen in 2009 as Vice President Operational Services, Technology and Human Resources. Prior to joining Nexen Inc., she was Vice President Oil Sands at Husky Oil from 2007 to 2009 and Vice President Exploration & Production Services, from 2005 to 2007. She started her career with Schlumberger in 1986 and held key positions in various countries, including France, Italy, Nigeria, the UK and the USA, and was President of Schlumberger Canada Ltd for five years. Catherine has also held several Non-executive Director positions at SNC-Lavalin Group Inc, Statoil ASA and Precision Drilling Inc. Relevant skills and experience Catherine contributes through her knowledge of industry and the ease with which she engages with other Directors and managers in the boardroom. With over 30 years of oil and gas sector experience, she brings a geopolitical outlook and deep understanding of the industry. An engineer by training, she has also spent a significant part of her career working in senior human resources roles. The Board highly regards her perspectives on our industry and our most important asset, our people. Catherine has a strong track record of executing operational discipline with a focus on performance metrics and a continual drive for excellence. Her knowledge of the technology underpinning oil and gas operations, logistics, procurement and supply chains benefits the Board greatly as it considers various projects and investment or divestment proposals. She also uses her industry knowledge – combined with her commitment to the highest standards of corporate governance and safety, ethics and compliance – in her role as Chair of our Safety, Environment and Sustainability Committee, while using her human resources experience in her membership of the Remuneration Committee. |
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| Catherine J. Hughes Independent Non-executive Director | | |
| Tenure Five years and nine months
(appointed June 1, 2017) Board committee membership Chair of the Safety, Environment and Sustainability Committee and member of the Remuneration Committee. Catherine will become a member of the Audit Committee from the conclusion of the 2023 AGM, and stand down from the Remuneration Committee on the same date. Outside interests/commitments Non-executive Director of Valaris Limited AgeDeep divesNationality 60 Canadian and French | | |
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| | Career Martina Hund-Mejean was Chief Financial Officer of Mastercard Inc. from 2007 to 2019. From 2002 to 2007 she was Senior Vice President, Corporate Treasurer at Tyco International Ltd. and from 2000 to 2002 she was Senior Vice President, Treasurer at Lucent Technologies. Prior to this, Martina spent 12 years with General Motors, undertaking a number of senior roles within their finance operations. Relevant skills and experience Originally from Germany, Martina has spent more than 30 years in the USA and is an experienced global executive. Her financial and operational leadership of technology-focused companies is extremely relevant as Shell explores new technology-enabled business models. Martina also brings diverse sector experience to the Board, most recently from operating at a large global organisation in the highly regulated finance industry. Martina is known for her straightforward and direct approach. She maintains the highest standards of leadership, strategic thinking and financial stewardship. She also has a strong track record as a mentor and in promoting diversity. Martina's deep financial knowledge and unique perspective also enable her to make robust, demanding and constructive challenges to our investment considerations to help ensure that our projects are aligned with our strategic intent. |
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| Martina Hund-Mejean Independent Non-executive Director | | |
| Tenure Two years and nine months
(appointed May 20, 2020) On February 1, 2023, the Board announced that Martina had decided to not seek re-election at the 2023 AGM, and would step down from the Board of Shell plc. Board committee membership Member of the Audit Committee Outside interests/commitments Non-executive Director of Prudential Financial Inc.; Colgate-Palmolive Company, and Truata Ltd AgeNationality 62 German and US Citizen | | |
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| | Career Abraham ("Bram") Schot has been a member of the group Board of Volkswagen AG, responsible for the Premium Car Group, CEO of Audi AG, Chair of Lamborghini and Ducati, responsible for the VW group Commercial Operations and Vice-Chair of Porsche Holding Salzburg. From 2011 to 2016, he was a Member of the Board of Volkswagen CV, Executive Vice President responsible for Global Marketing, Sales & Services, New Business Models. In 2017 he became a member of the Board of Audi AG. From 2006 to 2011, Bram was President & CEO of Daimler/Mercedes-Benz Italia & Holding S.p.A. From 2003 to 2006, he was President & CEO of DaimlerChrysler in the Netherlands. Prior to this, Bram held a number of Director and senior leadership roles within Mercedes-Benz in the Netherlands, having joined the business in 1987 on an executive management programme. Relevant skills and experience Bram has over 30 years' experience working in the automotive industry at all levels of the business. He gained a wealth of knowledge on far-reaching cost optimisation programmes at Audi AG. These helped transform the car company into a provider of electric vehicles that could offer sustainable mobility and succeed in the Royalenergy transition. He is well placed to leverage this knowledge in the Shell boardroom as Shell navigates its own transformation and pathway through the energy transition. Bram has strong principles and regards integrity and compliance as the basis for doing business. His studies have encompassed innovation and organisational effectiveness, geopolitical environments, shareholder value, corporate social responsibility and risk management, in several countries, which are all highly valued management tools and are evident in the questions he raises in the boardroom. |
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| Abraham Schot Independent Non-executive Director | | |
| Tenure Two years and five months
(appointed October 1, 2020) Board committee membership Member of the Safety, Environment and Sustainability Committee and member of the Remuneration Committee Outside interests/commitments Non-executive Director of Signify. AgeNationality 61 Dutch Shell People Strategy, | | |
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| | Career Cyrus Taraporevala was President and Chief Executive Officer of State Street Global Advisors from 2017 to 2022. Prior to his joining State Street, Cyrus held numerous leadership roles in asset management including cultureat Fidelity, BNY Mellon, Legg Mason, and identityCitigroup. Earlier in his career Cyrus was a partner at McKinsey & Company, based in New York and end-to-end talentCopenhagen. Cyrus was a founding member of the New York Stock Exchange Board Advisory Council, which proactively addresses the critical need for inclusive leadership on corporate boards by connecting diverse candidates with companies seeking new directors. He serves as a Board member of The Trustees of Reservations, a Massachusetts-based non-profit conservation organisation, and chaired the investment committee of the trustees for seven years. Cyrus previously served as a trustee on the WK Kellogg Foundation Trust, one of the world’s largest endowments and foundations. Relevant skills and experience Cyrus is a highly regarded, recently retired chief executive, with a unique mix of strategic perspectives and execution skills. He has deep experience in driving organic and inorganic growth, transformations, and turnarounds. He is one of the most senior professionals in the asset management industry and has successfully led and grown global businesses of scale. He played a critical role in affirming State Street’s reputation as both a stalwart and pioneer within the sector, and, at times, was implementing changes in the context of market uncertainty caused by geopolitical friction and an evolving regulatory environment. Cyrus also possesses a unique vantage point on core board-related issues impacting public companies including ESG, and has spoken and published multiple articles on climate risk and other aspects of ESG. He is credited with strengthening the ESG credentials of State Street Global Advisors and is highly credible in providing perspectives on these topics. A true citizen of the world, over the course of his career Cyrus has worked and lived on three continents.
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| PrioritiesCyrus Taraporevala
Independent Non-executive Director | | |
| Tenure Appointed March 2, 2023 Board committee membership Member of the Audit Committee Outside interests/commitments Board member of Bridgepoint Group plc. Board member of The Trustees of Reservations AgeNationality 56 US Citizen | | |
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The Board of Shell plc continued
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| | Career Caroline Omloo worked in private practice with law firm Nauta Dutilh before joining Shell in 1999. She has held various positions in Shell, including Secretary to the Audit Committee, Associate General Counsel Corporate Finance NL, Chief Privacy Officer and Head of Legal and management team member of the Downstream Operating Company in the Netherlands. She has also been a member of the board of Stichting Shell Pensioenfonds, one of Shell’s Dutch pension funds. Caroline took up her previous role as Head of Legal and Compliance of Shell Asset Management Company in 2017 and was a board member of this company from 2018 to 2022. From 2009- 2019, Caroline sat on the board of Stichting Beroepsopleiding Bedrijfsjuristen, the foundation providing education for 2021in-house lawyers in the Netherlands. She also served as a board member of Missie Verkeersmiddelen Actie, a Dutch charitable organisation, from 2007 to 2017. Relevant skills and experience Caroline is Shell's Company Secretary and also plays an important role overseeing the Corporate Secretariat and the Group Securities Counsel in the UK, USA and the Netherlands. The various roles Caroline has undertaken have provided her with a strong understanding of our global operations and people. Her experience of engaging with the Board in previous roles, coupled with her broad understanding and engagement across Shell’s businesses, functions and her legal background, helps to ensure that the right matters come to the Board at the right time. |
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| Caroline J.M. Omloo Company Secretary | | |
| Tenure Seven months (appointed August 1, 2022) ▪AgeContinued discussions about Non-executive DirectorNationality
53 Dutch | | |
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| | Attendance The Board met eight times during 2022. Seven of the eight meetings were held physically, one meeting in Singapore and Executivesix in London, United Kingdom. One meeting was held via videoconference. Attendance during 2022 for all Board meetings is given in the table [A]. [A]For attendance at Committee successionmeetings during the year, please refer to individual Committee Reports. ▪[B]Continued talent engagementsSinead Gorman was appointed as Chief Financial Officer (CFO) with key staff and succession candidates.effect from April 1, 2022.
▪[C]Continued deep dives into the Royal Dutch Shell People Strategy and culture,Jessica Uhl retired from her role as Chief Financial Officer (CFO) with an increased focus on diversity and inclusion and end-to-end talent managementeffect from March 31, 2022.
COMMITTEE ATTENDANCE FOR 2020
| | | | | | | | | | | | | | | | Committee Member | Member since | Maximum possible meetings | Number of meetings attended | % of meetings attended | | Chad Holliday (Chair of the Committee) | May 19, 2015 | 7 | 7 | 100% | | Euleen Goh | July 1, 2019 | 7 | 7 | 100% | | Gerard Kleisterlee [A] | May 23, 2018 | 3 | 2 | 66.6% | | Sir Andrew Mackenzie | Oct 1, 2020 | 2 | 2 | 100% | | Sir Nigel Sheinwald | May 20, 2020 | 4 | 4 | 100% | | Linda Stuntz [A] | June 1, 2016 | 3 | 3 | 100% |
[A] Both Gerard Kleisterlee and Linda StuntzGerrit Zalm retired from the Board afterfollowing the 2020 Annual General Meeting, held onconclusion of the AGM in May 19, 2020.2022.
| | | Board member | Meetings attended | | |
| | | | Ben van Beurden | 8/8 | | |
| | | | Dick Boer | 8/8 | | |
| | | | Neil Carson | 8/8 | | |
| | | | Ann Godbehere | 8/8 | | |
| | | | Euleen Goh | 8/8 | | |
| | | | Sinead Gorman [B] | 6/6 | | |
| | | | Jane Holl Lute | 7/8 | | |
| | | | Catherine J. Hughes | 8/8 | | |
| | | | Martina Hund-Mejean | 8/8 | | |
| | | | Sir Andrew Mackenzie | 8/8 | | |
| | | | Bram Schot | 7/8 | | |
| | | | Jessica Uhl [C] | 2/2 | | |
| | | | Gerrit Zalm [D] | 2/2 | | |
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| PURPOSEDirector independence
All the Non-executive Directors are considered by the Board to be independent in character and judgement. The Nomination and Succession Committee (the “Committee”) leads the process for appointmentsChair is not subject to the Board and Senior Management [A] positions, ensures plans are in place for orderly, well-planned succession, and oversees the development of a diverse succession pipeline of candidates. Further, it reviews the Company’s policy and strategyCode’s independence test other than on diversity and inclusion, and monitors the effectiveness of diversity initiatives. It makes recommendations to the Board on corporate governance guidelines, as referred to in the Chair’s statement.appointment.
[A] "Senior Management” refers to the Executive Committee and the Company Secretary.
TALENT MANAGEMENT AND SUCCESSION
The Committee is fully engaged with the end-to-end talent management and senior succession planning approach that is deployed within Shell. It plays a key role in senior succession and resourcing and retaining in-depth knowledge of the individuals within the talent pipeline is a Committee priority. In fact, the Committee makes time to personally meet and engage with numerous individuals within the pipeline. The Committee’s oversight and input extend from recruitment to leadership identification and from leadership development to leadership appointment, all of which are underpinned by clearly articulated talent priorities and a commitment to advancing diversity and inclusion across Shell.
The Committee manages Board and Senior Management succession under a structured, proactive methodology. The processes have clear and agreed selection principles for short-, medium- and long-term succession and are aligned with Shell's strategic priorities.
For Non-executive Director succession, the Committee also follows its Principles for the Strategic Composition of the Board. These principles function much like a policy and include both quantitative and qualitative principles, considering: (i) the overall aspired Board composition and diversity of gender, race and ethnicity, nationality, background, experience and desired skillsets that align with the Company’s strategy and purpose; and (ii) the values, attitudes, and behaviours expected of Directors.
For Senior Management succession, the selection principles include process-specific elements, such as a clear and proactive approach to identifying and developing succession candidates. The principles also outline the long-term structured nature of the succession planning process. There is also great focus on ensuring that the principles reflect the leadership qualities required for future business success and that they advance the progress of diversity in all its forms.
Senior Management principles feature in the Committee’s review of the succession plans which occurs in every Committee meeting. Utilising the principles, the Committee executes changes through a well-defined and diligent process with overall Board engagement. The Committee agrees candidate profiles and meets prospective candidates well ahead of any selection decision being necessary. It also engages the Board early in the process to ensure all Directors have an opportunity to meet and assess prospective candidates. Consequently, some of the leaders whom the Committee and Board have engaged with extensively in the past are now members of the Board or the Executive Committee.
In 2020, the Committee undertook its annual in-depth look at the succession plans for Senior Management across Shell and reviewed the talent pipeline in line with the business outlook. The engagement focused on the depth and breadth of the leadership pipeline, the skills and behaviours required for future success and progress against diversity aspirations and policies. Following the Committee’s review, the findings were reported to the Board.
DIVERSITY OF LEADERSHIP
The Committee recognises that continuing to improve all types of diversity at each level of the Shell Group is crucial. Shell aims to be an inclusive workplace where everyone feels valued and respected and has a strong sense of belonging. The Committee’s review of diversity objectives and strategies for the Shell Group as a whole also monitors the impact of diversity and inclusion initiatives.
In February 2021 Shell published its diversity aspirations as part of its strategic update. Gender and nationality diversity is increasing, and focus is broadening and deepening in other areas such as race and ethnicity, enablement and LGBT+. When looking at our progress against our
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Governance
The Board of Shell plc continued
Directors joining the Board
On February 1, 2023 the Board announced that the following Directors will be joining the Board on March 13, 2023.
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| | ambitions, female representationCareer
Sir Charles has steadily improved in recent years. Among experienced recruitment in 2020, Shell companies recruited 31% females, and among graduates 49%. Female representation inmost recently held the top 1,400 roles (“Senior Leadership” positions) has strengthened by 1.4 percentage points during 2020 to 27.8%, and further improvement is actively pursued. Nationality diversity, such as Asian and American talent, continues to advance in a manner reflectiveposition of Second Permanent Secretary, one of the business outlookmost senior positions within His Majesty’s Treasury (HMT). As Second Permanent Secretary at HMT he was responsible for all issues relating to growth, productivity, infrastructure, financial services and we havefinancial stability. Prior to his career at HMT, Sir Charles spent over 25 years at McKinsey & Company, and holds an MBA from Harvard Business School. Whilst at McKinsey, he held positions including but not limited to a strong focusDirector of the McKinsey Global Institute, the Head of the UK Financial Institutions Group and the Co-Head of McKinsey’s Global Investment Banking Practice. Sir Charles has serviced large banks, insurance companies, hedge funds and private-equity investors in strategy, risk management, and organisation. Sir Charles also led a number of major research efforts at McKinsey and authored a number of articles on progressing racestrategy and ethnic minority representation. The representation of people of colour among Shell's senior leaders inscenario planning. On leaving the USA has been actively trackedprivate sector, Sir Charles became Director General, Financial Services at HMT and led the legislative process for many years. It stood at 26.4% at the end 2020, compared with 17.3% in 2016. Inbiggest reforms in the UK BAME representation among senior leadersbanking sector in a generation, before being appointed Second Permanent Secretary. During his time as Second Permanent Secretary, Sir Charles was 10.6%responsible for policy and oversight across a range of functions within HMT including financial services, financial stability, infrastructure, energy, science/R&D, business investment, venture and growth capital, transport, and culture/creative industries and was Chair of the HMT Operating Committee. Relevant skills and experience Sir Charles’ succession of roles placed him at the nexus between industry and government, and most recently included his active participation in forging and delivering energy policies. He was an influential figure within the HMT in pioneering energy policy, including for COP26, and providing funding for innovative organisations to support the energy transition. A former executive board member for one of the world’s pre-eminent consultancies, Sir Charles continued to drive innovation whilst deftly navigating the intricate stakeholder landscape of UK government. |
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| Sir Charles Roxburgh Independent Non-executive Director | | |
| Tenure Appointment effective March 13, 2023 Board committee membership Member of the Audit Committee Outside interests/commitments Board member of Folger Shakespeare Library AgeNationality 63 British | | |
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| | Career Leena Srivastava has devoted a significant part of her career to research and policy matters in sustainability and has already sat on several boards of scale. Until recently, Leena was the Deputy Director General for Science of the International Institute for Applied Systems Analysis (IIASA). Prior to this, she was an Executive Director, then the Vice Chancellor of the School of Advanced Studies, at The Energy and Resources Institute (TERI), a not-for-profit policy research organisation working in energy, environment and sustainable development. Leena has also previously served on the sustainability advisory boards of various multinational companies such as The Coca Cola Company, Caterpillar Inc and Suez Environment and as a non-executive director of companies, including those involved in manufacturing and infrastructure. Leena has served various committees and organisations both at the international and national levels, with prior roles including energy and climate advisor for the United Nations and the Co-Chair of the Advisory Committee at Future Earth. Relevant skills and experience Leena recognises the challenges large organisations face in managing different stakeholder priorities and in particular the challenges in balancing business, government and societal needs, while pursuing a sustainability agenda. Leena was a research associate at TERI during a time when the first serious discussions on climate change were emerging. Later, as a member of the Cement Sustainability Initiative of World Business Council for Sustainable Development, she provided a pragmatic perspective on how to support the sector through its decarbonisation journey. With a strong network of relationships in multiple global institutions focused on sustainability and an advance from 7%understanding of the issues the energy sector faces in 2018.pursuing decarbonisation while serving the energy needs of the society, Leena believes she can contribute to the organisation during this period of transformation.
Senior Leadership is a Shell measure and different from that which we are required to report under the Code, being female representation in Senior Management and their direct reports, where the percentage is 29.5%.
Although the Committee monitors Shell’s organisational diversity and inclusion strategies and initiatives, it also holds itself accountable for the Board’s own diversity and inclusion. By the end of 2020, the Board’s diverse composition clearly met both the Hampton Alexander and Parker Reviews’ objectives by reflecting 38.46% female representation with one person meeting BAME criteria. Gender representation was down slightly from May 2020 (when the Board’s composition included 42% female representation) as a result of the departure of three Non-executive Directors (one female, two males) and the appointment later in the year of four new Non-executive Directors (one female, three males). But following the 2021 AGM, subject to shareholder approval and for the first time in Shell’s history, the Board is expected to reach gender parity with 50% female representation (after the departure of two males and the expected appointment of one female).
More information on diversity in Shell is provided in the Our people section on page 86.
The People Strategy and culture and identity
In 2020, the Committee conducted an in-depth examination of the Royal Dutch Shell People Strategy, with a particular emphasis on our aspired culture and identity. Leaders are key to delivering the Company’s strategic ambitions and animating our aspired identity and culture. Given the critical importance of this issue for the Company’s transformation under our Powering Progress strategy, the Committee will conduct further engagements in 2021 to maintain proactive oversight over the issue of leadership and aspired identity and culture.
Committee Activity
In addition to its considerations regarding succession, the Committee made recommendations on corporate governance guidelines, monitored compliance with corporate governance requirements and made recommendations on corporate governance-related disclosures. The Committee continues to monitor and review this area, considering whether and how current Company governance matters should be strengthened. Further insight on some of the Committee’s areas of consideration in 2020 is provided below.
| | | | | Leena Srivastava Independent Non-executive Director | | | | Tenure Appointment effective March 13, 2023 Board committee membership Member of the Safety, Environment and Sustainability Committee Outside interests/commitments Board member of Climate-KIC AgeNationality 62 Indian | | | | | | | Succession [A] | Topic of discussion/Example of Board activity | Recommendation | Appointment of Dick Boer, Martina Hund-Mejean, Sir Andrew Mackenzie and Abraham (Bram) Schot to the Board.
Changes to the composition of the Board committees. | Review and oversight | Royal Dutch Shell Senior Succession and Resourcing Review. | Oversight | Royal Dutch Shell People Strategy including culture and identity.
End-to-end talent management in Royal Dutch Shell. | Engagement | Talent engagements | Governance | Topic of discussion/Example of Board activity | Governing the Board and its committees | Reviewed its Principles for the Strategic Composition of the Board.
Reviewed its Terms of Reference, and the terms of Reference for other Board committees and the matters reserved to the Board. | Regulation, legislation and other governance-related guidance | Key governance matters affecting the Company’s external reporting.
Other governance and regulatory changes agreed or proposed and their impact or potential impact on the Company, its processes and its reporting. | RDS matters | Considered any potential conflicts of interest and the independence of the Non-executive Directors.
Review of additional external appointments requested by Directors, with specific focus on the time allocated to all commitments. For Executive Directors, the benefit/relevance to the business of the Director undertaking the additional role is also a key consideration.
Determined the process for the 2020 internal Board Evaluation.
| Board membership and other appointments | Topic of discussion/Example of Board activity | Directors’ tenure, external commitments, conflicts of interests and succession planning | Non-executive Director appointments and changes to Committee membership. | Talent overview and senior succession review | Topic of discussion/Example of Board activity | RDS Senior Succession and Resourcing Review covering Executive Director and Executive Committee (EC) succession, EC direct reports, the senior executive group and the overall talent pipeline | Enhanced insight of Shell talent and future leaders.
Assurance of robust succession and contingency plans. |
[A] The Committee was assisted during the year by Russell Reynolds Associates (“Russell Reynolds”), an external global search company whose main role was to propose suitable candidates. Russell Reynolds does not have any connection with the Company other than that of search consultants. The Chair does not participate in discussions regarding his own succession. Russell Reynolds is a signatory to The Voluntary Code of Conduct for Executive Search Firms, which aims to improve board diversity.
Governance Senior management | | | | | | | | | | | | | | | | | | | | | | | | | The Senior management of the Company comprises the Executive Directors, Wael Sawan and Sinead Gorman, and those listed below. All are members of the Executive Committee (see "Governance Framework" on page 141). | | | | | | | | | | | | Harry Brekelmans Projects & Technology Director | | | | Donny Ching Legal Director | | | Tenure Eight years and five months
(appointed October 2014) AgeNationality 57 Dutch Career Harry was previously Executive Vice President Upstream International Operated, based in the Netherlands. He joined Shell in 1990 and has held various management positions in Exploration and Production, Internal Audit, and Group Strategy and Planning. From 2011 to 2013, he was Country Chair Russia and Executive Vice President for Russia and the Caspian region. | | | | Tenure Nine years and one month
(appointed February 2014) AgeNationality 58 Malaysian Career Donny was previously General Counsel for Projects & Technology, based in the Netherlands. He joined Shell in 1988 based in Australia and then moved to Hong Kong and later to London. In 2008, he was appointed Head of Legal at Shell Singapore, having served as Associate General Counsel for Gas & Power in Asia-Pacific. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Ronan Cassidy Chief Human Resources and Corporate Officer | | | | Ed Daniels Strategy, Sustainability and Corporate Relations Director | | | | Tenure Seven years and two months
(appointed January 2016) AgeNationality 56 British Career Ronan previously served as EVP HR for both the Downstream and Upstream International businesses in turn. He joined Shell in 1988 and has held various HR positions across the Shell value chain, including regional roles in Europe and NE Asia/China, and global roles in HR Strategy & Regional Coordination, Retail and LPG. | | | | Tenure One year and one month
(appointed February 2022) AgeNationality 57 British Career Ed was previously Executive Vice President Strategy, Portfolio & Sustainability. He joined Shell in 1988 and has held roles in Shell’s Upstream, Integrated Gas, and Downstream businesses and our Projects & Technology organisation. He previously served as Shell’s UK Country Chair. | | | | | | | | | |
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Governance
Senior Management continued
CHAIR SUCCESSION
Message from Euleen Goh
In early 2018, the process of selecting the next Chair of the Board of Royal Dutch Shell plc began in response to the proposed limit on Chair tenure, outlined in the then draft version of the Code. The Nomination and Succession Committee (NOMCo) created a subcommittee, drew up a potential succession timeline, and initiated an internal and external search process. Hans Wijers, the Senior Independent Director at the time, led the subcommittee and the search process. Chad Holliday, the current Chair, was not a member of the subcommittee.
My predecessor Gerard Kleisterlee took over from Hans in May 2018 and refined the selection criteria and succession timeline. The subcommittee agreed what qualities the successful candidate should have, and determined the functional focus elements of the new Chair’s role. Accordingly, the subcommittee considered and interviewed multiple candidates.
After Gerard retired from the Board at the 2020 AGM, I assumed leadership of the subcommittee and we further reviewed the required qualities and functional focus elements of the role in the context of the current environment. The subcommittee also examined the main trends and factors affecting the long-term success and future viability of Shell, and the organisation’s strategic priorities, consulting on these with the wider Board. One-on-one discussions were held with each Board member. The review and the discussions helped us to refine our search process with a clear and updated understanding of the qualities, skills and attributes that the future Chair should possess.
We engaged with some of our larger investors, as appropriate, seeking input on the skills, attributes and sector knowledge that they considered important for the Chair candidate profile. These discussions were very valuable. They helped inform our search and selection of the most appropriate individual for the role.
After this thorough and robust search process, the Board agreed unanimously at its March 2021 meeting that Sir Andrew Mackenzie should be appointed Chair of the Board with effect from the conclusion of Shell’s 2021 Annual General Meeting, scheduled for May 18, 2021.
When reviewing candidates, our preferred qualities and functional focus elements included a strong requirement for a candidate who has experience in leading large, complex, international organisations. The candidate would have had significant experience in capital discipline. He/she should have an ability to balance the transformational changes that Shell needs to make against the timing of these changes as it navigates the energy transition. The successful candidate should have demonstrated sustainable actions with respect to the climate change agenda. An understanding of the energy market was essential, without it being necessary for the candidate to have spent their entire career working in the oil and gas sector.
In Andrew we believe that we have found the required qualities and more. Andrew is a lifelong learner with a collaborative, agile mindset and he is a champion of good governance. His strategic vision has helped operations and companies under his leadership to transform. His leadership performance in the areas of environmental, social and governance (ESG) and climate action are outstanding. He was recently knighted by the Queen of the United Kingdom for his services to business, science and technology. Andrew firmly believes that business can be a force for good, for shareholders and society alike.
Andrew joined the Board in October 2020 and has dedicated significant time to familiarising himself with the business, the people, and the Powering Progress strategy which he and the Board fully support and are committed to delivering together with management.
His broad experience, strategic vision, scientific curiosity and commercial acumen make him the ideal candidate to lead the Board of Royal Dutch Shell plc.
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| Huibert Vigeveno Downstream Director | | | | Zoë Yujnovich Upstream Director | | |
| Tenure Three years and two months
(appointed January 2020) AgeNationality 53 Dutch Career Huibert was previously Executive Vice President Global Commercial. He joined Shell in 1995 as a business analyst and led many Downstream businesses across Shell in Europe, Africa, North and South America as well as Asia. In 2009, Huibert was appointed Vice President Supply & Distribution, Europe and Africa. In 2012 he became Executive Chair of Shell in China, and in 2016 led the integration of BG Group. | | | | Tenure One year and five months
(appointed October 2021) AgeNationality 47 Australian Career Zoë has held various management positions in Downstream, Integrated Gas and Upstream. Most recently, she served as Executive Vice President Conventional Oil & Gas and was previously Chair and Executive Vice President Shell Australia Pty Ltd. She joined Shell from Rio Tinto in 2014 to lead Shell's Oil Sands business in Canada. | | |
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| Changes to the Executive Committee (Senior Management) As announced on January 30, 2023, Shell is to reduce the size of its Executive Committee from nine to seven members in a decisive move designed to simplify the organisation further and improve performance as we continue to deliver our Powering Progress strategy. Under the changes, which are expected to take effect on July 1, 2023, Shell’s Integrated Gas and Upstream businesses will be combined to form a new Integrated Gas and Upstream Directorate led by current Upstream Director, InductionZoe Yujnovich. The Downstream business will be combined with Renewables and TrainingEnergy Solutions to form a new Downstream and Renewables Directorate led by current Downstream Director, Huibert Vigeveno. Separately, the Strategy, Sustainability and Corporate Relations (SSCR) Directorate will be discontinued and its Director, Ed Daniels, will step down from the Executive Committee (effective July 1, 2023), and leave Group service thereafter. Strategy will be brought together with New Business Development and, alongside Sustainability, will report directly to Sinead Gorman, Chief Financial Officer, enabling more streamlined planning and better capital allocation decisions. Corporate Relations will report directly to Wael Sawan, Chief Executive Officer. We thank Ed for his distinguished service over more than 34 years and wish him well for the future. | |
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Governance
Board Activities
Management and Directors
The Company has a single-tier Board of Directors headed by a Chair, with management led by a CEO. See "The Board of Shell plc" on pages 129-136 and Senior Management on page 137-138.
Executive Committee
The current composition of the Executive Committee is as follows:
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| Wael Sawan | CEO [B] |
| Sinead Gorman | CFO [B] |
| Harry Brekelmans | Projects & Technology Director |
| Ronan Cassidy | Chief Human Resources & Corporate Officer |
| Donny Ching | Legal Director |
Ed Daniels
| Strategy, Sustainability and Corporate Relations Director [C] |
| Huibert Vigeveno | Downstream Director [D] |
| Zoë Yujnovich | Upstream Director [D] |
[A]Designated an Executive Officer pursuant to US Exchange Act Rule 3b-7.Beneficially owns less than 1% of outstanding classes of securities.
[B]Director of the Company.
[C]Ed Daniels will step down from the Executive Committee effective July 1, 2023, and leave Group service thereafter.
[D]See details of changes to the Executive Committee as announced on January 30, 2023 in Senior Management on pages 137-138.
Corporate governance requirements outside the UK
In addition to complying with applicable corporate governance requirements in the UK, the Company complies with the rules of Euronext Amsterdam as well as Dutch securities laws because of its listing on that exchange. The Company likewise adheres to US securities laws and the New York Stock Exchange (NYSE) rules and regulations because its securities are registered in the USA and listed on the NYSE.
Board activities
The Board is responsible for establishing the Group's purpose, values and strategy and ensuring that these and Group culture are aligned. Accordingly, the Board works to a yearly meeting plan with corresponding agendas and pre-read papers, provided digitally. Agenda items include reports from the Chief Executive Officer, the Chief Financial Officer and each Board committee. Other updates throughout the year came from various businesses and key functions, including Investor Relations; Health and Safety, Security and Environment; Information Technology; Human Resources; and Legal, as well as the Company Secretary. The Board also considers and approves the quarterly, half-year and full-year financial results, shareholder distributions and the associated announcements, and, at most meetings, considers investment, divestment and/or financing proposals, as well as conducting post-investment reviews and performance tracking, as and when required. Additionally, the Board reviews the Group's annual operating plan, including activities to ensure the Group's carbon reduction targets are met. To enable purposeful debates and focus on particular aspects of agenda topics, including the impact on key stakeholders, Directors have an opportunity to specify information they require to be provided in advance of Board meetings.
During the year, where possible, certain Non-executive Directors conducted site visits. The visits were designed to provide Directors with a deeper insight into certain business operations.
Board Strategy Days
In contrast to 2021’s virtual June Strategy Days, for 2022, in-person meetings were held in Singapore over the course of three days. This was the first time both the Board and Executive Committee were able to spend time together in person since the COVID-19 pandemic started in early 2020. The programme for the event aimed at having engaging and interactive sessions (with deep dives and break-outs), with both internal and external stakeholders (including staff, customer, supplier, regional country chairs and other key stakeholders).
The event, under the headline "Onwards Together", focused on Shell’s role in energy transition in country and how this is implemented, by tying together not only individual pieces of the portfolio but connecting Shell’s heritage with its future. Around this theme, the event provided for the following key discussion and engagement opportunities:
▪An in-depth discussion on strategy and business implementation, with an emphasis on the added value of Shell’s integrated portfolio in accelerating energy transition in country;
▪Review of the role of Upstream in driving the energy transition;
▪Review of the continuing demand for gas, and its decarbonisation journey;
▪Review of Financial Framework;
▪Review of safe operations and digitalisation as an enabler;
▪Deep dives on low-carbon fuels, Aviation, Chemicals, Renewables and Energy Solutions, and carbon capture and storage;
▪An Asian perspective on the energy transition and its geopolitical context, including engagement with Shell leaders from across the region;
▪Review of growing our sustainable future safely and competitively where presenters included a cross-section of business and site staff;
▪A visit to Shell operations, notably the Shell Energy and Chemicals Park on Pulau Bukom focusing on readying the site for growth;
▪Engagements with a cross-section of Shell’s approximately 3,000 staff in Singapore who work across six work sites in
a range of key businesses and functions;
▪Consistent with the customer back strategy, discussions with key customers and stakeholders in the region; and
▪Discussion of core elements of the Powering Progress strategy.
Governance
Board Activities
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| Director induction and training After being appointed to the Board, Directors receive a comprehensive induction tailored to their individual needs. This normally includes site visits and meetings with Senior Management to enable them to build up a detailed understanding of Shell’s business and strategy, and the key risks and issues that Shell faces. Existing Directors are also able to join these visits to keep abreast of business developments and progress. With the abnormal COVID-19 circumstances in 2020 and 2021, the induction programme was quickly adapted to a completely virtual induction.
Although In 2022, as society moved to better understand and live with COVID-19, we saw restrictions ease in many countries. More travel became possible, allowing directors to visit some of Shell's operations. For new directors joining the Board in 2023, our induction programme had received praisewill build on the learnings from new Non-executive Directors over2020 through 2022 and adopt a more hybrid format, making the past several years, enhancements were nonetheless implemented in 2020 despitebest use of the required fullydirectors time through virtual implementation.
The enhancements ensured that all onboarding wasand physical engagements. Onboarding will continue to be phased and prioritised based on forthcoming Board agenda items to help ensure the new Non-executive Director “hitDirectors hit the ground running”. The enhancements includedrunning.
A digital onboarding books forbook is provided to each new Non-executive Director. These onboarding books complementedcomplement the existing digital Directors' Handbook and featured:feature:
•▪overviewsOverviews of scheduled briefing meetings customised to the Non-executive Director’s needs;Directors' needs and linked to upcoming Board agenda items;
•▪hyperlinksHyperlinks to key Shell publications (external and internal);
•▪listsLists of common Shell acronyms;
•▪biographies of key executives
•keyKey current materials on:
◦–Shell'sShell’s safety and core values;
◦–Board governancegovernance;
◦–Group strategy and portfolio;
–Key businesses and functions; and ◦–key businessesClimate change and functions.energy transition;
▪Biographies of key executives. ▪Other enhancementselements of the onboarding programme for Non-executive Directors included:include: •–arranging briefingBriefing meetings with key executives (both business and functional) customised to Non-executive Directors’ needs;needs and phased based on forthcoming Board agenda items;
•–where feasible, pairingPairing up new Non-executive Directors in onboarding briefings to optimise learning while also providing opportunities for collegial relationship-building and increasing efficiencies for the executives; and
•–where possible, arranging virtualVirtual and physical site visits (either specifically for onboarding or by inviting the new Directors to committees' virtual site visits).
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Governance
Governance framework
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| | The Company has a single-tier Board of Directors headed by a Chair, with executive management led by the Chief Executive Officer. The names of the Directors who held office during the year can be found on pages 129-136. Information on the Directors who are seeking appointment or reappointment is included in the Notice of Annual General Meeting. There is no fixed amount of times that the Board may meet in one year. During 2022, the Board met eight times (12 times during 2021). Further information on the Board’s work and assessments in relation to strategy, culture, engagement with stakeholders, and its workforce can be found as follows: The Board’s responsibilities are governed by a formal schedule of matters reserved to it and include: ▪Approval of overall strategy and oversight of management; ▪Changes to the corporate and capital structure; ▪Approval of financial reporting and controls (including approval of the Annual Report and Accounts, approval of the Annual Report on Form 20-F, and interim dividends); ▪Oversight of risk management and internal control; ▪Approval of significant contracts; ▪Determining succession planning and new Board appointments; ▪Remuneration for the Chair and Executive Directors; and ▪Corporate governance matters. Board Committees | | |
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| | | Audit Committee ▪Carries out certain oversight functions on behalf of the Board; and ▪Assists the Board in fulfilling its responsibilities in relation to internal control and financial reporting. | | | | Safety, Environment and Sustainability Committee ▪Carries out certain oversight functions on behalf of the Board; and ▪Assists the Board on safety, the environment including climate change, and Shell’s overall sustainability performance. | | | |
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| | | Nomination and Succession Committee ▪Leads the process for appointments to the Board; ▪Recommends Board appointments and re-appointments; ▪Provides oversight on the diversity and inclusion strategy; ▪Reviews and makes recommendations on succession planning; and ▪Reviews and makes recommendations on corporate governance guidelines. | | | | Remuneration Committee ▪Determines and agrees with the Board the remuneration policy for the Chair, Executive Directors and Senior Management of the Company; ▪Within the terms of such agreed policy, determines individual remuneration packages for the Chair, and Executive Directors; and ▪Monitors and makes recommendations regarding the level and structure of remuneration for senior executives, if appropriate. | | | |
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| | More information on the composition of each of the Board Committees, their roles and activities during the year is provided on the following pages: | | |
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| | Audit Committee | 153-165 | | Safety, Environment and Sustainability Committee | 151-152 | | |
| | Nomination and Succession Committee | 147-150 | | Remuneration Committee | 166-170 | | |
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| | | | | | GOVERNANCE SHELL FORM 20-F 2020 | 105 | |
| 141 |
| Form 20-F 2022 |
Governance
Governance framework continued
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| | Division of responsibilities
SAFETY, ENVIRONMENT AND SUSTAINABILITY COMMITTEE
SIR NIGEL SHEINWALD GCMG
ChairThe roles of the Safety, EnvironmentChair, a non-executive role, and Sustainability Committeethe CEO are separate and clearly defined. The Board has agreed on their respective responsibilities and set these out in writing. These documents are available on request from the Company Secretary.
FOCUS AREAS FOR 2020Chair
▪Safety performanceResponsible for ensuring that the Board and its Committees function effectively. One way in which this is achieved is by ensuring Directors receive accurate, timely and clear information; and ▪Shell's climate targetsResponsible for making sure that there is an adequate induction and training programme followed by all Directors (see page 140), with assistance from the Company Secretary. Deputy Chair/Senior Independent Director ▪Sounding board for the Chair; ▪Sustainability metricsServes as an intermediary for scorecardthe other Directors and shareholders; and ▪Energy transition metricsLeads the annual appraisal of the Chair’s performance. Non-executive Directors ▪Appointed by the Board or by shareholders at general meetings and, in accordance with the Code, seek re-election by shareholders on an annual basis; ▪Letters of appointment refer to a specific term of office, the provisions of the Code and the Company’s Articles of Association; ▪Upon appointment, Non-executive Directors confirm they are able to allocate sufficient time to meet the expectations of the role. Appointments are subject to a minimum of three months’ notice of termination, and there is no compensation provision for remunerationearly termination; ▪The Non-executive Directors bring a wide range and balance of skills and international business experience. Through their contribution to the Board and Board Committee meetings, respectively, they are expected to challenge and help develop proposals on strategy and bring independent judgement on issues of performance and risk; and ▪At every Board meeting, time is set aside for the Chair and Non-executive Directors to meet without the Executive Directors being present. The Non-executive Directors discuss, among other matters, the performance of individual Executive Directors. A number of Non-executive Directors also meet major shareholders over the course of the year.
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| | PRIORITIES FOR 2021Chief Executive Officer
▪Process safetyHas overall responsibility for the implementation of the strategy approved by the Board, the operational management of the Company and personal safetythe business enterprise connected with it; and ▪Progress against climate targetsIs supported in this by the Executive Committee that he chairs. | | | | Executive Committee ▪Broader sustainability performance ▪Assurance programme
COMMITTEE ATTENDANCE FOR 2020
| | | | | | | | | | | | | | | | Committee Member | Member since | Maximum possible meetings | Number of meetings attended | % of meetings attended | | Sir Nigel Sheinwald (Chair of the Committee) | July 1, 2012 | 5 | 5 | 100% | | Neil Carson | June 1, 2019 | 5 | 5 | 100% | | Ann Godbehere | May 20, 2020 | 3 | 3 | 100% | | Catherine J. Hughes | November 1, 2017 | 5 | 5 | 100% | | Bram Schot | October 1, 2020 | 1 | 1 | 100% | | Linda Stuntz [A] | May 23, 2018 | 2 | 2 | 100% |
[A] Linda Stuntz retired fromOperates under the Board following the 2020 Annual General Meeting, held on May 19, 2020.
“2020 was an important year for SESCo. We monitored closely and welcomed Shell’s much improved safety performance, and contributed actively to the energy transition pathway and new carbon targets developed.”
SIR NIGEL SHEINWALD GCMG
PURPOSE
The Safety, Environment and Sustainability Committee (SESCo) assists the Board in reviewing the practices and performancedirection of Shell, primarily with respect to safety, environment including climate change, and broader sustainability.
OVERVIEW
The Committee meets regularly to review and discuss a wide range of important topics. These include the safe and responsible operation of Shell’s facilities, environmental protection and greenhouse gas emissions, significant incidents that impact safety and environmental performance, progress towards Shell’s climate targets, and energy transition. The Committee also endorses the Shell annual HSSE & SP assurance plan, reviewing the execution of the plan and audit outcomes.
The Committee assesses Shell’s overall sustainability performance and provides input to Shell's annual reporting and disclosures on sustainability. It also advises the Remuneration Committee on metrics relating to sustainable development and energy transition that apply to the Executive Committee annual scorecard and long-term incentive plan.
The Committee reviews and considers external stakeholder perspectives in relation to Shell’s business, as well as how Shell addresses issues of public concern that could affect its reputation and licence to operate. Examples include plastic waste, methane emissions, human rights, the UN Sustainable Development Goals, and access to energy in low- and middle-income countries.
In line with the strategic importance of the Committee's agenda, the Chair and the Chief Executive Officer regularly attend(CEO) in support of his responsibility for the Committee meetings for discussions on specific topics.overall management of Shell’s business. The CEO has final authority in all matters of management that are not within the duties and authorities of the Board or of the shareholders’ general meeting; and
Royal Dutch Shell plc’s Chief Executive Officer and the Executive Committee hold overall accountability for sustainability within Shell, supported bymembers are listed in the Executive Vice President for Safety & Environment and other senior managers.
ACTIVITIES
During 2020, the Committee focusedSenior Management biographies on the areas of greatest strategic importance to Shell, in line with its updated Terms of Reference. This allowed the Committee to oversee effectively and thoroughly the practices and performance of the Company with respect to safety, environment including climate change, and broader sustainability.
The Committee was pleased that there were no fatalities in 2020 at Shell-operated ventures, the first year this has been achieved and a testament to Shell’s relentless focus on safety. The Committee welcomed Shell’s refreshed approach to safety announced in 2020, with its emphasis on the human dimension of safety performance.
The topics discussed in particular depth by the Committee included personal and process safety, Shell’s climate targets and the energy transition, and remuneration metrics and targets. The Committee also reviewed Shell companies’ operations and the challenges faced in Nigeria and Brazil.
Together with the Audit Committee and Chief Ethics and Compliance Officer, the Committee reviewed the controls and procedures for managing changes to Shell's portfolio. The Committee Chair also held several meetings with senior leaders to discuss specific topics including new fuels, carbon emissions reduction and decommissioning.
| | | | | | | | | | | | GOVERNANCE SHELL FORM 20-F 2020 | 106 | | | | | | | | | | | | | Governance documents available on www.shell.com/investor: | | | | | | | | | | | | | | | ▪Articles of Association ▪Matters Reserved for the Board ▪Board Committee Terms of Reference ▪Modern Slavery Act Statement ▪Shell General Business Principles ▪Shell Code of Conduct ▪Code of Ethics for Executive Directors and Senior Financial Officers | | | | | | | | | | | | |
Governance Governance framework continued | | | | Senior Succession and Resourcing Review | | The annual Senior Succession and Resourcing Review focused on the strength of senior leadership and plans for its development and succession, while highlighting the breadth, depth and diversity of its pipeline, the developing profile of the leadership cadre, and recruitment and attrition levels. | The Nomination and Succession Committee supportednoted the effectiveness of succession planning, the impact of its associated execution, and contributedthe professional, data-driven, integrated approach to leadership and leadership development. It welcomed the continued focus on performance management, proactive management of Shell’s talent pipeline, and the focus on advancing Shell’s diversity agenda with increased attention on gender, race, LGBT+ and disabilities. |
Risk management and controls The Board is responsible for maintaining a sound system of risk management and internal control, and for regularly reviewing its effectiveness. A single overall control framework exists for the Company and its subsidiaries. This is designed to manage rather than eliminate the risk of failure to achieve our business objectives. It provides reasonable, but not absolute assurance against material misstatement or loss. The Control Framework (see diagram on the next page) encompasses the key components – "foundation elements", "management processes" and "structural" – that together establish the structure and context within which Shell companies operate. "Foundation elements" consist of the principles and rules that underpin and establish boundaries for Shell activities. "Management processes" define our critical processes. These include how strategy, planning and appraisal are used to improve performance and how risks are to be managed, such as through the application of effective controls and assurance. The "structural" component defines the organisational structures and key governance principles that are applied to facilitate the achievement of the Shell Group’s overall business objectives.
Governance Governance framework continued Risk management The "Statement on Risk Management" is a foundation element of the Shell Control Framework and a key enabler of many of its management processes. Risk identification We identify and define risks across the Shell Group from three distinct perspectives: ▪Strategic risks: we consider current and future portfolio issues, examining parameters such as country concentration or exposure to higher-risk countries. We also consider long-range developments in order to test key assumptions or beliefs in relation to energy markets. ▪Operational risks: we consider material operational exposures across Shell’s entire value chain which provide a more granular assessment of key risks facing the organisation. ▪Conduct and culture risks: we consider how our policies and practices align with our purpose, core values and desired mindset and behaviours. These perspectives help us to maintain a comprehensive view of the different types of risks we face and the different time horizons in which they may affect us. | | | | Shell’s risk factors are described on pages 21-30. |
Risk assessment To further understand the risks we face, we evaluate the impact and likelihood of each risk. When assessing the potential impact of a risk, we consider the possible financial consequences. We also look at the impacts on our reputation, our ability to comply with external regulations and impacts on health, safety and the environment. When assessing the likelihood of a risk occurring, we consider several factors, such as the level of risk exposure, our ability to prevent the risk happening and whether the risk has materialised in the past. To support risk assessments, we also seek to establish and articulate our risk appetite, which is the level of risk that we are willing to accept in pursuit of Shell’s strategy and objectives. There are risks that Shell accepts, or does not seek to fully mitigate. The financial framework sets an overarching boundary condition for risk appetite. This is because Shell's financial resilience informs the aggregate level of risk appetite that could be sustained. The impact and likelihood assessment, combined with risk appetite, determine the type of risk responses, such as controls and assurance activities, that may be required to manage each risk. The impact and likelihood assessments also help us to prioritise risks. Risk response Two key foundations of the Shell Control Framework are Shell’s standards and manuals, and the Code of Conduct. These establish requirements and guidance that help management design and develop processes, systems and controls to manage risks consistently across the Group. During the year, management, the Board and Committees on behalf of the Board review the principal risks and associated risk responses, and implement further remedial actions as appropriate. They frame them in terms of strategic, operational or conduct and culture risks, and assess them alongside the relevant control mechanisms and risk responses. These reviews are supplemented by dedicated reviews of specific risks, as needed. Throughout 2022, the Russian invasion of Ukraine, and its varied impact on our people and our business operations, including sanctions and export controls, received notable attention from the Board, the Executive Committee and the Group Crisis Management Team. | | | | See the risk factor "Russia's invasion of Ukraine" on page 23. |
| | | | | | | | | | | | | Examples of how some principal risks are managed | | | We operate in more than 70 countries that have differing degrees of political, legal and economic stability. This exposes us to a wide range of political developments that could cause changes to contractual terms, laws and regulations. We and our joint arrangements and associates also face the risk of litigation and disputes worldwide (see "Risk Factors" on page 23). We continually monitor geopolitical developments and societal issues relevant to our interests. Our Legal and Tax functions are organised globally and support our business lines in seeking to ensure compliance with local laws and fiscal regulations.Our Corporate Relations department liaises with governments in countries where we operate to understand and engage on local policies and to advocate Shell's announcementposition on topics relevant to our industry. We are prepared to exit a country if we believe we can no longer operate there in 2020 that it aims to become a net-zero emissions energy business by 2050, in stepaccordance with society. The Committee believe this again demonstrates Shell’s determination to play its full roleour standards and applicable law, and we have done so in the energy transition. past.
Many of our major projects and operations are conducted in joint arrangements or with associates, which may reduce our level of control and ability to identify and manage risks (see "Risk Factors" on page 28). In each case, Shell appoints a representative to manage its interests. This representative seeks to ensure that the projects operate under standards that are equivalent to Shell’s for certain critical areas.
Climate change and risks resulting from greenhouse gas emissions are significant risk factors for Shell. Shell has a climate change risk management approach which is supported by standards, policies and controls (see "Risk factors" on page 22 and "Our journey to net zero" on pages 82-109). | | | | |
The system of risk management and internal control over financial reporting is an integral part of the Shell Control Framework. Regular reviews are performed to identify the significant risks to financial reporting and the key controls designed to address them. These controls are documented, responsibility is assigned, and they are monitored for design and operating effectiveness. Controls found to be ineffective are remediated. Emerging risks Management and the Board also consider emerging risks, defined as risks where the scope, impact and likelihood are still uncertain, but which could have a significant effect on achieving Shell’s strategy and objectives in the future. These risks are identified through the monitoring of external developments, the status of risk indicators, learnings from incidents and assurance findings, and the appraisal of Shell’s forward-looking plans. Once identified, we undertake activities to monitor, prepare for and reduce the future impact, where possible, should such emerging risks materialise. Board review of principal and emerging risks The Board confirms it has carried out a robust assessment of Shell’s principal risks, including a robust process for identifying, evaluating and managing Shell’s principal risks. The Board also confirms it has carried out a robust assessment of Shell’s emerging risks. These assessments have been in place throughout 2022 and up to the date of this Report, are reviewed by the Board and accord with the Financial Reporting Council guidance on risk management, internal control and related financial and business reporting.
Governance Governance framework continued Review of the effectiveness of the system of risk management and internal control The Board has delegated authority to the Audit Committee to assist it in fulfilling its responsibilities in relation to the effectiveness of the risk management and internal control system, the integrity of financial reporting, and consideration of compliance matters. | | | | See "Audit Committee Report" on pages 153-165. |
The Audit Committee receives regular reports from the Chief Internal Auditor on notable internal audits and those with a significant impact on the effectiveness of controls. The Committee reviews significant incidents involving financial, business and compliance controls and receives regular reports on business integrity issues. The Audit Committee also requests updates on specific financial, operational and compliance control issues throughout the year. The Audit Committee Chair provides an update to the Board after every Audit Committee meeting. The Chair of the Safety, Environment and Sustainability Committee (SESCo) provides regular updates to the Board after each of its meetings. These updates cover, among other matters, the respective aspects of controls that it monitors in accordance with its Terms of Reference. The Board receives the approved minutes of the Audit Committee and SESCo minutes. During and after such sessions, the Board has the opportunity to request further information and ask clarifying questions. They are incorporated into the Board minutes so all Directors can read and review them. This helps the Board with its ongoing monitoring and annual review of material controls. The Board is also helped with its monitoring and review responsibilities by the reports of: ▪the Executive Vice President Controller [A]; ▪the Chief Internal Auditor; ▪the External Auditors; ▪the Chairs of the Disclosure Committee and the Financial Reporting Control Committee; ▪the Chief Ethics and Compliance Officer; ▪as well as summaries of the Annual Proved Reserves Disclosure. [A]As of October 1, 2023, the role of the Executive Vice President (EVP) Taxation and Controller was divided into two roles: EVP Taxation and EVP Controller. The Executive Committee and the Audit Committee conduct an annual review of the effectiveness of the system of risk management and internal control. This is based on their own insights and experience during the year and the outcomes of the Group-level risk reviews and the Group Assurance Letter process. In the Group Assurance Letter process, each Executive Director conducts a structured internal assessment of compliance with legal and ethical requirements and the Shell Control Framework. As part of their annual review, the Executive Committee and Audit Committee also consider input from the Chief Internal Auditor, Chief Ethics and Compliance Officer and the External Auditor. The Board reviews and discusses the insights and conclusions from this annual assessment. The Board confirms that it has conducted its annual review of the effectiveness of Shell’s system of risk management and internal control in respect of 2022, and that this review covered all material controls, including financial, operational and compliance controls. | | | | | | | | | | | | | The Shell Performance Framework Following the launch of the Powering Progress strategy and subsequent organisational changes, management are proposing to enhance the control framework in which Shell operates. Work has therefore been ongoing throughout 2022 to develop an updated model, called the Shell Performance Framework, considering industry and other external best practices, where appropriate. The intention is to retain the core strengths of the Shell Control Framework, including the Shell General Business Principles, Code of Conduct and risk management focus. The updated model will emphasise the value of using a holistic or ‘whole systems’ approach to business activities, including our mindset and behaviours, as well as focus on the concept of the ‘Improvement Cycle’ to ensure appropriate integration of activities such as performance management, risk management, controls and assurance, learning and continuous improvement. Progress on developing the updated framework is being regularly reviewed by Executive Committee members. The Audit Committee has had in-depth discussions withalso been briefed on the Shell Performance Framework and will be asked to support its introduction prior to seeking final approval from the Board. Subject to this Board approval, the Shell Performance Framework is anticipated to be effective later in 2023. | | | | |
| | | | Risks | | The Board (also via the Audit Committee and the Safety, Environment and Sustainability Committee) reviews strategic, operational and conduct/culture risks during the year to assess current business activities against risk appetite. | | Chief Ethics and Compliance Officer Report | | Data and insights include information from the Global Helpline, the Shell Ethics and Compliance organisation and the Shell People Survey. The Safety, Environment and Sustainability Committee continues to strongly support the work of the Chief Ethics and Compliance Officer, including the efforts to ensure a safe working environment where staff feel confident to raise any concerns in good faith. | | The Audit Committee is kept updated when matters highlighted through the Global Helpline are investigated. The Audit Committee is also informed about the associated remediation. For more information see page 162 of the Audit Committee Report. | | Assurance activities | Assurance activities, including items raised by businesses and functions (through the Group Assurance Letters process) and assurance (from Internal Audit, HSSE, Ethics and Compliance, Reserves Assurance and Reporting), provide additional evidence to the Board of the commitment to high standards of risk management about how Shell’s climate ambitionsand internal control. The assurance activities ensure that work can be done safely, within regulatory frameworks. | The information provided within these reports further supports the Board’s annual review of the effectiveness of the Group’s system of risk management and internal control and feeds into the Group scorecard, against which staff bonuses are being put into operation through portfolio changes, the use of nature-based solutions, the development of carbon capture utilisation and storage, and carbon abatement programmes at operated facilities.calculated. |
Governance Governance framework continued  Board Review Process The 2022 Board evaluation looked to support the discussion on the way ahead as Shell faces its biggest challenge, managing the business through the energy transition. As required by the Code every three years, the 2022 evaluation was conducted differently from that in 2021 and 2020. First, the evaluation was an externally facilitated self-evaluation by an external provider, Jan Hall of No 4, through one-on-one interviews with the Board and key individuals, as opposed to a questionnaire approach for 2020 and 2021. Second, the 2022 evaluation process guided a more strategic review of the Board and its operation to consider not merely how the Board might make improvements to an already well-functioning Board but also how to be the most effective Board it can be for Shell over the next 3-5 years. The evaluation was conducted according to the guidance in the Code. Jan Hall and No 4 have no connection or relationship to the Company or to any Director. Selecting the facilitator The tender process to select the individual/company that would facilitate the 2022 Board Evaluation was led by Euleen Goh, Deputy Chair and Senior Independent Director, supported by Caroline Omloo, Company Secretary. Euleen Goh presented a short list of providers to the Nomination and Succession Committee for discussion and selection of the provider. Planning for the evaluation The process started with briefing meetings where Jan Hall met the Chair, CEO, Deputy Chair/Senior Independent Director, Company Secretary and previous Company Secretary. These meetings helped Jan Hall understand the Board, how it operates, the strategic priorities for Shell and she then formulated a comprehensive brief for the evaluation process. Jan Hall then prepared a discussion guideline which formed the basis of her one-on-one meetings. The discussion guideline was sent to the individuals who participated in the Board evaluation ahead of her meetings with them. Discussion and Observation (Stage 1) In October and November 2022, detailed interviews were conducted with every Board member, the Company Secretary and prior Company Secretary, the External Audit partner, all members of the Executive Committee, the Committee Secretaries and the Chief Internal Auditor. All participants were interviewed by Jan Hall who facilitated an open, confidential, unattributed conversation with each person. She observed the Board and Committee meetings in October and a Committee meeting in December. In addition, she reviewed the materials presented to Directors ahead of these meetings. Analysis (Stage 2) A report synthesising and summarising feedback from all of the input, and making recommendations was prepared and shared with the Chair and CEO for comment. Outcomes (Stage 3) Draft conclusions were discussed with the Chair and subsequently discussed with the whole Board at a dedicated meeting held in January 2023, which was also attended by Jan Hall. This format provided a freer and unconstrained discussion. She highlighted key findings from the evaluation, facilitated discussion and answered any questions. Jan Hall separately discussed the report on the Chair’s performance with Euleen Goh, the Senior Independent Director. A separate discussion in relation to the performance of the Chair was led by Euleen Goh (in the absence of the Chair). Individual feedback was provided to each director by the Chair. Overall the Board was found to be functioning well, with a high level of commitment from both the Non-executive and Executive Directors. Improvements identified were merely to fine-tune an already effective Board. There is a collegiate spirit and good personal relationships with a high degree of mutual respect, with people able to speak up and feel that they are listened to. The agenda has been broad ranging and the Committees have complemented the Board agenda to ensure that the Board has covered the areas viewed to be key. At the time of the evaluation process, the Nomination and Succession Committee was undertaking a recruitment process for new Non-executive Directors in preparation of anticipated departures in 2023. Therefore, no changes were found to be necessary to the Board composition as a result of the evaluation. Feedback on the themes from the Board discussion The Board intends to continue to focus on being a well functioning Board, spending additional time on strategic matters, and placing an even greater focus on Shell's key stakeholders around the world. In line with this the Board will refresh its agendas to better support its priorities on strategy and utilise its time as effectively as possible. Further, the Board confirmed its continued support to help the CEO deliver Shell's goals in the short, medium and long term, with specific focus on driving greater accountability throughout the organisation; evolving Shell's culture to become more agile and to move at greater pace; building on his newly announced changes to the Executive Committee, to focus on developing the leadership across Shell and optimising people development and talent management. Feedback themes for the Committees The Committees were considered to be well chaired and well operated. It was agreed that the Board would undertake a more strategic review of the Committees' agendas and remit to ensure alignment with the Board's future priorities and longer term aspirations. In addition, there was wide recognition of the value of greater involvement of all Board members in matters of Board and Executive succession, as had been facilitated for the appointment of the new CEO and recent changes to the Executive Committee. It is therefore anticipated that this format will also be adopted going forward. Chair evaluation The Chair was considered to have the respect of his Board colleagues who all feel he had led the Board very well through a year of change, and is leading the Board to focus on the right areas and issues. His accessibility and support were highly valued and he was considered to bring a wealth of relevant knowledge which he is able to deploy in a strategic way in the context of the challenges Shell is facing.
Governance Nomination and Succession Committee | | | | | | | | | | | | | Focus areas for 2022
Following▪Non-executive Director and Executive Committee succession;
▪Continued talent engagements with key staff and succession candidates; and ▪Maintain proactive oversight over Shell's ambition to become one of the Committee's review of remuneration with management, new safetymost diverse and environment metrics will be introducedinclusive organisations in the world. | | | | |
| | | | | | | | | | | | | Priorities for 2021 along with increased weighting for these metrics and energy transition metrics, which should drive further performance improvements.2023
The ▪Support the changes proposed from the 2022 Board/Committee closely monitoredevaluation;
▪Non-executive Director and strongly supported Shell's response to the COVID-19 pandemic in terms of care forExecutive Committee succession; ▪Continued talent engagements with key staff and the safe managementsuccession candidates; and ▪Support an increased level of operations. The Committee appreciateddisclosure with regard to Shell’s rapid deployment of virtual working technology from the startdiversity targets and maintain proactive oversight over Shell's ambition to become one of the pandemic to enable business continuitymost diverse and support continued HSSE & SP assurance activities across Shell.inclusive organisations in the world. | | | | |
The | | | | Sir Andrew Mackenzie
Chair of the Nomination and Succession Committee continued to address wider questions of public concern such as plastic waste, methane emissions and human rights. It looks forward to resuming direct engagement with stakeholders once the COVID-19 restrictions come to an end. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Committee membership and attendance for 2022 | | | | | | | | | | | | | | | | | | Committee member | Member since | Maximum possible meetings | Number of meetings attended | % of meetings attended | | | Sir Andrew Mackenzie (Chair of the Committee) | October 1, 2020 | 5 | 5 | 100% | | | Dick Boer | May 19, 2021 | 5 | 5 | 100% | | | Ann
Godbehere | October 27, 2021 | 5 | 5 | 100% | | | Euleen Goh | July 1, 2019 | 5 | 5 | 100% | | | | | | | | | | | |
Purpose The Nomination and Succession Committee (the "Committee") leads the process for appointments to the Board and Senior Management [A] positions, ensures plans are in place for orderly, well-planned succession, and oversees the development of a diverse succession pipeline of candidates. It also reviews the Company’s policy and strategy on diversity, equity and inclusion (DE&I), and monitors the effectiveness of these initiatives. It makes recommendations to the Board on corporate governance guidelines. [A]"Senior Management" refers to the Executive Committee and the Company Secretary. Talent management and succession The Committee is fully engaged with the end-to-end talent management and senior succession planning approach that is deployed within Shell. It plays a key role in senior succession and resourcing. Retaining in-depth knowledge of the individuals within the talent pipeline is a Committee priority. The Committee makes time to personally meet and engage with numerous individuals within the pipeline. The Committee’s oversight and input extend from recruitment to leadership identification and from leadership development to leadership appointment, all of which are underpinned by clearly articulated talent priorities and a commitment to advancing diversity, equity and inclusion across Shell. The Committee manages Board and Senior Management succession under a structured, proactive methodology. The processes have clear and agreed selection principles for short-, medium- and long-term succession and are aligned with Shell's strategic priorities. For Non-executive Director succession, the Committee continues to follow its Principles for the Strategic Composition of the Board, adding factors as they evolve. These principles function much like a policy and include both quantitative and qualitative principles, considering: ▪the overall aspired Board composition and diversity of gender, race and ethnicity, nationality, background, experience and desired skill sets that align with the Company’s strategy and purpose; and ▪the values, attitudes, and behaviours expected of Directors.
Governance Nomination and Succession Committee continued Over the coming year the Principles for the Strategic Composition of the Board will be reviewed and the Committee will support the business in aligning with its Powering Progress diversity ambition, of becoming one of the most diverse and inclusive organisations in the world, into firmer targets for the Board and Senior Management. In addition, Shell’s external reporting against these targets will be enhanced. Shell’s Board and Senior Management diversity metrics are already well positioned against the new UK Listing Rules requirements. For Senior Management succession, the selection principles include process-specific elements, such as a clear and proactive approach to identifying and developing succession candidates. The principles also outline the long-term structured nature of the succession planning process. There is also great focus on ensuring that the principles reflect the leadership qualities required for future business success and that they advance the progress of diversity in all its forms. Senior Management principles feature in the Committee’s review of the succession plans which occurs in every Committee meeting. Using the principles, the Committee implements any changes through a well-defined and diligent process with overall Board engagement. The Committee agrees on candidate profiles and meets prospective candidates well ahead of any selection decision being necessary. It also engages the Board early in the process to ensure all Directors have an opportunity to meet and assess prospective candidates. Consequently, some of the leaders whom the Committee and Board have engaged with extensively in the past are now members of the Board or the Executive Committee. In 2022, the Committee undertook its annual in-depth look at the status and succession plans for Senior Management within Shell and reviewed the talent pipeline in line with the business outlook. The engagement focused on the organisational health of our workforce; Powering Lives (covering areas such as enablement and disability and LGBT+ inclusion, gender diversity in leadership roles, nationality and ethnicity and race representation), the depth and breadth of the senior executive leadership pipeline including progress in enhancing diversity, the skills, behaviours and development support required for future success, and an evolving outlook on senior executive roles. Following the Committee’s review, the findings were reported to the Board.
| | | | Senior Succession and Resourcing Review |
Diversity of leadership The Committee recognises that continuing to improve all types of diversity at each level of the Shell Group is crucial. Shell aims to be an inclusive workplace where everyone feels valued and respected and has a strong sense of belonging. The Committee’s review of diversity objectives and strategies for the Shell Group as a whole also monitors the impact of diversity and inclusion initiatives. In February 2021, Shell published its aspirations for diversity, equity and inclusion under the "Powering Lives" goal, with a focus on four areas of gender, race and ethnicity, LGBT+ and disability inclusion. When looking at our progress against our ambitions, female representation has steadily improved in recent years. Among experienced recruitment in 2022, Shell companies recruited 40% females, and among graduates 49%. Female representation in the top 1,250 roles ("Senior Leadership" positions) has strengthened by 1% during 2022 to 30.4%, and we continue to progress towards our aim of achieving 35% female senior leadership representation by 2025. Nationality diversity, such as Asian and American talent, continues to be managed in accordance with the business outlook and we have a strong focus on progressing race and ethnic minority representation, beginning in the UK and the USA and followed by the Netherlands. The representation of people of colour among Shell's senior leaders in the USA has been actively tracked for many years. It stood at 26% at the end of 2022, compared with 17.3% in 2016. In the UK, race and ethnic minority representation among senior leaders was 18.2% [A]. [A]As ethnicity declaration is voluntary, our ethnicity declaration rate is not 100% and all calculations are based on a declaration rate of 71.5%. The 28.5% of our workforce who have not provided data or chosen not to declare their ethnicity were not included in our calculations.
Governance Nomination and Succession Committee continued Senior Leadership is a Shell-specific measure and different from that which we are required to report under the Code, being female representation in Senior Management and their direct reports, where the percentage is 28%. Although the Committee monitors Shell’s organisational diversity, equity and inclusion strategies and initiatives, it also holds itself accountable for the Board’s own diversity and inclusion. By the end of 2020, the Board’s diverse composition met the Hampton Alexander and Parker Reviews’ objectives by reflecting 38.5% female representation with one person meeting BAME criteria. Following the 2021 AGM, 50% of the Board were women. However, in October 2022 we announced the appointment of Cyrus Taraporevala effective March 2, 2023 and in February 2023 we announced further changes to the Board, with the retirement of Euleen Goh and Martina Hund-Mejean and the appointments of Leena Srivastava and Sir Charles Roxburgh effective March 13, 2023. Therefore, following the 2023 AGM, scheduled for May 2023, if all directors proposed for appointment/reappointment are approved by shareholders, female representation will be 42%, and the Board will exceed the BAME criteria, with three members from an ethnic minority background. | | | | More information on diversity, equity and inclusion in Shell is provided in the Powering lives section on pages 0. |
The People Strategy and diversity, equity and inclusion During the year, the Committee continued an in-depth examination into our approach on diversity, equity and inclusion building on the deep dive held on LGBT+ inclusion and extending this into disability and enablement inclusion, with participation from both employee representatives and Human Resources professionals. This followed the format of the examination of the Shell People Strategy that the Committee undertook in 2020, which placed particular emphasis on our Mindset and behaviours. The Committee will be conducting further engagements in 2023 to maintain proactive oversight over Shell's ambition to become one of the most diverse and inclusive organisations in the world, where everyone feels valued and respected, with a focus on race and ethnicity and gender representation.
In addition to its considerations regarding succession (some of which were in the early part of 2023), the Committee made recommendations on corporate governance guidelines, monitored compliance with corporate governance requirements and made recommendations on corporate governance-related disclosures. The Committee continues to monitor and review this area, considering whether and how current Company governance matters should be strengthened. Further insight on some of the Committee’s areas of consideration in 2022 is provided below.
| | | | | | | Topic of discussion/example of Board activity | | Succession [A] | | Recommendation | ▪Appointment of Sinead Gorman (CFO), Wael Sawan (CEO), Cyrus Taraporevala (NED), Sir Charles Roxburgh (NED) and Leena Srivastava (NED). ▪Appointment of Dick Boer as Deputy Chair/Senior Independent Director. ▪Changes to the composition of the Board Committees. | | Review and oversight | ▪Shell Senior Succession and Resourcing Review and ongoing succession planning. ▪Supported the appointment of Ed Daniels to the Executive Committee as Strategy, Sustainability and Corporate Relations Director. | | Oversight | ▪Shell diversity, equity and inclusion. | | Engagement | ▪Talent engagements. |
| | | | | | | Topic of discussion/example of Board activity | | Talent overview and senior succession review | | Shell Senior Succession and Resourcing Review covering Executive Director and Executive Committee (EC) succession, EC direct reports, the senior executive group and the overall talent pipeline | ▪Enhanced insight on Shell talent and future leaders. ▪Assurance of robust succession and contingency plans. |
| | | | | | | Topic of discussion/example of Board activity | | Board membership and other appointments | | Directors’ tenure, external commitments, conflicts of interests and succession planning | ▪Non-executive Director appointments and changes to Committee membership. |
| | | | | | | Topic of discussion/example of Board activity | | Governance | | Governing the Board and its committees | | | Regulation, legislation and other governance-related guidance | ▪Reviewed its Terms of Reference, and the Terms of Reference for other Board committees and the Matters Reserved for the Board. | | Shell plc matters | ▪Considered any potential conflicts of interest and the independence of the Non-executive Directors. ▪Review of additional external appointments requested by Directors, with specific focus on the time allocated to all commitments. For Executive Directors, the benefit/relevance to the business of the Director undertaking the additional role is also a key consideration. ▪Determined the process and the provider for the 2022 external Board Evaluation (see page 146 for an overview of the process and the outcome of the evaluation). |
[A]The Committee was assisted during the year by Russell Reynolds Associates ("Russell Reynolds"), an external global search company whose main role was to propose suitable candidates. Russell Reynolds does not have any connection with the Company other than that of search consultants. The Chair does not participate in discussions regarding his own succession. Russell Reynolds is a signatory to The Voluntary Code of Conduct for Executive Search Firms, which aims to improve board diversity.
Governance Nomination and Succession Committee continued | | | | | | | | | | | | | Board succession During the year the Committee’s robust and effective succession planning supported the appointment of a new Chief Financial Officer (Sinead Gorman), who joined the board on April 1, 2022, and a new Chief Executive Officer (Wael Sawan), who joined the Board on January 1, 2023. Some of the Committee activities in supporting these appointments are outlined below. The Committee undertakes comprehensive engagement to understand who the candidates are for senior roles, what personally drives them and how they will ensure Shell achieves its strategic ambitions. The Committee plans well in advance for succession and reviews plans regularly. Succession planning is a crucial, ongoing consideration and not just an area of focus when a Director is nearing the end of their tenure. The Board oversees a rigorous and sophisticated Shell succession planning process in which selection is the final step of a considered well-planned process. For Executive Director and Executive Committee appointments, the Committee has set a structured process: ▪Before any potential decision on resourcing, it explicitly describes the requirements of the role and the candidate profile. ▪By working in a planned consistent manner, last-minute surprises are avoided and well-considered decisions are made in line with evolving business requirements. We saw this in action in 2022. ▪It also plans for the unexpected and maintains a list of candidates capable of stepping into senior roles to provide cover if necessary. The Committee spends time getting to know the candidates to ensure that the pipeline is robust, diverse and adaptive. The Committee ensures it has visibility of today’s and tomorrow’s leaders. Over the last few years, the Committee has met many leaders and had extensive engagements with each of them. Some of these leaders now sit on the EC, others were appointed to the Board (Sinead Gorman and Wael Sawan). The Committee engages across the Executive talent pipeline to ensure it interacts with and becomes familiar with talent at different levels of the organisation; for example, on a regular basis informal engagements are held with employees from a range of businesses, functions and backgrounds prior to a Board meeting. Not only does this engagement support senior succession, it also provides a helpful element of the Committee’s workforce engagement. The Board is proud that candidates for the most senior leadership roles have primarily come from within the business, proving that the leadership development and succession process remains effective. CEO succession Although the process was initially led by the Nomination and Succession Committee, the Board was fully engaged throughout the process. All Non-executive Directors provided input into the candidate profile and role specification and outlined what they saw as the challenges facing the business over the next five to ten years. They helped map out leadership and personal qualities needed to be effective, ranked these in order of importance and shared their views of the current culture within the business. Throughout the process the Board was supported by Shell Human Resources executives in tandem with external professional executive assessment and search support. Both internal and external candidates were considered for the position. The list of preferred qualities and functional focus elements included leadership experience at a large, complex global business; leadership/track record of substantial transformation/change; strong customer orientation; from an industry with a complex supply chain (industrial, engineering or technology); experience of managing substantial stakeholder pressure (with differing views); understanding of large capital projects (not necessarily oil and gas sector), along with certain character requirements. Updates were provided to the Board and potential candidates discussed. In the final stages of the process, the potential candidates presented to, and were interviewed by, the full Board. In Wael Sawan we believe that we have found the required qualities and more. Wael Sawan is an exceptional leader, with all the qualities needed to drive Shell safely and profitably through its next phase of transition and growth. His track record of commercial, operational and transformational success reflects not only his broad, deep experience and understanding of Shell and the energy sector, but also his strategic clarity. He combines these qualities with a passion for people, which enables him to get the best from those around him. The outcome of the Board’s managed succession process resulted both in the appointment of an outstanding CEO and proved the strength and depth of Shell’s leadership talent. | | | | |
Governance Safety, Environment and Sustainability Committee | | | | | | | | | | | | | Focus areas for 2022
▪Safety and environmental performance; ▪Assurance programme; ▪Progress against energy transition targets; ▪Non-financial elements of Shell's strategy; and ▪Sustainability metrics for remuneration. | | | | |
| | | | | | | | | | | | | Priorities for 2023
▪Shell's sustainability performance; ▪Net Zero Emissions; ▪Respecting Nature; ▪Powering Lives; and ▪Emerging non-financial risks. | | | | |
“The SESCo focused on Shell’s safety
and environmental performance and assurance programme in 2022, as well
as targets for the energy transition and sustainability elements of Shell’s Powering Progress strategy.“
| | | | Catherine J. Hughes
Chair of the Safety, Environment and Sustainability Committee |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Committee membership and attendance for 2022 | | | | | | | | | | | | | | | | | | Committee member | Member since | Maximum possible meetings | Number of meetings attended | % of meetings attended | | | Catherine J. Hughes (Chair) | November 1, 2017 | 5 | 5 | 100% | | | Neil Carson OBE | June 1, 2019 | 5 | 5 | 100% | | | Bram Schot
| October 1, 2020 | 5 | 4 | 80% | | | Jane Holl Lute | May 24, 2022 | 3 | 3 | 100% | | | | | | | | |
Purpose The Safety, Environment and Sustainability Committee (SESCo) assists the Board in reviewing the policies, practices, targets and performance of Shell, primarily with respect to safety, environment including climate change, and broader sustainability. Overview The Committee meets regularly to review and discuss a wide range of important topics. These include the safe condition and responsible operation of Shell’s assets and facilities, environmental protection and greenhouse gas emissions, any major incidents that impact or had the potential to impact safety and environmental performance, and progress towards meeting Shell’s energy transition targets. The Committee endorses the areas of the Shell annual assurance plan that are relevant to its Terms of Reference, which include Safety, Environment, Asset Management, and the non-financial elements of Shell's Powering Progress strategy. The Committee also reviews the execution of these areas of the assurance plan and discusses audit outcomes. The Committee assesses Shell’s overall sustainability performance and provides input to Shell's annual reporting and disclosures on sustainability. It also advises the Remuneration Committee on metrics relating to safety and energy transition that apply to the Executive Committee annual scorecard and Long-term Incentive Plan.
Governance Safety, Environment and Sustainability Committee continued The Committee reviews and considers external stakeholder perspectives in relation to Shell’s business, as well as how Shell addresses issues of public concern that could affect its reputation and licence to operate. In line with the strategic importance of the Committee's agenda, the Chair of the Board of Directors and the Chief Executive Officer of Shell plc regularly attend Committee meetings for discussions on specific topics. Shell’s Chief Executive Officer and the Executive Committee hold overall accountability for sustainability within Shell. Activities During 2022, the Committee focused on the areas of greatest operational and strategic importance to Shell, in line with its Terms of Reference. This allowed the Committee to oversee effectively and thoroughly the practices and performance of the Company with respect to safety, environment including climate change, and broader sustainability. The topics discussed in particular depth by the Committee included personal and process safety, a range of environmental topics, Shell’s energy transition targets, and remuneration metrics. The Committee also reviewed in detail Shell companies’ operations and the challenges faced in Nigeria. The Committee reviewed the progress made against the non-financial elements of Shell’s Powering Progress strategy, including progress against the targets and commitments under the goals of Net-Zero Emissions, Respecting Nature, and Powering Lives. The Committee reviewed in particular the sustainability issues associated with Shell’s renewable energy businesses. The Committee believes the Powering Progress strategy demonstrates Shell’s determination to play its full role in the energy transition. The Committee has conducted in-depth discussions with senior management about how Shell’s energy transition targets for the near term, medium term and longer term will be met through a combination of developing low-carbon energy businesses, transforming existing assets into energy and chemicals parks, carbon abatement programmes, portfolio actions, the use of nature-based solutions, and the development of carbon capture, utilisation, and storage. The Committee reviewed Shell’s Energy Transition Progress Report in depth before its publication. Following the Committee's review of remuneration with management, the safety and energy transition metrics and targets have been enhanced for the 2023 Executive Committee annual scorecard and the 2023-25 Long-term Incentive Plan in order to drive further performance improvements. The Committee also reviewed wider matters of public concern during 2022 such as plastic waste, methane emissions, the flaring of natural gas, water scarcity, just transition, human rights, diversity and inclusion, and access to energy in low- and middle-income countries. The Committee engaged with external stakeholders on the topic of nature-based solutions and gained valuable insights on how Shell’s approach is perceived. The Committee continued to monitor Shell’s approach to the health of its employees and contractors, in terms of mental well-being in particular. The Committee also continued to review the security risks faced by Shell and how these risks are being proactively managed. The Committee Chair held meetings throughout the year with senior leaders to discuss specific topics, including safety performance and enhanced assurance protocols. | | | | For further details on SESCo and how Shell manages sustainability see www.shell.com |
Site visits The Committee visited the LNG Canada joint-venture project in British Columbia, Canada, in September 2022. The visit included a site tour at Kitimat, meetings with staff, and local community engagements with the Chief of the Haisla Nation and Mayor of Kitimat. In Vancouver, the Committee held further meetings with LNG Canada management and engaged with the Premier of British Columbia and relevant Ministers.
| | | | | | | | | | Activities performed | | Frequency | | Review Shell’s practices and performance relating to safety, including the safe condition and responsible operation of Shell’s assets (Shell-operated ventures and non-Shell-operated ventures), with a focus on both employees and contractors. | | Every meeting | | Review Shell’s practices and performance relating to environment, including environmental protection and greenhouse gas emissions. | | Every meeting | | Review any major incidents that impact, or had the potential to impact, Shell’s safety and environmental performance. | | As necessary | | Review progress towards meeting the Powering Progress ambitions, including its energy transition targets for net carbon intensity and becoming a net-zero emissions energy business by 2050. | | Most meetings | | Endorse Shell’s annual assurance plan for Health, Security, Safety, Environment and Social Performance (HSSE & SP) and Asset Management. | | Annually | | Review execution of Shell’s assurance plan and discuss audit outcomes, and review relevant findings from Shell’s broader internal audit and investigations programme. | | Most meetings | | Assess Shell’s overall sustainability performance and provide input to Shell’s annual reporting and disclosures regarding sustainability. | | Annually | | Review how Shell addresses major issues of public concern that could affect Shell’s reputation and licence to operate. | | Most meetings | | Review and consider external stakeholder perspectives regarding Shell’s business. | | Periodically | | Advise the Remuneration Committee on metrics relating to safety and energy transition. | | | | | | Activities performed | Frequency | Review Shell’s practices and performance relating to Safety, including in particular the safe condition and responsible operation of Shell’s assets | Every meeting | Review Shell’s practices and performance relating to environment, including in particular environmental protection and greenhouse gas emissions | Every meeting | Review any major incidents that impact Shell’s safety and environmental performance | As necessary | Review progress towards meeting Shell’s climate targets | Most meetings | Endorse Shell’s annual Health, Security, Safety, Environment and Social Performance (HSSE & SP) assurance plan | Annually | Review execution of Shell’s HSSE & SP assurance plan and audit outcomes, and review relevant findings from Shell’s broader internal audit programme | Most meetings | Assess Shell’s overall sustainability performance and provide input to Shell’s annual reporting and disclosures regarding sustainability | Annually | Review how Shell addresses other major issues of public concern that could affect Shell’s reputation and licence to operate | Most meetings | Review and consider external stakeholder perspectives in relation to Shell’s business | Periodically | Advise the Remuneration Committee on metrics relating to Sustainable Development and Energy Transition. | Annually |
SITE VISITS
The Committee postponed its site visits of the Rheinland refinery in Germany and LNG Canada project in British Columbia due to the COVID-19 pandemic. The committee instead conducted a virtual site visit of Rheinland via videoconference. The visit focused on safety and environmental performance and the planned transformation of the Rheinland site into an energy and chemicals park. It also included a meeting with a minister of the state government of North Rhine-Westphalia.
| | | | | | | | | GOVERNANCE SHELL FORM 20-F 2020 | 107 | |
| | | | | | AUDIT COMMITTEE REPORT | | | | 152 | Shell | Form 20-F 2022 |
Governance Audit Committee Report Dear Shareholders, I am pleased to present our Audit Committee Report for 2022. I begin this report by thanking Gerrit Zalm and Jane Holl Lute for their contributions as members of the Audit Committee (AC) since March 2017 and July 2021, respectively. I am also delighted to welcome new Committee member, Cyrus Taraporevala, who joined the AC on March 2, 2023. I also welcome Sir Charles Roxburgh, who has been appointed as a Non-executive Director of Shell plc, effective March 13, 2023 and will become a member of the AC as of the same date. The AC's primary role is to assist the Board in fulfilling its oversight responsibilities in areas such as the integrity of financial reporting, the effectiveness of the risk management framework and system of internal controls as well as consideration of ethics and compliance matters. We are responsible for assessing the quality of the audit performed by, and the independence and objectivity of, the external auditor. The AC also makes a recommendation to the Board on the appointment or reappointment of the external auditor. In addition, we oversee the work and quality of the internal audit function. Our work programme over the course of a year focuses on a variety of matters that involve a high degree of judgement and/or are significant to Shell’s consolidated financial statements. We review with management the sources of estimation uncertainty and other key assumptions in light of economic and market uncertainty, volatility, climate risk and the energy transition and evolving stakeholder expectations. In addition, we consider the robustness of the risk and internal control framework, results of internal control testing performed throughout the year and remediation activities. | | | | ANN GODBEHERE
Ann Godbehere
Chair of the Audit Committee
"The primary role of the AC is to assist the Board in fulfilling its oversight responsibilities in areas such as the integrity of financial reporting, the effectiveness of the risk management framework and internal control system as well as consideration of compliance matters."
Focus areas for 2020
•Impacts of the COVID-19 pandemic and macroeconomic conditions
•Decommissioning and restoration
•Integrated risk management
•Trading and Supply
•Treasury operations
Priorities for 2021
•New business models and ventures
•Pensions
•Contracting and procurement
•Reshape management framework
•Oil and gas pricing methodology
Dear Shareholders,
I am pleased to present our Audit Committee Report for 2020 covering our work over the course of the year including some areas of particular focus.
I begin this report by thanking Roberto Setubal for his contributions as a member of the Audit Committee (AC) since October 2017. Gerrit and I were delighted to be joined by new committee members Martina Hund-Mejean and Dick Boer. Their respective expertise and insights are a valuable addition to the AC.
The primary role of the AC is to assist the Board in fulfilling its oversight responsibilities in areas such as the integrity of financial reporting, the
effectiveness of the risk management framework and system of internal controls as well as consideration of ethics and compliance matters. We are also responsible for assessing the quality of the audit performed by, and the independence and objectivity of, the external auditor. The AC also makes a recommendation to the Board on the appointment or reappointment of the external auditor. In addition, we oversee the work and quality of the internal audit function.
Over the course of a year, the AC has a rolling agenda covering a variety of standing matters such as the control framework for the reporting of Shell’s oil and gas reserves; information risk management; tax matters;
|
Topics addressed in 2022 included the impact of Russia's invasion of Ukraine and Shell's announced withdrawal from Russian oil and gas activities; the potential impacts of climate change on Shell’s consolidated financial statements; deferred taxes and tax exposures; the impact on tax balances and disclosures as a result of new windfall and minimum taxes around the world; significant portfolio developments; litigation; impairment trigger assessments; charges and reversals; accounting for complex contracts; dividend distribution capacity; and mark-to-market derivatives accounting, including the impact of volatile gas and power markets. We received briefings from the Chief Internal Auditor on the effectiveness of Shell’s risk management and internal control system and on the outcomes of significant audits and notable control matters. The impacts of climate change and the energy transition continue to touch on many aspects of the AC’s work. The AC’s focus areas for 2022 included several discussions on the financial statement impacts of climate change and energy transition, and the increasing expectations around expanded climate-related information. In order to obtain feedback to continuously improve carbon-related disclosures, management engaged with Sarasin & Partners and Carbon Tracker during 2022. The quarterly reports reviewed by the AC from Ernst & Young LLP (EY), our external auditor, and the Chief Internal Auditor, also continued to include specific steps they have taken to incorporate climate change considerations into all facets of their work. The AC commends Shell’s financial reporting team on feedback received from the Financial Reporting Council (FRC) which carried out a limited scope review [A] of TCFD disclosures and the disclosures of climate in Shell's financial statements for the year ended December 31, 2021. The FRC confirmed that, based on their review, there were no questions or queries which they wished to raise at this stage. In its "CRR Thematic review of TCFD disclosures and climate in the financial statements" published in July 2022, the FRC referenced what they regarded as better practice disclosures with a number of examples from Shell’s 2021 Annual Report. [A]The FRC noted that their review is based solely on the annual report and accounts and does not benefit from detailed knowledge of Shell’s business or an understanding of the underlying transactions entered into, but that it is, however, conducted by staff of the FRC who have an understanding of the relevant legal and accounting framework. The AC, recognising the ever-evolving nature of climate change risks and responses, concluded that climate change has been appropriately considered by management in key judgements and estimates and agreed with the disclosure made by management.
“The primary role of the AC is to assist theBoard in fulfilling its oversight responsibilities in areas such as the integrity of financial reporting, the effectiveness of the risk management framework and system of internal controls as well as consideration of ethics and compliance matters.“
Governance Audit Committee Report continued The AC was briefed on Shell's Carbon Management Framework and its Carbon Reporting Committee, including future priorities. The AC was also briefed in relation to the Shell Performance Framework which is scheduled to replace and enhance the current Shell Control Framework. Other focus topics for 2022 included non-operated ventures controls and governance. As part of its oversight of compliance with applicable legal and regulatory requirements, including monitoring ethics and compliance risks, the AC discussed with the Chief Ethics and Compliance Officer activities undertaken in the ethics and compliance programme related to conduct risks stemming from Russia's invasion of Ukraine, and steps taken to manage those risks. During the year, AC members visited Shell Recharge Fulham Road, our first UK all-electric vehicle charging hub and the AC also conducted a site visit to Shell's London trading floor. As part of Board Strategy Days, AC members also visited Singapore in June 2022 (see Board Strategy Days on page 139). During 2023, the AC plan to visit a number of operations in the USA, including Shell Polymers Monaca and Shell Convent. These site visits deepen the AC’s understanding of the risks and opportunities arising as well as its understanding of how the Company’s Powering Progress strategy is being implemented. On a final note, the AC acknowledges the financial reporting team’s substantial work during 2022. The AC conveys its gratitude and appreciation for their strong commitment and dedication. Ann Godbehere Chair of the Audit Committee
March 8, 2023
| | | | | | | | | | | | | Focus areas for 2022 ▪Impact of Russia's invasion of Ukraine and Shell's withdrawal from Russian oil and gas activities; ▪Non-operated ventures controls and governance; ▪Climate change and energy transition, including impact on financial statements as well as sustainability and non-financial reporting; ▪Resegmentation; ▪Carbon management, including GHG reporting and assurance framework; ▪Trading and Supply; and ▪Introduction and implementation of windfall taxes such as the EU solidarity contribution and Energy Profits Levy in the UK. | | | | |
| | | | | | | | | | | | | Priorities for 2023 ▪Risk management, including cyber security; ▪Regulatory developments, mainly those in relation to climate change and energy transition; ▪Trading and Supply; and ▪Shell Performance Framework. | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Committee membership and attendance for 2022 | | | | | | | | | | | | | | | | | | During 2022, the members and meeting attendance of the AC were as follows: | | | Committee member | Member since | Maximum possible meetings | Number of meetings attended | % of meetings attended | | | Ann Godbehere (Chair) | May 23, 2018 | 6 | 6 | 100% | | | Dick Boer | May 20, 2020 | 6 | 6 | 100% | | | Jane Holl Lute [B] | July 28, 2021 | 3 | 3 | 100% | | | Martina Hund-Mejean | May 20, 2020 | 6 | 6 | 100% | | | Gerrit Zalm [C] | March 8, 2017 | 3 | 3 | 100% | | | [A]In addition to the six meetings, as part of its activities, the AC conducted two deep-dive sessions, a site visit to the London trading floor and members of the AC also visited Shell Recharge Fulham Road. [B]Jane Holl Lute stepped down from the AC with effect from May 24, 2022. [C]Gerrit Zalm retired from the Board and the AC with effect from May 24, 2022. | | | | | | | | |
Governance Audit Committee Report continued All AC members are financially literate, independent Non-executive Directors. In respect of the year ended December 31, 2022, for the purposes of the UK Corporate Governance Code, Ann Godbehere and Martina Hund-Mejean both qualify as: a person with "recent and relevant financial experience" and competence in accounting, and, for the purposes of US securities laws, an "audit committee financial expert". The experience of the AC members outlined on pages 129-136 demonstrates that the AC as a whole has competence relevant to the sector in which Shell operates, and the necessary commercial, regulatory, financial and audit expertise required to fulfil its responsibilities. The AC members have gained further knowledge and experience of the sector as a result of their Board membership and through various in-person and virtual site visits since their respective appointments. The AC invites the Chief Financial Officer, the Legal Director, the Chief Internal Auditor, the Executive Vice President (EVP) Taxation and Controller (as of October 1, 2022, this role was divided into two roles: EVP Taxation and EVP Controller), the Vice President Group Reporting and the external auditor to attend each meeting. The Chief Executive Officer attends each meeting where the quarterly, half-year and year-end financial results are discussed. The Chair of the Board also regularly attends AC meetings. Other members of management attend when requested on specific topics or to provide input on more detailed technical matters that may arise. The AC regularly holds private sessions separately with the Chief Internal Auditor and the external auditor without members of management, except for the Legal Director, being present. Outside of the formal AC meetings the Chair of the AC meets regularly with each of the following: the Chief Financial Officer, EVP Taxation, EVP Controller, the Chief Internal Auditor, the external auditor, and the Chief Information Officer.
AC remit The roles and responsibilities of the AC, as set out in its Terms of Reference, are reviewed annually taking into account relevant regulatory changes and recommended best practice. The key responsibilities of the AC include, but are not limited to: Risk Management and Internal Control ▪evaluating the effectiveness of the system of risk management and internal control; Financial Reporting ▪reviewing the integrity of the financial statements, including annual reports, half-year reports, and quarterly financial statements; ▪reviewing the potential impacts on the consolidated financial statements of the implementation of the Company's strategy, climate change and the energy transition; ▪advising the Board whether, in the AC’s view, the Annual Report taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy; ▪reviewing and discussing with management the appropriateness of judgements involving the application of accounting principles and disclosure rules; Compliance and Governance ▪reviewing the functioning of the Shell Global Helpline and reports arising from its operation; ▪overseeing compliance with applicable legal and regulatory requirements, including monitoring ethics and compliance risks; Internal Audit ▪monitoring the qualifications, expertise, resources and independence of the internal audit function; ▪approving the internal audit function’s remit and the annual internal audit plan to ensure alignment with the key risks of the business; ▪reviewing the significant matters arising from internal audits with the Chief Internal Auditor and assessing management’s response to significant internal audit findings and notable control weaknesses. This includes discussing with management potential improvements and agreed actions; ▪assessing internal audit's performance and effectiveness each year; External Audit ▪reviewing and monitoring the qualifications, expertise, resources and independence and objectivity of the external auditor; ▪considering the annual external audit plan and approving related remuneration, including fees for audit and non-audit services; ▪assessing the performance and effectiveness of the external auditor and the audit process, including an assessment of the quality of the audit; and ▪recommending to the Board for it to put to the Company's shareholders for approval at the Annual General Meeting (AGM) to appoint, reappoint, or remove the external auditor.
Governance Audit Committee Report These responsibilities form the basis of the AC’s annual work plan, which is adjusted as necessary throughout the year. In addition, the AC annually identifies certain business and function areas to focus on during that year. The focus areas generally encompass aspects of risk management and internal control, financial reporting and compliance. The AC is authorised to seek any information it requires from management and external parties and to investigate issues or concerns as it deems appropriate. The AC may also obtain independent professional advice at the Company's expense.
No such independent advice was requested in 2022. The AC keeps the Board informed of its activities and recommendations, and the Chair of the AC provides an update to the Board after every AC meeting. The AC discusses with the Board if it is not satisfied with or believes that action or improvement is required concerning any aspect of financial reporting, risk management and internal control, compliance or audit-related activities. A copy of the AC’s Terms of Reference can be found at www.shell.com. AC topic coverage in 2022 The pie chart below shows the percentage of time the AC spent on various activities during 2022. | | | | | | | | | Focus areas for 2022 | of AC time and activities |
The AC met with senior leaders from various business and function areas to discuss the adequacy, design and operational effectiveness of risk management and controls related to the critical activities carried out by their respective business or function. The discussions included information on any enhancements to strengthen controls and how areas identified for improvement had been addressed; the monitoring of activities around key risks; and the steps being taken to identify new or emerging areas of risk. In addition to the significant accounting and reporting considerations discussed on page 160 the business and function areas reviewed by the AC in 2022 included the following: ▪Impact of Russia’s invasion of Ukraine and Shell’s announced withdrawal from Russian oil and gas activities - Management
and the AC discussed the management of the crisis including the establishment of the Group Crisis Team which was set up to assess the situation, consider potential scenarios of how events could develop and co-ordinate Shell’s responses. The AC reviewed management’s approach to impairments of Russian assets; the potential total carrying value of all exposures to Russia (including Russian assets, obligations related to Russia (e.g. taxes and/or royalties due) and credit exposures related to the Group’s Russian activities); contracts; insurance implications; and sanctions. Throughout the year, the AC and management discussed the actions taken and their impacts. The AC also reviewed disclosures in relation to the situation, including the notes to the quarterly and year-end results announcements. ▪Non-operated ventures (NOVs) controls and governance - Management provided the AC with an overview of the strategic decisions for when management decides to utilise a NOV structure; the population of NOVs by size; which NOVs had adopted Shell’s control framework or implemented scalable control frameworks and the associated risks for those NOVs that have yet to adopt or implement such controls; and a self-assessment tool used to assess risks and the compliance status of NOVs. Management and the AC also discussed the pace of NOVs in progressing the energy transition and their approach to risk management.
Governance Audit Committee Report continued | | | | Focus areas for 2022 continued |
▪Climate change and energy transition, including impacts on financial statements as well as relevant sustainability and non-financial reporting and other regulatory developments – the AC was regularly updated in relation to developments and their potential implications for Shell including in relation to sustainability-related financial reporting standards, the TCFD guidance, the UK government's response to the Department for Business, Energy & Industrial Strategy (BEIS) "Restoring trust in audit and corporate governance" consultation and the FRC consultation on minimum standards for audit committees. ▪Carbon management, including GHG reporting and assurance framework – the AC was provided with an update in relation to the Carbon Management Framework (CMF) and the Carbon Reporting Committee (CRC). The role of the CMF is to ensure that targets are achievable, have assurance and that performance can be measured. The purpose of the CRC is to ensure that GHG emissions targets, including both absolute emissions and carbon intensity and associated financial metrics, comply with legal and regulatory requirements and that data is timely, complete and accurate. The CRC focuses on methodology, standards, processes and assurance. Management provided the AC with an overview of processes, systems and assurances in relation to Scope 1, 2 and 3 emissions. The AC and Management also discussed potential future regulatory assurance requirements for the financial statements. ▪Resegmentation – the AC reviewed the appropriateness of the financial disclosure improvements made during the first quarter of 2022 including disclosures of the Renewables and Energy Solutions business following resegmentation and further transparency through the split of downstream businesses into Marketing and Chemicals and Products. ▪Trading and Supply – the AC was provided with a number of updates in relation to Trading and Supply activities, particularly in the light of market volatility. The AC also visited the trading floor
in London during which the AC members received a number of briefings, including in relation to the trading platforms used by
the Trading and Supply team and an overview of gas storage management during 2022. ▪Introduction and implementation of windfall taxes such as the EU solidarity contribution and the Energy Profits Levy in the UK – the AC was provided with updates in relation to this topic and also reviewed the disclosures in the financial statements. Site visits During the year, AC members visited Shell Recharge Fulham Road, Shell’s first UK all-electric-vehicle charging hub and the AC also conducted a site visit to the London trading floor. As part of Board Strategy Days, AC members also visited Singapore in June 2022 (see Board Strategy Days on page 139). During 2023, the AC plan to visit a number of operations in the USA.. Site visits are a welcome addition to the AC’s annual work plan, as they provide the opportunity for the AC to gain a deeper understanding of the various businesses and functions at each location, the local external environment within which those activities take place and how they contribute to Shell achieving its strategic ambitions. In addition to in-depth examinations of specific business areas, site visits enable the AC members to interact with a diverse group of staff and learn about their experiences, challenges they face and their opportunities for career development. The AC is also briefed on the impact of the energy transition at a local level, how risks associated with climate change are managed, and the results of the Shell People Survey.
Governance Audit Committee Report continued | | | | | | | | | | | | Risk Management
and Internal Control | of AC time and activities | |
The AC assists the Board in fulfilling its responsibilities in relation to risk management and internal control. In order to monitor the effectiveness of the procedures for internal control over financial reporting, compliance and operational matters, the AC reviews reports on risks, controls and assurance, including the annual assessment of the system of risk management and internal control. This annual assessment includes the AC's review of outcomes from the Group Assurance Letter process. The Group Assurance Letter process involves each Executive Director conducting a structured internal assessment of compliance with legal and ethical requirements and the Shell Control Framework. The AC also reviews the Company’s evaluation of the internal control over financial reporting as required under Section 404 of the Sarbanes-Oxley Act (SOX 404). The AC updated the Board on compliance with internal controls across the Shell Group and on any major matters for which action or improvement was recommended. | | | | | | | Activities performed | Frequency | | Risk Management and Internal Control | | Review the policies and practices and monitor the effectiveness relating to Shell’s risk management and internal control system andsystem. | P | Receive briefings on the outcomes ofregulatory developments. | P | | Review management's SOX 404 assessment. | A | Discuss significant audits and notable control matters and briefingsarising from the Chief Ethics and Compliance Officer. Specific attention is given to topics that we consider particularly significant, including key areas of judgement relating to Shell’s Consolidated Financial Statements, as discussed in more detail later in this report. In 2020, in addition to standing matters, the AC addressed a variety of special focus areas including: the impacts of the COVID-19 pandemic on the controls and assurance environment; the impacts of the macroeconomic conditions on the outlook for commodity prices and refining margin assumptions; the effectiveness of decommissioning and restoration activities; a review of the integrated risk management landscape across Shell; an in-depth look at Shell’s treasury operations; and a review of Trading and Supply’s risk management strategy and platform, data and systems update. The AC carried out virtual site visits to Shell’s operations in Singapore, Krakow, and Kuala Lumpur. In addition, in March prior to a travel ban prompted by COVID-19, I spent three days in Houston visiting all of Shell’s operations. These site visits contribute to the AC’s understanding of the risks and opportunities arising in key markets and where important functions are carried out. The visits also provide the opportunity for the AC to engage with a diverse range of Shell staff in each location and to hear directly from them.
As climate change and energy transition gained further prominence and to help the AC keep abreast of the Company’s efforts and strategies to manage potential impacts on Shell’s assets, I became a member of the Safety, Environment and Sustainability Committee in 2020. In addition, the AC requested Ernst and Young LLP (EY), our external auditor, and the Chief Internal Auditor to specify in their respective quarterly reports to the AC what specific steps they have taken to incorporate climate change considerations into all facets of their work.
On a final note, the AC congratulates Shell's Annual Report team on winning the FD Henri Sijthoff Prize for the best 2019 annual report in the “listed companies” category in the Netherlands. The award recognises Shell’s pursuit of continual transparency improvements in its communications with external stakeholders.
ANN GODBEHERE
Chair of the Audit Committee
March 10, 2021
| | | | | | | | | GOVERNANCE SHELL FORM 20-F 2020 | 108 | |
COMMITTEE MEMBERSHIP AND ATTENDANCE FOR 2020
During 2020, the members and meeting attendance of the AC were as follows:
| | | | | | | | | | | | | | | | Committee Member | Member since | Maximum possible meetings | Number of meetings attended | % of meetings attended | | Ann Godbehere (Chair) | May 23, 2018 | 6 | 6 | 100% | | Dick Boer [A] | May 20, 2020 | 3 | 3 | 100% | | Martina Hund-Mejean [B] | May 20, 2020 | 3 | 3 | 100% | | Roberto Setubal [C] | October 1, 2017 | 3 | 3 | 100% | | Gerrit Zalm | March 8, 2017 | 6 | 6 | 100% |
[A] Dick Boer was appointed to the Board and AC with effect from May 20, 2020.
[B] Martina Hund-Mejean was appointed to the Board and AC with effect from May 20, 2020.
[C] Roberto Setubal stepped down from the Board with effect from May 19, 2020.
All members of the AC are financially literate, independent Non-executive Directors. In respect of the year ended December 31, 2020, for the purposes of the UK Corporate Governance Code, Ann Godbehere and Martina Hund-Mejean with effect from her appointment to the Board and AC on May 20, 2020, both qualify as: a person with “recent and relevant financial experience” and competence in accounting, and, for the purposes of US securities laws, an “audit committee financial expert”.
The experience of the AC members outlined on pages 89-94 demonstrates that the AC as a whole has competence relevant to the sector in which Shell operates, and the necessary commercial, regulatory, financial and audit expertise required to fulfil its responsibilities. The AC members have gained further knowledge and experience of the sector as a result of their Board membership and through various in-person and virtual site visits since their respective appointments.
The AC invites the Chief Financial Officer, the Legal Director, the Chief Internal Auditor, the Executive Vice President Taxation and Controller, the Vice President Group Reporting and the external auditor to attend each meeting. The Chief Executive Officer attends each meeting where the quarterly, half-yearly and year-end results are discussed. The Chair of the Board also regularly attends AC meetings. Other members of management attend when requested on specific topics or to provide input on more detailed technical matters that may arise. The AC regularly holds private sessions separatelycompleted internal audits with the Chief Internal Auditor, management and the external auditor without members of management, except for the Legal Director, being present. Outside of the formal AC meetings the AC Chair meets regularly with each of the Chief Financial Officer, Executive Vice President (EVP) Taxation and Controller, the Chief Internal Auditor, the external auditor, and the Chief Information Officer.
AC REMIT
The roles and responsibilities of the AC, as set out in its Terms of Reference are reviewed annually, taking into account relevant regulatory changes and recommended best practice. The key responsibilities of the AC include, but are not limited to:
•evaluating the effectiveness of the system of risk management and internal control;
•reviewing the integrity of the financial statements, including annual reports, half-year reports, and quarterly financial statements;
•reviewing and discussing with management the appropriateness of judgements involving the application of accounting principles and disclosure rules;
•advising the Board whether, in the AC’s view, the Annual Report taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess Shell’s position and performance, business model and strategy;
•reviewing the functioning of the Shell Global Helpline and reports arising from its operation;
•overseeing compliance with applicable legal and regulatory requirements, including monitoring ethics and compliance risks;
•monitoring the qualifications, expertise, resources and independence of the internal audit function and the external auditor;
•assessing the internal and external auditors’ performance and effectiveness each year and approving related remuneration for the external auditor; and
•recommending to the Board for it to put to the Company's Shareholders for approval at the Annual General Meeting (AGM) to appoint, reappoint, or remove the external auditor.
These responsibilities form the basis of the AC’s annual work plan which is adjusted throughout the year as necessary. The AC is authorised to seek any information it requires from management and external parties and to investigate issues or concerns as it deems appropriate. The AC may also obtain independent professional advice at the Company's expense. No such independent advice was required in 2020.
The AC keeps the Board informed of its activities and recommendations, and the Chair of the AC provides an update to the Board after every AC meeting. The AC discusses with the Board if it is not satisfied with or believes that action or improvement is required concerning any aspect of financial reporting, risk management and internal control, compliance or audit-related activities.
A copy of the AC’s Terms of Reference, which was updated in 2020 to reflect references affected by the separation of the Annual Report and Form 20-F, can be found at www.shell.com.
AC TOPIC COVERAGE IN 2020
The pie chart below shows the percentage of time the AC spent on various activities during 2020.
| | | | | | | | | GOVERNANCE SHELL FORM 20-F 2020 | 109 | Q |
FOCUS AREAS FOR 2020
The AC was briefed by senior leaders from various business and function areas on the adequacy, design and operating effectiveness of risk management and controls related to the critical activities carried out by their respective business or function. The briefings included information on any enhancements to strengthen controls and how areas identified for improvement had been addressed. These discussions also covered monitoring activities around risks, and steps being taken to address identified gaps and emerging risk areas. In addition to the significant accounting and reporting areas discussed on page 113, the business and function areas reviewed by the AC in 2020 included the following:
•Decommissioning and commissioning and restoration (D&R) - The AC was briefed on the different aspects of the D&R management process in Shell and the key risks and opportunities in D&R. The AC discussed the approach to D&R provisions and the controls in place to enable effective governance of D&R.
•Integrated risk management - To provide the AC with further insights into Shell’s integrated risk management framework across the organisation, the AC received an overview of the approach to risks, controls and assurance in two business areas: information risk management and Shell aircraft. The AC noted the improvement measures and best practices management has embedded within these two areas.
•Treasury operations - Senior Treasury leaders provided the AC with an overview of Shell’s centralised treasury operations, which include central debt and capital market activities, liquidity and foreign exchange, cash management and treasury functions. The AC reviewed the overall governance, controls and assurance activities. The AC gained a deeper understanding of how risks, including regulatory and fiscal compliance, are managed. As part of this review, the AC discussed future challenges and opportunities in this area.
•Trading and Supply’s control framework - Reflecting the growth in this area in recent years and increasing regulatory demands, the AC continued to focus on key control and compliance matters in Trading and Supply. Management updated the AC on the improvements being made within Trading and Supply to strengthen controls and modernise processes, data and systems and on the new hires in the areas of compliance and risk management.
In 2020, the AC carried out three site visits that were conducted virtually because of the travel restrictions in place during the COVID-19 pandemic. The AC visited: Singapore in October 2020; Kuala Lumpur in Malaysia in November and December 2020; and Poland in November 2020 and January 2021. These visits provided the opportunity for the AC to gain a deeper understanding of the various businesses and functions at each location, the local external environment within which those activities take place and how they contribute to Shell achieving its strategic ambitions. In addition to in-depth examinations of specific business areas, topics discussed during the site visits included: an overview of ethics and compliance matters, the challenges of operating during the COVID-19 pandemic for both people and operations, the impact of the energy transition at a local level and results from the Shell People Survey.
RISK MANAGEMENT AND INTERNAL CONTROL
The AC assists the Board in fulfilling its responsibilities in relation to risk management and internal controls by reviewing reports on risks, controls and assurance, including the annual assessment of the system of risk management and internal control, in order to monitor the effectiveness of the procedures for internal control over financial reporting, compliance and operational matters. This annual assessment includes the AC's review of outcomes from the Group Assurance Letter process (a structured internal assessment of compliance with legal and ethical requirements and the Shell Control Framework carried out by each Executive Director) and the Company’s evaluation of the internal control over financial reporting as required under Section 404 of the Sarbanes-Oxley Act (SOX 404). The AC updated the Board on compliance with internal controls across the Shell Group and on any major matters for which action or improvement was needed.
Throughout the year, the AC discussed with management the Company’s overall approach to risk management and internal control, including compliance, tax and information risk management matters and the adequacy of disclosure controls and procedures. The AC received quarterly reports from the Executive Vice President Taxation and Controller on the status of actions to address control weaknesses identified during assurance reviews, as well as trend information regarding business incidents and other metrics used to monitor the robustness of the risk management framework and internal control systems. As part of considering the risk management framework, the AC was informed of developments in the legal, regulatory and financial reporting landscape that could affect the Company. The AC was also briefed on litigation matters (see “Governance” on page 100 and Note 25 to the “Consolidated Financial Statements” on pages 206 - 208.
The AC reviewed on a quarterly basis the status ofAssess management’s SOX 404 testing of controls and remediation actions to address any identified weaknesses. For 2020, these quarterly reviews also included consideration of how the COVID-19 pandemic affected the controls and assurance landscape, including the financial reporting process. The AC and management discussed the steps taken to maintain an effective control environment to demonstrate “management in control” during the pandemic and to address any new or emerging risks due to the working from home setting during most of 2020.
In particular, the AC dedicated time to the following standing items during 2020:
Tax risks - In addition to the regular review of Shell’s tax position, the AC discussed with management new and potential tax legislation developments in various countries and how their potential impact on Shell is being managed. The AC also discussed with management Shell's updated Approach to Tax and proposed responses to the continued demand for greater transparency of tax information, noting for example, Shell’s publication of its second Tax Contribution Report in 2020.
Information risk management - The Chief Information Officer briefed the AC on the diverse and expanding risk landscape, including changes in cyber-attacks due to the COVID- 19 environment, and regulatory developments. The AC was briefed on activities undertaken in 2020 to address and manage new and evolving risks as well as improvements planned for 2021.
Oil and gas reserves control framework - The AC reviewed the framework in place to support internal reporting and external disclosures. The AC discussed the processes and controls for preventing and/or mitigating the risks of non-compliance with regulatory reporting requirements, and ensuring accurate reserves information is reported in an efficient manner.
In addition to the above discussions with management, on a quarterly basis, the AC and the Chief Internal Auditor discussed the Company’s risk management and internal control system, any significant matters arising from the internal audit assurance programme and management’s response to significant audit findings, recommendations and notable control weaknesses, including potential improvements and agreed actions. The AC held similar discussions
| P | Review significant legal matters with EY on a quarterly basis.
FINANCIAL REPORTING
In 2020, the AC received comprehensive reports from management and the external auditor on quarterly financial reporting, accounting policies and judgements and reporting matters.
Shell’s annual report and accounts forLegal Director. | Q | Review the year ended December 31, 2019 was selected by the Financial Reporting Council (FRC) for their thematic review of a sample of companies’ reporting on the impact of climate change and the first full year of adoption of IFRS 16, Leases.The FRC carried out a limited scope review of Shell's disclosures relating to these matters and did not conduct a full review of Shell's 2019 Annual Report and accounts.Following correspondence, the review was closed on February 10, 2021 and certain disclosure improvements have been made to the Consolidated Financial Statements for the year ended December 31, | | | | | | | | | GOVERNANCE SHELL FORM 20-F 2020 | 110 | |
2020.The AC reviewed Shell’s correspondence with the FRC and discussed with management the disclosures incorporated in the Consolidated Financial Statements in response to the FRC review.
The AC reviewed the Company’s 2020 quarterly unaudited interim financial statements, half-yearly report and Annual Report with management and the external auditor. Following the decision to produce a separate Annual Report and Form 20-F beginning with financial year 2019, the AC reviewed the control framework put in place to ensure the disclosures in both reports comply with relevant requirements.
The AC discussed the audited financial statements with management and the external auditor. The AC advised the Board that in its view the 2020 Form 20-F including the financial statements for the year ended December 31, 2020, taken as a whole, provides the information necessary for shareholders to assess Shell’s position and performance, business model and strategies. The AC also advised the Board that in its view the inclusion of the audited financial statements in the 2020 Form 20-F is appropriate. To reach this conclusion, the AC critically assessed drafts of the 2020 Form 20-F including the financial statements and reviewed with management the process for ensuring compliance with applicable requirements. This process included: verifying that the contents of the 2020 Form 20-F are consistent with the information shared with the Board during the year to support their assessment of Shell’s position and performance; ensuring that consistent materiality thresholds are applied for favourable and unfavourable items; considering comments from the external auditor; and receiving assurance from the Executive Committee (EC). The AC also reviewed and considered the Directors’ half-year and full-year statements with respect to the going concern basis of accounting. Further, the AC discussed with the external auditor matters regarding the audit and the quality of the accounting judgements employed by management.
Other matters
The AC reviewed: the year-end reported proved oil and gas reserves including management judgements and adjustments made to reflect changes in geological, technical, contractual and economiccontrol framework.
| A | Review Shell’s information the Brent crude oil and Henry Hub natural gas long-term price assumptions; estimated refining margins; discount rates used for financial reporting, particularly with respect to impairment testing and decommissioning and other provisions (see Note 2 to the “Consolidated Financial Statements” on pages 169 - 176 for further information); and the effectiveness of financial controls.
COMPLIANCE AND GOVERNANCE
Ethics and compliance
The AC discussed with the Chief Ethics and Compliance Officer the potential impact of COVID-19 on conduct risk at Shell. The Chief Ethics and Compliance Officer summarised the macro factors affecting conduct risk during the pandemic and the related economic downturn. The AC was updated on management's risk-based approach and mitigation actions taken by Shell in response to these issues, including reinforcing adherence to Shell’s compliance rules and Code of Conduct.
In October 2020, the AC and the Safety, Environment and Sustainability Committee held a joint session with the Chief Ethics and Compliance Officer which facilitated an effective discussion of the controls, procedures and governance for managing high risk transactions in Shell, with a particular focus on proposed portfolio activities including new business development opportunities, acquisitions, divestments and joint ventures.
As part of the annual assessment of the system of risk management and internal control, the AC discussed with the Chief Ethics and Compliance Officer his annual report on compliance matters. The report included an overview of the effectiveness of the Shell ethics and compliance programme in managing ethics and compliance risk in Shell’s business activities, regulatory developments and compliance risks. The AC also discussed investigations of cases involving ethics and compliance concerns. The AC discussed management’s findings in such cases to satisfy itself that a rigorous process had been followed, and, where necessary, appropriate disciplinary actions had been taken and management had embedded learnings into Shell's systems and controls.
Whistleblowing investigations
The AC is responsible for establishing and monitoring the implementation of procedures for the receipt, retention, investigation and follow-up actions of complaints received, including those from the Shell Global Helpline. The AC reviewed whistleblowing reports and internal audit reports and considered management’s responses to the findings in these reports.
Regulatory developments
The AC was briefed on regulatory developments in areas including: sustainable finance (in particular management’s work on the EU Sustainable Finance Taxonomy); non-financial reporting (in particular management’s assessment of the EU Non-Financial Reporting Directive Revision); accounting and reporting; environmental liabilities and treasury activities.
AC annual evaluation
The AC undertakes an annual evaluation of its performance and effectiveness. Consistent with the Board’s annual performance evaluation for 2020, the AC’s performance evaluation was facilitated by Lintstock Limited, a London-based corporate advisory firm. Each AC member responded to a confidential questionnaire about the AC’s performance covering questions on: the management of the AC in areas such as the annual cycle of work, agenda for meetings and time and input in meetings; the quality of the information provided to the AC; the value of the virtual site visits and the AC briefings on specific topics; the effectiveness of the AC’s oversight in areas such as financial reporting, risk management and internal control, compliance and governance and the work of internal and external audit; rating the AC’s performance in reviewing and assessing significant accounting and reporting judgements; and how to improve the AC’s performance. When assessing progress against 2019, the AC concluded it had achieved all the 2020 priorities identified in the 2019 evaluation discussion (including visits to Shell’s operations in Singapore, Krakow, and Kuala Lumpur, including the finance operation centres in Krakow and Kuala Lumpur, and reviews related to Trading and Supply, regulatory developments, decommissioning and integrated risk management). The AC discussed the outcome of this review as part of its annual evaluation. The AC concluded that its performance in 2020 had been effective and that it had fulfilled its role in accordance with its Terms of Reference.
In preparing its workplan for 2021, the AC has agreed the following focus areas in addition to the standing items: New business models and ventures; Pensions; Contracting and Procurement; Reshape management framework and oil and gas pricing methodology. As part of its review of new business models and ventures, the AC plans to visit one of Shell’s new ventures in 2021.
| | | | | | | | | GOVERNANCE SHELL FORM 20-F 2020 | 111 | P |
| | | | | | Activities performed | Frequency | Risk Management and Internal Control | | Reviewed the policies and practices and monitored the effectiveness relating to Shell’s risk management and internal control system. | P | Received briefings on regulatory developments. | P | Reviewed management's SOX 404 assessment. | A | Discussed significant matters arising from completed internal audits with the Chief Internal Auditor, management and the external auditors. | Q | Assessed management’s response to significant audit findings, recommendations and notable control weaknesses, including potential improvements and agreed actions. | P | Reviewed significant legal matters with Shell’s Legal Director. | Q | Considered the oil and gas reserves control framework. | A | Reviewed Shell’s information risk management. | P | ReviewedReview Shell’s tax function, key tax risks and Shell’s approach to the evolving area of tax transparency. | P |
A = Annually, Q = Quarterly, P = Periodically Throughout the year, the AC and management discuss Shell’s overall approach to risk management and internal control, including compliance, tax, and information risk management matters and the adequacy of disclosure controls and procedures. The AC receives regular reports from the EVP Taxation and Controller (EVP Controller with effect from October 1, 2022) on the status of actions to address control weaknesses identified via business control incidents and the trends in other measures used to monitor the robustness of the risk management framework and internal control systems. | | | | The AC is also briefed on litigation matters (see "Governance" on page 199 and Note 31 to the "Consolidated Financial Statements" on page 283. |
The AC regularly reviews the status of management’s SOX 404 testing of controls and remediation actions to address any identified weaknesses. For 2022, these reviews included consideration of how the volatile external environment, including the impacts of the Russian invasion of Ukraine, affected the controls and assurance landscape, including the financial reporting process. The AC and management discussed the steps taken to maintain an effective control environment, to demonstrate "management in control" during the year and to address any new or emerging risks due to hybrid working. The AC was also briefed on how management was monitoring and addressing any continuing impacts on the control environment from the organisational restructuring from Reshape. It is important that the AC monitor and learn about evolving external developments in a timely fashion. Accordingly, the AC is regularly briefed on developments in the legal, regulatory and financial reporting landscape that could affect the Company. In 2022, the AC dedicated time to the following topics: ▪Tax risks – In addition to the regular review of Shell’s tax provisions, the AC and management discussed the tax implications stemming from the Simplification that took place in early 2022. Management also briefed the AC regarding developments in the external tax landscape, including the new windfall and minimum taxes and different types of taxes when entering new markets and businesses. Management outlined for the AC the steps being taken to manage tax risks and exposures arising from differing viewpoints on complex tax laws. The AC and management discussed proposed changes to Shell's "approach to tax" which were being made to align with Shell's Powering Progress strategy and Simplification. ▪Information risk management –The Chief Information Officer briefed the AC on the various actions under way to strengthen Shell's IT systems and cyber-security framework in response to the changing risk landscape and diverse forms of external threats observed. The AC and management discussed the use of dashboards in monitoring assets and compliance and enabling the deployment of actions when required. The AC and management discussed tracking of projects, including the utilisation of clear milestones and value assessments as projects develop. The AC and management also considered the impact of Russia's invasion of Ukraine and Shell's announced withdrawal from Russian oil and gas activities from an information risk management perspective, including the separation of information systems from Russia and monitoring of cyber-security risk. ▪Oil and gas reserves control framework – The AC annually reviews the framework that supports Shell’s internal reporting and external disclosures of oil and gas reserves. The AC also reviews the processes and controls that prevent and/or mitigate the risks of
non-compliance with regulatory reporting requirements. This annual review of Shell’s oil and gas reserves control framework supports
the AC’s review of Shell’s reported proved oil and gas reserves discussed later in this report. In addition to the above, the AC also had quarterly discussions with the Chief Internal Auditor regarding the Company’s risk management and internal control system, significant matters arising from the internal audit assurance programme and management’s response to significant audit findings and notable control weaknesses, including planned improvements and agreed actions. The AC similarly holds discussions with EY on a quarterly basis regarding how risks to audit quality are addressed, key accounting and audit judgements, results from audit procedures and management’s response to any significant audit findings and any material communications between EY and management.
Governance Audit Committee Report continued | | | | | | | | | | | | | Financial Reporting | of AC time and activities | | Reviewed Shell’s accounting policies and practices, including compliance with accounting and reporting standards. | Q | Assessed the appropriateness of key judgements and the interpretation and application of accounting principles. | Q | Considered the integrity of the year-end financial statements and recommended to the Board whether the audited financial statements should be included in the Annual and statutory reports. | A | Considered the integrity of the half-yearly report and quarterly financial statements. | Q | Reviewed management’s assessment of going concern and longer-term viability. | Q | Reviewed Shell’s policies with respect to earnings releases; financial performance information and earnings guidance; and significant financial reporting matters. | Q | Reviewed Shell’s policies with respect to oil and gas reserves accounting and reporting including the outcome of the oil and gas reserves booking/debooking process. | A | Reviewed the internal controls for financial reporting. | P | Advised |
The AC receives comprehensive reports from management and the external auditor on quarterly financial reporting, accounting policies and significant judgements and reporting matters. | | | | | | | Activities performed | Frequency | | Financial Reporting | | | Review Shell’s accounting policies and practices, including compliance with accounting and reporting standards. | Q | | Assess the appropriateness of key judgements and the interpretation and application of accounting principles. | Q | | Review the potential impact on the consolidated financial statements of the implementation of the Company's strategy, climate change and the energy transition. | Q | | Consider the integrity of the year-end financial statements and recommend to the Board whether the audited financial statements should be included in the annual and statutory reports. | A | | Consider the integrity of the half-year report and quarterly financial statements. | Q | | Review management’s assessment of going concern and longer-term viability. | Q | | Review Shell’s policies with respect to earnings releases; financial and non-financial performance information and earnings guidance; and significant financial reporting matters. | Q | | Review Shell’s policies with respect to oil and gas reserves accounting and reporting including the outcome of the oil and gas reserves booking/debooking process. | A | | Review the internal controls for financial reporting. | P | | Advise the Board of the AC’s view on whether, taken as a whole, the Annual Report is fair, balanced and understandable and provides the information necessary for shareholders to assess Shell’s position and performance, business model and strategy. | A | Compliance and Governance | | Monitored the receipt, retention, investigation and follow-up actions of complaints received, including those from the Shell Global Helpline. | P | Reviewed with the Chief Ethics and Compliance Officer the implementation and effectiveness of the ethics and compliance programme and function. | A | Discussed compliance with applicable external legal and regulatory requirements. | P | Performed an evaluation of the AC’s performance and effectiveness and reported the results to the Board. | A | Reviewed and updated the AC’s Terms of Reference. | A | Reviewed the Chief Financial Officer’s significant business and investment transactions for potential conflicts or related party transactions. | A | Assessed the Chief Financial Officer’s performance. | A | Internal Audit | | Evaluated the quality, efficiency and effectiveness of the internal audit function including the competence, qualifications, expertise, compensation and budget. | A | Reviewed and approved the internal audit function’s remit, charter and audit plan. | A | Assessed the performance of the Chief Internal Auditor. | A | External Audit | | Reviewed and approved the engagement letter for EY's annual audit of the Company's consolidated and parent company financial statements. | A | Approved the remuneration for audit and non-audit services, including pre-approval of permissible non-audit services. | Q | Considered the annual external audit plan and monitored the execution and results of the audit. | P | Monitored the qualifications, expertise, resources and independence of EY. | A | Reviewed the Company’s representation letter prior to signing |
A = Annually, Q = Quarterly, P = Periodically The AC reviewed the Company’s 2022 quarterly unaudited interim financial statements, half-year report, Annual Report and Form 20-F with management and the external auditor. Shell uses alternative performance measures (APMs) to provide greater insights into its financial and operating results. The AC regularly considers the APMs used in Shell’s reporting, the reconciliations to IFRS financial statements and explanations for changes from the previous quarter and year. The AC reviews the overall presentation of APMs with management to ensure they are not given undue prominence. The AC discusses adjusting items with management including any changes to methodology. The APMs disclosed by Shell are subject to the same internal control process as applied for other financial reporting. The AC discussed the audited financial statements with management and the external auditor. The AC advised the Board that in its view the 2022 Form 20-F including the financial statements for the year ended December 31, 2022, taken as a whole, provides the information necessary for shareholders to assess Shell’s position and performance, business model and strategy. The AC also advised the Board that in its view, the inclusion of the audited financial statements in the 2022 Form 20-F is appropriate. To reach this conclusion, the AC critically assessed drafts of the 2022 Form 20-F including the financial statements and reviewed with management the process for ensuring compliance with applicable requirements. This process included: verifying that the contents of the 2022 Form 20-F are consistent with the information shared with the Board during the year to support their assessment of Shell’s position and performance; ensuring that consistent materiality thresholds are applied for favourable and unfavourable items; considering comments from the external auditor; and receiving assurance from the Executive Committee (EC). The AC also reviewed and considered the Directors’ half-year and full-year statements with respect to the going concern basis of accounting. The AC and the external auditor also discussed matters regarding the audit and the quality of the accounting judgements employed by management. | A | Assessed the performance, objectivity and effectiveness of EY, the audit process, the quality of the audit, EY’s handling of key judgements, and EY’s response to questions from the AC | P | Recommended to the Board that the reappointment of EY be put to the Company’s shareholders for approval at the AGM. | A | | |
A = Annually, Q = Quarterly, P = Periodically
Governance Audit Committee Report continued | | | | | | | | | | | | Financial Reporting continued | | | GOVERNANCE SHELL FORM 20-F 2020 | 112 | |
SIGNIFICANT ACCOUNTING AND REPORTING CONSIDERATIONS
The AC assessed the following significant accounting and reporting areas, including those related to Shell’s 2020
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Significant accounting and reporting considerations
The AC assessed the following significant accounting and reporting areas, including those related to Shell’s 2022 Consolidated Financial Statements. The AC was satisfied with how each of the areas below was addressed. As part of this assessment, the AC received reports, requested and received clarifications from management, and sought assurance and received input from the internal and external auditors.
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| | AC activity and outcome |
| Climate change and energy transition | | |
Risks related to climate change and energy transition are continually monitored to ensure impacts are reflected within Shell's financial statements. SignificantThe external landscape related to non-financial disclosures continues to change at unprecedented speed. In the absence of one global standard for climate-related reporting there are growing demands from various regulatory and voluntary bodies all with their own expectations for disclosures.
| | The AC was briefed on key regulatory requirements including (but not limited to) the FRC, SEC and EU disclosure requirements and their implications for Shell’s external disclosures. The AC also received an update on the outcome of management’s engagement with Sarasin & Partners and Carbon Tracker.
The AC reviewed Note 4 to the Consolidated Financial Statements summarising the key climate risks impacts on the Consolidated Financial Statements as well as the impairment sensitivity disclosures using price outlooks based on different climate change scenarios, including external scenarios. |
| See Note 4 to the "Consolidated Financial Statements" on pages 230-240. |
| The AC was briefed on the non-financial reporting external landscape developments and regulatory requirements. In this connection, the AC considered the potential implications required for Shell's external disclosures going forward. The AC reviewed the TCFD disclosure in the "Our journey to net zero" section and other non-financial disclosures as part of the Annual Report review and was briefed on the EU taxonomy voluntary disclosures included as supplementary information to the Annual Report. |
| Updates regarding climate change and energy transition have been included in the risk factors section on page 22. |
| Resegmentation and improved financial disclosures |
In line with IFRS 8 - Operating Segments and the Powering Progress strategy, Shell's reporting segments were revised from the first quarter of 2022. To further improve the quality of insights provided by Shell's financial disclosures, improvements were made during the year, for example enhanced data disclosures and APMs. | | The AC received updates on the implementation readiness, including restatement of prior period comparatives and assurance activities performed over the resegmentation prior to the publication of the first quarter 2022 quarterly results announcement. The AC undertook its regular monitoring and assessment in the use of APMs, for example Adjusted Earnings (including identified items during the quarters), Adjusted EBITDA, CFFO excluding working capital, and Net debt and Gearing. The AC reviewed the appropriateness of the financial disclosure improvements made during the first quarter 2022 including the changes to the Management Discussion & Analysis in the quarterly results announcement (QRA) and the enhanced disclosures in the Quarterly Data Book, for example the separate disclosure of the Renewables and Energy Solutions business following resegmentation and further transparency through the split of downstream businesses into Marketing and Chemicals and Products. |
| Withdrawal from Russian oil and gas activities |
Following Russia's invasion of Ukraine, Shell announced its intent to withdraw from: its ventures in Russia; service stations and lubricant operations; and involvement in all Russian hydrocarbons. The diverse nature of the Russian activities, including consolidated subsidiaries, proportionally consolidated ventures, equity-accounted ventures, long-term loans, vessel leases, and offtake contracts, required an in-depth review to determine the accounting and reporting areasimplications. | | In the first quarter of 2022, management provided the AC with a detailed analysis of the different accounting and reporting implications for each business and asset in Russia. The AC reviewed the disclosure note in the first quarter 2022 QRA which included comprehensive disclosures on individual assets and the associated pre-tax charges recognised in the first quarter results. In each subsequent QRA during 2022, the disclosure note was updated for changes in the respective periods and was included in the quarterly results announcements. The AC has continued to receive updates on the withdrawal from Russian oil and gas activities throughout 2022 including remaining assets at risk and the implications for the interim financial statements. |
| See Note 6 to the "Consolidated Financial Statements" on pages 242-244. |
| Taxation |
The determination of tax assets and liabilities requires the application of judgement as to the ultimate outcome, which can change over time. In particular, uncertain tax treatments require management to assess the more likely than not outcome, and the recognition of deferred tax assets require management to make assumptions regarding future profitability. As a result, they are inherently uncertain.
| | The AC considered the uncertain tax positions and discussed management’s assumptions of future taxable profits. The AC also evaluated the appropriateness of the recognition of deferred tax assets and tax liabilities. The AC recognises that assumptions regarding future taxable profits are inherently uncertain because they involve assessing factors such as the potential impacts of climate change and energy transition. The AC deemed the assessments of uncertain tax exposures and the recognition of deferred tax assets and tax liabilities to be reasonable. The AC also assessed the accounting judgements made regarding the treatment of tax provision releases relating to Nigeria. The AC also reviewed the impact on tax balances and disclosures as a result of new windfall and minimum taxes around the world, in particular those related to the EU solidarity contribution and the Energy Profits Levy in the UK. |
| | See Notes 2 and 22 to the "Consolidated Financial Statements" on pages 220-230 and 263-265. |
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Audit Committee Report continued
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Financial Reporting continued | | |
Subject | Issue | How the AC addressed the issue |
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| Issue | | AC activity and outcome |
| Gas & Power markets and derivatives accounting |
| External events during the year, such as the Russian war in Ukraine and uncertainties over Russian gas supplies, have seen unprecedented movements in gas and power markets during 2022 affecting trading activities. The impacts on financial outcomes of Integrated Gas and Renewable and Energy Solutions included, for example, significant derivatives movements. | | The AC was briefed on Trading and Supply activities and developments. The AC reviewed the impacts of volatile gas and power markets including the impact on mark-to-market valuation of derivatives, IFRS and Adjusted Earnings, as well as the resulting cash flow movements. |
| See Note 25 to the "Consolidated Financial Statements" on pages 273-279. |
| Impairment and impairment reversals | | |
| The carrying amount of an asset should be tested for impairment or impairment reversal whenever events or changes in circumstances indicate that the carrying amount for that asset may have changed, for example if there is a change in the outlook for commodity prices or refining margin assumptions, or in the event of revisions to future activity plans and developments. On classification as held for sale, the carrying amounts of property, plant and equipment (PP&E) and intangible assets must also be reviewed. | | The AC reviewed the impairment assessments that were performed each quarter, and the methodology applied in conducting impairment assessments. The AC considered the updated oil and gas price outlooks against market developments and benchmarks. The 2022 commodity price outlook was reassessed and triggered an impairment reversal review in the second quarter 2022. The AC reviewed the outcomes of the review and the resulting impairment reversals which have been recognised in the 2022 Consolidated Financial Statements. The AC also reviewed other impairment triggers, including for exploration an evaluation assets and held-for-sale classification for asset disposals, and the impairment of goodwill, including for new acquisitions. The AC review of impairments covered a significant proportion of the balance sheet. |
| | See Notes 2, 11, 12 and 13 to the "Consolidated Financial Statements" on pages 220-230, 250-251, 251-254 and 255. |
| Portfolio activities |
| In implementing the Powering Progress strategy, several portfolio developments occurred in 2022. | | The AC discussed the accounting implications of these developments and the recognition of: (i) decommissioning and restoration provisions; (ii) deferred tax balances; (iii) impairment; and (iv) assets held for sale. The AC also considered the complex accounting treatments, including the Savion and Fulcrum acquisitions. The AC provided support for projects to develop detailed accounting guidance for these types of transaction. |
| | See Notes 2 and 24 to the "Consolidated Financial Statements" on pages 220-230 and 272-273. |
| Provisions | | |
| Provisions, including decommissioning and restoration provisions, are one of the main components of the balance sheet liabilities. The quantification of these provisions requires judgements on input parameters which include, but are not limited to, discount rates and estimated future decommissioning and restoration costs. | | The AC was briefed on provisions throughout the year, including onerous contracts and litigation. The AC also reviewed the input parameter assumptions and judgements used in arriving at the decommissioning and restoration provisions. The discount rate is reviewed regularly and the AC considered the change in discount rate to be applied from September 30, 2022. The impact of the change in discount rate on non-current decommissioning and other provisions was disclosed in the Q3 2022 QRA. |
| Retirement benefit obligations |
| Retirement benefits are an important component of both assets and liabilities on the balance sheet. The quantification of these assets and liabilities requires judgements on input parameters which include, but are not limited to, actuarial assumptions and discount rates. | | The AC was briefed on the management of risks in relation to retirement benefits in 2022, including financial, operational, and regulatory developments. The AC reviewed the key assumptions (including discount rates and inflation) and sensitivities as part of the Annual Report review and the enhanced disclosures made in this Report. |
| See Note 23 to the "Consolidated Financial Statements" on pages 265-271. |
IMPAIRMENTS AND IMPAIRMENT REVERSALS
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The AC reviewed: the year-end reported proved oil and gas reserves, including management judgements and adjustments made to reflect changes in geological, technical, contractual and economic information (including yearly average price assumptions) and the effectiveness of financial controls.
See Notes 2, 7, 8 and 9 to the “Consolidated Financial Statements” on pages 169 - 176 and 181 - 186
The carrying amount of an asset should be tested for impairment or impairment reversal whenever events or changes in circumstances indicate that the carrying amount for that asset may have changed, such as a change in the outlook for commodity prices and refining margin assumptions and revisions to future activity plans and developments. On classification as held for sale, the carrying amounts of property, plant and equipment (PP&E) and intangible assets are also reviewed. | The AC reviewed the impairment assessments that were performed each quarter. In doing so, the AC considered the updated oil and gas price and refining margin outlooks against market developments and benchmarks. The potential impact of price sensitivities was reviewed and asset-specific risks were considered together with the relevant discount rates applied. The AC also reviewed other significant inputs to impairment assessments, including the held-for-sale classification and the potential impacts of climate change and energy transition. The AC review of impairments covered a significant proportion of the balance sheet. | TAXATION
See Notes 2 and 16 to the “Consolidated Financial Statements” on pages 169 - 176 and 190 - 192
| The determination of tax assets and liabilities requires the application of judgement as to the ultimate outcome, which can change over time. In particular, tax exposures and the recognition of deferred tax assets require management to make assumptions regarding future profitability and are therefore inherently uncertain. | The AC considered the uncertain tax positions and discussed management’s assumptions of future taxable profits, and evaluated the appropriateness of the recognition of deferred tax assets and tax liabilities. While recognising that assumptions regarding future taxable profits are inherently uncertain, particularly in light of COVID-19 and the pace of economic recovery in different countries as well as the potential impacts of climate change and energy transition (for example see “Future Refinery Portfolio" below), the AC deemed the resulting assessments of uncertain tax exposures and the recognition of deferred tax assets and tax liabilities to be reasonable. |
DISCOUNT RATE FOR PROVISIONS
See Notes 2 and 18 to the “Consolidated Financial Statements” on pages 169 - 176 and 197
| A review was carried out to consider the discount rate applied for provisions due to a lower rate for 30-year US Treasury bonds. Due to the significant drop in the rate, management lowered the discount rate for provisions from 3% to 1.75% in Q2 2020. | The AC reviewed the impact of this change on provisions and in particular considered the impact on decommissioning and restoration provisions and corresponding assets. | | | | | | | | | | 161 | Shell | Form 20-F 2022 | COVID-19 AND MACRO-ENVIRONMENT
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Governance Audit Committee Report continued See Notes 2, 7, 8, 9, 12, 17 and 18 to the “Consolidated Financial Statements” on pages 169 - 176; 181 - 186; 187; and 193 - 197 | | | | | | | | | | | | Compliance and
Governance | of AC time and activities | As a result of COVID-19 and the macro-environment uncertainty and volatility, a number of accounting implications were discussed with the AC throughout 2020, including:
impairments and discount rate for provisions (see above);
expected credit loss – in particular, the credit risk exposures in Oil Products, Chemicals and Trading;
pension remeasurement – defined benefit pension plan obligations and assets are remeasured quarterly, with significant movements in 2020 due to volatility in discount rates, inflation rates and financial markets; and
inventory write-down – due to the significant decline in prices in March and April 2020, there was a write-down of some of the Shell Group’s inventory to net realisable value.
| The AC discussed and challenged the accounting implications associated with the macro-environment conditions as they evolved throughout 2020. | FUTURE REFINERY PORTFOLIO
See Notes 2 and 18 to the “Consolidated Financial Statements” on pages 169 - 176 and 197
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Following Shell’s announcement in Q3 2020, the Company intends to transform its refining portfolio during the energy transition from 14 sites into six high-value energy and chemicals parks integrated with Chemicals. Evaluations and decisions are expected to follow on assets that could result in the recognition of significant provisions and charges to earnings. | The AC discussed the accounting implications of these decisions and the recognition of: (i) decommissioning and restoration provisions; (ii) restructuring provisions; (iii) onerous contract provisions; and (iv) impairment considerations. |
RESHAPE RESTRUCTURING PROVISIONS
See Notes 2 and 18 to the “Consolidated Financial Statements” on pages 169 - 176 and 197
| During 2020 a comprehensive portfolio and organisational review called Reshape was announced which is expected to result in between 7,000-9,000 redundancies and related redundancy provisions and charges are expected to be recognised in 2021. | The AC considered the accounting implications and whether the criteria to recognise a restructuring provision as per IAS 37.72 were fulfilled in 2020. The AC agreed with management that the criteria had not been met by December 31, 2020 and that it was appropriate that the majority of the restructuring provision be recognised in 2021. |
SEGMENT REPORTING
See Note 4 to the “Consolidated Financial Statements” on pages 177 - 180
| Reflecting a change in the way Shell’s CEO reviews and assesses performance, and makes decisions in allocating resources, management reassessed Shell’s segment reporting. From January 1, 2020, Shell's reportable segments consist of: Upstream, Integrated Gas, Oil Products, Chemicals, and Corporate. | The AC assessed the appropriateness of the revised reporting segments for 2020 and the restatement of prior periods to the new segments. |
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GOVERNANCE SHELL FORM 20-F 2020 | 113 | |
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INTERNAL AUDITCompliance and Governance | |
Internal audit remit
The internal audit function is an independent assurance function which supportsMonitor the receipt, retention, investigation and follow-up actions of complaints received, including those from the Shell in improving its overall control framework. The internal audit function contributes toGlobal Helpline.
| P |
Review with the maintenance of a systematicChief Ethics and disciplined approach to evaluate and improveCompliance Officer the designimplementation and effectiveness of Shell’s risk management, controlthe ethics and governance processes. The primarycompliance programme and function. | A |
| Consider compliance with applicable external legal and regulatory requirements. | P |
| Perform an evaluation of the AC’s performance and effectiveness and report the results to the Board. | A |
| Review and, if required, update the AC’s Terms of Reference. | A |
| Review the Chief Financial Officer’s significant business and investment transactions for potential conflicts or related party transactions. | A |
| Assess the Chief Financial Officer’s performance. | A |
A = Annually, Q = Quarterly, P = Periodically
Ethics and compliance
In 2022, the AC received an update from the Chief Ethics and Compliance Officer on how a range of macro factors and external trends and developments, including Russia's invasion of Ukraine, were affecting conduct risk at Shell. The Chief Ethics and Compliance Officer summarised the specific emerging ethics and compliance risks, with a particular focus on trade compliance and data privacy, and management's actions to manage and mitigate them. The Chief Ethics and Compliance Officer briefed the AC on communications to staff from both senior leaders and mid-level management reinforcing the importance of adherence to and affirming Shell’s commitment to the Ethics and Compliance framework and Code of Conduct throughout the year.
As part of the annual assessment of the system of risk management and internal control, the AC discussed with the Chief Ethics and Compliance Officer his annual report on compliance matters. The report included an overview of the effectiveness of the Shell ethics and compliance programme in managing ethics and compliance risk in Shell’s business activities, regulatory developments and compliance activities. The AC also reviewed investigations of cases involving ethics and compliance concerns. The AC discussed management’s findings in such cases to satisfy itself that a rigorous process had been followed, with appropriate disciplinary action being taken where necessary, and that management had embedded learnings into Shell's systems and controls.
Whistleblowing investigations
The AC is responsible for establishing and monitoring the implementation of procedures for the receipt, retention, investigation and follow-up actions of complaints received, including those from the Shell Global Helpline. The AC reviewed whistleblowing reports and internal audit reports and considered management’s responses to the findings in these reports. In 2022, 1,790 allegations and inquiries were received through the Shell Global Helpline (2021: 1,479), of which approximately 41% were submitted anonymously (2021: 42%). In 2022, a total of 412 investigations were closed (2021: 369), of which 44% were found to have some level of substantiation (2021: 49%) and were primarily in the areas involving harassment, conflicts of interest and protection of assets.
Regulatory developments
The AC was briefed on regulatory developments in areas including sustainability and climate-related disclosures (in particular management’s responses to proposals from the International Sustainability Standards Board and the US Securities Exchange Commission in this area and FRC/EU disclosure requirements); the UK government's response to the consultation on strengthening the UK's audit, corporate reporting and corporate governance systems, and potential implications for the Company, the Board and the AC; accounting and reporting; environmental liabilities; and treasury activities.
AC annual evaluation
The AC undertakes an annual evaluation of its performance and effectiveness. Consistent with the requirements of the UK Corporate Governance Code, the performance evaluation was externally facilitated in 2022, and an overview of the evaluation process and the feedback themes for the Committees can be found on page 153. It was concluded that the AC's performance in 2022 had been effective and that the AC had fulfilled its role in accordance with its Terms of Reference.
In preparing its work plan for 2023, the AC has included the following focus areas in addition to the standing items: risk management, including cyber security; regulatory developments, mainly those in relation to climate change and energy transition; Trading and Supply; and the Shell Performance Framework. As noted earlier, the AC also plans to visit a number of operations in the USA in 2023.
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| Internal Audit | of AC time and activities | |
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| Activities performed | Frequency |
| Internal Audit | |
Evaluate the quality, efficiency and effectiveness of the internal audit function through its assuranceincluding the competence, qualifications, expertise, compensation and investigation activities, is to safeguard value by protecting Shell’s assets, reputationbudget. | A |
Review and sustainability in relation to the organisation's defined goals and objectives.
The AC defines the responsibility and scope of the internal audit function and approves its annual plan. The Chief Internal Auditor reports functionally to the Chair of the AC and administratively to the Chief Financial Officer. The Chair of the AC approves, in consultation with the Chief Financial Officer, all decisions regarding the performance evaluation, appointment or removal of the Chief Internal Auditor.
Annual internal audit plan and assessment of internal audit’s effectiveness
In 2020, the AC considered and approvedapprove the internal audit function’s annualremit, charter and audit plan, including focus areas for 2020 consisting of: (i) talent and capability (professional audit development and technical capabilities); (ii) quality (developing first-line staff competence and clarity on self-verification and supervisory controls); (iii) alignment (improved integration of risk management and alignment of assurance processes across Shell); and (iv) engagement (mainly in the area of keeping staff and Shell stakeholders engaged and informed on effective risk management and internal control). The AC assessed the performance of the internal audit function as effective. The AC also assessedplan.
| A |
| Assess the performance of the Chief Internal Auditor. |
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A = Annually, Q = Quarterly, P = Periodically
Each quarter, the AC discusses with the Chief Internal Auditor the Company’s risk management and internal control system, any significant matters arising from the internal audit assurance programme and management’s response to significant audit findings and notable control weaknesses including planned improvements and agreed actions. The AC also regularly holds private sessions separately with the Chief Internal Auditor without members of management, except for the Legal Director, being present. The AC's time for these activities is included in Risk Management and Internal Control described earlier in this report. Outside of the formal AC meetings, the Chair of the AC meets regularly with the Chief Internal Auditor.
Internal audit remit
The internal audit function is an independent assurance function which supports Shell’s continuous efforts to improve its overall control framework. The internal audit function contributes to the maintenance of a systematic and disciplined approach to evaluate and improve the design and effectiveness of Shell’s risk management, and control and governance processes. The primary role of the internal audit function’s assurance and investigation activities is to safeguard value by protecting Shell’s assets, reputation and sustainability in relation to the organisation's defined goals and objectives.
The AC defines the responsibility and scope of the internal audit function and approves its annual plan. The Chief Internal Auditor reports functionally to the Chair of the AC and administratively to the Chief Financial Officer. The Chair of the AC approves, in consultation with the Chief Financial Officer, all decisions regarding the performance evaluation, appointment or removal of the Chief Internal Auditor.
Annual internal audit plan and assessment of internal audit’s effectiveness
The AC considered and approved the internal audit function’s annual audit plan, including focus areas for 2022 consisting of:
▪talent and capability (professional audit development and technical capabilities);
▪quality (developing first-line staff competence and clarity on self-verification and supervisory controls);
▪alignment (improved integration of risk management and alignment of assurance processes across Shell); and
▪engagement (mainly in the area of keeping staff and Shell stakeholders engaged and informed on effective risk management and internal control).
Beginning August 2021, audits of the Health, Safety, Security, Environment and Social Performance (HSSE & SP) Control Framework were added to internal audit’s remit, creating a unified internal audit function. The Chief Internal Auditor updated the AC quarterly on the approved 2022 internal audit plan and discussed whether the plan remained fit for purpose in addressing the most critical areas of risk in a year of transition. The AC assessed the performance of the internal audit function as effective. The AC also assessed the performance of the Chief Internal Auditor as effective.
The Chief Internal Auditor periodically assesses whether the purpose, authority and responsibilities of the internal audit function continue to enable it to accomplish its objectives. The results of this periodic assessment are communicated to the EC and AC. The Chief Internal Auditor also confirms to the AC the continued validity of the charter of the internal audit function or puts forward proposals for updates to it. The Chief Internal Auditor maintains an internal quality assurance and improvement programme, including an annual assessment of the effectiveness and efficiency of the internal audit function's activities and evaluations of conformance with the standards of the Chartered Institute of Internal Auditors (CIIA). The Chief Internal Auditor discusses the results of this annual assessment with the EC and AC. At least every five years, the effectiveness and quality of the internal audit function are independently assessed externally, and the Chief Internal Auditor reviews the report with the EC and the AC. An independent assessment of the internal audit was conducted at the end of 2022, following up on the previous review in 2018. The assessment confirmed that the internal audit conforms with the CIIA standards and the 2020 Internal Audit code of practice. Strengths were highlighted with respect to the clarity on management ownership of the actions in response to the audit findings, and the integration of learning and improvement into the scope of effective risk management and internal control. Opportunities to further improve were identified with respect to efficient quality assurance and having clarity on the internal audit strategic roadmap, how it links to Powering Progress and the plan for technology, skills and staffing. The roadmap will be discussed with the EC and AC during 2023.
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| External Audit | |
Review and approve the engagement letter for EY's annual audit of the internalCompany's consolidated and parent company financial statements. | A |
Approve the remuneration for audit function continue to enable it to accomplish its objectives. The resultsand non-audit services, including pre-approval of this periodic assessment are communicated topermissible non-audit services. | Q |
Consider the EC and AC. The Chief Internal Auditor maintains an internal quality assurance and improvement programme covering all aspects of internal audit's activities, and evaluates the conformance of these activities with the Chartered Institute of Internal Auditors' standards. The Chief Internal Auditor also assesses the efficiency and effectiveness of internal audit's activities and identifies opportunities for improvement. The results of this annual assessment are discussed with the EC and AC and include a reconfirmation to the AC of the continued validity of the charter of the internal audit function, or proposals for an update. At least every five years, the effectiveness and quality of the internal audit function are assessed externally and the report is reviewed with the AC. An independent assessment of internal audit was conducted in 2018. The next such external assessment is planned to take place in 2023.
EXTERNAL AUDITOR
Annual external audit plan and assessment of external audit’s effectiveness
EY reviewed with the AC its audit strategy, scope and plan for the 2020 audit, highlighting any areas which would receive special consideration. The AC considered the annual audit plan, which included assessing whether the planned materiality levels and proposed resources to execute the audit plan were consistent with the audit scope.
EY regularly updated the AC on the status of their procedures and preliminary findings, providing an opportunity for the AC to monitor the execution and results of the audit. The AC
| P |
Monitor the qualifications, expertise, resources and EY discussed how risksindependence of EY. | A |
Review the Company’s representation letter prior to audit quality were addressed, key accounting and audit judgements, material communications between EY and management and any issues arising from them. Quarterly,signing by management. | A |
Assess the AC met privately with EY representatives without management being present in order to encourage open and transparent feedback from both parties. In addition, the AC Chair meets separately with the external auditor on a regular basis.
As part of its oversight of the external auditor, the AC annually assesses the performance, objectivity and effectiveness of the external auditor andEY, the audit process, including an assessment of the quality of the audit, theEY’s handling
of key judgements, by the auditor, and the auditor’sEY’s response to questions from the AC. The AC evaluated | P |
Recommend to the objectivity and independence of EY andBoard that the quality and effectivenessreappointment of the external audit process. As part of its evaluation, the AC considered and discussed: (i) the results of Shell management’s internal survey relating to EY’s performance over the financial year 2020, which reflected a broadly comparable performance to 2019; (ii) views and recommendations from management and the Chief Internal Auditor; (iii) EY's audit quality priorities and actions by EY as part of its sustainable audit quality programme; (iv) the forthcoming partner rotation and measures EY has taken for an orderly transition; and (v) the AC’s own experiences, including interactions with the external auditor throughout the year. Key criteria of the evaluation included: professionalism in areas including competence, integrity and objectivity; constructive challenge of management and key judgements; efficiency, covering aspects such as service level and innovation in the audit process; thought leadership and value added; and compliance with relevant legislative, regulatory and professional requirements.
The Committee also considered EY's quality assurance procedures, internal quality control procedures, competence and most recent Transparency Report and opportunities for improvement. Taking into account the above, the AC is satisfied that EY has continued to provide a high-quality and effective audit in its fifth year as auditor and has maintained its independence and objectivity.
As required under UK and US auditing standards, the AC received a letter from EY confirming its independence. As required by applicable regulations, EY also informed the AC in writing and discussed with the AC any significant relationships and matters that may reasonably be thought to have an impact on its objectivity and independence.
During 2020, there was no review of EY’s audits of Shell’s Consolidated Financial Statements by the Audit Quality Review (AQR) team of the FRC. EY reviewed Shell’s correspondence with the FRC relating to the FRC’s thematic review of a sample of companies’ reporting on the impact of climate change and the first full year of adoption of IFRS 16, Leases.
Reappointment
The AC is responsible for considering whether, in order to ensure continuing auditor quality and/or independence, there should be a rotation of the independent registered public accounting firm, including consideration of the advisability and potential impact of conducting a tender process for the appointment of a different independent public accounting firm. The AC is also responsible for making a recommendation to the Board for it to put to the Company’s shareholders for approval at the AGM, to appoint, reappoint or remove the external auditor.
AGM. |
At the AGM in May 2020, the shareholders approved a resolution to reappoint EY as external auditor until the conclusion of the next AGM. EY was first appointed at the AGM in May 2016 following the conclusion of a competitive tender process. The Company has complied with The Statutory Audit Services for Large Companies Market Investigation (Mandatory Use of Competitive Tender Processes and Audit Committee Responsibilities) Order 2014 for the 2020 financial year. The AC acknowledges the UK and Dutch legal requirements relating to mandatory audit rotation and audit tendering under which the Company will be required to tender for the audit no later than the 2026 financial year. The AC regularly reviews auditor performance and may elect to carry out the tender earlier than the 2026 financial year if it determined it would be in the interests of the Company's shareholders to do so.
As 2020 represents the conclusion of EY’s first five-year term, the AC reflected upon whether conducting an audit tender at this time would be appropriate. The AC's consideration took into account: the AC remains satisfied with the quality and independence of the audit conducted by EY; given Shell's size and complexity, any new external auditor would need a transition period to develop sufficient understanding of the business; frequent changes of external auditor would be inefficient and could lead to increased risk and the loss of cumulative knowledge; a change in auditor would be expected to have a significant impact on Shell, including on the Finance function; and any change in auditor should be scheduled to limit operational disruption. The AC also considered that the current
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A = Annually, Q = Quarterly, P = PeriodicallyAnnual external audit plan and assessment of external audit’s effectiveness
EY reviewed with the AC its audit strategy, scope and plan for the 2022 audit, highlighting any areas which would receive special consideration. In particular, the AC and EY discussed how the audit would take into consideration risks associated with:
▪Trading and Supply deal complexity;
▪Revenue recognition (unauthorised trading and risk of fraud or management override);
▪Climate change considerations;
▪Russia;
▪Oil and gas reserves;
▪Renewables and Energy Solutions;
▪Exploration assets; and
▪Compliance with laws and regulations.
EY defines significant audit risks as those areas where there is a higher likelihood of a material error and therefore require special audit attention. In EY’s view, the significant audit risks are Trading and Supply complexity and the risk of unauthorised trading or management override.
The AC considered the annual audit plan, which included assessing whether the planned materiality levels and proposed resources to execute the audit plan were consistent with the scope of the audit, particularly in light of the Russian invasion of Ukraine. During the year, EY provided regular updates to the AC on the envisaged separation of its businesses into two multidisciplinary organisations. EY provided assurances that it would be able to continue to perform a high-quality audit should the split of businesses proceed.
EY regularly updated the AC on the status of its procedures and preliminary findings, providing an opportunity for the AC to monitor the execution and results of the audit. The AC and EY discussed how risks to audit quality were addressed, key accounting and audit judgements,
material communications between EY and management and any issues arising from them. At least quarterly, the AC met privately with EY representatives without management being present in order to encourage open and transparent feedback from both parties. In addition, the Chair of the AC meets separately with the external auditor on a regular basis.
As part of its oversight of the external auditor, the AC annually assesses the performance and effectiveness of the external auditor and the audit process. This includes assessing the quality of the audit, how the auditor handled key judgements, and the auditor’s response to the AC’s questions. The assessment also involves the AC evaluating the objectivity and independence of EY and the quality and effectiveness of the external audit process.
The AC’s evaluation of the performance and effectiveness of the external auditor and the audit process includes the following key criteria:
▪professionalism, competence, integrity and objectivity during the audit, including handling of areas involving judgement and estimates;
▪EY's quality assurance procedures and internal quality control procedures;
▪audit quality priorities and actions taken as part of maintaining a sustainable audit quality programme;
▪constructive challenge of management and key judgements;
▪efficiency, covering aspects such as service level and innovation in the audit process, use of data analytical and digital audit tools, and opportunities for improvement;
▪quality of the audit team's leadership;
▪the most recent EY Transparency Report;
▪thought leadership and actions, especially in the areas of climate change; and
▪compliance with relevant legislative, regulatory and professional requirements.
In addition to reflecting on its own experiences, including interactions with the external auditor throughout the year, the AC considered and discussed the results of management’s internal survey relating to EY’s performance over the financial year 2022, which reflected a broadly comparable performance to 2021 and the views and recommendations from management and the Chief Internal Auditor.
Taking into account the above, the AC is satisfied that EY continued to provide a high-quality and effective audit in its seventh year as auditor and maintained its objectivity, integrity and impartiality. As required under UK and US auditing standards, the AC received a letter on independence related matters from EY. EY also informed the AC in writing of any significant relationships and matters that may reasonably be thought to affect its objectivity and independence. The AC and EY discussed such relationships and matters and determined that they did not impair EY's objectivity, integrity and impartiality.
During 2022, there was no review of EY’s audits of Shell’s Consolidated Financial Statements by the Audit Quality Review (AQR) team of the FRC.
Governance
Audit Committee Report continued
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External Auditor continued | | |
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GOVERNANCE SHELL FORM 20-F 2020114 | |
audit partner, Mr Allister Wilson, who has held this position since EY’s initial appointment in 2016, is rotating off the Shell audit after the 2020 audit. Mr Gary Donald will serve as the audit partner beginning with the 2021 audit engagement.
After due consideration the AC determined that it would not be appropriate to re-tender for the external audit at this time and has recommended to the Board to propose at the 2021 AGM that EY be reappointed as the external auditor of the Company for the year ending December 31, 2021. The recommendation is free from influence by a third party and there are no contractual obligations that restrict the AC’s ability to make such a recommendation.
NON-AUDIT SERVICES
The AC maintains an auditor independence policy
(AIP) in respect of the provision of services by the external auditor. The AC regularly reviews this policy for necessary changes in response to changes in related standards and regulatory requirements. This policy was updated in January 2020 (and became effective in March 2020) to incorporate the Revised Ethical Standards issued by the FRC in December 2019.
This policy, designed to safeguard auditor objectivity and independence, includes rules relating to the provision of audit services, audit-related services and other non-audit services, and stipulates which services require specific prior approval by the AC.
The policy also defines prohibited services that are not to be provided by the auditor because they represent a risk to the external auditor's independence. Prohibited services are any that relate to management decision-taking or any other service that could compromise auditor independence or the perception thereof. These prohibited services include all services listed as prohibited in the UK and US auditor independence rules.
For certain services that are not prohibited, because of the knowledge and experience of the external auditor and/or for reasons of confidentiality, it can be more efficient or prudent to engage the external auditor rather than another party. This is particularly the case with audit-related assurance services that are closely connected to the audit function where the external auditor has the benefit of knowledge gained from work already performed as part of the audit.
Under the AIP, the AC will only approve services to be carried out by the external auditor or its affiliates where such services do not present a conflict of interest risk in fact or in appearance. The AC reviews quarterly reports from management on the audit and non-audit services reported in accordance with the policy or for which specific prior approval from the AC is being sought. To the extent that the fee value of an additional audit service contract does not individually exceed $500,000, no prior approval of the AC is required. All non-audit services where the fee for an individual contract exceeds $100,000 (from January 1 to March 15, 2020, $50,000), including audit-related services, require individual prior approval by the AC. In each case where the audit or non-audit service contract does not exceed the relevant threshold, the matter is approved by management by delegated authority from the AC and is subsequently presented for approval by the AC at the next quarterly AC meeting. The AC is mindful of the overall proportion of fees for audit and non-audit services in determining whether to approve such services.
The scope of the non-audit services contracted with the external auditor in 2020 consisted mainly of interim reviews and other audit-related assurance services. The associated compensation for these audit-related services and other non-audit services amounted to 5.4% and 3.6%, respectively, of the external auditor’s audit and audit-related remuneration.
FEES
After due consideration, the AC approved the auditor’s remuneration, satisfying itself that the level of fees payable in respect of the audit and non-audit services provided was appropriate and that an effective, high-quality audit could be conducted for such fees.
The total auditor’s remuneration of $58 million (2019: $54 million, 2018: $53 million) is categorised as follows: audit $56 million (2019: $52 million, 2018: $50 million), audit-related $nil (2019: $1 million, 2018 $2 million), and all other fees $2 million (2019: $1 million, 2018: $1 million).
Reappointment
The AC is responsible for considering whether there should be a rotation of the independent registered public accounting firm in order to ensure continuing auditor quality and/or independence, including consideration of the advisability and potential impact of conducting a tender process for the appointment of a different independent public accounting firm. The AC is also responsible for recommending to the Board whether it should ask the Company’s shareholders to appoint, reappoint or remove the external auditor at the AGM.
At the AGM in May 2022, the shareholders approved a resolution to reappoint EY as external auditor until the conclusion of the next AGM. EY was first appointed at the AGM in May 2016 after a competitive tender process. This means that 2022 represents EY’s seventh year as the Company’s external auditor. Under UK legal requirements, the Company may retain EY as its external auditor for 20 years. For the 2022 financial year, the Company has complied with The Statutory Audit Services for Large Companies Market Investigation (Mandatory Use of Competitive Tender Processes and Audit Committee Responsibilities) Order 2014.
In its oversight of the external audit, the AC considered whether it would be appropriate to conduct an audit tender at this time.
The AC took into account:
▪its continued satisfaction with the quality and independence
of EY’s audit;
▪any new external auditor would need a transition period to
develop sufficient understanding of the business given Shell's
size and complexity;
▪frequent changes of external auditor would be inefficient and could lead to increased risk and the loss of cumulative knowledge;
▪a change in auditor would be expected to have a significant impact on Shell, including on the Finance function; and
▪any change in auditor should be scheduled to limit operational disruption.
The AC also considered EY’s leadership and activities in the area of climate change.
After due consideration the AC determined that it would not be appropriate to re-tender for the external audit at this time. The AC has recommended to the Board that at the 2023 AGM the Board should propose that EY be reappointed as the external auditor of the Company for the year ending December 31, 2023. The AC’s recommendation is free from third-party influence and there are no contractual obligations that restrict the AC’s ability to make such a recommendation.
The AC acknowledges the UK legal requirements relating to mandatory audit rotation (maximum 20-year engagement) and audit tendering under which the Company will be required to tender for the audit no later than the financial year 2026. The AC regularly reviews auditor performance and may decide to conduct the tender earlier than the financial year 2026 if it considers this to be in the interests of the Company's shareholders.
Non-audit services
The AC maintains an auditor independence policy (AIP) in respect of the provision of services by the external auditor. Under the AIP, the AC will only approve services to be carried out by the external auditor or its affiliates where such services do not present a conflict of interest risk in fact or in appearance. The AC regularly reviews this policy for necessary changes in response to changes in related standards and regulatory requirements.
This policy is designed to safeguard auditor objectivity and independence. It addresses the provision of audit services, audit-related services and other non-audit services and stipulates which services require specific prior approval by the AC.
The policy also defines prohibited services in line with applicable rules and regulations. Our external auditors are not allowed to provide prohibited services due to independence concerns. For certain non-prohibited services, because of the knowledge and experience of the external auditor and/or for reasons of confidentiality, it may be more efficient or prudent for the external auditor to provide such services.
The AC reviews quarterly reports from management on the audit and non-audit services reported in accordance with the policy or for which specific prior approval from the AC is being sought. Under the AIP, no prior approval by the AC is required for any additional audit service contract not individually exceeding $500,000. All non-audit services where the fee for an individual contract exceeds $100,000, including audit-related services, require individual prior approval by the AC. For audit or non-audit service contracts that do not exceed the relevant threshold, the matter is approved by management by delegated authority from the AC and is subsequently presented for approval by the AC at the next quarterly AC meeting. The AC is mindful of the overall proportion of fees for audit and non-audit services in determining whether to approve such services.
Fees
After due consideration, the AC approved the auditor’s remuneration, satisfying itself that the level of fees payable in respect of the audit and non-audit services provided was appropriate and that an effective, high-quality audit could be conducted for such fees.
The total auditor’s remuneration of $69 million (2021: $63 million, 2020: $58 million) is categorised as follows: audit $65 million (2021: 59 million, 2020: $56 million); audit-related $3 million (2021: $3 million, 2020: $nil,); and all other fees $1 million (2021: $1 million, 2020: $2 million).
The scope of audit-related services contracted with the external auditor in 2022 consisted mainly of assurance and other attest services related to financial reporting.
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GOVERNANCE SHELL FORM 20-F 2020 | 115 | |
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DIRECTORS’ REMUNERATION REPORT |
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| 165 | Shell | Form 20-F 2022 |
Governance
Directors’ Remuneration Report
“2022 has been a year
full of challenge, but also
of significant financial, operational and strategic achievements.”
This Report
This Directors’ Remuneration Report for 2022 has been prepared
in accordance with relevant UK corporate governance and legal requirements, in particular Schedule 8 of The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008
(as amended). The Board has approved this report.
This report consists of two further sections:
▪the Annual Report on Remuneration (describing 2022 remuneration and the planned implementation of the Directors’ Remuneration Policy (Policy) in 2023); and
▪the Policy, which is subject to a binding shareholder vote at the 2023 AGM.
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NEIL CARSON
Neil Carson
Chair of the Remuneration Committee |
Dear Shareholders,
Shell delivered a very strong set of financial results in 2022, with income of $43 billion and record Adjusted Earnings of $40 billion, and generated more than $68 billion of cash flow from operations (CFFO) and $46 billion of free cash flow (FCF). This level of financial performance undoubtedly reflects macro-environmental conditions, but is enabled by disciplined operational delivery and the ongoing work to create a resilient and profitable portfolio. From a shareholder perspective Shell has made almost $26 billion of shareholder distributions for 2022 through dividends and share buybacks, including the increased fourth quarter 2022 dividend.
However, financial outcomes must be placed in a much wider context. Two of our contractor colleagues in Shell-operated ventures sadly died in the course of their work for Shell. We reflected on these incidents, as we always do, when we determined the final pay outcomes for 2022, as set out over the page.
Shell embraces the challenges and opportunities presented by the necessary transition of the world’s energy system to a low-carbon future. We also seek to play our part in meeting today’s energy needs against the backdrop of soaring energy demand as the world recovers from COVID-19 and the disruption caused by Russia’s invasion of Ukraine. This has resulted in inflationary and cost-of-living pressures for many, particularly when it comes to the supply of energy, and has often had a significant impact on the most vulnerable members of society. The REMCO, therefore, has also paid close attention to the impact on a wide group of stakeholders of these events and factors, including:
▪The response to the Russian invasion of Ukraine, with Shell announcing, in early March 2022, its intended withdrawal from its involvement in all Russian hydrocarbons, including crude oil, petroleum products, gas and liquefied natural gas (LNG). This is accompanied by the ongoing efforts to support our Ukrainian operations, employees and contractors;
▪Shell’s role in helping to ensure the security of energy supplies, as we build a resilient portfolio to address short- and long-term energy needs. In 2022, this included final investment decisions on the Jackdaw field in the UK, Rosmari-Marjoram in Sarawak, Malaysia, the Crux Field in Australia which will supply gas to Prelude (the floating LNG facility), and the North Field East expansion in Qatar. As the world's largest supplier of LNG, Shell continues to supply energy where it is needed most. Part of this was the announcement that Shell UK intends to invest £20-25 billion in the UK energy system over the next 10 years, subject to Board approval and a stable policy framework, to ensure the continuity of an energy supply that is affordable and secure. More than 75% of this is intended for low- and zero-carbon products and services, including offshore wind, hydrogen, carbon capture utilisation and storage (CCUS) and electric mobility;
▪Initiatives to support customers and those in society facing fuel poverty; and
▪The impact on Shell’s employees, where alongside its usual evaluation of markers such as the UK diversity pay gap, the REMCO took particular note of the planned salary increases for 2023 for employees. The REMCO also noted the exceptional reward to employees in 2022, including the vesting of an extraordinary award of Shell shares made in June 2021 to the broader employee population to give them an equity stake in the delivery of the Powering Progress strategy and a one-off Special Recognition Award of 8% of salary to around 81,000 individual employees (excluding Executive Directors and the Executive Committee) globally. This was to recognise and thank them for their collective delivery through a challenging period to keep Shell running safely, reliably and profitably. The Special Recognition Award reflects management’s desire to share Shell’s success with employees, as well as shareholders.
Governance
Directors’ Remuneration Report continued
On April 1, 2022, Sinead Gorman succeeded Jessica Uhl as CFO as part of an accelerated management succession process. This was because a long-term relocation from the Netherlands to the UK was unsustainable for Jessica Uhl on account of family circumstances. On January 1, 2023, Wael Sawan succeeded Ben van Beurden as CEO. This was a proactively managed succession that enabled Shell to appoint a new CEO with the proven acumen and experience to guide us through the next stage of our energy transition journey. See page 129 for further details of the Executive Director changes, the incoming Directors' remuneration packages, and the treatment of the outgoing Directors' remuneration.
At the May 2023 Annual General Meeting (AGM) shareholders will have the opportunity to vote on the revised Directors’ Remuneration Policy (Policy). The REMCO has spent much time over the past year reviewing the Policy. Our conclusion is that, on the whole, the Policy is robust and well aligned with best governance practice. However, we are proposing a small number of changes to maintain that strong governance framework and support the delivery of our Powering Progress strategy. In this report, I share the REMCO’s thinking on a number of the key proposed developments. We will also be seeking shareholder approval for a revised Long-term Incentive Plan (LTIP) at the AGM. The revised plan remains largely unchanged from before, save for minor amendments to align with market practice. Further information is provided in the Notice of AGM.
2022 remuneration outcomes
2022 annual bonus
The overall mathematical outcome of the annual bonus scorecard was above target, at 1.46. The REMCO also paid close attention to the two fatalities which occurred in 2022. One contractor colleague in Nigeria died from injuries sustained during a fire incident. In Pakistan, a contractor colleague died during road transport activities under operational control of Shell. After reflecting on Shell’s overall performance in 2022, and particularly on safety performance (see below), the REMCO decided not to use any discretion in determining the final outcome for Executive Directors. This brings our 10-year average scorecard outcome to 1.04.
“This year we have recognised the challenges of 2020 faced by | | |
The complete scorecard with all stakeholders, the resilience of the business,targets, ranges and supported achievement of our strategic ambitions in the longer term.”
Pay outcomes for Executive Directors
Annual bonus: nil.
LTIP: below-target vesting based on three-year performance.
Single-figure outcome: realised pay below targetweightings, and a single-figure reductiondetailed discussion of 41% forperformance against targets are set out on page 175.
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| REMCO reflections on safety Safety is Shell’s number one priority and our Powering Progress strategy is underpinned by this. It is critical that our operations run safely every day and that we strive to ensure the CEO and 38% for the CFO.well-being of all our people.
Salary: no increases for 2021.
LTIP: one-off reduction of 2021 award to mitigate risk of windfall gains.
Shareholding requirement: Executive Directors' high personal shareholdings ensured strong alignment with shareholders.
Aligning pay with strategy
LTIP:
•Increased weighting of energy transition condition in the LTIP to 20%.
Annual bonus:
•Refreshed annual bonus scorecard to give greater alignment with updated strategy, with a focus on financial delivery, operational excellence, progress in the energy transition and safety.
•Metrics linked to production and LNG liquefaction volumes removed.
•NewShell uses Serious Injury and Fatality Frequency (SIF-F) as our scorecard measure for assessing personal safety metric replaces Total Recordable Case Frequency (TRCF).
•Weighting of safety performance measures increased to 15%.
•Weighting of progress inperformance. SIF-F tracks the energy transition performance measures of 15%.
THIS REPORT
This Directors’ Remuneration Report for 2020 has been prepared in accordancefrequency at which injuries with relevant UK corporate governance and legal requirements, in particular Schedule 8 of The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended). The Board has approved this report. This report consists of two further sections:
•the Annual Report on Remuneration (describing 2020 remuneration and the planned implementation of the Directors’ Remuneration Policy in 2021); and
•the Directors’ Remuneration Policy which was approved by shareholders at the 2020 AGM.
Dear Shareholders,
The Remuneration Committee (REMCO) has worked hard in recent years to engage with shareholders on decision-making and to improve the quality of our disclosures. At the Annual General Meeting in May 2020, when my predecessor, Gerald Kleisterlee, stepped down, there was strong support of the 2019 Annual Report on Remuneration (95.44% in favour) and the 2020 Directors’ Remuneration Policy (92.91% in favour). I have since had the opportunity to meet a considerable number of shareholders and I value the openness of these discussions. In such challenging times, these engagements have helped to shape and inform the REMCO’s decisions.
COVID-19
The COVID-19 pandemic and itslife-changing consequences have had an enormous impact in 2020, affecting people around the world and creating extremely challenging conditions foroccur under Shell the energy sector and wider industry. Throughout this period, in addition to the steps to reinforce the financial strength and resilience of its business, Shell’s priorities have been the well-being and safety of employees, taking care of customers, and supporting the communities where Shell operates.
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For Shell employees, the pandemic and the changes to the way in which we live and work undoubtedly caused increased anxiety and stress. Shell has sought to provide support in a variety of ways to help our people manage their mental health and bolster resilience during these difficult times. For example; additional leave policies were introduced and flexible working patterns have been encouraged to support families juggling home schooling and caring for dependent parents. Cash allowances for ergonomic office equipment have been provided to those working from home offices, dining tables and bedrooms around the world.
Given the scale of the challenge facing Shell and the uncertainty about the speed of recovery, measures to ensure Shell's financial resilience have also impacted our people. Where required, Shell has sought to manage these sensitively, giving employees certainty and choice wherever possible. For example, towards the start of the pandemic, Shell made the commitment that there would be no new redundancies for three months. It then offered voluntary severance programmes giving those with a preference to leave employment the chance to do so. On pay, base salaries have been protected, with no cuts or temporary reductions made to salary.
The deteriorating global economic situation and significant uncertainties about mid- to longer-term economic conditions meant management and the Board had to take decisive measures to ensure the financial resilience of the Company. These included the decision by the Board to not proceed with the next tranche of the share buyback programme and to rebase the dividend. We have subsequently announced an intent to increase the dividend annually, subject to Board approval. These measures have had a significant effect on our shareholders, and accordingly have influenced the REMCO's decision-making in 2020.
Shell has also taken steps to support customers and communities. These have included providing free food and drinks to health-care professionals and delivery workers at more than 15,000 retail sites across more than 30 countries.operational control. We also delivered care packs to frontline workers and essential service drivers in six countries. We have donated fuel vouchers, groceries, hygiene kits and ingredients for sanitising products. In December 2020, Shell made a $10 million donation to the GAVI vaccine alliance to help fund the COVAX initiative for equitable global access to COVID-19 vaccines. Further information on Shell's contribution to COVID-19 relief efforts will be published in the Shell Sustainability Report in April 2021.
During 2020, many governments introduced packages to support business and stimulate economies as the pandemic negatively affected businesses and jobs. Shell recognises that much of this support was intended to help smaller businesses. Shell has made very limited use of these support measures, and only where it was considered appropriate in the local context.
The REMCO has sought to balance two factors in its deliberations. The first was the response to the headwinds of 2020 and how this has affected our shareholders, our employees and our relationships with customers and governments. Against this, the REMCO has had to weigh the need to achieve Shell’s longer-term strategic ambitions as it accelerates its transformation into a provider of net-zero emissions energy products and services.
2020 PERFORMANCE AND REMUNERATION DECISIONS
In 2020, the REMCO was pleased to see improved safety performance, with a reduction in the number of personal andassess process safety incidents. There were no safety-related fatalities in 2020 in Shell-operated ventures, but there were two COVID-19-related occupational illnesses resulting in death.
Shell has demonstrated resilience despite facing significant headwinds in 2020. Cash flow from operations (CFFO) has been strong, withusing the Shell Group clearly outperforming our competitors. This reflects the work done over recent years to high-grade the portfolio, the value created from Shell’s integrated business model, and the disciplined approach to managing operating expenditure over the year.
For the avoidance of doubt, the Remuneration Committee made no changes to targets under the in-flight annual bonus or LTIP awards.
The share price performance has, of course, been disappointing. The mechanisms in the Remuneration Policy mean there is strong alignment of interests between management and shareholders. The high shareholding
targets of 700% of base salary for the CEO and 500% for the CFO, and the three-year post-delivery holding requirements attached to the Long-term Incentive Plan (LTIP) and the 50% portion of the bonus delivered in shares. This mean that Executive Directors have a large investment in Shell, so the share price performance over 2020 has had significant personal impact.
2021 base salary
The REMCO decided in April 2020 that in light of the financial challenges and the need for disciplined management of operating expenses, there would be no salary increases for Executive Directors and Senior Management for 2021. There will also be no salary increase for the majority of Shell employees globally.
Annual bonus
The REMCO had approved a 2020 annual bonus scorecard at its meeting on January 28, 2020, based on Shell’s operating plan, but this scorecard was not communicated to participants as within a few weeks it became clear that the operating plan had been overtaken by events and was no longer appropriate. It was decided that targets would not be reset, but that operating priorities would be recast to Care in terms of health, safety and well-being for our people, Continuity for our business to support customers and communities and to Cash management to ensure the financial resilience of Shell. The approved scorecard was set aside and Care, Continuity and Cash quickly became the new framework to reflect on performance.
It had also become clear that there would be difficult financial outcomes ahead. Shell announced a change to the financial framework in March 2020. This included stating that we would not proceed with the next tranche of the share buyback programme and would be rebasing the dividend. In light of this, the REMCO decided that there should be no 2020 annual bonuses for Executive Directors and Senior Management. As no Group scorecard was being published and there would be no measurement of performance against the obsolete 2020 scorecard targets other employees were informed that the Group scorecard outcome for 2020 would be set to zero. This was communicated in April 2020 to allow employees to make financial plans.
After the depths of the crisis, there has been some recovery in commodity prices and the business has been resilient in 2020, delivering strong cash generation relative to our peers and performing strongly on safety. But taking into account all relevant factors such as business performance, impairments, dividend changes and the limited use of government support, the REMCO confirmed that its decision that there should be no 2020 annual bonuses for Executive Directors and Senior Management remained appropriate.
Vesting of 2018 LTIP awards
The financial resilience of Shell and work in recent years to high-grade the portfolio are evident in the vesting outcome of the LTIP, which was 90% out of a maximum of 200% based on relative total shareholder return (TSR), CFFO growth, return on average capital employed (ROACE), and absolute free cash flow (FCF).
CFFO is measured on a relative basis and Shell ranked first, leading to a vesting outcome of 50%. Total CFFO was $34 billion in 2020, with more than $129 billion generated over the three-year vesting period. In absolute terms, this is more than double the CFFO generated in 2020 by our next closest competitor.
On TSR, Shell ranked third in the peer group. Returning $55 billion to shareholders over three year performance period in the form of dividends and share buybacks and leading to a vesting outcome of 20%.
The ROACE performance metric is assessed on a relative basis and Shell ranked third, leading to a vesting outcome of 20%.
The challenges of 2020 are clearly evident in the outcome on the FCF, which is measured on an absolute basis, based on the sum of the annual operating plan targets over the three year performance period. The outcome, $87 billion, was below the vesting threshold of $93 billion (target $102 billion).
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In making the final vesting decision, the REMCO considered the overall performance of Shell during the three-year vesting performance period. In its deliberations, the REMCO paid particular attention to:
•the shareholder experience;
•guidance issued by the investor community and feedback from shareholders regarding the appropriate pay outcomes for 2020 in light of the COVID-19 pandemic;
•the impact of the pandemic on financial outcomes;
•the effectiveness of management over the performance period in developing a high-quality portfolio capable of delivering resilient cash flows;
•the conclusion that there should be no 2020 annual bonuses, which took into account business performance, impairments, dividend changes and the limited use of government support;
•the Committee assured itself that the limited use of government support had not impacted the vesting outcomes; and
•the impact of the high shareholding requirement, which has helped align the interests of Executive Directors and shareholders.
The REMCO also noted it would mean a 10-year average vesting outcome of the LTIP of 98%, demonstrating the effectiveness of the current LTIP structure in delivering alignment with target pay and balancing cyclical performance. Taking all these factors into account, the REMCO determined to vest the 2018 LTIP awards at 90% without using discretion. A formulaic outcome was also applied to the Performance Share Plan (PSP) made to around 16,500 employees annually.
2020 single figure of remuneration
The overall single figure of remuneration for 2020 is €5.8 million for the CEO and €3.7 million for the CFO. This is one of the lowest CEO single figure outcomes in ten years.
In finalising these amounts, the REMCO noted the decline in pay outcomes from the previous year. These, as noted above, were a decline of 41% for the CEO and 38% for the CFO. The REMCO considered that the decision that there should be no 2020 annual bonuses appropriately reflected Shell's 2020 performance outcomes, including the business performance, financial impairments taken in the year and dividend changes. It also considered the strong alignment between Executive Director and shareholder interests through the shareholding requirements. The REMCO also took account of the pay outcomes for employees, the majority of whom received no 2020 bonus and will not receive a 2021 salary increase. The REMCO was satisfied that the remuneration policies had operated as intended and that realised pay in 2020 was appropriate in the context of wider Company performance and the target pay opportunity as illustrated on pages 139-140.
2021 LTIP grants
In considering the response to the challenges of 2020, the REMCO believes it is important to maintain the strong focus on variable pay. The LTIP is an important element of the pay framework. It has been proven to provide a robust link between pay and performance over a sustained period of time. The usual awards are 300% of base salary for the CEO and 270% for the CFO. When determining award sizes, the REMCO has been mindful of the risk of windfall gains, given how the decline in the Shell share price during 2020 affected the number of shares awarded. The REMCO has sought to consider how shareholders will view this issue, in light of their disappointment with returns and the rebasing of the dividend. At the same time, the REMCO has sought to continue paying competitively in line with the approved remuneration policy.
Taking this into account, the REMCO has decided to make a reduction to the award level for 2021 as a one-off acknowledgement of the unique circumstances. Shell's share price has declined approximately 24% for RDS A shares and 16% for RDS.A ADS since the 2020 share awards. The REMCO has decided to reduce the 2021 awards by 50% of the fall in the share price and has therefore reduced the usual LTIP awards for the CEO and CFO. On this basis, the REMCO approved an award of 231,679 RDS A shares for the CEO and 69,972 RDS.A ADS for the CFO on March 5, 2021. The number of shares awarded to the wider employee population also increased to maintain a competitive pay opportunity.
Regardless of the number of shares awarded, the REMCO will closely scrutinise performance over the vesting period to ensure the highest variable pay outcomes are only achieved for the highest quality of performance across all significant areas of activity. If required, discretion will be used to address windfall gains on vesting. This will take into account the effect of any recovery in demand and energy sector outlook on Shell’s share price as well as shareholder experience and management’s success in delivering Shell’s financial performance and strategic ambitions.
The REMCO will use discretion to override formulaic reward outcomes if they fail to reflect the wider financial or non-financial performance of Shell, or if management has benefited from a general economic or sectoral improvement outside their control. The REMCO has a strong track record of exercising discretion, having used it to adjust the outcome of the annual bonus in five of the past ten years.
EVOLVING REMUNERATION IN LINE WITH STRATEGY
Turning now to the future, I would like to provide further detail on how we intend to link pay to Shell’s evolving strategic ambitions.
Powering Progress sets out a strategy to accelerate the transition of our business to net-zero emissions. Reflecting our evolving priorities, in future we will place greater focus on measures connected to succeeding in the energy transition, balanced with the fundamental requirements to deliver financial success, while operating our assets safely, effectively and to plan.
Safety
Safety remains Shell’s number one priority, and as part of a refresh of Shell's safety framework, a new Serious Injury and Fatality Frequency (SIF-F)
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metric will replace Total Recordable Case Frequency (TRCF) as the personal safety metric on the annual bonus scorecard from 2021.
This adjustment is intended to increase attention on the most serious outcomes, to ensure the focus is on identifying and preventing incidents with the potential to cause life-altering injuries. The number of Tier 1 and 2 process safety events. This tracks the frequency of unplanned or uncontrolled releases of materials from Shell’s operations.
Some shareholders have asked how we approach target-setting for the SIF-F metric. To be clear, our ultimate target is zero harm to people. As a business, we have made good progress in reducing the number of personal safety events over a long period of time, with reductions in the number of fatalities and injuries (see chart to the right). | |
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| REMCO reflections on safety continued The REMCO believes the SIF-F metric is an important tool to help drive further improvement in safety and take us closer to our ultimate goal of zero harm. The metric focuses management and organisational attention on those incidents will be retained aswith the measurepotential to cause most damage. To assess performance, the REMCO set clear performance ranges based on historic outcomes, our understanding of processthe industry and taking into account our planned activities for the year. Personal safety with weighting for safety increasing from 10% to 15% (equally split between personal and process safety).performance 2000-2022
Energy transition With both fatality incidents in 2022, the root causes have been identified as design and human factors while operating physical assets. These incidents continue to serve as a reminder of the need to always focus on safety and be aware of the gravity of impact when things do not go as planned. Notwithstanding these tragic incidents, the outcome on the safety-related performance metrics was strong in 2022. In 2022, both the personal safety (SIF-F) and process safety (number of Tier 1 and 2 process safety events) was much better than expected. There were significant reductions in both the number of serious injuries and process safety events compared with Shell’s performance in the previous year. Eight SIF events were recorded in 2022, down from 32 in 2021. There were 66 process safety events compared with 103 in the prior year. The REMCO also evaluated performance against external benchmarks, noting that performance had been strong against industry standards. For process safety, Shell has been atreached top quartile compared to our industry peer group, in the forefrontthird quarter of linking executive pay2022, with lowest number of Tier 1 and 2 process safety events on record. Beyond the metrics, the REMCO also noted the ongoing work by management to embed the safety refresh in Shell assets and businesses. Shell’s refreshed approach to safety, based on promoting a learner mindset through deeper understanding of human performance principles and destigmatising errors, is seen as a key contributor to improvement. After careful consideration of Shell’s holistic safety performance in 2022, including the two fatalities, the outcome of the formal metrics, Shell’s long-term progress towards a lower-carbon future. We set a Net Carbon Footprint (NCF) target that covers emissions from our customers' use of our products as well as our own operational emissions,on safety, and have directly linked employee and management paymanagement's work on the safety refresh, the REMCO determined not to three-year targets aligned with the NCF target. The LTIP energy transition performance metric includes the short-term targets relatingmake any adjustment to the NCFscorecard outcome for safety. Safety incidents that occur in 2023 will be assessed as part of the REMCO's considerations of performance outcomes for 2023. | |
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Governance
Directors’ Remuneration Report continued
Vesting of the 2020 LTIP awards
Overall, the mathematical outcome of the LTIP was 81%. For the avoidance of doubt, no LTIP targets were adjusted as a result of the COVID-19 pandemic or for any other reason. In addition, the REMCO was satisfied that no windfall gain had arisen. Further information is on page 176.
The REMCO believes the vesting outcome to be representative of Shell's performance over the period and that no adjustment was required. This brings the 10-year average vesting outcome to 87% of target. This is broadly aligned with our target grant, although there have been a number of high and low vesting outcomes over the last 10 years. The REMCO believes this illustrates the fundamental effectiveness of the LTIP and the close alignment between pay and performance that the structure has provided over time.
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Full details of LTIP targets and weightings, and a numberdiscussion of other strategic business transformationperformance against targets, that measure Shell's progress towards achieving our longer-term ambitions.are set out on page 176. |
Finalising the 2022 pay outcomes
In finalising pay outcomes, the REMCO considered the wider performance of Shell and the broader context during 2022 and over the LTIP performance period, paying particular attention to:
▪The strong financial performance in 2022, with more than $68 billion of CFFO, including working capital, and $46 billion of FCF generated in the year, which has enabled Shell to continue to pay down debt, and return $26 billion to shareholders in the form of share buybacks and dividends;
▪The ongoing work to transform Shell as part of the energy transition, including the completion of the simplification of the Shell Group with the assimilation of the A and B shares into a single class of shares effective as of January 29, 2022, and the ongoing work to strengthen and simplify the portfolio;
▪Adjusted Earnings for 2022 was $17 billion higher than for 2014, when the Brent price was similar, evidencing strong management performance in addition to price tailwinds;
▪The shareholder experience, including total shareholder distributions over the LTIP performance period of $44 billion, with almost $26 billion for 2022 alone;
▪Shareholders' views on remuneration, as shared with the REMCO during engagements in March and November 2022;
▪The employee experience, where the REMCO noted the discretionary uplift applied to the 2021 bonus for below-Board employees, the vesting of the Powering Progress share award to all employees, the Special Recognition Award of 8% of salary made to employees below senior executive level in August in recognition of the contribution staff made to Shell’s strong operational performance in a challenging period, the Group scorecard outcome of 1.46, and the Performance Share Plan, used to make discretionary share awards below senior executive level, which vested at 115% of target, and the average employee salary increases;
▪The year-on-year comparison between single figure outcomes in 2021 and 2022; and
▪The 10-year average outcomes of the annual bonus scorecard (1.04) and LTIP (87% of target), which demonstrate the effectiveness of the current reward structures in aligning pay outcomes with targets over the longer term.
This resulted in a single figure outcome of £9.7 million for the CEO, an increase of 53% from 2021. The CFO's single figure outcome was £2.9 million, noting that this is the first single figure of remuneration disclosed for her, and that her LTIP award which has just vested was made prior to her appointment as an Executive Director. The REMCO was satisfied that the prevailing shareholder-approved Policy had operated as intended, and these outcomes were appropriate in the context of Company performance and the target pay opportunity under the Policy.
[A]Policy target and maximum based on the shareholder-approved 2020 Remuneration Policy in respect of the annual bonus and the LTIP. Salary, pension and benefits are based on 2022 data.
[B]Policy target and maximum for Sinead Gorman have been pro-rated to relate to the period April 1, 2022 to December 31, 2022, to allow comparison with her 2022 realised pay.
Governance
Directors’ Remuneration Report continued
2023 remuneration
2023 salaries
Wael Sawan was appointed as CEO on January 1, 2023, on a salary of £1,400,000. No increases are anticipated during 2023. Effective January 1, 2023, Sinead Gorman received an increase of 2.8% and her salary for 2023 is £925,000. In reviewing the CFO's salary, the REMCO considered carefully the external environment, and the increases provided to the general workforce in the key markets of the UK, the USA, and the Netherlands (average 5.8%). The CFO's increase for 2023 was positioned below this level and the REMCO recognised
the "multiplier effect on total remuneration".
2023 LTIP performance conditions
In terms of variable pay, the REMCO reviewed alternative reward mechanisms such as restricted shares as part of the Policy review. However, we believe that the focus on pay-for-performance provided by the existing design of an annual bonus and performance-based long-term incentive remains the best mechanism to support the achievement of Shell’s strategic objectives under Powering Progress.
The REMCO focused extensively on the LTIP performance metrics during the Policy review and intends a number of changes to ensure strong alignment with delivering Powering Progress and meeting the challenges of the coming years. Shell’s strategy is based on generating cash from its existing businesses to fund the investment necessary to accelerate the transition of Shell’s businesses to net zero, while creating shareholder value. To support this, the REMCO is proposing a simplified set of LTIP performance metrics that incentivise and reward the key priorities of:
▪Financial delivery;
▪Disciplined capital spending;
▪Generating shareholder returns; and
▪Developing Shell’s business for the energy transition.
The REMCO has a strong track record of ensuring reward outcomes are appropriate (note that the 10-year average vesting outcome of the LTIP is close to target at 87% of target) and will provide a full disclosure of all factors taken into account in making the vesting decision at the conclusion of each vesting cycle.
Cash generation and disciplined capital expenditure
▪Absolute organic free cash flow (OFCF) provides a marker of
the cash available for financing activities, including shareholder distributions and debt servicing, after investment in maintaining and growing our business. To date, the existing FCF performance has been assessed on a total basis, including net divestment proceeds and cash flows from acquisitions. This reflects the strategic priority in delivering the divestment programme necessary since the acquisition of BG Group Plc in 2016. Under the proposed Policy, the REMCO intends to shift to a measurement of organic FCF (i.e. excluding net divestment proceeds and cash flows from acquisitions) in order to place greater emphasis on the operational outcomes. Performance will be assessed on an absolute basis to support an alignment between pay outcomes and the shareholder experience.
▪Relative cash generation (defined as CFFO/average capital employed) provides a measure of Shell’s ability to generate the top-line cash flows to finance investment in our business and shareholder distributions. Performance will be assessed on a relative basis, measuring how efficiently Shell generates cash relative to our peers. This is designed to ensure an ongoing tight alignment with strategy as Shell concentrates on developing a higher-value and more resilient portfolio, and replaces the existing CFFO metric which was based on relative growth.
▪The REMCO also considered the overall balance of the LTIP metrics and intends to remove the current ROACE performance metric from the 2023 performance assessment framework. Capital discipline remains a key consideration, particularly as Shell enters a period which may require an investment in new forms of business models
for the energy transition. It is critical that this investment is done in a disciplined manner which generates shareholder value. The REMCO believes capital discipline is adequately incentivised through the LTIP by both FCF and relative cash generation (which takes account of capital employed).
Shareholder returns
Relative total shareholder returns (TSR): there is no change to this measure, with performance measured on a relative basis against the peer group to provide an assessment of value created for shareholders relative to our closest peers.
Energy transition
Growing Shell’s future business: in 2019, Shell introduced the Energy Transition performance condition to the LTIP. We were the first major energy company to introduce such a condition, which directly tied reward outcomes to Shell’s success in reducing net carbon emissions from all energy products sold, measured against our Net Carbon Intensity (NCI) target, as well as the delivery of the key strategic initiatives that will get us there. For the 2023 LTIP awards, we are increasing the weighting of this condition to 25%.
As we explained when the performance condition was introduced, we expected that we had much to learn about the transition to low-carbon energy as it evolved and therefore also much to learn about how to measure progress. There is no right answer, and it was important that we got started on this journey and developed that understanding of how to best measure performance as we proceeded. In our LTIP metrics to date, we have tracked NCI reduction and rewarded participants for getting going on a range of the strategic levers for energy transition. We agreed a number of performance indicators for each strategic theme, with a target outcome range supported by strong discretionary overlay, rather than seeking to maximise output in specific remuneration periods or in precise ways that do not match
non-linear business development.
Even so, in the context of a changing energy system which requires agility from Shell’s businesses as they identify and capitalise on the opportunities presented by the energy transition, we have found that detailed performance indicators and targets can quickly become outdated. Assessing progress requires, in turn, agility from the REMCO as we ensure the right behaviours and actions are rewarded.
Going forward, we will continue to track progress against performance indicators for the essential strategic levers for the energy transition, with the focus of the REMCO’s performance assessment shifting to an approach which emphasises a more holistic view of achievement of strategic intent, using performance indicators as guidance. This approach is intended to support experimentation and learning what will deliver net zero in a profitable way.
For the 2023 LTIP awards, an assessment of performance will continue to be based on those things that matter most: NCI reduction and supporting strategic themes of reducing Scope 1 and 2 emissions; building a renewable power business; growing new low-carbon
energy offerings; and developing emission sinks and offsets.
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| 169 | These measures extend the link between pay and the energy transition well beyond the linkage provided by short-term sustainability metrics that focus on operations. When we introduced these measures, Shell was the only major energy company to link long-term incentive pay in this | way. We Form 20-F 2022believe we are still among the front-runners in terms of the breadth and detail of our energy transition pay metrics. |
Governance
Directors’ Remuneration Report continued
The REMCO will make an assessment of progress against the NCI target and Shell’s longer-term performance indicators for each strategic theme when making the vesting decision for each reward cycle. This approach will maintain a clear quantitative target through the NCI target.
We have noted strong support for a more holistic assessment of progress in our engagement with shareholders. The REMCO is also aware that some shareholders have a preference for fixed targets set upfront for all LTIP metrics. This is something the REMCO intends to evolve towards over time. However, at this time, the optimal design is to support management in delivering our strategy and capturing value from the opportunities presented by the energy transition.
Other LTIP considerations
Comparator group: the REMCO has given much consideration to the appropriate peer group for assessing relative performance as part of the Policy review. For many years, this has consisted of BP, Chevron, ExxonMobil and TotalEnergies. Changing strategies for the energy transition, including differing timeframes and level of ambition, prompt a regular reconsideration of this group. The REMCO has evaluated a number of alternative peer companies, including smaller European energy producers with similar strategic ambitions, power and pure-play renewables companies, and smaller oil and gas producers. Following this, the REMCO has determined that the existing comparator group remains the appropriate reference point for assessing relative performance for the TSR and cash generation metrics. Despite strategic differences, these companies remain Shell’s closest peers in terms of scale and business model. Critically, they are also similarly tasked with reinventing legacy positions. While they have the financial capability that comes from those positions, they also have the constraints of growth from existing scale and supply responsibilities to society. The REMCO intends to keep this under review.
The REMCO also considered the threshold vesting level for the relative metrics and determined not to make any changes.
Our original targets were calibrated to keep Shell in step with a society working to meet the goals of the 2015 Paris Agreement and to restrict the rise in global average temperature this century to well below two degrees Celsius above pre-industrial levels. But societal views have evolved rapidly and large parts of society have now set their sights on the most ambitious goal in the Paris Agreement: to limit the global temperature rise to 1.5 degrees Celsius. Shell recognised this, and in 2020 announced an updated target to be a net-zero emissions energy business by 2050, in step with society.
The connection to remuneration will strengthen with the updated strategy. We intend to reflect them in the following ways:
•As an energy user. Shell has a target to achieve net-zero operational emissions (Scope 1 and 2) by 2050, in step with society. In the annual bonus, progress will be linked to performance assessment based on the greenhouse gas (GHG) intensity of our main business lines and, from 2021, a new GHG-abatement target.
•As an energy provider. We have significantly raised our net carbon intensity target in step with achieving a 1.5 degrees Celsius future. We will measure this using our NCF metric. Meaningful carbon intensity reductions will require significant business transformations with longer timescales and are therefore best reflected in the LTIP. We are increasing the weighting of the energy transition condition to account for 20% of the LTIP (up from 10%), putting it on the same level as the financial measures (TSR, CFFO, FCF and ROACE), which will each account for 20% of the LTIP.
•As an energy partner. In our role as an energy supplier, we will work with sectors which use energy to help them identify and implement ways to decarbonise and make progress towards a net-zero emissions future. New performance measures will need to be developed in this area before it can be linked to remuneration. The REMCO will assess such performance measures, as is appropriate, in the future.
The connections between remuneration and progress in the energy transition received good support from shareholders during our engagements. These measures will continue to mature as we implement the updated strategy. I also know that many of you are keen to know how we are progressing on the existing energy transition condition and further | | |
Further information is provided on pages 127-128.page 188. |
Other changes to 2021 remuneration
To ensure that Shell’s remuneration structures evolve in line with the recent strategy developments, the following changes will also take place for the 2021 annual bonus scorecard:
•The weighting of the CFFO metric will increase from 30% to 35%, reflecting our commitment to the updated financial framework.
•The strength of Shell is as an integrated energy business and our updated strategy and portfolio choices emphasise operational excellence and the delivery of value rather than volume. To reflect this, we will retire the
existing production and LNG liquefaction volume measures. We will introduce a new asset management excellence measure, based on Upstream controllable availability, midstream availability and downstream availability. This is designed to encourage an ongoing focus on running our assets effectively and to schedule. Operational excellence will always be fundamental to our success, but its weighting will decrease from 50% of the scorecard to 35% to allow for increased weightings on CFFO, progress in the energy transition and safety.
•We will further emphasise the importance of achieving progress in the energy transition by making this a separate section of our scorecard. Performance will be based on GHG-emissions-intensity targets and assessments of the delivery of GHG-abatement projects that support our net-zero operational emissions target. These targets will account for 15% of the scorecard.
LOOKING AHEAD
The year ahead promises to be another busy one as we look to continue to enhance our alignment of pay with the updated strategy. I look forward to continuing to engage with shareholders in the coming months and I thank you for your continued support.
2023 Policy
The REMCO believes the 2020 Policy is robust and well aligned with reward governance best practice. But the REMCO is proposing adjustments to maintain the strong governance framework and support the delivery of the Powering Progress strategy. We consulted with shareholders on the proposed changes and have taken into account a diverse range of shareholder views in our decision-making. It is worth noting that as a result, we have not proceeded with all of our initial proposals but believe there is majority support for those changes we are choosing to take forward. The full proposed Policy is set out from page 191 onwards. To highlight some of the key changes:
Severance policy: under Wael Sawan and Sinead Gorman's service contracts, both the employee and the employer can terminate employment by giving 12 months' written notice, replacing the previous policy which accounted for Dutch statutory provisions.
Pension: Shell’s long-standing policy has been to provide Executive Directors with pension benefits aligned with those for the wider workforce in their home country. To enhance transparency and ensure retirement benefits are consistent with the UK headquarters of Shell, Executive Director pensions (including for Wael Sawan and Sinead Gorman) will be aligned with defined contribution pension arrangements offered to Shell's UK employees (currently 20% of salary).
TSR underpin: the existing LTIP has the added complexity of an underpin, whereby the vesting outcome is capped at 100% should the TSR performance condition fail to rank in a vesting position. This was introduced as a mechanism to support alignment between pay outcomes and the shareholder experience at a time when the LTIP was wholly based on relative performance. However, this provision adds complexity to the plan and is not market-aligned, with the REMCO not being aware of any similar examples of a TSR-based underpin being used by any other FTSE30 company. Nor has experience proven it a necessary Policy feature as the underpin has not been invoked to date. Therefore, in the interests of simplifying the plan, the REMCO are proposing to remove the TSR underpin from the 2024 awards onwards.
Looking ahead
The year ahead brings the vote on the proposed Policy at the AGM and I look forward to ongoing dialogue with our shareholders in the coming months.
Neil Carson
Chair of the Remuneration Committee
March 10, 20218, 2023
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| 170 | GOVERNANCE SHELL FORMShell | Form 20-F 20202022 | 119 | |
Governance
Annual Report on Remuneration
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ANNUAL REPORT ON REMUNERATION |
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| 171 | Shell | Form 20-F 2022 |
Governance
The Annual Report on Remuneration continued
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| The Annual Report on Remuneration sets out:
▪the REMCO’s responsibilities and activities, page 120;
▪remuneration at a glance, page 121;
▪Directors’ remuneration for 2020, page 122; and
▪the statement of the planned implementation of policy in 2021, page 133.
▪remuneration at a glance, page 171; ▪the REMCO’s responsibilities and activities, page 172; ▪Directors’ remuneration for 2022, page 173; and ▪the statement of the planned implementation of Policy in 2023, page 187. | |
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The base currency in this Annualthe Directors' Remuneration Report on Remuneration is the euro,British pound sterling (GBP), as this is the currency of the base salary of the Executive Directors.Directors to December 31, 2022. Where amounts are shown in other currencies, an average exchange rate for the relevant year is used, unless a specific date is stated, in which case the average exchange rate for the specific date is used.
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| Committee membership and attendance for 2022 | |
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| Biographies are given on pages 129-136; and the REMCO meeting attendance is set out below: | |
| Committee
member | Member since | Maximum possible meetings | Number of meetings attended | % of meetings attended | |
| Neil Carson (Chair) | June 1, 2019 | 5 | 5 | 100% | |
| Euleen Goh | May 20, 2020 | 5 | 5 | 100% | |
| Catherine Hughes | July 26, 2017 | 5 | 5 | 100% | |
| Bram Schot [A] | May 24, 2022 | 3 | 2 | 67% | |
| Gerrit Zalm [B] | May 21, 2014 | 2 | 2 | 100% | |
| [A]Bram Schot was unable to attend the December 2022 meeting due to another scheduled business commitment. [B]Gerrit Zalm stepped down from the Committee and from the Board with effect from May 24, 2022. | |
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REMUNERATION COMMITTEE
Biographies are given on pages 89-94; and the REMCO meeting attendance is set out below:
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| Committee Member | Member since | Maximum possible meetings | Number of meetings attended | % of
meetings attended |
| Neil Carson (Chair) | June 1, 2019 | 5 | 5 | 100% |
| Gerard Kleisterlee [A] | May 21, 2014 | 2 | 2 | 100% |
| Euleen Goh [B] | May 20, 2020 | 3 | 3 | 100% |
| Catherine Hughes | July 26, 2017 | 5 | 5 | 100% |
| Sir Nigel Sheinwald [C] | May 24, 2017 | 2 | 2 | 100% |
| Gerrit Zalm [D] | May 21, 2014 | 5 | 4 | 80% |
[A] Gerard Kleisterlee retired from Shell after the 2020 Annual General Meeting, held on May 19, 2020.
[B] Euleen Goh was appointed to the REMCO with effect from May 20, 2020.
[C] Sir Nigel Sheinwald stood down as a member of the REMCO with effect from May 20, 2020.
[D] Gerrit Zalm was unable to attend the December 2020 meeting due to an agenda clash arising from a late rescheduling of the meeting.
The REMCO’s key responsibilities include determining:
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| Senior Management |
| Executive Directors | Executive Committee | Company Secretary
and EVP Controller |
| Performance framework | P | Or | Or |
Remuneration policyPolicy | P | P | Or |
| Actual remuneration and benefits | P | P | P |
| Annual bonus and long-term incentive measures and targets | P | P | Pr |
The REMCO is also responsible for determining the Chair of the Board’s remuneration. The REMCO monitors the level and structure of remuneration for senior executives below Senior Management and makes recommendations if appropriate to ensure consistency and alignment with Shell’s remuneration objectives. When setting the policyPolicy for Executive Director remuneration, the REMCO reviews and considers workforce remuneration and related policies, and how incentivespay and rewardsbenefits align with culture.
In exercising its responsibilities, the REMCO takes into account a variety of stakeholder considerations.
The REMCO operates within its Terms of Reference, which are reviewed annually. They were last updated on March 13, 2019annually, and are available aton www.shell.com.
As part of the Board evaluation, it was agreed that the Board would undertake a more strategic review of the Board Committees' agendas and remit to ensure alignment with the Board’s future priorities and
longer-term aspirations.
Advice from within Shell was provided by:
▪Ben van Beurden, Chief Executive Officer;
▪Ronan Cassidy, Chief Human Resources and Corporate Officer and Secretary
to the REMCO; and
▪Stephanie Boyde, Executive Vice President Performance and Reward.
The Chair of the Board was consulted on remuneration proposals affecting the CEO, and theCEO. The CEO was consulted on proposals relating
to the CFOChief Financial Officer (CFO) and Senior Management.
During 2020, theThe REMCO met five times in 2022 and its activities included:
▪carefully deliberating on pay quantum for the CEO;
▪determining vesting of the 20172019 LTIP award for Senior Management;
▪deciding on 2019 annualdetermining 2022 target bonus outcome, 2020 base salaries, 2020 target bonusesopportunities and 20202022 LTIP awards for Senior Management;
▪developing the Directors’ Remuneration Policy in preparation for the 2020 AGM vote, in consultation with shareholders;
▪approving the 2019 Directors’ Remuneration Report;
▪setting 20202022 annual bonus and LTIP performance measures and targets and subsequently making the decision that there should be no annual bonus in 2020;targets;
▪considering matters related to business performance,approving the implications2021 Directors’ Remuneration Report, conducting a comprehensive review of the COVID-19 pandemicPolicy and its impact on employees, and determining that no salary increases would apply for 2021 for Executive Directors and Senior Management;incentive structures;
▪considering matters relating to the updated strategy and accelerated transition of our business to net-zero emissions and the potential implications for 2021 annualreviewing 2023 bonus and LTIP performance measures and targets;
▪consulting with major shareholders and proxy bodies on the proposed 2023 Policy;
▪setting exit and appointment remuneration for Executive Director changes, and changes in the Executive Committee; and
▪monitoring external developments and assessing the impact on the Directors' Remuneration Policy.remuneration decisions.
In 2020,After a competitive tender process during the year, Ellason and PWC were chosen to provide external advice on Shell’s remuneration structures and developments in market practice around remuneration. The choice of Ellason and PWC was based on their ability to assess
the risk profile of policies, knowledge of investors’ expectations, and familiarity with UK and international market practices. Both Ellason
and PWC are members of the Remuneration Consultants Group and operate according to the group’s code of conduct when advising clients. The REMCO is satisfied that the advice provided was objective and independent. The total fees in relation to the advice were £12,650 to Ellason and £75,168 to PWC (excluding value-added tax). During the year, PWC also provided other professional consulting services to Shell, including, for example, in relation to finance, payroll, tax, and sustainability projects. The REMCO also reviewed benchmarking data and analysis on executive pay market developments that were prepared by Shell’s internal HR function. The REMCO has not incurred external remuneration adviser fees.
PRINCIPLES
The principles that underpin the REMCO’s approach tofunction on market developments in executive remuneration are set out on page 137.pay.
The REMCO considered the provisions of the UK Corporate Governance code, an
d in deciding 2020 pay outcomes it has sought to reflect the principles of clarity, simplicity, risk management, predictability, proportionality and alignment with culture.
Shell has a consistent global reward and performance philosophy that sets clear expectations of employees. Through the annual bonus scorecard and the LTIP, remuneration is clearly aligned with Shell’s operating plan and strategic ambitions. The same measures apply to Executive Directors and Senior Management and to a significantly broader employee base. This provides alignment throughout the organisation with Shell’s culture and strategy. The annual operating plan translates into targets on the annual bonus scorecard, and a quarterly update on performance against scorecard targets is provided to employees. (Exceptionally in 2020, updates on the annual bonus scorecard were not published, this is discussed further on page 117.) Similarly the LTIP is largely based on outperforming the competition, and regular updates on Shell’s performance against competitors is provided to employees. In reviewing the Directors’ Remuneration Policy, approved at the 2020 AGM, the REMCO sought to make changes that help to simplify remuneration structures (for example, removing the individual performance factor for Executive Directors) and giving more transparent outcomes (for example, removing the bonus asymmetry from the CEO’s remuneration structure). To assist in the mitigation of reputational risk and to ensure proportionality, the powers of the REMCO to apply malus and clawback and make discretionary adjustments to variable pay outcomes were expanded,
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| 172 | GOVERNANCE SHELL FORMShell | Form 20-F 20202022 | 120 | |
Governance
Directors’ Remuneration for 2022
with the intention that the REMCO will use discretion to ensure the highest pay outcomes are delivered only for outstanding performance.
| | | | | | | | |
GOVERNANCE SHELL FORM 20-F 2020Single figure of total remuneration for Executive Directors (audited) | 121 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| £ thousand |
| Ben van Beurden | | Sinead Gorman [A] | | Jessica Uhl [B] |
| 2022 | 2021 | | 2022 | 2021 | | 2022 | 2021 |
| Salaries [C] | 1,420 | 1,365 | | 675 | — | | 230 | 890 |
| Taxable benefits [D] | 490 | 15 | | 327 | — | | 146 | 278 |
| Pension [E] | 284 | 346 | | 135 | — | | 33 | 242 |
| Total fixed remuneration | 2,194 | 1,726 | | 1,137 | — | | 410 | 1,409 |
| Annual bonus [F] | 2,590 | 2,201 | | 1,180 | — | | — | 1,376 |
| LTIP [G] | 4,914 | 2,418 | | 552 | — | | — | 1,193 |
| Total variable remuneration | 7,504 | 4,619 | | 1,732 | — | | — | 2,569 |
| Total remuneration | 9,698 | 6,344 | | 2,869 | — | | 410 | 3,978 |
| in US Dollars | 11,995 | 8,728 | | 3,549 | — | | 507 | 5,473 |
| in Euros | 11,377 | 7,380 | | 3,366 | — | | 480 | 4,627 |
DIRECTORS’ REMUNERATION FOR 2020
Single total figure ofJessica Uhl stepped down from her role as CFO and from the Board on March 31, 2022, and left Group service on June 30, 2022. Accordingly, her remuneration for Non-executive Directors (audited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| € thousand |
| Fees | | Taxable benefits [A] | | Total |
| 2020 | 2019 | | 2020 | 2019 | | 2020 | 2019 |
| Dick Boer [B] | 98 | – | | – | – | | 98 | – |
| Neil Carson [C] | 184 | 99 | | – | – | | 184 | 99 |
| Ann Godbehere | 206 | 178 | | – | – | | 206 | 178 |
| Euleen Goh | 201 | 201 | | – | – | | 201 | 201 |
| Charles O. Holliday [D] | 850 | 850 | | 69 | 71 | | 919 | 921 |
| Catherine J. Hughes | 180 | 200 | | – | – | | 180 | 200 |
| Martina Hund-Mejean [E] | 98 | – | | – | – | | 98 | – |
| Gerard Kleisterlee [F] | 93 | 242 | | – | – | | 93 | 242 |
| Sir Andrew Mackenzie [G] | 37 | – | | – | – | | 37 | – |
| Abraham Schot [H] | 38 | – | | – | – | | 38 | – |
| Roberto Setubal [I] | 72 | 190 | | 1 | 2 | | 73 | 192 |
| Sir Nigel Sheinwald | 184 | 187 | | – | – | | 184 | 187 |
| Linda G. Stuntz [J] | 73 | 189 | | 1 | 8 | | 74 | 197 |
| Gerrit Zalm | 177 | 177 | | – | – | | 177 | 177 |
[A] UK regulations require the inclusion of benefits where these would be taxable2022 as shown in the UK, ontable relates to her service as an Executive Director over the assumption that Directorsperiod January 1 to March 31, 2022. Full details of Jessica Uhl's remuneration in respect of the period April 1, 2022 to June 30, 2022 are tax residentsset out in the UK. On this premise, the taxable benefits include the cost"Payments for loss of Non-executive Director’s occasional business-required partner travel. Shell also pays for travel between homeoffice" and the head office in The Hague, where Board and committee meetings are typically held, as well as related hotel and subsistence costs. For consistency, these business expenses are not reported as taxable benefits because for most Non-executive Directors this is international travel and hence would not be taxable in the UK.
[B] Appointed as a Director with effect from May 20, 2020.
[C] Appointed as a Director with effect from June 1, 2019.
[D] Including the use of a Shell-provided apartment while in the Hague (2020: €68,942, 2019: €70,624)
[E] Appointed as a Director with effect from May 20, 2020.
[F] Stepped down as a Director with effect from May 20, 2020.
[G] Appointed as a Director with effect from October 1, 2020.
[H] Appointed as a Director with effect from October 1, 2020.
[I] Stepped down as a Director with effect from May 20, 2020.
[J] Stepped down as a Director with effect from May 20, 2020."Payments to past Directors" sections.
Single total figure of remuneration for Executive Directors (audited)
| | | | | | | | | | | | | | | | | |
| € thousand |
| Ben van Beurden | | Jessica Uhl |
| 2020 | 2019 | | 2020 | 2019 |
| Salaries [A] | 1,588 | | 1,557 | | 1,035 | | 1,015 |
| Taxable benefits [B] | 16 | | 20 | | | 418 | | 326 | |
| Pension [C] | 540 | | 395 | | | 288 | | 261 | |
| Total fixed remuneration | 2,144 | | 1,972 | | | 1,741 | | 1,602 | |
| Annual bonus [D] | – | 800 | | | – | 500 | |
| LTIP [E] | 3,698 | | 7,191 | | 1,993 | | 3,903 |
| Total variable remuneration | 3,698 | | 7,991 | | 1,993 | | 4,403 |
| Total remuneration | 5,841 | | 9,963 | | | 3,734 | | 6,005 | |
| in dollars | 6,671 | | 11,155 | | | 4,264 | | 6,724 | |
| in sterling | 5,197 | | 8,746 | | | 3,322 | | 5,271 | |
[A] As disclosed in the 2019 Directors’ Remuneration Report, the REMCO setBase salary: Ben van Beurden’s base salary for 2020 at €1,588,000 (+2.0% compared with 2019) effective from January 1, 2020,Beurden and Jessica Uhl’s base salaries for 2022 were set at £1,420,000 (+3.5% from 2021) and £921,000 (+3% from 2021), respectively. Sinead Gorman’s base salary was set at €1,035,000 (+2.0% compared with 2019) effective from January 1, 2020.£900,000 on her appointment to the Board.
[B] ForD]Benefits: in respect of 2022, Ben van Beurden these includeBeurden's benefits included time-limited relocation-related costs (£403,368), motoring allowance (€14,400)(£29,998), and transport between homegrossing costs (£48,897). Sinead Gorman's benefits included time-limited relocation-related costs (£268,621), motoring allowance (£22,417), and the office (€1,150)grossing costs (£30,560). Jessica Uhl’s benefits include tax equalisation (€392,250)included time-limited relocation-related costs (£77,573), medical insurance (€14,921)motoring allowance (£7,553), transport between home and the office (€10,369)grossing costs (£52,716).
[E]Pension: Ben van Beurden and tax return services (€430). Jessica Uhl's benefits includes tax equalisationSinead Gorman received cash in lieu of pension contributions equal to foreign pension plan(s), when they are taxable above20% of base salary in 2022. Jessica Uhl was a certain pensionable salary threshold or once a double tax treaty exemption ceases, under Dutch law. Tax equalisation is applied for the loss of pension relief for members of a foreign pension plan(s) in their host country. Jessica Uhl’s benefits also include tax equalisation of employer contributions to benefits and certain US social taxes that are taxable in the Netherlands. For 2020, the presentationmember of the single total figure of remuneration has changed to include tax equalisation costs within taxable benefits. The 2019 taxable benefits has been adjustedShell US retirement benefit arrangements, as set out on this basis and therefore differs from the value presented in the 2019 Annual Report.
[C] For Ben van Beurden, the amount reported for pension consists of a net pay defined contribution amount of €402,825.page 185. The amount to be reported for his defined benefit pension accrual is €137,479 calculated in accordance with UK reporting requirements. For Jessica Uhl, the amount reported for pension consists of a defined contribution amount of €103,486$30,000 (£24,254) and a defined benefit pension accrual €184,452.of $10,929 (£8,836).
[D] TheF]Annual bonus: the full value of the bonus in respect of performance in 2022, comprising both the 50% delivered in cash and 50% bonus delivered in shares. For 2019,2023, the market price of A shares on February 21, 2020 (€22.735),23, 2023 for London-listed shares (£24.82) was used to determine the number of shares delivered, resulting in 9,521 A27,273 ordinary shares for Ben van Beurden and 5,951 A12,426 ordinary shares for Jessica Uhl.Sinead Gorman, net of tax.
[E] Remuneration for performance periods of more than one year, comprisingG]LTIP: the value of released LTIP awards. The amounts reported for 20202022 relate to the 20182020 LTIP award, which vested on March 5, 2021,3, 2023, at the market price of €17.85€29.37 and $43.72£26.04 for AAmsterdam-listed and London-listed ordinary shares, and A ADSs respectively. The value in respect of the LTIP is calculated as the product of: the number of shares of the original award multiplied by the vesting percentage; plus accrued dividend shares; and the market price of Aordinary shares or A ADSs at the vesting date. The market price of A ADSsthe Amsterdam-listed shares is converted into eurosGBP using the exchange rate on the respectivevesting date. Share price depreciationappreciation accounted for -€1,620,234 on the LTIP€912,309 for Ben van Beurden and -$1,058,065 on£112,430 for Sinead Gorman. The amount shown for Sinead Gorman relates to an award made prior to her appointment to the LTIPBoard, and is shown here for Jessica Uhl.
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GOVERNANCE SHELL FORM 20-F 2020 | 122 | |
Notes to the single totaltable: Single figure of total remuneration
for Executive Directors table (audited)
Annual bonus
As disclosed on pages 139-140,During the annual bonus is intended to reward delivery of short-term operational targets as derived from Shell’s operating plan.
Determination of the 2020 annual bonus
The REMCO had approved a 2020 annual bonus scorecard at its meeting on January 28, 2020, based on Shell’s operating plan, which ultimately was not communicated or shared with participants. In March, as the implications of the pandemic became increasingly apparent, it became clear that the operating plan and 2020 scorecard had been overtaken by events and were no longer appropriate. It was decided that targets would not be reset but operating priorities would be recast to Care in terms of health, safety and well-being for our people, Continuity for our business to support customers and communities, and Cash management to ensure the financial resilience of Shell. The approved scorecard was set aside and there was no review of the targets or performance against it (or any other targets for the purposes of calculating bonus entitlements). Care, Continuity and Cash quickly became the new framework to reflect on performance.
It had also become clear that there would be difficult financial outcomes ahead. In March 2020, Shell announced a change to the financial framework. This included stating that we would not be proceeding with the next tranche of the share buyback programme and would be rebasing the dividend. In light of this, the REMCO decided there would be no 2020 annual bonuses for Executive Directors and Senior Management. As no Group scorecard was being published, employees were informed that the Group scorecard outcome for 2020 would be set to zero. This was communicated in April 2020 to allow employees to make financial plans.
After the depths of the crisis, there has been some recovery in commodity prices and the business has been resilient in 2020, delivering strong cash generation relative to our peers and performing strongly on safety. But we are far from the financial success in 2020 that would allow an annual bonus. Taking into account all the relevant factors such as business performance, impairments, dividend changes, and the limited use of government support, the REMCO confirmed that its decision that there should be no 2020 annual bonuses remained appropriate.
For reference, the redundant 2020 annual bonus framework is set out below. Full information of Shell's performance against our Key Performance Indicators can be found on pages 28-29.
2020 annual bonus framework (not used for performance assessment)
| | | | | |
Measures [A] | Weight (% of scorecard) |
Cash flow from operating activities ($ billion) | 30% |
Operational excellence | 50% |
Production (kboe/d) | 12.5% |
LNG liquefaction volumes (mtpa) | 12.5% |
Refinery and chemical plant availability (%) | 12.5% |
Project delivery on schedule (%) | 6.25% |
Project delivery on budget (%) | 6.25% |
Sustainable development | 20% |
Total recordable case frequency (injuries/million hours) | 5% |
Operational Tier 1 and 2 process safety events (number) | 5% |
Upstream and Integrated Gas GHG intensity (tonnes of CO₂ equivalent/tonne of hydrocarbon production available for sale) | 4% |
Refining GHG intensity (tonnes CO₂ equivalent per Solomon’s Utilized Equivalent Distillation Capacity (UEDC™)) | 4% |
Chemicals GHG intensity (tonnes CO₂ equivalent/tonne of petrochemicals production) | 2% |
[A] These metrics measure the effectiveness with which we operate our assets and portfolio base, assessed against our operational business plan. Shell’s longer-term strategic ambitions are measured in the LTIP metrics.
LTIP Vesting
In 2018,year, Ben van Beurden was granted a conditional LTIP award of 340% (maximum 680%) of base salary and Jessica Uhl an award of 270% (maximum 540%), excluding share price movement and dividends.
In making the vesting decision, the REMCO considered Shell’s performance over the three-year vesting period.
There was strong performance on free cash flow (FCF) in 2018, but Shell failedSinead Gorman were eligible to meet plan targets in 2019 and 2020, and the overall performance outcome over three years fell below threshold.
The REMCO was encouraged by the resilience that Shell displayed over the course of 2020, including its ability to deliver positive cash flows despite very challenging headwinds. Shell ranked first among our competitors in relative CFFO growth. Total CFFO was $34 billion in 2020, with more than $129 billion generated over the three-year vesting period. In absolute terms, this is more than double the CFFO generated in 2020 by our next closest competitor. On TSR, Shell ranked thirdparticipate in the comparator group,defined contribution UK Shell Pension Plan with $55 billion distributedan employer contribution rate of up to shareholders in the form20% of dividends and share buybacks. The work done in recent years to focus on capital discipline and get the portfolio to the right size was also reflected in the outcome for return on average capital employed (ROACE), where Shell ranked third among the comparators.
The REMCO also considered the change in share price between award and vesting, and the impact this had on the outcome. The REMCO also reflected on the overall single outcome for the CEO and decided that no adjustment to the vesting outcomes was required.
Accordingly, the REMCO determined that the LTIP should vest at 90% without the use of discretion. This is illustrated opposite.
The CEO’s and CFO’s vested awards are subject to a further three-year holding period which extends beyond Executive Director tenure.
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GOVERNANCE SHELL FORM 20-F 2020 | 123 | |
| | | | | | | | |
GOVERNANCE SHELL FORM 20-F 2020 | 124 | |
In determining the final pay outcomes, the REMCO also considered the personal performance of the Executive Directors.
Personal performance 2018 – 2020
| | | | | | | | |
Key Goals | Ben van Beurden | Jessica Uhl |
Deliver a world-class investment case | Difficult times have demanded strong leadership, which the CEO has provided.
In the face of unprecedented headwinds, Shell has shown impressive resilience. This reflects the value of the integrated portfolio and disciplined execution during 2020. The global economic conditions have required decisive action, including the suspension of the share buyback programme and rebasing of the dividend. Shareholder returns are fundamental to the investment case at Shell and the REMCO pays close attention to this when considering performance. These were not easy decisions to make, but the Board believes they were necessary to create resilience, and in combination with other cost preservation measures have contributed to making Shell stronger operationally and financially. The REMCO recognises the central role of the CEO in providing the direction and clarity of purpose that has guided the Company and underpinned this resilience during a challenging 12 months. | The challenges of 2020 have required strong strategic management of Shell’s financial framework, and the CFO has played a critical role in ensuring the resilience of Shell during a highly volatile and unpredictable period.
Key deliverables included the strong focus on cost discipline and the development of a renewed cash allocation framework which prioritises: capex and progressive dividend growth; net debt reduction (targeting AA credit metrics in the near term); additional shareholder distributions; and growth capex.
In terms of broader Company performance, the REMCO recognised the strategic insight that the CFO has provided in terms of effective capital allocation, and portfolio and investment decisions that improve Shell’s world-class investment case. |
Thrive in the energy transition | The CEO has continued to lead Shell’s NCF ambition by driving internal plans and targets, and by integrating business and investment decisions with Shell's longer-term ambitions.
In 2020, Shell announced an updated strategic ambition to be a net-zero emissions energy business by 2050, in step with society. It concluded a comprehensive strategy update on how Shell intends to decarbonise energy customers while running legacy businesses for value rather than volume. The design of the new organisation (Project Reshape) necessary to support this strategy update was completed. These activities culminated in the updated strategy announced in February 2021. The REMCO acknowledges the fundamental importance of the CEO using these activities to position Shell for long-term success in the energy transition.
Externally, the CEO has played a leading role in the energy transition debate through such initiatives as the first joint statement with institutional shareholders, encouraging other companies to adopt the NCF methodology. He has been instrumental in galvanising coalitions to start action on sectoral decarbonisation. His personal role, for example in the Aviation Clean Skies Initiative, is recognised by both customers and external stakeholders. His interventions have helped in shifting the climate agenda towards the practical measures that will be needed for creating sustained demand for lower-carbon products. | Over the performance period, the CFO has further matured the internal management systems relating to carbon dioxide (CO₂) in decisions about portfolio, planning and resource allocation. The CFO led the publication of the Shell Energy Transition Report, which is aligned with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). The report sets out how Shell plans to be resilient to expected changes in the energy system and how its strategy helps it to thrive as the world transitions to lower-carbon energy.
|
Strengthen societal licence to operate | During 2020, Shell’s priority has been the health and safety of our staff and customers. The REMCO recognises the leadership that the CEO has displayed in setting a tone of care and well-being across the organisation in 2020.
In terms of HSSE leadership, there was a notable improvement in both personal and process safety in 2020. The number of fatalities under Shell operational control was zero.
In 2019, Shell published the Industry Associations Climate Review, which assesses alignment with 19 industry associations on climate-related policy. | The CFO maintained a strong financial disclosure, reporting and control framework.
In 2020, Shell published its second Tax Contribution Report, continuing to provide greater transparency around Shell’s approach to paying taxes to governments. Over the performance period, the CFO also played a key role in Shell’s endorsement of the responsible tax principles set out by the non-profit organisation, The B Team. |
The REMCO considered the single-figure outcomes for the CEO and CFO. It noted that the overall remuneration outcomes were 41% (CEO) and 38% (CFO) lower than in 2019. The REMCO was satisfied that these single-figure outcomes represented a fair level of remuneration. In deciding this, the REMCO took account of the challenging global economic conditions in 2020, and the steps necessary to reinforce the financial strength and resilience of Shell. It also considered the strong and positive leadership shown in setting out a clear strategic direction for Shell and ensuring it was supported by the necessary organisational design.
In finalising its remuneration decisions for 2020, the REMCO considered a range of factors, including:
▪Shell’s performance in 2020 and over the LTIP performance period 2018-2020;
▪potential risk adjustment considerations, including safety, ethics and compliance and feedback from the Audit Committee and the Safety, Environment and Sustainability Committee;
▪the actions taken to protect value, strengthen the balance sheet and preserve cash;
▪the final LTIP vesting outcome;
▪the internal relativity of remuneration compared with the variable pay outcomes for the general workforce;
▪government support received in 2020. Most of this support was automatic, such as around SGD 55 million under the Singaporean Job Support Scheme and £20 million of business rate relief in the UK. Relief which Shell has applied for is very limited, with the most notable being CAD 34
million received under the Canadian Emergency Wage Subsidy scheme. Careful consideration was given prior to making an application as to whether it was appropriate tosalary, or take this support. We are comfortable that doing so was appropriate fromas a Canadian perspective and consistent with doing all that we couldpension cash alternative. They chose the latter. The UK Shell Pension Plan or associated pension cash alternative is available to protect jobs and care fornew Shell employees in the worst phaseUK at the same contribution levels and currently around half of UK employees participate in these arrangements. The majority of the crisis, many of whom workremainder participate in small communities. The REMCO reviewed and was satisfied that this support had no impact on the mathematical vesting outcome of the LTIP;
▪the alignment of the Executive Directors with the shareholder experience through their high shareholding requirements;
▪the decision that there should be no 2020 annual bonuses, which took into account business performance, impairments, dividend changes and the use of limited government support;
▪feedback from shareholders regarding the appropriate pay outcomes in light of the COVID-19 pandemic; and
▪the personal performance of the Executive Directors.
After reflecting on the above factors, the REMCO was satisfied that the remuneration policies had operated as intended.
Pension
Ben van Beurden’s pension arrangements comprise a legacy defined benefit plan, withwhich closed to new members in March 2013. Sinead Gorman was a maximum pensionable salarymember of €98,993; and a net pay defined contribution pensionthis plan with a 2020 employer contribution of 27% of salary in excess of €98,993. He has the optionprior to take cashher appointment as an
| | | | | | | | |
GOVERNANCE SHELL FORM 20-F 2020 | 125 | |
alternative to pension contributions (in either case subject to income tax) and elected to take his benefit in the form of contributions throughout 2020.
The employer contribution levels are in line with those applicable to other Netherlands-based employees. Under the Dutch pension regulations applicable to the pension arrangement in which he participates, the contribution rate increases with age and is shown opposite.
At December 31, 2020, the average employer contribution rate for Netherlands employees who participate in the net pay defined contribution pension arrangement on the same terms as Ben van Beurden was 20%. For reference, in the UK, the average employer contribution rate to the Shell UK defined contribution plan is 20%.
Jessica Uhl iswas a member of the Shell US retirement benefit arrangements, which includeincluded the Shell Pension Plan (a defined benefit plan), and a defined contribution plan where she receivesreceived an employer contribution of 10% of salary. This iswas the same as the average
employer contribution rate for US employees, which was 10%.employees. As for all other pre-2013 members of the Shell Pension Plan, she hashad an annual choice of two accrual formulas with different forms of benefits, one in the form of a lifetime annuity and the other allowing for a lump-sum payment. She elected to accrue benefits for 20202022 under the former. Around 10,0007,700 out of 17,00013,000 Shell US employees have the option of choosing between the two formulas. These arrangements are the same for all employees who joined Shell US at the same time as Jessica Uhl.before 2013. The difference in Jessica Uhl’s pension provision, for Jessica Uhl, compared with other employees who joined pre-2013,before 2013, is that her bonus is not pensionable asbecause she was an Executive Director while forher bonus was not pensionable. For other relevant US employees the bonus is pensionable. She also has a deferred Dutch defined benefit pension plan, as a result of a prior Shell assignment on local Dutch terms and conditions.
The REMCO believes these pension arrangements are aligned with corporate governance developmentsbest practice guidance in the UK which emphasisefocuses on the desirabilityalignment of Executive Directors’ pension arrangements being the same aswith those for the general employee population.
Governance
Annual Report on Remuneration continued
Annual bonus
The annual bonus is intended to reward the delivery of short-term targets derived from the operating plan. The REMCO reviewed performance against the scorecard, as follows:
Financial delivery (35% weighting): in a turbulent economic environment, robust operational performance and a resilient portfolio have enabled Shell to deliver CFFO (including working capital) of $68 billion. This exceeded our outstanding performance threshold of $45 billion, leading to a maximum outcome on this measure. It is worth repeating that the REMCO has long had a policy of not adjusting remuneration measures to take account of changes in energy prices and currency fluctuations, which supports alignment between pay outcomes and the shareholder experience. In engagements with our largest shareholders, many have appreciated the transparency that this brings.
Operational excellence (35%): delivery of our Powering Progress strategy is underpinned by Shell’s ability to operate its assets efficiently, deliver major projects on time and on budget, and leverage its strong customer relationships to create value:
▪Asset management excellence: Upstream controllable availability was below threshold, and Midstream availability was below target. Refining and Chemicals availability was on target against the plan.
▪Project delivery excellence: project delivery was at target.
▪Customer excellence: customer satisfaction was above target, as the collective effort and resilience of our teams, together with proactive customer engagements, helped reduce the impact on customers from supply chain challenges that continue to negatively impact some businesses. However, our Brand Share of Preference (BSP) was below threshold.
Overall the outcome for operational excellence was below target.
Shell's journey in the energy transition (15%): Powering Progress sets out a strategy to accelerate Shell’s transition to net-zero emissions; this means changing the products we sell and reducing our emissions. For 2022, the REMCO introduced three new metrics designed to more fully reflect Shell’s role in the energy transition:
▪Selling lower-carbon products: we are evolving our business models to include lower-carbon energy products (thereby reducing emissions), as well as non-energy products and convenience retail. Performance is measured based on the proportion of earnings in the Marketing segment coming from lower-carbon energy products, as well as non-energy products (see page 175 for the list of products included in this metric). In 2022, the REMCO set a target of 60% of earnings from these products, which was met.
▪Reducing our emissions as an energy user: performance is assessed based on GHG abatement projects that result in ongoing Scope 1 and 2 GHG reductions such as flare reduction and energy efficiency projects, site closures, decommissioning and transformations, and increasing the use of renewable electricity in our operations. This metric is about the delivery of projects which result in sustained emission reductions. It does not include the impact of divestments and acquisitions. The 2022 outcome was outstanding, with total emissions reductions of 2,010 Kt of CO2 well ahead of our target
of 1,700 Kt of CO2.
▪Partnering to decarbonise: we have set annual targets measuring our roll-out of electric vehicle charging points, in line with Shell’s target of having more than 500,000 electric vehicle charging points by 2025. The target for 2022 was to achieve 130,000 charging points by the end of the year, and 138,610 charging points were in operation by the end of 2022, resulting in above-target performance.
Overall the score on the Shell's journey in the energy transition measure was above target.
Safety (15%): Powering Progress is underpinned by a focus on safety.
It is critical that Shell runs its day-to-day operations safely and ensures the well-being of all our people.
▪Process safety continues to be measured through the number of
Tier 1 and 2 operational safety incidents and was above maximum, with 66 events recorded compared with 103 in 2021.
▪Personal safety SIF-F performance is assessed based on the number of serious incidents which might occur in Shell’s businesses based on the work plan for the year and our knowledge of industry incident rates. Our ultimate goal is zero harm to people working for Shell. Shell has made tremendous improvements to safety performance over a long period of time. Measures such as SIF-F are important tools to give focus to those incidents with the most serious consequences and continue to drive improvement. Overall, in 2022, we had fewer serious safety incidents, recording eight incidents in 2022, down from 32 in 2021, which is testament to the ongoing focus of our employees in keeping colleagues safe.
Overall, the score on the safety measure was at maximum. As noted in the REMCO Chair's introduction, the REMCO reflected carefully on safety particularly in light of the two fatalities, and determined not to make any adjustments.
| | |
| Further information is provided in the "REMCO reflections on safety" section on page 167. |
Scheme interests awarded
Governance
Annual Report on Remuneration continued
The table below summarises the 2022 annual bonus scorecard measures including their weightings, targets and outcomes. The scorecard outcome for 2022 was 1.46.
| | |
| 2022 annual bonus scorecard measures and weightings |
[A]Including working capital adjustments.
[B]Upstream controllable availability: 84.7% (Threshold 85.0%, Target 87.0%, Outstanding 89.0%); Midstream availability: 89.3% (Threshold 88.7%, Target 90.7%, Outstanding 92.7%); Refinery and chemical plant availability: 95.5% (Threshold 94.5%, Target 95.5%, Outstanding 96.5%). Performance assessment is equally weighted between Upstream, Midstream, and Refining and Chemicals.
[C]Projects delivered on schedule: 69% (Threshold 30%, Target 65%, Outstanding 100%); project delivery on budget: 103% (Threshold 110%, Target 103%, Outstanding 96%). Performance assessment is equally weighted between projects delivered on schedule and on budget.
[D]Customer satisfaction: 8.3 (Threshold 7.6, Target 8.1, Outstanding 8.6); Brand Preference: 13.8% (Threshold 13.8%, Target 14.2%, Outstanding 14.6%). Performance assessment is equally weighted between customer satisfaction and brand recognition.
[E]Based on the percentage of Adjusted Earnings in 2020the Marketing segment from lower-carbon energy products (on a life cycle basis), defined as biofuels and EV charging, as well as non-energy products, defined as lubricants, bitumen, sulphur (agriculture and forestry), and earnings from convenience retail. The name of this category has been amended from "Progress in the energy transition" (as disclosed in the 2021 Directors’ Remuneration Report) to "Shell's journey in the energy transition" to more precisely reflect the nature of this metric.
Scheme interests awardedAccordingly, the REMCO decided the final bonus outcome should be 146% of target and 73% of maximum. This results in a bonus of £2,590,000 for Ben van Beurden and £1,180,000 for Sinead Gorman for the period she was CFO during 2022.
| | |
| 2022 bonus outcome calculation |
Governance
Annual Report on Remuneration continued
Long-term Incentive Plan vesting: 2020 LTIP
In 2020, Ben van Beurden was granted a conditional share award under the LTIP of 300% of salary. Sinead Gorman’s 2020 award is also disclosed for transparency, notwithstanding that she was not an Executive Director at the time. The awards were made prior to the onset of COVID-19 in March 2020, meaning there was no possibility of windfall gains from the subsequent fall in share price. While there was a 13% reduction in share price since the 2019 award, this was below the threshold at which an adjustment would be considered, and therefore no adjustment was made to the award size.
In determining the vesting outcome, the REMCO considered Shell’s performance over the three-year period January 1, 2020 to December 31, 2022:
▪Relative CFFO: in absolute terms, 2022 performance was strong with CFFO at $68 billion (including working capital). On a relative basis as compared against the 2019 base year when Shell also generated strong CFFO of $42 billion, Shell ranked fourth, resulting in 0% vesting for this measure.
▪Relative TSR: over the performance period, Shell returned around $44 billion to shareholders in the form of dividends and share buybacks, whilst TSR was 14.3%. Relative to the other energy majors, Shell's TSR ranked fourth, resulting in 0% vesting for this measure.
▪Relative ROACE: Shell’s absolute 2022 ROACE for LTIP purposes was 15.9% (note that ROACE for the LTIP calculation is based on disclosed net income and is not adjusted for the after-tax interest expense and therefore differs from disclosed ROACE). On a relative growth basis compared against 2019 when Shell’s ROACE
was 5.80%, Shell ranked third, resulting in a 80% of target
vesting outcome.
▪Absolute FCF: strong performance in 2021 and 2022 resulted in total FCF of $107.1 billion being generated over the three years, above our maximum threshold of $80 billion. This resulted in a 200% of target vesting outcome on this measure. Note that FCF for the first three quarters of 2022 is 3.5x higher than the equivalent in 2013, when Brent price was similar, evidencing strong management performance in addition to price tailwinds.
▪Absolute energy transition: the outcome of this measure is determined holistically by the REMCO, taking account of Shell’s performance against defined performance indicators and also
Shell’s wider performance in accelerating its transition to a net-zero emissions business. Overall, the REMCO determined the vesting outcome as 180% of target. Commentary on energy transition performance is provided below.
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| 2020 LTIP vesting outcomes – performance measures |
The 2020 LTIP energy transition metrics focused on those elements that we understood at the time would make the most impact in achieving our goals over the three-year performance period relating to net carbon intensity, the growth of our power business, the growth of lower-carbon products, and the development of systems to absorb, capture and store carbon. The approach to the LTIP allows us to experiment and learn what is effective and which behaviours and actions will deliver net zero in a profitable way. Accordingly, the REMCO uses the performance indicators as guidance, rather than applying a formulaic vesting outcome, when making its decisions.
In 2022 we continued our progress on our path to net zero by 2050. At the end of 2022, we reduced our Scope 1 and 2 emissions by 30%, and the net carbon intensity of our energy products by 3.8% from our 2016 reference year.
[A]2021 target 2-3% reduction, 2022 target 3-4% reduction, both achieved.
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Annual Report on Remuneration continued
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| 2020 energy transition performance condition: outcome |
To help to transform the energy system, Shell’s strategy is to develop a portfolio that will:
▪provide more electricity to customers, while also driving a shift to renewable electricity;
▪develop low- and zero-carbon alternatives to traditional fuels, including biofuels and hydrogen; and
▪address any remaining emissions from conventional fuels with solutions such as carbon capture and storage and nature-based solutions.
Progress against these strategic goals is assessed under the LTIP, alongside the reduction in the total net emissions of all energy products sold, as measured by Shell’s net carbon intensity (NCI) target.
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| | Net carbon intensity (NCI) - Performance indicator met We have medium-term targets to reduce our NCI by 20% by 2030, 45% by 2035 and a long-term target of 100% by 2050, compared with 2016 levels. Our short-term NCI targets are consistent with these medium-term targets. We achieved our short-term target for the 2020-22 LTIP cycle to reduce our NCI by 3-4% compared with the 2016 base year, with a 3.8% reduction by 2022. |
| | Growing a material power business - Performance indicator substantively met As with much of the early stages of the energy transition journey, we have been in a phase of piloting and learning and we expect that to continue for some time as we create the foundations on which a valuable power business can be built. We are doing this by entering new markets to access customers and developing new commercial pathways by creating a funnel of renewable power capacity options and then converting these options to realised investments. Over the performance cycle, the Power business has developed, learning how to manage risk and execute projects that can leverage Shell’s existing strengths, with the key challenge remaining to identify and act on opportunities that deliver appropriate returns. ▪We set out in 2020 with a goal to enter three new markets, aligned with the target markets under our 2019 strategy for the power business for direct power sales to end-consumers (applying a materiality threshold of 1 terawatt hour (TWh) of power sold per annum) cumulatively since 2019. We achieved two new entries with the ERM acquisition in Australia (now trading as Shell Energy) and our growing power business in Germany which reached the materiality threshold in Q4 2022. While our initial target markets were aligned with the 2019 power strategy, this business has evolved rapidly and the REMCO also took account of market entries in India, Japan and Italy which while not aligned with the original strategy, are consistent with the objectives of entering new markets and creating a customer base. Alongside these the REMCO noted other milestones of progress in establishing our customer base such as the acquisition of Inspire, a USA-based renewable energy residential retailer, and Powershop, an online energy retailer serving more than 185,000 customers in Australia. We have also refined our thinking on this metric as the Power business has evolved, and from the 2021 LTIP have moved to assessing progress based on the total power sales measured in TWh of power sold and the proportion of those sales which are from renewables. ▪We also set out to secure renewable power generation capacity options of 5–10 GW and are well beyond target at 47 GW over the LTIP cycle. Investments, such as Sprng Energy group (a $1.55 billion investment, completed in August 2022), a solar and wind platform in India which brought significant operational renewable power generation capacity and a pipeline of new projects, and Savion (completed in December 2021), a US solar and energy storage developer, are key to enabling us to continue to learn where we can be competitive with the strength of our integrated value chain and generate attractive returns. ▪A target of post-FID capacity of 2-4 GW from renewables was set for the LTIP, which was met with 3.6 GW of post-FID capacity achieved. Notable investments towards building this capacity include the Sprng acquisition and the Crosswinds development in the Netherlands which began construction in 2022. In total, Shell has invested £7 billion in renewable power projects cumulatively since 2019. ▪Emerging economies present some of the fastest-growing power markets in the world. Focusing on Africa and South-east Asia, Shell is aiming to build an integrated sustainable power business, helping customers access electricity from cleaner sources. Shell intended to invest $200 million in energy access customers over the LTIP period. By the end of 2022, we had completed $190 million, falling slightly short of the initial target. The most notable investment was the acquisition of Daystar Power (completed in December 2022), a West African provider of hybrid solar power solutions to businesses. Daystar was an important growth milestone for Shell’s emerging market power business, and can help address a critical energy gap for many businesses that currently rely on diesel generators for back-up power. Investments such as Daystar give Shell platforms to develop our customer propositions in dynamic and growing markets for renewable energy, as we look to expand the renewables business away from mature markets. One of the key challenges we have experienced over the LTIP cycle has been volatility and lower-than-expected returns. This has sharpened our focus on prioritisation of value over volume. In the power space that means a shift in our focus to compete in a way that utilises the unique nature and skills of Shell’s integrated business to give us the competitive advantage and deliver appropriate returns on this energy transition journey. |
| | Growing lower-carbon products - Performance indicator met Shell is investing in low- and zero-carbon products such as renewable electricity, hydrogen and biofuels, working closely with our customers to identify the products they need to decarbonise. Shell’s biofuels strategy is to develop and invest in the projects and technologies to develop a profitable manufacturing business converting sustainable feedstocks to low-carbon fuels across three main categories: Hydroprocessed Esters and Fatty Acids (HEFA)/Hydrotreated Vegetable Oil (HVO), Renewable Natural Gas (RNG), and advanced biofuels. In the years ahead we also aim to be a leading player in a global hydrogen economy, developing integrated hydrogen hubs to serve industry and heavy-duty transport. The 2020 LTIP cycle supported this by setting a number of performance indicators which were aimed at de-risking advanced biofuels technologies and the overall abatement of CO2 from Shell’s investment in low-carbon fuels. ▪Over the LTIP performance period we took equity positions in two advanced biofuels projects (Lanzajet (USA) and Enerkem Varennes (Canada)), ahead of the performance indicator which was set for the LTIP of one investment in a commercial biofuels project. Shell together with its partners has agreed to a revised allocation of equity in the Enerkem Varennes Carbon Recycling (VCR) project and over time Shell expects to reduce its long-term percentage holding in the VCR project. Therefore, the REMCO determined that it would count only one project. ▪For the LTIP we also set a performance indicator of 1,500 Tonnes a day (T/d) of carbon equivalent abated through HVO biofuels and RNG from waste sources, which was met with 8,894 T/d abated, largely through the Shell Rotterdam biofuels facility, which Shell took final investment decision on in September 2021. Once built this will be among the largest biofuels facilities in Europe, producing enough renewable diesel to avoid 2,800,000 tonnes of CO2 per year. The start-up of our first US RNG plant (Oregon) in January 2022 and final investment decisions on three further RNG plants (Kansas, Idaho) also support this target. ▪The REMCO set a performance indicator to identify a number of lead projects for Shell’s proprietary biomass to liquids technology, iH2, for delivery once the technology development release is issued. While no FIDs were taken, two priority iH2 projects (Norway and US) are progressing. |
Governance
Annual Report on Remuneration continued
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| | Growing lower-carbon products - Performance indicator met continued Beyond the set targets, the REMCO also considered some of the wider developments that Shell undertook which demonstrate how Shell can help meet society’s need for cleaner energy through low-carbon fuels. This included the final investment decision on Holland Hydrogen I in July 2022, which will be Europe’s largest renewable hydrogen plant when operational from 2025. The 200 MW electrolyser will produce up to 80 tonnes of renewable hydrogen a day, with power coming from the offshore wind farm Hollandse Kust (noord), with some of the hydrogen produced used to replace grey hydrogen at the Shell Energy and Chemicals Park Rotterdam. The ultimate proof of the strategy and the contribution that low-carbon fuels can make in reducing emissions is being able to produce and sell these at scale, and the REMCO noted that Shell is one of the world's largest traders and blenders of biofuels. The Brazilian joint venture Raízen, in which Shell has a 44% interest, is one of the world's largest biofuels producers and in November 2022, Shell announced an agreement to buy 3.25 billion litres of sugar-cane ethanol under a long-term agreement with Raizen. In December 2022, Shell reached an agreement to acquire Nature Energy, the largest producer of renewable natural gas in Europe (with the acquisition completed in February 2023), supporting Shell’s ambitions to grow its low-carbon fuels production. |
| | Develop emissions sinks - Targets met The development of systems that capture and store or absorb carbon is required as part of the global response to climate change to reduce and compensate for emissions where there are not currently scalable low-carbon alternatives. The 2020-22 LTIP energy transition performance condition focused on getting started on developing the commercial value chains and capacity for future projects, with metrics based on taking FID on a number of the projects. In 2020, we intended to progress nature-based solutions verified by recognised carbon credit standards. Carbon credits generated by high-quality nature-based projects may be used to offset emissions in line with the mitigation hierarchy of avoid, reduce and offset. ▪Over the LTIP performance cycle we have taken FID on 15 projects, well ahead of the 4-8 FID set as a performance indicator in 2020, reflecting both the growth in the market for carbon credits and the development of capability within Shell as the business matures. ▪In 2020, we set a performance indicator to mature one carbon capture and storage project to post-FID. In 2020, we took FID on Northern Lights, our Norwegian CCS joint venture (Shell interest 33.3%). We continue to have a healthy number of projects we are developing on CCS at a global level. ▪By the end of 2022, our Quest project in Canada (Shell interest 10%) had captured and safely stored more than 7.5 million tonnes of CO2 since it began operating in 2015. In Australia, the Gorgon project (Shell interest 25%, operated by Chevron), which started operating in August 2019, had stored more than 7 million tonnes of CO2 by the end of 2022. |
There are also a number of broader indicators of Shell’s progress in the energy transition that the REMCO considered when making its overall vesting determination. During 2020, Shell: ▪Announced its target to become a net-zero emissions energy business by 2050. ▪Published the Industry Associations Climate Review update, including Shell’s updated climate-related policy positions and our payments to keep industry associations. During 2021, Shell: ▪Launched its Powering Progress strategy to transition of our business to net-zero emissions, including targets to reduce the carbon intensity of energy products we sell by 6-8% by 2023, 9-12% by 2024, 9-13% by 2025, 20% by 2030, 45% by 2035 and 100% by 2050. ▪Offered an advisory vote on Shell’s energy transition strategy to our shareholders for the first time, achieving support of 89%. ▪Put in place a simpler, more cost-effective organisation needed to implement Powering Progress. ▪Published the 2021 Industry Associations Climate Review, extending our coverage to 36 industry associations. ▪Formed more than 50 collaborations with other leading companies aiming to be at the forefront of the energy transition. During 2022, Shell: ▪Completed the Simplification of Shell plc, aligning its tax residence with its country of incorporation and established a single line of shares, allowing Shell to respond to the challenges of the energy transition by managing its portfolio with greater agility. ▪Published its first Energy Transition Progress Report and offered an advisory vote on Shell’s progress to our shareholders for the first time, achieving support of 79.9%. |
| Overall, the REMCO determined that the energy transition measure (accounting for 10% of the award) should vest at 180% of target. |
The REMCO reviewed Shell's broader performance over the performance period (see page 180 for detailed discussion), and also reflected on the share price at award and on vesting, noting that the share price had increased by 24%, and that appreciation accounted for 16% of the total value of the CEO's LTIP at vest, and was satisfied that no windfall gain had arisen.
The REMCO decided that the LTIP outcome was consistent with the target opportunity and intended operation of the plan under the Policy and appropriate, and therefore no adjustment to the vesting outcome was required. Accordingly, the REMCO decided that the LTIP should vest at 81% of target (equivalent to 41% of maximum).
The overall LTIP vesting outcome, including an illustration of the impact of share price movements and accrued dividends, is set out below. The CEO's and CFO’s vested awards are subject to a further three-year holding period which extends beyond their tenure as Executive Director.
Governance
Annual Report on Remuneration continued
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| 2020 LTIP vesting outcome |
Consideration of 2022 final pay outcomes
In determining the final pay outcomes for 2022, the REMCO also considered the personal performance of the Executive Directors.
It has been an unprecedented period for the energy sector. The exceptionally strong financial performance in 2022 is attributable in part to the macro environment, but also, in the view of the REMCO, reflects the outstanding personal contributions and teamwork from management in recent years. Over the last three years, the Executive Directors have demonstrated strong and compassionate leadership navigating the Company through the pandemic and volatility in energy prices. They also implemented a new organisational structure (Project Reshape), simplified the share structure and aligned the Company’s tax residence with its country of incorporation to strengthen Shell’s competitiveness and accelerate both shareholder distributions and delivery of strategy to become a net-zero emissions energy company.
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| CEO: Ben van Beurden |
The REMCO acknowledges the fundamental role the CEO’s strategic and operational leadership has played in enabling Shell to achieve financial outcomes to deliver on our commitment to increase shareholder distributions, while we reduce net debt. Key successes are noted throughout this report and in particular in discussions of the 2022 annual bonus and 2020 LTIP vesting outcomes on pages 174 and 176. By the end of 2022, the CEO had led delivery of: ▪Strong financial results with net income of $43 billion and Adjusted Earnings of $40 billion, and CFFO (including working capital) of $68 billion against plan targets of $40 billion, reflecting continuous high-grading of our upstream assets and the strength of our trading businesses; ▪Delivery of $26 billion of shareholder distributions in 2022, representing a return, in absolute terms, to pre-pandemic levels (2019 was around $25 billion); ▪Net debt at $45 billion, down from $79 billion at the end of 2019; ▪Launching the Powering Progress strategy including Shell’s intent to become a net-zero emissions business and achieving 89% support in a shareholder advisory vote on the proposed energy transition strategy; ▪Implementing a new organisational structure; ▪Simplifying the share structure and aligning the Company’s tax residence with its country of incorporation allowing Shell to respond to the challenges of the energy transition by managing its portfolio with greater agility; ▪Material upstream divestments and downstream portfolio rationalisation, as well as new acquisitions in direct support of our net-zero goals. These actions have protected and strengthened the balance sheet, enabling Shell to advance the Powering Progress strategy in a highly volatile macro environment. The CEO has continued to play a leading role in the energy transition, both internally in driving performance against our strategic objectives and externally in directing conversations with policymakers, industry groups, shareholders and other key stakeholders towards the practical measures needed to transform the energy system. Under the CEO's personal leadership, Shell took decisive early action to announce its intent to withdraw from Russian oil and gas. The CEO has been strong and principled in his position, and the Company has worked hard to support the safety of our staff and contractors in Ukraine, Russia, and neighbouring countries. We also support relief efforts, and take action when we need to do so. The CEO’s relentless focus on safety during the period has seen remarkable improvement in safety scores. The safety refresh, which focused on applying a learner mindset and psychological safety, has encouraged employees to learn from mistakes and successes and speak up freely. People survey scores further increased during 2022, including the achievement of the best "employee engagement" result in the last 12 years and the highest ever "organisational leadership" and "team leadership" scores across Shell. |
Governance
Annual Report on Remuneration continued
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| CFO: Jessica Uhl (until March 31, 2022); Sinead Gorman (April 1, 2022 onwards) |
Maintaining discipline on capital, operating and lease expenditure and the implementation of an updated capital allocation framework to balance growth and shareholder distributions was a key focus for the CFO during a particularly turbulent period. The Company’s financial success during 2022 was underpinned by the finance function’s disciplined capital stewardship and the effective management of our financial framework, allocating higher cash flows from high commodity prices towards debt reduction, capex and shareholder distributions. Optimising business risk management has allowed us to respond with agility to the volatile energy market. A key achievement over the last three years has undoubtedly been the successful delivery of the simplification of Shell plc. The successful completion of the establishment of a single line of shares, and the alignment of Shell’s tax residence with its country of incorporation in the UK was hugely complex and challenging, and the REMCO recognises the pivotal role that the CFO played in its success. The CFO supported the CEO in managing Shell’s continued withdrawal from Russian hydrocarbons following an escalation in the war in Ukraine. This included external reporting, and managing the Company’s responses to fast-changing regulations and sanctions, and their impact on the Company’s ability to meet contractual obligations in the exit of our Russia ventures in our Upstream, Integrated Gas, and Downstream businesses. The CFO also oversaw the introduction of new segments of reporting (introduction of Renewables and Energy Solutions, Marketing, and Chemicals and Products segments), with improved external financial and operational quarterly disclosures, promoting transparency for shareholders and other stakeholders. The CFO led delivery of publication of the Shell Energy Transition Strategy and enhanced climate change disclosures in the Annual Report, which is part of our continuing work to implement the recommendations of the Task Force on Climate-related Financial Disclosures. Tax contribution reporting has also been expanded to include total tax contribution data on 21 countries and a summary of key tax issues in relation to the energy transition. A highlight from 2022 has been the digitalisation of internal financial planning processes, enabling a step change in the quality, process and experience of internal processes, in particular in forecasting and business planning. |
The REMCO considered the single figure outcomes for the CEO and the CFO. It noted that the overall remuneration outcome was higher than last year for the CEO. The REMCO was satisfied that these single figure outcomes represented a fair level of remuneration. In finalising its remuneration decisions for 2022, the REMCO considered a range of factors, including:
▪Shell’s performance in 2022 and over the LTIP performance period 2020-2022 and the formulaic outcomes of the bonus and the LTIP performance condition;
▪The impact of fatalities on the formulaic scorecard outcome;
▪Absolute and relative TSR performance over the period;
▪A range of other factors that take account of Shell's performance beyond the formulaic outcomes of the variable pay structures, including safety, reputation, ethics and compliance, and feedback from the Audit Committee and the Safety, Environment and Sustainability Committee (SESCo);
▪The macro-economic environment and wider stakeholder experience, and shareholders' expectations with regard to executive pay decision-making;
▪The Executive Directors' remuneration compared with the variable pay outcomes for the general workforce;
▪The alignment of the Executive Directors with the shareholder experience through their high shareholding requirements;
▪The Executive Directors' remuneration compared with historical outcomes; and
▪The personal performance of the Executive Directors.
After reflecting on the above factors, the REMCO was satisfied that the Policy had operated as intended.
2022 LTIP
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| Scheme interests awarded to Executive Directors in 2022 (audited) |
In 2022, the Executive Directors were granted conditional share awards under the LTIP as set out in the table below. In approving the awards, the REMCO considered Shell's historical share price, including the share price over the prior year, and noted that the share price at grant was not lower than average historical levels for both Executive Directors and was higher than in 2021. The REMCO determined that the risk of windfall gain was limited, and therefore no adjustment was made to the award size.
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| Scheme interest type | Type of interest awarded | End of performance period | Target award [A] | Potential amount vesting |
Minimum performance (%
(% of shares awarded) [B] | Maximum performance (% of shares of the target award) [A] |
| LTIP | Performance shares | December 31, 20222024 | Ben van Beurden: 200,589 A209,131 London-listed ordinary shares, equivalent to 3.0 x3.0x base salary or €4,764,000. Jessica Uhl: 59,062 A ADS£4,260,000 Sinead Gorman: 105,675 London-listed ordinary shares, equivalent to 2.7 x2.7x base salary or €2,794,500£2,430,000 | 0%0 | Maximum number of shares vesting is 200% of the shares awarded, before dividends. |
[A]The award for Ben van Beurden was based on the closing market price on the date of grant, January 31, 2020,February 4, 2022, for Aordinary shares of €23.75.£20.370. The award for Jessica UhlSinead Gorman was based on the closing market price on the date of grant, January 31, 2020,May 6, 2022, for A ADSsordinary shares of $52.15.£22.995. Jessica Uhl did not receive an LTIP award in 2022.
[B]Minimum performance relates to the lowest level of achievement, for which no reward is given.
The measures and weightings applying to LTIP awards made in 2022 were: CFFO (20% weighting), TSR (20%), ROACE (20%), FCF (20%), and energy transition (20%).
Relative measures
The relative measures are based on our performance on a number of key financial and external measures against our closest comparators. For each measure, we rank growth based on the data points at the end of the performance period compared with those at the beginning of the period.
▪As in prior years, the CFFO metric is based on point-to-point
growth in CFFO from the base year to the final year of the performance period.
▪TSR is based on the change in share price plus dividends, and
is calculated in US dollars using a 90-day averaging period
(based on 45 days either side of the start and end date of the performance period).
▪The ROACE metric is defined as point-to-point growth in ROACE from the base year to the final year of the performance period, where ROACE is net income as a percentage of the average capital employed for the period. Capital employed consists of total equity,
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| 180 | GOVERNANCE SHELL FORMShell | Form 20-F 20202022 | 126 | |
Governance
The measurescurrent debt and weightings applying to LTIP awards made in 2020 were: energy transition (10%), FCF (22.5%), TSR (22.5%), ROACE growth (22.5%) and growth in cash flow from operating activities (22.5%).
Absolute measures
Energy transition
The energy transition condition supports deliverynon-current debt. To facilitate comparison, our calculation of Shell’s Net Carbon Footprint (NCF) target.
The condition consists of a mix of leading and lagging measures that setROACE for the foundations to contribute to Shell’s strategic ambitions in the longer term. They are as follows:
Lagging measure – a measure of our progress in meeting our ambition:
▪Net Carbon Footprint: a target for reducing the NCFpurpose of the energy products Shell sells (a carbon intensity measureLTIP differs from that takes into account their full life-cycle emissions, including customers’ emissions associated with using them).
Leading measures – the levers we will use to drive future NCF reduction:
▪The growth of our power business: all decarbonisation scenarios recognise that a key way to cut greenhouse gas emissions is to increase electricity use and decarbonise electricity by shifting to renewables and gas-fired power generation. Our ambition to grow our power business is based on selective investmentsdescribed in generation, and in business models based on reselling power generated by others.
▪Advanced biofuels and alternative fuels technology: biofuels are expected to play a valuable role in the changing energy mix and are likely to be one of the key decarbonisation levers for sectors that need to continue to use liquid fuels in the foreseeable future, such as some segments of transport and industry. For society and for Shell, commercialisation of advanced biofuel technology is one of the most important steps in energy transition.
▪The development of systems to capture and absorb carbon: carbon capture and storage (CCS) and carbon sinks, such as nature-based solutions, are required as part of the global response to climate change.
Targets have been set for each element. Progress in the energy transition is not expected to be linear, because it will reflect the pace of change of society as a whole and the speed at which Shell progresses its strategic business objectives. As a result, targets have been set as ranges. These targets are commercially sensitive, so they will not be disclosed until the end of the performance period (or until they are no longer considered to be commercially sensitive). An update on our progress in relation to the measures is provided"Performance indicators" on page 128.31-32 in that there is no adjustment for after-tax interest expense.
TheVesting under each relative measure is assessed independently, with the vesting outcome for the part of the award weighted to the energy transition condition rangesranging from 0% to 200% of award.the target award in respect of the measure, in accordance with the following vesting schedule:
▪Ranking first equals 200% vesting;
▪Ranking second equals 150% vesting;
▪Ranking third equals 80% vesting; and
▪Ranking fourth or fifth equals 0% vesting.
Outperforming Shell’s closest competitors on key financial metrics is challenging. The REMCO is aware that vesting for median performance is generally set at its sole discretion, will determine vesting outcomes after considering achievementa limit of 25% of maximum for other UK companies, but notes that this is typically applied against the target ranges and feedback from the Safety, Environment and Sustainability Committee (SESCo). In doing so, the REMCO will take into account, in relation to each element, progress over the performance period relative to nearer-term aims in pursuit of the long-term ambition announced by Shell to reduce the NCF of energy products sold, in step with society’s drive to meet the goals of the Paris Agreement. The starting point for determining thea larger comparator group. A vesting outcome will be seeing how many of the targets have been met80% for eachmedian performance (40% of the four areas. One out of four will equal 40%, two will equal 100%, three will equal 150%, and 200% will be achieved for scoring four out of four. Itmaximum) in a small comparator group is important to note that performance against these elements will serve simply as a starting point for the REMCO, which will also take into account any other considerations it deemsconsidered appropriate including (without limitation) the relative importance of these elements in meeting the long-term ambition announced by Shell. For example, the REMCO may decide to allocate a greater importance to overall performance in relation to the NCF than the other three elements. The REMCO believes this approach is appropriate, given the uncertainties around the speed and direction of progress in the energy transition. The application of any discretion will be fully disclosed and explained by the REMCO.
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GOVERNANCE SHELL FORM 20-F 2020 | 127 | |
FCF
The FCF performance condition supports the delivery of our cash flow priorities, which are to service and reduce debt, pay dividends, buy back shares and make future capital investments.
The targetperformance targets for FCF along with the ranges for threshold and outstanding performance, will be set by reference to Shell’s annual operating plans, beingbased on the aggregate of our plan FCF targets over the three-year performance period. Given that FCF is heavily influenced by the volatility of oil and gas prices, the annual operating plans are updated each year to set an annual target to reflect a changing oil price premise. As a result, FCF targets are set annually for each annual operating plan and will only be disclosed in aggregate retrospectively after the three-year period. While considerationThe REMCO has been given toconsidered setting a three-year target at the outset, the REMCO has determined thatbut it believes such an approach would require adjustments for the oil and gas price premise and other matters at the end of the period, given the unpredictability and volatility in oil and gas prices. The REMCO has a long-standing "no adjustments"
no-adjustments policy and therefore believeswhich leads it to believe that a more appropriate target-setting approach is to set the target based on the aggregation of the annual operating plans.
The amounts payable under thisUnder the FCF measure, achievement of threshold performance will range from 20%result in 40% of the available maximum, for threshold performance,target award (20% of maximum) in respect of the FCF measure vesting, increasing to full vesting for achievement of outstanding performance. A straight-line vesting schedule will apply for performance between threshold and outstanding.
Relative measures
The relative measures are based on our performance onFor the 2022 award, the energy transition element comprised a number of key financial metrics againststrategic measures that laid the other oil majors.foundation for Shell to achieve our longer-term ambitions in the energy transition. There are four main categories, a mix of leading and lagging indicators, each comprising a number of quantitative and qualitative performance indicators. Performance in each category is reviewed independently; together, it provides a guiding framework for the REMCO’s holistic assessment of energy transition performance over the three years. In determining the final vesting outcome between 0% and 200% of the target level, the REMCO takes account of Shell’s wide progress in the energy transition beyond the defined measures.
The four measures are as follows:
▪Build a valuable power business: our ambition is to expand
our power business through selective investments in generation
and by reselling power generated by others;
▪Grow new low- and zero-carbon energy product offerings: continue to invest in low- and zero-carbon products such as renewable electricity, hydrogen, biofuels and chemicals;
For relative measures, we measure▪Develop emission sinks: invest in carbon capture and rank growth based onstorage opportunities, to reduce emissions where there are no currently scalable low-carbon alternatives, and in the data pointsdevelopment of high-quality nature-based projects, to compensate for emissions; and
▪Net Carbon Intensity: reduce NCI of the energy products Shell sells.
Progress in the energy transition is not expected to be linear because it will reflect the pace of change of society as a whole and the speed at which Shell makes progress with its strategic business objectives. As a result, performance indicators have been set as ranges. The quantitative performance indicators are commercially sensitive, so they will not be disclosed until the end of the performance period compared with those at the beginning of the period, using publicly reported data.(or until they are no longer considered commercially sensitive).
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| Further information on the energy transition performance measure is provided on page 177. |
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| For an update on Shell's energy transition, see the Shell Energy Transition Progress Report from www.shell.com. |
▪TSR, calculated in US dollars using a 90-day averaging period around the start and end of the performance period;▪ROACE growth. For this purpose, in order to facilitate the comparison, the calculation of ROACE differs from that described in “Performance indicators” on page 28 because there is no adjustment for after-tax interest expense; and
▪growth in cash flow from operating activities.
Each relative measure can vest independently with the amounts payable ranging from 0% to 200%, in accordance with the following vesting schedule:
▪ranking first equals 200% vesting for the element of the LTIP weighted to that metric;
▪ranking second equals 150% vesting for the element of the LTIP weighted to that metric;
▪ranking third equals 80% vesting for the element of the LTIP weighted to that metric; and
▪ranking fourth or fifth equals 0% vesting for the element weighted to that metric.
TSR Underpinunderpin
If theShell’s TSR ranking is fourth or fifth, the level of the award that can vest on the basis of the other measures will be capped at 50% of the maximum.
Performance update on energy transition metric
Lagging indicator – NCF
Performance measurement is subject to third-party limited assurance. For the year ended December 31, 2020, NCF had reduced to 75 grams of CO₂ equivalent per megajoule, a 5% reduction against the baseline.
Leading indicators – power, advanced biofuels and systems to capture and absorb carbon
These targets are commercially sensitive, so they will not be disclosed until the end of the performance period (or until they are no longer considered to be commercially sensitive). The REMCO, though, is committed to sharing progress. To date we are seeing positive progress across a range of indicators of future NCF reduction. Specific examples include:
•developments towards growing a material power business, such as the acquisition of ERM Ltd in Australia and investment in renewable energy projects such as CrossWind; and
•progress on the development of systems to capture and absorb carbon, for example the Northern Lights CCS joint venture with our partners, and nature-based solutions projects such as the acquisition of Select Carbon and Climate Bridge.
While many of these initiatives will take time to scale, they represent important steps towards building the organisational capacity and commercial value chains that will lead to future large-scale carbon reductions.
FCF
20192021 LTIP award
At December 31, 2020,2022, FCF performance is belowwas above target, with below-threshold outcomesa strong outcome of $40.3 billion for 2019 of $26.42021 (target $9 billion), and $46 billion for 2022 (target $35 billion) and for 2020 of $20.8 billion (target $38$18 billion). As one year of FCF performance remains, and 77.5%80% of the award is subject to relative and energy transition performance conditions, this does not reflect the potential vesting of the award.
20202022 LTIP award
At December 31, 2020,2022, FCF performance $20.8was above target, based on $46 billion for 2020, is below threshold2022 (target $38$18 billion). As two years of FCF performance remain, and 77.5%80% of the award is subject to relative and energy transition performance conditions, this does not reflect the potential vesting of the award.
The previous CFO, Jessica Uhl, began working in the UK effective December 31, 2021. In early 2022, we announced that given her family circumstances, a long-term relocation to the UK was not sustainable, and the Company accelerated the managed succession plan and Jessica Uhl stepped down as CFO and as a Director of Shell plc on March 31, 2022, and left Group service on June 30, 2022. Details of Jessica Uhl's remuneration for 2022 may be found in the single figure table on page 173, and the "Payments for loss of office" and "Payments to past Directors" sections.
As disclosed in last year’s Directors’ Remuneration Report, Sinead Gorman was appointed to the Board as CFO effective April 1, 2022. On appointment, her salary was £900,000 per annum, and during 2022, she received salary and benefits in line with the Policy, and her pension is aligned to the UK defined contribution pension arrangements offered to new Shell employees. Sinead Gorman was also eligible to receive a pro rata annual bonus of up to 240% of salary and a target LTIP award of 270% of salary, in line with the Policy. The remuneration paid to Sinead Gorman in respect of her service as an Executive Director during 2022 is disclosed in the single figure table.
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| 181 | GOVERNANCE SHELL FORMShell | Form 20-F 20202022 | 128 | |
Governance
Annual Report on Remuneration continued
As a result of a managed succession process led by the Chair of the Board, Ben van Beurden stepped down as CEO on December 31, 2022. He will continue working as a full-time adviser to the Board, focusing on matters related to the cost-of-living crisis, energy security, and supporting advice to governments and regulators until June 30, 2023, after which he will leave the Group. Ben van Beurden will be eligible for a pro-rated annual bonus in relation to the performance year 2023, and his outstanding LTIP awards will be reduced to reflect time served, and vest at the normal time subject to performance. Ben van Beurden will not receive a 2023 LTIP award.
Ben van Beurden’s contract was a rollover of the Dutch end-of-employment arrangements under which cessation of employment was by mutual agreement and not by notice. Accordingly, the 2020 Policy provided for a maximum loss of office payment of one year’s annual pay (base salary plus target bonus), in line with Dutch statutory
end-of-employment compensation.
Following relocation to the UK, the Dutch statutory provisions are no longer the appropriate point of reference and in determining the appropriate compensation for loss of office the REMCO took into consideration UK market norms and acted in the best interests of Shell and shareholders as a whole. Ben van Beurden will receive a payment of £1,420,000, equivalent to one times base salary (which, for the
avoidance of doubt, does not include target bonus), to be phased in six equal monthly instalments between July 1, 2023 and December 31, 2023, and outstanding payments will be reduced by 50% if he secures a paid position (excluding Non-executive Directorships) in that period.
While Ben van Beurden was under a four-month notice period as a legacy of his Dutch arrangements, his cessation of employment is by mutual agreement and therefore notice has neither been given nor received. Had cessation of employment been by notice, it would have commenced from the date of announcement of his stepping down as an Executive Director. Going forward, the 2023 Policy proposes alignment to UK market practice (i.e. a 12-month notice period).
Ben van Beurden and Jessica Uhl are subject to post-employment shareholding requirements for a period of two years post termination, and their share awards remain subject to holding periods.
As previously announced, Wael Sawan was appointed as CEO effective January 1, 2023. His salary is £1,400,000, and he receives benefits and pension (in the form of pension cash allowance of 20% of salary) in line with the Policy. He is eligible for a target annual bonus of 125% of salary, and he received a target award under the LTIP of 300% of salary in February 2023.
| | |
| Single figure of total remuneration for Non-executive Directors (audited) |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| £ thousand |
| Fees | | Taxable benefits [A] | | Total |
| 2022 | 2021 | | 2022 | 2021 | | 2022 | 2021 |
| Dick Boer | 153 | 144 | | 4 | — | | 157 | 144 |
| Neil Carson | 171 | 165 | | 2 | — | | 173 | 165 |
| Ann Godbehere | 184 | 182 | | 7 | 1 | | 191 | 183 |
| Euleen Goh | 211 | 193 | | 6 | 1 | | 217 | 194 |
| Jane Holl Lute [B] | 154 | 85 | | 14 | 1 | | 168 | 86 |
| Catherine J. Hughes | 182 | 159 | | 9 | 1 | | 191 | 160 |
| Martina Hund-Mejean | 154 | 142 | | 3 | 1 | | 157 | 143 |
| Sir Andrew Mackenzie [C] | 785 | 500 | | 4 | 15 | | 789 | 515 |
| Bram Schot [D] | 144 | 131 | | 2 | — | | 146 | 131 |
| Gerrit Zalm [E] | 62 | 152 | | 5 | — | | 67 | 152 |
[A]UK regulations require the inclusion of benefits where these would be taxable in the UK, on the assumption that Directors are tax residents in the UK. On this premise, the taxable benefits include the cost of a Non-executive Director's occasional business-required partner travel. Shell also pays for travel between home and the head office, where Board and Committee meetings are typically held, and related hotel and subsistence costs. For consistency, business expenses for travel between home and the head office are not reported as taxable benefits because for most Non-executive Directors this is international travel and hence would not be taxable in the UK.
[B]Appointed as a Director with effect from May 19, 2021.
[C]Appointed Chair of the Board with effect from May 18, 2021.
[D]Appointed as a Director with effect from May 24, 2022.
[E]Stepped down as a Director with effect from May 24, 2022.
Statement of Directors’ shareholding and share
interests (audited)
Shareholding guidelines
The REMCO believes that Executive Directors should align their interests with those of shareholders by holding shares in Royal Dutch Shell plc (the Company). The CEO is expected to build a shareholding with a value of 700% of base salary, and the CFO 500%. The shareholding requirement extends post-employment,post employment, such that Executive Directors will be required to maintain their shareholding requirement, or the number of shares actually held if this is less than the shareholding requirement, for a period of two years post-employment. post employment.
Only unfettered shares count towards an Executive Director’s shareholding. Shares delivered that are subject to holding requirements also count towards the guidelines. The CEO and the CFO have five years from their respective appointment to the Board to achieve their respective shareholding requirements.
There is a Company-sponsored nominee account which allows for restrictions to be applied on the sale or transfer of shares that are subject to holding periods and individual shareholding requirements.periods. The restrictions remain in force beyond the Executive Director’s employment.
Only unfettered shares count. Shares delivered that are subject to holding requirements also count towards the guidelines. The values of shares counting towards the shareholding guideline (as a percentage of base salary) for the CEO and CFO were 919% and 526%, respectively, at March 5, 2021. Non-executive Directors are encouraged to hold shares with a value equivalent to 100% of their fixed annual fee and to maintain that holding during their tenure.
Executive Directors’ shareholding (audited)
| | | | | | | | |
| Shareholding guideline (% of base salary) | Value of shares counting towards guideline (% of base salary at December 31, 2020) [A] |
| Ben van Beurden | 700% | 637 | % |
| Jessica Uhl | 500% | 333 | % |
[A] Following the vesting of the 2018 LTIP on March 5, 2021 their respective holdings are Ben van Beurden 919% and Jessica Uhl 526%.
Directors’ share interests
The interests, (inin shares of the Company or calculated equivalents)equivalents, of the Directors in office during 2020,2022, including any interests of their connected persons, are set out in the table below.
Directors’ share interests (audited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 10000 | January 1, 2020 | December 31, 2020 |
| A shares | | B shares | | A shares | | B shares | |
| Executive Directors [A] | | | | | | | |
| Ben van Beurden | 647,426 | | – | | 866433 | [B] | – | |
| Jessica Uhl | 116,168 | [C] | – | | 240557 | [D] | – | |
| Non-executive Directors | | | | | | | |
| Dick Boer | 10000 | [E] | – | | 10000 | | – | |
| Neil Carson | 16000 | | – | | 16000 | | | |
| Ann Godbehere | – | | 4,700 | [F] | – | | 10000 | [G] |
| Euleen Goh | – | | 12,895 | | – | | 12,895 | |
| Charles O. Holliday | – | | 50,000 | [H] | – | | 50,000 | [H] |
| Catherine J. Hughes | 4,080 | | 51,904 | [I] | 4,080 | | 51,904 | [I] |
| Martina Hund-Mejean | – | | 1578 | [J] | – | | 20000 | [K] |
| Gerard Kleisterlee | 5254 | | – | | 15254 | [L] | – | |
| Sir Andrew Mackenzie | – | | – | | – | | 10048 | |
| Abraham Schot [M] | – | | – | | – | | – | |
| Roberto Setubal | 15400 | [N] | – | | 15400 | [O] | – | |
| Sir Nigel Sheinwald | – | | 1,124 | | – | | 1,124 | |
| Linda G. Stuntz | – | | 12400 | [P] | – | | 12400 | [Q] |
| Gerrit Zalm | 2,026 | | – | | 2,026 | | – | |
[A] Includes vested LTIP awards subject to holding conditions. Excludes unvested interests in shares awarded underover the LTIP.
[B] Includes 174,000 RDS A shares pledged with Van Lanschot N.V.
[C] Held as 26,590 RDS A shares and 44,789 ADS (RDS.A ADS). Each RDS.A represents two A shares.
[D] Held as 34,069 RDS A shares and 103,244 ADS (RDS.A ADS). Each RDS.A represents two A shares
[E] Interests at May 20, 2020, when he was appointed as a Director.
[F] Held as 2,350 ADSs (RDS.B ADS). Each RDS.B represents two B shares.
[G] Held as 5,000 ADSs (RDS.B ADS). Each RDS.B represents two B shares.
[H] Held as 25,000 ADSs (RDS.B ADS). Each RDS.B represents two B shares.
[I] Held as 46,904 RDS B shares and 2,500 ADS (RDS.B. ADS). Each RDS.B represents two B shares
[J] Interests at May 20, 2020, when she was appointed as a Director. Held as 789 ADS (RDS.B ADS). Each RDS.B represents two B shares.
[K] Held as 10,000 ADSs (RDS.B ADS). Each RDS.B represents two B shares.
[L] Interests at May 19, 2020, when he stood down as a Director.
[M] On August 17, 2020, Bram Schot purchased 5,500 certificates Royal Dutch Shell A Turbo Long 8,2 BNP Paribas Markets (ISIN: NL0009558519) at a price of €5.37 per certificate. These certificates are cash settlement instruments the value of which is linked to the share price of RDS A Shares. In this case, the ratio of the turbo is 1:1 and accordingly 5,500 certificates represent 5,500 RDS A shares. As at March 10, 2021, the leverage is 1.69 but fluctuates depending on the share price. If the share price increases, the leverage will decrease. The finance level is 7.57 and the stop loss level is 8.2. The finance level is adjusted on the 15th of every month. Finance costs are 1.44% on an annual basis. With a turbo long, there is a finance-level and a stop loss-level. If the underlying share price drops below the stop loss-level, the turbo long is terminated. The investor then receives the value of the difference between the finance-level and the level on which the counterparty, in this case BNP Paribas, can close the turbo. Take for example a turbo with a stop loss-level of 10 and a finance-level of 8. When the underlying share price drops below 10, which is the stop loss-level, the buyer will still receive the amount 10-8=2. However, if the shareprice would suddenly drop to 8 or below, the buyer will receive nothing and the total investment is lost. In most cases however, the turbo would be terminated at the stop loss-level, and the buyer receives the amount of the difference between the finance-level and the stop loss-level. The actual amount will be determined by BNP. In addition, on August 27, 2020, Bram Schot purchased 100 Leonteq Express Euro Denominated Certificates on ING, Royal Dutch Shell, Unilever (ISIN: CH0470808913), with a nominal value of €1,000 each at a price of €515 per certificate. These certificates are cash settlement instruments of which payment of a conditional coupon depends for 1/3 on the development of the price of the RDSA A Shares on Euronext Amsterdam and, as such, is a financial instrument linked to the RDSA A Shares. Both transactions took place before Bram Schot became a Director of the Company.
[N] Held as 7,700 ADSs (RDS.A ADS). Each RDS.A represents two A shares.
[O] Interests at May 19, 2020, when he stood down as a Director. Held as 7,700 ADSs (RDS.A ADS). Each RDS.A represents two A shares
[P] Held as 6,200 ADSs (RDS.A ADS). Each RDS.A represents two A shares.
[Q] Interests at May 19, 2020, when she stood down as a Director. Held as 6,200 ADSs (RDS.A ADS). Each RDS.A represents two A shares.
The only changes to Director's shareholdings as at March 5, 2021 are that:
•Sir Andrew Mackenzie acquired 7,396 RDS B shares on February 15, 2021;
•on February 12, 2021, Bram Shot purchased (i) an additional 2,500 certificates Royal Dutch Shell A Turbo Long 8,2 BNP Paribas Markets (ISIN: NL0009558519) at a price of €7.69 per certificate; and (ii) an additional 50 Leonteq Express Euro Denominated Certificates on ING, Royal Dutch Shell, Unilever (ISIN: CH0470808913), with a nominal value of €1,000 each at price of €715 per certificate; and
•following the vesting of the 2018 LTIP award, Ben van Beurden’s share interests increased by 112,100 RDS A shares, and Jessica Uhl’s by 28,059 RDS.A ADS.
At March 5, 2021, the Directors and Senior Management (pages 89-95) of the Company beneficially owned, individually and in aggregate (including shares under option), less than 1% of the total shares of each class of the Company shares. These shareholdings are not considered sufficient to affect the independence of the Directors.
Directors’ scheme interests
The table below shows the aggregate position for Directors’ interests under share schemes at December 31, 2020. These are RDS A shares for Ben van Beurden and A ADS for Jessica Uhl. During the period from December 31, 2020, to March 5, 2021, scheme interests have changed as a result of the vesting of the 2018 LTIP on March 5, 2021, and because of the 2021 LTIP awards made on March 5, 2021, as described on pages 124 and 126 respectively.
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| 182 | GOVERNANCE SHELL FORMShell | Form 20-F 20202022 | 129 | |
Governance
| | |
| Directors’ share and scheme interests (audited) |
| | | | | | | | | | | | | | | | | | | | | | | |
| Ordinary shares held at January 1, 2022 | | Ordinary shares held at December 31, 2022 | | Unvested and subject to performance conditions [A] | Shareholding guideline as % of salary | Current shareholding
as % of salary [B] |
| Executive Directors | | | | | | | |
| Ben van Beurden | 973,533 | | 874,531 | | 695,978 | 700% | 1433% |
| Sinead Gorman | 38,566 | [C] | 39,660 | | 168,634 | 500% | 102% |
| Jessica Uhl | 299,283 | [D] | 342,099 | [E] | 94,183 | 500% | N/A |
| Non-executive Directors | | | | | | | |
| Dick Boer | 10,000 | | 10,000 | | | | |
| Neil Carson | 16,000 | | 16,000 | | | | |
| Ann Godbehere | 10,000 | [F] | 10,000 | [F] | | | |
| Euleen Goh | 12,895 | | 12,895 | | | | |
| Jane Holl Lute | 5,002 | [G] | 6,808 | [H] | | | |
| Catherine J. Hughes | 55,984 | [I] | 55,984 | [I] | | | |
| Martina Hund-Mejean | 20,000 | [J] | 20,000 | [J] | | | |
| Sir Andrew Mackenzie | 27,623 | | 27,623 | | | | |
| Bram Schot [K] | — | | — | | | | |
| Gerrit Zalm | 2,026 | | 2,026 | [L] | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Share plan interests [A] |
| LTIP subject to performance conditions [B] | | DBP not subject to performance conditions [C] | | Total |
| 2020 | 2019 | | 2020 | 2019 | | 2020 | 2019 |
| Ben van Beurden [D] | 662,751 | | 660,814 | | – | 56,783 | | 662,751 | | 717,597 |
| Jessica Uhl [E] | 179,565 | | 173,509 | | – | – | | 179,565 | | 173,509 |
[A]Includes unvested long-term incentive awards and notional dividend shares accrued at December 31.31, 2022. Interests are shown on the basis of the original awards. The shares subject to performance conditionsawards, which can vest at between 0% and 200%. based on performance. Dividend shares accumulate each year on an assumed notional LTIP/DBPLTIP award. Such dividend shares are disclosed and recorded on the basis of the number of shares conditionally awarded but, when an award vests, dividend shares will be awarded only in relation to vested shares as if the vested shares were held from the award date. Shares released during
[B]Calculated using the year£23.26 per share closing price on December 30, 2022, the last market day of 2022.
[C]As at April 1, 2022, the date of her appointment as CFO.
[D]Held as 35,201 ordinary shares and 132,041 ADS. Each ADS represents two ordinary shares.
[E]As at March 31, 2022, when she stepped down as CFO. Held as 78,017 ordinary shares and 132,041 ADS. Each ADS represents two ordinary shares.
[F]Held as 5,000 ADS. Each ADS represents two ordinary shares.
[G]Held as 2,501 ADS. Each ADS represents two ordinary shares.
[H]Held as 3,404 ADS. Each ADS represents two ordinary shares.
[I]Held as 50,984 ordinary shares and 2,500 ADS. Each ADS represents two ordinary shares.
[J]Held as 10,000 ADS. Each ADS represents two ordinary shares.
[K]On August 17, 2020, Bram Schot purchased 5,500 certificates Shell Turbo Long 6,9 BNP Paribas Markets (ISIN: NL0009558519) at a price of €5.37 per certificate. These certificates are included incash settlement instruments the “Directors’ share interests” table.
[B] Total numbervalue of unvested LTIP shareswhich is linked to the price of Shell shares. In this case, the ratio of the turbo is 1:1 and accordingly 5,500 certificates represent 5,500 Shell shares. As at December 31, 2020, including dividend shares accruedJanuary 16, 2023, the leverage is 1.30 but it fluctuates depending on the originalshare price. If the share price increases, the leverage will decrease. The finance level is 6.38 and the stop-loss level is 6.9. The finance level is adjusted on the 15th day of every month. Finance costs are 4.91% on an annual basis. With a turbo long, there is a finance level and a stop-loss level. If the underlying share price drops below the stop-loss level, the turbo long is terminated. The investor then receives the value of the difference between the finance level and the level on which the counterparty, in this case BNP Paribas, can close the turbo. Take for example a turbo with a stop-loss level of 10 and a finance level of 8. When the underlying share price drops below 10, which is the stop-loss level, the buyer will still receive the amount 10-8=2. But if the share price would suddenly drop to 8 or below, the buyer will receive nothing and the total investment is lost. In most cases, the turbo would be terminated at the stop-loss level, and the buyer receives the amount of the difference between the finance level and the stop-loss level. The actual amount will be determined by BNP. In addition, on August 27, 2020, Bram Schot purchased 100 Leonteq Express Euro Denominated Certificates on ING, Shell, Unilever (ISIN: CH0470808913), with a nominal value of €1,000 each at a price of €515 per certificate. These certificates are cash settlement instruments of which payment of a conditional coupon depends for 1/3 on the development of the price of the Shell Shares on Euronext Amsterdam and, as such, are a financial instrument linked to the Shell shares. Both transactions took place before Bram Schot became a Director of the Company. On February 12, 2021, Bram Shot purchased (i) an additional 2,500 certificates Shell Turbo Long 6,9 BNP Paribas Markets (ISIN: NL0009558519) at a price of €7.69 per certificate; and (ii) an additional 50 Leonteq Express Euro Denominated Certificates on ING, Shell, Unilever (ISIN: CH0470808913), with a nominal value of €1,000 each at a price of €715 per certificate.
[L]As at May 24, 2022, when he stepped down as a Director.
The Directors share interests converted into ordinary shares or ADS, as appropriate, following the assimilation of Shell’s A and B shares into a single class of shares on January 29, 2022.
The changes to Directors' shareholdings as at March 6, 2023
are as follows:
▪Sinead Gorman's share interest increased by 23,669 ordinary shares after the delivery of the 2022 annual bonus shares and
the vesting of the 2020 LTIP award.
[C] The number of▪Andrew Mackenzie purchased 8,235 ordinary shares deferred from the bonus (original DBP award) and the dividend shares accrued on these at December 31, 2019. DBP awards have been discontinued with the final awards taking place in 2017. No DBP awards remain outstanding following the final vesting of these awards in March 2020. Delivery
February 7, 2023.
▪On February 6, 2023, Bram Schot disposed of the original DBP award150 Leonteq Express Euro Denominated Certificates on ING, Shell, Unilever (ISIN: CH0470808913), with a nominal value of €1,000 each
at a price of €1,007.70 per certificate.
Effective as of March 2, 2023, Cyrus Taraporevala has been appointed as a Non-executive Director. As at March 6, 2023,
he held 125 ADS.
Effective as of January 1, 2023, Wael Sawan was appointed as an Executive Director. As at March 6, 2023, he holds 210,666 ordinary shares.
At March 6, 2023, the Directors and Senior Management (pages 129 and 137) of the related accrued dividendCompany beneficially owned, individually and in aggregate (including shares isunder option), less than 1% of Company shares. These shareholdings are not subjectconsidered sufficient to performance condition.
[D] RDS A shares.
[E] RDS.A ADS.
affect
the independence of the Directors.
Dilution
In any 10-year period, no more than 5% of the issued ordinary share capital of the Company may be issued or issuable under executive (discretionary) share plans adopted by the Company, or 10% when aggregated with awards under any other employee share plan operated by the Company. To date, no shareholder dilution has resulted from these plans, although it is permitted under the rules
of the plans, subject to these limits.
Payments to past Directors (audited)
No payments to past Directors were made in 2020.
Payments below €5,000 are not reported as they are considered de minimis.
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| 183 | GOVERNANCE SHELL FORMShell | Form 20-F 20202022 | 130 | |
Governance
Payments for loss of office (audited)
Jessica Uhl stepped down from the Board and her role as CFO with effect from March 31, 2022, and left Group service on June 30, 2022. She received a payment for loss of office of £921,000, equivalent to one times base salary. This was paid in 12 equal bi-weekly instalments, with the final payment made in December 2022, and would have been subject to mitigation in the event that she resumed a paid role in that period.
Jessica Uhl received a pro-rated annual bonus in relation to the performance year 2022 of £810,000. 50% of the bonus was delivered in cash and 50% was delivered in shares, subject to a three-year holding period which remains in force post termination. Jessica Uhl's 2020 and 2021 LTIPs will be reduced on a pro rata basis for time served, and the extent of any vesting will be determined at the end of the performance period.
Payments to past Directors (audited)
Jessica Uhl's remuneration during the period April 1 to June 30, 2022 is set out below:
▪Base salary: there was no change to Jessica Uhl's salary during
this period, and she received £230,250.
▪Pension: Jessica Uhl continued to participate in the US defined benefit plan.
Jessica Uhl received an LTIP award of 59,062 ADS in 2020, which has been pro-rated for time served. The pro-rated award vested at 81% of target based on performance to December 31, 2022. Therefore, 46,365 ADS (including accrued dividends) vested on March 3, 2023, with a value at vesting of $2,847,724. A three-year holding period applies, which remains in force post termination.
Payments below £5,000 are not reported as they are considered de minimis.
TSR performance and CEO pay
Performance graphsgraph
The graphs comparegraph below compares the TSR performance of Royal Dutch Shell plc over the past 10 financial years with that of the companies comprising the Euronext 100 and the FTSE 100 share indices.Index. The Board regards these indicesthis index as the most appropriate broad market equity indicesindex for comparison, because they arefollowing Shell’s headquarters move to the leading market indices in Royal Dutch Shell plc’s home markets.
CEO pay outcomes
The following table below the graphs sets out the single total figure of total remuneration, the annual bonus payment and long-term incentive (LTI) vesting rates compared with the respective maximum opportunity, for the CEO for the past 10 years.
| | |
Historical TSR performance Value of hypothetical £100 holding |
CEO pay outcomes
| | | | | | | | | | | | | | |
| Year | CEO | Single total figure
of remuneration (€000) | Annual bonus award
against maximum opportunity | LTI vesting against maximum opportunity |
| 2020 | Ben van Beurden | 5,841 | | 0 | % | 45 | % |
| 2019 | Ben van Beurden | 9,963 | 21% | 74% |
| 2018 | Ben van Beurden | 20,138 | 79% | 95% |
| 2017 | Ben van Beurden | 8,909 | 81% | 35% |
| 2016 | Ben van Beurden | 8,593 | 66% | 42% |
| 2015 | Ben van Beurden | 5,576 | 98% | 8% |
| 2014 | Ben van Beurden [A] | 24,198 | 94% | 49% |
| 2013 | Peter Voser | 8,456 | 44% | 30% |
| 2012 | Peter Voser | 18,246 | 83% | 88% |
| 2011 | Peter Voser | 9,941 | 90% | 30% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 |
| CEO | Peter Voser | Ben van Beurden |
Single figure
of total remuneration (£000) [A] | 7,183 | 19,510 [B] | 4,049 | 7,046 | 7,811 | 17,817 | 8,746 | 5,197 | 6,344 | 9,698 |
Annual bonus award
against maximum opportunity | 44% | 94% | 98% | 66% | 81% | 79% | 21% | —% | 64% | 73% |
| LTI vesting against maximum opportunity | 30% | 49% | 8% | 42% | 35% | 95% | 74% | 45% | 25% | 41% |
[A] B]Ben van Beurden’s single total figure for 2014 was impacted by the increase in pension accrual (€10.695 million) calculated under the UK reporting regulations and tax equalisation (€7.905 million) as a result of his promotion and prior assignment to the UK.
ChangePercentage change in remuneration of the Directors and employees from 2019 to 2020
As Royal Dutch Shell plcthe Company does not have any direct employees, the table below compares the remuneration of the Executive and Non-executive Directors of Royal Dutch Shell plc with an employee comparator group consisting of local employees in the Netherlands,UK, the UKNetherlands, and the USA. The local employee population of these countries is considered to be a suitable employee comparator group because: these are countries with a significant Shell employee base; a large proportion of senior managers come from these countries; and the REMCO considers remuneration levels in these countries when setting base salaries for Executive Directors. For the purposes of comparison, the change in employee remuneration is calculated by reference to the change in salary scale, benefits and annual bonus for a notional employee in each of the base countries, not by reference to the actual change in pay for a group of employees.
Taxable benefits are those that align with the definition of taxable benefits applying in the respective country. In line with the “Single total"Single figure of total remuneration for Executive Directors”Directors" table, the annual bonus is included in the year in which it was earned.
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| 184 | GOVERNANCE SHELL FORMShell | Form 20-F 20202022 | 131 | |
Governance
Change | | |
| Percentage change in remuneration of Directors and employees [A] |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Salary/fees (% change) | | Benefits (% change) | | Annual bonus (% change) |
| 2021-22 | 2020-21 | 2019-20 | | 2021-22 | | 2020-21 | 2019-20 | | 2021-22 | 2020-21 | 2019-20 |
| Employees [B] | 2.4% | 0.6% | 3.0% | | (8.4%) | | 0% | 0% | | (0.4%) | N/A | (100.0%) |
| Executive Directors |
| Ben van Beurden | 3.5% | 0% | 2.0% | | 3270.5% | [C] | 8.6% | (23.7%) | | 17.7% | N/A | (100.0%) |
| Jessica Uhl [D] | (74.1%) | 0% | 2.0% | | (47.4%) | | (22.8%) | 28.1% | | N/A | N/A | (100.0%) |
| Sinead Gorman | N/A | N/A | N/A | | N/A | | N/A | N/A | | N/A | N/A | N/A |
| Non-executive Directors [E] |
| Dick Boer | 6.3% | 70.4% | N/A | | N/A | | N/A | N/A | | | | |
| Neil Carson | 3.6% | 4.3% | 85.6% | | N/A | | N/A | N/A | | | | |
| Ann Godbehere | 0.8% | 2.9% | 15.8% | | 1286.7% | | N/A | N/A | | | | |
| Euleen Goh | 9.4% | 11.4% | 0.2% | | 520.3% | | N/A | N/A | | | | |
| Jane Holl Lute | 80.4% | N/A | N/A | | 1893.8% | | N/A | N/A | | | | |
| Catherine J. Hughes | 14.1% | 2.8% | (10.0%) | | 868.8% | | N/A | N/A | | | | |
| Martina Hund-Mejean | 8.6% | 68.4% | N/A | | 358.2% | | N/A | N/A | | | | |
| Sir Andrew Mackenzie | 57.0% | 1473.0% | N/A | | (69.3%) | | N/A | N/A | | | | |
| Bram Schot | 10.1% | 300% | N/A | | N/A | | N/A | N/A | | | | |
| Gerrit Zalm [F] | (59.0%) | 0% | 0% | | N/A | | N/A | N/A | | | | |
[A]In a number of instances the value for the preceding year was zero. In these cases, N/A is recorded.
[B]As Shell plc does not have any employees, the change in pay for an employee comparator group from the UK, USA and the Netherlands is shown.
[C]Ben van Beurden's 2022 benefits include time-limited relocation-related benefits.
[D]Jessica Uhl stepped down as CEO effective March 31, 2022. The changes in remuneration ofshown for 2021-22 are based on a full year for 2021, and the period January 1 to March 31, 2022 for 2022.
[E]Non-executive Directors and employees
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| RDS employees | UK, US & NL employees | Executive Directors | | Non-executive Directors [A] |
| CEO | CFO | | NC | AG | EG | CH | CJH | GK | RS | NS | LS | GZ |
| Salaries | N/A | 3 | % | 2 | % | 2 | % | | 86 | % | 16 | % | — | % | — | % | (10) | % | (62) | % | (62) | % | (2) | % | (61) | % | — | % |
| Taxable benefits | N/A | — | % | (24) | % | 28 | % | | — | % | — | % | — | % | (2) | % | — | % | — | % | (64) | % | (100) | % | (93) | % | — | % |
| Annual bonus | N/A | (100) | % | (100) | % | (100) | % | | — | % | — | % | — | % | — | % | — | % | — | % | — | % | — | % | — | % | — | % |
[A] Dick Boer, Martina Hund-Mejean, Sir Andrew Mackenzie and Abraham Schot were appointed as Directors during the course of 2020. They have been excludedGerrit Zalm stepped down from the table, because they had no previous year'sBoard effective May 24, 2022. The changes in remuneration shown for comparison.2021-22 are based on a full-year for 2021, and the period January 1 to May 24, 2022 for 2022.
Relative importance of spend on pay
The table below sets out distributions to shareholders by way of dividends and share buybacks, and remuneration paid to or receivable by employees for the last five years, together with annual percentage changes.
| | | | | | | | | | | | | | | | | |
| Year | Dividends and share buybacks [A] | | Spend on pay (all employees) [B] |
| $ billion | Annual change | | $ billion | Annual change |
| 2022 | 25.8 | 183% | | 14.0 | 16% |
| 2021 | 9.1 | —% | | 12.1 | —% |
| 2020 | 9.1 | (64)% | | 12.1 | (8)% |
| 2019 | 25.4 | 26% | | 13.2 | (1)% |
| 2018 | 20.2 | 29% | | 13.4 | (6)% |
Relative importance of spend on pay
| | | | | | | | | | | | | | | | | |
| Year | Dividends and share buybacks [A] | | Spend on pay (all employees) [B] |
| $ billion | Annual change | | $ billion | Annual change |
| 2020 | 9.1 | (64) | % | | 12.1 | (8) | % |
| 2019 | 25.4 | 26% | | 13.2 | (1) | % |
| 2018 | 20.2 | 29% | | 13.4 | -6% |
| 2017 | 15.6 | 4% | | 14.3 | -9% |
| 2016 | 15 | 25% | | 15.7 | -8% |
[A]Dividends paid, which includes the dividends settled in shares via our Scrip Dividend Programme and repurchases of shares as reported in the “Consolidated"Consolidated Statement of Changes in Equity”Equity".
[B]Employee costs, excluding redundancy costs, as reported in Note 2632 to the “Consolidated"Consolidated Financial Statements”Statements".
Spend on pay can be compared with the major costs associated with generating income by referring to the “Consolidated"Consolidated Statement of Income”Income". Over the last five years, the average spend on pay was 5% of the major costs of generating income. These costs are considered to be the sum of: purchases; production and manufacturing expenses; selling, distribution and administrative expenses; research and development; exploration; and depreciation, depletion and amortisation.
Total pension entitlements (audited)
During 2020, Ben van Beurden and2022, Jessica Uhl accrued retirement benefits under a defined benefit plans.plan. The pensionspension accrued under these plansthis plan at DecemberMarch 31, 2020 are2022
is set out below. The exchange rates used for conversion into euros and dollars are at December 31, 2020.
| | |
| Accrued pension (audited) |
| | | | | |
| Thousand | $ |
| Jessica Uhl [A] | 1,247 |
| | | | | | | | | | | |
| Thousand | Local | € | $ |
| Ben van Beurden [A] | 1,313 | | 1,313 | | 1,615 | |
| Jessica Uhl [B] | 1,247 | | 1,014 | | 1,247 | |
[A] The accrued benefits are disclosed on a per annum basis.
[B] Jessica Uhl has an annual choice ofbetween two accrual formulas with different forms of benefits. One is in the form of a lifetime annuity and the other allows for a lump-sum payment. She elected to accrue benefits up to 2018 under the latter,arrangement for a lump-sum payment, and the eventual lump-sum benefit is shown. From 2019, she elected to accrue benefits as a lifetime annuity. The value of this accrued benefit at DecemberMarch 31, 20202022, was $8,156$13,429 per annum plus a lump sum of $227,029.$391,530. She also has a deferred Dutch defined benefit pension plan, as a result of a prior Shell assignment on local Dutch terms and conditions. The age at which Jessica Uhl can receive any pension benefit without an actuarial reduction under this Dutch plan is 60. The value of the deferred pension benefit
is €3,427€3,587 per annum.
The age at which Ben van BeurdenJessica Uhl can receive any pension benefit without an actuarial reduction is 68 and for Jessica Uhl itunder her US pension plan is 65. Any pension benefits on early retirement are reduced using actuarial factors to reflect early payment. No payments were made in 20202022 regarding early retirement or in lieu of retirement benefits.
Please referAfter his relocation to page 125the UK on December 31, 2021, Ben van Beurden became a deferred member of his Dutch defined benefit plan, and therefore did not accrue any pension benefit under a defined benefit plan during 2022. The increase in his accrued pension over the year is due only to indexation in line with inflation on his deferred pension, consistent with treatment for further details (Pension).
External appointments
The Executive Directors held no external appointmentsBen van Beurden served on the Supervisory Board of Daimler AG as a Non-executive Director in 2020.
Statement2022, and Jessica Uhl served on the Board of voting at 2020 AGM
Shell’s 2020 AGM was held on May 19, 2020,Goldman Sachs Group as Non-executive Director in the Netherlands. The result of the poll in respect of Directors’ remuneration was as follows:
Approval of Directors’ Remuneration Report
| | | | | | | | | | | |
| Votes | Number | | Percentage |
| For | 3,806,079,000 | | 95.44% |
| Against | 181,791,609 | | 4.56% |
| Total cast | 3,987,870,609 | [A] | 100.00% |
| Withheld [B] | 25,782,042 | | |
[A] Representing 51.08% of issued share capital.
[B] A vote “withheld” is2022. Sinead Gorman did not a vote under English law and is not counted in the calculation of the proportion of the votes “for” and “against” a resolution.
The result of the poll in respect of the Directors’ Remuneration Policy was as follows:
Approval of Directors’ Remuneration Policy
| | | | | | | | | | | |
| Votes | Number | | Percentage |
| For | 3,705,707,055 | | 92.91% |
| Against | 282,966,810 | | 7.09% |
| Total cast | 3,988,673,865 | [A] | 100.00% |
| Withheld [B] | 24,979,832 | | |
[A] Representing 51.09% of issued share capital.
[B] A vote “withheld” is not a vote under English law and is not counted in the calculation of the proportion of the votes “for” and “against” a resolution.hold any Non-executive Director positions during 2022.
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| 185 | GOVERNANCE SHELL FORMShell | Form 20-F 20202022 | 132 | |
Governance
Statement of voting at 2022 AGM
Shell’s 2022 AGM was held on May 24, 2022. The result of the poll in respect of Directors’ remuneration was as follows:
| | |
| Approval of Directors’ Remuneration Report |
| | | | | | | | | | | |
| Votes | Number | | Percentage |
| For | 4,346,283,705 | | 95.92% |
| Against | 184,753,614 | | 4.08% |
| Total cast | 4,531,037,319 | [A] | 100.00% |
| Withheld [B] | 24,598,418 | | |
[A]Representing 60.69 % of issued share capital.
[B]A vote withheld is not a vote under UK law and is not counted in the calculation of the proportion of the votes for and against a resolution.
The result of the poll in respect of the Directors’ Remuneration Policy last approved at the 2020 AGM was as follows:
| | |
| Approval of Directors’ Remuneration Policy |
| | | | | | | | | | | |
| Votes | Number | | Percentage |
| For | 3,705,707,055 | | 92.91% |
| Against | 282,966,810 | | 7.09% |
| Total cast | 3,988,673,865 | [A] | 100.00% |
| Withheld [B] | 24,979,832 | | |
[A]Representing 51.09% of issued share capital.
[B]A vote withheld is not a vote under UK law and is not counted in the calculation of the proportion of the votes for and against a resolution.
| | | | | | | | | | | | | | | | | |
| Option | 25th percentile pay ratio | Median
pay ratio | 75th percentile pay ratio |
| 2022 | A | 134:1 | 80:1 | 50:1 |
Total pay and benefits:
Salary: | £72,632
£45,904 | £121,847
£56,302 | £192,995
£96,790 |
| 2021 | A | 97:1 | 57:1 | 37:1 |
Total pay and benefits:
Salary: | £65,123 £43,550 | £111,912 £68,238 | £170,289 £101,000 |
| 2020 | A | 93:1 | 57:1 | 38:1 |
Total pay and benefits:
Salary: | £55,584 £49,117 | £90,972 £75,365 | £136,007 £118,291 |
| 2019 | A | 147:1 | 87:1 | 54:1 |
Total pay and benefits:
Salary: | £59,419 £40,417 | £100,755 £56,721 | £161,717 £79,991 |
| 2018 | A | 202:1 | 143:1 | 92:1 |
Total pay and benefits:
Salary: | £88,112 £53,528 | £124,459 £80,407 | £193,027 £96,074 |
Shell has chosen to use option A to calculate the CEO pay ratio in accordance with guidance from the UK government that this is the preferred approach and the most statistically accurate method for identifying the ratios. Under option A, a comparable single figure for all UK employees has been calculated in order to identify the employees whose pay and benefits are at the 25th, 50th (median) and 75th percentiles for comparison with the CEO. Employee pay has been calculated based on the total pay and benefits paid in respect of 2022 for all employees who were employed on December 31, 2022. For part-time workers and joiners in the year, pay and benefits have been annualised based on the proportion of their working time in the UK during the year. This is calculated with an approach consistent with the methodology for determining annual bonuses. The REMCO believes that this provides a fair and reasonable calculation of the pay ratios for Shell employees in the UK.
The ratio of the CEO’s pay to the median UK employee is 80. The global pay ratio, calculated by comparing the CEO's single figure with the average employee headcount cost, is 79. The ratio at median for 2022 is higher than for 2021, reflecting an increase in variable pay outcomes for the CEO. While variable pay outcomes have also increased for other UK employees, a higher proportion of the CEO’s remuneration is variable, meaning the pay ratio is higher in years of higher variable pay outcomes. Overall, the pay ratios are lower than in 2018 (the first year of reporting), reflecting reductions in the CEO bonus and LTIP opportunities over time, as well as changes in variable pay outcomes. The REMCO believes the CEO pay ratio for 2022 is appropriate and consistent with Shell’s philosophy of pay for performance.
Directors’ employment arrangements and letters of appointment
Executive Directors are employed for an indefinite period. Non-executive Directors, including the Chair, have letters of appointment. Details of Executive Directors’ employment arrangements can be found in the Directors’ Remunerationproposed Policy on page 145.196.
| | |
| Further details of Non-executive Directors’ terms of appointment can be found in the "Other regulatory and statutory information" on page 199 and the "Governance framework" report on page 141. |
Further details of Non-executive Directors’ terms of appointment can be found in "Governance” on pages 97-98 and page 151.
Compensation of Directors and Senior Management
During the year ended December 31, 2020,2022, Shell paid and/or accrued compensation totalling $36$53 million (2019: $38(2021: $48 million) to Directors and Senior Management for services in all capacities while serving as a Director or member of Senior Management, including $3$2 million (2019:(2021: $3 million) accrued to provide pension, retirement and similar benefits. The amounts stated are those recognised in Shell’s income on an IFRS basis. See Note 2733 to the “Consolidated"Consolidated Financial Statements”Statements". Personal loans or guarantees were not provided to Directors or Senior Management.
CEO pay ratio
| | | | | | | | | | | | | | | | | |
| Option | 25th percentile pay ratio | Median pay ratio | 75th percentile pay ratio |
2020 | A | 93:1 | 57:1 | 38:1 |
Total pay and benefits:
Salary: | £55,584 £49,117 | £90,972 £75,365 | £136,007 £118,291 |
2019 | A | 147:1 | 87:1 | 54:1 |
Total pay and benefits:
Salary: | £59,419 £40,417 | £100,755 £56,721 | £161,717 £79,991 |
2018 | A | 202:1 | 143:1 | 92:1 |
Total pay and benefits:
Salary: | | | £88,112 £53,528 | £124,459 £80,407 | £193,027 £96,074 |
Shell has chosen to use option A to calculate the CEO pay ratio in accordance with guidance from the UK government that this is the preferred approach and the most statistically accurate method for identifying the ratios. Under option A, a comparable single total figure for all UK employees has been calculated in order to identify the employees whose pay and benefits are at the 25th, 50th and 75th percentiles for comparison with the CEO. Employee pay has been calculated basedWorkforce engagement on the total pay and benefits paid in respect of 2020 for all employees who were employed on December 31, 2020. For part-time workers and joiners in the year, pay and benefits have been annualised based on the proportion of their working time in the UK during the year. This is calculated with an approach consistent with the methodology for determining annual bonuses. The REMCO believes that this provides a fair and reasonable calculation of the pay ratios for Shell employees in the UK.
The ratio of the CEO’s pay to the median UK worker is 57. The global pay ratio, calculated by comparing the CEO single figure to the average employee headcount cost, is 50.The ratio has changed for 2020 compared with 2019, mainly because of the decrease in the single figure of remuneration for the CEO as a result of no 2020 annual bonus and the lower LTIP vesting outcome in comparison with 2019. The pay and benefits for the 25th, 50th and 75th percentile employees have also reduced in relation to 2019, primarily because there was no annual bonus for the majority of employees. The REMCO believes this outcome is appropriate and consistent with Shell’s philosophy of pay for performance.
Workforce engagement
The REMCO tookBoard’s view is that all Directors have a wide perspective in makingcollective responsibility for workforce engagement, ensuring that employees’ voices are heard on all business matters, including pay, and that the Company communicates effectively to employees on our remuneration decisionspolicies and practices. The Board and management regularly engage with the workforce through a range of formal and informal channels, including webcasts, town halls, team meetings, face-to-face gatherings, employee surveys, and online publications via the intranet. During live webcasts and other interactive sessions, employees have the opportunity to pose questions on any topic, including pay. The Board’s preference is to build on existing, long-standing channels of engagement for 2020 and determiningdiscussions around remuneration.
During the 2020 policy. As examples, in 2020year, the REMCOBoard reviewed the following:
▪Aspectsresults of Shell’s responsethe 2022 Shell People Survey, and was pleased to note further improvements, including the COVID-19 pandemic that affected employees' pay and benefits. These includedachievement of the decisions not to increase salaries for 2021 and to set the annual bonus scorecard outcome at zero, as well as policies that supported the health, safety and well-being of employees.
▪The provision of retirement benefits to employees across Shell.
▪Remuneration markers such as the CEO pay ratio and gender pay reporting under the UK Equality Act 2010 (Gender Pay Gap Information) Regulations and voluntary ethnicity pay reportingbest "employee engagement" result in the UK. The REMCO noted Shell's average UK gender pay gap had narrowed in 2020 to 18.0% (from 18.7% in 2019), continuing the positive trend since 2017 (22.2%). This is due to a continued upward trend in the proportion of women in Shell's upper and upper middle pay quartiles,last 12 years and the REMCO has confidence in the policies Shell has to increase the representation of women at all levels in the organisation.highest ever "organisational leadership" and "team leadership" scores across Shell. The REMCOBoard was also noted, that in the first year of reporting, the average UK ethnicity pay gap was 8.5%.
Executive remuneration structures in Shell are strongly alignedpleased with the broader Shell pay policy:
▪In recent yearssignificant levels of employee engagement with intranet articles explaining the Powering Progress Share Award and EC Special Recognition Award, and how the refreshed Group scorecard architecture has been identical to the Executive Committee and Senior Executive scorecard in terms of measures, weightings and targets.
▪Executive Directors and Executive Committee members participate in the LTIP. Around 150 Senior Executives participate in the same plan. The measures and metrics for that plan also apply to 50% of the Performance Share Plan (PSP) awarded to around 16,500 employees.
▪All employees in the Group participate in the relevant pension plan for their country based on their date of joining. Shell does not operate separate executive pension arrangements.
This consistency means that less explanation of executive remuneration structures is required than in companies where alignment is not the default practice. To support an ongoing dialogueconnects with employees regarding how pay connects to Company strategy, a video was shared with employees, presented by the REMCO Chair, explaining the key features of the new 2020 Directors' Remuneration Policy in March 2020, alongside an article on the Shell intranet sharing why it matters for employees.
STATEMENT OF 2021 PLANNED IMPLEMENTATION OF POLICY
The Directors’ Remuneration Policy as detailed on pages 137-147 took effect from May 19, 2020, after it was approved by shareholders at the 2020 AGM. It will be effective until the 2023 AGM, unless a further policy is proposed by Shell and approved by shareholders before then. This section describes elements of the policy that will apply for 2021.
Executive Directors
Salaries
There will be no salary increases for 2021. Salaries will be maintained at 2020 levels, which are €1,588,000 for Ben van Beurden and €1,035,000 for Jessica Uhl. This is consistent with the approach taken for the majority of employees for 2021.
Annual bonus
To ensure that the scorecard remains well aligned with ourShell’s strategic and operational priorities, the REMCO has reviewed the structure of the 2021 scorecard. The REMCO has decided to focus on four key areas: financial delivery, operational excellence, progress in the energy transition, and safety.
Cash flow from operations (CFFO) remains the metric we will use to measure financial delivery. This reflects our ability to generate the cash necessary to fund investment in our future business and distributions to our shareholders. We are increasing the weighting of this metric from 30% to 35%.
Production and LNG Liquefaction volumes have been retired as performance metrics. Reflecting the ongoing importance of operational delivery, performance will be assessed against two measures:
•Asset management excellence: measured against availability for Upstream, midstream and downstream, each equally weighted, in order to maintain a strong ongoing focus on operating our assets to plan, delivering scheduled downtime activities on time and minimising unscheduled shutdowns; and
•Project delivery excellence: our ability to successfully execute large and complex projects remains essential, and we will continue measuring how well we deliver our material projects on time and to budget.
We are separating out energy transition to provide a clear and visible focus on the importance of making progress in this area. Measures will initiallypriorities.
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| 186 | GOVERNANCE SHELL FORMShell | Form 20-F 20202022 | 133 | |
Governance
focusWider employee context
The REMCO receives annual updates on workforce remuneration topics, including employees' views on pay matter; CEO pay ratio; UK gender and ethnicity pay gap information; planned general employee salary increases; and bonus scorecard and Performance Share Plan (PSP) outcomes. In addition, the REMCO receives ad hoc papers covering other pay matters periodically, e.g. a consideration of workforce remuneration policies and their alignment with culture.
Management understands that employees have been through a challenging period, and has recognised their efforts in various ways, as referred to in the Chair's Statement. In addition, at the beginning of the year, management reviewed the bonus scorecard outcome for 2021 and determined to apply a discretionary uplift to the formulaic outcome for below-Board employees, to recognise financially the extraordinary
lengths that colleagues have gone to. For the avoidance of doubt, the uplift was not applied to Executive Directors. The REMCO noted this decision as part of its review of workforce matters. These materials provide an important backdrop for the REMCO when making judgements on the operational deliverydesign and award of Executive Director remuneration.
Shell adheres to its fair pay principles in all remuneration-related matters. Pay in Shell is market-competitive, free from bias, and provides security to our ambitions,employees. Shell sets clear performance expectations, gives employees the opportunity to share in Shell's success through a variety of variable pay schemes, and we expect thisis transparent and clear in its communication of remuneration. For more information, visit the "Human Rights" section of the scorecard to evolve and expand as we accelerate the transition of our business to a net-zero emissions business by 2050, in step with society. For 2021, performance will be assessed against:www.shell.com.
•GHG abatement: a new metric that measures execution of GHG abatement projects and sets us on a trajectory towards achieving net-zero operational emissions; and
•GHG emissions intensity: no change to this measure, which sets emission-intensity targets for our main lines of business.
Our commitment to safety remains atHow executive remuneration aligns with wider Company pay policy
Executive remuneration structures in Shell are strongly aligned with the heart of everything we do. We are increasingstructures for the weighting on safetybroader workforce, as set out in the table below.
| | | | | |
| Element | Comparison of Executive Director and wider workforce arrangements |
| Salary | The Executive Directors’ salaries are reviewed with reference to the factors set out in the Policy, against defined comparator groups. The market-competitiveness of wider workforce salaries is assessed at a base country level. |
| Pension and benefits | The Executive Directors’ pension benefits are aligned with those offered to new employees in the UK. Shell does not operate separate executive pension arrangements. All Group employees participate in the relevant pension plan for their base country based on their date of joining. The Executive Directors are eligible to receive the same standard benefits available to the broader workforce. |
Annual
bonus | The Group scorecard applicable to Group employees is identical to that applicable to Executive Directors in terms of performance measures, weightings, and targets. For the wider workforce, an additional multiplier applies based on individual performance during the year. No individual multiplier applies to Executive Directors, and further, 50% of the bonus is paid in shares, and the bonus is subject to malus and clawback provisions. |
| Long-term incentives | Executive Directors and around 150 senior executives participate in the LTIP on the same terms. Executive Directors’ LTIP awards are subject to a three-year holding period. A further around 16,500 employees participate in the PSP; 50% of the performance conditions are the same as those for the LTIP. |
| Shareholding guidelines | The Executive Directors have the highest shareholding guidelines in the Company, which are set at 700% and 500% of salary for the CEO and the CFO, respectively. These guidelines continue post termination for a period of two years. Shareholding guidelines extend deep into the organisation, to the senior manager level (75% of salary). Employees are required to achieve their individual guideline within a specified timeframe, as is the case for Executive Directors. |
Statement of planned implementation of Policy in 2023
A summary of how the proposed Policy will be applied to 15%Directors’ remuneration for 2023 is set out below.
Executive Directors
Comparator group
The current benchmarking comparator group consists of the other oil majors (BP, Chevron, ExxonMobil, and TotalEnergies) and a selection of major Europe-based companies. The other oil majors are included in the comparator group as these represent our closest direct competitors operating in similar market conditions. The Europe-based companies are selected based on their size, complexity and global reach. For 2023, the REMCO has decided to replace BHP with Glencore. BHP delisted from the LSE and was therefore no longer considered a European company for the purpose of the peer group, and Glencore was selected as a replacement given its similarity to Shell in terms of size, sector and complexity (see table to the right). The measures relatingREMCO retains the right to safety will bealter the comparator group as follows:
•Personal safety: a new Serious Injury and Fatality Frequency (SIF-F) metric will replace Total Recordable Case Frequency as our measure of personal safety performance. This isit sees fit in order to ensure we focus our attentionit remains an appropriate and learning on those incidents with relevant benchmark.
| | |
| 2023 European comparator group |
the potential to cause the most serious harm; and | | | | | | | | |
| Allianz | Diageo | Rio Tinto |
| AstraZeneca | Glencore | Roche |
| BAT | GSK | Siemens |
| Bayer | Nestle | Unilever |
| Daimler | Novartis | Vodafone |
•Process safety: no changeThe REMCO uses benchmark data from these companies only as a guide to the numbercompetitiveness of Tierthe remuneration packages. The REMCO does not seek to position our remuneration at any defined point against the comparator data.
Salaries
Wael Sawan was appointed as CEO on January 1, 2023, on a salary of £1,400,000. No increases are anticipated during 2023.
Effective January 1, 2023, Sinead Gorman received an increase of 2.8% and 2 operational safety incidents as our measure of process safety.her salary for 2023 is £925,000.
Governance
In reviewing the CFO's salary, the REMCO carefully considered the external environment, and the increases provided to the general workforce in the key markets of the UK, the USA, and the Netherlands (average 5.8%). The CFO's increase for 2023 was positioned below this level and the REMCO recognised the "multiplier effect on total remuneration".
The REMCO also paid close attention to the benchmarking analysis from the defined comparator groups. No specific benchmark position is defined, but the REMCO was satisfied that the positioning was appropriate against the benchmark groups following the increases.
Annual bonus
The REMCO reviewed the structure of the annual bonus scorecard as part of its comprehensive review of the Policy. The REMCO considered that the scorecard remained well aligned with our strategic and operational priorities, and no changes are proposed for 2023.
The performance measures, weightings and link to strategy for the 20212023 performance year are setset out below:below. They remain unchanged from 2022.
| | |
| See page 175 for further details of the performance measures. |
| | |
2023 annual bonus measures, weightings,
and link to strategy |
Annual bonus scorecard targets are not disclosed prospectively because to do so in a meaningful manner would require the disclosure of commercially sensitive information. 
Scorecard targets will be disclosed in the subsequent Directors’ Remuneration Report when they are no longer deemed to be commercially sensitive.
Long-term Incentive Plan
On March 5, 2021,February 3, 2023, a conditional award of performance shares under the LTIP was made to the Executive Directors resulting in 231,679 Royal Dutch
173,985 Shell plc A shares (A shares) being conditionally awarded to Ben van BeurdenWael Sawan and 69,972 Royal Dutch Shell plc A American Depositary Shares (A ADSs) being conditionally awarded103,458 to Jessica Uhl.Sinead Gorman. The award had a face value of 264.5%300% (maximum performance outcome 529%600%) of the base salary for the CEO and 248.5%270% (maximum performance outcome 497%540%) of the base salary for the CFO, excluding potential share price appreciation and dividends.
Performance is measured over the three-year period January 1, 2023 to December 31, 2025. The performance measures, weightings and link to strategy for the 2023 award are set out below.
| | |
| 2023 LTIP measures and vesting schedule |
In making these
| | |
| Further details of the energy transition performance condition are set out over the page. |
Governance
Annual Report on Remuneration continued
| | |
| Performance framework for 2023-2025 LTIP Energy Transition performance condition |
| | | | | | | | |
| Quantitative NCI target |
Net Carbon Intensity (NCI)
assessed as percentage reduction in the target year vs. the 2016 base year. | | Target is 9-13% reduction compared against the 2016
base year. |
| Supporting strategic themes |
Reducing Scope
1 & 2 emissions
demonstrate progress in reducing Scope 1 & 2 emissions. | | Example performance indicators include progress towards meeting Shell’s public commitment
to reduce net Scope 1 & 2 emissions by 50% by 2030, relative to 2016. |
Building a renewable
power business
demonstrate progress in increasing the renewable generation capacity available to Shell for long-term market sales. | | Example performance indicators include progress against the business plan and long-term power strategy. |
Growing new lower-carbon energy offerings
demonstrate progress in
(i) developing advanced biofuels and lower-carbon fuels technology, and (ii) implementing Shell's hydrogen strategy. | | Example performance indicators include (i) progress with technology readiness for investment in commercial-scale advanced biofuels and lower-carbon fuels projects, and (ii) progress towards investment decisions on integrated blue hydrogen projects and world-scale hydrogen export hubs. |
Developing emission
sinks and offsets
demonstrate progress in (i) building and expanding nature-based solutions demand positions, and (ii) implementing the carbon capture, utilisation and storage strategy. | | Example performance indicators include (i) progress towards Shell’s target of retiring up to 120 mtpa of credits by 2030, and (ii) progress with investment decisions for carbon capture, utilisation and storage projects. |
As the 2023 LTIP awards to Executive Directors were granted prior to the REMCO considered the Company’s share price and determined to use the closing share priceshareholder vote on the award. But to moderateproposed Policy, the impact of any potential windfall gains arising from share price volatilityTSR underpin will apply in 2020, the 2021 awards have been reduced 11.8% for the CEO and 8.0% for the CFO from the usual targetway: if Shell's TSR ranking is fourth or fifth, the level of the award levels. This is equivalent to athat can vest on the basis of the other measures will be capped at 50% of the share price reduction since the previous award. Further discussion on the REMCO's approach to managing windfall gains is set out on page 118.
For LTIP awards made in 2021, performance will be assessed over a three-year period based on four financial measures and an energy transition condition. The weighting of the energy transition condition has been increased to 20%, reflecting the increasing importance of delivering on the strategic business transformations required to succeed in the energy transition.
The target for the FCF metric over the three-year performance period will be based on the annual operating plan and shareholder guidance. These targets are considered commercially sensitive and will be disclosed retrospectively, with annual updates on progress provided.
The NCF target range for the 2021-2023 LTIP grant is set as a 6-8% reduction from the 2016 NCF of 79 grams of CO₂ equivalent per megajoule. Our leading measures have also evolved as we have deepened our understanding of the speed and direction of the energy transition and revised our business strategies. For 2021-2023 we will measure performance based on three baskets of leading measures:
•building the foundations of a material Power business;
•growing new clean(er) energy product offerings; and
•developing carbon sinks.
The targets for these leading energy transition measures are commercially sensitive, and will be disclosed retrospectively where possible.
Discretion, adjustment (malus)malus and recovery (clawback)clawback
Variable payVariable-pay elements are subject to adjustment (malus) and recovery (clawback) provisions. The REMCO may adjust an award, for example by lapsing part or all of it, reducing the number of shares which would otherwise vest, by imposing additional conditions on it, or imposing a new holding period or applying clawback.
Please refer to the policy section on pages 138, 140 and 142proposed Policy for a full description of the circumstances under which discretion, malus and clawback might be applied to a variable pay award.
Please refer to page 196 in relation to the notice periods of Executive Director service contracts.
Pension
Ben van Beurden’s pension arrangements comprise a defined benefit plan for whichWael Sawan and Sinead Gorman are eligible to participate in the maximum pensionable salary has increased to €100,861 for 2021 and a net pay defined contribution pension planUK Shell Pension Plan with an employer contribution rate of 27%up to 20% of salary, in excess ofor take this amount.
Jessica Uhl’s US retirement benefit arrangements includeas a pension cash alternative. They have chosen the latter. The UK Shell Pension Plan a defined benefit plan, and a definedor associated pension cash alternative is available to new Shell employees in the UK at the same contribution plan with an employer contribution of 10% of salary. She also has a deferred Dutch defined benefit pension plan, as a result of a prior Shell assignment on local Dutch terms and conditions.levels.
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| Further details of Executive Director pension arrangements can be found on page 185. |
Further detailsBenefits
In consideration of his appointment as CEO in 2023, Wael Sawan received support for his family's relocation to the UK in line with the provisions of Shell's International Mobility policies. In addition, in relation to their relocation to the UK, Wael Sawan and Sinead Gorman will continue to receive housing allowances until the end of 2023.
Executive Director pension arrangements can be found on page 125.
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| 189 | GOVERNANCE SHELL FORMShell | Form 20-F 20202022 | 134 | |
Governance
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| Non-executive Directors’ fees 2023 |
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GOVERNANCE SHELL FORM 20-F 2020 | 135 | |
Non-executive Directors’ fees
Non-executive Directors’ fees 2021
| | | | | | | | | | | |
| | €£ | | Other fees |
| Chair of the Board | | 850,000785,000 | | Non-executive Directors receive an additional fee of €5,000£4,000 for any Board meeting involving intercontinental travel – except for one meeting a year held in a location other than The Hague.London. |
| Non-executive Director | | 135,000120,000 | |
| Senior Independent Director | | 55,00049,000 | |
| Audit Committee | | |
| Chair [A] | 60,00053,000 | |
| Member | 25,00022,000 | |
| Safety, Environment and Sustainability Committee | | |
| Chair [A] | 35,00031,000 | |
| Member | 17,25015,000 | |
| Nomination and Succession Committee | | |
| Chair [A] | 25,00022,000 | |
| Member | 12,00011,000 | |
| Remuneration Committee | | |
| Chair [A] | 40,00036,000 | |
| Member | 17,25015,000 | |
[A]The chair of a committee does not receive an additional fee for membership of that committee.
The Chair’sCompany Chair fee is determined by the REMCO, and for 2023 is unchanged from the annual fee for Charles O. Holliday was set at €850,000 upon appointment in 2015 and will remain unchanged for 2021. Mr Holliday will step down as Chair following the 2021 AGM. Following a reviewprevious level of the competitive positioning of the fee by the REMCO, the annual fee for the new Chair will also be €850,000.£785,000. The Chair of the Board does not receive any additional fee for chairing the Nomination and Succession Committee or attending any other Board committeeCommittee meeting.
The Non-executive Directors receive a basic fee. There are additional fees for the Senior Independent Director, a Board committeeCommittee chair or a Board committeeCommittee member, for each committee. Non-executive Directors receive an additional fee of €5,000and for most Board meetings involving intercontinental travel. Business expenses (including transport between home and office and occasional business-required partner travel) and associated tax are paid or reimbursed by Shell. The Chair has use of a Shell-provided apartment while in The Hague.
The Board reviewsreviews Non-executive Directors’ fees periodically to ensure that they are aligned with those of other major listed companies, usingcompanies. During these reviews the Board uses the largest 30 companies by market capitalisation listed on the FTSE and the European Comparatorcomparator group as theits primary points of reference. The last general review was in 2018. There was a review of the Chair of the Board's fee in 2021 and the Nomination and Succession Committee fees in 2019.2022. Fees will remain unchanged for 2021.2023.
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| 190 | GOVERNANCE SHELL FORMShell | Form 20-F 20202022 | 136 | |
Directors’ Remuneration Policy
| | | | | |
DIRECTORS’ REMUNERATION POLICY | | |
| | |
| The Directors’ Remuneration Policy sets out:
▪A summary of proposed changes to the Directors’ Remuneration Policy, page 138;
▪Executive Directors’ Remuneration Policy, page 139; and
▪Non-executive Directors’ Remuneration Policy, page 146.
▪A summary of proposed changes to the Directors’ Remuneration Policy, page 191; ▪Executive Directors’ Remuneration Policy, page 192; and ▪Non-executive Directors’ Remuneration Policy, page 197. | |
| | |
This section describes the Directors’ Remuneration Policy (Policy)(the Policy) which, followingsubject to shareholder approval at the 20202023 Annual General Meeting (AGM), camewill come into effect from May 19, 2020,23, 2023, and will be effective until the 20232026 AGM, unless a further policyrevised Policy is proposed by Royal Dutch Shell plc (the Company)the Company and approved by shareholders in the meantime.
The principles underpinning the REMCO’s approach to executive remuneration are the foundation for everything we do, and are:
▪Alignment with Shell’s strategy:strategy and sustainability: the Executive Directors’ compensation package should promote the long-term, sustainable success of Shell, and be strongly linked to the achievement of stretching targets that are seen as indicators of the
execution of Shell’s strategy;
▪Pay for performance: the majority of the Executive Directors’ compensation, (excluding benefits and pensions), should be linked directly to Shell’s performance through variable pay instruments;
▪Competitiveness: remuneration levels should be determined by reference internally against Shell’s Senior Management and externally against companies of comparable size, complexity
and global scope;
▪Long-term creation of shareholder value: Executive Directors should align their interests with those of shareholders by holding shares
in Shell;
▪Consistency: the remuneration structure for Executive Directors should generally be consistent with the remuneration structure for Shell’s Senior Management. This consistency builds a culture of
alignment with Shell’s purpose and a common approach to sharing in Shell’s success; and
▪Compliance:Risk assessment: decisions should be made in the context of the Shell General Business Principles and Code of Conduct. The REMCO also seeks to ensure compliance with applicable laws and corporate governance requirements when designing and implementing policies and plans; and
▪Risk assessment: the remuneration structures and rewards should meet risk-assessmentrisk assessment tests to ensure that shareholder’sshareholders’ interests are safeguarded and that inappropriate actions are avoided.
The Executive Directors’ remuneration structure is made up of a fixed element of basic pay and two variable elements: the annual bonus (50% delivered in shares) and the Long-term Incentive Plan (LTIP). Variable pay outcomes are conditional on the successful execution of the operating plan in the short term, and the delivery of strategic goals and financial and share price outperformance over the longer term.
The award of shares under the bonus and LTIP, along with significant shareholding requirements, are intended to ensure executives have a sizeable shareholding in Royal Dutch Shell plc (the Company)the Company and experience the same outcomes as our shareholders.
During 2018 and 2019,2022, the REMCO reviewed the Remuneration Policy to ensure that the Policy continuesit continued to be aligned withsupport Shell’s strategy, including delivery of shareholder returns.strategy. The REMCO determined that while the current policy remainsPolicy remained appropriate in manymost respects, certainand required changes will supportonly to reflect the REMCOtransition of our Executive Directors to simplify remuneration structuresthe UK to align with market practice and address the management of quantum.for simplification. For each area of the policy,Policy, the REMCO has consideredreviewed the alignment with strategy, market practice, the corporate governance environment, and feedback from shareholders. The Safety, Environmentshareholders, and Sustainability Committee (SESCo) has provided input toadditionally spent time updating the developmentselection and calibration of the sustainable development and energy transition metrics.performance metrics in variable pay schemes. Any potential conflict of interest iswas mitigated by the independence of the REMCO members and the REMCO Terms of Reference.Reference. The REMCO also considered the provisions of the UK Corporate Governance Code when reviewing the Policy, and sought to reflect the principles of clarity, simplicity, risk management, predictability, proportionality and alignment with culture.
A summary of the main changes to the Policy for the Executive Directors is outlinedset out below. No significant changes were made to the Policy for Non-executive Directors.
| | | | | | | | | | | | | | |
| Remuneration element | | Proposed changes to Policy | | Rationale for the change |
| Executive Directors |
| Base salary | | ▪Salary cap amended from €2 million to £2 million. | | ▪To reflect the transition of the Executive Directors to the UK. |
| Pension | | ▪Move from base country arrangements to defined contribution pension arrangements applicable to the wider Shell workforce in the UK. | |
| Severance policy | | ▪New service contracts under which both the employee and the employer can terminate employment by giving 12 months’ written notice, replacing the previous provision which reflected Dutch statutory provisions. | |
| Annual bonus and LTIP rules | | ▪REMCO discretion to suspend annual bonus or share award vesting pending the outcome of an investigation in exceptional circumstances. | | ▪To allow sufficient time for investigation, as required. |
| Leaver treatment | | ▪REMCO discretion to waive remaining bonus/LTIP holding period in exceptional circumstances (primarily death). | | ▪To align with market practice. |
TSR underpin
in LTIP | | ▪TSR underpin to be removed from the LTIP. | | ▪To simplify the plan and align with market practice. |
| Non-executive Directors |
| Retirement gift | | ▪Maximum value amended from €300 to £300. | | ▪To reflect the transition to the UK. |
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| 191 | GOVERNANCE SHELL FORMShell | Form 20-F 20202022 | 137 | |
Governance
| | | | | | | | |
Remuneration element | Proposed Changes to Policy | Rationale for the change |
Annual Bonus | •Reduction of the CEO’s target bonus from 150% to 125%; and
•Removal of the individual performance factor for Executive Directors.
| ▪Simplification: the asymmetry in the CEO’s bonus structure and the inclusion of individual performance factors were creating undue complexity; and
▪Transparency: The annual bonus is now solely linked to the performance of Shell to support clarity and transparency of outcomes.
|
Long-Term Incentive Plan | •Reduction of the target LTIP grant from 400% to 300% of base salary; and
•Inclusion of an energy transition metric.
| •Management of quantum: to moderate the quantum of pay and assist the REMCO in managing the range of outcomes; and
•Alignment to strategy: inclusion of the energy transition metric strengthens the LTIP’s alignment to Shell's strategy and purpose.
|
Discretion, Malus and Clawback | •After reviewing the single figure outcomes for the year, the REMCO will consider an adjustment for the purposes of managing remuneration quantum, taking into account performance, the operation of the remuneration structures and any other relevant considerations. An explanation of any discretionary adjustment would be set out in the relevant Director’s Remuneration Report;
•Alignment of malus and clawback provisions so that these are the same. Inclusion of corporate failure as an adjustment event; and
•Amendment of provisions in the share plan such that for future grants, awards may be adjusted for any reason.
| •Corporate governance: to assist the REMCO in managing the risks from behavioural-based incentive schemes; and
•Management of quantum: to assist the REMCO in managing the range of outcomes.
|
Pension | •New Executive Directors who are members of a defined benefit pension arrangement will have their pensionable salary capped at the salary applicable immediately prior to appointment, with the exception of existing US base country participants who will have the bonus removed from the definition of pensionable base salary instead. The Executive Director will join a defined contribution scheme in their base country for contributions made in respect of salary above the defined benefit pensionable salary, or in exceptional circumstances, receive a cash allowance equivalent to the contribution above the cap; and
•For recruitment: Explicit confirmation that new appointees, whether internally promoted or newly hired, will be provided with a pension in line with the wider workforce in their base country.
| •Management of quantum: to moderate the quantum of pay and assist the REMCO in managing the range of outcomes; and
•Corporate governance: to adopt best practice in line with external guidelines.
|
Shareholding Requirement | •CFO requirement increased to 500% of base salary; and
•Extended so it applies for a period of two years post-employment (at the lower of the shareholding requirement or the number of shares held at departure).
| •Alignment with shareholders: further aligns executives with the long-term interests of shareholders.
|
Executive Directors’ Remuneration Policy table
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GOVERNANCE SHELL FORM 20-F 2020 | 138 | |
EXECUTIVE DIRECTORS
Executive Directors’ remuneration policy table
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| Purpose and link to strategy | | Maximum opportunity | Operation and performance managementmeasurement |
Salary and pensionable baseBase salary |
| Provides a fixed level of earnings to attract and retain Executive Directors. | | €£2,000,000 | Reviewed annually with adjustments effective from January 1.
In making salary determinations, the REMCO will consider: •▪the market positioning of the compensation packages;
•▪comparison with Senior Management salaries;
•▪the employee context, and planned average salary increase for other employees across the Netherlands,UK, the UKNetherlands, and the USA;
•▪the experience, skills and performance of the Executive Director, or any change in the scope and responsibility of their role;
•▪general economic conditions, Shell’s financial performance, and governance trends; and
•▪the impact of salary increases on pension benefits and other elements of the package.
For Executive Directors employed outside their base country, euro base salaries are translated into their home currency for pension purposes. Pensionable base salaries are maintained in line with euro base salaries taking into account exchange rate fluctuations and other factors as determined by the REMCO.
|
| Benefits |
| Provides benefits, typically in line with those applicable to the wider workforce, in order to attract and retain Executive Directors. | | The maximum opportunity isDetermined by the costnature of providing the benefit under Shell’s standard policy. Theseitself and costs can vary.
For certain benefits, for example, relocationof provision, and tax equalisation, the maximum opportunity will be the grossed-up cost of meeting the specific Executive Director’smay depend on external factors, e.g. insurance costs. | Typical benefits include car allowances, and home-to-office transport, risk benefits (for example ill-health,ill health, disability or death-in-service), security provision, and employer contributions to insurance plans (such as medical). Precise benefits will depend on including Directors’ liability insurance. In the Executive Director’s specific circumstances. Post-retirement benefits such as healthcare and ongoing security provision may be applicable.event an international relocation is required either prior to appointment or while appointed, Shell’s mobility policies may apply such as forand the REMCO may offer appropriate provisions in respect of items including, but not limited to, relocation, assistance with visa/immigration/tax issues, and tax return preparation support, assupport. It may taxalso provide housing and education assistance for a specified period of time, expected to be no more than two years. Tax equalisation related to expatriate employment prior to Board appointment, or in other limited circumstances to offset double taxation. taxation, may also be provided. Precise benefits will depend on the Executive Director’s specific circumstances and may include any tax liabilities relating to business-related benefits such as in the case of security or relocation provisions. The REMCO may adjust the range and scope of the benefits offered in the context of developments for other employees in relevant countries.the country which the Executive Director is based. Personal loans or guarantees are not provided to Executive Directors. |
Annual bonus |
Rewards the delivery of short-term operational targets as derived from Shell’s operating plan.
To reinforce alignment with shareholder interests, 50% is delivered in cash and 50% is delivered in shares. The shares are subject to a three-year holding period, which applies beyond an Executive Director’s tenure. | Maximum bonus (as a percentage of base salary):
•Chief Executive Officer (CEO): 250%
•Chief Financial Officer (CFO): 240%
Target levels (as a percentage of base salary):
•CEO: 125%
•CFO: 120%
| •The bonus is determined by reference to performance from January 1 to December 31 each year;
•Annual bonus = base salary x target bonus % x scorecard result (0–2);
•Taking the Shell operating plan into consideration, REMCO sets stretching scorecard targets and weightings which support the delivery of the strategy. Measures are related to financial performance, operational excellence and sustainable development. Indicative weightings are 30%, 50% and 20% respectively. This balance ensures that the achievement of short-term financial performance does not undermine future shareholder value creation;
•Scorecard targets will be disclosed in a subsequent Directors’ Remuneration Report when they are no longer deemed to be commercially sensitive;
•There are no prescribed thresholds or minimum levels of performance that equate to a prescribed payment under the Policy and this structure can result in no bonus being awarded;
•The annual bonus is subject to malus provisions before it is delivered and to clawback provisions thereafter;
•The REMCO retains the ability to adjust performance measure targets and weightings year-by-year within the overall target and maximum payouts approved in the Policy; and
•In the event that another Executive Director joins the Board, the REMCO will determine their target and maximum bonus, which will not exceed the target and maximum for the CEO.
|
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GOVERNANCE SHELL FORM 20-F 2020 | 139 | |
Executive Directors’ remuneration policy table continued
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Purpose and link to strategy | Maximum opportunity | Operation and performance management |
Long-term Incentive Plan (LTIP) |
Rewards longer-term value creation linked to Shell’s strategy. The measures predominantly focus on financial growth and increases in value compared with the other oil majors, supported by measures focused on the achievement of Shell’s ambitions in the energy transition.
To reinforce alignment with shareholder interests, shares delivered from vested LTIP awards are subject to a three-year holding period, which applies beyond an Executive Director’s tenure. | Target award of 300% base salary.
Awards may vest at up to 200% of the shares originally awarded, plus dividends. | •Award levels are determined annually by the REMCO within the approved policy maximum;
•Awards may vest between 0% and 200% of the initial award, depending on Shell’s performance assessed on either an absolute basis against strategic targets or on a relative basis against the other oil majors;
•Performance metrics and targets are set by the REMCO at the beginning of the relative performance period. When setting performance targets, the REMCO allocates weightings to each metric as it considers appropriate, taking into account strategic priorities;
•For 2020, performance is assessed over three years based 90% on financial metrics (TSR, ROACE, FCF and CFFO) which support our strategic ambition to provide a world-class investment case and 10% on a measure focused on thriving in the energy transition;
•Additional shares are released representing the value of dividends payable on the vested shares, as if these had been owned from the award date;
•LTIP awards (net of tax) must be held for a further three years to align with Shell’s longer-term time horizon and strategy;
•The LTIP award is subject to malus provisions before it is delivered and to clawback provisions thereafter;
•The REMCO may adjust or change the LTIP measures, targets and weightings to ensure continued alignment with Shell’s strategy; and
•In the event that another Executive Director joins the Board, the REMCO will determine their award level.
|
Discretion, Malus and Clawback |
Enables the management of risks from behavioural-based incentive schemes and the REMCO to manage the range of pay outcomes. | Adjustment events exist for the purposes of applying malus and clawback.
The REMCO retains discretion to adjust pay outcomes. | The REMCO retains the discretion to adjust mathematical outcomes of the annual bonus scorecard and / or LTIP vesting for any Executive Director if and to the extent that it considers this appropriate at their sole discretion.
The use of any discretion will be disclosed and explained.
The REMCO may adjust pay outcomes for the purposes of managing quantum. This would be done at the REMCO’s discretion after considering single figure outcome for the year, taking into account Shell’s performance, the operation of the remuneration structures and any other relevant considerations.
Please refer to page 142 for a summary of the defined adjustment events. |
| Pension |
Provides a competitive retirementdefined contribution pension provision underapplicable to the individual’s base country benefits policy,wider workforce in the UK to attract and retain Executive Directors. | | Determined by the rules of the base countrydefined contribution UK pension plan of which the Executive Director is a member.arrangements. | Executive Directors’ retirement benefits are maintained in line with those of the wider Shell workforce in their base country.the UK. Only base salary is pensionable, unless country plan regulations specify otherwise and cannot legally be disapplied. The rules of the relevant plansplan detail the pension benefits which members can receive. The REMCO retains the right to amend the form of any Executive Director’s pension arrangements where appropriate, for example in response to changes in legislation to ensure the original objective of this element of remuneration is preserved.
New Executive Directors based in the UK, whether internal appointees or external hires, will be provided with the defined contribution arrangement, applicable to the wider Shell workforce in the UK, which currently includes the flexibility to take this as a retirement benefitpension cash alternative. |
| Annual bonus |
Rewards the delivery of short-term operational targets as derived from Shell’s operating plan. Aligns the interests of Executive Directors and shareholders, and supports retention, through long-term holding in lineshares. | | Target bonus: 125% of base salary.
Maximum bonus: 200% of target. | ▪The bonus is determined by reference to performance from January 1 to December 31 each year. ▪Annual bonus = base salary x target bonus % x scorecard result (0–2). ▪The scorecard is reviewed each year, taking account of Shell’s operating plan, to ensure that the performance measures, targets and weightings are appropriate. Performance measures typically relate to financial delivery, operational excellence, progress in the energy transition, and safety, with indicative weightings of 35%, 35%, 15% and 15% respectively. This helps to balance short-term financial performance with the wider workforce in their base country. For individuals who are membersachievement of a defined benefit pension arrangement:broader set of strategic and operational objectives to support long-term shareholder value creation. The REMCO retains the flexibility to adjust performance measures, weightings and targets on a year-by-year basis, within the terms of the Policy. •▪Scorecard targets are disclosed on a retrospective basis in a subsequent Annual Report on Remuneration, when they are no longer deemed commercially sensitive.
▪To reinforce alignment with shareholder interests, 50% of any bonus earned is delivered in cash and 50% is delivered in net-of-tax shares. The shares are subject to a three-year holding period from the end of the performance period the award relates to, which applies beyond an Executive Director’s tenure. The REMCO retains discretion to waive any part of this holding period in exceptional circumstances (primarily death). ▪The pensionable salary will be cappedbonus is subject to malus provisions before it is delivered, and to clawback thereafter for a period of three years. |
Governance
Directors’ Remuneration Policy continued
Executive Directors’ Remuneration Policy table continued
| | | | | | | | | | | |
| Purpose and link to strategy | | Maximum opportunity | Operation and performance management |
| Long-term Incentive Plan (LTIP) |
Rewards longer-term value creation linked to Shell’s strategy. The measures focus on financial performance, capital discipline and the achievement of Shell’s ambitions in the energy transition.
Aligns the interests of Executive Directors and shareholders, and supports retention through long-term holding in shares. | | Target award: 300% of base salary. Awards may vest at up to 200% of the salary applicable immediately prior to appointment, with the exception of existing US base country participants who will have the bonus removed from the definition of pensionable base salary instead; andshares originally awarded, plus dividends. | •▪The Executive Director will join a defined contribution scheme in their base country for contributions madeAward levels are determined in respect of salary aboveany financial year by the defined benefit pensionable salary, REMCO within the Policy maximum.
▪Awards may vest at between 0% and 200% of the initial award, depending on Shell’s performance, assessed over a three-year performance period, on an absolute basis and/or on a relative basis against an appropriate comparator group. ▪Performance measures and weightings are reviewed and set by the REMCO at the beginning of each three-year performance period, taking account of Shell’s strategic priorities. ▪Notional dividends accrue over the vesting period in respect of awards that vest. ▪To reinforce alignment with shareholder interests, net of tax shares delivered from vested awards are subject to a three-year holding period from the end of the performance period the award relates to, which applies beyond an Executive Director’s tenure. The REMCO retains discretion to waive any part of this holding period in exceptional circumstances receive(primarily death). ▪Dividends accrue over the vesting period in respect of awards that vest. ▪The award is subject to malus provisions before vesting, and to clawback provisions thereafter for a cash allowance equivalentperiod of three years. |
| Discretion, malus and clawback |
| Enables the management of risks from behaviour-based incentive schemes and the REMCO to manage the range of pay outcomes. | | Adjustment events exist for the purposes of applying malus and clawback.
The REMCO retains discretion to adjust pay outcomes. | ▪The REMCO retains the discretion to adjust mathematical outcomes of the annual bonus scorecard and/or LTIP vesting for any Executive Director if and to the contribution aboveextent that it considers this appropriate at their sole discretion. ▪The REMCO may adjust pay outcomes for the cap.purposes of managing quantum. This would be done at the REMCO’s discretion after considering single figure outcome for the year, taking into account Shell’s performance, the operation of the remuneration structures and any other relevant considerations. ▪In exceptional circumstances, the REMCO may determine that the vesting of an annual bonus or a share award should be suspended pending the outcome of an investigation. The suspension may be for such period as the REMCO considers sufficient to permit the investigation to be concluded. ▪The use of any discretion will be disclosed and explained. |
Shareholding requirementrequirements |
| Aligns interests of Executive Directors with those of shareholders by creating a connection between individual wealth and Shell’s long-term performance. | | Shareholding (% of base salary): •▪CEO: 700%
•▪CFO: 500%
| ▪Executive Directors are expected to build up their shareholding to the required level over a period of five years from appointment and, once reached, to maintain this level for the full period of their appointment. The intention is for the shareholding guideline to be reached through retention of vested shares from share plans. The REMCO will monitor individual progress and retains the ability to adjust the guideline in special circumstances on an individual basis.
▪In the event of an increase to the guideline, this timeframe is increased by one year for every additional multiple of salary required, subject to a maximum of five years from the date of the change. ▪The Executive Director will be required to maintain their shareholding requirement (or existing shareholding if lower) for a period of two years from the date they cease to be an employee.
▪In the event that another Executive Director joins the Board, the REMCO will determine their Shareholdingshareholding requirement level, which will not be less than 200% of salary, in line with corporate governance best practice. ▪Vested shares from incentive plans (including bonus and LTIP shares subject to holding period) count towards the requirement. The REMCO monitors individual progress and retains the ability to adjust the guideline in special circumstances on an individual basis. |
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| 193 | GOVERNANCE SHELL FORMShell | Form 20-F 20202022 | 140 | |
Governance
Notes to the Executive Directors’ remuneration policyPolicy table
Comparator group
The benchmarking comparator group consistsExecutive Directors outside of the other oil majors (BP, Chevron, ExxonMobil,UK
In respect of salary, benefits and Total) and a selectionpension, in the event that an Executive Director is based outside of major Europe-based companies.
The comparator companies are reviewed bythe UK, the REMCO as partreserves the right to determine the individual's remuneration arrangements in line with their base or host country, within the spirit of the Remuneration Policy review every three years. The last review took place in 2019 in preparation for the 2020 Directors’ Remuneration Policy vote. No changes to the comparator group are proposed.Policy.
The other oil majors are included in the comparator group as these represent our closest direct competitors operating in similar market conditions. The Europe-based companies are selected based on their size, complexity and global reach. The REMCO uses benchmark dataPayments from these companies only as a guide to the competitiveness of thepreviously agreed remuneration packages. We do not seek to position our remuneration at any defined point against the benchmarked positions.
The REMCO retainsreserves the right to altermake any remuneration payments where the comparator group as it sees fitterms of the payment were agreed (i) before the Policy
came into effect, or (ii) at a time when the relevant individual was
not a Director of the Company and, in orderthe opinion of the REMCO,
the payment was not in consideration for the individual becoming
a Director of the Company. The REMCO also reserves the right to ensure it remains an appropriate
honour pre-existing contractual obligations in accordance with the terms of the service contract and relevant benchmark.
incentive plan. Details
2020 European comparator group
| | | | | | | | |
Allianz | Daimler | Rio Tinto |
AstraZeneca | Diageo | Roche |
BAT | GlaxoSmithKline | Siemens |
Bayer | Nestle | Unilever |
BHP Billiton | Novartis | Vodafone |
Benefits
Benefits for Executive Directors deemed taxableof any such payments will be set out in the UK are includedAnnual Report on Remuneration as taxable benefits in the single total figurethey arise.
Selection of remuneration table. These elements may include transport to and from home and office, the provision of home security, and occasional business-required partner travel, which are generally considered legitimate business expenses rather than components of remuneration.
Annual bonusperformance measures
For the 20202023 performance year, the annual bonus scorecard framework will consist of cash flow from operating activities (30% weight)financial delivery (35%), operational excellence (50% weight)(35%), progress in the energy transition (15%), and sustainable development (20% weight)safety (15%). Targets are derived from the annual business plan. These measures are designed to drive focus on the financial and operational performance critical to our success as a world-class investment case and to maintain a strong licence to operate, underpinned byin delivering our commitment to safety and journey to thrive in the energy transition.Powering Progress strategy. The REMCO believes it is important for annual variable pay to remain balanced, with short-term operational and environmental components complementing the LTIP’s focus on longer-term financial and strategic outcomes. The same annual bonus scorecard applies to the majority of groupGroup employees, supporting consistency of remuneration and alignment of objectiveobjectives across employees and senior management.
For future years, the specific measures and weightings for the annual bonus scorecard2023 LTIP awards, performance will be reviewed annuallyassessed based on 75% financial metrics (relative CFFO divided by the REMCOaverage capital employed, relative TSR, absolute OFCF, equally weighted) and adjusted accordingly to evolve with Shell’s strategy and circumstances. The annual review will also consider the scorecard target and outcome history over25% on a decade to ensure that the targets set remain stretching but realistic.
The REMCO retains the right to exercise its judgement to adjust the mathematical bonus scorecard outcome to ensure that the bonus scorecard outcome for Executive Directors reflects other aspects of Shell’s performance which the REMCO deems appropriate for the reported year.
Long-term Incentive Plan
The LTIP rewards longer-term performance linked to Shell’s strategy, which includes cash generation, capital discipline, value created for shareholders as well as progress towards meeting our ambition to thrivestrategic measure focused on Shell's journey in the energy transition.
For 2020, the absolute measures will be FCF and energy transition, and relative growth compared with our peers will be based on: TSR, ROACE and CFFO. The relative measures, which focus on outperforming our closest competitors on key financial These metrics are supported by the absolute FCF metric which provides cashdesigned to service and repay debt, make shareholder distributions and fund capital investment. These are aligned withsupport our strategic ambition of accelerating our transition to be a world-class investment case, and are supported by an energy transition measure focused on thriving in the energy transition and deliveringnet-zero emissions business while creating value for our NCF target.
For the relative measures, 200% vests for first position, 150% for second, 80% for third, and 0% for ranking fourth or fifth. The comparator group consists of four of the strongest companies in our industry (BP, Chevron, ExxonMobil and Total)TotalEnergies). Outperforming Shell’sShell's closest competitors on key financial metrics is challenging. A vesting outcome of 80% of target (40% of maximum) for median performance (40% of maximum) in a small comparator group is considered appropriate by the REMCO. The REMCO is aware that vesting for median performance is generally set at a limit of 25% of maximum for other UK companies. However, these are typically applied against a larger comparator group. Commentary on the REMCO's consideration of the constituents of the comparator group is set out in the 2022 introduction from the REMCO Chair.
To simplify the plan and align with market practice, it is proposed that the underpin be removed from the plan effective from 2024 awards.
Discretion
There are a number of specific areas in which the REMCO may exercise discretion, including:
The REMCO will regularlyTo review the specific measures, weightings and comparator group,targets for the annual bonus scorecard and retains the rightLTIP award annually and adjust accordingly to adjust theseevolve with Shell’s strategy and circumstances to ensure that the LTIP continues to serve its intended purpose with atargets remain stretching level of challenge.but realistic. If the REMCO waswere to propose any material changes to the LTIP performance metrics, it would consult with major shareholders; and
▪To adjust mathematical variable pay outcomes if and to the extent that it considers this appropriate. This power to adjust the outcomes is broad and includes adjusting the outcomes to zero. For example, an adjustment might be made if the REMCO considers:
–The mathematical outcomes do not reflect the wider financial or non-financial performance of the Company or the participant over the performance period;
–The LTIP vesting percentage is not appropriate in the context of circumstances that were unexpected or unforeseen at award; and
–There is any other reason why an adjustment is appropriate.
It is not anticipated that discretion would be used for upwards adjustment. If, in exceptional circumstances, it was considered, this would be done only after consultation with major shareholders.
TSR underpin
IfPerformance outcomes and/or share price movements make it difficult to predict the TSR ranking is fourth final amounts delivered under the LTIP at the time of award. Each year, the REMCO reviews the LTIP vesting values and single figure outcomes for the Executive Directors to ensure that they are appropriate. The REMCO will review the formulaic single figure outcomes relative to the quality of performance outcomes and adjust these, taking into account Shell’s performance, shareholder experience, the operation of the remuneration structures and any other relevant factors to ensure that the highest variable pay outcomes are only achieved in years with the highest quality performance. In years where the vesting outcome makes the total remuneration inappropriate for any Executive Director, the REMCO will consider an adjustment to the annual bonus outcome and/or fifth, the LTIP vesting outcome for the purposes of managing remuneration quantum. In making any adjustment to the annual bonus and/or LTIP vesting outcome for this purpose, REMCO will consider the overall level of remuneration for the award that can vest onExecutive Director, the basisoperation of the other measures will be capped at 50%annual bonus, the operation of the maximum payoutLTIP, the wider performance of Shell over the performance periods, as well as the internal context for the LTIP.
The detailed weightings and metrics applicable to the 2020 bonus scorecard areother employees. An explanation of any discretionary adjustment would be set out on page 123.in the relevant year’s Directors’ Remuneration Report.
The detailed weightings and metrics applicable to the 2020 grant are set out on page 127.
Performance Period
LTIP performance is assessed over a three-year period. Vested shares from the LTIP are subject to a further three-year holding period post-vesting. This holding period commences on the date of vesting and remains in force beyond an Executive Director’s tenure. This time horizon is deemed to be suitable for incentive purposes but is recognised as short relative to some of Shell’s operations. However, the REMCO believes that it provides for broad
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GOVERNANCE SHELL FORM 20-F 2020 | 141 | |
alignment with shareholder interests when coupled with significant shareholding requirements.
Discretion, malusMalus and clawback
Variable pay awards may be made subject to adjustment events. At the discretion of the REMCO, such an award may be adjusted before delivery (malus) or reclaimed after delivery (clawback) if an adjustment event occurs.
Adjustment events will be specified in award documentation and it is intended that they will, for example, relate to restatement of financial statements due to material non-compliance with a financial reporting requirement; misconduct by an Executive Director or misconduct through their direction or non-direction; any material breach of health and safety or environment regulations; serious reputational damage to Shell; material failure of risk management; corporate failure; or other exceptional events as determined at the discretion of the REMCO. The REMCO retains the right to alter the list of adjustment events in respect of future awards.
In addition, the REMCO retains the discretion to adjust mathematical outcomes if and to the extent that it considers this appropriate. This power to adjust the outcomes is broad and includes adjusting the outcomes to zero. For example, an adjustment might be made if the REMCO considers:
•The mathematical outcomes do not reflect the wider financial or non-financial performance of RDS or the participant over the performance period;
•The LTIP vesting percentage is not appropriate in the context of circumstances that were unexpected or unforeseen at award; and
•There is any other reason why an adjustment is appropriate.
It is not anticipated that discretion would be used for upwards adjustment. If, in exceptional circumstances, it was considered, this would be done only after consultation with major shareholders.
Performance outcomes and/or share price appreciation make it difficult to predict the final amounts delivered under the LTIP at the time of award. In years where the vesting outcome makes the total remuneration inappropriate for any Executive Director, the REMCO will consider an adjustment to the annual bonus outcome or the LTIP vesting outcome for the purposes of managing remuneration quantum. In making any adjustment to the annual bonus or LTIP vesting outcome for this purpose REMCO will consider the overall level of remuneration for the Executive Director, the operation of the annual bonus, the operation of the LTIP, the wider performance of Shell over the performance periods, as well as the internal context for other employees.
An explanation of any discretionary adjustment would be set out in the relevant Directors’ Remuneration Report.
Treatment of outstanding awards
Awards granted prior to the approval and implementation of this Policy and/or prior to an individual becoming an Executive Director will continue to vest and be delivered in accordance with the terms of the original award even if this is not consistent with the terms of this Policy.
As at March 10, 2020, this applies to Executive Directors Ben van Beurden and Jessica Uhl who each have outstanding awards under the LTIP.
Shareholding
The REMCO believes significant shareholding by Executive Directors is an important way of ensuring that shareholders and Executive Directors share the same priorities. Shareholding is one of Shell’s core remuneration principles as it creates a balanced connection between individual wealth and Shell’s long-term performance. This will support effective governance and an ownership mindset. Significant shareholding requirements reflect the performance timescales of Shell and are aligned with absolute shareholder return.
The CEO is expected to build up a shareholding of seven times their base salary over five years from appointment. The CFO is expected to build up a shareholding of five times their base salary over the same period. In the event of an increase to the guideline multiple of salary, for every additional multiple of salary required, the director will have one extra year to reach the increased guideline, subject to a maximum of five years from the date of the change.
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| 194 | GOVERNANCE SHELL FORMShell | Form 20-F 20202022 | 142 | |
Governance
Executive Directors will be required to maintain their shareholding requirement (or their existing shareholding if less than the guideline) for a period of two years post-employment.
The holding periods for LTIP vested shares and shares delivered as part of the annual bonus continue to apply after Executive Directors leave employment.
Differences in Remuneration Policy for Executive Directors from that for other employees
The remuneration policies, structure, and approach to setting remuneration levels isare consistent across organisational levels at Shell, with consideration given to location, seniority and responsibilities. However, aA higher proportion of total remuneration is tied to variable pay for Executive Directors and members of Senior Management.Management, to reflect these individuals’ positions of influence and accountability.
| | |
| Detailed discussion of how executive remuneration aligns with wider Company pay policy may be found in the "Workforce engagement on remuneration matters" section of the Annual Report on Remuneration, on page 186. |
The salary for each Executive Director is determined based on the indicators in the “Executive Directors’ remuneration policy table”, which reflect the international nature of the Executive Directors’ labour market. The salary for other employees is normally set on a country basis.
Executive Directors are eligible to receive the standard benefits and allowances provided to other employees. The provisions which are not generally available for other employees are described in “Benefits”.
The methodology used for determining the annual bonus for Executive Directors is broadly consistent with the approach for Shell employees generally. However, bonuses for the majority of Shell employees are determined taking into account individual and business performance, whereas bonuses for Executive Directors are based solely on business performance. Although the makeup and weightings scorecard used for the majority of Shell employees is currently aligned with the scorecard, these scorecards may differ if required to support the achievement of business objectives. All Executive Directors and Executive Committee members receive 50% of their annual bonus in shares, which are subject to a three-year holding period.
Executive Directors are not eligible to receive new awards under employee share plans other than the LTIP, although awards previously granted will continue to vest in accordance with the terms of the original award. Selected employees participate in the Performance Share Plan (PSP). The operation of the PSP is similar to the LTIP, but currently differs, for example, in some performance measures and their relative weightings. As at March 2020, around 51,000 employees participate in one or more of Shell’s global share plans and/or incentive plans, further supporting alignment with shareholder interests.
Executive Directors’ retirement benefits are maintained in line with those of the wider workforce in their base country.
Illustration of potential remuneration outcomes
The charts on this page represent estimatesillustrate the potential future value and composition of the Executive Directors’ total remuneration opportunities under four performance scenarios (“Minimum”("Minimum", “On-target”"On-target", “Maximum”"Maximum" and “Maximum, assuming a 50%"Maximum +50% share price appreciation between award and vest”vest") of. The remuneration opportunities are based on those set out in the potential remuneration outcomes for each Executive Director resulting from the application of 2020Policy table, applied to 2023 base salaries to awards made in accordance with the proposed Policy.salaries. The majority of the Executive Directors’ remuneration is delivered through variable pay elements, which are conditional on the achievement of stretching performance targets.
The REMCO will review the formulaic Single Figure outcome relative to the quality of performance outcomes and adjust these, taking into account Shell’s performance, shareholder experience, the operation of the remuneration structures and any other relevant factors, to ensure that the highest variable pay outcomes are only achieved in years with the highest quality performance.
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| Minimum | Target | Maximum |
GOVERNANCE SHELL FORM 20-F 2020Base salary (2023) | 143P | P | P |
| Benefits (2022 actual) [A] | P | P | P |
| Pension (2023) | P | P | P |
| Bonus (2023) | NIL | 125% CEO | 250% CEO |
| | 120% CFO | 240% CFO |
| LTIP (2023) | NIL | 300% CEO | 600% CEO |
| | 270% CFO | 540% CFO |
The scenario charts are based on future Policy award levels and are combined with projected single total figures of remuneration. The pay scenarios are forward-looking and only serve to illustrate the future Policy. For simplicity, the minimum, on-target and maximum scenarios assume no share price movement and exclude dividend accrual, for the portion of the bonus paid in shares and the LTIP, although dividend accrual during the performance and holding period applies. The scenarios are based on the current CEO (Ben van Beurden) and CFO (Jessica Uhl) roles.
Recruitment
The REMCO determines the remuneration package for new Executive Director appointments. These appointments may involve external or internal recruitment, or reflect a change in role of a current Executive Director.
When determining remuneration packages for new Executive Directors, the REMCO will seek a balanced outcome which allows Shell to:
•▪attractAttract and motivate candidates of the right quality;
•▪takeTake into account the individual’s current remuneration package
and other contractual entitlements;
•▪seekSeek a competitive pay position relative to our comparator group, without overpaying;
•▪encourageEncourage relocation if required; and
•▪honourHonour entitlements (for example, variable remuneration) of internal candidates before their promotion to the Board. Board, with the exception of any previous pension arrangements.
The REMCO will follow the approach set out in the table below when determining the remuneration package for a new Executive Director.
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GOVERNANCE SHELL FORM 20-F 2020 | 144 | |
Recruitment – Remuneration package
| | | | | | | | |
| Component | | Approach | | Maximum |
| Ongoing remuneration | | The salary, benefits, annual bonus, long-term incentives and pension benefits will be positioned and delivered within the framework of the Executive Directors’ remuneration policy.Policy. | | As stated in the “ExecutiveExecutive Directors’ remuneration policy table”.Remuneration Policy table, and notes to the table. |
| Compensation for the forfeiture of any awards under variable remuneration arrangements | | To facilitate external recruitment, one-off compensation in consideration for forfeited awards under variable remuneration arrangements entered into with a previous employer may be required. The REMCO will use its judgement to determine the appropriate level of compensation by matching the value of any lost awards under variable remuneration arrangements with the candidate’s previous employer. This compensation may take the form of a one-off cash payment or an additional award under the LTIP. The compensation can alternatively be based on a newly created long-term incentive plan arrangement where the only participant is the new director.Director. The intention is that any such compensation would, as far as possible, align to the duration and structure of the award being forfeited. Where appropriate, performance conditions, holding periods, and malus and clawback provisions will apply. | | An amount equal to the value of the forfeited variable remuneration awards, as assessed by the REMCO. Consideration will be given to appropriate performance conditions, performance periods and clawback arrangements. |
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Governance
Directors’ Remuneration Policy continued
| | | | | | | | | | | | | | |
| Component | | Approach | | Maximum |
| Replacement of forfeited entitlements other than any awards under variable remuneration arrangements | | There may also be a need to compensate a new Executive Director in respect of forfeited entitlements other than any awards under variable remuneration arrangements. This could include, for example, pension or contractual entitlements or other benefits. On recruitment, these entitlements may be replicated within the Executive Directors’Director’s remuneration policypackage or valued by the REMCO and compensated in cash.
In cases of internal promotion to the Board, any commitments made which cannot be effectively replaced within the Executive Directors’Director’s remuneration policypackage may, at the REMCO’s discretion, continue to be honoured. | | An amount equal to the value of the forfeited entitlements, as assessed by the REMCO. |
| Exceptional recruitment incentive | | Apart from the ongoing annual remuneration package and any compensation in respect of the replacement of forfeited entitlements, there may be circumstances in which the REMCO needs to offer a one-off recruitment incentive in the form of cash or shares to ensure the right external candidate is attracted (e.g. to the industry). The REMCO recognises the importance of internal succession planning but it must also have the ability to compete for talent with other global companies. The necessity and level of this incentive will depend on the individual’s circumstances. The intention will be that this is only used in genuinely exceptional circumstances. | | SubjectA one-off amount up to the limits set out in the “ExecutiveExecutive Directors’ remuneration policy table”.Remuneration Policy table, in addition to the ongoing package. |
PensionRelocation | New appointees
| In the event that an internal or external candidate were required to relocate internationally to take up the Executive Director position, the REMCO may offer appropriate relocation provisions in respect of items including, but not limited to, relocation, assistance with visa/immigration issues, housing, and education assistance. If provided, these will be provided withfor a pension in line with the wider workforce in their base country. For defined benefit members:•specified period of time, expected to be no more than two years.
| | The pensionable salary is cappedlevel of such benefits would be set at executive committee level pay for defined benefit purposes (with the exception of participants in the US plan where the bonus is removed from the definition of pensionable pay; and•The member joins an appropriate base country defined contribution mechanism in excess oflevel by the cap, or exceptionally a pension cash allowance equivalent toREMCO, taking into account the defined contribution level is payable in excess of the cap.
| In accordance with the pension provisioncircumstances, provisions applicable to the wider internationally mobile workforce, in the base country.and typical market practice. |
Executive Directors’ employment arrangements and letters of appointment
The Dutch Executive Directors are employed for an indefinite period. Executive Directors with the Netherlands as their base country will be employed on the basis of a contract of employment governed by Dutch employment law. For Executive Directors with a base country other than the Netherlands, REMCO will determine their employment arrangements based on a number of considerations, including Dutch immigration requirements and base country retirement benefits. Executive Directors’ employment arrangements are available for inspection at the AGM or on request. For further details on appointment and re-appointment of Directors, see pages 97-98 and page 151 in "Governance".
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| Executive Directors’ service contracts and end of employment arrangements (including change of control provisions) |
End of employment
Notice period
Employment arrangements of Executive Directors can generally end by either the employee or the employer providing one month’s notice, or the applicable statutory notice period. For example, under Dutch law, the statutory notice period for the employer will vary in line with the length of service, with the maximum being four months’ notice. Under Dutch law, termination payments are not linked to the contract’s notice period.
The Netherlands statutory end-of-employment compensation
With effect from July 1, 2015, employment legislation in the Netherlands introduced statutory end-of-employment compensation. Under this
legislation, every termination (other than following retirement or for cause) of a Dutch employment contract that has continued for a minimum of two years will give rise to an obligation to pay the departing employee transition compensation (“transitievergoeding”). The statutory compensation is capped at one times the annual salary, which is deemed to include variable pay such as the annual bonus. Executive Directors are expected not to claim transition compensation or any other applicable statutory compensation over and above the agreed compensation for loss of office as set out in the “End of employment” table on page 146.
Outstanding entitlements
In cases of resignation or dismissal for cause, fixed remuneration (base salary, benefits, and employer pension contributions) will cease on the last day of employment, variable remuneration elements will generally lapse and the Executive Director is not eligible for compensation for loss of office.
The information, on page 146, generally applies to termination of employment by Shell giving notice, by mutual agreement, or in situations where the employment terminates because of retirement with Shell consent at a date other than the normal retirement date, redundancy or in other similar circumstances at the REMCO’s discretion.
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GOVERNANCE SHELL FORM 20-F 2020Provision | 145 | |
End of employment
| | | | | Policy |
ProvisionService contracts | | PolicyExecutive Directors are employed for an indefinite period. Executive Directors based in the UK will be employed on service contracts governed by the laws of England and Wales. |
| Notice period | | The Executive Director or the Company may terminate employment by giving 12 months’ written notice. The Company may require the Executive Director to be on garden leave during all or any of the notice period (whether notice is given by the Company or the Executive Director). |
| Payment in lieu of notice (PILON) | | The Company may terminate an Executive Director’s service contract at any time with immediate effect and pay a sum in lieu of the unexpired portion of any notice period to the value of no more than 12 months’ fixed pay (salary and regular allowances) and other benefits (unless statutory requirements to pay additional sums apply). The Company has the contractual right to make any PILON in monthly instalments in its discretion. Once the right to make a PILON is exercised, its delivery in instalments is mitigated by a contractual obligation on the Executive Director to seek alternative employment. |
| Compensation for loss of office | For | Executive Directors appointed between January 1, 2011 and December 31, 2016, employment contracts include a cap on termination payments of one times annual pay (base salary plus target bonus). Delivery of compensation is mitigated by a contractual obligation for the Executive Director to seek alternative employment and Shell’s ability to implement phased payment terms.
For Executive Directors appointed on or after January 1, 2017, the REMCO may offer a termination payment of up to one times base salary (target bonus will not be included). However, REMCO may be obligated to pay statutory compensation over and above the compensationusually receive additional payments for loss of office, to a departingother than, as appropriate, payments in lieu of notice as described above or payments in respect of damages if the Company terminates an Executive Director who asserts a statutory claim thereto. DeliveryDirector’s employment in breach of compensation is mitigated by a contractual obligation forcontract (taking into account, as appropriate, the Executive DirectorDirector’s responsibility to seek alternative employment and Shell’s ability to implement phased payment terms.
The provision of standard end-of-employment benefits such as repatriation costs, security provision and outplacement support may also be included, as deemed reasonable by the REMCO.
mitigate any losses). The REMCO may adjustreserves the termination payment for any situation where a full payment is inappropriate,right to make payments it considers reasonable in settlement of potential legal claims taking into considerationaccount contractual provisions, applicable law, corporate governance provisions, the applicability of any statutory compensation and the best interests of Shell and shareholders as a whole. |
| Dismissal | | The Company may terminate employment immediately in particular defined circumstances such as gross misconduct, with no further payment or PILON. |
| Annual bonus accrued prior to termination | | The following provisions will normally apply: Any▪In the event of death, disability, injury or ill health, retirement, redundancy, completion of a fixed-term contract, and other circumstances at the REMCO’s discretion, any annual bonus in the year of departure is proratedpro-rated based on service. Depending on the timing of the departure, the REMCO may consider the latest scorecard position or defer payment until the full-year scorecard result is known.
▪In the event of a change of control, the REMCO will assess the most appropriate treatment for the outstanding bonus period according to the circumstances. ▪Bonuses delivered in shares represent the bonus which a participant has already earned, and carry no further performance conditions; therefore,conditions. Therefore, these shares will normally be unrestricted at the conclusion of the normal deferral or holding period respectivelyotherwise, and no prorationpro-ration will apply. ▪In other circumstances (including resignation), no award will be made unless statutory requirements apply. ▪The REMCO retains discretion to waive any part of a bonus holding period in exceptional circumstances (primarily death). |
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Governance
Directors’ Remuneration Policy continued
| | | | | | | | |
| Provision | | Policy |
| LTIP awards | | Share awards will be treated in accordance with the relevant plan rules. The following provisions will normally apply: Outstanding▪In the event of disability, injury or ill health, retirement, redundancy, completion of a fixed-term contract, and other circumstances at the REMCO’s discretion: outstanding awards are prorated onreduced pro-rata (on a monthly basis, by reference to the Executive Director’s service withinbasis) for time elapsed during the performance period. They will generally survive the end of employment and will remain subject to the same vesting performance conditions, holding period and malus and clawback provisions, as if the Executive Director had remained in employment. The three-year holding periodextent to which awards vest will also remain in force for any awards made on or after January 1, 2017. Ifbe determined by the participant dies beforeREMCO, taking into account the end ofextent to which the performance period,conditions have been satisfied.
▪In the event of death: the award will vest at the target levelin full on the date of death. In casedeath or, if there is a target level set out in the performance condition, then at that target level, unless the REMCO determines otherwise. ▪Change of death aftercontrol: awards will be exchanged for equivalent new awards issued by the endacquirer, if agreed to by the acquirer and the Board. If there is no agreement to exchange awards, awards will (i) vest immediately in full if there is no performance condition, or (ii) vest immediately to the extent that any performance condition has been satisfied to the date of vesting. Such awards will be reduced pro-rata for time elapsed during the performance period unless agreed otherwise. ▪Other circumstances (including resignation): awards will lapse on cessation of employment unless statutory requirements apply. ▪The REMCO retains discretion to waive any part of a holding period in exceptional circumstances (primarily death). |
| Other | | The provision of end-of-employment benefits such as a contribution to the award will vestExecutive Director’s legal fees for the review of any settlement agreement, repatriation costs, and outplacement support may also be included, as describeddeemed reasonable by the REMCO. The Executive Director may also remain eligible for other benefits, such as security provision or tax return preparation, in this Policy.line with policies for the wider workforce. The Company may pay the Executive Director’s tax on such benefits. REMCO may adjust the range and scope of the benefits offered in the context of developments for other employees in relevant countries. |
In the event an Executive Director is based outside of the UK, the REMCO will determine the appropriate service contract and end of employment arrangements.
The table below sets out the effective dates of the Executive Directors' service contract.
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| Executive Director | Date of contract |
| Wael Sawan | January 1, 2023 |
| Sinead Gorman | April 1, 2022 |
NON-EXECUTIVE DIRECTORS
Non-executive Directors’ remuneration policy table
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| Executive Directors’ employment arrangements are available for inspection at the AGM or on request. For further details on appointment and re-appointment of Directors, see the "Governance Framework" on page 141 and "Other regulatory and statutory information" on page 199. |
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| Non-executive Directors’ Remuneration Policy table |
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| Fee structure | | Approach to setting fees | | Other remuneration |
Non-executive Directors (NEDs) receive a fixed annual fee for their directorship.Directorship. The size of the fee will differ based on the position on the Board:Chair receives a Chair of the Board fee, or standard Non-executive Director fee.
and other NEDs receive a base fee for membership of the Board. Additional annual fee(s)fees are payable to any DirectorNED (other than the Chair of the Board) who serves as Senior Independent Director, a Board committee chair,Committee Chair, or a Board committeeCommittee member.
A NEDchairChair or member fee forin respect of each committee. This means that a chairCommittee they sit on. The Chair of a committeeCommittee does not receive both fees.
NEDs receive an additional fee for any Board meeting involving intercontinental travel, – except forwith the exception of one meeting a year held in a location other than London. | | The Hague. | The Chair’sChair of the Board fee is determined by the REMCO. The Board determines the fees payable to NEDs. The maximum aggregate annual fees will be within the limit specified by the Articles of Association and in accordance with the NEDs’ responsibilities and time commitments.
The Board reviews NED fees periodically to ensure that they are aligned with thoseappropriate in the context of fee levels at other major listed companies.
| | Business expenses incurred in respect of the performance of their duties as a NED will be paid or reimbursed by Shell. Such expenses could include transport between home and office, and occasional business-required partner travel. NEDs may receive a token of recognition on retirement from the board.Board. The maximum value for this is €300. Where required, the Chair is offered Shell-provided accommodation in The Hague.£300. The REMCO has the discretion to offer other benefits to the Chair as appropriate to theirthe circumstances. Where business expenses or benefits create a personal tax liability to the Director,NED, Shell may cover the associated tax.
The Chair and the other NEDs cannotare not eligible to receive awards under any incentive or performance-based remuneration plans, and personal loans or guarantees are not granted to them.
NEDs do not accrue any retirement benefits as a result of their non-executive directorshipsNon-executive Directorships with Shell.
NEDs are encouraged to hold Shell shares with a value equivalent to 100% of their fixed annual base fee and maintain that holding during their tenure. |
| | | | | | | | |
| 197 | GOVERNANCE SHELL FORMShell | Form 20-F 20202022 | 146 | |
Governance
Non-executive Directors’ letters of appointment
NEDs, including the Chair of the Board, have letters of appointment. NEDs’ letters of appointment are available for inspection at the AGM or on request. For further details onThe table below shows the appointment and re-appointment of Directors, see pages 97-98 and page 151 in "Governance".expiry dates for the NEDs' appointments:
| | | | | |
| Non-executive Director | Effective date of appointment |
| Sir Andrew Mackenzie | October 1, 2020 |
| Dick Boer | May 20, 2020 |
| Neil Carson | May 21, 2019 |
| Ann Godbehere | May 23, 2018 |
| Euleen Goh | September 1, 2014 |
| Jane Holl Lute | May 19, 2021 |
| Catherine J. Hughes | June 1, 2017 |
| Martina Hund-Mejean | May 20, 2020 |
| Bram Schot | October 1, 2020 |
| Cyrus Taraporevala | March 2, 2023 |
| | |
| For further details on appointment and re-appointment of NEDs, see the "Governance Framework" on page 141 and "Other regulatory and statutory information" on page 199. |
Non-executive Director recruitment
The REMCO’s approach to setting the remuneration package for new NEDs is to offer fee levels and specific benefits (where appropriate) in line withdetermined within the “Non-executive Directors’ remuneration policy table”confines of the Policy table for NED fees, and subject to the Articles of Association. NEDs are not offered variable remuneration or retention awards.
When determining the benefits for a new Chair of the Board, the individual circumstances of the future Chair will be taken into account.
Non-executive Director termination of office
No payments for loss of office will be made to NEDs.
Consideration of overallwider employee views
The REMCO takes account of the pay and employment conditions
When of the broader workforce when setting the Policy for Executive Directors.
Whilst no specific employee groups were consulted. However,consulted as part of the 2023 Policy review, Shell seeks to promotepromotes and maintainmaintains good relations with employee representative bodies as part of its employee engagement wperformance as required.
When determining Executive Directors’ remuneration structure and outcomes, the REMCO reviews a set of information, including relevant reference points and trends, which includes internal data on employee remuneration (for example, employee relations matters in respect of remuneration, and average salary increases applying in the Netherlands, UK and the USA). During the Policy review, pay and employment conditions of the wider Shell employee population were taken into account by adhering to the same performance, rewards and benefits philosophy for the Executive Directors, as well as overall benchmarking principles. Furthermore, any potential differences from other employees (see “Differences"Differences in Remuneration Policy for Executive Directors from that for other employees”employees") were taken into account when providing the REMCO with advice in the formation of thisthe Policy.
Dialogue between management and employees is important, with the annual Shell People Survey being one of the principal means of gathering employee views on a range of matters. The Shell People Survey includes questions inviting employees’ views on their pay and benefit arrangements. Shell also encourages share ownership among employees, and many are shareholders who are able to participate in the vote on the Policy at the AGM.
The REMCO is kept informed by the CEO, the Chief Human Resources & Corporate Officer, and the Executive Vice President RemunerationPerformance and HR OperationsReward on the bonus scorecard and any relevant remuneration matters affecting other senior executives, extending to multiple levels below the Board and Executive Committee.
| | |
| See the "Workforce engagement on remuneration matters" section in the Annual Report on Remuneration, on page 186, for more information on how Shell considers and engages with the broader workforce on remuneration matters. |
Consideration of shareholder views
The REMCO engages with major shareholders on a regular basisregularly throughout the year and thisyear. Such engagement allows itthe REMCO to hear shareholders’ views on Shell’s approach to executive remuneration, approach and test proposals when developing or evolving the Policy. Recent examples ofIn recent years, the REMCO respondinghas responded to shareholder views, include: consideringincluding the approach to energy transition metrics in the LTIP, the quantum of executive pay and the use of alternative reward structures; introducing the Energy Transition metric to the LTIP in line with our strategic ambitions; removing the individual performance modifier from the calculation of annual bonus outcomes to make remuneration structures simpler and more transparent to shareholders; reducing the CEO’s target bonus from 150% to 125%; reducing the CEO’s LTIP grant; and enabling the broader use of discretion to manage remuneration outcomes. In developing the proposed Policy, the REMCO again consulted with shareholders and received a diverse range of views that have helped to determine which proposals to refine and which to discard. For example, as a result of shareholder feedback in the fourth quarter of 2022, the REMCO determined not to proceed with seeking support for recruitment provision that would permit an extended notice period on hiring. Shareholders have been helpful in emphasising the need for balanced metrics in the LTIP to help avoid unintended consequences as Shell progresses through the energy transition. In 2022, the continued interest in the energy transition LTIP measure directly influenced increased transparency in Shell's reporting on the progress of its energy transition journey.
It was clear to the REMCO that, whilst there were inevitably contrasting views around the different aspects of the Policy, shareholders are supportive of Shell’s overall approach to remuneration and the REMCO’s careful deliberations in decision-making. The REMCO will continue to review the Policy regularly to ensure it continues to reinforce Shell’s long-term strategy and remains closely alignedaligns with shareholders’ interests.
Additional policyPolicy statement
The REMCO reserves the right to make payments outside of the Policy in limited, exceptional circumstances, such as for regulatory, tax or administrative purposes, or to take account of a change in legislation or exchange controls, and only where the REMCO considers such payments are necessary to give effect to the intent of the Policy.
Signed on behalf of the Board
/s/ Linda M. Coulter
LINDA M. COULTERCaroline J.M. Omloo
Company Secretary
March 10, 20218, 2023
| | | | | | | | |
| 198 | GOVERNANCE SHELL FORMShell | Form 20-F 20202022 | 147 | |
Other Regulatory and Statutory Information MANAGEMENT’S EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES OF SHELLManagement’s evaluation of disclosure controls and procedures of Shell
Shell’s CEO and CFO have evaluated the effectiveness of Shell’s disclosure controls and procedures at December 31, 2020.2022. Based on that evaluation, they concluded that Shell’s disclosure controls and procedures are effective.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING OF SHELLreporting of Shell
Management, including the CEO and CFO, is responsible for establishing and maintaining adequate internal control over Shell’s financial reporting and the preparation of the “Consolidated"Consolidated Financial Statements”Statements". It conducted an evaluation of the effectiveness of Shell’s internal control over financial reporting and the preparation of the “Consolidated"Consolidated Financial Statements”Statements" based on the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). On the basis of this evaluation, management concluded that, at December 31, 2020,2022, the Company’s internal control over financial reporting and the preparation of the “Consolidated"Consolidated Financial Statements”Statements" was effective.
THE TRUSTEE’S AND MANAGEMENT’S EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES FOR THE ROYAL DUTCH SHELL DIVIDEND ACCESS TRUSTThe Trustee’s and management’s evaluation of disclosure controls and procedures for the Royal Dutch Shell Dividend Access Trust
The Trustee of the Royal Dutch Shell Dividend Access Trust (the Trustee) and Shell’s CEO and CFO have evaluated the effectiveness of the disclosure controls and procedures in respect of the Dividend Access Trust (the Trust) at December 31, 2020.2022. On the basis of this evaluation, these officers have concluded that the disclosure controls and procedures of the Trust are effective.
THE TRUSTEE’S AND MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING OF THE ROYAL DUTCH SHELL DIVIDEND ACCESS TRUSTThe Trustee’s and management’s report on internal control over financial reporting of the Royal Dutch Shell Dividend Access Trust
The Trustee and the Company’s management are responsible for establishing and maintaining adequate internal control over the Trust’s financial reporting. The Trustee and the Company’sShell’s management conducted an evaluation of the effectiveness of internal control over financial reporting based on the Internal Control - Integrated Framework (2013) issued by COSO. On the basis of this evaluation, the Trustee and Shell's management concluded that, at December 31, 2020,2022, the Trust’s internal control over financial reporting was effective.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTINGChanges in internal control over financial reporting
There has not been any change in the internal control over financial reporting of Shell or the Trust that occurred during the period covered by this Report that has materially affected, or is reasonably likely to materially affect, the internal control over financial reporting of Shell or the Trust. Material financial information of the Trust is included in the “Consolidated"Consolidated Financial Statements”Statements" and is therefore subject to the same disclosure controls and procedures as Shell. See the “Royal Dutch Shell Dividend Access Trust Financial Statements” on pages 231 -234
| | |
| See the "Royal Dutch Shell Dividend Access Trust Financial Statements" on pages 322-325 for additional information. |
Financial Statements, Dividends and Dividend Policy
FINANCIAL STATEMENTS, DIVIDENDS AND DIVIDEND POLICY
The “Consolidated Statement of Income” and “Consolidated Balance Sheet” can be found on pages 164 and 166 respectively.
| | |
| The "Consolidated Statement of Income" and "Consolidated Balance Sheet" can be found on pages 216 and 217 respectively. |
Subject to Board approval, Shell aims to grow the dividend per share by around 4% every year, and once the Shell Group’s net debt level has reached $65 billion, Shell will target the distribution of 20-30%a minimum of 20% and, subject to Board approval and prevailing market conditions, potentially more than 30% of its cash flow from operations to shareholders. The Board may choose to return cash to shareholders through a combination of dividends and share buybacks. When setting the level of shareholder remuneration, the Board looks at a range of
factors, including the macro-environment,macro environment, the underlying business earnings and cash flow of the Shell Group, the current balance sheet, future investment and divestment plans, and existing commitments.
Interim dividends are currently declared by the Board and paid on a quarterly basis. Shell does not currently pay a “final”"final" dividend, which would need to be voted on by shareholders, requiring the introduction of a resolution at the AGM. This would delay the payment of the fourth quarter dividend (currently paid in late March) until after the AGM, which is towards the end of May, a delay of around seven weeks. Our approach to dividend payments is not uncommon for companies distributing returns to shareholders on a quarterly basis.
Shell pays its dividend in USD, EUR or GBP fully electronically either in CREST or via interbank transfers.
The Directors have announced a fourth quarter interim dividend as set out in the table below, payable on March 29, 2021,27, 2023, to shareholders on the Register of Members at the close of business on February 19, 2021.17, 2023. The closing date for dividend currency elections was March 5, 20213, 2023 [A] and the euro and sterling equivalents announcement date is March 15, 2021.13, 2023.
[A]A different dividend currency election date may apply to shareholders holding shares in a securities account with a bank or financial institution ultimately through Euroclear Nederland. This may also apply to other shareholders who do not hold their shares either directly on the Register of Members or in the corporate sponsored nominee arrangement. Such shareholders can contact their broker, financial intermediary, bank or financial institution for the election deadline that applies.
REPURCHASES OF SHARESRepurchases of shares
Shell will target the distribution of a minimum of 20% and, subject to Board approval and prevailing market conditions, potentially more than 30% of its cash flow from operations to shareholders. The Board may choose to return cash to shareholders through a combination of dividends and share buybacks. For all share buyback programmes mentioned below, Shell entered into an irrevocable, non-discretionary arrangements with a broker in order to reduce the issued share capital of the Company.
Under shareholder authorities granted at the 2021 AGM, on December 2, 2021, Shell announced a share buyback programme of $1.5 billion comprising the first part of the $7 billion shareholder distributions from the sale of the Permian business in the USA, which was completed on January 28, 2022. On July 26, 2018, the CompanyFebruary 3, 2022, Shell announced the startcommencement of a share buyback programme of at least $25$8.5 billion, subject to further progress with debt reductioncomprising $5.5 billion of Permian divestment proceeds and oil price conditions. On March 23, 2020, the Company announced that in light$3.0 billion as part of the economic and oil price environment, it had decided not to continue with the next tranche of the share buyback programme following the completion of the tranche announced on January 30, 2020. On April 14, 2020, the seventh tranche of the shareCompany’s capital allocation framework. This buyback programme was completed,formed of two tranches, the first of $4 billion which ran between February 3, 2022 and no further tranches were undertaken in 2020. As announced on October 29, 2020,May 4, 2022, the Shell Group’s cash allocation framework includes a target to reduce net debt to $65second of $4.5 billion which ran between May 5, 2022 and following that an aim to increase distributions to shareholders through a combination of Shell’s progressive dividend and share buybacks.July 5, 2022..
To ensure thatAt the Company had the necessary authority to continue to buy back its shares when the time is considered appropriate, at the 2020May 24, 2022, AGM, shareholders granted an authority for the Company the authority to repurchase (i) up to a maximum of 783758 million of itsordinary shares "on-market" (excluding any treasury shares), less any "off-market" purchases made under the authority in (ii); and (ii) up to 758 million ordinary shares off-market (excluding any treasury shares), less any on-market purchases made under the authority in (i). The authorities for employee share plans). This authority expires onboth on-market and off-market purchases will expire at the earlier of the close of business on August 19, 2021, or24, 2023, and the end of the 2021 AGM.
As at December 31, 2020, 496 million A shares with a nominal value of €34.7 million ($41.8 million) and 39 million B shares with a nominal value of €2.8 million ($3.2 million) (6.85%AGM of the Company’s total issued share capital at December 31, 2020) had been cumulatively purchased and cancelled sinceCompany to be held in 2023. On July 28, 2022, Shell announced the beginningcommencement of this programme, for a total cost of $15.8 billion including expenses, at an average price of $29.45 per share. The purpose of the shares repurchased in 2020 under the share buyback programme of $6 billion buyback which was to reducecompleted on October 21, 2022; on October 27, 2022, Shell announced the issuedcommencement of a $4 billion share capital of the Company. This is to offset the number of shares issued under the Scrip Dividend Programme and to reduce the equity issued in connection with the Company’s combination with BG Group. The Scrip Dividend Programme was cancelled with effect from the fourth quarter 2017 interim dividend. More information can be found at www.shell.com/scrip. Since the completion of the tranche announcedbuyback programme which completed on January 30, 2020, no27, 2023; and on February 2, 2023, Shell announced the commencement of a share buyback programme of a further shares have been bought back$4 billion which is expected to be completed by the Company.May 4, 2023. This means that, 783as at close of February 20, 2023, 358 million further shares could still be repurchased under the current AGM authority.authorities.
Governance
The Board continues to regard the ability to repurchase issued shares in suitable circumstances as an important part of Shell’s financial
| | | | | | | | |
GOVERNANCE SHELL FORM 20-F 2020 | 148 | |
management. A new resolutionNew resolutions will be proposed at the 20212023 AGM to renew the authority for the Company to purchase its own share capital, up to specified limits, for a further year. This proposalThese proposals will be described in more detail in the 20212023 Notice of Annual General Meeting.
QUALIFYING THIRD-PARTY INDEMNITIESOn January 21, 2022, the Company changed its name from Royal Dutch Shell plc to Shell plc.
On January 29, 2022, one line of shares was established through assimilation of each A share and each B share into one single line of ordinary shares of the Company. This assimilation had no impact on voting rights or dividend entitlements.
Qualifying third-party indemnities
The Company has entered into a Deed of Indemnity (Deed) with each Director of the Company who served during the year. The terms of each of these Deeds are identical and they reflect the statutory provisions on indemnities contained in the Companies Act 2006 (CA 2006). Under the terms of each Deed, the Company has agreed to indemnify the Director, to the widestfullest extent permitted by the CA 2006, against any loss, liability or damage, howsoever caused (including in respect of a Director’s own negligence), suffered or incurred by a Director in respect of their acts or omissions while or in the course of acting as a Director or employee of the Company, any associated company or affiliate (within the meaning of the CA 2006). In addition, the Company shall lend funds to Directors as required to meet reasonable costs and expenses incurred or to be incurred by them in defending any criminal or civil proceedings brought against them in their capacity as a Director or employee of the Company, associated company or affiliate, or, in connection with certain applications brought under the CA 2006. The provisions in the Company’s Articles of Association (Articles) relating to arbitration and exclusive jurisdiction are incorporated, mutatis mutandis, into the Deeds entered into by each Director and the Company.
The Company has provided both indemnities and Directors’ and officers’ insurance to the Directors in connection with the performance of their responsibilities. Copies of these indemnities and the Directors’ and officers’ insurance policies are open to inspection. A copy of the form of these indemnities has been previously filed with the US Securities and Exchange Commission.
RELATED PARTY TRANSACTIONSRelated party transactions
In addition to the disclosures given in Notes 913 and 2733 to the “Consolidated"Consolidated Financial Statements”Statements" on pages 185 - 186255 and 209,286, the following related party transactions took place in 2022.
Indemnification Agreements
As noted in the Qualifying Third-Party Indemnities, the Company provides both indemnities and Directors’ and Officers’ insurance to the Directors in connection with the performance of their responsibilities. The Company has entered into a Deed of Indemnity with each Director of the Company who served during the year. A form of Director Indemnity Agreement has been previously filed with the US Securities and Exchange Commission. See "Other Regulatory and Statutory Information – Qualifying Third-Party Indemnities" for more information.
Agreements with Non-Executive Directors and Executive Officers
Non-executive Directors, including the Chair, receive a letter of appointment upon joining the Company’s Board. A form of Letter of appointment for Non-executive Directors and amendment thereto have been previously filed with the US Securities and Exchange Commission.
| | |
| Further details of Non-executive Directors’ terms of appointment can be found in the "Other Regulatory and Statutory Information - Articles of Association" on page 202. and the "Governance framework" on page 141. |
| | |
| Non-executive Director compensation information is provided in the "Annual Report on Remuneration – Non-executive Directors’ fees" on page 190. |
Executive Directors are employed pursuant to a contract of employment. A form of contract of employment for Executive Directors has been previously filed with the US Securities and Exchange Commission.
| | |
| Details of Executive Directors’ employment arrangements can be found in the Directors’ Remuneration Policy on page 191-198. |
Transaction with GasTerra
In September 2021, Shell Energy Europe Limited (SEEL) signed a binding Contract Acquisition Agreement (CAA) with GasTerra (Shell interest 25%), whereby SEEL agreed to take over GasTerra’s Gas Sales Agreement, dated December 21, 1999, between Gazprom Export LLC (Gazprom) as seller and GasTerra as buyer (GSA). The transfer of the GSA to SEEL took effect on October 1, 2022, upon payment of a fee by SEEL. Upon transfer and pursuant to the terms of the CAA, Shell recognized the transfer of a payable of approximately Euro 1.3 billion ($1.4 billion) in respect of gas delivered by Gazprom to GasTerra in April and May of 2022 under the GSA. An equivalent receivable from GasTerra was also recognized pursuant to the terms of the CAA. Prior to the transfer on October 1, 2022, GasTerra exercised a right to set off a claim against Gazprom in respect of the non-delivery of gas as from end of May 2022. That right is disputed by Gazprom. Gazprom ceased to supply gas to GasTerra at the end of May 2022 and the GSA terminated in December 2022.
Transaction with Shell Midstream Partners, L.P. (the “Partnership”).
Sale of Assets and GP/IDR Restructuring
On April 1, 2020,February 11, 2022, Shell completed the announced sale of 79%Pipeline Company LP, a subsidiary of the issued and outstanding membership interests in Mattox Pipeline Company, LLC and certain logistics assets at the Shell Norco Manufacturing Complexannounced that it made a non-binding offer to the Partnership and Triton West LLC (Triton) (Asset Sale). As part of the Asset Sale, Shell and the Partnership agreed to indemnify each other and their respective affiliates, officers, directors and other representatives against certain losses resulting from any breach of their representations, warranties or covenants contained in the Purchase and Sale Agreement entered into on February 27, 2020, subject to certain limitations and survival periods.
Simultaneously with the closing of the Asset Sale, Shell Midstream Partners GP LLC, the general partner of the Partnership and which Shell controls, and the Partnership, pursuant to a Partnership Interests Restructuring Agreement entered into on February 27, 2020, (i) cancelled the general partner’s incentive distribution rights and the general partner’s 4,761,012 units and (ii) converted the general partner’s two percent general partner interest in the Partnership into a non-economic general partner interest in the Partnership (the “GP/IDR Restructuring”). Simultaneously with the closing of the GP/IDR Restructuring, the general partner, amended and restated the First Amended and Restated Agreement of Limited Partnership of the Partnership, dated as of November 3, 2014, as amended, to reflect the GP/IDR Restructuring and the establishment of the Series A Preferred Units.
As consideration for the two transaction described above, the Partnership issued $1.2 billion of Series A perpetual convertible preferred units at a price of $23.63 per unit, plus 160 million newly issuedpurchase all remaining common units held by the public representing limited partner interests in Shell Midstream Partners, L.P. (Shell interest 68.5%)(SHLX) for $12.89 per common unit in cash. On July 25, 2022, Shell USA, Inc. and SHLX announced the Partnership. In addition,execution of a definitive agreement and pursuant toplan of merger which would result in Shell USA, Inc. acquiring all common units held by the Partnership Interests Restructuring Agreement,public at $15.85 per common unit in cash and a total value of approximately $1.96 billion. The transaction was completed on October 19, 2022. As a result, SHLX is now an indirect, wholly owned subsidiary of Shell USA, Inc. and its common units were delisted from the general partner waived a portion of the distributions that would otherwise be payable on the Common Units issued to the general partner as part of the GP/IDR Restructuring in an amount of $20 million per quarter for each of the four consecutive fiscal quarters following the closing of both transactions.NYSE.
Upon the closing of the above two transactions, the Partnership has 393,289,537 Common Units outstanding, of whichOn November 7, 2022, Shell owns 269,457,304 Common Units in the Partnership, representing an aggregate 68.5% limited partner interest.
Credit Facilities
We haveTrading Rotterdam B.V. entered into a long-term offtake agreement with Raizen (Shell interest 44%), a joint venture with Cosan SA formed in 2011. Under the following credit facilitiesagreement, Shell agreed to buy a total of 3.25 billion litres of sugar-cane cellulosic ethanol over a 13-year production period beginning in 2025 with a total value of approximately $2.8 billion. We also have the Partnership (borrower):right to potentially extend the offtake terms for a term up to 19 years if certain investment conditions are satisfied. The transactional price is driven by market pricing with a floor price attached, which is consistent with normal market terms. For extension, pricing will revert to market-based pricing.
| | | | | | | | | | | | | | | | | |
| $ million |
| December 31, 2020 |
| Maturity Date | Interest Rate | Outstanding Balance | Total Capacity | Available Capacity |
| Ten Year Fixed Facility | June 4, 2029 | 4.18 | % | $ 600 | $ 600 | $ - |
| Seven Year Fixed Facility | July 31, 2025 | 4.06 | % | $ 600 | $ 600 | $ - |
| Five Year Revolver | July 31, 2023 | 1.20 | % | $ 494 | $ 760 | $ 266 |
| Five Year Revolver | December 1, 2022 | 1.21 | % | $ 400 | $ 1,000 | $ 600 |
| Five Year Fixed Facility | March 1, 2022 | 3.23 | % | $ 600 | $ 600 | $ - |
| 2019 Zydeco Revolver | August 6, 2024 | 0.86 | % | $ - | $ 30 | $ 30 |
| Total | | | $2,694 | | $ 3,590 | $ 896 |
| | | | | | | | |
| 200 | GOVERNANCE SHELL FORMShell | Form 20-F 2020 | 149 | 2022 |
Governance
Related Party Transactions Procedures
POLITICAL CONTRIBUTIONSPolitical contributions
No donationspayments were made by the Company or any of its subsidiariesShell companies to political parties, organisations or organisationstheir representatives during the year. Shell Oil CompanyUSA, Inc. administers the non-partisan Shell Oil CompanyUSA, Inc. Employees’ Political Awareness Committee (SEPAC), a political action committee registered with the US Federal Election Commission. Eligible employees may make voluntary personal contributions to the SEPAC. All employees’ contributions comply with federal and state law and are publicly reported in accordance with US election laws. Shell Oil CompanyUSA, Inc. does not exercise control over SEPAC’s funding decisions.
RECENT DEVELOPMENTS AND POST-BALANCE SHEET EVENTSRecent developments and post-balance sheet events
See Note 3035 to the “Consolidated"Consolidated Financial Statements”Statements" on page 210.287.
SHARE CAPITALShare capital
The Company’s issued share capital at December 31, 2020,2022, is set
out in Note 2026 to the “Consolidated"Consolidated Financial Statements” on page 203.Statements" 279. The percentage of the total issued share capital represented by each class of share is given below. On January 29, 2022, an assimilation of the Company's A and B shares was effected, creating a single line of ordinary shares. More information on how this has impacted the share capital of the Company can be found on page 199.
| | |
| Share capital percentage as at December 31, 2022 |
| | | | | |
| Share class | % |
AOrdinary | 52.53 |
B | 47.47100 |
| Sterling deferred [A] | de minimis |
TRANSFER OF SECURITIESTransfer of securities
There are no restrictions on transfer or limitations on the holding of the ordinary shares other than under the Articles, under restrictions imposed by law or regulation (for example, insider trading laws) or pursuant to the Company’s Share Dealing Code.
SHARE OWNERSHIP TRUSTS AND TRUST-LIKE ENTITIESShare ownership trusts and trust-like entities
Shell has three primary employee share ownership trusts and trust-like entities: a Dutch foundation (stichting) and two US Rabbi Trusts. The shares held by the Dutch foundation are voted by its Board and the shares in the US Rabbi Trusts are voted by the Voting Trustee, Newport Trust Company. Both the Board of the Dutch foundation and the Voting Trustee are independent of Shell.
The UK Shell All Employee Share Ownership Plan has a separate related share ownership trust. Shares held by the trust are voted by its trustee, Computershare Trustees Limited, as directed by the participants.
AUDITORAuditor
A resolution relating to the appointment of Ernst & Young LLP as auditor for the financial year 20212023 will be proposed at the 20212023 AGM.
ANNUAL GENERAL MEETING
Annual General Meeting
The AGM will be held on May 19, 2021,23, 2023, at Carel van Bylandtlaan 16, 2596 HR, The Hague, The Netherlands.ExCel London, 1 Western Gateway, London E16 1XL, United Kingdom. The Notice of Annual General Meeting will include details of the business to be put to shareholders at the AGM.
CONFLICTS OF INTERESTConflicts of interest
In accordance with the Act and the Company's Articles, the Board may authorise any matter that otherwise may involve any Directors breaching their duty to avoid conflicts of interest. The Board has adopted a procedure to address these requirements. Detailed conflict of interest questionnaires are reviewed by the Board and, if considered appropriate, authorised. Conflicts of interest as well as any gifts and hospitality received by and provided by Directors are kept under review by the Board. Further information relating to conflicts of interest can be found in the Articles, available on the Shell website.
SHELL GENERAL BUSINESS PRINCIPLESShell General Business Principles
The Shell General Business Principles define how Shell subsidiaries are expected to conduct their affairs and are underpinned by the Shell core
values of honesty, integrity and respect for people. These principles include, among other things, Shell’s commitment to support fundamental human rights in line with the legitimate role of business and to contribute to sustainable development. They are designed to mitigate the risk of damage to our business reputation and to prevent violations of local and international legislation. They can be found at www.shell.com/sgbp. See “Risk factors” on pages 18-22.
| | |
| See "Risk factors" on pages 21-30. |
SHELL CODE OF CONDUCTShell Code of Conduct
Directors, officers, employees and contract staff are required to comply with the Shell Code of Conduct, which instructs them on how to behave in line with the Shell General Business Principles. This Code clarifies the basic rules and standards they are expected to follow and the behaviour expected of them. These individuals must also complete mandatory Code of Conduct training.
Designated individuals are required to complete additional mandatory training on antitrust and competition laws, anti-bribery, anti-corruption and anti-money laundering laws, financial crime, data protection laws and trade compliance requirements (see “Risk factors” on page 21 - 22). requirements.
| | |
| See "Risk factors" on pages 21-30. |
| | |
| The Shell Code of Conduct can be found at www.shell.com/codeofconduct. |
Code of Conduct can be found at www.shell.com/codeofconduct.
CODE OF ETHICSEthics
Executive Directors and Senior Financial Officers of Shell must also comply with the Code of Ethics. This Code is specifically intended to meet the requirements of Section 406 of the Sarbanes-Oxley Act. It can be found at www.shell.com/codeofethics.
INDEPENDENT PROFESSIONAL ADVICEIndependent professional advice
All Directors may seek independent professional advice in connection with their role as a Director. All Directors have access to the advice and services of the Company Secretary. The Company has provided both indemnities and Directors’ and officers’ insurance to the Directors in connection with the performance of their responsibilities. Copies of these indemnities and the Directors’ and officers’ insurance policies are open to inspection. A copy of the form of these indemnities has been previously filed with the US Securities and Exchange Commission.
DIRECTORS’ SHAREHOLDING QUALIFICATIONDirectors’ shareholding qualification
While the Articles do not require Directors to hold shares in the Company, the Remuneration Committee believes that Executive
Governance
Other Regulatory and Statutory Information continued
Directors should align their interests with those of shareholders by holding shares in the Company. The CEO is expected to build up a shareholding of seven times base salary over five years from appointment and the CFO is expected to build up a shareholding of five times base salary over the same period. In the event that another Executive Director joins the Board, the Remuneration Committee will determine their shareholding requirement, which will not be less than 200% of their base salary.
Executive Directors will be required to maintain their requirement (or existing shareholding if less than the guideline) for a period of two years post-employment.post employment. Non-executive Directors are encouraged to hold shares with a value equivalent to 100% of their fixed annual fee and to maintain that holding during their tenure. Information on the Directors with shares in the Company can be found in the “Directors’ Remuneration Report” on pages 116 - 119,
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| Information on the Directors with shares in the Company can be found in the "Directors’ Remuneration Report" on pages 166-170. |
NON-EXECUTIVE DIRECTOR INDEPENDENCENon-executive Director independence
The Board follows the provisions of the Code in determining Non-executive Director independence, which states that at least half of the Board, excluding the Chair, should comprise Non-executive Directors determined by the Board to be independent. In the case of the Company, the Board has determined that all the Non-executive Directors at the end of 20202022 are independent.
NOMINATING/CORPORATE GOVERNANCE COMMITTEE AND COMPENSATION COMMITTEENominating/Corporate Governance Committee and Compensation Committee
The NYSE listing standards require that a listed company maintain a nominating/corporate governance committee and a compensation committee, both composed entirely of independent directors and with certain specific responsibilities. The Company’s Nomination and
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Succession Committee and Remuneration Committee both comply with these requirements, except that the terms of reference of the Nomination and Succession Committee require only a majority of the committee members to be independent.
AUDIT COMMITTEEAudit Committee
As required by NYSE listing standards, the Company maintains an Audit Committee for the purpose of assisting the Board’s oversight of its financial statements, its internal audit function and its independent auditors. The Company’s Audit Committee is in full compliance with US Exchange Act Rule 10A-3 and Section 303A.06 of the NYSE Listed Company Manual.
The Company’s Audit Committee is not directly responsible for the appointment of independent auditors. However, the Company's Audit Committee makes recommendations to the Board on the appointment or reappointment of the external auditor to put to shareholders for approval in the Annual General Meetings. UK legislation provides that it is for shareholders to agree the appointment, reappointment and removal of the Company’s independent auditors.
Shareholder approval of share-based
SHAREHOLDER APPROVAL OF SHARE-BASED COMPENSATION PLANScompensation plans
The Company complies with the Listing Rules published by the Financial Conduct Authority (FCA), which require shareholder approval for the adoption of share-based compensation plans which are either long-term incentive plans in which one or more Directors can participate or plans which involve or may involve the issue of new shares or the transfer of treasury shares. Under the FCA rules, such plans cannot be changed to the advantage of participants without shareholder approval, except for certain minor amendments, for examplesuch as to benefit the administration of the plan or to take account of tax benefits. The rules on the requirements to seek shareholder approval for share-based compensation plans, including those in respect of material revisions to such plans, may deviate from the NYSE listing standards.
CHANGE OF CONTROL
Change of control
There are no provisions in the Articles that would delay, defer or prevent a change of control.
NYSE GOVERNANCE STANDARDSGovernance Standards
In accordance with the NYSE rules for foreign private issuers, the Company follows home-country practice in relation to corporate governance. However, foreign private issuers are required to have an audit committee that satisfies the requirements of the US Exchange Act Rule 10A-3. The Company’s Audit Committee satisfies such requirements. The NYSE also requires a foreign private issuer to provide certain written affirmations and notices to the NYSE, as well as a summary of the significant ways in which its corporate governance practices differ from those followed by domestic US companies under NYSE listing standards (see Section 303A.11 of the NYSE Listed Company Manual). The Company’s summary of its corporate governance differences is given below and can be found at www.shell.com/investor.
APPOINTMENT AND RETIREMENT OF DIRECTORSAppointment and retirement of Directors
The Company’s Articles, the Corporate Governance Code and the Companies Act 2006 govern the appointment and retirement of Directors. Board membership and biographical details of the Directors are provided on pages 89 - 94.129-136. However, Directors follow the direction laid out in the Code and stand for re-election annually.
During the year, Dick Boer and Martina Hund-Mejean (effective May 20, 2020), Sir Andrew Mackenzie and Bram Schot (effective October 1, 2020) were appointed to the Board. Further, Gerard Kleisterlee, Linda Stuntz and Roberto Setubal stoodOn March 31, 2022, Jessica Uhl stepped down from the Board atafter five years' service as CFO and 17 years with Shell. Sinead Gorman was appointed and succeeded her as CFO on April 1, 2022.
On May 24, 2022, Gerrit Zalm stepped down from the 2020 AGM heldBoard after more than nine years' service as a Non-executive Director.
On December 31, 2022, Ben van Beurden stepped down from the Board after nine years as CEO and 39 years with Shell. Wael Sawan joined the Board as CEO on May 19, 2020.
On March 11, 2021, the Company announced the appointment of Sir Andrew Mackenzie as Chair of2, 2023, Cyrus Taraporevala joined the Board of Royal Dutch Shell plc, with effect fromas a Non-executive Director.
On March 13, 2023, Sir Charles Roxburgh and Leena Srivastava will join the Board as Non-executive Directors.
At the conclusion of the 2021 AGM. Andrew replaces Chad Holliday, who stands down following the 20212023 AGM after more than 10 years’ service. Sir Nigel Sheinwaldboth Euleen Goh and Martina Hund-Mejean will also stand down followingfrom the 2021 AGM, after serving nine years on the Board. Jane Lute will be proposed to shareholders for appointment as a Non-executive Director,
effective May 19, 2021. The 2021 AGM is currently scheduled for May 18, 2021.
ARTICLES OF ASSOCIATION
The Company’s Articles of Association (Articles) were adopted at the 2019 AGM.on December 20, 2021. The Articles may only be amended by a special resolution of the shareholders in a general meeting. A full version of the Company’s Articles can be found at www.shell.com/investors.
The Company has proposed amendments to the Articles that will be presented to the shareholders at the 2023 AGM. Relevant portions of those amendments are described below in the applicable sections.
The following summarises certain provisions of the Articles [A] and of the applicable corporate legislation, including the Act (the legislation). This summary is qualified in its entirety by reference to the Articles and the Act. The information provided under this section is applicable to the
Governance
Other Regulatory and Statutory Information continued
Articles, which were in effect during the 20202022 financial year to which this Report relates.
A.[A]A copy of the Articles has been previously filed with the SEC and is incorporated by reference as an exhibit to this Report. It can also be found at www.shell.com/investors.
Number of Directors
The Articles provide that the Company must have a minimum of three and can have a maximum of 20 Directors (disregarding alternate directors), but these restrictions can be changed by the Board.
Appointment of Directors
The Company can, by passing an ordinary resolution, appoint any willing person to be a Director. The Board can appoint any willing person to be a Director. Any Director appointed in this way must retire from office at the first AGM after his appointment. A Director who retires in this way is then eligible for reappointment. At the general meeting at which a Director retires, shareholders can pass an ordinary resolution to reappoint the Director or to appoint some other eligible person in their place.
The only people who can be appointed as Directors at a general meeting are the following: (i) Directors retiring at the meeting; (ii) anyone recommended by a resolution of the Board; and (iii) anyone nominated by a shareholder (not being a person to be nominated), where the shareholder is entitled to vote at the meeting and delivers to the Company’s registered
office, not less than six but not more than 21 days before the day of the meeting, a letter stating that he intends to nominate another person for appointment as a Director and written confirmation from that person that he is willing to be appointed.
Retirement of Directors
At every AGM, the following Directors shall retire from office: (i) any Director who has been appointed by the Board since the last AGM; (ii) any Director who held office at the time of the two preceding AGMs and who did not retire at either of them; and (iii) any Director who has been in office, other than as a Director holding an executive position, for a continuous period of nine years or more at the date of the meeting.
Notwithstanding the Articles, the Company complies with the Code which contains, among other matters, provisions regarding the composition of the Board and re-election of the Directors. As a result, the Company’s current policy is that Directors are subject to annual re-election by shareholders. Any Director who retires at an AGM may offer themselves for reappointment by the shareholders.
Removal of Directors
In addition to any power to remove Directors conferred by the legislation, the Company can pass a special resolution to remove a Director from office, even though his time in office has not ended, and can (subject to the Articles) appoint a person to replace a Director who has been removed in this way by passing an ordinary resolution.
Vacation of office by Directors
Any Director automatically stops being a Director if: (i) he gives the Company a written notice of resignation; (ii) he gives the Company a written notice in which he offers to resign and the Board decides to accept this offer; (iii) all of the other Directors (who must comprise at least three people) pass a resolution or sign a written notice requiring the Director to resign; (iv) he is or has been suffering from mental or physical ill-health and the Board passes a resolution removing the Director from office; (v) he has missed Directors’ meetings (whether or not an alternate director appointed by him attends those meetings) for a continuous period of six months without permission from the Board and the Board passes a resolution removing the Director from office; (vi) a bankruptcy order is
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made against him or he makes any arrangement or composition with his creditors generally; (vii) he is prohibited from being a Director under the legislation; or (viii) he
ceases to be a Director under the legislation or he is removed from office under the Articles. If a Director stops being a Director for any reason, he will also automatically cease to be a member of any committee or sub-committee of the Board.
Alternate directors
Any Director can appoint any person (including another Director) to act in his place as an alternate director. That appointment requires the approval of the Board, unless previously approved by the Board or unless the appointee is another Director.
Proceedings of the Board
Meetings of the Board will usually be held in the Netherlands but theThe Board may decide in each case when and where to have meetings and how they will be conducted. The Board can also adjourn its meetings. If no other quorum is fixed by the Board, two Directors are a quorum. A Directors’ meeting at which a quorum is present can exercise all the powers and discretions of the Board.
All or any of the Directors can take part in a meeting of the Directors by way of a conference telephone or any communication equipment which allows everybody to take part in the meeting by being able to hear each of the other people at the meeting and by being able to speak to all of them at the same time. A person taking part in this way will be treated as being present at the meeting and will be entitled to vote and be counted in the quorum. Any such meeting will be deemed to take place where the largest
group of Directors participating is assembled or, if there is no such group, where the Chair of the meeting then is located.
The Board can appoint any Director as Chair or as Deputy Chair and can remove him or her from that office at any time. Matters to be decided at a Directors’ meeting will be decided by a majority vote. If votes are equal, the Chair of the meeting has a second, casting vote.
The Board will manage the Company’s business. It can use all the Company’s powers, except where the Articles or the legislation say that powers can only be used by shareholders voting to do so at a general meeting. The Board is, however, subject to the provisions of the legislation, the requirements of the Articles and any regulations laid down by the shareholders by passing a special resolution at a general meeting.
The Board can exercise the Company’s powers: (i) to borrow money; (ii) to guarantee; (iii) to indemnify; (iv) to mortgage or charge all or any of the Company’s undertaking, property and assets (present and future) and uncalled capital; (v) to issue debentures and other securities; and (vi) to give security, either outright or as collateral security, for any debt, liability or obligation of the Company or of any third party. The Board must limit the borrowings of the Company and exercise all voting and other rights or powers of control exercisable by the Company in relation to its subsidiary undertakings so as to ensure that no money is borrowed if the total amount of the group’s borrowings (as defined in the Articles) then exceeds, or would as a result of such borrowing exceed, two times the Company’s adjusted capital and reserves (as defined in the Articles). Shareholders may pass an ordinary resolution allowing borrowings to exceed such limit.
The Board can delegate any of its powers or discretions to committees of one or more persons. Any committee must comply with any regulations laid down by the Board. These regulations can require or allow people who are not Directors to be members of the committee, and can give voting rights to such people but there must be more Directors on a committee than persons who are not Directors and a resolution of the committee is only effective if a majority of the members of the committee present at the time of the resolution were Directors.
Governance
Fees
The total fees paid to all the Directors (excluding any payments made under any other provision of the Articles) must not exceed €4,000,000 a year or any higher sum decided on by an ordinary resolution at a general meeting. It is for the Board to decide how much to pay each Director by way of fees. The Board, or any committee authorised by the Board, can award extra fees to any Director who, in its view, performs any special or extra services for the Company. The extra fees can take the form of salary, commission, profit-sharing or other benefits (and can be paid partly in one way and partly in another).
The Company can pay the reasonable travel, hotel and incidental expenses of each Director incurred in attending and returning from general
meetings, meetings of the Board or committees of the Board or any other meetings which, as a Director, he is entitled to attend. The Company will pay all other expenses properly and reasonably incurred by each Director in connection with the Company’s business or in the performance of his duties as a Director. The Company can also fund a Director’s or former Director’s expenditure and that of a Director or former Director of any holding company of the Company for the purposes permitted by the legislation and can do anything to enable a Director or former Director of the Company or any holding company of the Company to avoid incurring such expenditure all as provided in the legislation.
Pensions and gratuities
The Board or any committee authorised by the Board can decide whether to provide pensions, annual payments or other benefits to any Director or former Director, or any relation or dependant of, or person connected to, such a person. The Board can also decide to contribute to a scheme or fund or to pay premiums to a third party for these purposes. The Company can only provide pensions and other benefits to people who are or were Directors but who have not been employed by or held an office or executive position in the Company or any of its subsidiary undertakings or former subsidiary undertakings or any predecessor in business of the Company or any such other company or to relations or dependants of, or persons connected to, these Directors or former Directors if the shareholders approve this by passing an ordinary resolution.
Directors’ interests
Conflicts of interest requiring authorisation by Directors
The Board may, subject to the relevant quorum and voting requirements, authorise any matter which would otherwise involve a Director breaching his or her duty under the legislation to avoid conflicts of interest. A Director seeking authorisation in respect of such a conflict of interest must tell the Board the nature and extent of his or her interest in the conflict of interest as soon as possible.
The Director must give the Board sufficient details of the relevant matter to enable it to decide how to address the conflict of interest, together with any additional information which it may request. Any Director (including the relevant Director) may propose that the relevant Director be authorised in relation to any matter which is the subject of such a conflict of interest. Such proposal and any authority given by the Board shall be effected in the same way as any other matter may be proposed to and resolved upon by the Board except that: (i) the relevant Director and any other Director with a similar interest will not count in the quorum and will not vote on a resolution giving such authority; and (ii) the conflicted Director and any other Director with a similar interest may, if the other members of the Board so decide, be excluded from any meeting of the Board while the conflict of interest is under consideration.
Where the Board gives authority in relation to a conflict of interest or where any of the situations described in (i) to (v) of “Other"Other conflicts of interest”interest" below applies in relation to a Director: (i) the Board may (whether
(whether at the relevant time or subsequently) (a) require that the relevant Director is excluded from the receipt of information, the participation in discussion and/or the making of decisions related to the conflict or the situation and (b) impose upon the relevant Director such other terms for the purpose of dealing with the conflict or situation as they think fit; (ii) the relevant Director will be obliged to conduct himself in accordance with any terms imposed by the Board in relation to the conflict or situation; (iii) the Board may also provide that, where the relevant Director obtains (other than through his position as a Director of the Company) information that is confidential to a third party, the Director will not be obliged to disclose that information to the Company, or to use or apply the information in relation to the Company’s affairs, where to do so would amount to a breach of that confidence; (iv) the terms of the authority shall be recorded in writing (but the authority shall be effective whether or not the terms are so recorded); and (v) the Board may revoke or vary such authority at any time but this will not affect anything done by the relevant Director prior to such revocation in accordance with the terms of such authority.
Other conflicts of interest
If a Director knows that he or she is in any way directly or indirectly interested in a proposed contract with the Company or a contract that has been entered into by the Company, hethey must tell the other Directors of the nature and extent of that interest in accordance with the legislation. If hethe Director has so disclosed the nature and extent of his interest, a Director can do one or more of the following: (i) have any kind of interest in a contract with or involving the Company or another company in which the Company has an interest; (ii) hold any other office or place of profit with
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the Company (except that of auditor) in conjunction with his office of Director for such period and upon such terms, including as to remuneration, as the Board may decide; (iii) alone, or through a firm with which he is associated, do paid professional work for the Company or another company in which the Company has an interest (other than as auditor); (iv) be or become a Director or other officer of, or employed by a party to a transaction or (iv) arrangement with, or otherwise be interested in, any holding company or subsidiary company of the Company or any other company in which the Company has an interest; and (v) be or become a Director of any other company in which the Company does not have an interest and which cannot reasonably be regarded as giving rise to a conflict of interest at the time of his appointment as a Director of that other company.
Benefits
A Director does not have to hand over to the Company or its shareholders any benefit he or she receives or profit that he makes as a result of any matter which would otherwise involve a direct breach of his or her duty under the legislation to avoid conflicts of interest but which has been authorised or anything allowed under (i) to (v) of “Other"Other conflicts of interest”interest" above, nor is any type of contract so authorised or so allowed liable to be avoided.
Quorum and voting requirements
Subject to certain exceptions, a Director cannot vote or be counted in the quorum on a resolution of the Board relating to appointing that Director to a position with the Company or a company in which the Company has an interest or the terms or the termination of the appointment and a Director cannot vote or be counted in the quorum on a resolution of the Board about a contract in which he has an interest and, if he does vote, his vote will not be counted.
The Company can, by ordinary resolution, suspend or relax the provisions of the relevant article in the Articles to any extent or ratify any contract which has not been properly authorised in accordance with that relevant article.
Governance
Directors’ indemnities
As far as the legislation allows this, the Company can indemnify any Director or former Director of the Company, of any associated company or of any affiliate against any liability and can purchase and maintain insurance against any liability for any Director or former Director of the Company, of any associated company or of any affiliate. A Director or former Director of the Company, of any associated company or of any affiliate will not be accountable to the Company or the shareholders for any benefit so provided. Anyone receiving such a benefit will not be disqualified from being or becoming a Director of the Company.
RIGHTS ATTACHING TO SHARESRights attaching to shares
The Company can issue shares with any rights or restrictions attached to them as long as this is not restricted by any rights attached to existing shares. These rights or restrictions can be decided either by an ordinary resolution passed by the shareholders or by the Board as long as there is no conflict with any resolution passed by the shareholders.
Dividends
Currently, only A shares and Bordinary shares are entitled to a dividend.
Under the legislation, dividends are payable only out of profits available for distribution, as determined in accordance with the Act and under IFRS. Subject to the Act, if the Directors consider that the Company’s financial position justifies the payment of a dividend, the Company can pay a fixed or other dividend on any class of shares on the dates prescribed for the payments of those dividends and pay interim dividends on shares of any class of any amounts and on any dates and for any periods which it decides. Shareholders can declare dividends in accordance with the rights of shareholders by passing an ordinary resolution, although such dividends cannot exceed the amount recommended by the Board.
Dividends are payable to persons registered as the holder(s) of shares, or to anyone entitled in any other way, at a particular time on a particular day selected by the Board. All dividends will be declared and paid in proportions based on the amounts paid up on the relevant shares during any period for which that dividend is paid.
Anypaid.Any dividend or other money payable in cash relating to a share can be paid: (i) by inter-bank transfer or by other electronic means (including
payment through CREST) directly to an account with a bank or other financial institution (or other organisations operating deposit accounts if allowed by the Company) named in a written instruction from the persons entitled to receive the payment under the Articles, such an account must be an account in the UK, unless the share on which the payment is to be made is held by Euroclear Nederland and the Dutch Securities Giro Act (Wet giraal effectenverkeer) applies to such share; (ii) by sending a cheque, warrant or similar financial instrument payable to the shareholder who is entitled to it by post addressed to his registered address; (iii) by sending a cheque, warrant or similar financial instrument payable to someone else named in a written instruction from the shareholder (or all joint shareholders) and sent by post to the address specified in that instruction; or (iv) in some other way if requested in writing by the shareholder (or all joint shareholders) and agreed with the Company. In respect of the payment of any dividend or other money, the Directors can decide and notify shareholders that: (i) one or more of the payment means described in paragraph above will be used for payment and, where more than one means will be used, a shareholder (or all joint shareholders) may elect to receive payment by one of the means so notified in the manner prescribed by the directors; (ii) one or more of such means will be used for the payment unless a shareholder (or all joint shareholders) elects for another means of payment in the manner prescribed by the Directors; or (iii)one or more of such means will be used for the payment and that
shareholders will not be able to elect to receive the payment by any other means.
And for these purposes the Directors can decide that different means of payment will apply to different shareholders or groups of shareholders. If: (i) a shareholder (or all joint shareholders) does not specify an address, or does not (i) specify an account of a type prescribed by the Directors, or does not specify other details, and in each case that information is necessary in order to make a payment of a dividend or other money in the way in which under this Article the directors have decided that the payment is to be made or by which the shareholder (or all joint shareholders) has validly elected to receive the payment; or (ii) payment cannot be made by the company using the information provided by the shareholder (or all joint shareholders), then the dividend or other money will be treated as unclaimed for the purposes of these articles.
The Company will not be responsible for a payment which is lost or delayed. Unless the rights attached to any shares, the terms of any shares or the Articles say otherwise, a dividend or any other money payable in respect of a share can be declared and paid in whatever currency or currencies the Board decides using an exchange rate or exchange rates selected by the Board for any currency conversions required. The Board can also decide how any costs relating to the choice of currency will be met. The Board can offer shareholders the choice to receive dividends and other money payable in respect of their shares in alternative currencies on such terms and conditions as the Board may prescribe from time to time. Where any dividends or other amounts payable on a share have not been claimed, the Board can invest them or use them in any other way for the Company’s benefit until they are claimed. The Company will not be a trustee of the money and will not be liable to pay interest on it. If a dividend or other money has not been claimed for 12 years after being declared or becoming due for payment, it will be forfeited and go back to the Company, unless the Board decides otherwise.
The Company expects thatPrior to January 29, 2022, dividends in respect of B shares will bewere paid under the dividend access mechanism described below. Currently, theThe Articles provide that if any amount paid by way of dividend by a subsidiary of the Company iswas received by the dividend access trustee on behalf of any holder of B shares and paid by the dividend access trustee to such holder, the entitlement of such holder of B shares to be paid any dividend declared pursuant to the Articles will bewas reduced by the corresponding amount that has been paid by the dividend access trustee to such holder. If a dividend iswas declared pursuant to the Articles and the entitlement of any holder of B shares to be paid his pro rata share of such dividend iswas not fully extinguished on the relevant payment date by virtue of a payment made by the dividend access trustee, the Company has a full and unconditional obligation to make payment in respect of the outstanding part of such dividend entitlement immediately. Where amounts are paid by the dividend access trustee in one currency and a dividend iswas declared by the Company in another currency, the amounts so paid by the dividend access trustee will,was, for the purposes of the comparison required by the two immediately preceding sentences, be converted into the currency in which the Company has declared the dividend at such rate as the Board shall considerconsidered appropriate. For the purposes of the provisions referred to in this paragraph, the amount that
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the dividend access trustee has paid to any holder of B shares in respect of any particular dividend paid by a subsidiary of the Company (a “specified dividend”"specified dividend") will be deemed to include: (i) any amount that the dividend access trustee may be compelled by law to withhold; (ii) a pro rata share of any tax that the subsidiary paying the specified dividend is obliged to withhold or to deduct from the same; and (iii) a pro rata share of any tax that is payable by the dividend access trustee in respect of the specified dividend.
Governance
Other Regulatory and Statutory Information continued
The Board can offer shareholders of ordinary shares (excluding any shareholder holding shares as treasury shares) the right to choose to receive extra ordinary shares, which are credited as fully paid up, instead of some or all of their cash dividend. Before the Board can do this, shareholders must have passed an ordinary resolution authorising the Board to make this offer.
Dividend access mechanism for B shares
General
On January 29, 2022 one line of shares was established through assimilation of each A share and each B share into one ordinary share of the Company. This assimilation had no impact on voting rights or dividend entitlements. Dutch withholding tax, applied previously on dividends on A shares, no longer applies on dividends paid on the ordinary shares following the assimilation. Prior to January 29, 2022, our A and B shares arewere identical, except for the dividend access mechanism, which will only applyapplied to B shares. Dividends paid
In relation to the assimilation of the Company's Class A and B shares, the Royal Dutch Shell Dividend Access Trust will continue in existence for the foreseeable future to facilitate the payment of unclaimed dividend liabilities for B shareholders, until these are either claimed or forfeited in line with the terms outlined in Note 4 to the Royal Dutch Shell Dividend Access Trust financial statements on Apage 324. The discussion below describes the dividend access mechanism as it applied to B shares have a Dutch source for tax purposes and are subjectprior to Dutch withholding tax.January 29, 2022.
It isPrior to January 29, 2022, it was the expectation and the intention, although there cancould be no certainty, that holders of B shares willwould receive dividends through the dividend access mechanism. Any dividends paid on the dividend access shares willwould have a UK source for UK and Dutch tax purposes. There willwould be no Dutch withholding tax on such dividends. For further details regarding the tax treatment of dividends paid, on the A and B shares and American Depositary Shares (ADS), refer to “Shareholder information”"Shareholder information".
Description of dividend access mechanism
The “Shell”"Shell" Transport and Trading Company, p.l.c., now The Shell Transport and Trading Company Limited (Shell Transport), and BG Group plc, now BG Group Limited (BG), have each issued a dividend access share to Computershare Trustees (Jersey) Limited as Trustee. Pursuant to a declaration of trust, the Trustee will hold any dividends paid in respect of the dividend access shares on trust for the holders of B shares and will arrange for prompt disbursement of such dividends to holders of B shares.such holders. Interest and other income earned on unclaimed dividends will be for the account of Shell Transport and BG and any dividends which are unclaimed after 12 years will revert to Shell Transport and BG, as appropriate. Holders of B shares will not have any interest in either dividend access share and will not have any rights against Shell Transport and BG as issuers of the dividend access shares. The only assets held on trust for the benefit of thethese holders of B shares will be dividends paid to the Trustee in respect of the dividend access shares.
The declaration and payment of dividends on the dividend access shares will require board action by Shell Transport and BG (as applicable) and will be subject to any applicable limitations in law or in the Shell Transport or BG (as appropriate) articles of association in effect. In no event will the aggregate amount of the dividend paid by Shell Transport and BG under the dividend access mechanism for a particular period exceed the aggregate of the dividend announced by the Board of the Company on B shares in respect of the same period (after giving effect to currency conversions).
In particular, under their respective articles of association, Shell Transport and BG are each only able to pay a dividend on their respective dividend access share which represents a proportional amount of the aggregate of any dividend announced by the Company on the B shares in respect of the relevant period, where such proportions are calculated by reference to, in the case of Shell
Transport, the number of B shares in existence prior to completion of the Company’s acquisition of BG (the Acquisition) and, in the case of BG, the number of B shares issued as part of the Acquisition, in each case as against the total number of B shares in issue immediately following completion of the Acquisition.
Operation of the dividend access mechanism
If, in connection with the announcement of a dividend by the Company on B shares, the Board of Shell Transport and/or the Board of BG elects to declare and pay a dividend on their respective dividend access shares to the Trustee, the holders of B shares will be beneficially entitled to receive their share of those dividends pursuant to the declaration of trust (and arrangements will be made to ensure that the dividend is paid in the same currency in which they would have received a dividend from the Company).
If any amount is paid by Shell Transport or BG by way of a dividend on the dividend access shares and paid by the Trustee to any holder of B shares, the dividend which the Company would otherwise pay on B shares
will be reduced by an amount equal to the amount paid to such holders of B shares by the Trustee.
The Company will have a full and unconditional obligation, in the event that the Trustee does not pay an amount to holders of B shares on a cash dividend payment date (even if that amount has been paid to the Trustee), to pay immediately the dividend announced on B shares. The right of holders of B shares to receive distributions from the Trustee will be reduced by an amount equal to the amount of any payment actually made by the Company on account of any dividend on B shares. If for any reason no dividend is paid on the dividend access shares, holders of B shares will only receive dividends from the Company directly. Any payment by the Company will be subject to Dutch withholding tax (unless an exemption is obtained under Dutch law or under the provisions of an applicable tax treaty).
The Dutch tax treatment of dividends paid under the dividend access mechanism has been confirmed by the Dutch Revenue Service in an agreement (vaststellingsovereenkomst) with the Company and N.V. Koninklijke Nederlandsche Petroleum Maatschappij (Royal Dutch Petroleum Company) dated October 26, 2004, as supplemented and amended by an agreement between the same parties dated April 25, 2005, and a final settlement agreement in connection with the Acquisition dated November 9, 2015. The agreements state, among other things, that dividend distributions on the dividend access shares by Shell Transport and/or BG will not be subject to Dutch withholding tax provided that the dividend access mechanism is structured and operated substantially as set out above.
The Company may not extend the dividend access mechanism to any future issuances of B shares without prior consultation with the Dutch Revenue Service.
Accordingly, the Company would not expect to issue additional B shares unless confirmation from the Dutch Revenue Service was obtained or the Company were to determine that the continued operation of the dividend access mechanism was unnecessary. Any further issue of B shares is subject to advance consultation with the Dutch Revenue Service.
The dividend access mechanism may be suspended or terminated at any time by the Company’s Directors or the Directors of Shell Transport or BG, for any reason and without financial recompense. This might, for instance, occur in response to changes in relevant tax legislation.
The daily operations of the Trust are administered on behalf of the Company by the Trustee. Material financial information of the Trust is included in the “Consolidated"Consolidated Financial Statements”Statements" and is therefore subject to the same disclosure controls and procedures as Shell.
Pre-emption rights
Subject to the Act and the Listing Rules published by the UK‘s Financial Conduct Authority (FCA), any equity securities allotted by the Company for cash must first be offered to shareholders in proportion to their holdings. The Act and the Listing Rules allow for the disapplication of pre-emption rights which may be waived by a special resolution of the shareholders, either generally or specifically.
Governance
VOTING
Currently, onlyVoting
Subject to applicable law and the A and BArticles, the ordinary shares have voting rights. Therights on all matters that are subject to shareholder approval including the election of directors. Currently, the voting rights of each Aordinary share and each B share are equal and carry one vote at a general meeting of the Company.
Changing the rights attached to the shares
The Act provides that the Articles can be amended by a special resolution.
The Articles provide that, if the legislation allows this, the rights attached to any class of shares can be changed if this is approved either in writing by shareholders holding at least three-quarters of the issued shares of that class by amount (excluding any shares of that class held as treasury shares) or by a special resolution passed at a separate meeting of the relevant shareholders. At each such separate meeting, all of the provisions of the Articles relating to proceedings at a general meeting apply, except that: (i) a quorum will be present if at least one shareholder who is entitled to vote is present in person or by proxy who owns at least one-third in amount of the issued shares of the relevant class; (ii) any shareholder who
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GOVERNANCE SHELL FORM 20-F 2020 | 154 | |
is present in person or by proxy and entitled to vote can demand a poll; and (iii) at an adjourned meeting, one person entitled to vote and who holds shares of the class, or his proxy, will be a quorum. These provisions are not more restrictive than required by law in England.
If new shares are created or issued which rank equally with any other existing shares, or if the company purchases or redeems any of its own shares, the rights of the existing shares will not be regarded as changed or abrogated unless the terms of the existing shares expressly say otherwise.
Redemption provisions
The Company’s shares are not subject to any redemption provisions.
Rights attaching to the sterling deferred shares
The sterling deferred shares are (unlike the A and B shares) not ordinary shares and, therefore, they have different rights and restrictions. The sterling deferred shares have the following rights and restrictions: (i) on a distribution of assets of the Company among its shareholders on a winding-up, the holders of the sterling deferred shares will be entitled (such entitlement ranking in priority to the rights of holders of ordinary shares) to receive an amount equal to the aggregate of the capital paid up or credited as paid up on each sterling deferred share; (ii) save as provided in (i), the holders of the sterling deferred shares will not be entitled to any participation in the profits or assets of the Company; (iii) the holders of sterling deferred shares will not be entitled to receive notice of or to attend and/or speak or vote (whether on a show of hands or on a poll) at general meetings of the Company; (iv) the written consent of the holders of three quarters in nominal value of the issued sterling deferred shares or the sanction of a special resolution passed at a separate general meeting of the holders of the sterling deferred shares is required if the special rights and privileges attaching to the sterling deferred shares are to be abrogated, or adversely varied or otherwise directly adversely affected in any way (the creation, allotment or issue of shares or securities which rank in priority to or equally with the sterling deferred shares, or of any right to call for the allotment or issue of such shares or securities, is for these purposes deemed not to be an abrogation or variation or to have an effect on the rights and privileges attaching to sterling deferred shares); (v) all provisions of the Articles relating to general meetings of the Company will apply, with necessary modifications, to every general meeting of the holders of the sterling deferred shares; (vi) subject to the legislation, the Company will have the right at any time to redeem any such sterling deferred shares (provided that it is credited as fully paid) at a price not exceeding £1 for all the sterling deferred shares redeemed at any one time (to be
paid on such date as the Board shall select as the date of redemption to such one of the holders, if more than one, as may be selected by lot) without the requirement to give notice to the holder(s) of the sterling deferred shares; (vii) if any holder of a sterling deferred share to be redeemed fails or refuses to surrender the share certificate(s) or indemnity for such sterling deferred share or if the holder selected by lot to receive the redemption monies fails or refuses to accept the redemption monies payable in respect of it, such sterling deferred share will, notwithstanding the foregoing, be redeemed and cancelled by the Company and, in the event of a failure or refusal to accept the redemption monies, the Company will retain such money and hold it on trust for the selected holder without interest, and, in each case, the Company will have no further obligation whatsoever to the holder of such sterling deferred share; and (viii) no sterling deferred share will be redeemed otherwise than out of distributable profits or the proceeds of a fresh issue of shares made for the purposes of the redemption or out of capital to the extent permitted by the legislation.
The Board has approved the redemption and cancellation of the Company’s sterling deferred shares which will be effected in due course, in accordance with the Company’s Articles of Association. Upon redemption, the sterling deferred shares will be treated as cancelled and the Company’s issued share capital will be reduced by the nominal value of the shares redeemed, in accordance with section 688 of the UK Companies Act 2006.
Disputes between a shareholder or American Depositary Share holder and Shell plc, any subsidiary, Director or professional service provider
The Articles generally require that, except as noted below, all disputes: (i) between a shareholder in such capacity and the Company and/or its Directors, arising out of or in connection with the Articles or otherwise; (ii) so far as permitted by law, between the Company and any of its Directors in their capacities as such or as the Company’s employees, including all claims made by the Company or on behalf of the Company against any or all of its Directors; (iii) between a shareholder in such capacity and the Company’s professional service providers (which could include the Company’s auditors, legal counsel, bankers and ADS depositaries); and/or (iv) between the Company and its professional service providers arising in connection with any claim within the scope of (iii) above, shall be exclusively and finally resolved by arbitration under the Rules of Arbitration of the International Chamber of Commerce (ICC), as amended from time to time. This would include all disputes arising under UK, Dutch or US law (including securities laws), or under any other law, between parties covered by the arbitration provision. Accordingly, the ability of shareholders to obtain monetary or other relief, including in respect of securities law claims, may be determined in accordance with these provisions, and the ability of shareholders to obtain monetary or other relief may therefore be limited and their cost of seeking and obtaining recoveries in a dispute may be higher than otherwise would be the case.
The tribunal shall consist of three arbitrators to be appointed in accordance with the ICC rules. The chairman of the tribunal must have at least 20 years’ experience as a lawyer qualified to practise in a common-law jurisdiction which is within the Commonwealth (as constituted on May 12, 2005) and each other arbitrator must have at least 20 years’ experience as a qualified lawyer. The place of arbitration must be The Hague, the Netherlands; and the language of the arbitration must be English.
At the 2023 AGM, shareholders will be asked to approve updated Articles of Association. The changes proposed are largely administrative and introduce further amendments to cater for the Simplification, which was effected in January 2022. The New Articles provide that the place of any arbitration provided for under the New Articles will be London, the United Kingdom rather than The Hague, The Netherlands, and to remove references to Dutch legislation.
Governance
Pursuant to the exclusive jurisdiction provision in the Articles, if a court or other competent authority in any jurisdiction determines that the arbitration requirement described above is invalid or unenforceable in relation to any particular dispute in that jurisdiction, then that dispute may only be brought in the courts of England and Wales, as is the case with any derivative claim brought under the Act. The governing law of the Articles is the substantive law of England.
Disputes relating to the Company’s failure or alleged failure to pay all or part of a dividend which has been announced and which has fallen due for payment will not be subject to the arbitration and exclusive jurisdiction provisions of the Articles. Any derivative claim brought under the Act will not be subject to the arbitration provisions of the Articles.
Pursuant to the relevant depositary agreement, each holder of ADSs is bound by the arbitration and exclusive jurisdiction provisions of the Articles as described in this section as if that holder were a shareholder.
Calls on shares
The Board can call on shareholders to pay any money which has not yet been paid to the Company for their shares. This includes the nominal value of the shares and any premium which may be payable on those shares. The Board can also make calls on people who are entitled to shares by law.
Winding-up of the Company
If the Company is voluntarily wound up, the liquidator can distribute to shareholders any assets remaining after the liquidator’s fees and expenses have been paid and all sums due to prior-ranking creditors (as defined under the laws of England) have been paid.
Sinking fund provisions
The shares are not subject to any sinking fund provision under the Articles or as a matter of the laws of England.
Discriminating provisions
There are no provisions in the Articles discriminating against a shareholder because of his ownership of a particular number of shares.
Limitations on rights to own shares
There are no limitations imposed by the Articles or the legislation on the rights to own shares, including the right of non-residents or foreign persons to hold or vote shares, other than limitations that would generally apply to all shareholders.
Transfer of shares
There are no significant restrictions on the transfer of shares.
Except as set out below, any shareholder can transfer some or all of his certificated shares to another person. A transfer of certificated shares must be made in writing and either in the usual standard form or in any other form approved by the Board. Except as set out below, any shareholder can transfer some or all of his CREST shares to another person. A transfer of CREST shares must be made through CREST and must comply with the uncertificated securities rules.
The Board can refuse to register the transfer of any shares which are not fully paid. Further rights to decline registration are as follows:
Certificated shares
A share transfer form cannot be used to transfer more than one class of share. Each class needs a separate form. Transfers cannot be in favour of more than four joint holders. The share transfer form must be properly stamped to show payment of any applicable stamp duty or certified or otherwise shown to the satisfaction of the Board to be exempt from stamp duty and must be delivered to the Company’s registered office, or any other place decided on by the Board. The
transfer form must be accompanied by the share certificate relating to the share being transferred, unless the transfer is being made by a person to whom the Company was not required to, and did not send, a certificate. The Board can also ask (acting reasonably) for any other evidence to show that the person wishing to transfer the share is entitled to do so and, if the share transfer form is signed by another person on behalf of the person making the transfer, evidence of the authority of that person to do so.
CREST shares
Registration of a transfer of CREST shares can be refused in the circumstances set out in the uncertificated securities rules. Transfers cannot be in favour of more than four joint holders. Where a share has not yet been entered on the register, the Board can recognise a renunciation by that person of his right to the share in favour of some other person. Such renunciation will be treated as a transfer and the Board has the same powers of refusing to give effect to such a renunciation as if it were a transfer.
Partly paid shares
If a shareholder fails to pay the Company any amount due on his partly paid shares, the Board can enforce the Company’s lien by selling all or any of the partly paid shares in any way they decide (subject to certain conditions).
Capital changes
The conditions imposed by the Articles for changes in capital are not more stringent than those required by the applicable laws of England.
Disputes between a shareholder or ADS holder and Royal Dutch Shell plc, any subsidiary, Director or professional service provider The Articles generally require that, except as noted below, all disputes: (i) between a shareholder in such capacity and the Company and/or its Directors, arising out of or in connection with the Articles or otherwise; (ii) so far as permitted by law, between the Company and any of its Directors in their capacities as such or as the Company’s employees, including all claims made by the Company or on behalf of the Company against any or all of
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GOVERNANCE SHELL FORM 20-F 2020 | 155 | |
its Directors; (iii) between a shareholder in such capacity and the Company’s professional service providers (which could include the Company’s auditors, legal counsel, bankers and ADS depositaries); and/or (iv) between the Company and its professional service providers arising in connection with any claim within the scope of (iii) above, shall be exclusively and finally resolved by arbitration under the Rules of Arbitration of the International Chamber of Commerce (ICC), as amended from time to time. This would include all disputes arising under UK, Dutch or US law (including securities laws), or under any other law, between parties covered by the arbitration provision.
Accordingly, the ability of shareholders to obtain monetary or other relief, including in respect of securities law claims, may be determined in accordance with these provisions, and the ability of shareholders to obtain monetary or other relief may therefore be limited and their cost of seeking and obtaining recoveries in a dispute may be higher than otherwise would be the case.
The tribunal shall consist of three arbitrators to be appointed in accordance with the ICC rules. The chairman of the tribunal must have at least 20 years’ experience as a lawyer qualified to practise in a common-law jurisdiction which is within the Commonwealth (as constituted on May 12, 2005) and each other arbitrator must have at least 20 years’ experience as a qualified lawyer. The place of arbitration must be The Hague, the Netherlands; and the language of the arbitration must be English.
Pursuant to the exclusive jurisdiction provision in the Articles, if a court or other competent authority in any jurisdiction determines that the arbitration requirement described above is invalid or unenforceable in relation to any particular dispute in that jurisdiction, then that dispute may only be brought in the courts of England and Wales, as is the case with any derivative claim brought under the Act. The governing law of the Articles is the substantive law of England.
Disputes relating to the Company’s failure or alleged failure to pay all or part of a dividend which has been announced and which has fallen due for payment will not be subject to the arbitration and exclusive jurisdiction provisions of the Articles. Any derivative claim brought under the Act will not be subject to the arbitration provisions of the Articles.
Pursuant to the relevant depositary agreement, each holder of ADSs is bound by the arbitration and exclusive jurisdiction provisions ofcontained in the relevant depositary agreement, which are substantially similar to the Articles as described in this section as if that holder were a shareholder.
GENERAL MEETINGSGeneral Meetings
Under the applicable laws of England, the Company is required in each year to hold an AGM of shareholders in addition to any other
Governance
Other Regulatory and Statutory Information continued
meeting of shareholders that may be held. Each AGM must be held in the period six months from the date following the Company’s accounting reference date.
Additionally, shareholders may submit resolutions in accordance with Section 338 of the Act.
Directors have the power to convene a general meeting of shareholders at any time. In addition, Directors are required to call a general meeting once requests to do so have been received by the Company from shareholders representing at least 5% of such paid-up capital of the Company as carries voting rights at general meetings of the Company (excluding any paid-up capital held as treasury shares) pursuant to Section 303 of the Act. A request for a general meeting must state the general nature of the business to be dealt with at the meeting and must be authenticated by the requesting shareholders. If Directors fail to call such a meeting within 21 days from receipt of such requests, and on a date not more than 28 days after the date of the notice convening the meeting, the shareholders that requested the general meeting, or any of them representing more than half of the total voting rights of all shareholders that requested the meeting, may themselves convene a general meeting which must be called for a date not more than three months after the date upon which the Directors became subject to the requirement to call a general meeting. Any such meeting must be convened in the same manner, as nearly as possible, as that in which meetings are required to be convened by the Directors of the Company.
Under the Act, the Company is required to give at least 21 clear days’ notice of any AGM or, except where the conditions in Section 307A of the Act apply, any other general meeting of the Company. In addition, the Company complies with the Code which currently states that notices of AGMs should be sent to shareholders at least 20 working days before the meeting.
The Articles require that, in addition to any requirements under the legislation, the notice for any general meeting must state where the meeting is to be held (the principal meeting place) and the location of any satellite meeting place, which shall be identified as such in the notice as well as details of any arrangements made for those persons not entitled to attend a general meeting to be able to view and hear the proceedings (making it clear that participation in those arrangements will not amount to attendance at the meeting to which the notice relates). At the same time that notice is given for any general meeting, an announcement of the date, time and place of that meeting will, if practical, be published in a national newspaper in the Netherlands.
A shareholder is entitled to appoint a proxy (who is not required to be another shareholder) to represent and vote on behalf of the shareholder at any general meeting of shareholders, including the AGM, if a duly completed form of proxy has been received by the Company within the relevant deadlines (in general, where a poll is not demanded, 48 hours (or such shorter time as the Board decides) before the meeting).
Before a general meeting starts to do business, there must be a quorum present. Save as in relation to adjourned meetings, a quorum for all purposes is two people who are entitled to vote. They can be shareholders who are personally present, proxies for shareholders, or a combination of both. If a quorum is not present, a chairman of the meeting can still be chosen and this will not be treated as part of the business of the meeting. If a quorum is not present within five minutes of the time fixed for a general meeting to start or within any longer period not exceeding one hour which the chairman of the meeting can decide, or if a quorum ceases to be present during a general meeting: (i) if the meeting was called by shareholders, it will be cancelled; (ii) any other meeting will be adjourned to a day (being not less than 10 days later,
excluding the day on which it is adjourned and the day for which it is reconvened) with the time and place decided upon by the chairman of the meeting; and (iii) one shareholder present in person or by proxy and entitled to vote will constitute a quorum at any such adjourned general meeting and any notice of such adjourned meeting will say this.
DEEMED DELIVERY OF DOCUMENTSDeemed delivery of documents
Under the Articles, if any notice, document or other information is given, sent or supplied by the Company by inland post, it is treated as being received the day after it was posted if first class post (or a service similar to first class post) was used, or 72 hours after it was posted if first class post (or a service similar to first class post) was not used. If a notice or document is sent by the Company by airmail, it is treated as being received 72 hours after it was posted. Any notice, document or other information left at a shareholder’s registered address or a postal address notified to the Company in accordance with the Articles by a shareholder or a person entitled to a share by law is treated as being received on the day on which it was left.
THRESHOLD FOR DISCLOSURE OF SHARE OWNERSHIPThreshold for disclosure of share ownership
The Articles provide that, when a person receives a statutory notice, he has 14 days to comply with it. If he does not do so or if he makes a statement in response to the notice which is false or inadequate in some important way, the Company can decide to restrict the rights relating to the identified shares and send out a further notice to the shareholder, known as a restriction notice, which will take effect when delivered. The restriction notice will state that the identified shares no longer give the shareholder any right to attend or vote either personally or by proxy at a shareholders’ meeting or to exercise any right in relation to shareholders’ meetings. Where the identified shares make up 0.25% or more (in amount or in number) of the existing shares of a class at the date of delivery of the restriction notice, the restriction notice can also contain the following further restrictions: (i) the Board can withhold any dividend or part of a dividend (including scrip dividend) or other money which would otherwise be payable in respect of the identified shares without any
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GOVERNANCE SHELL FORM 20-F 2020 | 156 | |
liability to pay interest when such money is finally paid to the shareholder; and (ii) the Board can refuse to register a transfer of any of the identified shares which are certificated shares unless the Board is satisfied that they have been sold outright to an independent third party (as specified in the Articles). Once a restriction notice has been given, the Board is free to cancel it or exclude any shares from it at any time the Board thinks fit. In addition, the Board must cancel the restriction notice within seven days of being satisfied that all of the information requested in the statutory notice has been given. Also, where any of the identified shares are sold and the Board is satisfied that they were sold outright to an independent third party, it must cancel the restriction notice within seven days of receipt of notification of the sale. The Articles do not restrict in any way the provision of the legislation which applies to failures to comply with notices under the legislation.
The UK City Code on Takeovers and Mergers (the Takeover Code) imposes disclosure obligations on parties subject to the Takeover Code’s disclosure regime. The Takeover Code requires that an opening position disclosure be made by: (i) an offeror company after the announcement that first identifies it as an offeror and after the announcement that first identifies a competing securities exchange offeror; and (ii) an offeree
company after the commencement of an offer period and, if later, after the announcement that first identifies any securities exchange offeror. An opening position disclosure must be made by any person that is interested in 1% or more of any class of relevant securities of the offeree company or any securities exchange offeror. The Takeover Code also requires any person who is, or becomes, interested in 1% or more of any class of relevant securities of an offeree company or any securities exchange offeror to make a dealing disclosure if the person deals in any relevant securities of the offeree company or any securities exchange offeror during an offer
Governance
Other Regulatory and Statutory Information continued
period. Where two or more persons act together pursuant to an agreement or understanding, whether formal or informal, to acquire or control an interest in relevant securities, they will normally be deemed to be a single person for the purpose of the relevant provisions of the Takeover Code.
Rule 13d-1 of the US Securities Exchange Act of 1934 requires that a person or group that acquires beneficial ownership of more than 5% of equity securities registered under the US Securities Exchange Act, and that is not eligible to file a short-form report, disclose such information to the SEC within 10 days after thethe acquisition.
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| 210 | GOVERNANCE SHELL FORMShell | Form 20-F 2020 | 157 | 2022 |
Report of Independent Registered Public Accounting Firm
FINANCIAL STATEMENTS AND SUPPLEMENTS
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
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TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF ROYAL DUTCH SHELL PLCTo the shareholders and Board of Directors of Shell plc
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Royal Dutch Shell plc (Shell or the Company) as of December 31, 20202022 and 2019,2021, the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2020,2022, and the related notes (collectively referred to as the Consolidated Financial Statements). In our opinion, the Consolidated Financial Statements present fairly, in all material respects, the consolidated financial position of the Company at December 31, 20202022 and 2019,2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020,2022, in conformity with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and in conformity with IFRSUK adopted pursuant to Regulation (EC) No.1606/2002 as it applies in the European Union.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020,2022, based on criteria established in the Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 10, 2021,8, 2023, expressed an unqualified opinion thereon.
Basis for Opinion
These Consolidated Financial Statementsfinancial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s Consolidated Financial Statementsfinancial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission (SEC) and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Consolidated Financial Statementsfinancial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the Consolidated Financial Statements,financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the Consolidated Financial Statements.financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Consolidated Financial Statements.financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical audit matters
The critical audit matters communicated below are matters arising from the current period audit of the Consolidated Financial Statementsfinancial statements that were communicated or required to be communicated to the Audit Committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgements. The communication of critical audit matters does not alter in any way our opinion on the Consolidated Financial Statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Financial Statements and Supplements
Report of Independent Registered Public Accounting Firm continued
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FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL FORM 20-F 2020 | 158 | |
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| THE ESTIMATION OF OIL AND GAS RESERVES, INCLUDING RESERVES USED IN THE CALCULATION OF DEPRECIATION, DEPLETION AND AMORTISATION (DD&A), IMPAIRMENT TESTING TO EVALUATE THE RECOVERABLE AMOUNTS OF EXPLORATION AND PRODUCTION ASSETS AND THE ESTIMATION OF DECOMMISSIONING AND RESTORATION (D&R) PROVISIONSThe estimation of oil and gas reserves |
Description of the matter
| | As described in Note 8Notes 12 and 13 to the Consolidated Financial Statements, at December 31, 2020 Exploration and evaluation (E&E)2022, production assets amounted to $9$117.4 billion and Production assets amounted to $132 billion. Production assets had an associated DD&Adepreciation, depletion and amortisation (DD&A) charge of $34$9.7 billion and joint ventures (JVAs) amounted to $23.9 billion. As further described in Note 8,12, exploration and production impairment charges of $20$0.9 billion of Explorationand exploration and production assetsimpairment reversals $6.0 billion were recorded during the year. As described in Note 1824 to the Consolidated Financial Statements, D&Rdecommissioning and restoration (D&R) provisions amounted to $23$20.3 billion. TheOil and gas reserves estimates are used in the calculation of DD&A, impairment testing and in the estimation of D&R provisions. The risk is the inappropriate recognition of reserves that impacts these accounting estimates. As described in Note 4 to the Consolidated Financial Statements, Shell's Powering Progress strategy includes specific reduction targets for emissions and carbon intensity. Accordingly, there is therefore a risk that Shell recognises oil and gas reserves is a key input to the accounting for DD&A, estimation ofthat are not ultimately produced. If reserves are recognised that are not ultimately produced, depreciation will be understated, and the recoverable amount of exploration and production assets and estimation of D&R provisions.
In-year movements of oil and gas reserves consist of revisions of previous estimates resulting from reclassifications, improved recovery assumptions, extensions and discoveries and purchases and sales of reserves in place. Revisions generally arise from new information, for example additional drilling results, changes in production patterns and changes to development plans.
Auditing the estimation of oil and gas reserves is complex, as there is significant estimation uncertainty in assessing the quantities of reserves and resources in place. The estimatesEstimated reserves and resources in place are based on a central group of experts’ assessments of petroleum initially in place,significant assumptions such as production curves and certain other inputs, including forecast production volumes, and future capital and operating cost assumptions and life of field assumptions, all of which are inputs used by reservoir engineersreserves experts to estimate oil and gas reserves. Estimation uncertainty is further elevated given the transition to a low-carbon economy, which could impact life-of-field assumptions and increase the risk of underutilised or stranded oil and gas assets. |
| How we addressed the matter in our audit | | We obtained an understanding of the controls over Shell’s oil and gas reserves'reserves’ estimation process. We then evaluated the design of these controls and tested their operating effectiveness. For example, we tested management’s controls over review of changes to year-on-year estimated oil and gas reserves volumes.
We involved professionals with substantial oil and gas reserves and valuationaudit experience and relevant qualifications in energy economics to assist us in evaluating the key assumptions and methodologies applied by management.
Our procedures included, amongst others, testing that significant additions or reductions in reserves had been made in the period in which the new information became available. We also evaluated management’s estimation of the point at which the operating cash flow from a project becomes negative, as this impacts DD&Aavailable, and impairment.assessing whether they were in compliance with Shell’s reserves and resources guidance. We evaluated the professional qualifications and objectivity of management'smanagement’s reserves experts who performed the detailed preparation of the reserve estimates and those who are primarily responsible for providing independent review and challenge, and ultimately endorsement of, the reserve estimates. We observed the internal review and endorsement process at Shell’s Upstream Reserves Committee meetings. These meetings are part of Shell’s proved reserves assurance process described on page 288. We also evaluated the completeness and accuracy of the inputs used by management in estimating the oil and gas reserves by agreeing the inputs to source documentation.documentation and we performed backtesting of historical data to identify indications of estimation bias over time. We evaluated management’s development plan for compliance with SEC rules that undrilled locations must be scheduled to be drilled within five years, unless specific circumstances justify a longer period. This evaluation was made by assessing the consistency of the development projections with Shell'sShell’s development plans and capital expenditure plans. Also, whereallocation framework. Where reserves are recognised beyond current licence terms, we obtained evidence to supportassessed the assumption around licence renewal. In order to address the risk of standed assets, among other procedures, we estimated the carbon intensity of Shell’s Upstream and Integrated Gas fields to analyse assets that are currently forecast to be producing beyond 2030 and the expected carbon intensity per barrel of those fields. For the assets where forecast emissions were highest, we used our Climate Risk data analytics tool to identify correlations between reserves, production and emissions data. For assets that we identified as carbon intensive that are expected to have material carrying value in 2030, we evaluated the risk that the licence wouldcarrying value of these assets will not be renewed. We also considered whether or notrecovered. This included considering the developmentdecarbonisation plans of these assets and capital expenditure plans reflect Shell's net-zero emissions ambition, specifically considering reserve volumes expected to be lifted beyond 2030.the associated costs. |
Financial Statements and Supplements
Report of Independent Registered Public Accounting Firm continued
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FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL FORM 20-F 2020Impairment of Property, plant and equipment and Joint venture and associates (JVA) | 159 | |
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| IMPAIRMENT OF EXPLORATION AND PRODUCTION ASSETS AND MANUFACTURING, SUPPLY AND DISTRIBUTION ASSETS |
Description of the matter
| | As described in Note 8Notes 12 and 13 to the Consolidated Financial Statements, in the year endedat December 31, 2020,2022 Shell recorded impairment chargesrecognised $117.4 billion of $20 billion relating to Exploration and production assets, and $7$49.9 billion forof manufacturing, supply and distribution assets.
assets (primarily refineries and petrochemical plants) (collectively, PP&E) and $23.9 billion of joint ventures and associates (JVAs). As disclosed in Note 12, Shell recognised $1.8 billion impairment losses and $6.2 billion impairment loss reversals. As discussed in Note 13, Shell recognised an impairment loss of $1.6 billion relating to JVAs. The recoverable amounts of PP&E and JVAs are sensitive to changes in key assumptions, therefore our audit effort was focused on the completeness and timely identification of indicators of impairment charges or impairment reversals. Auditing the impairment charges recorded for Explorationassessments of PP&E and production assets, and Manufacturing, supply and distribution assetsJVAs is complex and subjective due to the significant amount of judgement involved in determining whether indicators of impairment or impairment reversal exist, particularly for longer term assets, and the recoverable amount. As describedextent of any impairment loss or its reversal. The key assumptions underpinning the impairment assessments include changes in Note 2A,forecast commodity price and refining margin assumptions (in particular over the most complex judgementsmid-to-long-term). In addition, management forecast carbon prices, movements in forecasting cash flows for impairment testing relate to management's assessment of the long-term oil and gas price outlook, and forecasting refining margins appropriate to local markets. Estimating long-term oil and gas prices and forecast refining margins is inherently difficult, as it requires forecasts that reflect developments in demand such as global economic growth, technology efficiency, policy measures and, onreserves, the supply side, consideration of investment and resource potential,assumed weighted average cost of capital (WACC), cash generating units (CGUs) assessments, changes in asset performance and future development of new supplyplans and behaviour of major resource holders. These judgements are particularly difficult because of increased demand uncertainty due to factors such as the macro-economic impacts of the COVID-19 pandemic and the pace of decarbonisation and the energy transition.
Other judgements relate to oil and gas reserve estimates, future expected production volumes, the expected useful lives of assets. The estimation of forecast commodity prices and refining and petrochemical margins are particularly judgmental because of, among other factors, increased demand uncertainty and pace of decarbonisation due to climate change and the assets and asset-specific risk adjustments. Further, given the long timeframes involved, the recoverable amounts of assets are often sensitive to the extent of the risk adjustments applied to the future cash flows. There is a risk of material misstatement in the event that the future cash flows do not reflect appropriately the risks specific to the asset.
Exploration and evaluation (E&E) expenditures are capitalised on a project-by-project basis. Auditing impairment of E&E assets is inherently judgemental given the level of uncertainty considered in the run up to the final investment decision. Until final investment is approved, there is a significant judgement relating to the risk that certain E&E costs are not written off in the appropriate reporting period.energy transition. |
How we addressed the matter in our audit
| | We obtained an understanding of the controls over Shell’s asset impairment process. We then evaluated the design of these controls and tested their operating effectiveness. For example, we tested the controls over management’s identification of cash generating units, of indicators of impairment and reversals of impairment and the approval of oil and gas prices and refining margins, which are the key inputsmargins. We evaluated Shell’s assessment of impairment and impairment reversal triggers, including changes in the estimationforecast commodity price assumptions, movements in oil and gas reserves (see oil and gas reserves critical audit matter), changes in asset performance and changes in Shell’s business and operating plan assumptions. We further considered assets with high carbon intensity as a potential indicator of cash flowsimpairment, given Shell’s carbon emissions reductions targets. We considered potential impairment triggers related to climate change and energy transition by estimating the carbon intensity of Shell’s Upstream and Integrated Gas fields and identifying the most carbon intensive assets. We used our Climate Risk data analytics tool to identify correlations between reserves, production and emissions data and assessed management’s plans to reduce the carbon intensity of these assets in the future to determine whether there is a material risk that reserves recognised will not be produced or if the carbon intensity limited the expected useful lives of the assets. We assessed consistency of Shell’s plans to reduce the carbon intensity of these assets with their carbon emissions reductions targets and whether these actions have been reflected in Shell’s operating plan, which impact Shell’s financial statements and disclosures. Also, we assessed the operating and capital expenditure assumptions that were estimated necessary to achieve the emission reductions. This also involved assessing assumptions on acquisitions, divestments, investments in CCS technologies and Nature Based Solutions. In addition, we considered contradictory evidence, such as the results of comparable market transactions by other energy companies in jurisdictions with similar environmental and regulatory focus that could indicate a significant increase or decrease in the recoverable amount of Shell’s assets. We also considered public comments or commitments made by Shell in relation to the Powering Progress strategy and whether these could impact the future potential value of any assets. We also performed a risk assessment on Shell’s assets from a climate change physical risk perspective, considering asset and geographical specific factors to assess whether the existence of any increased physical risks represented a trigger for impairment. We then obtained an understanding of how management has incorporated historic, current and potential future asset integrity plans in the purpose of testing assets forShell operating plan. We also assessed potential operational changes that have or are expected to have a significant adverse effect on an asset and whether such unplanned shutdowns should be considered as impairment and reversals of impairment.
To test Shell’s commodity price assumptions, amongst other procedures, we compared future short and long-term oil and gas prices to an independently developed reasonable range of forecasts based on consensus analysts'analysts’ forecasts and those adopted by other international oil companies. To evaluate the impact of energy transition on Shell’s commodity price forecasts applied in the preparation of the financial statements, we also compared Shell’s oil and gas price scenarios to the IEA’s Net Zero Emissions 2050 (NZE) and to the IEA’s Announced Pledges Scenario (APS) price assumptions. We evaluated the reasonableness of Shell’s refining margin assumptions by comparing these to independent market and consultant forecasts. We also involved our oil and gas valuations specialists to assess the reasonableness of Shell’s refining margin and petrochemical margin estimation methodology and assumptions, including evaluating long-run demand forecasts, incorporating the impacts of the energy transition, supply dynamics, and the speed of the industry’s response to changing demand through either constructing new refineries or closing older refineries. Given the downward pressure on petrochemicals margins, we assessed whether prices were used consistently acrossthis represented a trigger for impairment by assessing the impact of reduced margins in the context of the overall lives of Shell’s petrochemicals facilities. To evaluate the accuracy of significant assumptions we performed a lookback by comparing actual performance of assets to the forecasts made in the prior year. We assessed the appropriateness of Shell’s disclosure of information about the assumptions Shell makes that could, in the future, have a significant risk of material adjustments to the carrying amounts of assets and liabilities, including pricing differentials with respect to market prices such as Brent. We considered management's long-termsensitivity disclosures. This included evaluating the sensitivity disclosures in Note 4 of the carrying value of Shell’s Upstream and Integrated Gas PP&E assets against a range of future oil and gas price assumptions, including the extentreflecting reduced demand scenarios due to which the pricing scenarios incorporated the potential impact of climate change and the energy transition, including the IEA Net Zero Emissions by comparing the assumptions to the International Energy Agency price outlook in the Energy Outlook scenarios.
We assessed the basis for adjusting the cash flows to reflect the risks of each CGU or JVA that were not reflected in the impairment discount rate. In so doing, we considered, for Upstream and Integrated Gas, the stage of the life of the asset, the nature of the asset and tested the consistency across similar fields. In respect of Manufacturing, supply and distribution assets, we considered refining margins, refinery availability and estimated unplanned maintenance costs.
We also evaluated the cash flow inputs to the impairment models by reconciling reserves and future production volumes in the impairment models and the life-of-field assumptions with those applied in the decommissioning and restoration provision models. We evaluated the reasonableness of useful lives assigned for Manufacturing, supply and distribution assets, particularly those that management had assessed as longer-lived assets for consistency with the Company's strategy and energy transition goals. We also tested that carbon pricing was included in cash flows, where applicable; and we performed sensitivity analyses on critical assumptions in the cash flow models to understand the impact of changes to certain assumptions, including oil and gas prices, refining margins, production and the risking of cashflows.
To test the completeness of the impairment charge recorded on exploration and evaluation assets, amongst other procedures, we performed a licence-by-licence risk assessment of Shell's E&E assets to identify assets with a significant risk of impairment. We assessed each significant licence area against the impairment criteria, with a particular focus on those assets where the final investment decision was expected to be approved over the medium or long term, or those assets where the dominant commodity that will be produced is oil. We considered whether the development of E&E projects would be inconsistent with Shell's current strategy and whether business plans confirm the company's commitment to continue to invest in the projects. We assessed the appropriateness of the Company's impairment disclosures.
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Financial Statements and Supplements
Report of Independent Registered Public Accounting Firm continued
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| THE ESTIMATION OF FUTURE REFINING MARGINS TO EVALUATE THE RECOVERABILITY OF MANUFACTURING, SUPPLY AND DISTRIBUTIONAccounting for complex transactions within Shell's Trading and Supply (T&S) function and the valuation of financial derivatives ASSETS
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Description of the matter
| As described in Note 25, Shell recognised derivative financial instrument assets of $23.7 billion and derivative financial instrument liabilities of $22.9 billion. As described in Note 8 toof the Consolidated Financial Statements, at December 31, 2020 manufacturing, supply and distribution assets amounted to $50 billion and impairment charges recorded on those assets for the year were $7 billion. As described in Note 2A, forecasted refining margins are a key input to assessing whether or not refining assets are impaired and to assessing the useful lives of Manufacturing, supply and distribution assets for the estimation of D&R provisions.
Auditing future refining margins is inherently complex as the margins are influenced by both regional and global factors and there is limited external refining margin forecast data available. The estimation of refining margins is highly judgemental and incorporates long-run demand forecasts, including the impacts of the energy transition, and supply dynamics, including the speed of the industry's response to changing demand.
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How we addressed the matter in our audit
| We obtained an understanding of the controls over Shell’s process for the estimation of refining margins. We then evaluated the design of, and tested the operating effectiveness of, controls over the estimation and approval of refining margins.
We were assisted by internal oil and gas valuation specialists in evaluating the reasonableness of Shell’s refining margin estimation methodology and their assumptions. This included reading third-party research papers to compare the key inputs and assumptions used in Shell's margin model, such as refining capacity additions, expected refinery closures, carbon dioxide costs and the strategic and political behaviour of National Oil Companies.
We performed benchmark analyses of the indicative refining margins for the three key refining hubs (US Gulf Coast, North West Europe and Singapore) and compared these to market and consultant forecasts. We recalculated the refining margins from Shell’s price forecasts and compared these to the refining margins derived from traded futures.
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FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL FORM 20-F 2020 | 160 | |
| | | | | |
| THE ESTIMATION OF DECOMMISSIONING AND RESTORATION (D&R) PROVISIONS |
Description of the matter
| As described in Note 18 to the Consolidated Financial Statements, at December 31, 20202022 Shell recognised $23 billion in decommissioning and restoration (D&R) provisions. Auditing D&R provisions is complex because management's estimation of future cash outflows involves significant judgement. As explained in Note 2 to the Consolidated Financial Statements, the estimate is based on current legal and constructive obligations, technology and price levels. However, the extent and timing of the actual outflows incurred in the future may differ due to changes in laws, regulations, public expectations, technology, prices and conditions at the time of decommissioning, and can take place many years in the future. |
How we addressed the matter in our audit
| We obtained an understanding of the controls over Shell’s process for the estimation of decommissioning and restoration provisions. We then evaluated the design of, and tested the operating effectiveness of, controls over the estimation of D&R provisions. For example, we tested controls over the review of the estimation and completeness of costs.
Our audit procedures included, amongst others, assessing changes in D&R cost estimates, and whether they reflected the latest regulatory requirements and technical developments. We audited cost assumptions relating to labour rates, rig type and rates, number of wells, well durations, and any contingencies applied by inspecting contracts. We evaluated the expected timing of decommissioning by comparing these factors to the estimated life-of-field assumptions. In addition, we tested the D&R accounting models and assumptions therein, including discount rates and inflation rates. We reconciled these assumptions with those used in other areas of measurement, such as impairment. We evaluated the timing of recognition of D&R liabilities related to contingent liabilities and D&R liabilities arising from assets previously disposed of, including assessing the counterparty risk associated with those disposals.
We also evaluated management’s assessment of the useful lives of manufacturing assets in light of the changed macro-economic fundamentals, particularly in developed economies, together with plans to rationalise their manufacturing portfolio. In particular, we evaluated management’s conclusion that manufacturing assets could no longer be considered to have indefinite lives, and that therefore D&R provisions were required for certain refineries and petrochemical facilities.
We assessed the appropriateness of disclosure of D&R provisions and contingent liability disclosures in the financial statements. We also evaluated management’s re-assessment of the need for contingent liability disclosure in respect of certain manufacturing assets.
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| | | | | |
| THE RECOGNITION AND MEASUREMENT OF DEFERRED TAX ASSETS (DTAs) |
Description of the matter
| As described in Note 16 to the Consolidated Financial Statements, at December 31, 2020 Shell recognised gross DTAs of $33 billion, which are recognised on the balance sheet as either DTAs or as an offset against deferred tax liabilities (DTLs), depending on the overall tax position in a particular jurisdiction.
Auditing the recognition and measurement of DTA balances is subjective because the estimation requires significant judgement, including the timing of reversals of DTLs and the availability of future profits against which tax deductions represented by the DTA can be offset. In addition, auditing the recognition of DTA balances that are supported by the expectation of future taxable profits arising beyond Shell's regular forecast planning horizon required significant audit judgement.
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How we addressed the matter in our audit
| We obtained an understanding of the controls over Shell’s processes for the recognition and measurement of DTAs. We then evaluated the design of these controls and tested their operating effectiveness. For example, we tested controls over projections of future taxable income and the deferred tax calculations that support the recognition of DTAs.
Amongst other procedures, we assessed management’s determination of the expected timing of utilisation of the DTAs, including the application of relevant tax laws that apply to the utilisation of tax losses. We involved our tax professionals to evaluate the application of relevant tax laws, Shell’s assessment of its ability to carry forward or backward losses, the scheduling of the reversal of existing temporary taxable differences and carry forward amounts, and the evaluation of the carry forward lives of the Company's DTAs. We tested management’s forecasted timing of the reversal of taxable temporary differences by evaluating the projected sources of taxable income and considering the nature of the temporary differences and the relevant tax law.
We performed sensitivity analyses over Shell’s risk-weighted future taxable profits by jurisdiction, which take into account potential costs of decarbonisation and reconciled the forecast to that used in other areas of analysis, such as impairment. Our testing also included evaluating the extent to which sufficient probable taxable profits would arise in the period within which the related losses would be available for utilisation, considering, for example, limits on the length of time that losses can be carried forward, if applicable, or if losses are ring-fenced for tax purposes. We evaluated management’s negative stress test to assess the tolerance of the estimation uncertainty to further risking. |
| | | | | | | | |
FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL FORM 20-F 2020 | 161 | |
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| REVENUE RECOGNITION: THE MEASUREMENT OF UNREALISED TRADING GAINS AND LOSSES AND THE RISK OF UNREALISED TRADING GAINS OR LOSSES NOT BEING RECOGNISED, OR BEING RECOGNISED AS A RESULT OF ERRORS |
Description of the matter
| As described in Note 4 to the Consolidated Financial Statements, in the year ended December 31, 2020 Shell recognised $181$381 billion of revenue. As described in Note 19A subset of the consolidated revenue relates to the Consolidated Financial Statements, Shell recognised derivative financial instrument assetscomplex transactions, where there is a risk of $9 billion and derivative financial instrument liabilities of $6 billion.unrealised revenues being inappropriately recorded.
Shell'sShell’s trading and supply function is integrated within the Oil Products, Chemicals, Integrated Gas, Upstream, Marketing, Chemicals and Upstream segmentsProducts, and is spread across multiple regions. AuditingRenewables and Energy Solutions segments. The function executes and settles both vanilla and non-standard complex trades or long-dated trades. The IT environment supporting the measurement of unrealised trading gains and lossesfunction is complex and involves a large number of systems, resulting in a high-level of manual intervention being required.
Auditing non-standard trades is challenging because of the significant judgement used in determining the appropriate accounting treatment, and the key assumptions used in valuing the trades. Also, trading is not always carried out in active markets where prices are readily available, increasing subjectivity used in determining the pricing curve and volatility assumptions, which are key inputs to valuing the trades.
Identifyingtrades and in determining unrealised trading gains and losses is also complex due to the significant volume of transactions entered into by Shell and the lack of market transparency of executed deals.losses.
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How we addressed the matter in our audit
| We obtained an understanding of the controls over Shell’s process for the recognition of revenue relating to unrealised trading gains and losses.losses, including controls over management’s processes around complex deal valuations. We then evaluated the design of these controls and tested their operating effectiveness. For example, we tested controls within the front-to-end deal lifecycle across the trading and supply function and controls around the review of pricing curve and volatility assumptions applied in the valuation models.
We involved audit professionals with significant experience auditing both large commodity trading organisationsorganisations. We obtained an understanding of the commercial rationale of complex and financial institutions.
long-dated deals by analysing the executed agreements and through discussions with management. Also, we performed an assessment of the accounting treatment of complex and long-dated deals, and assessing key assumptions against independent market information. We also analysed complex deals for the existence of non-standard contractual terms or features and further challenged managements accounting treatment against contract terms and previous accounting judgements. Where relevant, we involved our technical accounting specialists to assist in this assessment. We tested the completeness of Shell’s complex deal register by comparing management’s identified trades to those we identified based on their tenor and / or valuation criteria. We assessed the reasonableness of Shell’s derivative valuation methodology against market practice and analysed the application of a consistent framework across the portfolio. We tested the forward pricing curve and volatility assumptions in themanagement’s valuation models. This includedmodels, by comparing the price curves and volatility assumptions adopted by Shellthese to external broker quotes.quotes, market consensus providers, and our independent assessments. We involved EY valuation specialists to assist us in performing independent testing of the valuation models of Level 3 contracts. We evaluated contract terms and key assumptions against independent market information. We assessed Shell's valuation methodology against market practice and analysed whether a consistent framework was applied acrosscontracts, including the business.
To audit the existence, completeness and valuation of open positions, we focused specifically on over-the-counter (OTC) physicallong-dated offtake contracts and financial transactions. Amongstthose with illiquid tenor or price components. Our valuations were established using independently externally sourced inputs, where available. We performed external confirmation procedures for the completeness of recorded forward positions. Our tests included, amongst other procedures, we obtained external confirmationrequesting Shell’s counterparties to confirm their entire position with Shell and asking counterparties to provide details of a sample of open trading positions with brokers and counterparties and, where necessary, we tested the existence of the position by agreementindividual trades. We also sent confirmations to signed contracts. We performed additional confirmation testing by obtaining confirmations from a sample ofkey counterparties who had openmaterial positions in the prior trading year, but no reported trading positions in the current year. We also performed procedures to identify unrecorded liabilities by comparing sales to trade receivables and purchases to trade payables that occurred near the end of the financial year to evaluate whether or not the transactions had been recorded appropriately and in the correct period.
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We have served as the Company’s auditor since 2016.
London, United Kingdom
March 10, 20218, 2023
Financial Statements and Supplements
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF ROYAL DUTCH SHELL PLCTo the shareholders and Board of Directors of Shell plc
Opinion on Internal Control over Financial Reporting
We have audited Royal Dutch Shell plc’s (the Company) internal control over financial reporting as of December 31, 2020,2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020,2022, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Consolidated Financial Statements of the Company, and our report dated March 10, 2021,8, 2023, expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting as set out on page 148.199. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorisations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
London, United Kingdom
March 10, 20218, 2023
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| 215 | FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL FORMShell | Form 20-F 20202022 | 162 | |
Financial Statements and Supplements
Consolidated Statement of Income
| | | | | | | | | | | | | | |
| $ million |
| Notes | 2022 | 2021 | 2020 |
| Revenue | 8 | 381,314 | 261,504 | 180,543 |
| Share of profit of joint ventures and associates | 13 | 3,972 | 4,097 | 1,783 |
| Interest and other income | 9 | 915 | 7,056 | 869 |
| Total revenue and other income | | 386,201 | 272,657 | 183,195 |
| Purchases | | 258,488 | 174,912 | 117,093 |
| Production and manufacturing expenses | 8 | 25,518 | 23,822 | 24,001 |
| Selling, distribution and administrative expenses | 8 | 12,883 | 11,328 | 9,881 |
| Research and development | 8 | 1,075 | 815 | 907 |
| Exploration | 8 | 1,712 | 1,423 | 1,747 |
| Depreciation, depletion and amortisation | 8 | 18,529 | 26,921 | 52,444 |
| Interest expense | 10 | 3,181 | 3,607 | 4,089 |
| Total expenditure | | 321,386 | 242,828 | 210,162 |
| Income/(loss) before taxation | | 64,815 | 29,829 | (26,967) |
| Taxation charge/(credit) | 22 | 21,941 | 9,199 | (5,433) |
| Income/(loss) for the period | 8 | 42,874 | 20,630 | (21,534) |
| Income attributable to non-controlling interest | 8 | 565 | 529 | 146 |
| Income/(loss) attributable to Shell plc shareholders | 8 | 42,309 | 20,101 | (21,680) |
| Basic earnings per share ($) | 30 | 5.76 | 2.59 | (2.78) |
| Diluted earnings per share ($) | 30 | 5.71 | 2.57 | (2.78) |
Consolidated Statement of Comprehensive Income
| | | | | | | | | | | | | | |
| $ million |
| Notes | 2022 | 2021 | 2020 |
| Income/(loss) for the period | 8 | 42,874 | 20,630 | (21,534) |
| Other comprehensive income/(loss) net of tax | | | | |
| Items that may be reclassified to income in later periods: | | | | |
| Currency translation differences | 28 | (2,986) | (1,413) | 1,179 |
| Debt instruments remeasurements | 28 | (78) | (28) | 23 |
| Cash flow hedging (losses)/gains | 28 | (232) | 21 | (160) |
| Net investment hedging gains/(losses) | 28 | 180 | 295 | (423) |
| Deferred cost of hedging | 28 | 200 | (39) | 100 |
| Share of other comprehensive income/(loss) of joint ventures and associates | 13 | 274 | (109) | (42) |
| Total | | (2,642) | (1,273) | 677 |
| Items that are not reclassified to income in later periods: | | | | |
| Retirement benefits remeasurements | | 5,466 | 7,198 | (2,702) |
| Equity instruments remeasurements | | (491) | 145 | 64 |
| Share of other comprehensive (loss)/income of joint ventures and associates | 13 | (253) | 3 | 119 |
| Total | | 4,722 | 7,346 | (2,519) |
| Other comprehensive income/(loss) for the period | | 2,080 | 6,073 | (1,842) |
| Comprehensive income/(loss) for the period | | 44,954 | 26,703 | (23,376) |
| Comprehensive income attributable to non-controlling interest | | 621 | 468 | 136 |
| Comprehensive income/(loss) attributable to Shell plc shareholders | | 44,333 | 26,235 | (23,512) |
| | | | | | | | |
| 216 | FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL FORMShell | Form 20-F 20202022 | 163 | |
Financial Statements and Supplements
Consolidated Balance Sheet
| | | | | | | | | | | |
| $ million |
| Notes | Dec 31, 2022 | Dec 31, 2021 |
| Assets | | | |
| Non-current assets | | | |
| Goodwill [A] | 11 | 16,039 | 14,920 |
| Other intangible assets [A] | 11 | 9,662 | 9,773 |
| Property, plant and equipment | 12 | 198,642 | 194,932 |
| Joint ventures and associates | 13 | 23,864 | 23,415 |
| Investments in securities | 14 | 3,362 | 3,797 |
| Deferred tax | 22 | 7,815 | 12,426 |
| Retirement benefits | 23 | 10,200 | 8,471 |
| Trade and other receivables | 15 | 6,920 | 7,065 |
| Derivative financial instruments | 25 | 582 | 815 |
| | 277,086 | 275,614 |
| Current assets | | | |
| Inventories | 16 | 31,894 | 25,258 |
| Trade and other receivables | 15 | 66,510 | 53,208 |
| Derivative financial instruments | 25 | 24,437 | 11,369 |
| Cash and cash equivalents | 17 | 40,246 | 36,970 |
| | 163,087 | 126,805 |
| Assets classified as held for sale | 18 | 2,851 | 1,960 |
| | 165,938 | 128,765 |
| Total assets | | 443,024 | 404,379 |
| Liabilities | | | |
| Non-current liabilities | | | |
| Debt | 20 | 74,794 | 80,868 |
| Trade and other payables | 19 | 3,432 | 2,075 |
| Derivative financial instruments | 25 | 3,563 | 887 |
| Deferred tax | 22 | 16,186 | 12,547 |
| Retirement benefits | 23 | 7,296 | 11,325 |
| Decommissioning and other provisions | 24 | 23,845 | 25,804 |
| | 129,116 | 133,506 |
| Current liabilities | | | |
| Debt | 20 | 9,001 | 8,218 |
| Trade and other payables | 19 | 79,357 | 63,173 |
| Derivative financial instruments | 25 | 23,779 | 16,311 |
| Income taxes payable | | 4,869 | 3,254 |
| Decommissioning and other provisions | 24 | 2,910 | 3,338 |
| | 119,916 | 94,294 |
| Liabilities directly associated with assets classified as held for sale | 18 | 1,395 | 1,253 |
| | 121,311 | 95,547 |
| Total liabilities | | 250,427 | 229,053 |
| | | |
| Equity | | | |
| Share capital | 26 | 584 | 641 |
| Shares held in trust | | (726) | (610) |
| Other reserves | 28 | 21,132 | 18,909 |
| Retained earnings | | 169,482 | 153,026 |
| Equity attributable to Shell plc shareholders | | 190,472 | 171,966 |
| Non-controlling interest | | 2,125 | 3,360 |
| Total equity | | 192,597 | 175,326 |
| Total liabilities and equity | | 443,024 | 404,379 |
[A]Goodwill, previously presented under Intangible assets, is separately presented as from 2022. Prior period comparatives have been revised to conform with current year presentation.
Signed on behalf of the Board
| | | | | |
CONSOLIDATED FINANCIAL STATEMENTS |
| |
| | | | | |
| Consolidated Statement of Income |
| Consolidated Statement of Comprehensive Income |
| Consolidated Balance Sheet |
| Consolidated Statement of Changes in Equity |
| Consolidated Statement of Cash Flows |
| Notes to the Consolidated Financial Statements |
| Note 1 Basis of preparation |
| Note 2 Significant accounting policies, judgements and estimates |
| Note 3 Changes to IFRS not yet adopted |
| Note 4 Segment information |
| Note 5 Interest and other income |
| Note 6 Interest expense |
| Note 7 Intangible assets |
| Note 8 Property, plant and equipment |
| Note 9 Joint ventures and associates |
| Note 10 Investments in securities |
| Note 11 Trade and other receivables |
| Note 12 Inventories |
| Note 13 Cash and cash equivalents |
| Note 14 Debt and lease arrangements |
| Note 15 Trade and other payables |
| Note 16 Taxation |
| Note 17 Retirement benefits |
| Note 18 Decommissioning and other provisions |
| Note 19 Financial instruments |
| Note 20 Share capital |
| Note 21 Share-based compensation plans and shares held in trust |
| Note 22 Other reserves |
| Note 23 Dividends |
| Note 24 Earnings per share |
| Note 25 Legal proceedings and other contingencies |
| Note 26 Employees |
| Note 27 Directors and Senior Management |
| Note 28 Auditor’s remuneration |
| Note 29 Emission schemes and related environmental plans
|
| Note 30 Post-balance sheet events/s/ Sinead Gorman |
Sinead Gorman
Chief Financial Officer
March 8, 2023
| | | | | | | | |
| 217 | FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL FORMShell | Form 20-F 20202022 | 164 | |
Financial Statements and Supplements
| | | | | | | | | | | | | | |
| | | | |
| CONSOLIDATED STATEMENT OF INCOME | $ million |
| | Notes | 2020 | 2019 | 2018 |
| Revenue | 4 | 180,543 | | 344,877 | | 388,379 | |
| Share of profit of joint ventures and associates | 9 | 1,783 | | 3,604 | | 4,106 | |
| Interest and other income | 5 | 869 | | 3,625 | | 4,071 | |
| Total revenue and other income | | 183,195 | | 352,106 | | 396,556 | |
| Purchases | | 117,093 | | 252,983 | | 294,399 | |
| Production and manufacturing expenses | 4 | 24,001 | | 26,438 | | 26,970 | |
| Selling, distribution and administrative expenses | 4 | 9,881 | | 10,493 | | 11,360 | |
| Research and development | 4 | 907 | | 962 | | 986 | |
| Exploration | 4 | 1,747 | | 2,354 | | 1,340 | |
| Depreciation, depletion and amortisation | 4 | 52,444 | | 28,701 | | 22,135 | |
| Interest expense | 6 | 4,089 | | 4,690 | | 3,745 | |
| Total expenditure | | 210,162 | | 326,621 | | 360,935 | |
| (Loss)/income before taxation | | (26,967) | | 25,485 | | 35,621 | |
| Taxation (credit)/charge | 16 | (5,433) | | 9,053 | | 11,715 | |
| (Loss)/income for the period | 4 | (21,534) | | 16,432 | | 23,906 | |
| Income attributable to non-controlling interest | 4 | 146 | | 590 | | 554 | |
| (Loss)/income attributable to Royal Dutch Shell plc shareholders | 4 | (21,680) | | 15,842 | | 23,352 | |
| Basic earnings per share ($) | 24 | (2.78) | | 1.97 | | 2.82 | |
| Diluted earnings per share ($) | 24 | (2.78) | | 1.95 | | 2.80 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | $ million |
| Equity attributable to Shell plc shareholders | | | |
| Share capital
(see Note 26) | Shares
held in trust | Other
reserves
(see Note 28) | Retained
earnings | Total | Non-
controlling
interest | | Total
equity |
| At January 1, 2022 | 641 | (610) | 18,909 | 153,026 | 171,966 | 3,360 | | 175,326 |
| Comprehensive income for the period | — | — | 2,024 | 42,309 | 44,333 | 621 | | 44,954 |
| Transfer from other comprehensive income | — | — | (34) | 34 | — | — | | — |
| Dividends (see Note 29) [A] | — | — | — | (7,283) | (7,283) | (206) | | (7,489) |
| Repurchases of shares [B] | (57) | — | 57 | (18,547) | (18,547) | — | | (18,547) |
| Share-based compensation | — | (116) | 176 | 131 | 191 | — | | 191 |
| Other changes | — | — | — | (188) | (188) | (1,650) | [C] | (1,838) |
| At December 31, 2022 | 584 | (726) | 21,132 | 169,482 | 190,472 | 2,125 | | 192,597 |
| At January 1, 2021 | 651 | (709) | 12,752 | 142,616 | 155,310 | 3,227 | | 158,537 |
| | | | | | | | |
| | | | | | | | |
| Comprehensive income for the period | — | — | 6,134 | 20,101 | 26,235 | 468 | | 26,703 |
| Transfer from other comprehensive income | — | — | (45) | 45 | — | — | | — |
| Dividends (see Note 29) [A] | — | — | — | (6,321) | (6,321) | (348) | | (6,669) |
| Repurchases of shares | (10) | — | 10 | (3,513) | (3,513) | — | | (3,513) |
| Share-based compensation | — | 99 | 58 | 93 | 250 | — | | 250 |
| Other changes | — | — | — | 5 | 5 | 13 | | 18 |
| December 31, 2021 | 641 | (610) | 18,909 | 153,026 | 171,966 | 3,360 | | 175,326 |
| At January 1, 2020 | 657 | (1,063) | 14,451 | 172,431 | 186,476 | 3,987 | | 190,463 |
| Comprehensive (loss)/income for the period | — | — | (1,832) | (21,397) | (23,229) | 136 | | (23,093) |
| Transfer from other comprehensive income | — | — | 270 | (270) | — | — | | — |
| Dividends (see Note 29) [A] | — | — | — | (7,270) | (7,270) | (311) | | (7,581) |
| Repurchases of shares | (6) | — | 6 | (1,214) | (1,214) | — | | (1,214) |
| Share-based compensation | — | 354 | (143) | (230) | (19) | — | | (19) |
| Other changes | — | — | — | 566 | 566 | (585) | | (19) |
| At December 31, 2020 | 651 | (709) | 12,752 | 142,616 | 155,310 | 3,227 | | 158,537 |
[A]The amount charged to retained earnings is based on prevailing exchange rates on payment date.
[B]Includes shares committed to repurchase under irrevocable contracts and repurchases subject to settlement at the end of the year. (See Note 26)
[C]The decrease in the non-controlling interest is mainly attributable to the acquisition of the non-controlling interest in Shell Midstream Partners, L.P.
| | | | | | | | |
| 218 | FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL FORMShell | Form 20-F 20202022 | 165 | |
Financial Statements and Supplements
| | | | | | | | | | | | | | |
| | | | |
| CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME | $ million |
| Notes | 2020 | 2019 | 2018 |
| (Loss)/income for the period | 4 | (21,534) | | 16,432 | | 23,906 | |
| Other comprehensive income/(loss) net of tax | | | | |
| Items that may be reclassified to income in later periods: | | | | |
| Currency translation differences | 22 | 1,179 | | 344 | | (3,171) | |
| Debt instruments remeasurements | 22 | 23 | | 29 | | (15) | |
| Cash flow hedging (losses)/gains [A] | 22 | (160) | | (276) | | 730 | |
| Net investment hedging (losses)/gains [A] | 22 | (423) | | 9 | | (1) | |
| Deferred cost of hedging | 22 | 100 | | 66 | | (209) | |
| Share of other comprehensive loss of joint ventures and associates | 9 | (42) | | (76) | | (10) | |
| Total | | 677 | | 96 | | (2,676) | |
| Items that are not reclassified to income in later periods: | | | | |
| Retirement benefits remeasurements | | (2,702) | | (2,102) | | 3,588 | |
| Equity instruments remeasurements | | 64 | | (30) | | (153) | |
| Share of other comprehensive income of joint ventures and associates | 9 | 119 | | 2 | | 193 | |
| Total | | (2,519) | | (2,130) | | 3,628 | |
| Other comprehensive (loss)/income for the period | | (1,842) | | (2,034) | | 952 | |
| Comprehensive (loss)/income for the period | | (23,376) | | 14,398 | | 24,858 | |
| Comprehensive income attributable to non-controlling interest | | 136 | | 625 | | 383 | |
| Comprehensive (loss)/income attributable to Royal Dutch Shell plc shareholders | | (23,512) | | 13,773 | | 24,475 | |
[A] As from 2020, 'Cash flow hedging (losses)/gains' and 'Net investment hedging (losses)/gains' have been separately disclosed. Prior period comparatives for these items have been revised to conform with current year presentation (see Note 22).
| | | | | | | | |
| | | | | | | | | | | | | | | | $ million | | | Notes | 2022 | 2021 | 2020 | | Income/(loss) before taxation for the period | | 64,815 | 29,829 | (26,967) | | Adjustment for: | | | | | | Interest expense (net) | | 2,135 | 3,096 | 3,316 | | Depreciation, depletion and amortisation | | 18,529 | 26,921 | 52,444 | | Exploration well write-offs | 12 | 881 | 639 | 815 | | Net gains on sale and revaluation of non-current assets and businesses | | (642) | (5,995) | (286) | | Share of profit of joint ventures and associates | | (3,972) | (4,097) | (1,783) | | Dividends received from joint ventures and associates | | 4,398 | 3,929 | 2,591 | | (Increase)/decrease in inventories | | (8,360) | (7,319) | 4,477 | | (Increase)/decrease in current receivables | | (8,989) | (20,567) | 9,625 | | Increase/(decrease) in current payables | | 11,915 | 17,519 | (9,494) | | Derivative financial instruments | | (2,619) | 5,882 | 977 | | Retirement benefits | | 417 | 16 | 568 | | Decommissioning and other provisions | | 35 | (76) | 1,104 | | Other | | 2,991 | 803 | 8 | | Tax paid | | (13,120) | (5,476) | (3,290) | | Cash flow from operating activities | | 68,414 | 45,104 | 34,105 | | Capital expenditure | | (22,600) | (19,000) | (16,585) | | Investments in joint ventures and associates | | (1,973) | (479) | (1,024) | | Investment in equity securities | | (260) | (218) | (218) | | Proceeds from sale of property, plant and equipment and businesses | | 1,431 | 14,233 | 2,489 | | Proceeds from joint ventures and associates from sale, capital reduction and repayment of long-term loans | | 511 | 584 | 1,240 | | Proceeds from sale of equity securities | | 117 | 296 | 281 | | Interest received | | 906 | 423 | 532 | | Other investing cash inflows | | 2,060 | 2,928 | 3,239 | | Other investing cash outflows | | (2,640) | (3,528) | (3,232) | | Cash flow from investing activities | | (22,448) | (4,761) | (13,278) | | Net increase/(decrease) in debt with maturity period within three months | | 318 | 14 | (63) | | Other debt: | | | | | | New borrowings | | 269 | 1,791 | 23,033 | | Repayments | | (8,459) | (21,534) | (17,385) | | Interest paid | | (3,677) | (4,014) | (4,105) | | Derivative financial instruments | | (1,799) | (1,165) | 1,157 | | Change in non-controlling interest | | (1,965) | 19 | (42) | | Cash dividends paid to: | | | | | | Shell plc shareholders [A] | | (7,405) | (6,253) | (7,424) | | Non-controlling interest | | (206) | (348) | (311) | | Repurchases of shares | | (18,437) | (2,889) | (1,702) | | Shares held in trust: net purchases and dividends received | | (593) | (285) | (382) | | Cash flow from financing activities | | (41,954) | (34,664) | (7,224) | | Effects of exchange rate changes on cash and cash equivalents | | (736) | (539) | 172 | | Increase in cash and cash equivalents | | 3,276 | 5,140 | 13,775 | | Cash and cash equivalents at beginning of year | | 36,970 | 31,830 | 18,055 | | Cash and cash equivalents at end of year | 17 | 40,246 | 36,970 | 31,830 |
FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL FORM 20-F 2020 | 166 | |
| | | | | | | | | | | |
| | | |
| CONSOLIDATED BALANCE SHEET | $ million |
| Notes | Dec 31, 2020 | Dec 31, 2019 |
| Assets | | | |
| Non-current assets | | | |
| Intangible assets | 7 | 22,822 | | 23,486 | |
| Property, plant and equipment | 8 | 210,847 | | 238,349 | |
| Joint ventures and associates | 9 | 22,451 | | 22,808 | |
| Investments in securities | 10 | 3,222 | | 2,989 | |
| Deferred tax | 16 | 16,311 | | 10,524 | |
| Retirement benefits | 17 | 2,474 | | 4,717 | |
| Trade and other receivables | 11 | 7,641 | | 8,085 | |
| Derivative financial instruments | 19 | 2,805 | | 689 | |
| | 288,573 | | 311,647 | |
| Current assets | | | |
| Inventories | 12 | 19,457 | | 24,071 | |
| Trade and other receivables | 11 | 33,625 | | 43,414 | |
| Derivative financial instruments | 19 | 5,783 | | 7,149 | |
| Cash and cash equivalents | 13 | 31,830 | | 18,055 | |
| | 90,695 | | 92,689 | |
| Total assets | | 379,268 | | 404,336 | |
| Liabilities | | | |
| Non-current liabilities | | | |
| Debt | 14 | 91,115 | | 81,360 | |
| Trade and other payables | 15 | 2,304 | | 2,342 | |
| Derivative financial instruments | 19 | 420 | | 1,209 | |
| Deferred tax | 16 | 10,463 | | 14,522 | |
| Retirement benefits | 17 | 15,168 | | 13,017 | |
| Decommissioning and other provisions | 18 | 27,310 | | 21,799 | |
| | 146,780 | | 134,249 | |
| Current liabilities | | | |
| Debt | 14 | 16,899 | | 15,064 | |
| Trade and other payables | 15 | 41,677 | | 49,208 | |
| Derivative financial instruments | 19 | 5,308 | | 5,429 | |
| Taxes payable | 16 | 6,006 | | 6,693 | |
| Retirement benefits | 17 | 437 | | 419 | |
| Decommissioning and other provisions | 18 | 3,624 | | 2,811 | |
| | 73,951 | | 79,624 | |
| Total liabilities | | 220,731 | | 213,873 | |
| Equity | | | |
| Share capital | 20 | 651 | | 657 | |
| Shares held in trust | | (709) | | (1,063) | |
| Other reserves | 22 | 12,752 | | 14,451 | |
| Retained earnings | | 142,616 | | 172,431 | |
| Equity attributable to Royal Dutch Shell plc shareholders | | 155,310 | | 186,476 | |
| Non-controlling interest | | 3,227 | | 3,987 | |
| Total equity | | 158,537 | | 190,463 | |
| Total liabilities and equity | | 379,268 | | 404,336 | |
| | |
Signed on behalf of the Board |
/s/ Jessica Uhl |
Jessica Uhl
Chief Financial Officer
March 10, 2021 |
| | | | | | | | |
FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL FORM 20-F 2020 | 167 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| CONSOLIDATED STATEMENT OF CHANGES IN EQUITY | | $ million |
| Equity attributable to Royal Dutch Shell plc shareholders | | |
| Share capital (see Note 20) | Shares held in trust | Other reserves (see Note 22) | Retained earnings | Total | Non- controlling interest | Total equity |
| At January 1, 2020 | 657 | | (1,063) | | 14,451 | | 172,431 | | 186,476 | | 3,987 | | 190,463 | |
| Comprehensive (loss)/income for the period | — | | — | | (1,832) | | (21,397) [A] | (23,229) | | 136 | | (23,093) | |
| Transfer from other comprehensive income | — | | — | | 270 | | (270) | | — | | — | | 0 | |
| Dividends (see Note 23) | — | | — | | — | | (7,270) | | (7,270) | | (311) | | (7,581) | |
| Repurchases of shares | (6) | | — | | 6 | | (1,214) | | (1,214) | | — | | (1,214) | |
| Share-based compensation | — | | 354 | | (143) | | (230) | | (19) | | — | | (19) | |
| Other changes in non-controlling interest | — | | — | | — | | 566 | | 566 | | (585) [B] | (19) | |
| At December 31, 2020 | 651 | | (709) | | 12,752 | | 142,616 | | 155,310 | | 3,227 | | 158,537 | |
| At January 1, 2019 (as previously published) | 685 | | (1,260) | | 16,615 | | 182,606 | | 198,646 | | 3,888 | | 202,534 | |
| Impact of IFRS 16 | — | | — | | — | | 4 | | 4 | | — | | 4 | |
| At January 1, 2019 (as revised) | 685 | | (1,260) | | 16,615 | | 182,610 | | 198,650 | | 3,888 | | 202,538 | |
| Comprehensive income/(loss) for the period | — | | — | | (2,069) | | 15,842 | | 13,773 | | 625 | | 14,398 | |
| Transfer from other comprehensive income | — | | — | | (74) | | 74 | | — | | — | | 0 | |
| Dividends (see Note 23) | — | | — | | — | | (15,198) | | (15,198) | | (537) | | (15,735) | |
| Repurchases of shares [C] | (28) | | — | | 28 | | (10,286) | | (10,286) | | — | | (10,286) | |
| Share-based compensation | — | | 197 | | (49) | | (613) | | (465) | | — | | (465) | |
| Other changes in non-controlling interest | — | | — | | — | | 2 | | 2 | | 11 | | 13 | |
| At December 31, 2019 | 657 | | (1,063) | | 14,451 | | 172,431 | | 186,476 | | 3,987 | | 190,463 | |
| At January 1, 2018 | 696 | | (917) | | 16,794 | | 177,733 | | 194,306 | | 3,456 | | 197,762 | |
| Comprehensive income for the period | — | | — | | 1,123 | | 23,352 | | 24,475 | | 383 | | 24,858 | |
| Transfer from other comprehensive income | — | | — | | (971) | | 971 | | — | | — | | 0 | |
| Dividends (see Note 23) | — | | — | | — | | (15,675) | | (15,675) | | (586) | | (16,261) | |
| Repurchases of shares [C] | (11) | | — | | 11 | | (4,519) | | (4,519) | | — | | (4,519) | |
| Share-based compensation | — | | (343) | | (342) | | 693 | | 8 | | — | | 8 | |
| Other changes in non-controlling interest | — | | — | | — | | 51 | | 51 | | 635 | | 686 | |
| At December 31, 2018 | 685 | | (1,260) | | 16,615 | | 182,606 | | 198,646 | | 3,888 | | 202,534 | |
[A] Comprehensive loss for the period of $21,397 million recognised in retained earnings includes a gain of $283 million, recognised in equity, that relates to remeasurement of a share of interest in a joint venture in respect of prior years.
[B] The change is mainly related to the non-controlling interest in Shell Midstream Partners, L.P. (SHLX) following the completion of the sale of Shell's 79% interest in the Mattox Pipeline Company LLC and certain logistics assets at the Shell Norco Manufacturing Complex to SHLX.
[C] The repurchase of shares recognised through retained earnings includes the aggregate maximum consideration to which Shell was contractually bound to under the tranches of the buyback programme, plus associated stamp duty (see Note 20).
| | | | | | | | |
FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL FORM 20-F 2020 | 168 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| CONSOLIDATED STATEMENT OF CASH FLOWS | $ million |
| | Notes | 2020 | | 2019 | | 2018 |
| (Loss)/income before taxation for the period | | (26,967) | | | 25,485 | | | 35,621 | |
| Adjustment for: | | | | | | |
| Interest expense (net) | | 3,316 | | | 3,705 | | | 2,878 | |
| Depreciation, depletion and amortisation | | 52,444 | | | 28,701 | | | 22,135 | |
| Exploration well write-offs | 8 | 815 | | | 1,218 | | | 449 | |
| Net gains on sale and revaluation of non-current assets and businesses | | (286) | | | (2,519) | | | (3,265) | |
| Share of profit of joint ventures and associates | | (1,783) | | | (3,604) | | | (4,106) | |
| Dividends received from joint ventures and associates | | 2,591 | | | 4,139 | | | 4,903 | |
| Decrease/(increase) in inventories | | 4,477 | | | (2,635) | | | 2,823 | |
| Decrease/(increase) in current receivables | | 9,625 | | | (921) | | | 1,955 | |
| Decrease in current payables | | (9,494) | | | (1,223) | | | (1,336) | |
| Derivative financial instruments | | 977 | | | (1,484) | | | 799 | |
| Retirement benefits | | 568 | | | (365) | | | 390 | |
| Decommissioning and other provisions | | 1,104 | | | (686) | | | (1,754) | |
| Other | | 8 | | | (28) | | | 1,264 | |
| Tax paid | | (3,290) | | | (7,605) | | | (9,671) | |
| Cash flow from operating activities | | 34,105 | | | 42,178 | | | 53,085 | |
| Capital expenditure | | (16,585) | | | (22,971) | | | (23,011) | |
| Investments in joint ventures and associates | | (1,024) | | | (743) | | | (880) | |
| Investment in equity securities | | (218) | | | (205) | | | (187) | |
| Proceeds from sale of property, plant and equipment and businesses | | 2,489 | | | 4,803 | | | 4,366 | |
| Proceeds from sale of joint ventures and associates | | 1,240 | | | 2,599 | | | 1,594 | |
| Proceeds from sale of equity securities | | 281 | | | 469 | | | 4,505 | |
| Interest received | | 532 | | | 911 | | | 823 | |
| Other investing cash inflows | | 3,239 | | | 2,921 | | | 1,373 | |
| Other investing cash outflows | | (3,232) | | | (3,563) | | | (2,242) | |
| Cash flow from investing activities | | (13,278) | | | (15,779) | | | (13,659) | |
| Net decrease in debt with maturity period within three months | | (63) | | | (308) | | | (396) | |
| Other debt: | | | | | | |
| New borrowings | | 23,033 | | | 11,185 | | | 3,977 | |
| Repayments | | (17,385) | | | (14,292) | | | (11,912) | |
| Interest paid | | (4,105) | | | (4,649) | | | (3,574) | |
| Derivative financial instruments [A] | | 1,157 | | | (48) | | | |
| Change in non-controlling interest | | (42) | | | 0 | | | 678 | |
| Cash dividends paid to: | | | | | | |
| Royal Dutch Shell plc shareholders | | (7,424) | | [B] | (15,198) | | | (15,675) | |
| Non-controlling interest | | (311) | | | (537) | | | (584) | |
| Repurchases of shares | | (1,702) | | | (10,188) | | | (3,947) | |
| Shares held in trust: net purchases and dividends received | | (382) | | | (1,174) | | | (1,115) | |
| Cash flow from financing activities | | (7,224) | | | (35,209) | | | (32,548) | |
| Currency translation differences relating to cash and cash equivalents | | 172 | | | 124 | | | (449) | |
| Increase/(decrease) in cash and cash equivalents | | 13,775 | | | (8,686) | | | 6,429 | |
| Cash and cash equivalents at beginning of year | | 18,055 | | | 26,741 | | | 20,312 | |
| Cash and cash equivalents at end of year | 13 | 31,830 | | | 18,055 | | | 26,741 | |
[A] As from 2019, a new line item 'Derivative financial instruments' has been introduced for derivatives related to debt.
[B] Cash dividends paid represents the payment of net dividends (after deduction of withholding taxes where applicable) and payment of withholding taxes on dividends paid in the previous quarter.
| | | | | | | | |
| 219 | FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL FORMShell | Form 20-F 20202022 | 169 | |
Financial Statements and Supplements | | | | | |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| |
Notes to the Consolidated Financial Statements1 – BASIS OF PREPARATION
1. Basis of preparation
The Consolidated Financial Statements of Royal Dutch Shell plc (the “Company”"Company") and its subsidiaries (collectively referred to as “Shell”"Shell") have been prepared in accordance with UK-adopted international accounting standards in conformityand with the requirements of the UK Companies Act 2006 (the “Act”), and therefore in accordance with International Financial Reporting Standards (IFRS) adopted pursuantas applicable to Regulation (EC) No 1606/2002 as it applies in the European Union.companies reporting under those standards. As applied to Shell, there are no material differences from IFRSInternational Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB); therefore, the Consolidated Financial Statements have been prepared in accordance with IFRS as issued by the IASB.
As described in the accounting policies in Note 2, the Consolidated Financial Statements have been prepared under the historical cost convention except for certain items measured at fair value. Those accounting policies have been applied consistently in all periods, except for the accounting for lease contracts following the prospective adoption of IFRS 16 Leases from January 1, 2019.periods.
The Consolidated Financial Statements were approved and authorised for issue by the Board of Directors on March 10, 2021.8, 2023.
These Consolidated Financial Statements have been prepared on the going concern basis of accounting. In assessing the appropriateness of the going concern assumption over the period to March 31, 2024 (the "going concern period"), management have stress-tested Shell’s most recent financial projections to incorporate a range of potential future outcomes by considering Shell’s principal risks, potential downside pressures on commodity prices and cash preservation measures, including reduced future operating costs, capital expenditure and shareholder distributions. Management’s stress test included scenarios and risks covering: unplanned shutdown at a major cash-generating asset; a lower oil and gas price environment; a significant health, safety, security and environment event; and global macro uncertainties. The going concern assessment confirmed that Shell has adequate cash, other liquid resources and undrawn credit facilities to enable it to meet its obligations as they fall due in order to continue its operations during the going concern period. Therefore, the Directors consider it appropriate to continue to adopt the going concern basis of accounting in preparing these Consolidated Financial Statements.
2 – SIGNIFICANT ACCOUNTING POLICIES, JUDGEMENTS AND ESTIMATES
This Note describes Shell’s significant accounting policies, which are those relevant to an understanding of the Consolidated Financial Statements. It includes the measurement bases used in preparing the Consolidated Financial Statements. It allows for an understanding as to how transactions, other events and conditions are reported. It also describes: (a) judgements, apart from those involving estimations, that management makes in applying the policies that have the most significant effect on the amounts recognised in the Consolidated Financial Statements; and (b) estimations, including assumptions about the future, that management makes in applying the policies. The sources of estimation uncertainty that have a significant risk of a material adjustment to the carrying amounts of assets and liabilities within the next financial year are specifically identified as a significant estimate.
The accounting policies applied are consistent with those of the previous financial year except for the adoption as from January 1, 20202022, of amendments to IFRS 9 Financial Instruments (IFRS 9)IAS 16 Property, Plant and IFRS 7 Financial Instruments: Disclosures (IFRS 7),Equipment (IAS 16) and IFRS 3 Business Combinations (IFRS 3)IAS 37 Provisions, Contingent Liabilities and Contingent Assets (IAS 37).
The transition to the accounting pronouncements as listed below has no or no material impact.
IFRS 9 Financial InstrumentsThe amendments to IAS 16 prohibit deducting from the cost of an item of property, plant and IFRS 7 FinancialInstruments: Disclosuresequipment under construction any proceeds and related costs from selling items produced while bringing these types of assets to the location and condition necessary for them to be capable of operating in the manner intended by management. Instead, the proceeds and related costs are recognised in the Consolidated Statement of Income in accordance with applicable accounting policies.
Inter-Bank Offered Rate (IBOR) ReformPrior to these IAS 16 amendments Shell's policy was to deduct any proceeds and related costs from selling items produced against property, plant and equipment under construction.
IAS 37 Provisions, Contingent Liabilities and Contingent Assets: Onerous Contracts - Phase 1Cost of Fulfilling a Contract
IFRS 9 and IFRS 7 containThe amendments to IAS 37 provide additional clarity on which costs an entity includes when assessing whether a temporary targeted exception from applying specific hedge accounting requirements pre-IBOR reform.
By applying the exception, Shell anticipatescontract is onerous. The amendments specify that the interest rate benchmark on whichcost of fulfilling a contract comprises the hedged risk is based is not altered as a result of the IBOR reform. However, any hedge ineffectiveness continues to be recorded in the income statement. The exception ceases to apply when the uncertainty arising from interest rate benchmark reform is no longer present.
IFRS 3 Business Combinations
The amendment to IFRS 3 resolves the difficultiescosts that arose when an entity determined whether it acquired a business or a group of assets. Under the amended definition of a business, an acquisition qualifies as a business combination when the assets and liabilities acquired include an input and a substantive process that together significantly contributerelate directly to the abilitycontract. Those costs include both incremental costs and an allocation of other costs, as long as these relate directly to create outputs. The amended definition offulfilling a business is applied prospectively.contract.
Nature of the Consolidated Financial Statements
The Consolidated Financial Statements are presented in US dollars (dollars) and comprise the financial statements of the Company and its subsidiaries, being those entities over which the Company has control, either directly or indirectly, through exposure or rights to their variable returns and the ability to affect those returns through its power over the entities. Information about subsidiaries at December 31, 2020,2022, can be found in Exhibit 8.
Subsidiaries are consolidated from the date on which control is obtained until the date that such control ceases, using consistent accounting policies. All inter-company balances and transactions, including unrealised profits arising from such transactions, are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Non-controlling interest represents the proportion of income, other comprehensive income and net assets in subsidiaries that isare not attributable to the Company’s shareholders.
Climate change and energy transition
Meeting the goals of the Paris Agreement is a global and Shell target. Shell’s pathway to Paris alignment is reflected in the Group’s strategy and in 2020 we announced a long-term target to become a net-zero emissions energy business by 2050, in step with society.
It is important to note that the world needs to transform in a number of complex and interconnected ways. While the world has made some movement towards the goals of Paris, unfortunately, society is not yet on a path to meet Paris. Getting the energy system on a path to net-zero emissions will require coordinated action between energy providers, energy users and governments.
One of the key aspects that underpin Shell's financial statements are the oil and gas price and refining margin assumptions. These price assumptions are developed with input from our scenarios and other factors. The mid-price is our reasonable best estimate and the basis for our operating plans, outlooks and impairment testing.
Shell’s operating plan and outlook (including portfolio changes) are forecasted for a 10-year period and include significant actions to reduce its greenhouse gas (GHG) emissions in its journey towards its net-zero emissions target by 2050 as outlined in this report. However, our plan and pricing assumptions do not yet reflect Shell's 2050 net-zero emissions target, because our planning timeframe is 10 years and there is significant uncertainty on how society will transition to net-zero emissions. Instead these reflect the current economic environment, the pace of the world's energy transition and Shell’s reasonable expectation of how the next 10 years will evolve. As society moves towards net-zero emissions, Shell expects its operating plan, outlook and assumptions to be revised accordingly.
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| 220 | FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORMShell | Form 20-F 20202022 | 170 | |
Financial Statements and Supplements
Long term, it is expected that the current Shell portfolio will change2. Significant accounting policies, judgements and evolve with the energy transition. Decision-making on the future portfolio is guided by the pace of society’s progress and the aim of being in step with society as it moves towards the goal of the Paris Agreement. Shell has set out its strategy of how it will achieve its target to be a net-zero emissions energy business by 2050, in step with society’s progress towards achieving net-zero emissions.
estimates
Currency translation
Foreign currency transactions are translated using the exchange rate at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at quarter-end exchange rates of monetary assets and liabilities denominated in foreign currencies (including those in respect of inter-company balances, unless related to loans of a long-term investment nature) are recognised in income unless when recognised in other comprehensive income in respect of cash flow or net investment hedges. Foreign exchange gains and losses in income are presented within interest and other income or within purchases where not related to financing. Share capital issued in currencies other than the dollar is translated at the exchange rate at the date of issue.
On consolidation, assets and liabilities of non-dollar entities are translated to dollars at year-end rates of exchange, while their statements of income, other comprehensive income and cash flows are translated at quarterly average rates. The resulting translation differences are recognised as currency translation differences within other comprehensive income. Upon sale of all or part of an interest in, or upon liquidation of, an entity, the appropriate portion of cumulative currency translation differences related to that entity is generally recognised in income.
Revenue recognition
Revenue from sales of oil, natural gas, chemicals and other products is recognised at the transaction price to which Shell expects to be entitled, after deducting sales taxes, excise duties and similar levies. For contracts that contain separate performance obligations, the transaction price is allocated to those separate performance obligations by reference to their relative stand-alone selling prices.
Revenue is recognised when control of the products has been transferred to the customer. For sales by Integrated Gas and Upstream operations, this generally occurs when the product is physically transferred into a vessel, pipe or other delivery mechanism; for sales by refining operations, it is either when the product is placed onboard a vessel or offloaded from the vessel, depending on the contractually agreed terms; and for sales of oil products and chemicals, it is either at the point of delivery or the point of receipt, depending on contractual conditions.
Revenue resulting from hydrocarbon production from properties in which Shell has an interest with partners in joint arrangements is recognised on the basis of Shell’s volumes lifted and sold. Revenue resulting from the production of oil and natural gas under production-sharing contracts (PSCs) is recognised for those amounts relating to Shell’s cost recoveries and Shell’s share of the remaining production. Gains and losses on derivative contracts and the revenue and costs associated with other contracts that are classified as held primarily for the purpose of being traded are reported on a net basis in the Consolidated Statement of Income. Purchases and sales of hydrocarbons under exchange contracts that are necessary to obtain or reposition feedstocks for the refinery operations are presented net in the Consolidated Statement of Income.
Revenue resulting from arrangements that are not considered contracts with customers is presented as revenue from other sources.
Research and development
Development costs that are expected to generate probable future economic benefits are capitalised as intangible assets. All other research and development expenditure is recognised in income as incurred.
Exploration costs
Hydrocarbon exploration costs are accounted for under the successful efforts method: exploration costs are recognised in income when incurred, except that exploratory drilling costs, including in respect of the recapitalisation of the depreciation, are included in property, plant and equipment pending determination of proved reserves. Exploration costs capitalised in respect of exploration wells that are more than 12 months old are written off unless: (a) proved reserves are booked; or (b) (i) they have found commercially producible quantities of reservesreserves; and (ii) they are subject to further exploration or appraisal activity in that either drilling of additional exploratory wells is under way or firmly planned for the near future or other activities are being undertaken to sufficiently progress the assessing of reserves and the economic and operating viability of the project.
Property, plant and equipment and intangible assets other than goodwill
Recognition
Property, plant and equipment comprise assets owned by Shell, assets held by Shell under lease contracts, and assets operated by Shell as contractor in PSCs. They include rights and concessions in respect of properties with proved reserves ("proved properties") and with no proved reserves ("unproved properties"). Property, plant and equipment, including expenditure on major inspections, and intangible assets are initially recognised in the Consolidated Balance Sheet at cost where it is probable that they will generate future economic benefits. This includes capitalisation of decommissioning and restoration costs associated with provisions for asset retirement (see "provisions"), certain development costs (see "research and development") and the effects of associated cash flow hedges (see "financial instruments") as applicable. The accounting for exploration costs is described separately (see "exploration costs"). Intangible assets include goodwill, liquefied natural gas (LNG) off-take and sales contracts obtained through acquisition, emission certificates, software costs and trademarks. Interest is capitalised as an increase in property, plant and equipment, on major capital projects during construction.
Property, plant and equipment and intangible assets other than goodwill are subsequently carried at cost less accumulated depreciation, depletion and amortisation (including any impairment). Gains and losses on sale are determined by comparing the proceeds with the carrying amounts of assets sold and are recognised in income, within interest and other income.
Financial Statements and Supplements
2. Significant accounting policies, judgements and estimates continued
An asset is classified as held for sale if its carrying amount will be recovered principally through sale rather than through continuing use, which is when the sale is highly probable, and it is available for immediate sale.sale in its present condition subject only to terms that are usual and customary for sales of such assets. Assets classified as held for sale are measured at the lower of the carrying amount upon classification and the fair value less costs to sell.
Depreciation, depletion and amortisation
Property, plant and equipment related to hydrocarbon production activities are in principle depreciated on a unit-of-production basis over the proved developed reserves of the field concerned, other than assets whose useful lives differ from the lifetime of the field which are depreciated applying the straight-line method. However, for certain Integrated Gas and Upstream assets, the use for this purpose of proved developed reserves, which are determined using the SEC-mandatedSecurities and Exchange Commission (SEC) mandated yearly average oil and gas prices, would result in depreciation charges for these assets which do not reflect the pattern in which their future economic benefits are expected to be consumed as, for example, it may result in assets with long-term expected lives having accelerated or being fully depreciated in full within one year. Therefore, in these
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FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2020 | 171 | |
instances, other approaches are applied to determine thea reserves base for the purpose of calculating depreciation, such as using management’s expectations of future oil and gas prices rather than yearly average prices and using total proved reserves to provide a phasing of periodic depreciation charges that more appropriately reflects the expected utilisation of the assets concerned. (See Note 8)
Rights and concessions in respect of proved properties are depleted on the unit-of-production basis over the total proved reserves of the relevant area. Where individually insignificant, unproved properties may be grouped and depreciated based on factors such as the average concession term and past experience of recognising proved reserves.
Property, plant and equipment held under lease contracts, and capitalised LNG off-take and sales contracts and power purchase agreements are depreciated or amortised over the term of the respective contract. Other property, plant and equipment and intangible assets other than goodwill are depreciated or amortised on a straight-line basis over their estimated useful lives, except for goodwill, which is not amortised.lives. They include refineriesenergy and chemical plantschemicals parks (for which the useful life is generally 20 years), retail service stations (15(for which the useful life is generally 15 years), upgraders (30onshore power infrastructure (for which the useful life is generally 30-35 years), offshore wind assets (for which the useful life is generally 25-30 years) and major inspection costs, which are depreciated over the estimated period before the next planned major inspection (three to five years).
On classification of an asset as held for sale, depreciation ceases.
Estimates of the useful lives and residual values of property, plant and equipment and intangible assets other than goodwill are reviewed annually and adjusted if appropriate.
Impairment
The carrying amount ofIntangible assets other than goodwill is tested for impairment annually; in addition,and assets other than unproved properties (see "exploration"Exploration costs") are tested for impairment whenever events or changes in circumstances indicate that the carrying amounts for those assets may not be recoverable. On classification as held for sale, the carrying amountsIf any such indication of property, plant and equipment and intangible assets are also reviewed. If assets are determined to be impaired,impairment exists, the carrying amounts of those assets are written down to their recoverable amount, which is the higher of fair value less
costs of disposal (see "fair"Fair value measurements") and value in use.
Value in use is determined as the amount of estimated risk-adjusted discounted future cash flows. For this purpose, assets are grouped into cash-generating units based on separately identifiable and largely independent cash inflows. Estimates of future cash flows used in the evaluation of impairment of assets are made using management’s forecasts of commodity prices, market supply and demand, potential costs associated with operational GHGgreenhouse gas (GHG) emissions, mainly related to CO₂, and forecast product and refining margins. In addition, management takes into consideration the expected useful lives of the manufacturing facilities, exploration and production assets, and expected production volumes. The latter takes into account assessments of field and reservoir performance and includes expectations about both proved reserves and volumes that are expected to constitute proved reserves in the future (unproved volumes), which are risk-weighted utilising geological, production, recovery and economic projections. Cash flow projections are based on management’s most recent operating plan that represents management's best estimate and are risked as appropriate. The discount rate is based on a nominal post-tax weighted average cost of capital (WACC). Prior to 2021, cash flow estimates are risk-adjusted to reflect local conditions as appropriate andwere discounted at a rate based on Shell’sShell's marginal cost of debt.
Impairments except those related to goodwill, are reversed as applicable to the extent that the events or circumstances that triggered the original impairment have changed.
Impairment losses and reversals are reported within depreciation, depletion and amortisation.
Judgements and estimates
Proved oil and gas reserves
Unit-of-production depreciation, depletion and amortisation charges are principally measured based on management’s estimatesUpon classification of proved developed oil and gas reserves. Also, exploration drilling costs are capitalised pending the results of further exploration or appraisal activity, which may take several years to complete and before any related proved reserves can be booked.
Proved reserves are estimated by a central group of reserves experts. The estimated proved reserves are determined by reference to available geological and engineering data and only include volumesan asset as held for which access to market is assured with reasonable certainty. Yearly average oil and gas prices are applied in the determination of proved reserves. Estimates of proved reserves are inherently imprecise, require the application of judgement and are subject to regular revision, either upward or downward, based on new information such as from the drilling of additional wells, observation of long-term reservoir performance under producing conditions and changes in economic factors, including product prices, contract terms, legislation or development plans.
Changes to estimates of proved developed reserves affect prospectively the amounts of depreciation, depletion and amortisation charged and, consequently,sale, the carrying amounts of exploration and production assets. Generally, inamount is impaired if this exceeds the normal course of business the diversity of the asset portfolio will limit the net effect of such revisions. The outcome of, or assessment of plans for, exploration or appraisal activity may result in the related capitalised exploration drillingfair value less costs being recognised in income in that period.
Judgement is involved in determining when to use an alternative reserves base in order to appropriately reflect the expected utilisation of the assets concerned (see "depreciation, depletion and amortisation").
Information about the carrying amounts of exploration and production assets and the amounts charged to income, including depreciation, depletion and amortisation and the quantitative impact of the use of an alternative reserves base, is presented in Note 8.
Impairment
For the purposes of determining whether impairment of assets has occurred, and the extent of any impairment loss or its reversal, the key assumptions management uses in estimating risk-adjusted future cash flows for value in use measures are future oil and gas prices and refining margins. In addition, management uses other assumptions such as potential costs associated with operational GHG emissions and expected production volumes appropriate to the local circumstances and environment. These assumptions and the judgements of management that are based on them are subject to change as new information becomes available. Changes in assumptions could affect the carrying amounts of assets, and any impairment losses and reversals will affect income. Changes in economic conditions can affect the rate used to discount future cash flow estimates or the risk-adjustment in the future cash flows.
Expected production volumes, which comprise proved reserves and unproved volumes, are used for impairment testing because management believes this to be the most appropriate indicator of expected future cash flows. As discussed in "Proved oil and gas reserves" above, reserves estimates are inherently imprecise. Furthermore, projections about unproved volumes are based on information that is necessarily less robust than that available for mature reservoirs.sell.
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| 222 | FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORMShell | Form 20-F 20202022 | 172 | |
Financial Statements and Supplements
Estimation is involved with respectNotes to the expected life of refineries and chemicals sites, and also including management’s view on the future development of refining margins.
The determination of cash-generating units requires judgement. Changes in this determination could impact the calculation of value in use and therefore the conclusion on the recoverability of assets’ carrying amounts when performing an impairment test.
Judgement, which is subject to change as new information becomes available, can be required in determining when an asset is classified as held for sale. A change in that judgement could result in impairment charges affecting income, depending on whether classification requires a write-down of the asset to its fair value less costs to sell.
In assessing the value in use, the estimated risk adjusted future cash flows are discounted to their present value using a pre-tax discount rate that reflects Shell’s marginal cost of debt, current market assessments of the time value of money and residual risks (e.g. normal operational and other generic uncertainties). The discount rate applied does not reflect risks for which future cash flow estimates have been adjusted.
Significant estimates
Future commodity price assumptions used in the impairment testing in Integrated Gas and Upstream, presented in Note 8, tend to be stable because management does not consider short-term increases or decreases in prices as being indicative of long-term levels, but they are nonetheless subject to change.
Until 2019 management’s estimate of longer-term refining margins used in the impairment testing in Oil Products was based on the reversion to mean methodology, unless a fundamental shift in markets had been identified, over the life of the refineries. Under this approach, it was assumed that refining margins would revert to historical averages over time. As from 2020, a different price methodology applies, based on Shell management's understanding and interpretation of demand and supply fundamentals in the near term and taking into account various other factors such as industry rationalisation and energy transition in the long term.
Future commodity prices and refining margins used in impairment testing provide a source of estimation uncertainty as referred to in paragraph 125 of IAS 1 Presentation ofConsolidated Financial Statements (IAS 1.125).continued
2. Significant accounting policies, judgements and estimates continued
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| Judgements and estimates Proved oil and gas reserves Unit-of-production depreciation, depletion and amortisation charges are principally measured based on management’s estimates of proved developed oil and gas reserves. Also, exploration drilling costs are capitalised pending the results of further exploration or appraisal activity (successful efforts method), which may take place for several years before the final investment decision on a development project is taken and before any related proved reserves can be booked. Proved reserves are estimated by internal qualified professionals. The proved reserves are estimated with reasonable certainty by analysis of available geological and engineering data at the time of the estimation, and only include volumes for which access to market is assured with reasonable expectation. Yearly average oil and gas prices are used for the estimation of proved reserves unless prices are defined by contractual arrangements, excluding escalations based upon future conditions. Proved reserves are subject to regular revision, both upward or downward, based on new information from the drilling of additional wells, observation of long-term reservoir performance under producing conditions, updates of development plans and changes in economic factors, including product prices, contract terms, legislation or development plans. Changes to estimates of proved developed reserves affect prospectively the amounts of depreciation, depletion and amortisation charged and, consequently, the carrying amounts of exploration and production assets. Generally, in the normal course of business the diversity of the asset portfolio will limit the net effect of such revisions. The outcome of, or assessment of plans for, exploration or appraisal activity may result in the related capitalised exploration drilling costs being recognised in income in that period. Judgement is involved in determining when to use an alternative reserves base in order to appropriately reflect the expected utilisation of the assets concerned (see "Depreciation, depletion and amortisation"). Information about the carrying amounts of exploration and production assets and the amounts charged to income, including depreciation, depletion and amortisation and the quantitative impact of the use of an alternative reserves base, is presented in Note 12. Impairment For the purposes of determining whether impairment of assets has occurred, and the extent of any impairment loss or its reversal, the key assumptions management uses in estimating risk-adjusted future cash flows for value in use measures are future oil and gas prices and refining margins. In addition, management uses other assumptions such as potential costs associated with operational GHG emissions and expected production volumes appropriate to the local circumstances and environment. These assumptions and the judgements of management that are based on them are subject to change as new information becomes available. Changes in assumptions could affect the carrying amounts of assets, and any impairment losses and reversals will affect income. Changes in economic conditions can affect the rate used to discount future cash flow estimates or the risk adjustment in the future cash flows. Judgement is applied to conclude whether changes in assumptions or economic conditions are an indicator that an asset may be impaired or that an impairment loss recognised in prior periods may no longer exist, or may have decreased. Expected production volumes, which comprise proved reserves and unproved volumes, are used for impairment testing because management believes this to be the most appropriate indicator of expected future cash flows. Reserves estimates are inherently imprecise. Furthermore, projections about unproved volumes are based on information that is necessarily less robust than that available for mature reservoirs. Estimation is involved with respect to the expected life of energy and chemicals parks, including management’s view on the future development of refining margins. The determination of cash-generating units requires judgement. Changes in this determination could impact the calculation of value in use and therefore the conclusion on the recoverability of assets’ carrying amounts when performing an impairment test. Judgement, which is subject to change as new information becomes available, can be required in determining when an asset is classified as held for sale. A change in that judgement could result in impairment charges affecting income, depending on whether classification requires a write-down of the asset to its fair value less costs to sell. In assessing the value in use, the estimated risk-adjusted future post-tax cash flows are discounted to their present value using a post-tax discount rate that reflects Shell’s post-tax WACC. The discount rate applied does not reflect asset-specific risks for which future cash flow estimates have been adjusted. Significant estimates Assumptions about future commodity prices and refining margins used in the impairment testing in, respectively, Integrated Gas and Upstream and Chemicals and Products (see Note 12) are regularly assessed by management, noting that management does not necessarily consider short-term increases or decreases in prices as being indicative of long-term levels. The price methodology applied is based on Shell management’s understanding and interpretation of demand and supply fundamentals in the near term, taking into account various other factors such as industry rationalisation and energy transition in the long term. Future commodity prices and refining margins used in impairment testing provide a source of estimation uncertainty as referred to in paragraph 125 of IAS 1 Presentation of Financial Statements (IAS 1.125). Information about the carrying amounts of assets and impairments and their sensitivity to changes in significant estimates is presented in Notes 11 and 12. | |
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Financial Statements and Supplements
Notes to the carrying amounts of assetsConsolidated Financial Statements continued
2. Significant accounting policies, judgements and impairments and their sensitivity to changes in significant estimates are presented in Notes 7 and 8. continued
Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the amount recognised for any non-controlling interest over the fair value of the identifiable assets acquired and liabilities assumed in a business combination at the acquisition date. The amount recognised for any non-controlling interest is measured as a percentage of the identified net assets of the acquiree based on the present ownership's proportionate share. At the acquisition date, acquired goodwill is allocated to each cash-generating unit (CGU), or groups of CGUs, expected to benefit from the combination's synergies. The CGU to which goodwill is allocated represents the lowest level at which the goodwill will be monitored and managed.
Goodwill is not amortised and is subsequently measured at the initial amount recognised less any accumulated impairment losses.
Impairment
The carrying amount of goodwill is tested for impairment at least annually. Impairment is determined for goodwill by assessing the recoverable amount of each CGU to which the goodwill relates. An impairment loss is recognised when the CGU's recoverable amount is lower than its carrying amount.
Previously recognised impairment losses of goodwill are not reversed subsequently.
Leases (from January 1, 2019)
A contract, or part of a contract, that conveys the right to control the use of an identified asset for a period of time in exchange for payments to be made to the owners (lessors) is accounted for as a lease. Contracts are assessed to determine whether a contract is, or contains, a lease at the inception of a contract or when the terms and conditions of a contract are significantly changed. The lease term is the non-cancellable period of a lease, together with contractual options to extend or to terminate the lease early, where it is reasonably certain that an extension option will be exercised or a termination option will not be exercised.
At the commencement of a lease contract, a right-of-use asset and a corresponding lease liability are recognised, unless the lease term is 12 months or less. The commencement date of a lease is the date on which the underlying asset is made available for use. The lease liability is measured at an amount equal to the present value of the lease payments during the lease term that are not paid at that date. The lease liability includes contingent rentals and variable lease payments that depend on an index, rate, or where they are fixed payments in substance. The lease liability is remeasured when the contractual cash flows of variable lease payments change due to a change in an index or rate when the lease term changes following a reassessment.
Lease payments are discounted using the interest rate implicit in the lease. If that rate is not readily available, the incremental borrowing rate is applied. The incremental borrowing rate reflects the rate of interest that the lessee would have to pay to borrow over a similar term, with a similar security, the funds necessary to obtain an asset of a similar nature and value to the right-of-use asset in a similar economic environment.
In general, a corresponding right-of-use asset is recognised for an amount equal to each lease liability, adjusted by the amount of any pre-paid lease payment relating to the specific lease contract. The depreciation on right-of-use assets is recognised in income unless capitalised as exploration drilling cost (see "exploration cost") or capitalised when the right-of-use asset is used to construct another asset.
Where Shell is the lessor in a lease arrangement at inception, the lease arrangement will be classified as a finance lease or an operating lease. Classification is based on the extent to which the risks and rewards incidental to ownership of the underlying asset lie with the lessor or the lessee.
Where Shell, usually in its capacity as operator, has entered into a lease contract on behalf of a joint arrangement, a lease liability is recognised to the extent that Shell has primary responsibility for the lease liability. A finance sub-leasesublease is subsequently recognised if the related right-of-use asset is subleased to the joint arrangement. This is usually the case when the joint arrangement has the right to direct the use and obtains substantially all of the economic benefits from using the asset.
Impairment of the right-of-use asset
Right-of-use assets are subject to existing impairment requirements as set out in "property,"Property, plant and equipment" (see, above, and as presented
in Note 8).12.
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| Judgements and estimates A lease term includes optional lease periods where it is reasonably certain Shell will exercise the option to extend or not to exercise the option to terminate the lease. Determination of the lease term is subject to judgement and has an impact on the measurement of the lease liability and related right-of-use asset. When assessing the lease term at the commencement date, Shell takes into consideration the broader economics of the contract. Reassessment of the lease term is performed upon changes in circumstances that may affect the probability that an option to extend or to terminate the lease will be exercised.
Where the rate implicit in the lease is not readily available, an incremental borrowing rate is applied. This incremental borrowing rate reflects the rate of interest that the lessee would have to pay to borrow over a similar term, with a similar security, the funds necessary to obtain an asset of a similar nature and value to the right-of-use asset in a similar economic environment. Determination of the incremental borrowing rate requires estimation.
Leases (prior to January 1, 2019)
Agreements under which payments are made to owners in return for the right to use an asset for a period are accounted for as leases. Leases that transfer substantially all the risks and rewards of ownership are recognised at the commencement of the lease term as finance leases within property, plant and estimates
A lease term includes optional lease periods where it is reasonably certain Shell will exercise the option to extend or not exercise the option to terminate the lease. Determination of the lease term is subject to judgement and has an impact on the measurement of the lease liability and related right-of-use asset. When assessing the lease term at the commencement date, Shell takes into consideration the broader economics of the contract. Reassessment of the lease term is performed upon changes in circumstances that may affect the probability that an option to extend or to terminate the lease will be exercised. Where the rate implicit in the lease is not readily available, an incremental borrowing rate is applied. This incremental borrowing rate reflects the rate of interest that the lessee would have to pay to borrow over a similar term, with a similar security, the funds necessary to obtain an asset of a similar nature and value to the right-of-use asset in a similar economic environment. Determination of the incremental borrowing rate requires estimation. | |
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| 224 | FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORMShell | Form 20-F 20202022 | 173 | |
Financial Statements and Supplements
equipment2. Significant accounting policies, judgements and debt at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Finance lease payments are apportioned between interest expense and repayments of debt. All other leases are classified as operating leases and the cost is recognised in income on a straight-line basis, except where capitalised as exploration drilling costs (see "exploration costs").
estimates
Joint arrangements and associates
Arrangements under which Shell has contractually agreed to share control (see "Nature of the Consolidated Financial Statements" for the definition of control) with another party or parties are joint ventures where the parties have rights to the net assets of the arrangement, or joint operations where the parties have rights to the assets and obligations for the liabilities relating to the arrangement. Investments in entities over which Shell has the right to exercise significant influence but neither control nor joint control are classified as associates. Information about incorporated joint arrangements and associates at December 31, 2020,2022, can be found in Exhibit 8.
Investments in joint ventures and associates are accounted for using the equity method, under which the investment is initially recognised at cost and subsequently adjusted for the Shell share of post-acquisition income less dividends received and the Shell share of other comprehensive income and other movements in equity, together with any loans of a long-term investment nature. Where necessary, adjustments are made to the financial statements of joint ventures and associates to bring the accounting policies used into line with those of Shell. In an exchange of assets and liabilities for an interest in a joint venture, the non-Shell share of any excess of the fair value of the assets and liabilities transferred over the pre-exchange carrying amounts is recognised in income. Unrealised gains on other transactions between Shell and its joint ventures and associates are eliminated to the extent of Shell’s interest in them; unrealised losses are treated similarly but may also result in an assessment of whether the asset transferred is impaired.
Shell recognises its assets and liabilities relating to its interests in joint operations, including its share of assets held jointly and liabilities incurred jointly with other partners.
Inventories
Inventories are stated at cost or net realisable value, whichever is lower. Cost comprises direct purchase costs (including transportation), and associated costs incurred in bringing inventories to their present condition and location, and is determined using the first-in, first-out (FIFO) method for oil, gas and chemicals and by the weighted average cost method for materials.
Taxation
The charge for current tax is calculated based on the income reported by the Company and its subsidiaries, as adjusted for items that are
non-taxable or disallowed and using rates that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is determined, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the Consolidated Balance Sheet and on unused tax losses and credits carried forward.
Deferred tax assets and liabilities are calculated using the enacted or substantively enacted rates that are expected to apply when an asset is realised or a liability is settled. They are not recognised where they arise on the initial recognition of goodwill or of an asset or liability in a transaction (other than in a business combination) that, at the time of the transaction, affects neither accounting nor taxable profit, or in respect of taxable temporary differences associated with subsidiaries, joint ventures and associates where the reversal of the respective temporary difference can be controlled by Shell and it is probable that it will not reverse in the foreseeable future.
Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the deductible temporary differences, unused tax losses and credits carried forward can be utilised.
Income tax receivables and payables as well as deferred tax assets and liabilities include provisions for uncertain income tax positions/treatments.
Income taxes are recognised in income except when they relate to items recognised in other comprehensive income, in which case the tax is recognised in other comprehensive income. Income tax assets and liabilities are presented separately in the Consolidated Balance Sheet except where there is a right of offset within fiscal jurisdictions and an intention to settle such balances on a net basis.
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| Judgements and estimates Tax liabilities are recognised when it is considered probable that there will be a future outflow of funds to a taxing authority. In such cases, provision is made for the amount that is expected to be settled, where this can be reasonably estimated. Provisions for uncertain income tax positions/treatments are measured at the most likely amount or the expected value, whichever method is more appropriate. Generally, uncertain tax treatments are assessed on an individual basis, except where they are expected to be settled collectively. It is assumed that taxing authorities will examine positions taken if they have the right to do so and that they have full knowledge of the relevant information. A change in estimate of the likelihood of a future outflow and/or in the expected amount to be settled would be recognised in income in the period in which the change occurs. This requires the application of judgement as to the ultimate outcome, which can change over time depending on facts and circumstances. Judgements mainly relate to transfer pricing, including inter-company financing, interpretation of PSCs, expenditure deductible for tax purposes and taxation arising on disposal. | |
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Financial Statements and Supplements
JudgementsNotes to the Consolidated Financial Statements continued
2. Significant accounting policies, judgements and estimates continued
Tax liabilities are recognised when it is considered probable that there will be a future outflow of funds to a taxing authority. In such cases, provision is made for the amount that is expected to be settled, where this can be reasonably estimated. Provisions for uncertain income tax positions/treatments are measured at the most likely amount or the expected value, whichever method is more appropriate. Generally, uncertain tax treatments are assessed on an individual basis, except where they are expected to be settled collectively. It is assumed that taxing authorities will examine positions taken if they have the right to do so and that they have full knowledge of the relevant information. A change in estimate of the likelihood of a future outflow and/or in the expected amount to be settled would be recognised in income in the period in which the change occurs. This requires the application of judgement as to the ultimate outcome, which can change over time depending on facts and circumstances. Judgements mainly relate to transfer pricing, including inter-company financing, interpretation of PSCs, expenditure deductible for tax purposes and taxation arising on disposal.
Deferred tax assets are recognised only to the extent it is considered probable that those assets will be recoverable. This involves an assessment of when those assets are likely to reverse, and a judgement as to whether or not there will be sufficient taxable profits available to offset the assets when they do reverse. This requires assumptions regarding future profitability and is therefore inherently uncertain. To the extent assumptions regarding future profitability change, there can be an increase or decrease in the amounts recognised in respect of deferred tax assets as well as in the amounts recognised in income in the period in which the change occurs.
Taxation information, including charges and deferred tax assets and liabilities, is presented in Note 16. Income taxes include taxes at higher rates levied on income from certain Integrated Gas and Upstream activities.
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| Judgements and estimates continued Deferred tax assets are recognised only to the extent it is considered probable that those assets will be recoverable. This involves an assessment of when those assets are likely to reverse, and a judgement as to whether or not there will be sufficient taxable profits available to offset the assets when they do reverse. This requires assumptions regarding future profitability and is therefore inherently uncertain. To the extent assumptions regarding future profitability change, there can be an increase or decrease in the amounts recognised in respect of deferred tax assets as well as in the amounts recognised in income in the period in which the change occurs. Taxation information, including charges and deferred tax assets and liabilities, is presented in Note 22. Income taxes include taxes at higher rates levied on income from certain Integrated Gas and Upstream activities. | |
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Retirement benefits
Benefits in the form of retirement pensions and health care and life insurance are provided to certain employees and retirees under defined benefit and defined contribution plans.
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FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2020 | 174 | |
Obligations under defined benefit plans are calculated annually by independent actuaries using the projected unit credit method, which takes into account employees’ years of service and, for pensions, average or final pensionable remuneration, and are discounted to their present value using interest rates of high-quality corporate bonds denominated in the currency in which the benefits will be paid and of a duration consistent with the plan obligations. Where plans are funded, payments are made to independently managed trusts; assets held by those trusts are measured at fair value. Defined benefit plan surpluses are recognised as assets to the extent that they are considered recoverable, which is generally by way of a refund or lower future employer contributions.
The amounts recognised in income in respect of defined benefit plans mainly comprise service cost and net interest. Service cost comprises principally the increase in the present value of the obligation for benefits resulting from employee service during the period (current service cost) and also amounts relating to past service and settlements or amendments of plans. Plan amendments are changes to benefits and are generally recognised when all legal and regulatory approvals have been received and the effects have been communicated to members. Net interest is calculated using the net defined benefit liability or asset matched against the discount rate yield curve at the beginning of each year for each plan. Remeasurements of the net defined benefit liability or asset resulting from actuarial gains and losses, and the return on plan assets excluding the amount recognised in income, are recognised in other comprehensive income.
For defined contribution plans, pension expense represents the amount of employer contributions payable for the period.
Significant judgements and estimates
Defined benefit obligations and plan assets, and the resulting liabilities and assets that are recognised, require significant estimation as these are subject to volatility as (actuarial) assumptions regarding future outcomes and market values change. Substantial judgement is required in determining the actuarial assumptions, which vary for the different plans to reflect local conditions but are determined under a common process in consultation with independent actuaries. The assumptions applied in respect of each plan are reviewed annually and adjusted where necessary to reflect changes in experience and actuarial recommendations.
Actuarial assumptions applied in determining defined benefit obligations provide a source of estimation uncertainty as referred to in IAS 1.125.
Information about the amounts reported in respect of defined benefit pension plans, assumptions applicable to the principal plans and their sensitivity to changes in significant estimates are presented in Note 17.
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| Significant judgements and estimates Defined benefit obligations and plan assets, and the resulting liabilities and assets that are recognised, require significant estimation as these are subject to volatility as (actuarial) assumptions regarding future outcomes and market values change. Substantial judgement is required in determining the actuarial assumptions, which vary for the different plans to reflect local conditions but are determined under a common process in consultation with independent actuaries. The assumptions applied in respect of each plan are reviewed annually and adjusted where necessary to reflect changes in experience and actuarial recommendations. Actuarial assumptions applied in determining defined benefit obligations provide a source of estimation uncertainty as referred to in IAS 1.125. Information about the amounts reported in respect of defined benefit pension plans, assumptions applicable to the principal plans and their sensitivity to changes in significant estimates is presented in Note 23. | |
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Provisions
Provisions are recognised at the balance sheet date at management’s best estimate of the expenditure required to settle the present obligation. Non-current amounts are discounted at a rate intended to reflect the time value of money. The carrying amounts of provisions and the discount rate applied are regularly reviewed and adjusted for new facts or changes in law, technology or financial markets.
Financial Statements and Supplements
2. Significant accounting policies, judgements and estimates continued
Provisions for decommissioning and restoration costs, which arise principally in connection with hydrocarbon production facilities, oil products manufacturing facilities and pipelines, are measured on the basis of current requirements, technology and price levels; the present value is calculated using amounts discounted over the useful economic life of the assets. The liability is recognised (together with a corresponding amount as part of the related property, plant and equipment) once a legal or constructive obligation arises to dismantle an item of property, plant and equipment and to restore the site on which it is located and when a reasonable estimate can be made. The effects of changes resulting from revisions to the timing or the amount of the original estimate of the provision are reflected on a prospective basis, generally by adjustment to the carrying amount of the related property, plant and equipment. However, where there is no related asset, or the change reduces the carrying amount to nil, the effect, or the amount in excess of the reduction in the related asset to nil, is recognised in income.
Shell reviews its refineryenergy and chemical siteschemicals parks on a regular basis to determine whether any changes in assumptions, including expected life, trigger the need to recognise a provision for decommissioning and restoration.
Redundancy provisions are recognised when a detailed formal plan identifies the business or part of the business concerned, the location and number of employees affected, a detailed estimate of the associated costs and an appropriate timeline, and the employees affected have been notified of the plan's main features.
An onerous contract provision is recognised when the unavoidable cost of meeting the obligations under the contract exceedexceeds the economic benefits expected to be received under it. The unavoidable cost under a contract is the lower of the cost of fulfilling the contract and any compensation or penalties arising from failure to fulfil it. The cost of fulfilling a contract comprises the costs that relate directly to the contract. Before an onerous provision is recognised Shell first recognises any impairment loss that has occurred on assets dedicated to that contract.
Other provisions are recognised in income in the period in which an obligation arises and the amount can be reasonably estimated. Provisions are measured based on current legal requirements and existing technology where applicable. Recognition of any joint and several liability is based on management’s best estimate of the final pro rata share of the liability. Provisions are determined independently of expected insurance recoveries. Recoveries are recognised when virtually certain of realisation.
Estimates
Estimates of provisions for future decommissioning and restoration costs are recognised and based on current legal and constructive requirements, technology and price levels. Because actual cash outflows can differ from estimates due to changes in laws, regulations, public expectations, technology, prices and conditions, and can take place many years in the future, the carrying amounts of provisions are regularly reviewed and adjusted to take account of such changes.
Significant estimate
The discount rate applied to reflect the time value of money in the carrying amount of provisions requires estimation. The discount rate applied is reviewed regularly and adjusted following changes in market rates.
The discount rate applied to determine the carrying amount of provisions provides a source of estimation uncertainty as referred to in IAS 1.125.
Information about decommissioning and restoration provisions and their sensitivity to changes in estimates are presented in Note 18.
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| Estimates Estimates of provisions for future decommissioning and restoration costs are recognised and based on current legal and constructive requirements, technology and price levels. Because actual cash outflows can differ from estimates due to changes in laws, regulations, public expectations, technology, prices and conditions, and can take place many years in the future, the carrying amounts of provisions are regularly reviewed and adjusted to take account of such changes. Significant estimate The discount rate applied to reflect the time value of money in the carrying amount of provisions requires estimation. The discount rate used in the calculation of provisions is the pre-tax rate that reflects current market assessments of the time value of money. Generally, the market assessments of the time value of money can be reflected in the risk-free rate and given the long-term investment nature of oil and gas business, Shell considers it appropriate to use the 20-year US Treasury bond yield return as the risk-free rate. The discount rate applied is reviewed regularly and adjusted following changes in market rates. The discount rate applied to determine the carrying amount of provisions provides a source of estimation uncertainty as referred to in IAS 1.125. Information about decommissioning and restoration provisions and their sensitivity to changes in estimates is presented in Note 24. | |
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Financial instruments
Financial assets and liabilities are presented separately in the Consolidated Balance Sheet except where there is a legally enforceable right of offset and Shell has the intention to settle on a net basis or realise the asset and settle the liability simultaneously.
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FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2020 | 175 | |
Financial Assetsassets
Financial assets are classified at initial recognition and subsequently measured at amortised cost, fair value through other comprehensive income or fair value through profit or loss. The classification of financial assets is determined by the contractual cash flows and where applicable the business model for managing the financial assets.
Debt instruments are measured at amortised cost, if the objective of the business model is to hold the financial asset in order to collect contractual cash flows and the contractual terms give rise to cash flows that are solely payments of principal and interest. It is initially recognised at fair value plus or minus transaction costs that are directly attributable to the acquisition or issue of the financial asset. Subsequently, the financial asset is measured using the effective interest method less any impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.
All equity instruments and other debt instruments are recognised at fair value. For equity instruments, on initial recognition, an irrevocable election (on an instrument-by-instrument basis) can be made to designate these as at fair value through other comprehensive income instead of fair value through profit or loss. Dividends received on equity instruments are recognised as other income in profit or loss when the right of payment has been established, except when Shell benefits from such proceeds as a recovery of part of the cost of the financial asset, in which case such gains are recorded in other comprehensive income.
Financial Statements and Supplements
2. Significant accounting policies, judgements and estimates continued
Investments in securities
Investments in securities (“securities”("securities") comprise equity and debt securities. Equity securities are carried at fair value. Generally, unrealised holding gains and losses are recognised in other comprehensive income. On sale, net gains and losses previously accumulated in other comprehensive income are transferred to retained earnings. Debt securities are generally carried at fair value with unrealised holding gains and losses recognised in other comprehensive income. On sale, net gains and losses previously accumulated in other comprehensive income are recognised in income.
Impairment of financial assets
The expected credit loss model is applied for recognition and measurement of impairments in financial assets measured at amortised cost or at fair value through other comprehensive income. The expected credit loss model is also applied for financial guarantee contracts to which IFRS 9 applies and which are not accounted for at fair value through profit or loss. The loss allowance for the financial asset is measured at an amount equal to the 12-month expected credit losses. If the credit risk on the financial asset has increased significantly since initial recognition, the loss allowance for the financial asset is measured at an amount equal to the lifetime expected credit losses. Changes in loss allowances are recognised in profit or loss. For trade receivables, a simplified impairment approach is applied recognising expected lifetime losses from initial recognition.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand, including offsetting bank overdrafts, short-term bank deposits, money market funds, reverse repos and similar instruments that generally have a maturity of three months or less at the date of purchase.
Financial Liabilities liabilities
Financial liabilities are measured at amortised cost, unless they are required to be measured at fair value through profit or loss, such as instruments held for trading, or Shell has opted to measure them at fair value through profit or loss. Debt and trade payables are recognised initially at fair value based on amounts exchanged, net of transaction costs, and subsequently at amortised cost except for fixed rate debt subject to fair value hedging which is remeasured for the hedged risk (see below). Interest expense on debt is accounted for using the effective interest method, and other than interest capitalised, is recognised in income. For financial liabilities that are measured under the fair value option, the change in the fair value related to own credit risk is recognised in other comprehensive income. The remaining fair value change is recognised at fair value through profit or loss.
Derivative contracts and hedges
Derivative contracts are used in the management of interest rate risk, foreign exchange risk, commodity price risk, and foreign currency cash balances. Derivatives that are not closely related to the host contract in terms of economic characteristics and risks and the host contract of which is not a financial asset are separated from their host contract and recognised at fair value with the associated gains and losses recognised in income.
Contracts to buy or sell a non-financial item that can be settled net in cash are accounted for as financial instruments, with the exception of those contracts that were entered into and continue to be held for the purpose of the receipt or delivery of a non-financial item in accordance with Shell’s expected purchase, sale or usage requirements. Gains or losses arising from changes in the fair value of derivatives that are not designated as effective hedging instruments are recognised in income.
Certain derivative contracts qualify and are designated either: as a fair value hedge of the change in fair value of a recognised asset or liability or an unrecognised firm commitment; or as a cash flow hedge for the change in cash flows to be received or paid relating to a recognised asset or liability or a highly probable forecast transaction; or as a net investment hedge of the change in foreign exchange rates associated with net investments in foreign operations with a different functional currency than Shell’s functional currency.
A change in the fair value of a hedging instrument designated as a fair value hedge is recognised in income, together with the consequential adjustment to the carrying amount of the hedged item. The effective portion of a change in fair value of a derivative contract designated as a cash flow hedge is recognised in other comprehensive income until the hedged transaction occurs; any ineffective portion is recognised in income. Where the hedged item is a non-financial asset or liability, the amount in accumulated other comprehensive income is transferred to the initial carrying amount of the asset or liability (reclassified to the balance sheet); a net investment hedge is accounted for similarly to a cash flow hedge. Gains or losses on the hedging instrument relating to the effective portion of the hedge are recognised in other comprehensive income while any gains or losses relating to the ineffective portion are recognised in the income statements. On disposal of the foreign operation, the cumulative value of any such gains or losses recorded in other comprehensive income is reclassified to the income statement.
The effective portion of a change due to retranslation at quarter-end exchange rates in the carrying amount of debt and the principal amount of derivative contracts used to hedge net investments in foreign operations is recognised in other comprehensive income until the related investment is sold or liquidated; any ineffective portion is recognised in income.
All relationships between hedging instruments and hedged items are documented, as well as risk management objectives and strategies for undertaking hedge transactions. The effectiveness of hedges is also continually assessed and hedge accounting is discontinued when there is a change in the risk management strategy.
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FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2020 | 176 | |
Unless designated as hedging instruments, contracts to sell or purchase non-financial items that can be settled net as if the contracts were financial instruments and that do not meet expected own useown-use requirements (typically, forward sale and purchase contracts for commodities in trading operations), and contracts that are or contain written options, are recognised at fair value; associated gains and losses are recognised in income.
Derivatives that are held primarily for the purpose of trading are presented as current in the Consolidated Balance Sheet.
Financial Statements and Supplements
Notes to the Consolidated Financial Statements continued
2. Significant accounting policies, judgements and estimates continued
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| Judgement Judgement is required to determine whether contracts to buy or sell LNG are capable of being settled on a net basis. Due to the limited liquidity in the LNG market and the lack of net settlement history, contracts to buy or sell LNG are not considered capable of being settled on a net basis. As a result, these contracts are accounted for on an accrual basis and not as a financial instrument. | |
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Fair value measurements
Fair value measurements are estimates of the amounts for which assets or liabilities could be transferred at the measurement date, based on the assumption that such transfers take place between participants in principal markets and, where applicable, taking highest and best use into account.
Estimates | | | | | | | | |
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| Estimate Where available, fair value measurements are derived from prices quoted in active markets for identical assets or liabilities. In the absence of such information, other observable inputs are used to estimate fair value. Inputs derived from external sources are corroborated or otherwise verified, as appropriate. In the absence of publicly available information, fair value is determined using estimation techniques that take into account market perspectives relevant to the asset or liability, in as far as they can reasonably be ascertained, based on predominantly unobservable inputs. For derivative contracts where publicly available information is not available, fair value estimations are generally determined using models and other valuation methods, the key inputs for which include future prices, volatility, price correlation, counterparty credit risk and market liquidity, as appropriate; for other assets and liabilities, fair value estimations are generally based on the net present value of expected future cash flows. | |
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Where available, fair value measurements are derived from prices quoted in active markets for identical assets or liabilities. In the absence of such information, other observable inputs are used to estimate fair value. Inputs derived from external sources are corroborated or otherwise verified, as appropriate. In the absence of publicly available information, fair value is determined using estimation techniques that take into account market perspectives relevant to the asset or liability, in as far as they can reasonably be ascertained, based on predominantly unobservable inputs. For derivative contracts where publicly available information is not available, fair value estimations are generally determined using models and other valuation methods, the key inputs for which include future prices, volatility, price correlation, counterparty credit risk and market liquidity, as appropriate; for other assets and liabilities, fair value estimations are generally based on the net present value of expected future cash flows.
Share-based compensation plans
The fair value of share-based compensation expense arising from the Performance Share Plan (PSP) and the Long-term Incentive Plan (LTIP) - Shell’s main equity-settled plans - is estimated using athe average Monte Carlo option pricing modelfair values and is recognised in income from the date of grant over the vesting period with a corresponding increase directly in equity. The model projects and averages the results for a range of potential outcomes for the vesting conditions, the principal assumptions for which are the share price volatility and dividend yields for Shell and four of its main competitors over the lastusing respectively three years and the last 10 years.years of historical data.
Shares held in trust
Shares in the Company, which are held by employee share ownership trusts and trust-like entities, are not included in assets but are reflected at cost as a deduction from equity as shares held in trust.
Acquisitions and sales of interests in a business
Assets acquired and liabilities assumed when control is obtained over a business, and when an interest or an additional interest is acquired in a joint operation which is a business, are recognised at their fair value at the date of the acquisition; the amount of the purchase consideration above this value is recognised as goodwill. When control is obtained, any non-controlling interest is recognised as the proportionate share of the identifiable net assets. The acquisition of a non-controlling interest in a subsidiary and the sale of an interest while retaining control are accounted for as transactions within equity. The difference between the purchase consideration or sale proceeds after tax and the relevant proportion of the non-controlling interest, measured by reference to the carrying amount of the interest’s net assets at the date of acquisition or sale, is recognised in retained earnings as a movement in equity attributable to Royal Dutch Shell plc shareholders.
EnvironmentalEmission schemes and related environmental plansprogrammes
Emission certificates, biofuel certificates and renewable power certificates (together "environmental certificates") held for trading purposes are recognised at cost or net realisable value, whichever is lower, and classified under inventory.
Emission trading schemes
Emission certificates acquired for compliance purposes are initially recognised at cost and classified under intangible assets. In the schemes where a cap is set for emissions, the associated emission certificates granted are recognised at cost, which may be zero. Emission certificates held for trading purposes are recognised at cost or net realisable value, whichever is lower, and classified under inventory. An emission liability is recognised under other liabilities when actual emissions occur that give rise to an obligation. To the extent the liability is covered by emission certificates held for compliance purposes, the liability is measured with reference to the value of these emission certificates held and for the remaining uncovered portion at fair market value. The associated expense is presented under "production"Production and manufacturing expenses". Both the emission certificates and the emission liability are derecognised upon settling the liability with the respective regulator.
Biofuel certificates
Self-generated biofuel certificates are recognised at NaN value, as they primarily offset the obligation. Biofuel certificates acquired that are held for compliance purposes are initially recognised at cost under intangible assets. Self-generated biofuel certificates are recognised at nil value, as they primarily offset the obligation. A biofuel liability is recognised under other liabilities when the number of biofuel certificates available from own activities is less than required.obligation arises under local regulations. To the extent covered by biofuel certificates held for compliance purposes, the liability is measured with reference to the value of these certificates held and for the remaining uncovered portion at market value. The associated expense is presented under "purchases". Biofuel certificates and the biofuel liability are both derecognised upon settling the liability with the respective regulator.
Financial Statements and Supplements
2. Significant accounting policies, judgements and estimates continued
Renewable power schemesprogrammes
Renewable power certificates acquired for compliance purposes are initially recognised at cost as an intangible asset. Self-generated renewable power certificates are generally transferred to the customer upon sales of electricity. A renewable power liability is recognised under other liabilities when electricity sales take place that give rise to an obligation to retire renewable power certificates. The associated cost is recognised in "Purchases""purchases" in the income statement. If the obligation relates to power consumed in business operations, it is presented in other liabilities with cost reflected in "Production and manufacturing expenses". To the extent covered by renewable power certificates held for compliance purposes, the liability is measured with reference to the value of these renewable power certificates and for the remaining uncovered portion at market value. Renewable power certificates and the renewable power liability are derecognised upon settling the liability with the respective regulator.
Consolidated Statement of Income presentation
Purchases reflect all costs related to the acquisition of inventories and the effects of the changes therein, and include associated costs incurred in conversion into finished or intermediate products. Production and manufacturing expenses are the costs of operating, maintaining and managing production and manufacturing assets. Selling, distribution and administrative expenses include direct and indirect costs of marketing and selling products.
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FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2020 | 177 | |
3 – CHANGES TO IFRS NOT YET ADOPTED
Inter-Bank Offered Rate (IBOR) Reform - Phase 2
Amendments3. Changes to IFRS 9 Financial Instruments (IFRS 9), IFRS 7 Financial Instruments: Disclosures (IFRS 7)not yet adopted
Deferred Tax related to Assets and IFRS 16 Leases (IFRS 16) were issued in August 2020 that complement those amendments issued in 2019 (IBOR Reform - Phase 1) and focus on the effects of IBOR reform onLiabilities arising from a company’s financial statements that arise when, for example, an IBOR usedSingle Transaction (Amendments to calculate interest on a financial asset is replaced with an alternative benchmark rate.
IAS 12 Income
taxes (IAS 12))
In Phase 2May 2021, amendments to IAS 12 were published to require companies to recognise deferred tax on particular transactions that, on initial recognition, give rise to equal amounts of taxable and deductible temporary differences. The amendments will typically apply to transactions where assets and liabilities are recognised from a single transaction, such as leases for the IASB amended requirements relating to: changes in the basis for determining contractual cash flows of financial assets, financial liabilitieslessee and lease liabilities; hedge accounting;decommissioning and disclosures. These amendments apply only to changes required by the IBOR reform to financial instruments and hedging relationships.
The amendments are effective for periods beginning on or after January 1, 2021 and are to be applied retrospectively. Early application is permitted.
Shell’s fixed-rate debt hedged to floating rate will be affected by the market-wide replacement of London Inter-Bank Offered Rate (LIBOR) by alternative risk-free reference rates, most significantly by reform of dollar LIBOR.
The majority of Shell’s debt-related interest rate and currency swaps were designated in fair value hedge relationships at December 31, 2020.
The notional amount of hedging instruments designated in hedge relationships affected by the reform, at December 31, 2020, was $23,010 million. Furthermore, Shell has one floating rate note of $500 million tied to LIBOR, maturing in 2023, which will be affected.
A Group-wide project is in progress to manage the transition to alternative benchmark rates disclosures.
UK-adopted international accounting standards
On December 31, 2020 at 11pm BST, legislation made under the European Union (Withdrawal) Act 2018 brought into UK law IFRS adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union (EU) (previously referred to as "IFRS as adopted by the EU") to provide continuity. These standards are referred to as UK-adopted international accounting standards.
Forannual reporting periods beginning on or after January 1, 2021, Shell's filing2023, and should be applied on a modified retrospective basis.
Shell performed an analysis of the Annual Report to the Registrarimpact of Companies for Englandthese amendments and Wales ("Companies House") and other UK regulatory filings will be prepared in accordance withconcluded that these UK-adopted international accounting standards.
The IFRS endorsement powers for the UK have been transferred from the European Commission to the Secretary of State for Business, Energy and Industrial Strategy (BEIS).
There are currently no material differences between the UK-adopted international accounting standards and IFRS adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the EU. But if divergence occurs between the two accounting frameworks this may result in the need to report against both accounting frameworks to meet the UK and Dutch reporting requirements. However, if the EU determines that UK-adopted international accounting standards are equivalent to IFRS adopted pursuant to Regulation (EC) No 1606/2002as it applies in the EU, any divergence between the two accounting frameworks would have no impactsignificant effect on Shell’s future financial reporting. The EU has not yet accepted the UK-adopted international accounting standards at the time of publishing this Report.
It is expected that in the short term there will be no material differences between IFRS as issued by the IASB, UK-adopted international accounting standards and IFRS adopted pursuant to Regulation (EC) No 1606/2002as it applies in the EU.
IFRS 17 Insurance contracts (IFRS 17)
IFRS 17 was issued in 2017, with amendments published in 2020 and 2021, and is required to be adopted for annual reporting periods beginning on or after January 1, 2023. The IFRS 17 model combines a current balance sheet measurement of insurance contracts with recognition of profit over the period that services are provided. The general model in the standard requires insurance contract liabilities to be measured using probability-weighted current estimates of future cash flows, an adjustment for risk, and a contractual service margin representing the profit expected from fulfilling the contracts. Effects of changes in the estimates of future cash flows and the risk adjustment relating to future services are recognised over the period services are provided rather than immediately in profit or loss. Shell is inperformed an analysis of the process of evaluating the initial impact of thisIFRS 17 and concluded that the standard. has no significant impact on future financial reporting.
44. Climate change and energy transition
This note describes how Shell has considered climate-related impacts in key areas of the financial statements and how this translates into the valuation of assets and measurement of liabilities as Shell makes progress in the energy transition. The note is structured as follows:
Financial Statements and Supplements
Notes to the Consolidated Financial Statements continued
4. Climate change and energy transition continued
Note 2 Significant accounting policies, judgements and estimates describes uncertainties, including those that have the potential to have a material effect on the Consolidated Balance Sheet in the next 12 months. This note describes the key areas of climate impacts that potentially have short-, medium- and longer-term effects on amounts recognised in the Consolidated Balance Sheet at December 31, 2022. Where relevant, this note contains references to other notes to the Consolidated Financial Statements and aims to provide an overarching summary of the energy transition impact.
In 2021, Shell launched its Powering Progress strategy to become a net-zero emissions business by 2050. The strategy includes targets to reduce absolute emissions from its operations and the energy it buys to run them, compared with 2016 levels. Shell's targets include reducing Scope 1 and 2 emissions by 50% by 2030 and reducing the carbon intensity of energy products sold (Scope 1, 2 and 3 emissions) by 6-8% by 2023, 9-12% by 2024, 9-13% by 2025, 20% by 2030, 45% by 2035, and 100% by 2050.
Financial planning and assumptions
This section provides an overview of key assumptions used for financial planning related to climate change and the energy transition. These assumptions that underpin the amounts recognised in these financial statements -- such as future oil and gas prices, discount rates, future costs of decommissioning and restoration, and deferred tax assets -- take climate change and energy transition into account and are similarly used for impairment testing of carrying amounts of assets. Areas described focus on those most pertinent to Shell’s business and how financial planning and assumptions interact with scenarios. Subsequently, the sensitivity of carrying amounts to commodity prices, carbon costs, discount rates and demand, if different assumptions were applied, is described.
There is no one single scenario that underpins the financial statements. Shell scenarios are designed to challenge management’s perspectives on the future business environment and stretch management to consider even events that may be only remotely possible. As a result, these scenarios are not intended to be predictions of likely future events or outcomes and are not the basis for Shell's financial statements and Operating Plans.
Shell scenarios and the range of possible outcomes inform the development of Shell's strategy and Shell’s view on future oil and gas price outlooks and refining margins. These oil and gas price outlooks are one of the key assumptions that underpin Shell’s financial statements. Shell’s scenarios inform high-, mid- and low-price outlooks. The mid-price outlook represents management’s reasonable best estimate and is the basis for Shell's financial statements, Operating Plans and impairment testing. Impairment testing applies management's reasonable best estimates across the full life cycle of assets.
Shell’s targets to reduce absolute Scope 1 and 2 emissions [A] by 50% by 2030, compared with 2016 levels on a net basis, and 20% reduction of net carbon intensity [B] by 2030, have been included in Shell's Operating Plan. The Operating Plan also includes expected costs for evolving carbon regulations (see section "Carbon cost sensitivities" below) based on a forecast of Shell’s equity share of emissions from operated and
non-operated assets also taking into account the estimated impact of free allowances.
[A]Operational control boundary
[B]GHG emissions based on the energy product sales included in the Net Carbon Intensity (NCI) using equity boundary.
Goodwill, other intangible assets, property, plant and equipment and joint ventures and associates
As from January 1, 2022 segments are aligned with the Powering Progress strategy. (see Note 8)
The carrying value of goodwill, other intangible assets, property plant and equipment, and joint ventures and associates by segment as at December 31, 2022, was as follows:
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| | | | | $ billion |
| Goodwill | Other intangible assets | Property, plant and equipment | Joint ventures and associates | Total |
| Integrated Gas | 4.9 | 3.9 | 60.8 | 5.6 | 75.2 |
| Upstream | 5.3 | 0.2 | 74.5 | 7.7 | 87.7 |
| Chemicals and Products | 0.3 | 2.1 | 38.1 | 4.2 | 44.7 |
| Marketing | 3.3 | 1.8 | 19.1 | 4.4 | 28.6 |
| Renewables and Energy solutions | 2.2 | 1.6 | 3.2 | 1.9 | 8.9 |
| Corporate | — | 0.1 | 2.9 | 0.1 | 3.1 |
| Total | 16.0 | 9.7 | 198.6 | 23.9 | 248.2 |
For Integrated Gas and Upstream, sensitivity to commodity prices and carbon prices has been tested (see below) covering the carrying amount of goodwill, other intangible assets, property plant and equipment, and joint ventures and associates. Sensitivity testing was performed applying alternative price scenarios to the forecasted cash flows for the whole period until the end of life of the asset tested. For Chemicals and Products, sensitivity to refining margins has been tested (see below). Marketing and Renewables and Energy Solutions are expected to be resilient through the energy transition with limited exposure of stranded assets.
In addition, sensitivity to changes in the discount rate applied in impairment testing has also been tested (see below).
Financial Statements and Supplements
Notes to the Consolidated Financial Statements continued
4. Climate change and energy transition continued
Carrying value of Integrated Gas and Upstream assets
| | |
Carrying value of Integrated Gas and Upstream assets $ billion as at December 31 |
| | |
Carrying value of production assets $ billion as at December 31
|
| | |
Carrying value of exploration and evaluation assets $ billion as at December 31 |
[A]IIncluding right of use assets for the implementation of IFRS 16 Leases in 2019.
| | |
| Carrying amount of Integrated Gas and Upstream assets |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | $ billion |
| 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 |
| Integrated Gas | 95 | 94 | 91 | 93 | 79 | 75 | 75 |
| Upstream | 136 | 128 | 123 | 119 | 106 | 91 | 88 |
| Total at December 31 | 231 | 222 | 214 | 212 | 185 | 166 | 163 |
| | |
| Carrying amount of production assets |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | $ billion |
| 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 |
| At December 31 | 169 | 154 | 149 | 141 | 125 | 112 | 111 |
| Right of use assets | | | | 9 | 7 | 6 | 6 |
| Total at December 31 | 169 | 154 | 149 | 150 | 132 | 118 | 117 |
| | |
| Carrying amount of exploration and evaluation assets |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | $ billion |
| 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 |
| At December 31 | 19 | 19 | 18 | 15 | 9 | 7 | 6 |
Financial Statements and Supplements
Notes to the Consolidated Financial Statements continued
4. Climate change and energy transition continued
Within Integrated Gas and Upstream, the assets potentially most sensitive to the energy transition are production assets and exploration and evaluation assets. Both production assets of $117 billion and exploration and evaluation assets of $6 billion are recognised within Property, plant and equipment within Integrated Gas and Upstream.
Portfolio changes
Since 2016, the carrying amount of production assets in Integrated Gas and Upstream decreased from $169 billion as at December 31, 2016, to $117 billion as at December 31, 2022. Over this period, depreciation was higher than additions for each year, and disposals of property, plant and equipment with a carrying amount of some $25 billion occurred. The carrying amount of capitalised exploration and evaluation expenses decreased from $19 billion as at December 31, 2016, to $6 billion at December 31, 2022. This is the result of final investment decisions, reclassifications to production assets and amounts charged to expenses exceeding additions.
Estimated useful life
The energy transition and the pace at which it progresses may impact the remaining life of assets. Integrated Gas and Upstream assets are generally depreciated using a unit-of-production methodology where depreciation generally depends on production of SEC proved reserves (see Note 2). Based on production plans of existing assets, some 35%, 5% and 0% of SEC proved reserves as at December 31, 2022, would currently be left by 2030,2040 and 2050, respectively. Based on the unit-of-production depreciation methodology applied, carrying amounts for individual assets are depreciated to nil in the same pattern as the depletion of reserves towards nil. An analysis of Integrated Gas and Upstream production assets of $117 billion as at December 31, 2022, based on planned reserves depletion shows that these assets would be significantly further depreciated under the unit-of-production method by 2030 and fully depreciated by 2050. This provides a further perspective on the risk of stranded assets carried in the Consolidated Balance Sheet as at December 31, 2022.
Price sensitivities using climate price lines
As noted, in accordance with IFRS, Shell’s financial statements are based on reasonable and supportable assumptions that represent management’s current best estimate of the range of economic conditions that may exist in the foreseeable future. The mid-price outlook informed by Shell’s scenario planning represents management’s best estimate. A change of -10% or +10% to the mid-price outlook, as an average percentage over the whole life cycle of assets, would result in around $2-5 billion (2021: $12-15 billion) impairment or of some $2-4 billion
(2021: $6-9 billion) impairment reversal respectively in Integrated Gas and Upstream (see Note 12). Compared with prior year the impact
of a 10% change in commodity prices is significantly lower as a result of the higher short- and medium-term commodity prices that both
resulted in impairment reversals in 2022 and higher headroom in impairment testing.
The energy transition will continue to bring volatility and there is significant uncertainty as to how commodity prices will develop over the next decades. Some price lines see a structurally lower price during the transition period, while other price lines see structurally higher commodity prices as a result of changes in both supply and demand. As the risk of stranded assets is prevalent with downside price risk in energy transition scenarios, sensitivities have only been undertaken for such downside scenarios. If different price outlooks from external and often normative climate change scenarios were used, this would impact the recoverability of certain assets recognised in the Consolidated Balance Sheet as at December 31, 2022. These external scenarios are not representative of management’s mid-price reasonable best estimate.
Sensitivity of carrying amounts to commodity prices described below is under the assumption that all other factors in the models used, such as cost levels, volumes, mid-price CO2 assumptions and the discount rate, to calculate recoverability of carrying amounts remain unchanged. Sensitivity testing has been performed by applying the alternative commodity price scenarios to cash flows for the whole period until the end of life of the assets tested. The alternative commodity prices were applied in the local cash flow models and thereafter aggregated by segment. Changes to commodity prices are applied because of the significant impact on Shell’s business. It should be noted that a significant decrease in long-term forecasted commodity prices would probably lead to further changes, such as in portfolio choices and cost levels.
Sensitivity to changes in commodity prices has been tested as follows:
Priceline 1 – SEGMENT INFORMATIONAverage prices from three [A] 1.5-2 degrees Celsius external climate change scenarios: in view of the broad range of price outlooks across the various scenarios, the average of three external price outlooks was taken.
[A]The IEA SDS scenario applied in 2021 is no longer published and has therefore been taken out for 2022.
▪IHS Markit/ACCS 2022 – under this scenario oil prices (real terms 2022 (RT22)) gradually decrease towards $36.5 per barrel (/b) in 2039, recovering to $94.3/b in 2050. Gas prices (RT22) decrease from $3.7 per million British thermal units (/MMBtu) in 2023 towards 2024 to slightly below $3/MMBtu for Henry Hub, remaining around that level until 2050. For Europe, prices decrease from $35/MMbtu in 2023 towards around $4/MMBtu in 2029, remaining around that level until 2040 and then gradually increasing to a level around $5/MMBtu in 2050. For Asia, prices decrease towards around $5/MMBtu in 2029, again gradually increasing from 2045 to a level around $6/MMBtu
in2050.
▪Woodmac WM AET-1.5 degree – under this scenario oil prices (RT22) gradually decrease towards $27/b in 2050. Gas prices (RT22) decrease from around $5/MMBtu in 2023 to $3/MMBtu in 2024, gradually increasing to some $4/MMBtu in 2045 and again decreasing
to some $3/MMBtu in 2050 for Henry Hub. For Asia and Europe, gas prices (RT22) decrease from around $30/MMBtu in 2023 to some$6/MMBtu and $5/MMBtu respectively in 2031, gradually increasing again to some $10/MMBtu and some $8/MMbtu respectively around 2040 and subsequently decreasing to $6/MMBtu and some $5/MMBtu respectively in 2050.
▪IEA NZE50 – under this scenario oil prices (RT22) gradually decrease towards some $25/b in 2050. Gas prices (RT22) decrease from some$3.5/MMBtu in 2023 to around $2/MMBtu for Henry Hub in 2030, remaining slightly below that level until 2050. For Asia and Europe, gas prices (RT22) decrease from some $10/MMBtu and $9/MMBtu respectively in 2023 to some $6/MMBtu and $5/MMBtu respectively around 2030, with a decrease towards some $5/MMBtu and $4/MMBtu respectively in 2050.
Financial Statements and Supplements
Notes to the Consolidated Financial Statements continued
4. Climate change and energy transition continued
This average priceline provides an external view of the development of commodity prices under 1.5-2 degrees Celsius external climate change scenarios over the whole period under review.
Applying this priceline to Integrated Gas assets of $75 billion (2021: $65 billion [A])) and Upstream assets of $88 billion (2021: $89 billion [A]) as at December 31, 2022, shows recoverable amounts that are $4-6 billion (2021: $13-16 billion) and $1-2 billion (2021: $14-17 billion) lower, respectively, than the carrying amounts as at December 31, 2022.
[A]In 2022 goodwill and other intangibles were included in the scope for sensitivity testing. In 2021 these assets were not within the scope of sensitivity testing. Based on the 2022 sensitivity testing performed, it is unlikely that if these assets would have been included in the scope for 2021 testing, this would have resulted in a material impact on the outcome of sensitivity testing.
Priceline–2 - Hybrid Shell Plan and IEA NZE50: this priceline applies Shell’s mid-price outlook for the next 10 years (see Note 12). Because of the greater uncertainty, the International Energy Agency (IEA) normative Net Zero Emissions scenario for the period after 10years is applied. This weights less price-risk uncertainty to the first 10 reflected in the Operating Plan period and applies more risk to the more uncertain subsequent periods.
Applying this priceline to Integrated Gas assets of $75 billion (2021: $65 billion) and Upstream assets of $88 billion (2021: $89 billion) as atDecember 31, 2022, shows recoverable amounts that are $4-6 billion (2021: $10-12 billion) and $1-2 billion (2021: $5-6 billion) lower, respectively, than the carrying amounts as at December 31, 2022.
Priceline–3 - IEA NZE50: this priceline applies the IEA normative Net Zero Emissions scenario over the whole period under review. This priceline has been applied for the first time in the current year in order to also reflect the sensitivity to a pure net-zero emissions scenario from the IEA.
Applying this priceline to Integrated Gas assets of $75 billion and Upstream assets of $88 billion as at December 31, 2022, shows recoverable amounts that are $9-12 billion and $8-11 billion lower, respectively, than the carrying amounts as at December 31, 2022.
[A]The Network for Greening the Financial System (NGFS) is a group of 65 central banks and supervisors and 83 observers committed to sharing best practices, contributing to the development of climate– and environment–related risk management in the financial sector and mobilising mainstream finance to support the transition toward a sustainable economy. This scenario results from the NGFS GCAM model. This model embodies certain assumptions on the relationships between economic and energy output and climate interactions. This NGFS scenario shows a decline in world oil demand relative to the current policies baseline, in part a response to substitution away from fossil fuels. At the same time prices increase due to supply constraints.
[B]All figures are presented on RT22 basis unless noted differently.
The graph above shows the oil pricelines on a real-terms basis applied for the period until 2050 for Shell’s mid-price outlook in comparison with the IEA announced pledges (IEA APS) scenario, the NGFS GCAM NZE 2050 scenario, the average prices from three 1.5-2 degrees Celsius external climate change scenarios (Priceline 1, above) and the IEA Net Zero Emissions by 2050 scenario (IEA NZE50, Priceline 3 above). The development of future oil prices is uncertain and oil prices have been subject to significant volatility in the past. Future oil prices may be impacted by future changes in macroeconomic factors, available supply, demand, geopolitical and other factors. The pricelines as per the scenarios NGFS GCAM NZE 2050, IEA APS, the average prices from three 1.5-2 degrees Celsius external climate change scenarios and IEA NZE50 differ from Shell’s best estimate and view of the future oil price.
Financial Statements and Supplements
Notes to the Consolidated Financial Statements continued
4. Climate change and energy transition continued
| | | | | | | | | | | | | | | | | | | | |
| | | | | | RT22 $/b |
| 2023 | 2025 | 2030 | 2035 | 2040 | 2050 |
| Shell mid-price | 77.8 | 65.5 | 65 | 65 | 65 | 65 |
| Average prices from four 1.5-2 degrees Celsius external climate change scenarios | 92.8 | 75.8 | 52.7 | 39.1 | 37.6 | 49 |
| IEA NZE50 | 65.3 | 57.3 | 37.2 | 34.3 | 31.3 | 25.5 |
| NGFS GCAM NZE 2050 | 72.1 | 73.7 | 75.5 | 79.2 | 81.2 | 109.8 |
| IEA APS | 72.1 | 71 | 68 | 67 | 65.9 | 63.8 |
| | |
| Sensitivity + 10% to the mid-price outlook |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | $ billion |
| Carrying amount | | Sensitivity |
| Dec 31, 2022 | Dec 31, 2021 [A] | | 2022 | 2021 |
| Integrated Gas | 75 | 65 | | 2 | 3 | 3 | 5 |
| Upstream | 88 | 89 | | — | 1 | 3 | 4 |
| Total | 163 | 154 | | 2 | 4 | 6 | 9 |
| | |
| Sensitivity averaged from three below-two-degrees-Celsius external climate scenarios |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | $ billion |
| Carrying amount | | Sensitivity |
| Dec 31, 2022 | Dec 31, 2021 [A] | | 2022 | 2021 |
| Integrated Gas | 75 | 65 | | (4) | (6) | (13) | (16) |
| Upstream | 88 | 89 | | (1) | (2) | (14) | (17) |
| Total | 163 | 154 | | (5) | (8) | (27) | (33) |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | $ billion |
| Carrying amount | | Sensitivity |
| Dec 31, 2022 | | | 2022 | |
| Integrated Gas | 75 | | | (9) | (12) | | |
| Upstream | 88 | | | (8) | (11) | | |
| Total | 163 | | | (17) | (23) | | |
| | |
| Sensitivity - 10% to the mid-price outlook |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | $ billion |
| Carrying amount | | Sensitivity |
| Dec 31, 2022 | Dec 31, 2021 [A] | | 2022 | 2021 |
| Integrated Gas | 75 | 65 | | (2) | (4) | (8) | (10) |
| Upstream | 88 | 89 | | — | (1) | (4) | (5) |
| Total | 163 | 154 | | (2) | (5) | (12) | (15) |
| | |
| Sensitivity Hybrid Shell Plan + IEA NZE50 |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | $ billion |
| Carrying amount | | Sensitivity |
| Dec 31, 2022 | Dec 31, 2021 [A] | | 2022 | 2021 |
| Integrated Gas | 75 | 65 | | (4) | (6) | (10) | (12) |
| Upstream | 88 | 89 | | (1) | (2) | (5) | (6) |
| Total | 163 | 154 | | (5) | (8) | (15) | (18) |
[A]In 2022 goodwill and other intangibles were included in the scope for sensitivity testing. In 2021 these assets were not within the scope of sensitivity testing. Based on the 2022 sensitivity testing performed, it is unlikely that if these assets would have been included in the scope for 2021 testing, this would have resulted in a material impact on the outcome of sensitivity testing.
Carbon price sensitivities
Carbon costs in the Operating Plan
The Operating Plan includes capital expenditure and operating costs to achieve Scope 1 and 2 emission reduction targets (see above). These include asset level abatement project costs that drive efficiencies and reduce emissions, expected costs for evolving carbon regulations based on a forecast of Shell’s equity share of emissions and costs of offsets for any residual amounts.
The total capital expenditure for abatement projects in relation to efficiency improvements, energy and chemicals parks transformations and use of renewable power included in the Operating Plan are in excess of $4 billion. Total yearly carbon emission costs in Shell’s Operating Plan gradually increase from some $0.8 billion in 2023 to some $1.5 billion in 2032 using the mid-price scenario. The sensitivity of carrying values of assets to changes in carbon prices is described in the section below.
Methods for estimating costs vary depending on the nature of the cost. Abatement projects costs to improve efficiencies and reduce emissions are estimated by applying a bottom-up approach where individual opportunities on an asset-level, project-by-project basis are identified.
Financial Statements and Supplements
Notes to the Consolidated Financial Statements continued
4. Climate change and energy transition continued
Costs for evolving carbon regulations are based on a forecast of Shell’s equity share of emissions and are included in the Operating Plan at Shell’s
mid-price outlook on a country-by-country basis and represent management’s best estimate. In the short and near term, up to 2030, costs for carbon emissions estimates are largely policy driven, through emission trading schemes or taxation levied by governments which currently vary significantly on a country-by-country basis. Beyond 2030 where policy predictions are more challenging, the costs for carbon emissions are estimated based on the expected costs of abatement technologies required for 2050. The costs are estimated to be at $125 per tonne (RT22) under Shell’s mid-price scenario. Under Shell's high-price scenario, the costs are set at $220 per tonne (RT22), the top of the bioenergy with CCS cost range and the lower end of the direct air capture cost range.
Sensitivity to changes in carbon price assumptions
There is significant uncertainty as to how carbon costs will develop over the next decades. These will depend on policies set by countries and the pace of the energy transition. In accordance with IFRS, Shell’s financial statements are based on reasonable and supportable assumptions that represent management’s current best estimate which is policy based up to 2030 and then the mid-price outlook beyond 2030. As the risk of stranded assets is prevalent with higher carbon emission prices than anticipated, sensitivity analyses have only been undertaken for such a downside scenario. If the IEA NZE 2050 outlook is applied, this would impact the recoverability of certain assets recognised in the Consolidated Balance Sheet as at December 31, 2022. This scenario is not representative of management's mid-price reasonable best estimate.
Sensitivity of carrying amounts to carbon emission costs as described below is under the assumption that all other factors in the models used to calculate recoverability of carrying amounts remain unchanged. Changes to carbon emission costs are applied for Integrated Gas and Upstream because of the potential impact on Shell’s business.
Applying the IEA NZE 2050 carbon price scenario to Integrated Gas assets of $75 billion and Upstream assets of $88 billion,up to the end of life of these assets, shows recoverable amounts that are $2-5 billion and not significantly lower for Upstream than the carrying amounts as at December 31, 2022.
| | |
| Sensitivity IEA NZE 2050 carbon price scenario |
| | | | | | | | | | | | | | |
| | | | $ billion |
| Carrying amount | | Sensitivity |
| Integrated Gas | 75 | | (2) | (5) |
| Upstream | 88 | | — | — |
| Total | 163 | | (2) | (5) |
Application of the IEA NZE 2050 carbon price scenario had no significant impact on the carrying value of Upstream assets due to the existing headroom over the carrying value.
For the key regions and countries the following carbon prices per tonne (RT22) have been assumed in the Operating Plan:
| | | | | | | | | | | | | | |
| Operating plan period | | Subsequent period |
| Region | 2023-2029 | 2030-2032 | | 2033-2050 |
| European Union | $71-$121 | $84-$88 | | $90-$125 |
| Canada (Federal) | $40-$50 | $54-$61 | | $65-$125 |
| United States (Federal) | $0-$22 | $27-$37 | | $42-$125 |
| Australia | $25-$35 | $36-$45 | | $50-$125 |
| All other countries | $0-$37 | $0-$49 | | $19-$125 |
Financial Statements and Supplements
Notes to the Consolidated Financial Statements continued
4. Climate change and energy transition continued
The graph below shows the carbon pricelines per tonne for the European Union on an RT22 basis under Shell’s mid-price outlook in comparison with the IEA NZE 2050 scenario. The IEA NZE 2050 scenario differs from Shell’s best estimate and view of the future CO2 prices. Sensitivity of carrying amounts to the IEA NZE 2050 carbon price scenario is provided above.
| | |
CO2 prices - European Union RT22 $/tonne |
| | | | | | | | | | | | | | | | | | | | |
| | | | | RT22 $/tonne |
| 2023 | 2025 | 2030 | 2035 | 2040 | 2050 |
| Shell mid-price | 121 | 73 | 84 | 94 | 104 | 125 |
| | | | | | |
| IEA NZE50 | 97 | 112 | 149 | 177 | 205 | 266 |
| | | | | | |
| | | | | | |
Carrying value of Chemicals and Products assets
| | |
Carrying value of Chemicals and Products assets $ billion as at December 31 |
| | |
Carrying value of refineries $ billion as at December 31 |
[A]In 2017 two refineries were acquired following dissolution of the Motiva joint venture in the USA.
[B]Includes refineries held for sale ($1.5 billion).
| | |
| Carrying amount of Chemicals and Production assets |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | $ billion |
| 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 |
| Chemicals | 15 | 16 | 18 | 22 | 25 | 27 | 28 |
| Refineries | 10 | 14 | 14 | 13 | 7 | 6 | 6 |
| Other | 1 | 8 | 7 | 12 | 11 | 11 | 11 |
| Total at December 31 | 26 | 38 | 39 | 47 | 43 | 44 | 45 |
Financial Statements and Supplements
Notes to the Consolidated Financial Statements continued
4. Climate change and energy transition continued
| | |
| Carrying amount of refineries |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | $ billion |
| 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 |
| At December 31 | 10 | 14 | 14 | 13 | 7 | 6 | 6 |
| Assets classified as held for sale | | | | | | 1 | |
| Total at December 31 | 10 | 14 | 14 | 13 | 7 | 7 | 6 |
Within Chemicals and Products, the assets potentially most sensitive to the energy transition are refineries.
Portfolio changes
Since 2016, Shell’s Chemicals and Products portfolio has evolved, shifting from 15 refineries at the end of 2016 towards five energy and chemicals parks. During that period Shell assumed the sole ownership of two refineries through the dissolution of the Motiva joint venture, and disposed of, converted or closed nine refineries. The carrying amount of refineries decreased from $10 billion as at December 31, 2016, to $6 billion as at December 31, 2022. In line with Shell’s strategy, Shell’s refining footprint is being transformed into five energy and chemicals parks that will provide feedstocks for the chemicals and lubricants business, as well as other low-carbon energy products, including biofuels and hydrogen. This transformation will involve investments in assets within these energy parks that will be recognised as separate cash-generating units and are expected to be resilient in the energy transition, and hence their carrying amounts may increase.
Estimated useful life
Refineries in the Chemicals and Products segment (carrying amount as at December 31, 2022, $6 billion (2021: $6 billion) of which $5 billion (2021: $5 billion) relates to refineries in the five energy and chemicals parks 2021: excluding refineries classified as held for sale)) may be impacted under a two-degrees-Celsius or less external climate scenario.
For refineries in Chemicals and Products, depreciation of assets is on a straight-line basis over the life of the assets, starting at the date the asset becomes available for use, over a period of 20 years (see Note 2). Over the course of the energy transition, the current carrying amount of refineries will be fully depreciated, offset by anticipated investments in assets that are expected to be resilient in the energy transition as described above. Based on current depreciation of the carrying amounts as at December 31, 2022, and assuming no further investment, all refineries would be fully depreciated between four and 14 years.
In addition to refineries, further assets of $39 billion include $28 billion of assets in relation to Chemicals which are expected to be resilient through the energy transition as chemical products are not produced with the aim to combust and consequently do not generate GHG emissions.
Other assets of $11 billion includes $7 billion of assets in relation to trading and supply are also expected to be resilient in the energy transition. Another $1.6 billion of assets relates to oil sands. Based on production plans for oil sands assets, some 80%, 56% and 31% of SEC proved reserves as at December 31, 2022, would currently be left by 2030, 2040 and 2050, respectively. Taking into consideration the carrying amount as at December 31, 2022 and depreciation under the unit-of-production methodology, this provides a further perspective on the risk of stranded oil sands assets carried in the Consolidated Balance Sheet as at December 31, 2022.
Price sensitivities
Refining margins included in the Operating Plan are at an average of $6.22. A change of -$1/bbl or +$1/bbl to the refining margin outlook period would result in around $1-3 billion impairment or in some $1-3 billion impairment reversal respectively in Chemicals and Products (see Note 12).
Carrying value of Marketing assets
| | |
Carrying value of Marketing assets $ billion as at December 31 |
Financial Statements and Supplements
Notes to the Consolidated Financial Statements continued
4. Climate change and energy transition continued
| | |
| Carrying amount of Marketing assets |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | $ billion |
| | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 |
| At December 31 | | 15 | 15 | 20 | 23 | 25 | 29 |
| | | | | | | |
| | | | | | | |
Portfolio changes
Assets in the Marketing segment are expected to be resilient through the energy transition with a change in the product mix as the energy transition progresses. The demand for products sold such as chemicals, lubricants, biofuels, bitumen, electric vehicle charging and convenience retail is not expected to decrease and is expected to increase for a variety of these products in many markets. As a result the carrying value of these assets is not expected to be impacted by the energy transition or lower commodity price scenarios.
Carrying value of Renewables and Energy Solutions assets
| | |
Carrying value of Renewables and Energy Solutions assets $ billion as at December 31 |
| | |
| Carrying amount of Renewables and Energy Solutions assets |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | $ billion |
| | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 |
| At December 31 | | 1 | 1 | 3 | 3 | 5 | 9 |
| | | | | | | |
| | | | | | | |
Portfolio changes
Assets in the Renewables and Energy Solutions segment are expected to be resilient through the energy transition.
Discount rate sensitivity
The discount rate applied for impairment testing is based on a nominal post-tax weighted average cost of capital (WACC) and is determined at 5% for Power activities and 6.5% for all other businesses. The discount rate includes generic system risk for climate change risk. In addition, cash flow projections applied in individual assets include specific asset risks, including risk of transition. An increase in systematic climate risk could lead to a higher WACC and consequently to a higher discount rate to be applied in impairment testing. An increase of the discount rate applied for impairment testing of 1% under the assumption that all other factors in the models used to calculate recoverability of carrying amounts remain unchanged would lead to a change in the carrying amount of $1-3 billion for Integrated Gas, and up to $1 billion in each of the following segments: Upstream, Chemicals and Products and Renewables and Energy Solutions, and no significant impairment in Marketing and Corporate.
Global oil and gas demand sensitivities
A decrease in global demand and unchanged supply of oil and gas would likely lead to a decrease in price (see price sensitivity above). During 2022 Shell’s production of oil and gas accounted for 1.5% and 2% of total global production of oil and gas respectively. Changes in global oil and gas demand are therefore not expected to directly impact the ability to sell volumes of oil and gas produced by Shell at market prices.
Financial Statements and Supplements
Notes to the Consolidated Financial Statements continued
4. Climate change and energy transition continued
Deferred tax assets
In general, it is expected that sufficient deferred tax liabilities and forecasted taxable profits within the planning period of 10 years are available for recovery of the deferred tax assets recognised at December 31, 2022. Integrated Gas and Upstream deferred tax assets recognised are expected to be recovered within the period of production of each asset. For deferred tax assets of $303 million as at December 31, 2022 (2021: $711 million) this period extends beyond 10 years. Deferred tax assets in Chemicals and Products and in Marketing expected to be recovered in more than 10 years are $382 million as at December 31, 2022 (2021: $854 million). In Chemicals and Products, cash flows beyond 10 years (for a maximum of an additional 10 years) were further risked to determine recoverability of deferred tax assets beyond 10 years (see Note 22).
Decommissioning and other provisions
The energy transition may result in decommissioning and restoration occurring earlier than expected. The risk on the timing of decommissioning and restoration activities for Integrated Gas and Upstream fields is limited, supported by production plans in the foreseeable future (see "Estimated useful life" above). Acceleration of decommissioning and restoration activities has also been reflected in the assessment of the appropriate discount rate. In 2021, the discount rate was revised from a 30-year to a 20-year term in line with the average remaining life of Integrated Gas and Upstream assets. On an undiscounted basis the provision for decommissioning and restoration as at December 31, 2022 was$33 billion,recognised on a discounted basis in the Consolidated Balance Sheet as at December 31, 2022 at $20 billion (2021: $22 billion). Sensitivity to changes in the discount rate is provided in Note 24.
In Chemicals and Products, it was industry practice not to recognise decommissioning and restoration provisions associated with manufacturing facilities. This was on the basis that these assets were considered to have indefinite lives, so it was considered remote that an outflow of economic benefits would be required. In 2020, Shell considered the changed macroeconomic fundamentals, together with Shell’s plans to rationalise the Group’s manufacturing portfolio. Shell also reconsidered whether it remained appropriate not to recognise decommissioning and restoration provisions for manufacturing facilities. Since 2020, decommissioning and restoration provisions are recognised for certain shorter-lived manufacturing facilities (see Notes 24 and 31). The remaining five energy and chemicals parks are considered longer-lived facilities that are expected to be resilient in the energy transition, and decommissioning would generally be more than 50 years away.
Onerous contracts
Closure or early termination of activities may lead to supply contracts becoming onerous. Onerous contract provisions (see Note 24) have been recognised as at December 31, 2022, to reflect changes in expected future utilisation of certain assets. These include contracts in relation to unused terminals and refineries. The total carrying amount of the provision for onerous contracts as at December 31, 2022 was $1.5 billion (2021:$1.7 billion) principally related to contracts in relation to unused terminals and refineries.
Dividend resilience
External stakeholders have requested disclosures on how climate change affects dividend-paying capacity. If a further impairment had been recognised in 2022 using any of the climate change scenarios described above, this would not have impacted the ability to pay dividends in this financial year because of the strong cash flow generation and financial reserves. Had Shell applied the IEA NZE50 scenario (see above), and if this had led to a decrease in the recoverable amount of Integrated Gas and Upstream assets of $17-23 billionand recognition of an equivalent impairment, this would not have impacted the distributable reserves available to Shell from which to pay dividends in 2022. This is on the basis that such impairment would have resulted in part-realisation of the merger reserve recognised by the Company of $234 billion
as at December 31, 2022.
A forward-looking statement regarding future dividend-paying capacity cannot be provided because of unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in these statements.
Physical risks
Potential physical impacts to Shell's assets, irrespective of cause, are important for Shell to manage.
Climate variability is considered in the design and operation of Shell's assets and infrastructure to minimise the risk of adverse incidents to Shell's employees and contractors, the communities where Shell operates, its equipment and infrastructure. Shell's new projects consider anticipated weather and climatic events in their design and Metocean (meteorology and oceanography) engineering experts are available, if required, to assist Shell's assets and project teams in the evaluation of physical risks.
On an ongoing basis, Shell's assets leverage broad risk and threat management processes to identify and respond to emerging challenges to their ongoing safe, compliant and efficient operation, as required by Shell's HSSE & SP Control Framework.
Financial Statements and Supplements
Notes to the Consolidated Financial Statements continued
5. Emission schemes and related environmental programmes
Emission trading and related schemes
In general, emission trading schemes (ETS) are mandated governmental schemes to control emission levels and enhance clean energy transition, allowing for the trading of emission certificates. In most ETS, governments set an emission cap for one or more sectors. Generally, entities in scope of the scheme are allowed to buy emission certificates to cover shortages or sell surplus emission certificates. In certain countries emissions are priced through a carbon tax. For Shell, the most significant carbon pricing mechanisms are established in Europe, Canada and Singapore.
Biofuel programmes
Biofuel programmes are mandated governmental schemes that set binding national targets on the share of renewables in fuel consumption or measures on reducing GHG emissions by fuel suppliers. Biofuels are blended with existing fuels such as gasoline and diesel to reduce net emissions. The share of biofuel in the total sales mix of fuel is used to comply with regulatory requirements. This can be achieved by the blending of biofuels in refineries and/or distribution depots (self-blending), through import of biofuels (for jurisdictions that grant biofuels certificates at the point of import) or by the purchasing of certificates from third parties (for jurisdictions that have a tradable biofuel certificates mechanism). Biofuel programmes also include regulatory requirements to pay a levy for the combustion of fossil fuels, based on CO₂ emitted – mainly related to the German Fuel Emissions Trading Act (BEHG) applying since January 1, 2021.
Renewable power programmes
Renewable power programmes create a financial incentive to consume power that is sourced from renewable origins or require that a minimum percentage of power sold meets the green definition of the relevant standard. These regulations are typically accompanied by schemes supporting investments in the renewable technology. Renewable power programmes generally use certificates to monitor compliance, where renewable power certificates are granted for each MWh of energy generated that meets the predefined renewable criteria. Shell’s compliance obligation under renewable power programmes comes primarily from energy supply and results from regulations applying in Europe, North America and Australia.
| | |
| Cost of emission schemes and related environmental programmes recognised in the Consolidated Statement of Income |
| | | | | | | | | | | |
| $ million |
| 2022 | 2021 | 2020 |
| ETS and related schemes | 493 | 331 | 150 |
| Biofuels [A] | 2,918 | 2,609 | 1,137 |
| Renewable power | 594 | 455 | 364 |
| Total | 4,005 | 3,395 | 1,651 |
[A]Represents the cost of biofuel certificates required for compliance purposes over and above those generated from self-blending activities.
| | |
| Purchased environmental certificates (presented under Other intangible assets, see Note 11) [A] |
| | | | | | | | | | | | | | |
| $ million |
| ETS and related schemes | Biofuels | Renewable power | Total |
| At January 1, 2022 | 284 | 2,362 | 101 | 2,747 |
| Additions | 385 | 1,485 | 468 | 2,338 |
| Settlements | (256) | (2,142) | (398) | (2,796) |
| Other movements | 27 | (104) | (11) | (88) |
| At December 31, 2022 | 440 | 1,601 | 160 | 2,201 |
| At January 1, 2021 | 157 | 780 | 76 | 1,013 |
| Additions | 292 | 2,450 | 405 | 3,147 |
| Settlements | (115) | (754) | (355) | (1,224) |
| Other movements | (50) | (114) | (25) | (189) |
| At December 31, 2021 | 284 | 2,362 | 101 | 2,747 |
[A]Relates to environmental certificates held for compliance purposes.
Financial Statements and Supplements
Notes to the Consolidated Financial Statements continued
5. Emission schemes and related environmental programmes continued
| | |
| Obligation (presented under Other payables, see Note 19) |
| | | | | | | | | | | | | | | | | |
| $ million |
| ETS and related schemes | | Biofuels | Renewable power | Total |
| At January 1, 2022 | | | | | |
| Current | (270) | | (3,262) | (273) | (3,805) |
| Non-current | — | | (182) | (29) | (211) |
| (270) | | (3,444) | (302) | (4,016) |
| Additions | (1,237) | | (2,916) | (637) | (4,790) |
| Additions covered by government grants | 776 | [A] | | | 776 |
| Settlements | 292 | | 2,456 | 499 | 3,247 |
| Other movements | (19) | | 58 | 34 | 73 |
| (188) | | (402) | (104) | (694) |
| | | | | |
| At December 31, 2022 | | | | | |
| Current | (458) | | (3,424) | (350) | (4,232) |
| Non-current | — | | (422) | (56) | (478) |
| (458) | | (3,846) | (406) | (4,710) |
| At January 1, 2021 | | | | | |
| Current | (154) | | (1,549) | (290) | (1,993) |
| Non-current | — | | (54) | (6) | (60) |
| (154) | | (1,603) | (296) | (2,053) |
| Additions | (781) | | (2,756) | (487) | (4,024) |
| Additions covered by government grants | 456 | [A] | | | 456 |
| Settlements | 150 | | 755 | 491 | 1,396 |
| Other movements | 59 | | 160 | (10) | 209 |
| (116) | | (1,841) | (6) | (1,963) |
| | | | | |
| At December 31, 2021 | | | | | |
| Current | (270) | | (3,262) | (273) | (3,805) |
| Non-current | — | | (182) | (29) | (211) |
| (270) | | (3,444) | (302) | (4,016) |
[A]Emission certificates that were allocated free of charge at an equivalent fair value at grant date.
Environmental certificates acquired that are held for compliance purposes are recognised at cost under intangible assets. In addition, a portfolio of environmental certificates is held for trading purposes and classified under inventory (see Note 2 and Note 16). Environmental certificates held for trading purposes can be redesignated for compliance purposes and then settle compliance obligations.
Cost recognised in the Consolidated Statement of Income represents the compliance cost associated with emissions or with products sold during the year. The liability at year-end represents the compliance cost recognised over current and past compliance periods to the extent not settled to date. Liabilities are settled in line with compliance periods, which depend on the scheme and may not coincide with the calendar year.
The figures present compliance schemes only, excluding voluntary activities.
6. Withdrawal from Russian oil and gas activities
Following the invasion of Ukraine by Russia, Shell announced in the first quarter of 2022 its intent to:
▪withdraw from its ventures in Russia with Gazprom and related entities, and to end its involvement in the Nord Stream 2 pipeline project;
▪withdraw from its service station and lubricants operations in Russia; and
▪withdraw in a phased manner from its involvement in all Russian hydrocarbons, including crude oil, petroleum products, gas and LNG,
aligned with new government guidance.
Since these announcements:
▪Shell stopped all spot purchases of Russian crude, liquefied natural gas, and of cargoes of refined products directly exported from Russia. Shell has not renewed any long-term contracts for Russian crude, but was still legally obliged to take delivery of crude bought under contracts that were signed before the invasion.
▪All of Shell's long-term third-party purchases of Russian crude have stopped (when contractually allowed and all by the end of 2022).
▪All of Shell's contracts to purchase refined products exported from Russia have also ended.
▪Shell's two pipeline gas contracts terminated by the end of 2022.
Financial Statements and Supplements
Notes to the Consolidated Financial Statements continued
6. Withdrawal from Russian oil and gas activities continued
▪Shell still holds two long-term LNG offtake contracts with Russian entities, accounted for as regular sales and purchase contracts.
The counterparty in one of these contracts stopped delivering cargoes to Shell in the third quarter of 2022.
▪Shell sold its service station and lubricants operations in Russia in the second quarter of 2022.
These actions led to recognition of net pre-tax charges of $4,170 million (post-tax: $3,804 million) in 2022. These were recognised in:
| | | | | |
| 2022 | $ million |
| Revenue | (468) |
| Share of profit of joint ventures and associates | (1,614) |
| Interest and other income/(expenses) | (1,116) |
| Selling, distribution and administrative expenses | (104) |
| Depreciation, depletion and amortisation | (695) |
| Other | (173) |
| Loss before taxation | (4,170) |
| Taxation credit | (366) |
| Loss for the period | (3,804) |
In relation to the assets with a potential exposure to Shell's intended withdrawal from all Russian hydrocarbons, including those assets for which the above charges were recognised during the year, there is a $0.1 billion balance sheet carrying amount as at December 31, 2022.
Further details are provided below.
Integrated Gas
Sakhalin-2
Shell holds a 27.5% (minus one share) interest in Sakhalin Energy Investment Company Ltd. (SEIC). Other ownership interests were Gazprom 50% (plus one share), Mitsui 12.5% and Mitsubishi 10%. Up to March 31, 2022, this investment was accounted for as an associate applying the equity method. Following the first quarter announcements, the recoverable amount of the investment was estimated as the risk-adjusted dividends declared on Sakhalin's 2021 results, of which the first part was received in April 2022. This resulted in recognition of an impairment charge of $1,614 million in the first quarter 2022. Significant influence over the Sakhalin-2 investment was lost from April 1, 2022, with the resignation of Shell's executive directors and withdrawal of managerial and technical staff, leading to recognition, without financial impact, of the investment as a financial asset accounted for at fair value from that date, with subsequent changes in fair value recognised in other comprehensive income.
On June 30, 2022, a Russian Presidential Decree was passed requiring the transfer of all licences, rights and obligations of SEIC into a newly-created Russian company (LLC) that would assume the rights and obligations of SEIC. The decree stated that the foreign shareholders would be invited to apply for shares in that entity equivalent to their shareholding in SEIC. Following the receipt of dividends in the second quarter 2022 and the Presidential Decree, appropriate fair value adjustments to the investment value have been recognised, against other comprehensive income.
Shell understands that pursuant to the Presidential Decree, all licences, assets, rights and obligations of SEIC were purportedly transferred to the LLC on August 17, 2022. On September 1, 2022, Shell formally advised the Russian Federation (RFG) that it would not apply for shares in the LLC, that it objected to the purported transfers from SEIC to the LLC and that it reserved all rights and remedies. Shell understands the RFG has commenced a process to sell those shares in the LLC which Shell did not apply for. This process was expected to be completed in the first quarter 2023, but the decree was amended in January 2023 to remove the timeline. Pursuant to the Presidential Decree, the RFG is also expected to conduct an audit of 'the activities of foreign shareholders in SEIC and/or individuals', based on which the RFG will determine the 'amount of damage caused' and 'persons liable to indemnify it'. The carrying value of the investment is zero as at December 31, 2022.
Nord Stream 2
Shell is one of five energy companies which each committed to provide financing and guarantees for up to 10% of the total cost of the project, with the final loan instalments having been made in the second quarter 2020. Following the first quarter 2022 announcements, Shell assessed the recoverability of the loan to Nord Stream 2, leading to a full write-down in the first quarter 2022 of the loan amounting to $1,126 million. On September 26, 2022, one of the two Nord Stream 2 pipelines ruptured resulting in a gas leak and significant damage. Investigations are now under way to determine the cause of the rupture. The rupture had no financial impact, following the previous full write-down of the loan.
Upstream
Salym
Shell has a 50% interest in Salym Petroleum Development N.V. (Salym), a joint operation with GazpromNeft (GPN) that is developing the Salym fields in the Khanty Mansiysk Autonomous District of western Siberia. Shell consolidated its share in the joint operation. Following the first quarter announcements, Shell assessed the recoverability of the Salym carrying amounts, leading to full impairment amounting to $233 million in the first quarter 2022. In July 2022, the Shell directors of Salym resigned. Joint control was lost early in the third quarter 2022 and from that date Salym was accounted for as a financial asset at fair value, with a carrying value of zero. Pursuant to Russian legislative changes and court decisions in the second and third quarter 2022, the Russian branch of Salym was purportedly transformed into a Russian LLC (Salym Petroleum Development Limited Liability Company). All assets, rights and obligations of the Russian branch of Salym were purportedly transferred to that entity, of which Shell, purportedly, automatically held 50%. On March 3, 2023, Shell announced that it had completed the sale of its interest in Salym Petroleum Development Limited Liability Company to a subsidiary of GPN for which an agreement was signed on December 22, 2022.
Financial Statements and Supplements
Notes to the Consolidated Financial Statements continued
6. Withdrawal from Russian oil and gas activities continued
Khanty-Mansiysk Petroleum Alliance partnership
Shell had a 50% interest in the Khanty-Mansiysk Petroleum Alliance partnership. Through this, Shell was a holder of a 50% interest in the CJSC Khanty-Mansiysk Petroleum Alliance. On February 22, 2023, Shell completed the sale of its interest in CJSC Khanty-Mansiysk Petroleum Alliance to a subsidiary of GPN for which an agreement was signed on December 22, 2022.
Gydan
Shell had a 50% interest in LLC Gydan Energy, a joint operation with GazpromNeft to explore and develop blocks in the Gydan peninsula, in north-western Siberia. This project is in the exploration phase, with no production. Following the first quarter announcements, Shell assessed the recoverability of the Gydan carrying amounts, leading to full impairment amounting to $153 million and other charges of $35 million in the first quarter 2022. During the second quarter 2022, all rights and obligations for Shell’s 50% interest were transferred to GazpromNeft with an insignificant impact on the income statement.
Marketing
Shell Neft’s retail network consisted of 240 sites owned by Shell Neft and 171 sites owned by dealers and Shell Neft operated a lubricant blending plant. Shell Neft was a 100% Shell-owned subsidiary and was fully consolidated until the date of the disposal. Following the first quarter 2022 announcements, Shell assessed the recoverability of Shell Neft carrying amounts, resulting in an impairment of non-current assets of $358 million and other charges of $236 million. In the second quarter 2022, Shell transferred all shares of Shell Neft to Lukoil leading to net charges of $83 million, including the release of currency translation losses ($343 million).
Other
Marked-to-market risk adjustments of $335 million related to long-term offtake natural gas contracts, an impairment of right-of-use assets of $114 million and other charges of $36 million were recognised in the first quarter 2022. In the second quarter 2022, further marked-to-market risk adjustments of $133 million were recognised following changes demanded to the contractual payment mechanism leading to the suspension by Gazprom of gas deliveries under these long-term offtake contracts. Finally, $140 million was recognised in income in the second quarter 2022 from the derecognition of lease liabilities following the termination of lease arrangements for which the right-of-use assets were impaired in the first quarter 2022.
In September 2021, Shell signed a binding novation agreement to take over a GasTerra gas supply contract with Gazprom Export LLC (Gazprom), with the transfer to take effect from October 1, 2022. Upon transfer and pursuant to the novation agreement, Shell recognised the transfer of a payable of approximately €1.3 billion ($1.4 billion) in respect of gas delivered by Gazprom to GasTerra in April and May of 2022. An equivalent receivable from GasTerra was recognised pursuant to the terms of the novation agreement. Gazprom ceased to supply gas to GasTerra at the end of May 2022. The gas supply contract terminated in December 2022.
7. Capital management
Shell manages its businesses to deliver strong cash flows to sustain its strategy and for profitable growth. Management's current priorities for applying Shell's cash are:
| | | | | | | | | | | | | | |
| Capital discipline | | | | Resilient balance sheet |
Cash capex within $23-27 billion
(2021: $19-22 billion) ▪Includes inorganic capex | | |
Targeting AA credit metrics through
the cycle ▪Continued focus on Net debt reduction
in upcycle ▪Divest for value ▪Invest for value |
| Significant shareholder distributions | | |
| | | | | | | | |
Around 4% annual growth
in dividend per share, subject
to Board approval (2021: 4%) | Sustainable progressive dividend | |
| |
| Total shareholder distributions ≥ 20-30% [A] of cash flow from operating activities (2021: 20-30%) | |
| |
Total shareholder distributions (dividends + share buybacks) based on cash generation, macro-outlook and balance sheet trajectory. [A]Subject to Board approval and prevailing market conditions. |
Financial Statements and Supplements
Notes to the Consolidated Financial Statements continued
8. Segment information
General information
Shell is an international energy company engaged in the principal aspects of the oilenergy and gas industrypetrochemicals industries and reports its business through segments. With effect from 2020, Shell'sJanuary 1, 2022, the reporting segments consistare aligned with Shell’s Powering Progress strategy. The Renewables and Energy Solutions business is now reported separately from Integrated Gas. Shales assets in Canada are now reported as part of the Integrated Gas segment instead of the Upstream Oil Products, Chemicals and Corporate, reflecting the way Shell reviews and assesses its performance.segment. The Oil Products and Chemicals businesses were previously reported under the Downstream segment. Oil sands mining activities, previously included in the Upstreamsegments are reorganised into two segments – Marketing, and Chemicals and Products. Prior period comparatives have been revised to conform with current year presentation. The reporting segment are reported under Oil Products. Comparative information has been reclassified.changes have no impact at a Group level.
The Integrated Gas segment managesincludes liquefied natural gas (LNG) activities and the, conversion of natural gas into gas-to-liquids (GTL) fuels and other products, as well as the New Energies portfolio. Itproducts. The segment includes natural gas and liquids exploration and extraction, and the operation of the upstream and midstream infrastructure necessary to deliver gas and liquids to market. It marketsmarket as well as the marketing, trading and trades natural gas,optimisation of LNG, electricity and carbon-emission rights, and also markets and sellsincluding LNG as a fuel for heavy-duty vehicles and marine vessels.
The Upstream segment explores forincludes exploration and extractsextraction of crude oil, natural gas and natural gas liquids. It also markets and transports oil and gas, and operates the infrastructure necessary to deliver them to the market.
The Oil ProductsMarketing segment comprises the RefiningMobility, Lubricants, and Trading,Sectors & Decarbonisation businesses. The Mobility business operates Shell’s retail network including electric vehicle charging services. The Lubricants business produces, markets and Marketing classessells lubricants for road transport, and machinery used in manufacturing, mining, power generation, agriculture and construction. The Sectors & Decarbonisation business sells fuels, speciality products and services including low-carbon energy solutions to a broad range of business. commercial customers including the aviation, marine, commercial road transport and agricultural sectors.
The RefiningChemicals and Trading class of business turnsProducts segment includes chemicals manufacturing plants with their own marketing network, and refineries which turn crude oil and other feedstocks into a range of oil products which are moved and marketed around the world for domestic, industrial and transport use. With effect from 2020, this class of businessThe segment also includes the pipeline business, trading of crude oil, oil products and petrochemicals, and oil sands mining activities which were previously reported under the Upstream segment. The Marketing class(the extraction of business includes the Retail, Lubricants, Business-to-Business (B2B), Pipelinesbitumen from mined oil sands and Biofuels businesses.
The ChemicalsRenewables and Energy Solutions segment operates manufacturing plantsincludes Shell’s Integrated Power activities, comprising electricity generation, marketing and its own marketing network.
The Corporate segment covers the non-operating activities supporting Shell, comprising Shell’s holdings and treasury organisation, its self-insurance activities and its headquarters and central functions. All finance expense and income and related taxes are included in Corporate segment earnings rather than in the earnings of business segments.
| | | | | | | | |
| 245 | FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORMShell | Form 20-F 20202022 | 178 | |
Financial Statements and Supplements
8. Segment information continued
Basis of Segmental Reportingsegmental reporting
Sales between segments are based on prices generally equivalent to commercially available prices. Third-party revenue and non-current assets information by geographical area are based on the country of operation of the Group subsidiaries that report this information. Separate disclosure is provided for the UK as this is the Company’s country of domicile.
Segment earnings are presented on a current cost of supplies basis (CCS earnings). On this basis, the purchase price of volumes sold during the period is based on the current cost of supplies during the same period after making allowance for the tax effect. CCS earnings therefore exclude the effect of changes in the oil price on inventory carrying amounts. CCS earnings attributable to RDSShell plc shareholders is the earnings measure used by the Chief Executive Officer for the purposes of making decisions about allocating resources and assessing performance.
Finance expense and income related to core financing activities, as well as related taxes, are included in the Corporate segment earnings rather than in the earnings of the business segments.
Information by segment on a current cost of supplies basis is as follows:
| | | | $ million |
| 2020 | | $ million | | |
| | Integrated Gas | Upstream | Oil Products | Chemicals | Corporate | Total | | | Integrated Gas | | Upstream | Marketing | Chemicals and Products | Renewables and Energy Solutions | Corporate | Total | |
| Revenue: | Revenue: | | Revenue: | |
| Third-party | Third-party | 33,287 | | 6,767 | | 128,717 | | 11,721 | | 51 | | 180,543 | | [A] [B] | Third-party | 54,751 | | 8,352 | 120,638 | 144,342 | 53,190 | 41 | 381,314 | [A] |
| Inter-segment | Inter-segment | 3,410 | | 21,564 | | 6,213 | | 2,850 | | 0 | | 34,037 | | | Inter-segment | 18,412 | | 52,285 | 606 | 2,684 | 6,791 | — | 80,778 | |
| Share of profit/(loss) of joint ventures and associates (CCS basis) | Share of profit/(loss) of joint ventures and associates (CCS basis) | 562 | | (7) | | 988 | | 567 | | (268) | | 1,842 | | | Share of profit/(loss) of joint ventures and associates (CCS basis) | 1,219 | | 2,111 | 237 | 374 | (7) | (4) | 3,930 | |
| Interest and other income, of which: | Interest and other income, of which: | 14 | | 542 | | (93) | | 0 | | 406 | | 869 | | | Interest and other income, of which: | (714) | | 726 | (104) | 244 | 57 | 706 | 915 | |
| Interest income | Interest income | 6 | | 56 | | 28 | | 0 | | 589 | | 679 | | | Interest income | 43 | | 22 | — | 24 | (2) | 959 | 1,046 | |
| Net gains on sale and revaluation of non-current assets and businesses | Net gains on sale and revaluation of non-current assets and businesses | 218 | | 55 | | (9) | | (2) | | 24 | | 286 | | | Net gains on sale and revaluation of non-current assets and businesses | 101 | | 437 | (186) | 282 | 8 | — | 642 | |
| Other | Other | (210) | | 431 | | (112) | | 2 | | (207) | | (96) | | | Other | (858) | [B] | 267 | 82 | (62) | 51 | (253) | (773) | |
| Third-party and inter-segment purchases (CCS basis) | Third-party and inter-segment purchases (CCS basis) | 21,112 | | 4,505 | | 113,177 | | 9,969 | | 8 | | 148,771 | | | Third-party and inter-segment purchases (CCS basis) | 37,785 | | 10,666 | 108,012 | 127,521 | 57,024 | (28) | 340,980 | |
| Production and manufacturing expenses | Production and manufacturing expenses | 5,723 | | 10,521 | | 5,942 | | 1,787 | | 28 | | 24,001 | | | Production and manufacturing expenses | 4,907 | | 9,676 | 810 | 7,583 | 2,520 | 22 | 25,518 | |
| Selling, distribution and administrative expenses | Selling, distribution and administrative expenses | 729 | | (23) | | 7,360 | | 1,339 | | 476 | | 9,881 | | | Selling, distribution and administrative expenses | 218 | | 233 | 7,351 | 3,592 | 972 | 517 | 12,883 | |
| Research and development expenses | Research and development expenses | 103 | | 486 | | 209 | | 109 | | 0 | | 907 | | | Research and development expenses | 112 | | 456 | 222 | 187 | 98 | — | 1,075 | |
| Exploration expenses | Exploration expenses | 611 | | 1,136 | | 0 | | 0 | | 0 | | 1,747 | | | Exploration expenses | 240 | | 1,472 | — | 1,712 | |
| Depreciation, depletion and amortisation charge, of which: | Depreciation, depletion and amortisation charge, of which: | 17,704 | | 23,119 | | 10,473 | | 1,116 | | 32 | | 52,444 | | | Depreciation, depletion and amortisation charge, of which: | 2,211 | | 10,334 | 1,900 | 3,289 | 777 | 18 | 18,529 | |
| Impairment losses | Impairment losses | 12,221 | | 8,697 | | 6,531 | | 5 | | 9 | | 27,463 | | [C] | Impairment losses | 115 | | 950 | 480 | 356 | 412 | — | 2,313 | [C] |
| | Impairment reversals | | Impairment reversals | (3,449) | | (2,504) | (151) | (73) | — | (6,177) | [D] |
| Interest expense | Interest expense | 76 | | 374 | | 56 | | 3 | | 3,580 | | 4,089 | | | Interest expense | 84 | | 345 | 46 | 22 | 2 | 2,682 | 3,181 | |
| Taxation (credit)/charge (CCS basis) | (2,507) | | (467) | | (898) | | 7 | | (983) | | (4,848) | | | |
| Taxation charge/(credit) (CCS basis) | | Taxation charge/(credit) (CCS basis) | 5,899 | | 14,070 | 903 | 935 | (303) | (7) | 21,497 | |
| CCS earnings | CCS earnings | (6,278) | | (10,785) | | (494) | | 808 | | (2,952) | | (19,701) | | | CCS earnings | 22,212 | | 16,222 | 2,133 | 4,515 | (1,059) | (2,461) | 41,562 | |
|
[A] IncludesIncludes $11,708 million of revenue from sources other than from contracts with customers, which mainly comprises the impact of fair value accounting of commodity derivatives. This amount includes both the reversal of prior losses of $9,815 million related to sales contracts and prior gains of $7,201 million related to purchase contracts that were previously recognised and where physical settlement has taken place during 2022.
[B]$10,008Includes the full write-down of the Nord Stream 2 loan amounting to $1,126 million. (See Note 6).
[C]Impairment losses comprise Property, plant and equipment ($1,799 million, see Note 12), Goodwill ($361 million) and Other intangible assets ($153 million).
[D]Impairment reversals fully comprise Property, plant and equipment. (See Note 12).
Financial Statements and Supplements
Notes to the Consolidated Financial Statements continued
8. Segment information continued
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | $ million |
| Integrated Gas [A] | Upstream [A] | Marketing [A] | Chemicals and Products [A] | Renewables and Energy Solutions [A] | Corporate | Total | |
| Revenue: | | | | | | | | |
| Third-party | 29,922 | 9,182 | 83,494 | 116,448 | 22,415 | 43 | 261,504 | [B] |
| Inter-segment | 8,072 | 35,789 | 254 | 1,890 | 4,675 | — | 50,680 | |
| Share of profit/(loss) of joint ventures and associates (CCS basis) | 1,933 | 632 | 385 | 989 | (27) | 1 | 3,913 | |
| Interest and other income, of which: | 1,596 | 4,592 | 278 | 37 | 200 | 353 | 7,056 | |
| Interest income | — | 37 | 3 | 36 | 4 | 431 | 511 | |
| Net gains on sale and revaluation of non-current assets and businesses | 1,610 | 4,130 | 285 | (24) | (6) | — | 5,995 | |
| Other | (14) | 425 | (10) | 25 | 202 | (78) | 550 | |
| Third-party and inter-segment purchases (CCS basis) | 20,188 | 9,094 | 70,745 | 103,294 | 26,048 | (5) | 229,364 | |
| Production and manufacturing expenses | 4,194 | 9,797 | 950 | 6,815 | 2,098 | (32) | 23,822 | |
| Selling, distribution and administrative expenses | 231 | 186 | 6,384 | 3,375 | 596 | 556 | 11,328 | |
| Research and development expenses | 101 | 339 | 167 | 157 | 51 | — | 815 | |
| Exploration expenses | 122 | 1,301 | — | — | — | — | 1,423 | |
| Depreciation, depletion and amortisation charge, of which: | 5,908 | 13,485 | 1,700 | 5,485 | 326 | 17 | 26,921 | |
| Impairment losses | 723 | 920 | 129 | 2,248 | 45 | — | 4,065 | [C] |
| Impairment reversals | (204) | (9) | (1) | — | — | — | (214) | [D] |
| Interest expense | 71 | 333 | 27 | 44 | — | 3,132 | 3,607 | |
| Taxation charge/(credit) (CCS basis) | 2,648 | 6,057 | 903 | (210) | (342) | (665) | 8,391 | |
| CCS earnings | 8,060 | 9,603 | 3,535 | 404 | (1,514) | (2,606) | 17,482 | |
[A]Revised to conform with reporting segment changes applicable from 2022.
[B]Includes $126 million of revenue from sources other than from contracts with customers, which mainly comprises the impact of fair value accounting of commodity derivatives. This amount includes both the reversal of prior losses of $4,824 million related to sales contracts and prior gains of $4,892 million related to purchase contracts that were previously recognised and where physical settlement had taken place during 2021.
[C]Impairment losses mainly comprise Property, plant and equipment ($3,894 million, see Note 12) and Goodwill ($167 million).
[D]Impairment reversals fully comprise Property, plant and equipment. (See Note 12).
Financial Statements and Supplements
Notes to the Consolidated Financial Statements continued
8. Segment information continued
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | $ million |
| Integrated Gas [A] | Upstream [A] | Marketing [A] | Chemicals and Products [A] | Renewables and Energy Solutions [A] | Corporate | Total | |
| Revenue: | | | | | | | | |
| Third-party | 20,865 | 6,743 | 55,845 | 84,657 | 12,382 | 51 | 180,543 | [B] |
| Inter-segment | 4,357 | 21,020 | 152 | 1,056 | 1,597 | — | 28,182 | |
| Share of profit/(loss) of joint ventures and associates (CCS basis) | 612 | (7) | 491 | 1,064 | (50) | (268) | 1,842 | |
| Interest and other income, of which: | 212 | 541 | 143 | (236) | (197) | 406 | 869 | |
| Interest income | — | 56 | 4 | 25 | 5 | 589 | 679 | |
| Net gains on sale and revaluation of non-current assets and businesses | 212 | 54 | 117 | (129) | 8 | 24 | 286 | |
| Other | — | 431 | 22 | (132) | (210) | (207) | (96) | |
| Third-party and inter-segment purchases (CCS basis) | 10,961 | 4,471 | 43,856 | 71,490 | 12,129 | 9 | 142,916 | |
| Production and manufacturing expenses | 4,957 | 10,195 | 779 | 6,952 | 1,091 | 27 | 24,001 | |
| Selling, distribution and administrative expenses | 60 | (31) | 5,380 | 3,391 | 606 | 475 | 9,881 | |
| Research and development expenses | 84 | 486 | 147 | 171 | 19 | — | 907 | |
| Exploration expenses | 616 | 1,131 | — | — | — | — | 1,747 | |
| Depreciation, depletion and amortisation charge, of which: | 19,314 | 21,079 | 1,499 | 10,096 | 424 | 32 | 52,444 | |
| Impairment losses | 13,464 | 7,274 | 44 | 6,492 | 180 | 9 | 27,463 | [C] |
| | | | | | | | |
| Interest expense | 78 | 369 | 43 | 16 | 3 | 3,580 | 4,089 | |
| Taxation (credit)/charge (CCS basis) | (2,794) | (103) | 846 | (1,754) | (61) | (982) | (4,848) | |
| CCS earnings | (7,230) | (9,300) | 4,081 | (3,821) | (479) | (2,952) | (19,701) | |
[A]Revised to conform with reporting segment changes applicable from 2022.
[B]Includes $10,008 million of revenue from sources other than from contracts with customers, which mainly comprises the impact of fair value accounting of commodity derivatives. This amount includes both the reversal of prior gains of $1,136$1,136 million related to sales contracts and prior losses of $539 million related to purchase contracts that were previously recognised and where physical settlement hashad taken place during 2020.
[B] With effect from 2020, additional contracts are classified as held for trading purposes and consequently revenue is reported on a net rather than gross basis. The effect on revenue for the full year was a reduction of $46,289 million.
[C]Impairment losses comprise Property, plant and equipment ($($26,676 million, see Note 12), Goodwill ($276 million) and Other intangible assets ($511 million).
| | |
| Reconciliation of CCS earnings to income for the period |
| | | | | | | | | | | |
| $ million |
| | 2022 | 2021 | 2020 |
| Income/(loss) attributable to Shell plc shareholders | 42,309 | 20,101 | (21,680) |
| Income attributable to non-controlling interest | 565 | 529 | 146 |
| Income/(loss) for the period | 42,874 | 20,630 | (21,534) |
| Current cost of supplies adjustment: | | | |
| Purchases | (1,714) | (3,772) | 2,359 |
| Taxation | 444 | 808 | (585) |
| Share of profit of joint ventures and associates | (42) | (184) | 59 |
| Current cost of supplies adjustment | (1,312) | (3,148) | 1,833 |
| Of which: | | | |
| Attributable to Shell plc shareholders | (1,196) | (3,029) | 1,759 |
| Attributable to non-controlling interest | (116) | (119) | 74 |
| CCS earnings | 41,562 | 17,482 | (19,701) |
| Of which: | | | |
| CCS earnings attributable to Shell plc shareholders | 41,113 | 17,072 | (19,921) |
| CCS earnings attributable to non-controlling interest | 449 | 410 | 220 |
Financial Statements and Supplements
Notes to the Consolidated Financial Statements ) and Intangible assets (continued
8. Segment information $787continued
Information by geographical area is as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | | | | $ million |
| Europe | | Asia,
Oceania,
Africa | USA | Other
Americas | Total |
| Third-party revenue, by origin | 135,975 | [A] | 126,643 | 87,085 | 31,611 | 381,314 |
| Goodwill, other intangible assets, property, plant and equipment, joint ventures and associates at December 31 | 40,161 | [B] | 97,019 | 59,233 | 51,794 | 248,207 |
[A]Includes $50,236 million that originated from the UK.
[B]).Includes $20,772 million located in the UK.
| | | | | | | | | | | | | | | | | | | | |
| | $ million |
| Europe | | Asia,
Oceania,
Africa | USA | Other
Americas | Total |
| Third-party revenue, by origin | 78,549 | [A] | 87,070 | 73,647 | 22,238 | 261,504 |
| Goodwill, other intangible assets, property, plant and equipment, joint ventures and associates at December 31 | 38,881 | [B] | 97,278 | 58,286 | 48,595 | 243,040 |
[A]Includes $21,846 million that originated from the UK.
[B]Includes $21,974 million located in the UK.
| | | | | | | | | | | | | | | | | | | | |
| | | | | | $ million |
| Europe | | Asia,
Oceania,
Africa | USA | Other
Americas | Total |
| Third-party revenue, by origin | 50,138 | [A] | 65,139 | 50,856 | 14,410 | 180,543 |
| Goodwill, other intangible assets, property, plant and equipment, joint ventures and associates at December 31 | 38,785 | [B] | 103,191 | 62,976 | 49,909 | 254,861 |
[A]Includes $12,958 million that originated from the UK.
[B]Includes $23,302 million located in the UK.
9. Interest and other income
| | | | | | | | | | | |
| $ million |
| | 2022 | 2021 | 2020 |
| Interest income | 1,046 | 511 | 679 |
| Dividend income (from investments in equity securities) | 216 | 91 | 22 |
| Net gains on sale and revaluation of non-current assets and businesses | 642 | 5,995 | 286 |
| Net foreign exchange (losses)/gains on financing activities | (340) | 118 | (391) |
| Other | (649) | 341 | 273 |
| Total | 915 | 7,056 | 869 |
In 2022, "Other" includes the full write-down of the Nord Stream 2 loan amounting to $1,126 million. (See Note 6). The remaining income in "Other" mainly relates to amounts recognised in respect of sublease income from partners in joint operations (2022: $319 million, 2021:
$313 million, 2020: $426 million).
In 2021, "Net gains on sale of non-current assets and businesses" arose mainly in respect of gains on the sale of Integrated Gas assets in Australia and Norway, and Upstream assets in the USA and Nigeria.
Financial Statements and Supplements
Notes to the Consolidated Financial Statements continued
10. Interest expense
| | | | | | | | | | | |
| $ million |
| 2022 | 2021 | 2020 |
| Interest incurred and similar charges | 1,971 | 2,086 | 2,174 |
| Interest expense related to leases | 1,724 | 1,987 | 2,185 |
| Less: interest capitalised | (950) | (917) | (799) |
| Other net (gains)/losses on fair value and cash flow hedges of debt | (71) | 1 | 32 |
| Accretion expense | 507 | 450 | 497 |
| Total | 3,181 | 3,607 | 4,089 |
The rate applied in determining the amount of interest capitalised in 2022 was 4.0% (2021: 4.0%; 2020: 4.5%).
11. Goodwill and other intangible assets
| | | | | | | | | | | | | | | | | | | | | | | | |
| $ million |
| | | Other intangible assets |
| Goodwill | | LNG off-take
and sales contracts | | Environmental certificates | Other | | Total |
| Cost | | | | | | | | |
| At January 1 | 16,117 | | 9,833 | | 2,747 | 6,679 | | 19,259 |
| Additions | 1,954 | | — | | 2,338 | 1,263 | | 3,601 |
| Sales, retirements and other movements [A] | (351) | | — | | (2,749) | 459 | [C] | (2,290) |
| Currency translation differences | (163) | | — | | (135) | (243) | | (378) |
| At December 31 | 17,557 | | 9,833 | | 2,201 | 8,158 | | 20,192 |
| Depreciation, depletion and amortisation, including impairments | | | | | | | | |
| At January 1 | 1,197 | | 5,267 | | | 4,219 | | 9,486 |
| Charge for the year [B] | 360 | | 793 | | | 532 | | 1,325 |
| Sales, retirements and other movements [A] | — | | — | | | (137) | | (137) |
| Currency translation differences | (39) | | — | | | (144) | | (144) |
| At December 31 | 1,518 | | 6,060 | | | 4,470 | | 10,530 |
| Carrying amount at December 31 | 16,039 | | 3,773 | | 2,201 | 3,688 | [D] | 9,662 |
[A]Includes the reclassification to assets classified as held for sale. (See Note 18).
[B]Includes impairments as presented in Note 12.
[C]Includes the reclassification from goodwill following the completion of a purchase price allocation in Renewables and Energy Solutions.
[D]Includes other intangible assets from acquisitions, power purchase agreements, retail customer relationships, trademarks and $583 million related to software.
| | | | | | | | |
| 250 | FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORMShell | Form 20-F 20202022 | 179 | |
Financial Statements and Supplements
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| 2019 | | | | | | $ million | |
| Integrated Gas | Upstream [A] | Oil Products [A] | Chemicals [A] | Corporate | Total | |
| | | | | | | |
| Revenue: | | | | | | | |
| Third-party | 41,322 | | 9,482 | | 280,460 | | 13,568 | | 45 | | 344,877 | | [B] |
| Inter-segment | 4,280 | | 35,735 | | 7,819 | | 3,917 | | 0 | | 51,751 | | |
| Share of profit/(loss) of joint ventures and associates (CCS basis) | 1,791 | | 379 | | 1,179 | | 546 | | (307) | | 3,588 | | |
| Interest and other income, of which: | 263 | | 2,180 | | 273 | | (7) | | 916 | | 3,625 | | |
| Interest income | 0 | | 0 | | 0 | | 0 | | 899 | | 899 | | |
| Net gains on sale and revaluation of non-current assets and businesses | 282 | | 1,888 | | 305 | | (8) | | 52 | | 2,519 | | |
| Other | (19) | | 292 | | (32) | | 1 | | (35) | | 207 | | |
| Third-party and inter-segment purchases (CCS basis) | 23,498 | | 6,982 | | 262,004 | | 13,039 | | (6) | | 305,517 | | |
| Production and manufacturing expenses | 5,768 | | 11,102 | | 7,536 | | 1,995 | | 37 | | 26,438 | | |
| Selling, distribution and administrative expenses | 716 | | 29 | | 7,976 | | 1,323 | | 449 | | 10,493 | | |
| Research and development expenses | 181 | | 450 | | 219 | | 112 | | 0 | | 962 | | |
| Exploration expenses | 281 | | 2,073 | | 0 | | 0 | | 0 | | 2,354 | | |
| Depreciation, depletion and amortisation charge, of which: | 6,238 | | 16,881 | | 4,461 | | 1,074 | | 47 | | 28,701 | | |
| Impairment losses | 579 | | 2,576 | | 622 | | 5 | | 0 | | 3,782 | | [C] |
| Impairment reversals | 0 | | 0 | | (190) | | 0 | | 0 | | (190) | | [D] |
| Interest expense | 104 | | 526 | | 77 | | 5 | | 3,978 | | 4,690 | | |
| Taxation charge/(credit) (CCS basis) | 2,242 | | 5,878 | | 1,319 | | (2) | | (578) | | 8,859 | | |
| CCS earnings | 8,628 | | 3,855 | | 6,139 | | 478 | | (3,273) | | 15,827 | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| $ million |
| | | Other intangible assets |
| Goodwill | | LNG off-take
and sales contracts | Environmental certificates | | Other | | Total |
| Cost | | | | | | | | |
| At January 1 | 15,101 | | 10,030 | 1,013 | | 6,914 | | 17,957 |
| Additions | 1,546 | | — | 3,147 | | 527 | | 3,674 |
| Sales, retirements and other movements [A] | (464) | | (197) | (1,371) | | (607) | | (2,175) |
| Currency translation differences | (66) | | — | (42) | | (155) | | (197) |
| At December 31 | 16,117 | | 9,833 | 2,747 | | 6,679 | | 19,259 |
| Depreciation, depletion and amortisation, including impairments | | | | | | | | |
| At January 1 | 1,062 | | 4,668 | | | 4,618 | | 9,286 |
| Charge for the year [B] | 167 | | 796 | | | 368 | | 1,164 |
| Sales, retirements and other movements [A] | (23) | | (197) | | | (670) | | (867) |
| Currency translation differences | (9) | | – | | | (97) | | (97) |
| At December 31 | 1,197 | | 5,267 | | | 4,219 | | 9,486 |
| Carrying amount at December 31 | 14,920 | | 4,566 | 2,747 | | 2,460 | [C] | 9,773 |
[A] RevisedIncludes the reclassification to conform with reportingassets classified as held for sale. (See Note 18).
[B]Includes impairment as presented in Note 12.
[C]Includes $456 million related to software.
Goodwill at December 31, 2022, related principally to the acquisition of BG Group plc in 2016, allocated to Integrated Gas ($4,945 million) and Upstream ($5,294 million) at the operating segment changes applicablelevel, and to Pennzoil-Quaker State Company ($1,714 million), a lubricants business in the Chemicals and Products segment based largely in North America.
Additions to goodwill in 2022 mainly related to goodwill recognised from 2020.acquisitions in Marketing ($1,178 million) and Renewables and Energy Solutions ($775 million).
[B] Includes $3,760 million of revenue from sources other than from contracts with customers, which mainly comprises the impact of fair value accounting of commodity derivatives.
[C] Impairment losses comprise
12. Property, plant and equipment ($3,639 million) and Intangible assets ($143 million).
[D] See Note 8.
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| 2018 | | | | | | $ million | |
| Integrated Gas | Upstream [A] | Oil Products [A] | Chemicals [A] | Corporate | Total | |
| Revenue: | | | | | | | |
| Third-party | 43,764 | | 9,459 | | 316,409 | | 18,704 | | 43 | | 388,379 | | [B] |
| Inter-segment | 5,031 | | 37,125 | | 10,613 | | 4,864 | | 0 | | 57,633 | | |
| Share of profit/(loss) of joint ventures and associates (CCS basis) | 2,273 | | 285 | | 1,101 | | 684 | | (222) | | 4,121 | | |
| Interest and other income, of which: | 2,230 | | 605 | | 393 | | (53) | | 896 | | 4,071 | | |
| Interest income | 0 | | 0 | | 0 | | 0 | | 772 | | 772 | | |
| Net gains on sale and revaluation of non-current assets and businesses | 2,231 | | 717 | | 350 | | (53) | | 20 | | 3,265 | | |
| Other | (1) | | (112) | | 43 | | 0 | | 104 | | 34 | | |
| Third-party and inter-segment purchases (CCS basis) | 27,775 | | 5,948 | | 300,417 | | 17,332 | | 1 | | 351,473 | | |
| Production and manufacturing expenses | 5,370 | | 11,169 | | 8,226 | | 2,362 | | (157) | | 26,970 | | |
| Selling, distribution and administrative expenses | 458 | | 29 | | 9,183 | | 1,130 | | 560 | | 11,360 | | |
| Research and development expenses | 186 | | 493 | | 205 | | 102 | | 0 | | 986 | | |
| Exploration expenses | 208 | | 1,132 | | 0 | | 0 | | 0 | | 1,340 | | |
| Depreciation, depletion and amortisation charge, of which: | 4,850 | | 12,871 | | 3,165 | | 1,034 | | 215 | | 22,135 | | |
| Impairment losses | 200 | | 1,065 | | 346 | | 78 | | 7 | | 1,696 | | [C] |
| Impairment reversals | 0 | | (1,265) | | 0 | | 0 | | 0 | | (1,265) | | [D] |
| Interest expense | 212 | | 586 | | 84 | | 16 | | 2,847 | | 3,745 | | |
| Taxation charge/(credit) (CCS basis) | 2,795 | | 8,756 | | 1,211 | | 339 | | (1,270) | | 11,831 | | |
| CCS earnings | 11,444 | | 6,490 | | 6,025 | | 1,884 | | (1,479) | | 24,364 | | |
| | | | | | | | | | | | | | | | | |
| $ million |
| Exploration and production | | | |
| Exploration
and evaluation | Production | Manufacturing,
supply and
distribution | Other | Total |
| Cost | | | | | |
| At January 1 | 12,679 | 285,903 | 104,182 | 34,005 | 436,769 |
| Additions | 1,564 | 11,954 | 6,928 | 7,808 | 28,254 |
| Sales, retirements and other movements [B] | (2,469) | (14,541) | (2,548) | (242) | (19,800) |
| Currency translation differences | (209) | (6,300) | (1,777) | (1,976) | (10,262) |
| At December 31 | 11,565 | 277,016 | 106,785 | 39,595 | 434,961 |
| Depreciation, depletion and amortisation, including impairments | | | | | |
| At January 1 | 5,580 | 167,530 | 55,131 | 13,596 | 241,837 |
| Charge for the year [C] | 397 | 9,709 | 5,149 | 2,055 | 17,310 |
| Sales, retirements and other movements [B] | (765) | (13,207) | (2,054) | (396) | (16,422) |
| Currency translation differences | (50) | (4,370) | (1,325) | (661) | (6,406) |
| At December 31 | 5,162 | 159,662 | 56,901 | 14,594 | 236,319 |
| Carrying amount at December 31 | 6,403 | 117,354 | 49,884 | 25,001 | 198,642 |
[B]Includes the reclassification to assets classified as held for sale. (See Note 18).
[C]Includes $6,177 million relating to impairment reversals mainly in Integrated Gas and Upstream (see table 'Impairments' below).
| | | | | | | | |
| 251 | FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORMShell | Form 20-F 20202022 | 180 | |
Financial Statements and Supplements
[A] Revised to conform with reporting segment changes applicable from 2020.
[B] Includes $3,348 million of revenue from sources other than from contracts with customers, which mainly comprises the impact of fair value accounting of commodity derivatives.
[C] Impairment losses comprise12. Property, plant and equipment ($1,515 million) and Intangible assets ($181 million).
[D] See Note 8.
| | | | | | | | | | | |
| | | | |
| Reconciliation of CCS earnings to income for the period | $ million |
| | 2020 | 2019 | 2018 |
| (Loss)/income attributable to Royal Dutch Shell plc shareholders | (21,680) | | 15,842 | | 23,352 | |
| Income attributable to non-controlling interest | 146 | | 590 | | 554 | |
| (Loss)/income for the period | (21,534) | | 16,432 | | 23,906 | |
| Current cost of supplies adjustment: | | | |
| Purchases | 2,359 | | (784) | | 559 | |
| Taxation | (585) | | 194 | | (116) | |
| Share of profit of joint ventures and associates | 59 | | (15) | | 15 | |
| Current cost of supplies adjustment | 1,833 | | (605) | | 458 | |
| Of which: | | | |
| Attributable to Royal Dutch Shell plc shareholders | 1,759 | | (572) | | 481 | |
| Attributable to non-controlling interest | 74 | | (33) | | (23) | |
| CCS earnings | (19,701) | | 15,827 | | 24,364 | |
| Of which: | | | |
| CCS earnings attributable to Royal Dutch Shell plc shareholders | (19,921) | | 15,270 | | 23,833 | |
| CCS earnings attributable to non-controlling interest | 220 | | 557 | | 531 | |
Information by geographical area is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| 2020 | | | | | | | $ million |
| Europe | | Asia,
Oceania,
Africa | | USA | Other
Americas | Total |
| Third-party revenue, by origin | 50,138 | | [A] | 65,139 | |
| 50,856 | | 14,410 | | 180,543 | |
| Intangible assets, property, plant and equipment, joint ventures and associates at December 31 | 38,785 | | [B] | 104,450 | | | 62,976 | | 49,909 | | 256,120 | |
[A] Includes $12,958 million that originated from the UK.
[B] Includes $23,302 million located in the UK.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| 2019 | | | | | | | | $ million |
| Europe | | Asia,
Oceania,
Africa | | USA | | Other
Americas | Total |
| Third-party revenue, by origin | 98,455 | | [A] | 139,916 | | | 83,212 | | | 23,294 | | 344,877 | |
| Intangible assets, property, plant and equipment, joint ventures and associates at December 31 | 43,262 | | [B] | 119,732 | | | 67,105 | | | 54,544 | | 284,643 | |
[A] Includes $41,094 million that originated from the UK.
[B] Includes $24,696 million located in the UK.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| 2018 | | | | | | | | $ million |
| Europe | | Asia,
Oceania,
Africa | | USA | | Other
Americas | Total |
| Third-party revenue, by origin | 118,960 | | [A] | 153,716 | | | 89,876 | | | 25,827 | | 388,379 | |
| Intangible assets, property, plant and equipment, joint ventures and associates at December 31 | 38,617 | | [B] | 117,127 | | | 59,625 | | | 56,721 | | 272,090 | |
[A] Includes $54,659 million that originated from the UK.
[B] Includes $21,863 million located in the UK.
| | | | | | | | |
FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2020 | 181 | 2021 [A] |
5 – INTEREST AND OTHER INCOME
| | | | | | | | | | | |
| | | | |
| $ million |
| | 2020 | 2019 | 2018 |
| Interest income | 679 | | 899 | | 772 | |
| Dividend income (from investments in equity securities) | 22 | | 23 | | 104 | |
| Net gains on sale and revaluation of non-current assets and businesses | 286 | | 2,519 | | 3,265 | |
| Net foreign exchange (losses)/gains on financing activities | (391) | | 5 | | (174) | |
| Other | 273 | | 179 | | 104 | |
| Total | 869 | | 3,625 | | 4,071 | |
In 2020, 'Other' income mainly related to amounts recognised in respect of sublease income from partners in joint operations.
| | | | | | | | | | | | | | | | | |
| $ million |
| Exploration and production | | | |
| Exploration
and evaluation | Production | Manufacturing,
supply and
distribution | Other | Total |
| Cost | | | | | |
| | | | | |
| | | | | |
| At January 1 | 14,484 | 298,882 | 107,876 | 32,402 | 453,644 |
| Additions | 1,216 | 8,942 | 7,917 | 3,644 | 21,719 |
| Sales, retirements and other movements [B] | (3,014) | (20,005) | (9,607) | (455) | (33,081) |
| Currency translation differences | (7) | (1,916) | (2,004) | (1,586) | (5,513) |
| At December 31 | 12,679 | 285,903 | 104,182 | 34,005 | 436,769 |
| Depreciation, depletion and amortisation, including impairments | | | | | |
| At January 1 | 5,258 | 167,711 | 58,242 | 12,733 | 243,944 |
| Charge for the year | 1,311 | 15,800 | 7,112 | 1,770 | 25,993 |
| Sales, retirements and other movements [B] | (999) | (14,590) | (8,624) | (240) | (24,453) |
| Currency translation differences | 10 | (1,391) | (1,599) | (667) | (3,647) |
| At December 31 | 5,580 | 167,530 | 55,131 | 13,596 | 241,837 |
| Carrying amount at December 31 | 7,099 | 118,373 | 49,051 | 20,409 | 194,932 |
In 2019, net gains on sale of non-current assets and businesses arose mainly in respect of gains on the sale of Integrated Gas assets in Australia, Upstream assets in the USA and Denmark, as well as Oil Products assets in Saudi Arabia and China.
In 2018, net gains on sale of non-current assets and businesses arose mainly in respect of gains on the sale of Integrated Gas assets in Thailand, Malaysia, Oman and New Zealand, as well as Upstream assets in Iraq and Malaysia and an Oil Products divestment in Argentina, partly offset by a charge related to the disposal of our Upstream assets in Ireland.
6 – INTEREST EXPENSE
| | | | | | | | | | | | | | | | | |
| | | | | | |
| $ million |
| | 2020 | | 2019 | | 2018 |
| Interest incurred and similar charges | 4,359 | | [A] | 4,592 | | [A] | 3,550 | |
| Less: interest capitalised | (799) | | | (752) | | | (876) | |
| Other net losses on fair value and cash flow hedges of debt | 32 | | | 132 | | | 169 | |
| Accretion expense | 497 | | | 718 | | | 902 | |
| Total | 4,089 | | | 4,690 | | | 3,745 | |
[A] Includes $2,185 million (2019: $2,186 million) of interest expense related to leases, of which $1,031 million (2019: $1,137 million) related to those leases which before January 1, 2019 were classified as operating leases.
The rate applied in determining the amount of interest capitalised in 2020 was 4.5% (2019: 4.5%; 2018: 4.0%).
7 – INTANGIBLE ASSETS
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| 2020 | $ million |
| Goodwill | LNG off-take
and sales contracts | Software | Other | | Total |
| Cost | | | | | | |
| At January 1 | 14,973 | | 10,211 | | 2,958 | | 3,908 | | | 32,050 | |
| Additions | 247 | | 0 | | 133 | | 1,448 | | | 1,828 | |
| Sales, retirements and other movements | (64) | | (181) | | (77) | | (637) | | | (959) | |
| Currency translation differences | 57 | | 0 | | 100 | | 94 | | | 251 | |
| At December 31 | 15,213 | | 10,030 | | 3,114 | | 4,813 | | | 33,170 | |
| Depreciation, depletion and amortisation, including impairments | | | | | | |
| At January 1 | 768 | | 4,014 | | 2,524 | | 1,258 | | | 8,564 | |
| Charge for the year [A] | 276 | | 835 | | 156 | | 695 | | | 1,962 | |
| Sales, retirements and other movements | 0 | | (181) | | (129) | | 9 | | | (301) | |
| Currency translation differences | 18 | | 0 | | 76 | | 29 | | | 123 | |
| At December 31 | 1,062 | | 4,668 | | 2,627 | | 1,991 | | | 10,348 | |
| Carrying amount at December 31 | 14,151 | | 5,362 | | 487 | | 2,822 | | [B] | 22,822 | |
[A]A] Includes $787 million related to impairments, of which $472 million in 'Other' related to Integrated Gas.right-of-use assets under leases. (See Note 8)21).
[B]Includes $1,013 million relatedthe reclassification to emission certificatesassets classified as held for compliance purposes.sale. (See Note 29)18).
| | | | | | | | |
FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2020 | 182 | |
| | | | | | | | | | | | | | | | | |
| | | | | | |
| 2019 | $ million |
| Goodwill | LNG off-take
and sales contracts | Software | Other | Total |
| Cost | | | | | |
| At January 1 | 14,338 | | 10,365 | | 2,910 | | 3,482 | | 31,095 | |
| Additions | 674 | | 0 | | 137 | | 449 | | 1,260 | |
| Sales, retirements and other movements | (46) | | (154) | | (100) | | (22) | | (322) | |
| Currency translation differences | 7 | | 0 | | 11 | | (1) | | 17 | |
| At December 31 | 14,973 | | 10,211 | | 2,958 | | 3,908 | | 32,050 | |
| Depreciation, depletion and amortisation, including impairments | | | | | |
| At January 1 | 622 | | 3,293 | | 2,425 | | 1,169 | | 7,509 | |
| Charge for the year [A] | 135 | | 876 | | 176 | | 178 | | 1,365 | |
| Sales, retirements and other movements | (1) | | (155) | | (87) | | (85) | | (328) | |
| Currency translation differences | 12 | | 0 | | 10 | | (4) | | 18 | |
| At December 31 | 768 | | 4,014 | | 2,524 | | 1,258 | | 8,564 | |
| Carrying amount at December 31 | 14,205 | | 6,197 | | 434 | | 2,650 | | 23,486 | |
[A] Includes $143 million related to impairments.
Goodwill at December 31, 2020, principally related to theAdditions in 2022 included an acquisition of BG Group plcan interest in 2016, allocated to Integrated Gas ($4,800 million)an oil field in South America within Upstream, an acquisition of a renewable energy platform in Asia within Renewables and Upstream ($5,946 million) at the operating segment level,Energy Solutions and to Pennzoil-Quaker State Company ($1,609 million), a lubricants business in the Oil Products segment based largelyan acquisition of certain fuel and convenience retail sites in North America.
8 – PROPERTY, PLANT AND EQUIPMENT
| | | | | | | | | | | | | | | | | |
| |
| 2020 | $ million |
| Exploration and production | | | |
| Exploration
and evaluation | Production | Manufacturing,
supply and
distribution | Other | Total |
| Cost | | | | | |
| At January 1 | 18,596 | | 286,666 | | 104,817 | | 29,081 | | 439,160 | |
| Additions | 1,728 | | 9,659 | | 6,287 | | 3,460 | | 21,134 | |
| Sales, retirements and other movements | (5,928) | | 600 | | (5,510) | | (1,109) | | (11,947) | |
| Currency translation differences | 92 | | 3,632 | | 2,282 | | 970 | | 6,976 | |
| At December 31 | 14,488 | | 300,557 | | 107,876 | | 32,402 | | 455,323 | |
| Depreciation, depletion and amortisation, including impairments | | | | | |
| At January 1 | 4,010 | | 136,300 | | 48,872 | | 11,629 | | 200,811 | |
| Charge for the year [A] | 3,336 | | 34,209 | | 11,680 | | 1,693 | | 50,918 | |
| Sales, retirements and other movements | (2,148) | | (5,075) | | (4,129) | | (1,091) | | (12,443) | |
| Currency translation differences | 64 | | 2,805 | | 1,819 | | 502 | | 5,190 | |
| At December 31 | 5,262 | | 168,239 | | 58,242 | | 12,733 | | 244,476 | |
| Carrying amount at December 31 | 9,226 | | 132,318 | | 49,634 | | 19,669 | | 210,847 | |
[A] Includes $26,676 million relating to impairment losses (see table 'Impairments' below).
| | | | | | | | |
FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2020 | 183 | |
| | | | | | | | | | | | | | | | | |
| |
| 2019 | $ million |
| Exploration and production | | | |
| Exploration
and evaluation | Production | Manufacturing,
supply and
distribution | Other | Total |
| Cost | | | | | |
| | | | | |
| | | | | |
| At January 1 | 21,181 | | 285,252 | | 97,694 | | 26,268 | | 430,395 | |
| Additions | 2,659 | | 11,374 | | 10,945 | | 3,145 | | 28,123 | |
| Sales, retirements and other movements | (5,442) | | (11,253) | | (3,683) | | (456) | | (20,834) | |
| Currency translation differences | 198 | | 1,293 | | (139) | | 124 | | 1,476 | |
| At December 31 | 18,596 | | 286,666 | | 104,817 | | 29,081 | | 439,160 | |
| Depreciation, depletion and amortisation, including impairments | | | | | |
| At January 1 | 3,287 | | 131,692 | | 46,218 | | 10,465 | | 191,662 | |
| Charge for the year | 1,096 | | 19,346 | | 5,742 | | 1,573 | | 27,757 | |
| Sales, retirements and other movements | (440) | | (15,567) | | (2,981) | | (437) | | (19,425) | |
| Currency translation differences | 67 | | 829 | | (107) | | 28 | | 817 | |
| At December 31 | 4,010 | | 136,300 | | 48,872 | | 11,629 | | 200,811 | |
| Carrying amount at December 31 | 14,586 | | 150,366 | | 55,945 | | 17,452 | | 238,349 | |
Sales, retirements and other movements in 2020 includes to sales of the Appalachia shale gas position and the Martinez refinery, both in the USA.
The carrying amount of property, plant and equipment at December 31, 2020,2022, included $31,611$27,277 million (2019: $27,779(2021: $37,006 million) of assets under construction. This amount excludes exploration and evaluation assets. The carrying amount at December 31, 2020, included $1,159 million of assets classified as held for sale (2019: $1,401 million).
The carrying amount of exploration and production assets at December 31, 2020,2022, included rights and concessions in respect of proved and unproved properties of $11,485$7,662 million (2019: $14,355(2021: $8,849 million). Exploration and evaluation assets principally comprise rights and concessions in respect of unproved properties and capitalised exploration drilling costs.
The carryingAt December 31, 2022, there were no assets for which management's expectations of the future oil and gas prices were applied rather than yearly average prices (carrying amount of such assets at December 31, 2020, for which an alternative reserves base was applied in the calculation of the depreciation charge (see Note 2), was $1,707 million (2019: $1732021: $1,634 million). If no alternative reserves base had been used for those assets, the pre-tax depreciation charge for the years ended December 31, 2021, and December 31, 2020, would have been respectively $1,184 million and $1,012 million higher.
The carrying amount of assets at December 31, 2022, for which total proved reserves were applied rather than total proved developed reserves for the calculation of depreciation, was $26,129 million (2021: $17,462 million). If no alternative reserves base had been used for those assets, the pre-tax depreciation charge for the year ended December 31, 2020,2022, would have been $1,012$792 million higher (2019:$77(2021: $1,168 million, 2018: $1,0032020: $2,476 million).
Contractual commitments for the purchase and lease of property, plant and equipment atDecember 31, 2020,2022, amounted to $5,699$6,693 million (2019: $4,599 million (as revised))(2021: $5,984 million).
Right-of-use assets
Within property, plant and equipment the following amounts relate to leases:
| | | | | | | | | | | | | | | | | |
| $ million |
| 2020 | Exploration and production | | | |
| Exploration
and evaluation | Production | Manufacturing,
supply and
distribution | Other | Total |
| Cost | | | | | |
| At January 1 | 5 | | 15,213 | | 13,574 | | 5,759 | | 34,551 | |
| Additions | 0 | | 502 | | 1,570 | | 1,580 | | 3,652 | |
| Sales, retirements and other movements | 0 | | (1,370) | | (675) | | (75) | | (2,120) | |
| Currency translation differences | 0 | | 95 | | 57 | | 120 | | 272 | |
| At December 31 | 5 | | 14,440 | | 14,526 | | 7,384 | | 36,355 | |
| Depreciation, depletion and amortisation, including impairments | | | | | |
| At January 1 | 0 | | 5,761 | | 2,936 | | 1,164 | | 9,861 | |
| Charge for the year | 0 | | 1,898 | | 2,675 | | 760 | | 5,333 | |
| Sales, retirements and other movements | 0 | | (712) | | (627) | | (158) | | (1,497) | |
| Currency translation differences | 0 | | 50 | | 29 | | 27 | | 106 | |
| At December 31 | 0 | | 6,997 | | 5,013 | | 1,793 | | 13,803 | |
| Carrying amount at December 31 | 5 | | 7,443 | | 9,513 | | 5,591 | | 22,552 | |
| | | | | | | | |
| 252 | FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORMShell | Form 20-F 20202022 | 184 | |
Financial Statements and Supplements
| | | | | | | | | | | | | | | | | |
| $ million |
| 2019 | Exploration and production | | | |
| Exploration
and evaluation | Production | Manufacturing,
supply and
distribution | Other | Total |
| Cost | | | | | |
| | | | | |
| | | | | |
| At January 1 | 0 | | 16,379 | | 10,718 | | 5,017 | | 32,114 | |
| Additions | 5 | | 664 | | 3,124 | | 917 | | 4,710 | |
| Sales, retirements and other movements | 0 | | (1,867) | | (268) | | (157) | | (2,292) | |
| Currency translation differences | 0 | | 37 | | 0 | | (18) | | 19 | |
| At December 31 | 5 | | 15,213 | | 13,574 | | 5,759 | | 34,551 | |
| Depreciation, depletion and amortisation, including impairments | | | | | |
| At January 1 | 0 | | 5,209 | | 1,110 | | 589 | | 6,908 | |
| Charge for the year | 0 | | 1,632 | | 1,855 | | 703 | | 4,190 | |
| Sales, retirements and other movements | 0 | | (1,091) | | (30) | | (128) | | (1,249) | |
| Currency translation differences | 0 | | 11 | | 1 | | 0 | | 12 | |
| At December 31 | 0 | | 5,761 | | 2,936 | | 1,164 | | 9,861 | |
| Carrying amount at December 31 | 5 | | 9,452 | | 10,638 | | 4,595 | | 24,690 | |
| | | | | | | | | | | |
|
| Impairments | $ million |
| 2020 | 2019 | 2018 |
| Impairment losses [A] | | | |
| Exploration and production | 20,155 | | 2,983 | | 1,066 | |
| Manufacturing, supply and distribution | 6,490 | | 654 | | 441 | |
| Other | 31 | | 2 | | 8 | |
| Total | 26,676 | | 3,639 | | 1,515 | |
| Impairment reversals [A] | | | |
| Exploration and production | 0 | | 0 | | 1,265 | |
| Manufacturing, supply and distribution | 0 | | 190 | | 0 | |
| | | |
| Total | 0 | | 190 | | 1,265 | |
[A] See Note 4.12. Property, plant and equipment continued
| | | | | | | | | | | |
| $ million |
| 2022 | 2021 | 2020 |
| Impairment losses | | | |
| Exploration and production | 868 | 1,533 | 20,155 |
| Manufacturing, supply and distribution | 474 | 2,340 | 6,490 |
| Other | 457 | 21 | 31 |
| Total [A] | 1,799 | 3,894 | 26,676 |
| Impairment reversals | | | |
| Exploration and production | 5,954 | 213 | — |
| Manufacturing, supply and distribution | 72 | — | — |
| Other | 151 | 1 | — |
| Total [A] | 6,177 | 214 | — |
[A]See Note 8.
Impairment losses in 2022 mainly related to the withdrawal from Russia ($854 million, see Note 6), the classification of an Upstream asset as held for sale ($320 million) and an impairment of capital expenditure additions in fully impaired sites in Chemicals and Products ($257 million).
The recognition of impairment reversals in 2022 resulted from the reversals of impairment losses recognised previously. These were mainly triggered by the revision of Shell's mid- and long-term commodity price assumptions reflecting the current energy market demand and supply fundamentals. They are related to: i) Integrated Gas for $3,449 million, mainly relating to the Queensland Curtis LNG asset; and ii) Upstream for $2,504 million, mainly related to two offshore projects in Brazil and an asset in the US Gulf of Mexico.
Impairment losses in 2021 were predominantly triggered by the reclassifications to assets held for sale, or portfolio developments. They were mainly related to three refineries in the USA within Chemicals and Products impaired on classification as held for sale ($1,537 million), and exploration and evaluation assets both within Integrated Gas ($600 million) and Upstream ($373 million).
Impairment losses in 2020 were mainly triggered by Shell's revision of the mid- and long-term commodity price and refining margin outlook reflecting the expected effects of the macroeconomic environment and the COVID-19 pandemic as well as energy market demand and supply fundamentals. The impairment losses for exploration and production assets related primarily to Integrated Gas ($11,539 million), including the Queensland Curtis LNG and Prelude floating LNG operations, and Upstream ($8,629 million), including assets in the Gulf of Mexico, unconventional assets in North America, offshore assets in Brazil and Europe and a project in Nigeria (OPL 245). The impairment losses for manufacturing, supply and distribution related primarily to OilChemicals and Products ($6,493 million), including assets in Europe and the shutdown of the Convent refineryoil products manufacturing facility in the USA.
Impairment losses in 2019 were mainly triggered by the revision to Shell's long-term oil and gas price outlook and change to future capital expenditure plans. The impairment losses related primarily to Upstream shale and deep-water properties in North and South America, in Integrated Gas to properties in Australia and in Oil Products to the refining portfolio. Impairment losses in 2018 were mainly in Upstream, and principally related to the disposal of Shell’s interests in Norway and Ireland and related to assets in the Gulf of Mexico. Impairment reversals in 2018 were mainly related to assets in North America.
For impairment testing purposes, the respective carrying amounts of property, plant and equipment and intangible assets were compared with their value in use. Cash flow projections used in the determination of value in use were made using management’s forecasts of commodity prices, market supply and demand, potential costs associated with operational GHG emissions, product margins including forecast refining margins and expected production volumes (see Note 2). These cash flows were adjusted
The discount rate is based on a nominal post-tax weighted average cost of capital (WACC) of 5% (2021: 5%) for Power activities and a nominal post-tax WACC of 6.5% (2021: 6.5%) for all other businesses. Prior to 2021 the risks specific torate used by Shell was 6% for all activities and was based on a pre-tax discount rate reflecting the assets,marginal cost of debt, current market assessments of the time value of money and therefore these risks were not includedresidual risk. The change in the determination of2021 in the discount rate applied.to a nominal post-tax WACC has been reflected in a commensurate manner in the risk adjustments to post-tax cash flow projections. The nominalimpact of the change in the 2021 impairment valuation technique was not material compared with the previous impairment valuation technique. The pre-tax discount rate applied in 2020 was 6% (2019: 6%; 2018: 6%used for goodwill testing ranged between 5-12% (2021: 7-11%).
Oil and gas price assumptions applied for impairment testing are reviewed and, where necessary, adjusted on a periodic basis. Reviews include comparison with available market data and forecasts that reflect developments in demand such as global economic growth, technology efficiency, policy measures and, in supply, consideration of investment and resource potential, cost of development of new supply, and behaviour of major resource holders. The near-term commodity price assumptions applied in impairment testing in 20202022 were as follows:
| | | | | | | | | | | | | | |
| |
| Commodity price assumptions [A] | | | | |
| 2021 | 2022 | 2023 | 2024 |
| Brent crude oil ($/b) | 40 | | 50 | | 60 | | 63 | |
| Henry Hub natural gas ($/MMBtu) | 2.50 | | 2.50 | | 2.75 | | 3.03 | |
[A] Money of the day.
| | | | | | | | |
| 253 | FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORMShell | Form 20-F 20202022 | 185 | |
Financial Statements and Supplements
12. Property, plant and equipment continued
| | |
| Commodity price assumptions [A] |
| | | | | | | | | | | | | | |
| 2022 | 2023 | 2024 | 2025 | 2026 |
| Brent crude oil ($/b) | 80 | 70 | 70 | 71 |
| Henry Hub natural gas ($/MMBtu) | 4.00 | 3.50 | 3.50 | 3.98 |
| | | | | | | | | | | | | | |
| 2021 | 2022 | 2023 | 2024 | 2025 |
| Brent crude oil ($/b) | 60 | 60 | 60 | 63 |
| Henry Hub natural gas ($/MMBtu) | 2.75 | 2.75 | 2.75 | 3.00 |
[A]Money of the day.
For periods after 2024,2026, the real-terms long-term price assumptions applied were $60were: $65 per barrel (/b) (2019:(2021: $60/b)for Brent crude oil, and $3.00$4.00 per million British thermal units (/MMBtu) (2019:$3.00/(2021: $3.00/MMBtu) for Henry Hub natural gas, both at real term 2020.
Until 2019 management’s estimate of longer-term refining margins in Oil Products was based on the reversion to mean methodology, unless a fundamental shift in markets had been identified, over the life of the refineries. Under this approach, it was assumed that refining margins will revert to historical averages over time. As from 2020, a different price methodology has been applied, based on management's understanding and interpretation of demand and supply fundamentals in the near term and taking into account various other factors such as industry rationalisation and energy transition in the long term. This resulted in a downward revision of average long-term refining margins by around 30% from previous assumptions applied.
Some 53% of the Group’s combined “Property, plant and equipment", "Investments in Joint Ventures and Associates" and "Intangible assets” were tested for impairment in 2020. Of the assets tested, some 56% were subject to either partial or full impairments. At December 31, 2020, the recoverable amounts principally determined through value in use of assets subject to impairment were $17.2 billion for Integrated Gas, $39.1 billion for Upstream and $1.8 billion for Oil Products respectively.
The main sensitivities in relation to impairment are the commodity price assumptions in Integrated Gas and Upstream, and refining margins in Oil Products.Chemicals and Products and discount rates in all segments. A change of -10% or +10% ofin the commodity price assumptions over the entire cash flow projection period would ceteris paribus result in some $6.0-$8.0$2-5 billion impairment or of some $6.0-$9.0$2-4 billion impairment reversal, respectively, in Integrated Gas and Upstream. Refining margins included in the Operating Plan are at an average of $6.22/bbl. A change of -10%-$1/bbl or +10% in
+$1/bbl long-term refining margins over the entire cash flow projection period would ceteris paribus result in some $1.5-$2.5$1-3 billion impairment or
some $1.7-$2.7$1-3 billion impairment reversal, respectively, in OilChemicals and Products. A change of +1% in the discount factor would ceteris paribus result in some $1-3 billion impairment in Integrated Gas, up to $1 billion impairment in each of the following segments: Upstream, Chemicals and Products and Renewables and Energy Solutions, and would have no significant impact on Marketing and Corporate.
| | |
| Capitalised exploration drilling costs |
| | | | $ million |
| Capitalised exploration drilling costs | $ million | |
| | 2020 | 2019 | 2018 | | 2022 | 2021 | 2020 |
| At January 1 | At January 1 | 5,668 | | 6,629 | | 6,981 | | At January 1 | 3,015 | 3,654 | 5,668 |
| Additions pending determination of proved reserves | Additions pending determination of proved reserves | 1,016 | | 2,036 | | 2,588 | | Additions pending determination of proved reserves | 1,298 | 1,024 | 1,016 |
| Amounts charged to expense | Amounts charged to expense | (815) | | (1,218) | | (449) | | Amounts charged to expense | (881) | (639) | (815) |
| Reclassifications to productive wells on determination of proved reserves | Reclassifications to productive wells on determination of proved reserves | (1,385) | | (1,655) | | (2,461) | | Reclassifications to productive wells on determination of proved reserves | (531) | (577) | (1,385) |
| Other movements [A] | (830) | | (124) | | (30) | | |
| Other movements | | Other movements | 10 | (447) | (830) |
| At December 31 | At December 31 | 3,654 | | 5,668 | | 6,629 | | At December 31 | 2,911 | 3,015 | 3,654 |
[A] Includes $750 million impairment of capitalised exploration drilling costs.
| | | | Projects | Wells | | Projects | | Wells |
| | Number | $ million | Number | $ million | | Number | $ million | | Number | $ million |
| Between 1 and 5 years | Between 1 and 5 years | 33 | 1,666 | | 80 | 1,275 | | Between 1 and 5 years | 11 | 819 | | 24 | 549 |
| Between 6 and 10 years | Between 6 and 10 years | 12 | 975 | | 47 | 1,309 | | Between 6 and 10 years | 9 | 797 | | 32 | 848 |
| Between 11 and 15 years | Between 11 and 15 years | 7 | 213 | | 21 | 217 | | Between 11 and 15 years | 1 | 3 | | 10 | 210 |
| Between 16 and 20 years | Between 16 and 20 years | 0 | | 0 | | 3 | 53 | | Between 16 and 20 years | 4 | 193 | | 11 | 205 |
| Total | Total | 52 | 2,854 | | 151 | 2,854 | | Total | 25 | 1,812 | | 77 | 1,812 |
Exploration drilling costs capitalised for periods greater than one year at December 31, 2020,2022, analysed according to the most recent year of activity, are presented in the table above. These comprise $82$443 million relating to 2six projects where drilling activities were under way or firmly planned for the future, and $2,772$1,369 million relating to 5019 projects awaiting development concepts.
9 – JOINT VENTURES AND ASSOCIATES
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| Shell share of comprehensive income of joint ventures and associates | | $ million |
| 2020 | | 2019 | | 2018 |
| Joint
ventures | Associates | Total | | Joint
ventures | Associates | Total | | Joint
ventures | Associates | Total |
| Income for the period | 629 [A] | 1,154 | | 1,783 | | | 1,121 | | 2,483 | | 3,604 | | | 1,307 | | 2,799 | | 4,106 | |
Other comprehensive
income/(loss) for the period | 76 | | 1 | | 77 | | | (82) | | 8 | | (74) | | | 172 | | 11 | | 183 | |
| Comprehensive income for the period | 705 | | 1,155 | | 1,860 | | | 1,039 | | 2,491 | | 3,530 | | | 1,479 | | 2,810 | | 4,289 | |
[A] Includes $599 million impairment losses recognised in share of profit of joint ventures and associates.
| | | | | | | | | | | | | | | | | | | | | | | |
|
| Carrying amount of interests in joint ventures and associates | | $ million |
| Dec 31, 2020 | | Dec 31, 2019 |
| Joint
ventures | Associates | Total | | Joint
ventures | Associates | Total |
| Net assets | 14,406 | | 8,045 | | 22,451 | | | 13,426 | | 9,382 | | 22,808 | |
| | | | | | | | | | | | | | | | | |
| |
| Transactions with joint ventures and associates | $ million | |
| 2020 | 2019 | | 2018 | |
| Sales and charges to joint ventures and associates | 5,426 | | 7,748 | | | 8,270 | | |
| Purchases and charges from joint ventures and associates | 8,262 | | 11,581 | | [A] | 13,758 | | [A] |
[A] As revised, following the reassessment of contractual relationships, by $2,008 million (2019) and $2,546 million (2018).
| | | | | | | | |
| 254 | FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORMShell | Form 20-F 20202022 | 186 | |
Financial Statements and Supplements
Notes to the Consolidated Financial Statements continued
13. Joint ventures and associates
| | |
| Shell share of comprehensive income of joint ventures and associates |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | $ million |
| 2022 | | 2021 | | 2020 |
| Joint
ventures | | Associates | | Total | [A] | Joint
ventures | Associates | Total | | Joint
ventures | Associates | Total |
| Income for the period | 2,589 | | 1,383 | [A] | 3,972 | [A] | 1,955 | 2,142 | 4,097 | | 629 | 1,154 | 1,783 |
Other comprehensive
income/(loss) for the period | 21 | | — | | 21 | | (106) | — | (106) | | 76 | 1 | 77 |
| Comprehensive income for the period | 2,610 | | 1,383 | | 3,993 | | 1,849 | 2,142 | 3,991 | | 705 | 1,155 | 1,860 |
| | |
| Carrying amount of interests in joint ventures and associates |
| | | | | | | | | | | | | | | | | | | | | | | |
| $ million |
| Dec 31, 2022 | | Dec 31, 2021 |
| Joint
ventures | Associates | Total | | Joint
ventures | Associates | Total |
| Net assets | 17,056 | | 6,808 | | 23,864 | | | 15,767 | 7,648 | 23,415 |
| | |
| Transactions with joint ventures and associates |
| | | | | | | | | | | |
| $ million |
| 2022 [A] | 2021 [A] | 2020 |
| Sales and charges to joint ventures and associates | 12,230 | 8,509 | 5,426 |
| Purchases and charges from joint ventures and associates | 22,286 | 13,584 | 8,262 |
[A]Includes 29% (2021: 26%) of sales and 16% (2021: 16%) purchases in transactions with one joint venture operating in the oil trading business.
These transactions principally comprise sales and purchases of goods and services in the ordinary course of business. Related balances outstanding at December 31, 2020,2022, and 2019,2021, are presented in Notes 1115 and 15.19.
| | | | | | | | |
|
| Other arrangements in respect of joint ventures and associates | $ million |
| Dec 31, 2020 | Dec 31, 2019 |
| Commitments to make purchases from joint ventures and associates [A] | 1,674 | | 2,177 | |
| Commitments to provide debt or equity funding to joint ventures and associates | 900 | | 897 | |
| | |
| Other arrangements in respect of joint ventures and associates |
| | | | | | | | |
| $ million |
| Dec 31, 2022 | Dec 31, 2021 |
| Commitments to make purchases from joint ventures and associates [A] | 1,234 | 1,437 |
| Commitments to provide debt or equity funding to joint ventures and associates | 567 | 533 |
[A]Commitments to make purchases from joint ventures and associates mainly relate to contracts associated with LNG processing fees and transportation capacity. Shell has other purchase obligations related to joint ventures and associates that are not fixed or determinable and are principally intended to be resold in a short period of time through sales agreements with third parties. These include long-term LNG and natural gas purchase commitments and commitments to purchase refined products or crude oil at market prices. Shell has stopped all spot purchases of Russian crude, LNG, and of cargoes of refined products directly exported from Russia. (See Note 6).
10 – INVESTMENTS IN SECURITIES | | | | | | | | |
|
| Investment in securities | $ million |
| Dec 31, 2020 | Dec 31, 2019 |
| Equity securities: | 1,396 | | 1,437 | |
| Equity securities at fair value through other comprehensive income | 1,396 | | 1,437 | |
| Debt securities: | 1,826 | | 1,552 | |
| Debt securities at amortised cost | 12 | | 11 | |
| Debt securities at fair value through other comprehensive income | 1,165 | | 1,086 | |
| Debt securities at fair value through profit or loss | 649 | | 455 | |
| Total | 3,222 | | 2,989 | |
| At fair value | | |
| Measured by reference to prices in active markets for identical assets | 1,637 | | 1,669 | |
| Measured by reference to other observable inputs | 68 | | 56 | |
| Measured using predominantly unobservable inputs | 1,505 | | 1,253 | |
| Total | 3,210 | | 2,978 | |
| At cost | 12 | | 11 | |
| Total | 3,222 | | 2,989 | |
Financial Statements and Supplements
Notes to the Consolidated Financial Statements continued
14. Investments in securities
Equity | | |
| Investments in securities |
| | | | | | | | |
| $ million |
| Dec 31, 2022 | Dec 31, 2021 |
| Equity securities: | 1,533 | 1,710 |
| Equity securities at fair value through other comprehensive income | 1,533 | 1,710 |
| Debt securities: | 1,829 | 2,087 |
| Debt securities at amortised cost | 21 | 4 |
| Debt securities at fair value through other comprehensive income | 1,308 | 1,306 |
| Debt securities at fair value through profit or loss | 500 | 777 |
| Total | 3,362 | 3,797 |
| At fair value | | |
| Measured by reference to prices in active markets for identical assets | 1,884 | 1,909 |
| Measured by reference to other observable inputs | 158 | 177 |
| Measured using predominantly unobservable inputs | 1,299 | 1,707 |
| Total | 3,341 | 3,793 |
| At cost | 21 | 4 |
| Total | 3,362 | 3,797 |
As at December 31, 2020, principally comprised2022, investments included equity securities comprising interests below 5%in various investments. Debtwhich Shell has no significant influence, debt securities principally comprisedcomprising a portfolio required to be held by the Company’s internal insurance entities as security for their activities.activities, and assets held in escrow in relation to the Group's UK pension arrangements.
| | | | | | | | |
|
| Investments in securities measured using predominantly unobservable inputs [A] | $ million |
| 2020 | 2019 |
| At January 1 | 1,253 | | 1,193 | |
| Gains/(losses) recognised in other comprehensive income | 45 | | (42) | |
| Purchases | 329 | | 340 | |
| Sales | (60) | | (237) | |
| Other movements | (62) | | (1) | |
| At December 31 | 1,505 | | 1,253 | |
| | |
| Investments in securities measured using predominantly unobservable inputs [A] |
| | | | | | | | |
| $ million |
| 2022 | 2021 |
| At January 1 | 1,707 | 1,505 |
| (Losses)/gains recognised in other comprehensive income | (206) | 44 |
| Purchases | 142 | 299 |
| Sales | (37) | (17) |
| Other movements | (307) | (124) |
| At December 31 | 1,299 | 1,707 |
[A]Based on expected dividend flows, adjusted for country and other risks as appropriate and discounted to their present value.
"Other movements" in 2022 includes a reclassification to property, plant and equipment, as a result of obtaining title to assets in a project in Asia.
Financial Statements and Supplements
11 – TRADE AND OTHER RECEIVABLES15. Trade and other receivables
| | | | | | | | | | | | | | | | | |
| |
| $ million |
| Dec 31, 2020 | | Dec 31, 2019 |
| Current | Non-current | | Current | Non-current |
| Trade receivables | 21,781 | | — | | | 30,216 | | — | |
| Lease receivables | 186 | | 1,380 | | | 213 | | 1,528 | |
| Other receivables | 7,251 | | 4,109 | | | 7,791 | | 4,039 | |
| Amounts due from joint ventures and associates | 726 | | 829 | | | 912 | | 1,078 | |
| Prepayments and deferred charges | 3,681 | | 1,323 | | | 4,282 | | 1,440 | |
| Total | 33,625 | | 7,641 | | | 43,414 | | 8,085 | |
| | | | | | | | | | | | | | | | | |
| $ million |
| Dec 31, 2022 | | Dec 31, 2021 |
| Current | Non-current | | Current | Non-current |
| Trade receivables | 39,334 | — | | 34,717 | — |
| Lease receivables | 206 | 1,090 | | 228 | 1,285 |
| Other receivables | 9,737 | 3,247 | | 8,240 | 3,761 |
| Amounts due from joint ventures and associates | 2,722 | 423 | | 1,048 | 499 |
| Prepayments and deferred charges | 14,511 | 2,160 | | 8,975 | 1,520 |
| Total | 66,510 | 6,920 | | 53,208 | 7,065 |
The fair value of financial assets included above approximates the carrying amount and was determined from predominantly unobservable inputs.
Other receivables at December 31, 2020,2022, include receivables from certain governments in their capacity as joint arrangement partners of $1,357$717 million (2019: $1,209(2021: $1,225 million), after provisions for impairments, that are overdue in part or in full. Recoverability and timing thereof are subject to uncertainty, however, the ultimate risk of default on the carrying amount is considered to be low. Other receivables at December 31, 2022, also includeincluded current income tax receivables of $363 million (2021: $550 million) and othernon-current income tax receivables (see Note 16)of $469 million (2021: $366 million).
Provisions for impairments deducted from trade and other receivables amounted to $968$1,510 million at December 31, 2020 (2019: $6492022 (2021: $1,497 million).
| | | | | | | | |
FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2020 | 187 | |
Allowance for expected credit losses - trade receivables
Shell uses a provision matrix to calculate expected credit losses (ECLs) for trade receivables. The provision matrix is initially based on Shell’s historical observed default rates. Shell calculates the ECL to adjust the historical credit loss experienced with forward-looking information.
The ECL at December 31, 20202022, is $112$214 million (2019: $83(2021: $155 million), which represents 0.27%-0.51% (2019: 0.08%-0.27%0.45-0.54% (2021: 0.45-0.51%) of all trade receivables. The increase compared with prior year is mainly due to changes in the macroeconomic environment and the COVID-19 pandemic.
A loss allowance provision of $349$841 million (2019: $193(2021: $876 million) was established, in addition to all other impairments to trade receivables
as at December 31, 2020,2022, that are outside of the provision matrix calculations.
Lease contracts where Shell is the lessor are classified as finance leases or operating leases. Receivables for lease contracts classified as finance leases are as follows:
| | | | | | | | | | | | | | | | | |
| | | | | $ million |
| | | | Dec 31, 2020 | Dec 31, 2019 |
| Less than one year | | | | 262 | | 305 | |
| Between 1 and 5 years | | | | 859 | | 953 | |
| 5 years and later | | | | 852 | | 1,019 | |
| Total undiscounted lease payments receivable | | | | 1,973 | | 2,277 | |
| Unearned finance income | | | | 407 | | 536 | |
| Net investment in leases | | | | 1,566 | | 1,741 | |
| | | | | | | | |
| | $ million |
| Dec 31, 2022 | Dec 31, 2021 |
| Less than one year | 257 | 278 |
| Between 1 and 5 years | 792 | 852 |
| 5 years and later | 532 | 715 |
| Total undiscounted lease payments receivable | 1,581 | 1,845 |
| Unearned finance income | 270 | 339 |
| Net investment in leases | 1,311 | 1,506 |
In addition, at December 31, 2020,2022, Shell is entitled to future contractual payments under operating leases of $248$389 million (2019: $344(2021: $431 million).
16. Inventories
12 – INVENTORIES
| | | | | | | | | | | |
| |
| $ million | |
| Dec 31, 2020 | Dec 31, 2019 | |
| Oil, gas and chemicals | 16,949 | | 21,653 | | [A] |
| Other including materials | 2,508 | | 2,418 | | [A] |
| Total | 19,457 | | 24,071 | | |
[A] As revised, following the reclassification of non-physical trading inventories of $1,001 million from 'Oil, gas and chemicals' to 'Other including materials'.
| | | | | | | | |
| $ million |
| Dec 31, 2022 | Dec 31, 2021 |
| Oil, gas and chemicals | 27,823 | 22,145 |
| Environmental certificates | 2,557 | 1,727 |
| Materials | 1,514 | 1,386 |
| Total | 31,894 | 25,258 |
Inventories at December 31, 2020,2022, include write-downs to net realisable value of $239$2,705 million (2019: $546(2021: $592 million).
13 – CASH AND CASH EQUIVALENTS
| | | | | | | | |
| | |
| $ million |
| Dec 31, 2020 | Dec 31, 2019 |
| Cash | 4,831 | | 4,168 | |
| Short-term bank deposits | 2,220 | | 2,665 | |
| Money market funds, reverse repos and other cash equivalents | 24,779 | | 11,222 | |
| Total | 31,830 | | 18,055 | |
Included in cash and cash equivalents at December 31, 2020, were amounts totalling $65 million (2019: $431 million) subject to currency controls or other legal restrictions. Money market funds and reverse repos used in cash management provided higher yields compared with other cash equivalents available in 2020. Information about credit risk is presented in Note 19.
| | | | | | | | |
| 257 | FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORMShell | Form 20-F 20202022 | 188 | |
Financial Statements and Supplements
14 – DEBT AND LEASE ARRANGEMENTS17. Cash and cash equivalents
Debt | | | | | | | | |
| $ million |
| Dec 31, 2022 | Dec 31, 2021 |
| Cash | 6,608 | 5,849 |
| Short-term bank deposits | 5,147 | 4,416 |
| Money market funds, reverse repos and other cash equivalents | 28,491 | 26,705 |
| Total | 40,246 | 36,970 |
| | | | | | | | | | | | | | | | | | | | |
|
| |
| Debt | $ million |
| Dec 31, 2020 | Dec 31, 2019 |
| Debt
(excluding
lease
liabilities) | Lease
liabilities | Total | Debt
(excluding
lease
liabilities) | Lease
liabilities | Total |
| Short-term debt | 7,535 | | 0 | | 7,535 | | 3,962 | | 0 | | 3,962 | |
| Long-term debt due within 1 year | 5,221 | | 4,143 | | 9,364 | | 6,146 | | 4,956 | | 11,102 | |
| Current debt | 12,756 | | 4,143 | | 16,899 | | 10,108 | | 4,956 | | 15,064 | |
| Non-current debt | 66,838 | | 24,277 | | 91,115 | | 55,779 | | 25,581 | | 81,360 | |
| Total | 79,594 | | 28,420 | | 108,014 | | 65,887 | | 30,537 | | 96,424 | |
| | | | | | | | | | | | | | | | | |
|
| Net debt | | | | | $ million |
| Asset/(liability) |
| Current
debt | Non-current
debt | Derivative
financial
instruments | Cash and cash equivalents
(see Note 13) | Net debt |
| At January 1, 2020 | (15,064) | | (81,360) | | (724) | | 18,055 | | (79,093) | |
| Cash flow | 7,536 | | (13,121) | | (1,157) | | 13,603 | | 6,861 | |
| Lease additions | (870) | | (2,268) | | | | (3,138) | |
| Other movements | (8,380) | | 8,354 | | 524 | | 0 | | 498 | |
| Currency translation differences and foreign exchange gains/(losses) | (121) | | (2,720) | | 2,155 | | 172 | | (514) | |
| At December 31, 2020 | (16,899) | | (91,115) | | 798 | | 31,830 | | (75,386) | |
| At January 1, 2019 | (13,046) | | (79,815) | | (1,345) | | 26,741 | | (67,465) | |
| Cash flow | 10,333 | | (7,269) | | 351 | | (8,810) | | (5,395) | |
| Lease additions | (971) | | (3,547) | | | | (4,518) | |
| Other movements | (11,453) | | 9,179 | | 453 | | 0 | | (1,821) | |
| Currency translation differences and foreign exchange gains/(losses) | 73 | | 92 | | (183) | | 124 | | 106 | |
| At December 31, 2019 | (15,064) | | (81,360) | | (724) | | 18,055 | | (79,093) | |
Management's priorities for applying Shell'sIn 2022, cash are first the reduction of net debtcontinued to $65 billionbe invested with an emphasis on capital preservation. Information about credit risk is presented in Note 25. Included in cash and on achieving this milestone, distribution of a total of 20%—30% of cash flow from operationsequivalents at December 31, 2022, were amounts totalling $156 million (2021: $113 million) subject to shareholders. Remaining cash will be allocated to disciplined and measured capital expenditure growth and further debt reduction.
| | | | | | | | | | | |
|
| Gearing | $ million, except where indicated |
| Dec 31, 2020 | Dec 31, 2019 |
| Net debt | 75,386 | | 79,093 | |
| Total equity | 158,537 | | 190,463 | |
| Total capital | 233,923 | | 269,556 | |
| Gearing | 32.2 | % | 29.3 | % |
Gearing is a measure
18. Assets held for sale
| | | | | | | | | | | | | | | | | | | | | | | |
| | | $ million |
| | Dec 31, 2022 | | | Dec 31, 2021 |
| Current | Non-current | Total | | Current | Non-current | Total |
| Intangible assets | — | — | — | | — | 116 | 116 |
| Property, plant and equipment | — | 2,526 | 2,526 | | — | 896 | 896 |
| Joint ventures and associates | — | 94 | 94 | | — | — | — |
| Investments in securities | — | 128 | 128 | | — | — | — |
| Trade and other receivables | 44 | 51 | 95 | | 349 | 71 | 420 |
| Inventories | 8 | — | 8 | | 528 | — | 528 |
| Assets classified as held for sale | 52 | 2,799 | 2,851 | | 877 | 1,083 | 1,960 |
| Debt | 3 | 1 | 4 | | 257 | 199 | 456 |
| Trade and other payables | 256 | 22 | 278 | | 235 | 140 | 375 |
| Deferred tax | — | — | — | | — | 41 | 41 |
| Retirement benefits | — | — | — | | — | 108 | 108 |
| Decommissioning and other provisions | 134 | 971 | 1,105 | | 10 | 219 | 229 |
| Income taxes payable | 8 | — | 8 | | 44 | — | 44 |
| Liabilities directly associated with assets classified as held for sale | 401 | 994 | 1,395 | | 546 | 707 | 1,253 |
At December 31, 2022, assets held for sale mainly related to three Upstream projects. All transactions that resulted in the reclassification of Shell’s capital structureassets held for sale at December 31, 2022, are expected to be completed in 2023.
In 2022, Shell ceased to classify one asset within Chemicals and is definedProducts as net debt (total debt less cash and cash equivalents)held for sale as a percentage of total capital (net debt plus total equity).it no longer met the assets-held-for-sale criteria. All other assets classified as held for sale at December 31, 2021, were sold in 2022.
19. Trade and other payables
| | | | | | | | | | | | | | | | | |
| $ million |
| Dec 31, 2022 | | Dec 31, 2021 |
| Current | Non-current | | Current | Non-current |
| Trade payables | 42,632 | — | | 34,136 | — |
| Other payables [A] | 10,059 | 3,148 | | 9,617 | 1,675 |
| Sales taxes, excise duties and similar levies | 3,270 | — | | 3,522 | — |
| Amounts due to joint ventures and associates | 8,441 | 31 | | 4,793 | 36 |
| Accruals and deferred income | 14,955 | 253 | | 11,105 | 364 |
| Total | 79,357 | 3,432 | | 63,173 | 2,075 |
[A]Includes obligations under environmental compliance schemes of $4,710 million as at December 31, 2022 (2021: $4,016 million). (See Note 5).
The fair value of financial liabilities included above approximates the carrying amount and was determined from predominantly
unobservable inputs.
Other payables include amounts due to joint arrangement partners and in respect of other project-related items.
Information about offsetting, collateral and liquidity risk is presented in Note 25.
Financial Statements and Supplements
Notes to the Consolidated Financial Statements continued
20. Debt
| | | | | | | | | | | | | | | | | | | | | | | |
| $ million |
| Dec 31, 2022 | | Dec 31, 2021 |
| Debt (excluding
lease liabilities) | Lease
liabilities [A] | Total | | Debt (excluding
lease liabilities) | Lease
liabilities [A] | Total |
| Current debt: | 4,620 | 4,381 | 9,001 | | 4,080 | 4,138 | 8,218 |
| Short-term debt | 1,026 | — | 1,026 | | 515 | — | 515 |
| Long-term debt due within 1 year | 3,594 | 4,381 | 7,975 | | 3,565 | 4,138 | 7,703 |
| Non-current debt | 51,532 | 23,262 | 74,794 | | 57,499 | 23,369 | 80,868 |
| Total | 56,152 | 27,643 | 83,795 | | 61,579 | 27,507 | 89,086 |
[A]Further analysis of lease liabilities is provided in Note 21.
| | | | | | | | | | | | | | | | | | | | |
| | | | | | $ million |
| (Asset)/liability |
| Current
debt | Non-current
debt | | Derivative
financial
instruments | Cash and cash equivalents
(see Note 17) | Net debt |
| At January 1, 2022 | 8,218 | 80,868 | | 440 | (36,970) | 52,556 |
| Cash flow | (7,618) | (254) | | (1,799) | (4,012) | (13,683) |
| Lease additions [A] | 1,111 | 4,077 | | | | 5,188 |
| Other movements | 7,560 | (7,883) | | 1,393 | — | 1,070 |
| Currency translation differences and foreign exchange (gains)/losses | (270) | (2,014) | | 1,254 | 736 | (294) |
| At December 31, 2022 | 9,001 | 74,794 | | 1,288 | (40,246) | 44,837 |
| At January 1, 2021 | 16,899 | 91,115 | | (798) | (31,830) | 75,386 |
| Cash flow | (17,887) | (1,842) | [B] | (1,165) | (5,679) | (26,573) |
| Lease additions [A] | 899 | 2,889 | | | | 3,788 |
| Other movements | 8,655 | (9,034) | | 688 | — | 309 |
| Currency translation differences and foreign exchange (gains)/losses | (348) | (2,260) | | 1,715 | 539 | (354) |
| At December 31, 2021 | 8,218 | 80,868 | | 440 | (36,970) | 52,556 |
[A]Further analysis of lease liabilities is provided in Note 21.
[B]Includes $3,500 million of early repayment of non-current debt.
| | |
| Borrowing facilities and amounts undrawn |
| | | | | | | | | | | | | | | | | |
| $ million |
| Facility | | Amount undrawn |
| Dec 31, 2022 | Dec 31, 2021 | | Dec 31, 2022 | Dec 31, 2021 |
| CP programmes | 20,000 | 20,000 | | 20,000 | 20,000 |
| EMTN programme | unlimited | unlimited | | N/A | N/A |
| US shelf registration | unlimited | unlimited | | N/A | N/A |
| Committed credit facilities | 9,920 | 9,920 | | 9,920 | 9,920 |
Financial Statements and Supplements
Notes to the Consolidated Financial Statements continued
20. Debt continued
Shell has access to international debt capital markets via two commercial paper (CP) programmes, a Euro medium-term note (EMTN) programme and a US universal shelf (US shelf) registration. Issuances under the CP programmes are supported by a committed credit facility and cash.
| | | | | | | | | | | | | | | | | |
|
| Borrowing facilities and amounts undrawn | $ million |
| Facility | | | Amount undrawn | |
| Dec 31, 2020 | Dec 31, 2019 | | Dec 31, 2020 | Dec 31, 2019 |
| CP programmes | 20,000 | | 20,000 | | | 13,254 | | 16,610 |
| EMTN programme | unlimited | unlimited | | N/A | N/A |
| US shelf registration | 0 | | unlimited | | N/A | N/A |
| Committed credit facilities | 22,651 | | 10,000 | | | 22,651 | | 10,000 | |
| | | | | | | | |
FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2020 | 189 | |
Under the CP programmes, Shell can issue debt of up to $10 billion$10,000 million with maximum maturities not exceeding 270ranging between 183 days and $10 billion364 days depending on the form of the notes issued; and $10,000 million with maturities not exceeding 397 days.
The EMTN programme is updated each year, most recently in August 2020. In 2020,September 2022. During 2022, no debt was issued under this programme amounted to $6,734 million (2019: $3,322 million)
(2021: no debt issued).
The US shelf registration provides Shell with the flexibility to issue debt securities, ordinary shares, preferred shares and warrants. The registration is updated every three years. The US shelf registration expiredyears and was last updated in December 2020 . Concurrent with the filing of our Annual Report on Form 20-F with the Securities and Exchange Commission (SEC) on March 11, 2021, a new US shelf registration statement will be filed with the SEC and be effective upon filing.2021. During 2020,2022, no debt totalling $6,250 million (2019: $4,000 million) was issued under the registration.
On December 13, 2019, Shell entered into $10 billionrefinanced its revolving credit facilities (RCF), which in anticipation of the LIBOR reform (see Notes 2 and 3), wereare linked to the new Secured Overnight Financing Rate (SOFR). Under, at pre-agreed margins. In December 2022, Shell renewed the termsshort-dated tranche of the facilities, the LIBOR interest rate was replaced by SOFR on the first anniversaryfacility of the signing date of these revolving credit facilities. The committed credit facilities are available at pre-agreed margins, with $2 billion$1,920 million to expire in 2023 (2021: expiring in 2021 and $8 billion2022) with two further one year bank extension options, that would take final maturity to 2025. The additional RCF tranches are: $320 million expiring in 2025. Each facility includes2025 (2021: expiring in 2025) and $7,680 million expiring in 2026 (2021: expiring in 2026), a remaining one-year extension option at the discretiontotal RCF of each lender.$9,920 million. The terms and availability are not conditional on Shell’s financial ratios nor its financial credit ratings. The interest and fees paid on boththese facilities are linked to Shell’s progress towards reaching its short-term Net Carbon Footprint intensity target. In April 2020, Shell entered into a dual currency $7,200 million and €4,432 million revolving credit facility expiring in April 2021, with 2 6 month extension options at the discretion of Shell. The extension options have not been exercised, and the facility will expire in April 2021.
In addition, other subsidiaries have access to undrawn short-term bank facilities totalling $3,115 million at December 31, 2020 (2019: $2,784 million).
The following tables compare contractual cash flows for debt excluding lease liabilities at December 31 with the carrying amount in the Consolidated Balance Sheet. Contractual amounts reflect the effects of changes in foreign exchange rates; differences from carrying amounts reflect the effects of discounting, premiums and, where fair value hedge accounting is applied, fair value adjustments. Interest is estimated assuming interest rates applicable to variable ratevariable-rate debt remain constant and there is no change in aggregate principal amounts of debt other
than repayment at scheduled maturity, as reflected in the table.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| 2020 | $ million |
| Contractual payments | | |
| Less than
1 year | Between
1 and 2
years | Between
2 and 3 years | Between
3 and 4
years | Between
4 and 5
years | 5 years
and later | Total | Difference
from carrying
amount | Carrying
amount |
| Commercial paper | 6,746 | | 0 | | 0 | | 0 | | 0 | | 0 | | 6,746 | | (15) | | 6,731 | |
| Bonds | 5,080 | | 4,720 | | 5,408 | | 4,633 | | 8,043 | | 41,853 | | 69,737 | | 1,308 | | 71,045 | |
| Bank and other borrowings | 944 | | 162 | | 33 | | 215 | | 47 | | 417 | | 1,818 | | 0 | | 1,818 | |
| Total (excluding interest) | 12,770 | | 4,882 | | 5,441 | | 4,848 | | 8,090 | | 42,270 | | 78,301 | | 1,293 | | 79,594 | |
| Interest | 1,834 | | 1,707 | | 1,630 | | 1,527 | | 1,412 | | 15,985 | | 24,095 | | | |
| | | | $ million |
| 2019 | $ million | |
| | Contractual payments | | | Contractual payments | |
| | Less than
1 year | Between
1 and 2
years | Between
2 and 3 years | Between
3 and 4
years | Between
4 and 5
years | 5 years
and later | Total | Difference
from carrying
amount | Carrying
amount | | Less than
1 year | Between
1 and 2
years | Between
2 and 3 years | Between
3 and 4
years | Between
4 and 5
years | 5 years
and later | Total | Difference
from carrying
amount | Carrying
amount |
| Commercial paper | 3,390 | | 0 | | 0 | | 0 | | 0 | | 0 | | 3,390 | | (38) | | 3,352 | | |
| | Bonds | Bonds | 5,900 | | 4,971 | | 4,392 | | 4,326 | | 2,091 | | 38,323 | | 60,003 | | 694 | | 60,697 | | Bonds | 3,365 | 4,184 | 6,054 | 3,817 | 2,400 | 35,005 | 54,825 | (1,210) | 53,615 |
| Bank and other borrowings | Bank and other borrowings | 859 | | 425 | | 56 | | 71 | | 15 | | 412 | | 1,838 | | 0 | | 1,838 | | Bank and other borrowings | 1,229 | 335 | 64 | 156 | 63 | 704 | 2,551 | (14) | 2,537 |
| Total (excluding interest) | Total (excluding interest) | 10,149 | | 5,396 | | 4,448 | | 4,397 | | 2,106 | | 38,735 | | 65,231 | | 656 | | 65,887 | | Total (excluding interest) | 4,594 | 4,519 | 6,118 | 3,973 | 2,463 | 35,709 | 57,376 | (1,224) | 56,152 |
| Interest | Interest | 1,665 | | 1,559 | | 1,430 | | 1,357 | | 1,263 | | 14,618 | | 21,892 | | | Interest | 1,669 | 1,574 | 1,463 | 1,314 | 1,233 | 14,757 | 22,010 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| $ million |
| Contractual payments | | |
| Less than
1 year | Between
1 and 2
years | Between
2 and 3 years | Between
3 and 4
years | Between
4 and 5
years | 5 years
and later | Total | Difference
from carrying
amount | Carrying
amount |
| | | | | | | | | |
| Bonds | 3,423 | 3,376 | 4,362 | 6,310 | 3,882 | 38,327 | 59,680 | 578 | 60,258 |
| Bank and other borrowings | 646 | 452 | 36 | 9 | 143 | 35 | 1,321 | — | 1,321 |
| Total (excluding interest) | 4,069 | 3,828 | 4,398 | 6,319 | 4,025 | 38,362 | 61,001 | 578 | 61,579 |
| Interest | 1,637 | 1,587 | 1,524 | 1,416 | 1,268 | 15,642 | 23,074 | | |
Interest rate swaps have been entered into against certain fixed rate debt affecting the effective interest rate on these balances (see Note 19)25).
The fair value of debt excluding lease liabilities at December 31, 2020,2022, was $88,294$51,959 million (2019: $71,163(2021: $67,066 million), mainly determined from
the prices quoted for those securities.
Lease liabilities are secured on
Financial Statements and Supplements
Notes to the leased assets. Consolidated Financial Statements continued
21. Leases
Shell has lease contracts in Integrated Gas and Upstream, principally for floating production storage and offloading units, subsea equipment, power generation, for drilling and ancillary equipment, service vessels, LNG vessels and land and buildings; in Oil Products,Marketing, principally for tankers, storage capacityland and retail sites; in Chemicals and Products, principally for plant pipeline and machinery, tankers and storage capacity; in Renewables and Energy Solutions, principally for power generation, storage capacity and land; and in Corporate, principally for land and buildings. Shell’s obligations under its leases are secured on the leased assets.
| | | | | | | | | | | | | | |
| Lease expenses not included in the measurement of lease liability | | | | $ million |
| | | 2020 | 2019 |
| Expense relating to short-term leases | | | 1,156 | | 834 | |
| Expense relating to variable lease payments not included in the lease liabilities | | | 1,209 | | 1,091 | |
Right-of-use assets are included in property, plant and equipment for the following amounts:
| | | | | | | | | | | | | | | | | |
| $ million |
| Exploration and production | Manufacturing,
supply and
distribution | | |
| Exploration
and evaluation | Production | Other [B] | Total |
| Cost | | | | | |
| At January 1 | 5 | 14,322 | 15,748 | 8,031 | 38,106 |
| Additions | — | 1,088 | 2,305 | 2,111 | 5,504 |
| Sales, retirements and other movements [A] | (5) | (569) | (1,530) | 319 | (1,785) |
| Currency translation differences | — | (166) | (60) | (562) | (788) |
| At December 31 | — | 14,675 | 16,463 | 9,899 | 41,037 |
| Depreciation, depletion and amortisation, including impairments | | | | | |
| At January 1 | — | 7,935 | 5,946 | 2,273 | 16,154 |
| Charge for the year | — | 1,182 | 2,223 | 797 | 4,202 |
| Sales, retirements and other movements [A] | — | (751) | (1,444) | 23 | (2,172) |
| Currency translation differences | — | (91) | (30) | (143) | (264) |
| At December 31 | — | 8,275 | 6,695 | 2,950 | 17,920 |
| Carrying amount at December 31 | — | 6,400 | 9,768 | 6,949 | 23,117 |
[B]"Other" mainly includes lease contracts for retail sites, land and buildings in Marketing, Renewables and Energy Solutions and Corporate.
| | | | | | | | | | | | | | | | | |
| $ million |
| Exploration and production | Manufacturing,
supply and
distribution | | |
| Exploration and evaluation | Production | Other [A] | Total |
| Cost | | | | | |
| | | | | |
| | | | | |
| At January 1 | 5 | 14,440 | 14,526 | 7,384 | 36,355 |
| Additions | — | 311 | 2,149 | 1,420 | 3,880 |
| Sales, retirements and other movements | — | (365) | (868) | (259) | (1,492) |
| Currency translation differences | — | (64) | (59) | (514) | (637) |
| At December 31 | 5 | 14,322 | 15,748 | 8,031 | 38,106 |
| Depreciation, depletion and amortisation, including impairments | | | | | |
| At January 1 | — | 6,997 | 5,013 | 1,793 | 13,803 |
| Charge for the year | — | 1,373 | 2,060 | 783 | 4,216 |
| Sales, retirements and other movements | — | (400) | (1,093) | (157) | (1,650) |
| Currency translation differences | — | (35) | (34) | (146) | (215) |
| At December 31 | — | 7,935 | 5,946 | 2,273 | 16,154 |
| Carrying amount at December 31 | 5 | 6,387 | 9,802 | 5,758 | 21,952 |
[A]Includes the reclassification of right-of-use assets to assets held for sale. (See Note 18).
[B]"Other" mainly includes lease contracts for retail sites, land and buildings in Marketing, Renewables and Energy Solutions and Corporate.
Financial Statements and Supplements
Notes to the Consolidated Financial Statements continued
21. Leases continued
Lease arrangements
Lease liabilities are secured on the leased assets.
Shell also has certain lease contracts of items with lease terms of 12 months or less. For these lease contracts, Shell applies the "short-term lease" recognition exemption. Lease expenses not included in the measurement of lease liability are:
| | |
| Lease expenses not included in the measurement of lease liability |
| | | | | | | | |
| | $ million |
| 2022 | 2021 |
| Expense relating to short-term leases | 552 | 644 |
| Expense relating to variable lease payments | 1,251 | 1,172 |
The total cash outflow in respect of leases representing repayment of principal and payment of interest in 20202022 was $6,891$6,280 million (2019: $7,866(2021: $6,777 million), recognised in the Consolidated Statement of Cash Flows within Cash flows from financing activities.
| | | | | | | | |
FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2020 | 190 | |
The future lease payments under lease contracts and the carrying amounts at December 31, by payment date are as follows:
| | | | | | | | | | | | | | | | | |
|
| 2020 | $ million | |
| | |
| Contractual
lease payments | | Interest | Lease liabilities | |
| Less than 1 year | 6,059 | | | 1,916 | | 4,143 | | |
| Between 1 and 5 years | 16,681 | | | 5,617 | | 11,064 | | |
| 5 years and later | 19,999 | | | 6,786 | | 13,213 | | |
| Total | 42,739 | | [A] | 14,319 | | 28,420 | | |
| | | | | | | | | | | | | | |
| $ million |
| Contractual
lease payments | | Interest | Lease
liabilities |
| Less than 1 year | 5,914 | | 1,533 | 4,381 |
| Between 1 and 5 years | 15,624 | | 4,655 | 10,969 |
| 5 years and later | 17,935 | | 5,642 | 12,293 |
| Total | 39,473 | [A] | 11,830 | 27,643 |
[A]Future cash outflows in respect of leases may differ from lease liabilities recognised due to future decisions that may be taken by Shell in respect of the use of leased assets. These decisions may result in variable lease payments being made. In addition, Shell may reconsider whether it will exercise extension options or termination options, where future reconsideration is not reflected in the lease liabilities. There is no exposure to these potential additional payments in excess of the recognised lease liabilities until these decisions have been taken by Shell.
| | | | | | | | | | | |
| |
| 2019 | $ million |
| | |
| Contractual lease payments | Interest | Lease liabilities |
| Less than 1 year | 7,337 | | 2,381 | | 4,956 | |
| Between 1 and 5 years | 17,435 | | 6,141 | | 11,294 | |
| 5 years and later | 21,340 | | 7,053 | | 14,287 | |
| Total | 46,112 | | 15,575 | | 30,537 | |
15 – TRADE AND OTHER PAYABLES
| | | | | | | | | | | | | | |
|
| $ million |
| Dec 31, 2020 | Dec 31, 2019 |
| Current | Non-current | Current | Non-current |
| Trade payables | 22,664 | | 0 | | 29,497 | | 0 | |
| Other payables [A] | 6,941 | | 1,843 | | 6,356 | | 2,060 | |
| Amounts due to joint ventures and associates | 3,281 | | 39 | | 3,312 | | 40 | |
| Accruals and deferred income | 8,791 | | 422 | | 10,043 | | 242 | |
| Total | 41,677 | | 2,304 | | 49,208 | | 2,342 | |
[A] Includes obligations under environmental schemes for compliance purposes of $2,053 million as at December 31, 2020. (See Note 29)
The fair value of financial liabilities included above approximates the carrying amount and was determined from predominantly unobservable inputs.
Other payables include amounts due to joint arrangement partners and in respect of other project-related items.
Information about offsetting, collateral and liquidity risk is presented in Note 19.
16 – TAXATION
| | | | | | | | | | | |
| | | | |
| Taxation charge | $ million |
| 2020 | 2019 | 2018 |
| Current tax: | | | |
| Charge in respect of current period | 3,272 | | 7,597 | | 10,415 | |
| Adjustments in respect of prior periods | (56) | | (1) | | 60 | |
| Total | 3,216 | | 7,596 | | 10,475 | |
| Deferred tax: | | | |
| Relating to the origination and reversal of temporary differences, tax losses and credits | (9,063) | | 1,377 | | 1,438 | |
| Relating to changes in tax rates and legislation | (16) | | (67) | | (157) | |
| Adjustments in respect of prior periods | 430 | | 147 | | (41) | |
| Total | (8,649) | | 1,457 | | 1,240 | |
| Total taxation (credit)/charge | (5,433) | | 9,053 | | 11,715 | |
| | | | | | | | | | | |
| $ million |
| Contractual lease payments | Interest | Lease
liabilities |
| Less than 1 year | 5,805 | 1,667 | 4,138 |
| Between 1 and 5 years | 15,889 | 4,972 | 10,917 |
| 5 years and later | 18,309 | 5,857 | 12,452 |
| Total | 40,003 | 12,496 | 27,507 |
| | | | | | | | |
| 262 | FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORMShell | Form 20-F 20202022 | 191 | |
Financial Statements and Supplements
Notes to the Consolidated Financial Statements continued
22. Taxation
| | | | | | | | | | | |
| $ million |
| 2022 | 2021 | 2020 |
| Current tax: | | | |
| Charge in respect of current period | 16,383 | 7,254 | 3,272 |
| Adjustments in respect of prior periods | (947) | (719) | (56) |
| Total | 15,436 | 6,535 | 3,216 |
| Deferred tax: | | | |
| Relating to the origination and reversal of temporary differences, tax losses and credits | 5,196 | 2,971 | (9,063) |
| Relating to changes in tax rates and legislation | 785 | 10 | (16) |
| Adjustments in respect of prior periods | 524 | (317) | 430 |
| Total | 6,505 | 2,664 | (8,649) |
| Total taxation charge/(credit) | 21,941 | 9,199 | (5,433) |
Adjustments in respect of prior periods relate to events in the current period and reflect the effects of changes in rules, facts or other factors compared with those used in establishing the current tax position or deferred tax balance in prior periods. In 2022, this included a release
of a tax provision in Nigeria of $543 million (2021: $628 million).
| | | | | | | | | | | |
| | | | |
| Reconciliation of applicable tax charge at statutory tax rates to taxation charge | | | $ million |
| 2020 | 2019 | 2018 |
| (Loss)/income before taxation | (26,967) | | 25,485 | | 35,621 | |
| Less: share of profit of joint ventures and associates | (1,783) | | (3,604) | | (4,106) | |
| (Loss)/income before taxation and share of profit of joint ventures and associates | (28,750) | | 21,881 | | 31,515 | |
| Applicable tax (credit)/charge at standard statutory tax rates | (8,330) | | 7,214 | | 11,641 | |
| Adjustments in respect of prior periods | 374 | | 146 | | 19 | |
| Tax effects of: | | | |
| Derecognition/(recognition) of deferred tax assets | 1,458 | | 846 | | (381) | |
| Expenses not deductible for tax purposes | 1,239 | | 1,493 | | 1,176 | |
| Incentives for investment and development | (557) | | (757) | | (557) | |
| Exchange rate differences | 339 | | (34) | | 623 | |
| Disposals | (34) | | (235) | | (524) | |
| Changes in tax rates and legislation | (16) | | (67) | | (157) | |
| Income/(loss) not subject to tax at standard statutory rates | 6 | | 159 | | (286) | |
| Other reconciling items | 88 | | 288 | | 161 | |
| Taxation (credit)/charge | (5,433) | | 9,053 | | 11,715 | |
The weighted averageAdjustments in respect of statutorychanges in tax rates was 29%and legislation principally relate to the introduction of the UK Energy Profits Levy Act 2022 (EPL)
on July 14, 2022.
Current tax charge in 2020 (2019: 33%; 2018: 37%)respect of current period includes the European Union (EU) "Council Regulation on an emergency intervention to address high energy prices" (EU solidarity contribution). The loss before taxation was significantly impacted by asset impairments which occurred in jurisdictions subject to relatively lower tax rates, resultingThis resulted in a lower weighted average statutory tax rate as compared with 2019.
| | | | | | | | |
| | |
| Taxes payable | | $ million |
| Dec 31, 2020 | Dec 31, 2019 |
| Income taxes | 3,111 | | 3,478 | |
| Sales taxes, excise duties and similar levies | 2,895 | | 3,215 | |
| Total | 6,006 | | 6,693 | |
Includedcharge of $528 million recognised in other receivables at December 31, 2020 wasthe taxation charge and $940 million recognised in the Shell share of comprehensive income tax receivable of $1,293 million (2019: $1,328 million)joint ventures and associates (see Note 11)13).
On August 16, 2022, the Inflation Reduction Act (IRA) was enacted in the USA. As from 2023, under the IRA a Corporate Minimum Tax
on Book Earnings (BMT) applies a 15% tax on adjusted financial statement income. The enactment of the IRA had no impact in 2022.
| | |
| Reconciliation of applicable tax charge at statutory tax rates to taxation charge |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| 2020 - Deferred tax | | | | | | $ million |
| Deferred tax asset | Decommissioning
and other
provisions | Property, plant and equipment | Tax losses and credits
carried forward | Retirement benefits | Other | Total |
| At January 1, 2020 | 5,380 | | 3,014 | | 11,629 | | 3,660 | | 4,361 | | 28,044 | |
| Credit/(charge) to income | 1,057 | | 1,975 | | 685 | | (250) | | 605 | | 4,072 | |
| Currency translation differences | 140 | | 163 | | 286 | | 122 | | 58 | | 769 | |
| Other | (10) | | 80 | | (104) | | 242 | | 60 | | 268 | |
| At December 31, 2020 | 6,567 | | 5,232 | | 12,496 | | 3,774 | | 5,084 | | 33,153 | |
| Deferred tax liability | | | | | | |
| At January 1, 2020 | | (28,040) | | | (1,093) | | (2,909) | | (32,042) | |
| Credit to income | | 4,355 | | | 4 | | 218 | | 4,577 | |
| Currency translation differences | | (143) | | | (2) | | (39) | | (184) | |
| Other | | 27 | | | 418 | | (101) | | 344 | |
| At December 31, 2020 | | (23,801) | | | (673) | | (2,831) | | (27,305) | |
| Net deferred tax asset at December 31, 2020 | | | | | | 5,848 | |
| Deferred tax asset/liability as presented in the balance sheet at December 31, 2020 | | | | | | |
| Deferred tax asset | | | | | | 16,311 | |
| Deferred tax liability | | | | | | (10,463) | |
| | | | | | | | | | | |
| | | $ million |
| 2022 | 2021 | 2020 |
| Income/(loss) before taxation | 64,815 | 29,829 | (26,967) |
| Less: share of profit of joint ventures and associates | (3,972) | (4,097) | (1,783) |
| Income/(loss) before taxation and share of profit of joint ventures and associates | 60,843 | 25,732 | (28,750) |
| Applicable tax charge/(credit) at standard statutory tax rates | 22,170 | 10,097 | (8,330) |
| Adjustments in respect of prior periods | (424) | (1,036) | 374 |
| Tax effects of: | | | |
| Incentives for investment and development | (1,388) | (467) | (557) |
| Expenses not deductible for tax purposes | 849 | 893 | 1,239 |
| Changes in tax rates and legislation | 785 | 10 | (16) |
| (Recognition)/derecognition of deferred tax assets | (457) | (113) | 1,458 |
| Income not subject to tax at standard statutory rates | 234 | 90 | 6 |
| Exchange rate differences | (102) | 53 | 339 |
| Disposals | 39 | (328) | (34) |
| Other reconciling items | 235 | — | 88 |
| Taxation charge/(credit) | 21,941 | 9,199 | (5,433) |
| | | | | | | | | | | |
| 2022 | 2021 | 2020 |
| Weighted average of statutory tax rates | 36% | 39% | 29% |
| Effective tax rate based on income before taxation | 34% | 31% | 20% |
| Effective tax rate based on Income before taxation excluding share of profit of joint ventures and associates | 36% | 36% | 19% |
| | | | | | | | |
| 263 | FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORMShell | Form 20-F 20202022 | 192 | |
Financial Statements and Supplements
| | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| 2019 - Deferred tax | | | | | | $ million |
| Deferred tax asset | Decommissioning
and other
provisions | Property, plant and equipment | Tax losses and credits carried forward | Retirement benefits | Other | Total |
| At January 1, 2019 | 5,859 | | 3,718 | | 12,167 | | 3,310 | | 4,276 | | 29,330 | |
| Credit/(charge) to income | 15 | | (521) | | (647) | | (76) | | 10 | | (1,219) | |
| Currency translation differences | 56 | | 6 | | 57 | | (8) | | (2) | | 109 | |
| Other | (550) | | (189) | | 52 | | 434 | | 77 | | (176) | |
| At December 31, 2019 | 5,380 | | 3,014 | | 11,629 | | 3,660 | | 4,361 | | 28,044 | |
| Deferred tax liability | | | | | | |
| At January 1, 2019 | | (27,627) | | | (1,674) | | (2,769) | | (32,070) | |
| (Charge)/credit to income | | (227) | | | 46 | | (57) | | (238) | |
| Currency translation differences | | (129) | | | (6) | | (5) | | (140) | |
| Other | | (57) | | | 541 | | (78) | | 406 | |
| At December 31, 2019 | | (28,040) | | | (1,093) | | (2,909) | | (32,042) | |
| Net deferred tax liability at December 31, 2019 | | | | | | (3,998) | |
| Deferred tax asset/liability as presented in the balance sheet at December 31, 2019 | | | | | | |
| Deferred tax asset | | | | | | 10,524 | |
| Deferred tax liability | | | | | | (14,522) | |
Compared with 2021, the decrease in the weighted average of statutory tax rates reflects a lower proportion of earnings in the Upstream segment subject to relatively higher tax rates.
| | | | | | | | | | | | | | | | | | | | |
| | | | | | $ million |
| Deferred tax asset | Decommissioning
and other
provisions | Property,
plant and
equipment | Tax losses
and credits
carried forward | Retirement benefits | Other | Total |
| At January 1, 2022 | 6,562 | 4,993 | 10,518 | 2,744 | 4,545 | 29,362 |
| (Charge)/credit to income | (217) | (1,261) | (3,434) | (66) | 160 | (4,818) |
| Currency translation differences | (303) | (63) | (426) | (40) | (109) | (941) |
| Other comprehensive income | — | — | 18 | (618) | 70 | (530) |
| Other | 7 | 621 | (230) | (43) | 161 | 516 |
| At December 31, 2022 | 6,049 | 4,290 | 6,446 | 1,977 | 4,827 | 23,589 |
| Deferred tax liability | | | | | | |
| At January 1, 2022 | | (23,144) | | (2,736) | (3,603) | (29,483) |
| (Charge)/credit to income | | (1,503) | | 93 | (277) | (1,687) |
| Currency translation differences | | 380 | | 287 | 170 | 837 |
| Other comprehensive income | | 4 | | (870) | 18 | (848) |
| Other | | (555) | | 37 | (261) | (779) |
| At December 31, 2022 | | (24,818) | | (3,189) | (3,953) | (31,960) |
| Net deferred tax liability at December 31, 2022 | | | | | | (8,371) |
| Deferred tax asset/liability as presented in the balance sheet at December 31, 2022 | | | | | | |
| Deferred tax asset | | | | | | 7,815 |
| Deferred tax liability | | | | | | (16,186) |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | $ million |
| Deferred tax asset | Decommissioning
and other
provisions | Property,
plant and
equipment | Tax losses
and credits carried forward | Retirement benefits | Other | Total |
| At January 1, 2021 | 6,567 | 5,232 | 12,496 | 3,774 | 5,084 | 33,153 |
| (Charge)/credit to income | 63 | (163) | (1,669) | (537) | (395) | (2,701) |
| Currency translation differences | (64) | (75) | (252) | (72) | (46) | (509) |
| Other comprehensive income | (3) | — | 64 | (435) | (74) | (448) |
| Other | (1) | (1) | (121) | 14 | (24) | (133) |
| At December 31, 2021 | 6,562 | 4,993 | 10,518 | 2,744 | 4,545 | 29,362 |
| Deferred tax liability | | | | | | |
| At January 1, 2021 | | (23,801) | | (673) | (2,831) | (27,305) |
| Credit/(charge) to income | | 566 | | 319 | (848) | 37 |
| Currency translation differences | | 71 | | 114 | 48 | 233 |
| Other comprehensive income | | (18) | | (2,481) | 4 | (2,495) |
| Other | | 38 | | (15) | 24 | 47 |
| At December 31, 2021 | | (23,144) | | (2,736) | (3,603) | (29,483) |
| Net deferred tax asset at December 31, 2021 | | | | | | (121) |
| Deferred tax asset/liability as presented in the balance sheet at December 31, 2021 | | | | | | |
| Deferred tax asset | | | | | | 12,426 |
| Deferred tax liability | | | | | | (12,547) |
The presentation in the balance sheet takes into consideration the offsetting of deferred tax assets and deferred tax liabilities within the same tax jurisdiction, where this is permitted. The overall deferred tax position in a particular tax jurisdiction determines if a deferred tax balance related to that jurisdiction is presented within deferred tax assets or deferred tax liabilities.
Financial Statements and Supplements
22. Taxation continued
Other movements in deferred tax assets and liabilities principally relaterelated to acquisitions, sales of non-current assets and businesses, and amounts recognised in other comprehensive income.
The deferred tax category 'Other'"Other" primarily includes deferred tax positions in respect of leases, financial assets and liabilities, inventories, intangible assets other goodwill and investments in subsidiaries, joint ventures and associates.
Deferred tax assets of $16,311$7,815 million (2019: $10,524(2021: $12,426 million) are recognised only to the extent it is considered probable that those assets will be recoverable. This involves an assessment of when those assets are likely to be recovered, and a judgement as to whether or not there will be sufficient taxable profits available to offset the assets. It is considered probable based on business forecasts that such taxable profits will be available. For OilMarketing as well as Chemicals and Products, additional judgement is required; in some European jurisdictions the assessment of forecasted taxable profits resulting in deferred tax asset recognition of $778$382 million (2019: $1,194(2021: $854 million) extends for an additional 10 years beyond Shell’s regular 10 years10-year planning horizon. In those situations, additional risking has been applied to the forecast of taxable profits.
The amount of deferred tax assets which are dependent on future taxable profits not arising from the reversal of existing deferred tax liabilities, and which relate to tax jurisdictions where Shell has suffered a loss in the current or preceding year, was $12,759$4,202 million at December 31, 2020 (2019: $8,7732022 (2021: $10,195 million). The increase of the amountdecrease compared with 20192021 is primarily dueattributable to the reduction in deferred tax liabilities or increase inutilisation of deferred tax assets resulting from impairments recorded in 2020, as well as2022 and a greaterhigher number of entities having incurred a losswhich have generated profit in 2020.both the current and preceding year.
Unrecognised taxable temporary differences associated with undistributed retained earnings of investments in subsidiaries, joint ventures and associates amounted to $6,705$5,521 millionat December 31, 2020 (2019: $6,3562022 (2021: $5,680 million). These retained earnings are subject to withholding tax upon distribution.
Unrecognised deductible temporary differences, unused tax losses and credits carried forward amounted to $42,836$32,491 million at December 31, 2020 (2019: $33,0682022 (2021: $37,410 million), including amounts of $31,873$28,199 million (2019: $24,295(2021: $31,349 million) that are subject to time limits for utilisation of five years or later, or are not time limited.
Furthermore, there are unrecognised losses for Petroleum Resource Rent Tax (PRRT) in Australia amountingwhich due to $39,402the annual augmentation increased to $43,832 million as at the end of the most recent PRRT fiscal year, June 30, 20202022 (June 30, 2019: $36,9052021: $42,511 million).Based on business forecasts at existing commodity price levels, and the annual augmentation of the unused PRRT losses, this amount is expected to increase in the near future..
23. Retirement benefits
Retirement benefits are provided in most of the countries where Shell has operational activities. Shell offers these benefits through funded and unfunded defined benefit plans and defined contribution plans. The most significant pension plans are in the Netherlands, UK and USA.
Other post-employment benefits (OPEB) comprising retirement health care and life insurance are also provided in certain countries. The most significant OPEB plan is in the USA.
| | | | | | | | |
| $ million |
| Dec 31, 2022 | Dec 31, 2021 |
| Obligations | (73,481) | (107,336) |
| Plan assets | 76,756 | 104,495 |
| Asset ceilings | (371) | (13) |
| Surplus/(deficit) | 2,904 | (2,854) |
| Retirement benefits in the Consolidated Balance Sheet: | | |
| Non-current assets | 10,200 | 8,471 |
| Non-current liabilities: | (7,296) | (11,325) |
| Non-current liabilities - Pensions | (4,417) | (6,458) |
| Non-current liabilities - OPEB | (2,879) | (4,867) |
| Total | 2,904 | (2,854) |
| | | | | | | | |
| 265 | FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORMShell | Form 20-F 20202022 | 193 | |
Financial Statements and Supplements
17 – RETIREMENT BENEFITS
23. Retirement benefits are provided through a number of funded and unfunded defined benefit plans and defined contribution plans, the most significant of which are in the Netherlands, UK and USA. Benefits comprise principally pensions; retirement health care and life insurance are also provided in certain countries.continued
| | | | | | | | |
| Financial position | $ million |
| Dec 31, 2020 | Dec 31, 2019 |
| Obligations | (115,792) | | (103,545) | |
| Plan assets | 102,678 | | 94,826 | |
| Asset ceilings | (17) | | |
| Deficit | (13,131) | | (8,719) | |
| Retirement benefits in the Consolidated Balance Sheet: | | |
| Non-current assets | 2,474 | | 4,717 | |
| Non-current liabilities | (15,168) | | (13,017) | |
| Current liabilities | (437) | | (419) | |
| Total | (13,131) | | (8,719) | |
| | |
| Retirement benefit expense |
| | | | | | | | | | | |
| $ million |
| 2022 | 2021 | 2020 |
| Defined benefit plans: | | | |
| Current service cost, net of plan participants’ contributions | 1,100 | 1,385 | 1,359 |
| Interest expense on defined pension benefit obligations | 1,584 | 1,223 | 1,683 |
| Interest income on plan assets | (1,732) | (1,160) | (1,657) |
| Interest expense on OPEB obligations | 120 | 128 | 145 |
| Current OPEB service cost | 57 | 60 | 72 |
| Other [A] | 246 | (343) | (174) |
| Total | 1,375 | 1,293 | 1,428 |
| Defined contribution plans | 420 | 403 | 423 |
| Total retirement benefit expense | 1,795 | 1,696 | 1,851 |
| | | | | | | | | | | |
| |
| Retirement benefit expense | $ million |
| 2020 | 2019 | 2018 |
| Defined benefit plans: | | | |
| Interest expense on obligations | 1,828 | | 2,364 | | 2,282 | |
| Interest income on plan assets | (1,657) | | (2,253) | | (2,087) | |
| Current service cost, net of plan participants’ contributions | 1,431 | | 1,188 | | 1,494 | |
| Other | (174) | | 26 | | (221) | |
| Total | 1,428 | | 1,325 | | 1,468 | |
| Defined contribution plans | 423 | | 428 | | 410 | |
| Total retirement benefit expense | 1,851 | | 1,753 | | 1,878 | |
Retirement benefit expense isexpenses are presented principally within production and manufacturing expenses and selling, distribution and administrative expenses in the Consolidated Statement of Income. Interest income on plan assets is calculated using the same rate as that applied to the related defined benefit obligations for each plan to determine interest expense.
| | | | | | | | | | | |
| |
| Remeasurements | $ million |
| 2020 | 2019 | 2018 |
| Actuarial (losses)/gains on obligations: | | | |
| Due to changes in financial assumptions [A] | (10,150) | | (11,711) | | 8,186 | |
| Due to experience adjustments [B] | 804 | | 232 | | (268) | |
| Due to changes in demographic assumptions [C] | 1,375 | | (75) | | (459) | |
| Total | (7,971) | | (11,554) | | 7,459 | |
| Return on plan assets in excess/(shortage) of interest income | 4,509 | | 8,460 | | (2,312) | |
| Other movements | 7 | | (12) | | 66 | |
| Total remeasurements | (3,455) | | (3,106) | | 5,213 | |
| | | | | | | | | | | |
| $ million |
| 2022 | 2021 | 2020 |
| Actuarial gains/(losses) on obligations: | | | |
| Due to changes in financial assumptions on pensions [A] | 28,840 | 1,915 | (9,500) |
| Due to changes in financial assumptions on OPEB [A] | 527 | 59 | (650) |
| Due to experience adjustments on pensions [B] | (2,956) | 136 | 616 |
| Due to experience adjustments on OPEB [B] [C] | 1,480 | 322 | 188 |
| Due to changes in demographic assumptions on pensions [D] | 27 | (320) | 1,310 |
| Due to changes in demographic assumptions on OPEB [D] | 25 | (111) | 65 |
| Total | 27,943 | 2,001 | (7,971) |
| Return on plan assets (shortage)/in excess of interest income | (20,612) | 8,185 | 4,509 |
| Other movements | (349) | 5 | 7 |
| Total remeasurements | 6,982 | 10,191 | (3,455) |
[A]Mainly relates to changes in the discount rate and inflation assumptions.
[B]Experience adjustments arise from differences between the actuarial assumptions made in respect of the year and actual outcomes.
[C]Includes $782 million to reflect the impact of prescription drug rebates.
[D]Mainly relates to updates in mortality assumptions.
Financial Statements and Supplements
23. Retirement benefits continued
| | | | | | | | | | | | | | | | | | | | | | | |
| $ million, except where indicated |
| Pension benefits | | Other post-employment benefits | |
| The Netherlands | UK | USA | Rest of the world [A] | | OPEB [B] | Total |
| At January 1 | 35,340 | 29,913 | 19,003 | 18,213 | | 4,867 | 107,336 |
| Current service cost | 286 | 259 | 282 | 261 | | 57 | 1,145 |
| Interest expense | 298 | 489 | 417 | 380 | | 120 | 1,704 |
| Actuarial gains | (8,806) | (9,793) | (3,730) | (3,582) | | (2,032) | (27,943) |
| Benefit payments | (942) | (1,124) | (1,088) | (771) | | (178) | (4,103) |
| Other movements | 374 | 130 | (91) | (154) | | 37 | 296 |
| Currency translation differences | (1,942) | (2,083) | — | (937) | | 8 | (4,954) |
| At December 31 | 24,608 | 17,791 | 14,793 | 13,410 | | 2,879 | 73,481 |
| Comprising: | | | | | | | |
| Funded pension plans | 24,608 | 17,474 | 13,925 | 11,258 | | | 67,265 |
| Weighted average duration | 17 years | 15 years | 12 years | 13 years | | | 15 years |
| Unfunded pension plans | | 317 | 868 | 2,152 | | | 3,337 |
| Weighted average duration | | 15 years | 9 years | 12 years | | | 11 years |
| Unfunded OPEB plans | | | | | | 2,879 | 2,879 |
| Weighted average duration | | | | | | 14 years | 14 years |
[B]Mainly related to post-retirement medical benefits in the USA.
| | | | | | | | | | | | | | | | | | | | | | | |
| $ million, except where indicated |
| Pension benefits | | Other post-employment benefits | |
| The Netherlands | UK | USA | Rest of the world [A] | | OPEB [B] | Total |
| At January 1 | 37,268 | 32,269 | 20,367 | 20,520 | | 5,368 | 115,792 |
| Current service cost | 377 | 323 | 339 | 339 | | 60 | 1,438 |
| Interest expense | 155 | 376 | 357 | 335 | | 128 | 1,351 |
| Actuarial (gains)/losses | 1,477 | (1,418) | (695) | (1,095) | | (270) | (2,001) |
| Benefit payments | (979) | (1,306) | (1,220) | (870) | | (200) | (4,575) |
| Other movements | (27) | 3 | (145) | (167) | | (187) | (523) |
| Currency translation differences | (2,931) | (334) | — | (849) | | (32) | (4,146) |
| At December 31 | 35,340 | 29,913 | 19,003 | 18,213 | | 4,867 | 107,336 |
| Comprising: | | | | | | | |
| Funded pension plans | 35,340 | 29,440 | 17,874 | 15,341 | | | 97,995 |
| Weighted average duration | 19 years | 19 years | 12 years | 17 years | | | 18 years |
| Unfunded pension plans | | 473 | 1,129 | 2,872 | | | 4,474 |
| Weighted average duration | | 18 years | 9 years | 14 years | | | 13 years |
| Unfunded OPEB plans | | | | | | 4,867 | 4,867 |
| Weighted average duration | | | | | | 14 years | 14 years |
[A]Includes pension plans in Germany ($4,988 million) and Canada ($4,740 million) as the largest pension plans in rest of the world.
[B]Mainly related to post-retirement medical benefits in the USA.
| | | | | | | | |
| 267 | FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORMShell | Form 20-F 20202022 | 194 | |
Financial Statements and Supplements
| | | | | | | | |
| |
| Defined benefit plan obligations | $ million, except where indicated |
| 2020 | 2019 |
| At January 1 | 103,545 | | 91,856 | |
| Current service cost | 1,435 | | 1,186 | |
| Interest expense | 1,828 | | 2,364 | |
| Actuarial losses | 7,971 | | 11,554 | |
| Benefit payments | (4,059) | | (3,961) | |
| Other movements | (444) | | 194 | |
| Currency translation differences | 5,516 | | 352 | |
| At December 31 | 115,792 | | 103,545 | |
| Comprising: | | |
| Funded pension plans | 105,338 | | 93,727 | |
| Weighted average duration | 18 years | 17 years |
| Unfunded pension plans | 5,086 | | 4,793 | |
| Weighted average duration | 13 years | 13 years |
| Unfunded OPEB plans [A] | 5,368 | | 5,025 | |
| Weighted average duration | 15 years | 14 years |
[A] Mainly related to post-retirement medical benefits in the USA.Defined benefit plan assets
| | | | | | | | |
| |
| Defined benefit plan assets | $ million, except where indicated |
| 2020 | 2019 |
| At January 1 | 94,826 | | 85,803 | |
| Return on plan assets in excess of interest income | 4,509 | | 8,460 | |
| Interest income | 1,657 | | 2,253 | |
| Employer contributions | 614 | | 1,462 | |
| Plan participants’ contributions | 42 | | 42 | |
| Benefit payments | (3,843) | | (3,741) | |
| Other movements | (281) | | 160 | |
| Currency translation differences | 5,154 | | 387 | |
| At December 31 | 102,678 | | 94,826 | |
| Comprising: | | |
| Quoted in active markets: | | |
| Equities | 25 | % | 26 | % |
| Debt securities | 52 | % | 51 | % |
| Real estate | 0 | % | 1 | % |
| | |
| | |
| Other: | | |
| Equities | 8 | % | 8 | % |
| Debt securities | 5 | % | 4 | % |
| Real estate | 6 | % | 6 | % |
| Investment funds | 3 | % | 3 | % |
| | |
| Cash | 1 | % | 1 | % |
| | | | | | | | | | | | | | | | | | |
| $ million, except where indicated |
| Pension benefits | | |
| The Netherlands | UK | USA | Rest of the world [A] | | Total |
| At January 1 | 37,096 | 33,720 | 18,055 | 15,624 | | 104,495 |
| Return on plan assets in excess of interest income | (6,576) | (8,682) | (3,523) | (1,831) | | (20,612) |
| Interest income | 314 | 552 | 406 | 460 | | 1,732 |
| Employer contributions | 228 | 54 | 408 | 41 | | 731 |
| Plan participants’ contributions | 11 | 16 | — | 5 | | 32 |
| | | | | | |
| Benefit payments | (942) | (1,124) | (1,088) | (735) | | (3,889) |
| Other movements | (9) | 150 | (15) | (184) | | (58) |
| Currency translation differences | (2,136) | (2,723) | — | (816) | | (5,675) |
| At December 31 | 27,986 | 21,963 | 14,243 | 12,564 | | 76,756 |
| | | | | | | | | | | | | | | | | | | | | |
| $ million, except where indicated |
| Pension benefits | | | |
| The Netherlands | UK | USA | Rest of the world [A] | | | Total |
| At January 1 | 37,673 | 32,193 | 17,046 | 15,766 | | | 102,678 |
| Return on plan assets in excess of interest income | 3,199 | 2,575 | 1,377 | 1,034 | | | 8,185 |
| Interest income | 158 | 376 | 308 | 318 | | | 1,160 |
| Employer contributions | 170 | 266 | 559 | (58) | [B] | | 937 |
| Plan participants’ contributions | 13 | 19 | — | 7 | | | 39 |
| | | | | | | |
| Benefit payments | (979) | (1,306) | (1,220) | (821) | | | (4,326) |
| Other movements | (6) | (13) | (15) | (13) | | | (47) |
| Currency translation differences | (3,132) | (390) | — | (609) | | | (4,131) |
| At December 31 | 37,096 | 33,720 | 18,055 | 15,624 | | | 104,495 |
[A]Includes pension plans in Germany ($3,282 million) and Canada ($4,325 million) as the largest pension plans in the rest of world.
[B]Includes the netted amount of $294 million received from the captive structure in relation to the pension plans reinsured in rest of the world.
| | | | | | | | |
| 2022 | 2021 |
| Quoted in active markets: | | |
| Equities | 13% | 22% |
| Debt securities | 70% | 53% |
| Real estate | —% | 1% |
| Other | 1% | —% |
| Unquoted | | |
| Equities | 13% | 10% |
| Debt securities | 2% | 4% |
| Real estate | 7% | 6% |
| Investment funds | 4% | 3% |
| Debt repurchase agreements [A] | (14)% | —% |
| Cash | 4% | 1% |
[A]'Debt repurchase agreements' are mainly related to UK member defined pension plans to fund liability-driven investments. In addition to these contracts, derivatives including interest rate and inflation swaps are used in the principal defined benefit plan in the Netherlands for liability matching strategies.
Employer contributions to funded defined benefit pension plans are based on actuarial valuations in accordance with local regulations and are estimated to be $1.6 billion$836 million in 2021.2023.
Financial Statements and Supplements
23. Retirement benefits continued
Characteristics of significant defined benefit and defined contribution plans and regulatory framework
The Netherlands
The principal defined benefit pension plan in the Netherlands is a funded career-averaged pension arrangement with retired employees drawing benefits as an annuity. The durationannuity, with a surplus of the related Dutch defined benefit obligation is 19 years (2019: 19 years)$3,378 million reported as at December 31, 2022, (2021: $1,756 million surplus). Whilst the plan was closed to employees hired or rehired after July 1, 2013, it currently remains open for ongoing accrual for existing active members. 31% (2019: 34%23% (2021: 26%) of the overall defined benefit liability in the Netherlands relates to active members. From July 1, 2013, onwards new employees in the Netherlands are entitled to membership of a defined contribution pension plan.
In line with Dutch regulations, the defined benefit pension plan has a joint Trustee Board with trustee representatives nominated by the company,Company, the Central Staff Council and retired members. The defined benefit pension plan also has an Accountability Council comprised of members nominated by the company, the Central Staff Council and retired members. Furthermore, there is a Supervisory Committee which includes external experts from the pension industry to oversee management, compliance and operations of the fund. The defined contribution pension plan has a one-tier Trustee Board with an independent chairperson,chair, and trustee representatives nominated by the company and the Central Staff Council (currently no retired members in the fund to act as trustee) as well as two executive board members. The defined contribution fund also has an Accountability Council comprised of members nominated by the company and the Central Staff Council.
| | | | | | | | |
FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2020 | 195 | |
The Dutch government is currently draftingHouse of Representatives approved a new regulatory framework for pensions in the Netherlands.Netherlands in December 2022. The government aimsregulatory framework for pensions is subject to complete development ofapproval by the Dutch Senate. The new regulationsregulation would have to be implemented by January 2022 with subsequent implementation by January 2026. It is expected that2027. When effective, these regulatory changes will have an impact on both the defined benefit pension plan and the defined contribution pension plan with anticipatedplan. As a consequence, such changes currently being discussed withwould have an impact on the Dutch pension plans which requires consent of the Central Staff Council.
UK
The principalthree largest defined benefit pension planplans for employees in the UK is aare funded final salary pension arrangementarrangements with retired employees mainly drawing benefits as an annuity with the option to take a portion as a lump sum. The durationthree plans are separate and independent plans and cannot be netted against each other. In total, the plans reported a surplus of $4,172 million as at December 31, 2022 (2021: surplus of $3,807 million), which is after netting of unfunded plans of $317 million (2021: $473 million) which are reported as non-current liabilities on the related UK defined benefit obligation is 19 years (2019: 18 years). Whilst the plan wasbalance sheet. All three plans were closed to new employees hired or rehired, on or after March 1, 2013, ithowever, two plans currently remainsremain open for ongoing accrual for existing active members. 21% (2019: 21%17% (2021: 20%) of the overall defined benefit liability in the UK relates to active members. From March 1, 2013, onwards new employees in the UK are entitled to membership of a defined contribution pension plan.
In line with UK regulations, the principal defined benefit pension plan is governed by a corporate trustee whose board is comprised of four trustee directors nominated by the company including the chair and four member-nominated trustee directors. The defined contribution pension plan is governed by a corporate trustee whose board is comprised of three company nominatedcompany-nominated directors including the chair and two member-nominated trustee directors. The trustees are responsible for administering the plans in line with the Trust Deed and Regulations, including setting the investment strategy for the pension plans’ assets and paying member benefits, and are required to act in the best interests of the members
of the pension plans.
USA
The principal defined benefit pension plan in the USA is a funded final average final pay pension plan. Atplan with a surplus of $318 million reported as at December 31, 2022 (2021: $182 million surplus). After retirement, all retirees can choose to draw their benefitbenefits as an annuity, whereas someothers also have the choice to take their benefit asin a lump sum. The duration of the related USThere is also an unfunded defined benefit obligation is 13 years (2019: 13 years)pension plan with a deficit of $868 million (2021: $1,129 million deficit). The benefits under this plan are taken primarily in a lump sum. In addition, the company provides a defined contribution benefit plan. Each of theseThe funded defined benefit, unfunded defined benefit, and together with Shell's defined contribution pension plans isare subject to the provisions of the Employee Retirement Income Security Act (ERISA). 25% (2019: 31%24% (2021: 24%) of the overall defined liability of the funded defined benefit plan in the USA relates to active members.
Both the funded defined benefit pension plan and the defined contribution pension plan are governed by trustees who are appointed by the Plan Sponsor and are named fiduciaries with respect to the plans. The trustees are generally responsible for investment-related matters, appointing the Plan Administrator, maintaining general oversight and deciding appeals of participants.
The company also sponsors "other post-retirement employee benefit"benefits" (OPEB) mainly in the USA. The OPEB plans in the USA that provide medical, dental, and vision benefits as well as life insurance benefits to eligible retired employees. The plans are unfunded, and the company and retirees share the costs.costs with a deficit of $2,135 million reported as at December 31, 2022 (2021: $4,067 million deficit). The plan that provides post-retirement medical benefits in the USA is closed to employees hired or rehired on or after January 1, 2017. Certain life insurance benefits are paid by the company.
Financial Statements and Supplements
23. Retirement benefits continued
Significant funding requirements:
•▪Additional contributions to the Dutch defined benefit pension plan would be required if the 12-month rolling average local funding percentage falls below 105% for six months or more. At the most recent (2020)(2022) funding valuation the local funding percentage was above this level;level.
•▪There are no set minimum statutory funding requirements for the UK plans. A professional qualified independent actuary, appointed by the trustee board, undertakes a local funding valuation typically every three years. The most recent completed funding valuation for the principal defined benefit plan was undertaken as at December 31, 2017. A funding valuation as at December 31, 2020, is currently under way. The most recent completed funding valuation (2017)and revealed a funding ratio of 108%103% and the resulting Schedule of Contributions was fortherefore no Sponsor contributionsponsor contributions (except for salary sacrifice contributions); and were payable under the schedule of contributions.
•▪Under the Pension Protection Act, US pension plans are subject to minimum required contribution levels based on the funding position.
No contributions are required based on the most recent funding valuation.
Associated risks to which retirement benefits are exposed
There are inherent risks associated with defined benefit pension and OPEB plans. These risks are related to various assumptions made on valuation of the liabilities and the cash funding requirement of the underlying plans. Volatility in capital markets or government policies, and the resulting consequences for investment performance, interest and inflation rates, as well as changes in assumptions for mortality, retirement age or pensionable remuneration at retirement, could result in significant changes to the funding level of future liabilities, and in case of a shortfall, there could be a requirement to make substantial cash contributions (depending on the applicable local regulations).
These inherent risks are managed by a pension forum, chaired by the Chief Financial Officer, which oversees Shell’s pension strategy, policy and operations. The forum is supported by a risk committee in reviewing the results of the assurance process with respect to the pension risk.
Investment strategies
Long-term investment strategies of plans are generally determined by the relevant pension plan trustees using a structured asset/liability modelling approach to define the asset mix that best meets the objectives of optimising returns within agreed risk levels while maintaining adequate funding levels.
Principal and actuarial assumptions
The principal assumptions applied in determining the present value of defined benefit obligations and their bases were as follows:
•▪rates of increase in pensionable remuneration, pensions in payment and health-care costs: historical experience and management’s
long-term expectation;
•▪discount rates: prevailing long-term AA corporate bond yields, chosen to match the currency and duration of the relevant obligation; and
•▪mortality rates: published standard mortality tables for the individual countries concerned adjusted for Shell experience where statistically significant.
The weighted averages for those assumptions and related sensitivity information at December 31, 2022 are presented below. Sensitivity information indicates by how much the defined benefit obligations would increase or decrease if a given assumption were to increase or decrease with no change in other assumptions. The sensitivity analyses may not be representative of an actual change in the defined benefit obligation as it is unlikely that changes in assumptions would occur in isolation from one another. The weighted averages are at nominal terms and based on market expectations at December 31, 2022.
Financial Statements and Supplements
23. Retirement benefits continued
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | $ million, except where indicated |
| | | | Effect of using alternative assumptions |
| Assumptions used
at nominal rates | | Increase/(decrease) in defined benefit obligations |
| Dec
31, 2022 | Dec 31,
2021 | | Range
of assumptions | Dec 31, 2022 | Dec 31, 2021 |
| Rate of increase in pensionable remuneration [A] | 4.0% | 3.4% | | -1% to +1% | (833) | 921 | (1,519) | 1,672 |
| of which the Netherlands | 3.3% | 2.8% | | | | | | |
| of which UK | 4.1% | 3.6% | | | | | | |
| of which USA | 4.6% | 4.1% | | | | | | |
| Rate of increase in pensions in payment | 2.1% | 2.0% | | -1% to +1% | (5,542) | 6,657 | (9,908) | 12,171 |
| of which the Netherlands | 2.6% | 2.2% | | | | | | |
| of which UK | 3.0% | 3.0% | | | | | | |
| of which USA | —% | —% | | | | | | |
| Discount rate for pension plans | 4.5% | 2.0% | | -1% to +1% | 10,522 | (8,328) | 18,954 | (14,599) |
| of which the Netherlands | 3.7% | 1.2% | | | | | | |
| of which UK | 4.8% | 1.9% | | | | | | |
| of which USA | 5.0% | 2.9% | | | | | | |
| Inflation rate for defined benefit obligation [B] | 2.2% | 2.1% | | -1% to +1% | (6,002) | 7,271 | (10,691) | 13,325 |
| of which the Netherlands | 2.6% | 2.2% | | | | | | |
| of which UK | 3.1% | 3.2% | | | | | | |
| | | | | | | | |
| Expected age at death for persons aged 60: | | | | | | | | |
| Men | 87 years | 87 years | | -1 year to +1 year | (1,130) | 1,103 | (1,946) | 1,937 |
| of which the Netherlands | 88 years | 88 years | | | | | | |
| of which UK | 87 years | 88 years | | | | | | |
| of which USA | 85 years | 85 years | | | | | | |
| Women | 89 years | 89 years | | -1 year to +1 year | (993) | 1,077 | (1,863) | 1,972 |
| of which the Netherlands | 89 years | 89 years | | | | | | |
| of which UK | 90 years | 90 years | | | | | | |
| of which USA | 86 years | 86 years | | | | | | |
| Rate of increase in health-care costs [C] | 6.4% | 6.2% | | -1% to +1% | (298) | 372 | (513) | 630 |
| Discount rate for health-care plans [C] | 5.7% | 2.9% | | -1% to +1% | 401 | (309) | 678 | (539) |
| | | | | | | | |
| 271 | FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORMShell | Form 20-F 20202022 | 196 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | | $ million, except where indicated | |
| | | Effect of using alternative assumptions | |
| Assumptions used at nominal rates | | Increase/(decrease) in defined benefit obligations | |
| 2020 [A] | 2019 | Range
of assumptions | 2020 | 2019 |
| Rate of increase in pensionable remuneration | 3.8 | % | 4.1 | % | -1% to +1% | (1,780) | | to | 1,948 | | (1,975) | | to | 2,266 | |
| Rate of increase in pensions in payment | 1.6 | % | 1.6 | % | -1% to +1% | (10,937) | | to | 13,523 | | (9,541) | | to | 11,757 | |
| Rate of increase in health-care costs [B] | 6.0 | % | 6.1 | % | -1% to +1% | (605) | | to | 751 | | (546) | | to | 675 | |
| Discount rate for pension plans | 1.5 | % | 2.1 | % | -1% to +1% | 21,463 | | to | (16,382) | | 18,431 | | to | (14,155) | |
| Discount rate for health-care plans [B] | 2.6 | % | 3.2 | % | -1% to +1% | 791 | | to | (624) | | 704 | | to | (558) | |
| Expected age at death for persons aged 60: | | | | | | | | | |
| Men | 87 years | 87 years | -1 year to +1 year | (2,022) | | to | 2,112 | | (1,717) | | to | 1,782 | |
| Women | 88 years | 89 years | -1 year to +1 year | (1,985) | | to | 2,070 | | (1,631) | | to | 1,694 | |
| | | | | | | | | |
| | | | | | | | | |
[A] The weighted average inflation rate used in the calculation of the defined benefit obligation is 1.7%.
[B] Mainly related to post-retirement medical benefits in the USA .
| | | | | | | | |
FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2020 | 197 | |
Financial Statements and Supplements
18 – DECOMMISSIONING AND OTHER PROVISIONS
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| $ million |
| Decommissioning
and restoration | | Legal | Environmental | Redundancy | Other | Total |
| At January 1, 2020 | | | | | | | |
| Current | 755 | | | 626 | | 263 | | 295 | | 872 | | 2,811 | |
| Non-current | 18,264 | | | 1,185 | | 934 | | 220 | | 1,196 | | 21,799 | |
| 19,019 | | | 1,811 | | 1,197 | | 515 | | 2,068 | | 24,610 | |
| Additions | 1,697 | | [A] | 502 | | 199 | | 986 | | 2,386 | | 5,770 | |
| Amounts charged against provisions | (433) | | | (522) | | (138) | | (375) | | (388) | | (1,856) | |
| Accretion expense | 448 | | | 17 | | 21 | | 1 | | 10 | | 497 | |
| Disposals | (154) | | | 0 | | (7) | | 0 | | (18) | | (179) | |
| Remeasurements and other movements | 2,090 | | | (59) | | (73) | | (241) | | (265) | | 1,452 | |
| Currency translation differences | 508 | | | 1 | | 26 | | 52 | | 53 | | 640 | |
| 4,156 | | | (61) | | 28 | | 423 | | 1,778 | | 6,324 | |
| At December 31, 2020 | | | | | | | |
| Current | 900 | | | 521 | | 273 | | 673 | | 1,257 | | 3,624 | |
| Non-current | 22,275 | | | 1,229 | | 952 | | 265 | | 2,589 | | 27,310 | |
| 23,175 | | | 1,750 | | 1,225 | | 938 | | 3,846 | | 30,934 | |
| | | | | | | |
| At January 1, 2019 | | | | | | | |
| Current | 876 | | | 213 | | 264 | | 441 | | 1,547 | | 3,341 | |
| Non-current | 17,057 | | | 1,247 | | 1,074 | | 280 | | 1,528 | | 21,186 | |
| 17,933 | | | 1,460 | | 1,338 | | 721 | | 3,075 | | 24,527 | |
| Additions | 625 | | | 585 | | 229 | | 290 | | 535 | | 2,264 | |
| Amounts charged against provisions | (797) | | | (216) | | (223) | | (304) | | (562) | | (2,102) | |
| Accretion expense | 644 | | | 28 | | 16 | | 3 | | 25 | | 716 | |
| Disposals | (1,238) | | | 0 | | (8) | | 0 | | (14) | | (1,260) | |
| Remeasurements and other movements | 1,696 | | | (45) | | (155) | | (192) | | (988) | | 316 | |
| Currency translation differences | 156 | | | (1) | | 0 | | (3) | | (3) | | 149 | |
| 1,086 | | | 351 | | (141) | | (206) | | (1,007) | | 83 | |
| At December 31, 2019 | | | | | | | |
| Current | 755 | | | 626 | | 263 | | 295 | | 872 | | 2,811 | |
| Non-current | 18,264 | | | 1,185 | | 934 | | 220 | | 1,196 | | 21,799 | |
| 19,019 | | | 1,811 | | 1,197 | | 515 | | 2,068 | | 24,610 | |
[A] Includes $798 million additions for the recognition of decommissioning24. Decommissioning and restorationother provisions in Integrated Gas and Upstream and $899 million for the recognition of decommissioning and restoration provisions for manufacturing facilities in Oil Products.
| | | | | | | | | | | | | | | | | | | | | | | |
| $ million |
| Decommissioning
and restoration | Onerous contracts | Legal | Environmental | Redundancy | Other | Total |
| At January 1, 2022 | | | | | | | |
| Current | 871 | 653 | 270 | 332 | 410 | 802 | 3,338 |
| Non-current | 21,213 | 1,029 | 1,141 | 847 | 235 | 1,339 | 25,804 |
| 22,084 | 1,682 | 1,411 | 1,179 | 645 | 2,141 | 29,142 |
| Additions | 618 | 620 | 314 | 178 | 226 | 832 | 2,788 |
| Amounts charged against provisions | (672) | (661) | (272) | (211) | (372) | (333) | (2,521) |
| Accretion expense | 483 | 13 | 16 | 12 | 1 | 5 | 530 |
| Disposals and liabilities classified as held for sale | (1,228) | (66) | (21) | (2) | — | (7) | (1,324) |
| Remeasurements and other movements | (182) | (139) | (44) | (78) | (155) | (354) | (952) |
| Currency translation differences | (818) | 35 | (3) | (27) | (21) | (74) | (908) |
| (1,799) | (198) | (10) | (128) | (321) | 69 | (2,387) |
| At December 31, 2022 | | | | | | | |
| Current | 856 | 277 | 224 | 321 | 171 | 1,061 | 2,910 |
| Non-current | 19,429 | 1,207 | 1,177 | 730 | 153 | 1,149 | 23,845 |
| 20,285 | 1,484 | 1,401 | 1,051 | 324 | 2,210 | 26,755 |
| | | | | | | |
| At January 1, 2021 | | | | | | | |
| Current | 900 | 532 | 521 | 273 | 673 | 723 | 3,622 |
| Non-current | 22,081 | 1,207 | 1,229 | 952 | 265 | 1,382 | 27,116 |
| 22,981 | 1,739 | 1,750 | 1,225 | 938 | 2,105 | 30,738 |
| Additions | 1,040 | 229 | 197 | 153 | 991 | 752 | 3,362 |
| Amounts charged against provisions | (662) | (264) | (340) | (154) | (733) | (292) | (2,445) |
| Accretion expense | 405 | 14 | 11 | 9 | 1 | 10 | 450 |
| Disposals and liabilities classified as held for sale | (819) | — | (5) | (17) | (1) | (27) | (869) |
| Remeasurements and other movements | (609) | (36) | (196) | (11) | (512) | (339) | (1,703) |
| Currency translation differences | (252) | — | (6) | (26) | (39) | (68) | (391) |
| (897) | (57) | (339) | (46) | (293) | 36 | (1,596) |
| At December 31, 2021 | | | | | | | |
| Current | 871 | 653 | 270 | 332 | 410 | 802 | 3,338 |
| Non-current | 21,213 | 1,029 | 1,141 | 847 | 235 | 1,339 | 25,804 |
| 22,084 | 1,682 | 1,411 | 1,179 | 645 | 2,141 | 29,142 |
The amount and timing of settlement in respect of these provisions are uncertain and dependent on various factors that are not always within management’s control. Reviews of estimated future decommissioning and restoration costs and the discount rate applied are carried out regularly. The discount rate applied at December 31, 20202022, was 1.75% (2019: 3%3.25% (2021: 2%). This decrease resulted from the significant decrease in capital markets rates in 2020. An increase of 0.5% or a decrease of 0.5% in the discount rate could result in a decrease of $1.7$1.2 billion (2021: $1.5 billion) or an increase of $2.2$1.3 billion (2021: $1.7 billion) of decommissioning and restoration provisions, respectively. Such increase/increase or decrease will be reflected in the carrying amount of the related asset. Where applicable that carrying amount is to be tested for impairment.
In 2020,2022, there was an increasea decrease of $3,999$3,309 million (2019: $2,241 million) in the decommissioning and restoration provision as a result of the change in the discount rate, partly offset by a decreasean increase in the provision resulting from changes in cost estimates of $1,909$3,009 million, (2019: $545 million), reported within remeasurements and other movements.
Of the decommissioning and restoration provisionOther provisions at December 31, 2020, an estimated $3,921 million is expected to be utilised within one to five years, $2,206 million within six to 10 years, and the remainder in later periods.
Other provisions2022, include amounts recognised in respect of onerous contracts ($1,739 million) and employee benefits. At December 31, 2020, the onerous contract provision includes onerous contracts that relate to Lake Charles terminals and the closure of the Convent refinery, both in the USA.
| | | | | | | | |
| 272 | FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORMShell | Form 20-F 20202022 |
Financial Statements and Supplements
Notes to the Consolidated Financial Statements continued
24. Decommissioning and other provisions continued
The decommissioning and restoration provision at December 31, 2022, is expected to be utilised within:
198 | | | | | | | | | | | |
| | | $ million |
| | | Dec 31, 2022 |
| Between 1 to 5 years | | | 4,219 |
| Between 6 to 10 years | | | 3,882 |
| 11 years and later | | | 12,184 |
| Total | | | 20,285 |
19 – FINANCIAL INSTRUMENTS
25. Financial instruments
Financial instruments in the Consolidated Balance Sheet include investments in securities (see Note 10)14), cash and cash equivalents (see Note 13)17), finance debt (see Note 14)20) and derivative contracts.
Risks
In the normal course of business, financial instruments of various kinds are used for the purposes of managing exposure to interest rate, foreign exchange and commodity price movements.
Treasury standards are applicable to all subsidiaries and each subsidiary is required to adopt a treasury policy consistent with these standards. These policies cover: financing structure; interest rate and foreign exchange risk management; insurance; counterparty risk management; and use of derivative contracts. Wherever possible, treasury operations are carried out through specialist regional organisations without removing from each subsidiary the responsibility to formulate and implement appropriate treasury policies.
Apart from forward foreign exchange contracts to meet known commitments, the use of derivative contracts by most subsidiaries is not permitted by their treasury policy.
Other than in exceptional cases, the use of external derivative contracts is confined to specialist trading and central treasury organisations that have appropriate skills, experience, supervision, control and reporting systems.
Shell’s operations expose it to market, credit and liquidity risk, as described below.
Market risk
Market risk is the possibility that changes in interest rates, foreign exchange rates or the prices of crude oil, natural gas, LNG, refined products, chemical feedstocks, power and carbon-emission rightsenvironmental certificates will adversely affect the value of assets, liabilities or expected future cash flows.
Interest rate risk
Most debt is raised from central borrowing programmes. Shell’s policy continues to be to have debt principally denominated in dollars and to maintain a largely floating interest rate exposure profile; however, Shell has issued a significant amount of fixed rate debt in recent years, taking advantage of historically low interest rates available in debt markets. As a result, the majority of the debt portfolio at December 31, 2020,2022, is at fixed rates and this reduces Shell’s adverse exposure to rising floating dollar interest rates (see Notes 2 and 3)Note 2).
The financing of most subsidiaries is structured on a floating-rate basis, and any further interest rate risk management is only applied under exceptional circumstances.
On the basis of the floating-rate net cash position at December 31, 20202022, (both issued and hedged), and assuming other factors (principally foreign exchange rates and commodity prices) remained constant and that no further interest rate management action was taken, an increase in interest rates of 1% would have increased 20202022 income before taxation by $62$234 million (2019: $98(2021: $174 million decrease, based on the floating rate net debt position at December 31, 2019)increase).
The carrying amounts and maturities of debt and borrowing facilities are presented in Note 14.20. Interest expense is presented in Note 6.
Foreign exchange risk
Many of the markets in which Shell operates are priced, directly or indirectly, in dollars. As a result, the functional currency of most Integrated Gas and Upstream entities and those with significant cross-border business is the dollar. For OilChemicals and Products and Chemicals entities, the functional currency is typically the local currency. Consequently, Shell is exposed to varying levels of foreign exchange risk when an entity enters into transactions that are not denominated in its functional currency, when foreign currency monetary assets and liabilities are translated at the balance sheet date and as a result of holding net investments in operations that are not dollar-functional. Each entity is required to adopt treasury policies that are designed to measure and manage its foreign exchange exposures by reference to its functional currency.
Financial Statements and Supplements
25. Financial instruments continued
Foreign exchange gains and losses arise in the normal course of business from the recognition of receivables and payables and other monetary items in currencies other than an entity’s functional currency. Foreign exchange risk may also arise in connection with capital expenditure. For major projects, an assessment is made at the final investment decision stage of whether to hedge any resulting exposure.
Assuming other factors (principally interest rates and commodity prices) remained constant and that no further foreign exchange risk management action were taken, a 10% appreciation against the dollar at December 31 of the main currencies to which Shell is exposed would have the following effects:
| | | | | | | | | | | | | | | | | |
| | | | | | |
| $ million |
| Increase/(decrease)
in income before taxation | | Increase in net assets |
| 2020 | 2019 | | 2020 | 2019 |
| 10% appreciation against the dollar of: | | | | | |
| Euro | (263) | | 36 | | | 451 | | 1,227 | |
| Malaysian ringgit | 255 | | 243 | | | 270 | | 290 | |
| Australian dollar | 179 | | (55) | | | 598 | | 835 | |
| Sterling | (166) | | (58) | | | 328 | | 581 | |
| Canadian dollar | 1 | | (97) | | | 1,299 | | 1,380 | |
| | | | | | | | | | | | | | | | | |
| $ million |
| Increase/(decrease)
in income before taxation | | Increase in net assets |
| 2022 | 2021 | | 2022 | 2021 |
| 10% appreciation against the dollar of: | | | | | |
| Sterling | (168) | (180) | | 894 | 738 |
| Euro | 124 | (123) | | 1,486 | 601 |
| Malaysian ringgit | 65 | 119 | | 313 | 399 |
| Australian dollar | (65) | (3) | | 837 | 591 |
| Canadian dollar | (44) | (44) | | 1,575 | 1,439 |
The above sensitivity information was calculated by reference to carrying amounts of assets and liabilities at December 31 only. The effect on income before taxation arises in connection with monetary balances denominated in currencies other than an entity’s functional currency; the effect on net assets arises principally from the translation of assets and liabilities of entities that are not dollar-functional.
| | | | | | | | |
FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2020 | 199 | |
Foreign exchange gains and losses included in income are presented in Note 5.
Commodity price risk
Certain subsidiaries have a mandate to trade crude oil, natural gas, LNG, refined products, chemical feedstocks, power and carbon-emission rights,environmental certificates, and to use commodity derivative contracts (forwards, futures, swaps and options) as a means of managing price and timing risks arising from this trading activity. In effecting these transactions, the entities concerned operate within procedures and policies designed to ensure that risks, including those relating to the default of counterparties, are managed within authorised limits.
Value-at-risk (VAR) techniques based on variance/covariance or Monte Carlo simulation models are used to make a statistical assessment of the market risk arising from possible future changes in market values for commodity positions held by these subsidiaries over a 1-day holding period and within a 95% confidence level. The calculation of potential changes in fair value takes into account positions, the history of price movements and the correlation of these price movements. Models are regularly reviewed against actual fair value movements to ensure integrity is maintained. The VAR average and year-end positions in respect of commodities traded in active markets, which are presented in the table below, are calculated on a diversified basis in order to reflect the effect of offsetting risk within combined portfolios. 2022 was a year of high market volatility driving higher VAR than historic levels. As a result, Shell operated with enhanced risk management protocols.
| | | | | | | | |
| | |
| Value-at-risk (pre-tax) | | $ million |
| December 31, 2020 | December 31, 2019 |
| Global oil | 24 | | 22 | |
| North America gas and power | 14 | | 12 | |
| Europe gas and power | 11 | | 5 | |
| Carbon-emission rights | 7 | | 4 | |
| | | | | | | | | | | | | | | | | |
| | | | | $ million |
| | 2022 | | | 2021 |
| Average | Year-end | | Average | Year-end |
| Global oil | 72 | 56 | | 26 | 30 |
| North America gas and power | 18 | 23 | | 12 | 15 |
| Europe gas and power | 54 | 40 | | 11 | 13 |
| Australia gas and power | 12 | 12 | | 8 | 6 |
| Environmental certificates | 10 | 13 | | 8 | 10 |
Furthermore, commodity derivative hedge contracts are used to partially mitigate price volatility on future LNG sales and purchases.
As contracts to buy and sell physical LNG are accounted for on an accrual basis (see Note 2) and commodity derivatives are accounted for on a fair-value basis, this creates an accounting mismatch over periods. The fair value accounting of commodity derivatives can result in gains or losses in the income statement, which for Adjusted Earnings are part of identified items.
These derivative contracts are based on a mix of European and North American gas price indices, global crude price indices and Asian LNG price indices. In 2022, Shell has seen high volatility in these markets and volumes of financial derivatives increased. On that basis, a sensitivity analysis has been performed for a 50% price increase or decrease of this basket of derivative contracts at year-end 2022, which would result in a gain or loss of $2.7 billion (pre-tax) in the income statement (2021: $0.3 billion).
Financial Statements and Supplements
25. Financial instruments continued
Credit risk
Policies are in place to ensure that sales of products are made to customers with appropriate creditworthiness. These policies include detailed credit analysis and monitoring of trading partners against counterparty credit limits. Credit information is regularly shared between business and finance functions, with dedicated teams in place to quickly identify and respond to cases of credit deterioration. Mitigation measures are defined and implemented for higher-risk business partners and customers, and include shortened payment terms, collateral or other security posting and vigorous collections. In addition, policies limit the amount of credit exposure to any individual financial institution. There are noElevated commodity prices, mainly in relation to strategic long-term deals in the gas portfolios resulted in a material concentrationsconcentration of credit risk with individual customers or geographically,representing around 25% of total Shell net credit exposure after offsetting for cash collateral and there has been no significant level of counterparty default in recent years.
Surplus cash is invested in a range of short-dated, secure and liquid instruments including short-term bank deposits, money market funds, reverse repos and similar instruments. The portfolio of these investments is diversified to avoid concentrating risk in any one instrument, country or counterparty. Management monitors the investments regularly and adjusts the investment portfolio in light of new market information where necessary to ensure credit risk is effectively diversified.
In commodity trading, counterparty credit risk is managed within a framework of credit limits with utilisation being regularly reviewed. Credit risk exposure is monitored and the acceptable level of credit exposure is determined by a credit committee. Credit checks are performed by a department independent of traders, and are undertaken before contractual commitment. Where appropriate, netting arrangements, credit insurance, prepayments and collateral are used to manage specific risks.
Shell routinely enters into offsetting, master netting and similar arrangements with trading and other counterparties to manage credit risk. Where there is a legally enforceable right of offset under such arrangements and Shell has the intention to settle on a net basis or realise the asset and settle the liability simultaneously, the net asset or liability is recognised in the Consolidated Balance Sheet, otherwise assets and liabilities are presented gross. These amounts, as presented net and gross within trade and other receivables, trade and other payables and derivative financial instruments in the Consolidated Balance Sheet at December 31, were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| 2020 | | | | | | $ million |
| | Amounts offset | | Amounts not offset | |
| Gross amounts
before offset | Amounts
offset | Net amounts
as presented | Cash collateral
received/pledged | Other offsetting
instruments | Net amounts |
| Assets: | | | | | | |
| Within trade receivables | 10,658 | | 6,470 | | 4,188 | | 14 | | 79 | | 4,095 | |
| Within derivative financial instruments | 12,798 | | 6,125 | | 6,673 | | 1,573 | | 1,750 | | 3,350 | |
| Liabilities: | | | | | | |
| Within trade payables | 10,580 | | 6,467 | | 4,113 | | 1 | | 79 | | 4,033 | |
| Within derivative financial instruments | 10,502 | | 5,893 | | 4,609 | | 797 | | 1,761 | | 2,051 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | $ million |
| | Amounts offset | | | Amounts not offset | |
| Gross amounts
before offset | Amounts
offset | Net amounts
as presented | | Cash collateral
received/pledged | Other offsetting
instruments | Net amounts |
| Assets: | | | | | | | |
| Within trade receivables | 28,259 | 17,200 | 11,059 | | 292 | 495 | 10,272 |
| Within derivative financial instruments | 56,154 | 34,685 | 21,469 | | 1,904 | 4,563 | 15,002 |
| Liabilities: | | | | | | | |
| Within trade payables | 29,981 | 17,200 | 12,781 | | 608 | 495 | 11,678 |
| Within derivative financial instruments | 58,991 | 34,710 | 24,281 | | 4,788 | 3,364 | 16,129 |
| | | | | | | | |
FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2020 | 200 | 2021 |
| | | | $ million |
| 2019 | | $ million | |
| | Amounts offset | | Amounts not offset | | | Amounts offset | | Amounts not offset | |
| | Gross amounts
before offset | Amounts
offset | Net amounts
as presented | Cash collateral
received/pledged | Other offsetting instruments | Net amounts | | Gross amounts
before offset | Amounts
offset | Net amounts
as presented | | Cash collateral
received/pledged | Other offsetting instruments | Net amounts |
| Assets: | Assets: | | Assets: | |
| Within trade receivables | Within trade receivables | 13,821 | | 8,975 | | 4,846 | | 54 | | 101 | | 4,691 | | Within trade receivables | 20,561 | 11,937 | 8,624 | | 164 | 283 | 8,177 |
| Within derivative financial instruments | Within derivative financial instruments | 12,995 | | 7,310 | | 5,685 | | 531 | | 2,262 | | 2,892 | | Within derivative financial instruments | 48,813 | 39,819 | 8,994 | | 902 | 3,098 | 4,994 |
| Liabilities: | Liabilities: | | Liabilities: | |
| Within trade payables | Within trade payables | 13,335 | | 9,029 | | 4,306 | | 11 | | 101 | | 4,194 | | Within trade payables | 19,347 | 11,935 | 7,412 | | 61 | 283 | 7,068 |
| Within derivative financial instruments | Within derivative financial instruments | 12,355 | | 7,253 | | 5,102 | | 706 | | 2,262 | | 2,134 | | Within derivative financial instruments | 54,534 | 40,350 | 14,184 | | 697 | 3,109 | 10,378 |
Amounts not offset principally relate to contracts where the intention to settle on a net basis was not clearly established at December 31.
The carrying amount of financial assets pledged as collateral for liabilities or contingent liabilities at December 31, 2020,2022, presented within trade and other receivables, was $1,909$11,133 million (2019: $1,948(2021: $6,968 million). The carrying amount of collateral held at December 31, 2020,2022, presented within trade and other payables, was $1,675$1,648 million (2019: $718(2021: $1,909 million). Collateral mainly relates to initial margins held with commodity exchanges and over-the-counter counterparty variation margins. Some derivative contracts are fully cash collateralised, thereby eliminating both counterparty risk and the Group’s own non-performance risk.
Financial Statements and Supplements
25. Financial instruments continued
Liquidity risk
Liquidity risk is the risk that suitable sources of funding for Shell’s business activities may not be available. Management believes that it has access to sufficient debt funding sources (capital markets) and to undrawn committed borrowing facilities to meet foreseeable requirements. Information about borrowing facilities is presented in Note 14.20.
Interbank Offered Rate (IBOR) reform
USD London Interbank Offered Rate (LIBOR) is the most significant IBOR for Shell. USD LIBOR will cease to be representative after June 30, 2023. Significant IBOR exposures, disaggregated by tenure at December 31, 2022, are as follows:
| | | | | | | | | | | |
| | | $ million |
| | | December 31, 2022 |
| Non-derivative financial assets - carrying value | Non-derivative financial liabilities - carrying value | Derivatives - Nominal amount |
| USD LIBOR (1 month) | 34 | | |
| USD LIBOR (3 months) | 1,898 | 1,176 | 4,754 |
| USD LIBOR (6 months) | 238 | | |
| Cross-currency interest rate swaps: | | | |
| EUR Fixed to USD LIBOR (3 months) | | | 8,311 |
| GBP Fixed to USD LIBOR (3 months) | | | 1,078 |
| CHF Fixed to USD LIBOR (3 months) | | | 1,359 |
| MYR LIBOR (3 months) to USD LIBOR (3 months) | | | 360 |
| | | |
| Total | 2,170 | 1,176 | 15,862 |
Shell has established a Group-wide IBOR Transition Project, with oversight from the Group Treasurer. The project spans all business lines and has cross-functional senior governance which includes Legal, IT and Finance, including treasury, tax and accounting experts. Shell put in place detailed plans, processes and procedures to support the transition of the affected portfolio including making changes to systems, processes and risk management, as well as related tax and accounting implications. Shell is confident that it has the operational capability to process the transitions to risk-free rates for those interest rate benchmarks such as USD LIBOR that will cease to be representative after June 30, 2023.
Derivative contracts and hedges
Derivative contracts are used principally as hedging instruments, however, because hedge accounting is not always applied, movements in the carrying amounts of derivative contracts that are recognised in income are not always matched in the same period by the recognition of the income effects of the related hedged items.
Carrying amounts, maturities and hedges
The carrying amounts of derivative contracts at December 31, designated and not designated as hedging instruments for hedge accounting purposes, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| 2020 | | | | | | | $ million |
| | | Assets | | | Liabilities | |
| Designated | Not
designated | Total | Designated | Not
designated | Total | Net |
| Interest rate swaps | 451 | | 0 | | 451 | | 26 | | 22 | | 48 | | 403 | |
| Forward foreign exchange contracts | 0 | | 276 | | 276 | | 0 | | 651 | | 651 | | (375) | |
| Currency swaps and options | 1,890 | | 13 | | 1,903 | | 280 | | 63 | | 343 | | 1,560 | |
| Commodity derivatives | 0 | | 5,534 | | 5,534 | | 92 | | 4,565 | | 4,657 | | 877 | |
| Other contracts | 0 | | 424 | | 424 | | 0 | | 29 | | 29 | | 395 | |
| Total | 2,341 | | 6,247 | | 8,588 | | 398 | | 5,330 | | 5,728 | | 2,860 | |
| | | | $ million |
| 2019 | | $ million | |
| | Assets | | Liabilities | | | Assets | | Liabilities | |
| | Designated | Not
designated | Total | Designated | Not
designated | Total | Net | | Designated | Not
designated | Total | | Designated | Not
designated | Total | Net |
| Interest rate swaps | Interest rate swaps | 227 | | 8 | | 235 | | 34 | | 24 | | 58 | | 177 | | Interest rate swaps | — | 1 | | 169 | — | 169 | (168) |
| Forward foreign exchange contracts | Forward foreign exchange contracts | 7 | | 236 | | 243 | | 2 | | 309 | | 311 | | (68) | | Forward foreign exchange contracts | — | 907 | | — | 996 | (89) |
| Currency swaps and options | Currency swaps and options | 90 | | 15 | | 105 | | 932 | | 56 | | 988 | | (883) | | Currency swaps and options | 31 | 24 | 55 | | 2,925 | 5 | 2,930 | (2,875) |
| Commodity derivatives | Commodity derivatives | 0 | | 6,914 | | 6,914 | | 0 | | 5,281 | | 5,281 | | 1,633 | | Commodity derivatives | — | 23,676 | | — | 22,858 | 818 |
| Other contracts | Other contracts | 0 | | 341 | | 341 | | 0 | | 0 | | 0 | | 341 | | Other contracts | — | 380 | | — | 389 | (9) |
| Total | Total | 324 | | 7,514 | | 7,838 | | 968 | | 5,670 | | 6,638 | | 1,200 | | Total | 31 | 24,988 | 25,019 | | 3,094 | 24,248 | 27,342 | (2,323) |
Financial Statements and Supplements
Notes to the Consolidated Financial Statements continued
25. Financial instruments continued
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | $ million |
| Assets | | Liabilities | |
| Designated | Not
designated | Total | | Designated | Not
designated | Total | Net |
| Interest rate swaps | 237 | — | 237 | | 24 | 14 | 38 | 199 |
| Forward foreign exchange contracts | — | 456 | 456 | | — | 280 | 280 | 176 |
| Currency swaps and options | 277 | 22 | 299 | | 860 | 33 | 893 | (594) |
| Commodity derivatives | 12 | 10,979 | 10,991 | | — | 15,732 | 15,732 | (4,741) |
| Other contracts | — | 201 | 201 | | — | 255 | 255 | (54) |
| Total | 526 | 11,658 | 12,184 | | 884 | 16,314 | 17,198 | (5,014) |
As part of Shell's normal business, commodity derivative hedge contracts are entered into for mitigation of future purchases, sales and inventory. Net gains before tax on derivative contracts, excluding realised commodity contracts and those accounted for as hedges, were $1,676$1,331 million in 2020 (2019: $2,0042022 (2021: $8,377 million losses; 2018: $1,8182020: $3,295 million losses)gains). The International Financial Reporting Interpretation Committee (IFRIC) guidance concerning the physical settlement of a contract to buy or sell a non-financial item has been applied prospectively as from 2020. The result of this decision is that $597 million of prior gains that would have previously reversed at the time of trade delivery, have been excluded from the amount disclosed in 2020.
Certain contracts, mainly to hedge price risk relating to forecast commodity transactions, were designated in cash flow hedging relationships and are presented after the offset of related margin balances with exchanges. Contracts to hedge foreign exchange risks were also designated in cash flow hedging relationships and the net carrying amount of these contracts at December 31, 2020,2022, was an asseta liability of $556$828 million (2019: $167(2021: $173 million liability). See Note 2228 for the accumulated balance recognised within other comprehensive income.
| | | | | | | | |
FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2020 | 201 | |
Certain interest rate and currency swaps were designated in fair value hedges, principally in respect of debt for which the net carrying amount of the related derivative contracts, net of accrued interest, at December 31, 2020,2022, was an asseta liability of $1,422$2,191 million (2019: $518(2021: $250 million liability).
In 2020,2022, €3 billion (2021: €3 billion) of debt instruments were designated as hedges of net investments in foreign operations, relating to the foreign exchange risk arising between certain intermediate holding companies and their subsidiaries. See Note 2228 for the accumulated balance recognised within other comprehensive income.
In the course of trading operations, certain contracts are entered into for delivery of commodities that are accounted for as derivatives. The resulting price exposures are managed by entering into related derivative contracts. These contracts are managed on a fair value basis and the maximum exposure to liquidity risk is the undiscounted fair value of derivative liabilities.
For a minority of commodity derivatives contracts, carrying amounts cannot be derived from quoted market prices or other observable inputs, in which case fair value is estimated using valuation techniques such as Black-Scholes, option spread models and extrapolation using quoted spreads with assumptions developed internally based on observable market activity.
Other contracts include certain contracts that are held to sell or purchase commodities and others containing embedded derivatives, which are required to be recognised at fair value because of pricing or delivery conditions, even though they were entered into to meet operational requirements. These contracts are expected to mature in 2021-2025,2023-2025, with certain contracts having early termination rights (for either party). Valuations are derived from quoted market prices.
The contractual maturities of derivative liabilities at December 31 compare with their carrying amounts in the Consolidated Balance Sheet as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| 2020 | | | | | | | | | $ million |
| Contractual maturities | | |
| Less than
1 year | Between
1 and 2
years | Between
2 and 3
years | Between
3 and 4
years | Between
4 and 5
years | 5 years
and later | Total | Difference
from carrying
amount [A] | Carrying
amount |
| Interest rate swaps | 12 | | 10 | | 9 | | 7 | | 5 | | 6 | | 49 | | (1) | | 48 | |
| Forward foreign exchange contracts | 504 | | 56 | | 22 | | 38 | | 0 | | 0 | | 620 | | 31 | | 651 | |
| Currency swaps and options | 174 | | 13 | | 28 | | 0 | | 159 | | 0 | | 374 | | (31) | | 343 | |
| Commodity derivatives | 2,990 | | 743 | | 265 | | 174 | | 115 | | 391 | | 4,678 | | (21) | | 4,657 | |
| Other contracts | 15 | | 15 | | 0 | | 0 | | 0 | | 0 | | 30 | | (1) | | 29 | |
| Total | 3,695 | | 837 | | 324 | | 219 | | 279 | | 397 | | 5,751 | | (23) | | 5,728 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | $ million |
| Contractual maturities | | |
| Less than
1 year | Between
1 and 2
years | Between
2 and 3
years | Between
3 and 4
years | Between
4 and 5
years | 5 years
and later | Total | Difference
from carrying
amount [A] | Carrying
amount |
| Interest rate swaps | 120 | 50 | 2 | 1 | 1 | 1 | 175 | (6) | 169 |
| Forward foreign exchange contracts | 629 | 294 | 18 | (1) | (2) | (3) | 935 | 61 | 996 |
| Currency swaps and options | 582 | 554 | 750 | 588 | 507 | 1,353 | 4,334 | (1,404) | 2,930 |
| Commodity derivatives | 17,273 | 3,678 | 1,203 | 515 | 270 | 793 | 23,732 | (874) | 22,858 |
| Other contracts | 212 | 148 | 22 | 1 | 1 | — | 384 | 5 | 389 |
| Total | 18,816 | 4,724 | 1,995 | 1,104 | 777 | 2,144 | 29,560 | (2,218) | 27,342 |
[A]Mainly related to the effect of discounting.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| 2019 | | | | | | | | | $ million |
| Contractual maturities | | |
| Less than
1 year | Between
1 and 2
years | Between
2 and 3
years | Between
3 and 4
years | Between
4 and 5
years | 5 years
and later | Total | Difference
from carrying
amount [A] | Carrying
amount |
| Interest rate swaps | 35 | | 8 | | 4 | | 4 | | 5 | | 4 | | 60 | | (2) | | 58 | |
| Forward foreign exchange contracts | 214 | | 40 | | 8 | | 0 | | 118 | | 0 | | 380 | | (69) | | 311 | |
| Currency swaps and options | 255 | | 475 | | 444 | | 201 | | 204 | | 1,777 | | 3,356 | | (2,368) | | 988 | |
| Commodity derivatives | 3,472 | | 756 | | 349 | | 189 | | 123 | | 511 | | 5,400 | | (119) | | 5,281 | |
| Other contracts | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | |
| Total | 3,976 | | 1,279 | | 805 | | 394 | | 450 | | 2,292 | | 9,196 | | (2,558) | | 6,638 | |
[A] Mainly related to the effect of discounting.
| | | | | | | | |
| 277 | FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORMShell | Form 20-F 20202022 | 202 | |
Financial Statements and Supplements
25. Financial instruments continued
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | $ million |
| Contractual maturities | | |
| Less than
1 year | Between
1 and 2
years | Between
2 and 3
years | Between
3 and 4
years | Between
4 and 5
years | 5 years
and later | Total | Difference
from carrying
amount [A] | Carrying
amount |
| Interest rate swaps | 13 | 13 | 5 | 4 | 3 | 4 | 42 | (4) | 38 |
| Forward foreign exchange contracts | 170 | 40 | 114 | — | — | — | 324 | (44) | 280 |
| Currency swaps and options | 321 | 150 | 159 | 287 | 356 | 808 | 2,081 | (1,188) | 893 |
| Commodity derivatives | 12,614 | 1,401 | 783 | 274 | 158 | 531 | 15,761 | (29) | 15,732 |
| Other contracts | 222 | 34 | — | — | — | — | 256 | (1) | 255 |
| Total | 13,340 | 1,638 | 1,061 | 565 | 517 | 1,343 | 18,464 | (1,266) | 17,198 |
[A]Mainly related to the effect of discounting.
Fair value measurements
The net carrying amounts of derivative contracts held at December 31, categorised according to the predominant source and nature of inputs used in determining the fair value of each contract, were as follows:
| | | | | | | | | | | | | | |
| | | | |
| 2020 | | | | $ million |
| Prices in active markets for identical
assets/liabilities | Other
observable
inputs | Unobservable
inputs | Total |
| Interest rate swaps | 0 | | 403 | | 0 | | 403 | |
| Forward foreign exchange contracts | 0 | | (375) | | 0 | | (375) | |
| Currency swaps and options | 0 | | 1,560 | | 0 | | 1,560 | |
| Commodity derivatives | 37 | | (237) | | 1,077 | | 877 | |
| Other contracts | 20 | | 375 | | 0 | | 395 | |
| Total | 57 | | 1,726 | | 1,077 | | 2,860 | |
| | | | $ million |
| 2019 | | $ million | |
| | Prices in active markets for identical
assets/liabilities | Other
observable
inputs | Unobservable
inputs | Total | | Prices in active markets for identical
assets/liabilities | Other
observable
inputs | Unobservable
inputs | Total |
| Interest rate swaps | Interest rate swaps | 0 | | 177 | | 0 | | 177 | | Interest rate swaps | — | (168) | — | (168) |
| Forward foreign exchange contracts | Forward foreign exchange contracts | 0 | | (68) | | 0 | | (68) | | Forward foreign exchange contracts | — | (89) | — | (89) |
| Currency swaps and options | Currency swaps and options | 0 | | (883) | | 0 | | (883) | | Currency swaps and options | — | (2,875) | — | (2,875) |
| Commodity derivatives | Commodity derivatives | (6) | | 895 | | 744 | | 1,633 | | Commodity derivatives | 68 | (1,161) | 1,911 | 818 |
| Other contracts | Other contracts | 27 | | 304 | | 10 | | 341 | | Other contracts | — | (7) | (2) | (9) |
| Total | Total | 21 | | 425 | | 754 | | 1,200 | | Total | 68 | (4,300) | 1,909 | (2,323) |
| | | | | | | | | | | | | | |
| | | | $ million |
| Prices in active markets for identical
assets/liabilities | Other
observable
inputs | Unobservable
inputs | Total |
| Interest rate swaps | — | 199 | — | 199 |
| Forward foreign exchange contracts | — | 176 | — | 176 |
| Currency swaps and options | — | (594) | — | (594) |
| Commodity derivatives | 41 | (5,171) | 389 | (4,741) |
| Other contracts | 6 | (60) | — | (54) |
| Total | 47 | (5,450) | 389 | (5,014) |
Financial Statements and Supplements
Notes to the Consolidated Financial Statements continued
25. Financial instruments continued
| | | | | | | | |
| | |
| Net carrying amounts of derivative contracts measured using predominantly unobservable inputs | | $ million |
| 2020 | 2019 |
| At January 1 | 754 | | (27) | |
| Net gains recognised in revenue | 564 | | 1,085 | |
| Purchases | 217 | | 453 | |
| Sales | (450) | | (633) | |
| Settlements | (9) | | 0 | |
| Recategorisations (net) | (12) | | (125) | |
| Currency translation differences | 13 | | 1 | |
| At December 31 | 1,077 | | 754 | |
| | |
| Net carrying amounts of derivative contracts measured using predominantly unobservable inputs |
| | | | | | | | |
| | $ million |
| 2022 | 2021 |
| At January 1 | 389 | 1,077 |
| Net gains/(losses) recognised in revenue | 1,190 | (569) |
| Purchases | 886 | 440 |
| Sales | (623) | (442) |
| Settlements | 46 | (32) |
| Recategorisations (net) | 17 | (87) |
| Currency translation differences | 4 | 2 |
| At December 31 | 1,909 | 389 |
Included in net gainsgains/(losses) recognised in revenue in 20202022 were unrealised net gains totalling $743$449 million relating to assets and liabilities held at December 31, 2020 (2019: $6122022 (2021: $175 million gains)losses).
Unrecognised day one gains or losses
Certain long-term commodity purchase contracts extend to periods where observable pricing data are limited and so their value may include estimates for a portion of the value.estimates. Where this is more than an insignificant part of the overall contract valuation, any gains or losses will be deferred. Valuation techniques are further described in Note 2. The unrecognised gains on these derivative contracts at December 31, 20202022, were as follows:
| | | | $ million | | $ million |
| | 2020 | 2019 | | 2022 | 2021 |
| At January 1 | At January 1 | 929 | | 388 | | At January 1 | 1,024 | 968 |
| Movements | Movements | 39 | | 541 | | Movements | 596 | 56 |
| At December 31 | At December 31 | 968 | | 929 | | At December 31 | 1,620 | 1,024 |
| | | | | | | | |
FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2020 | 203 | |
Issued and fully paid ordinary shares of €0.07 each [A]
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Number of shares | | Nominal value | $ million |
| A | B | Ordinary
shares | | A | B | Ordinary shares | Total |
| At January 1, 2022 | 4,101,239,499 | 3,582,892,954 | | | 345 | 296 | | 641 |
| Repurchases of shares before assimilation | — | (34,106,548) | | | — | (3) | | (3) |
| Assimilation of ordinary A and B shares into ordinary shares | (4,101,239,499) | (3,548,786,406) | 7,650,025,905 | | (345) | (293) | 638 | |
| Repurchases of B shares on January 27 and 28, 2022, cancelled as ordinary shares on February 2 and 3, 2022 | | | (507,742) | | | | — | — |
| Repurchases of shares after assimilation | | | (646,014,770) | | | | (54) | (54) |
| At December 31, 2022 | | | 7,003,503,393 | | | | 584 | 584 |
| At January 1, 2021 | 4,101,239,499 | 3,706,183,836 | | | 345 | 306 | | 651 |
| Repurchases of shares | — | (123,290,882) | | | — | (10) | | (10) |
| At December 31, 2021 | 4,101,239,499 | 3,582,892,954 | | | 345 | 296 | | 641 |
20 – SHARE CAPITAL
| | | | | | | | | | | | | | | | | |
| |
| Issued and fully paid ordinary shares of €0.07 each [A] | | | | | |
| Number of shares | Nominal value ($ million) |
| A | B | A | B | Total |
| At January 1, 2020 | 4,151,787,517 | | 3,729,407,107 | | 349 | | 308 | | 657 | |
| Repurchases of shares | (50,548,018) | | (23,223,271) | | (4) | | (2) | | (6) | |
| At December 31, 2020 | 4,101,239,499 | | 3,706,183,836 | | 345 | | 306 | | 651 | |
| At January 1, 2019 | 4,471,889,296 | | 3,745,486,731 | | 376 | | 309 | | 685 | |
| Repurchases of shares | (320,101,779) | | (16,079,624) | | (27) | | (1) | | (28) | |
| At December 31, 2019 | 4,151,787,517 | | 3,729,407,107 | | 349 | | 308 | | 657 | |
[A]Share capital at December 31, 2020,2022, and 2019,2021, also included 50,000 issued and fully paid sterling deferred shares of £1£1 each.
At the Company’s Annual General Meeting (AGM) on May 19, 2020,24, 2022, the Board was authorised to allot ordinary shares in the Company, and to grant rights to subscribe for or to convert any security into ordinary shares in the Company, up to an aggregate nominal amount of €182.7€177.0 million (representing 2,6112,530 million ordinary shares of €0.07 each), and to list such shares or rights on any stock exchange. This authority expires at the earlier of the close of business on August 19, 2021,24, 2023, and the end of the AGM to be held in 2021,2023, unless previously renewed, revoked or varied by the Company in a general meeting.
Financial Statements and Supplements
26. Share capital continued
At the May 19, 202024, 2022, AGM, shareholders granted the Company the authority to repurchase (i) up to 783758 million ordinary shares "on-market" (excluding any treasury shares), renewingless the number of ordinary shares purchased or committed to be purchased in terms of the buyback contracts ("off-market"), made under the authority granted byin (ii); and (ii) up to 758 million ordinary shares off-market, less any on-market purchases made under the shareholders at previous AGMs. The authority will expire atin (i).
In the earliercase of both on-market and off-market purchases of the close of business on August 19, 2021, andordinary shares, the end of the AGM of the Company to be held in 2021. Ordinary shares purchased by the Company pursuant to this authority will either be cancelled or held in treasury. Treasury shares are shares in the Company which are owned by the Company itself. The minimum price, exclusive of expenses, which may be paid for an ordinary share is €0.07. The€0.07 and the maximum price, exclusive of expenses, which may be paid for an ordinary share is the higher of: (i) an amount equal to 5% above the average market value for an ordinary share for the five business days immediately preceding the date of the purchase; and (ii) the higher of the price of the last independent trade and the highest current independent bid in relation to ordinary shares on the trading venues where the purchase is carried out. The authorities for both on-market and off- market purchases of the ordinary shares will expire at the earlier of the close of business on August 24, 2023, and the end of the AGM of the Company to be held in 2023. Ordinary shares purchased by the Company pursuant to these authorities will either be cancelled or held in treasury. Treasury shares are shares in the Company which are owned by the Company itself.
27. Share-based compensation plans and shares held in trust
On March 23, 2020, in light of the economic and oil price environment, the Board decided not to continue with the next tranche of the share buyback programme following the completion of the tranche announced on January 30, 2020. | | |
| Share-based compensation expense |
| | | | | | | | | | | |
| $ million |
| 2022 | 2021 | 2020 |
| Equity-settled [A] | 807 | 539 | 359 |
| | | |
21 – SHARE-BASED COMPENSATION PLANS AND SHARES HELD IN TRUST
| | | | | | | | | | | |
|
| Share-based compensation expense | $ million |
| 2020 | 2019 | 2018 |
| Equity-settled [A] | 359 | | 537 | | 531 | |
| | | |
| Total | 359 | | 537 | | 531 | |
[A]On an incidental basis awards may be cash-settled, where an equity settlement is not possible under local regulations.
The principal share-based employee compensation plans are the PSP and LTIP. Awards of shares and American Depositary Shares (ADS) of the Company under the PSP and LTIP are granted upon certain conditions to eligible employees. The actual amountnumber of shares that may vest ranges from 0% to 200%of the awards, depending on the outcomes of prescribed performance conditions over a three-year period beginning on January 1 of the award year. Shares
| | | | | | | | | | | | | | | | | |
| Number of A shares
(million) | Number of B shares
(million) | Number of ordinary shares (million) [A] | Number of ADSs
(million) | Weighted average remaining contractual life (years) |
| At January 1, 2022 | 38 | 12 | | 9 | 1.2 |
| Assimilation of ordinary A and B shares into ordinary shares | (38) | (12) | 50 | | |
| Granted | | | 22 | 4 | |
| Vested | | | (16) | (3) | |
| Forfeited | | | (2) | (1) | |
| At December 31, 2022 | | | 54 | 9 | 1.1 |
| At January 1, 2021 | 29 | 10 | | 8 | 1.0 |
| Granted | 20 | 6 | | 4 | |
| Vested | (9) | (3) | | (2) | |
| Forfeited | (2) | (1) | | (1) | |
| At December 31, 2021 | 38 | 12 | | 9 | 1.2 |
[A]On January 29, 2022, as part of the Simplification announced on December 20, 2021, the Company's A and ADSs vest for NaN consideration.
| | | | | | | | | | | | | | |
| |
| Share awards under the PSP and LTIP | | | | |
| Number of A shares
(million) | Number of B shares
(million) | Number of A ADSs
(million) | Weighted Average remaining contractual life (years) |
| At January 1, 2020 | 29 | | 10 | | 8 | | 1.0 |
| Granted | 10 | | 4 | | 3 | | |
| Vested | (9) | | (4) | | (3) | | |
| Forfeited | (1) | | 0 | | 0 | | |
| At December 31, 2020 | 29 | | 10 | | 8 | | 1.0 |
| At January 1, 2019 | 30 | | 12 | | 8 | | 1.0 |
| Granted | 11 | | 3 | | 3 | | |
| Vested | (11) | | (5) | | (3) | | |
| Forfeited | (1) | | 0 | | 0 | | |
| At December 31, 2019 | 29 | | 10 | | 8 | | 1.0 |
Other plans offer eligible employees opportunities to acquire shares and ADSs of the Company or receive cash benefits measured by reference to the Company’s share price.
Shell employee share ownership trusts and trust-like entities purchase the Company’s shares in the open market to meet delivery commitments under employee share plans. At December 31, 2020,2022, they held 14.3a total of 23.9 million ordinary shares (2021: A shares (2019: 17.4 million), 5.2shares: 15.6 million and B shares (2019: 6.5shares: 4.5 million) and 5.14.5 million A ADSs (2019: 5.3(2021: 4.5 million).
| | | | | | | | |
| 280 | FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORMShell | Form 20-F 20202022 | 204 | |
Financial Statements and Supplements
22 – OTHER RESERVES28. Other reserves
| | | | | | | | | | | | | | | | | | | | |
|
| Other reserves attributable to Royal Dutch Shell plc shareholders | | | | $ million |
| Merger
reserve | Share
premium
reserve | Capital
redemption
reserve | Share plan
reserve | Accumulated
other
comprehensive
income | Total |
| At January 1, 2020 | 37,298 | | 154 | | 123 | | 1,049 | | (24,173) | | 14,451 | |
| Other comprehensive loss attributable to Royal Dutch Shell plc shareholders | 0 | | 0 | | 0 | | 0 | | (1,832) | | (1,832) | |
| Transfer from other comprehensive income | 0 | | 0 | | 0 | | 0 | | 270 | | 270 | |
| Repurchases of shares | 0 | | 0 | | 6 | | 0 | | 0 | | 6 | |
| Share-based compensation | 0 | | 0 | | 0 | | (143) | | 0 | | (143) | |
| At December 31, 2020 | 37,298 | | 154 | | 129 | | 906 | | (25,735) | | 12,752 | |
| At January 1, 2019 | 37,298 | | 154 | | 95 | | 1,098 | | (22,030) | | 16,615 | |
| Other comprehensive loss attributable to Royal Dutch Shell plc shareholders | 0 | | 0 | | 0 | | 0 | | (2,069) | | (2,069) | |
| Transfer from other comprehensive income | 0 | | 0 | | 0 | | 0 | | (74) | | (74) | |
| Repurchases of shares | 0 | | 0 | | 28 | | 0 | | 0 | | 28 | |
| Share-based compensation | 0 | | 0 | | 0 | | (49) | | 0 | | (49) | |
| At December 31, 2019 | 37,298 | | 154 | | 123 | | 1,049 | | (24,173) | | 14,451 | |
| At January 1, 2018 | 37,298 | | 154 | | 84 | | 1,440 | | (22,182) | | 16,794 | |
| Other comprehensive income attributable to Royal Dutch Shell plc shareholders | 0 | | 0 | | 0 | | 0 | | 1,123 | | 1,123 | |
| Transfer from other comprehensive income | 0 | | 0 | | 0 | | 0 | | (971) | | (971) | |
| Repurchases of shares | 0 | | 0 | | 11 | | 0 | | 0 | | 11 | |
| Share-based compensation | 0 | | 0 | | 0 | | (342) | | 0 | | (342) | |
| At December 31, 2018 | 37,298 | | 154 | | 95 | | 1,098 | | (22,030) | | 16,615 | |
| | |
| Other reserves attributable to Shell plc shareholders |
| | | | | | | | | | | | | | | | | | | | |
| $ million |
| Merger
reserve | Share
premium
reserve | Capital
redemption
reserve | Share plan
reserve | Accumulated
other
comprehensive
income | Total |
| At January 1, 2022 | 37,298 | 154 | 139 | 964 | (19,646) | 18,909 |
| Other comprehensive income attributable to Shell plc shareholders | — | — | — | — | 2,024 | 2,024 |
| Transfer from other comprehensive income | — | — | — | — | (34) | (34) |
| Repurchases of shares | — | — | 57 | — | — | 57 |
| Share-based compensation | — | — | — | 176 | — | 176 |
| At December 31, 2022 | 37,298 | 154 | 196 | 1,140 | (17,656) | 21,132 |
| At January 1, 2021 | 37,298 | 154 | 129 | 906 | (25,735) | 12,752 |
| Other comprehensive income attributable to Shell plc shareholders | — | — | — | — | 6,134 | 6,134 |
| Transfer from other comprehensive income | — | — | — | — | (45) | (45) |
| Repurchases of shares | — | — | 10 | — | — | 10 |
| Share-based compensation | — | — | — | 58 | — | 58 |
| At December 31, 2021 | 37,298 | 154 | 139 | 964 | (19,646) | 18,909 |
| At January 1, 2020 | 37,298 | 154 | 123 | 1,049 | (24,173) | 14,451 |
| Other comprehensive loss attributable to Shell plc shareholders | — | — | — | — | (1,832) | (1,832) |
| Transfer from other comprehensive income | — | — | — | — | 270 | 270 |
| Repurchases of shares | — | — | 6 | — | — | 6 |
| Share-based compensation | — | — | — | (143) | — | (143) |
| At December 31, 2020 | 37,298 | 154 | 129 | 906 | (25,735) | 12,752 |
The merger reserve and share premium reserve were established as a consequence of the Company becoming the single parent company of Royal Dutch Petroleum Company and The “Shell”"Shell" Transport and Trading Company, plc, now The Shell Transport and Trading Company Limited, in 2005. The merger reserve increased in 2016 following the issuance of shares for the acquisition of BG Group plc. The capital redemption reserve was established in connection with repurchases of shares of Royal Dutch Shell plc. The share plan reserve is in respect of equity-settled share-based compensation plans.
The capital redemption reserve was established in connection with repurchases of shares of the Company.
The share plan reserve is in respect of equity-settled share-based compensation plans (see Note 21)27). The movement comprises the net of the charge for the year and the release as a result of vested awardsawards.
Financial Statements and is after deduction of tax of $4 million in 2020 (2019: $45 million; 2018: $71 million).Supplements
28. Other reserves continued
Accumulated other comprehensive income comprises the following:
| | |
| Accumulated other comprehensive income attributable to Shell plc shareholders |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| $ million |
| Currency
translation
differences | Equity
instruments
remeasurements | Debt
instruments
remeasurements | Cash flow
hedging (losses)/gains | Net investment
hedging (losses)/gains | Deferred
cost of
hedging | Retirement
benefits
remeasurements | Total |
| At January 1, 2022 | (9,563) | 1,294 | 3 | (536) | (2,144) | (226) | (8,474) | (19,646) |
| Recognised in other comprehensive income | (3,422) | (524) | (90) | 426 | 180 | 64 | 6,982 | 3,616 |
| Reclassified to income | 437 | — | 12 | (636) | — | 81 | — | (106) |
| Reclassified to the balance sheet | — | — | — | (81) | — | — | — | (81) |
| Reclassified to retained earnings | — | (32) | — | — | — | — | (2) | (34) |
| Tax on amounts recognised/reclassified | (1) | 33 | — | 59 | — | 55 | (1,516) | (1,370) |
| Total, net of tax | (2,986) | (523) | (78) | (232) | 180 | 200 | 5,464 | 2,025 |
| Share of joint ventures and associates | 30 | (283) | — | 244 | — | — | 30 | 21 |
| Other comprehensive income/(loss) for the period | (2,956) | (806) | (78) | 12 | 180 | 200 | 5,494 | 2,046 |
| Less: non-controlling interest | (71) | (1) | — | — | — | — | 16 | (56) |
| Attributable to Shell plc shareholders | (3,027) | (807) | (78) | 12 | 180 | 200 | 5,510 | 1,990 |
| At December 31, 2022 | (12,590) | 487 | (75) | (524) | (1,964) | (26) | (2,964) | (17,656) |
| At January 1, 2021 | (8,175) | 1,144 | 31 | (485) | (2,439) | (187) | (15,624) | (25,735) |
| Recognised in other comprehensive income | (1,841) | 180 | (23) | 88 | 295 | (145) | 10,191 | 8,745 |
| Reclassified to income | 368 | — | (5) | (38) | — | 92 | — | 417 |
| Reclassified to the balance sheet | — | — | — | (13) | — | — | — | (13) |
| Reclassified to retained earnings | — | (45) | — | — | — | — | — | (45) |
| Tax on amounts recognised/reclassified | 60 | (35) | — | (16) | — | 14 | (2,993) | (2,970) |
| Total, net of tax | (1,413) | 100 | (28) | 21 | 295 | (39) | 7,198 | 6,134 |
| Share of joint ventures and associates | (36) | 50 | — | (72) | — | — | (48) | (106) |
| Other comprehensive income/(loss) for the period | (1,449) | 150 | (28) | (51) | 295 | (39) | 7,150 | 6,028 |
| Less: non-controlling interest | 61 | — | — | — | — | — | — | 61 |
| Attributable to Shell plc shareholders | (1,388) | 150 | (28) | (51) | 295 | (39) | 7,150 | 6,089 |
| At December 31, 2021 | (9,563) | 1,294 | 3 | (536) | (2,144) | (226) | (8,474) | (19,646) |
| At January 1, 2020 | (9,415) | 793 | 8 | (233) | (2,016) | (287) | (13,023) | (24,173) |
| Recognised in other comprehensive income | 1,204 | 68 | 31 | (9) | (423) | 17 | (3,455) | (2,567) |
| Reclassified to income | (28) | — | (8) | (173) | — | 94 | — | (115) |
| Reclassified to the balance sheet | — | — | — | 16 | — | — | — | 16 |
| Reclassified to retained earnings | — | 169 | — | — | — | — | 101 | 270 |
| Tax on amounts recognised/reclassified | 3 | (4) | — | 6 | — | (11) | 753 | 747 |
| Total, net of tax | 1,179 | 233 | 23 | (160) | (423) | 100 | (2,601) | (1,649) |
| Share of joint ventures and associates | 51 | 118 | — | (92) | — | — | — | 77 |
| Other comprehensive (loss)/income for the period | 1,230 | 351 | 23 | (252) | (423) | 100 | (2,601) | (1,572) |
| Less: non-controlling interest | 10 | — | — | — | — | — | — | 10 |
| Attributable to Shell plc shareholders | 1,240 | 351 | 23 | (252) | (423) | 100 | (2,601) | (1,562) |
| At December 31, 2020 | (8,175) | 1,144 | 31 | (485) | (2,439) | (187) | (15,624) | (25,735) |
| | | | | | | | |
| 282 | FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL FORMShell | Form 20-F 20202022 | 205 | |
Financial Statements and Supplements
Notes to the Consolidated Financial Statements continued
29. Dividends
Accumulated other comprehensive income comprises the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| Accumulated other comprehensive income attributable to Royal Dutch Shell plc shareholders | $ million |
| Currency
translation
differences [A] | Equity
instruments
remeasurements | Debt
instruments
remeasurements | Cash flow
hedging (losses)/gains [A] | Net investment
hedging (losses)/gains [A] | Deferred
cost of
hedging | Retirement
benefits
remeasurements | Total |
| At January 1, 2020 | (9,415) | | 793 | | 8 | | (233) | | (2,016) | | (287) | | (13,023) | | (24,173) | |
| Recognised in other comprehensive income | 1,204 | | 68 | | 31 | | (9) | | (423) | | 17 | | (3,455) | | (2,567) | |
| Reclassified to income | (28) | | 0 | | (8) | | (173) | | 0 | | 94 | | 0 | | (115) | |
| Reclassified to the balance sheet | 0 | | 0 | | 0 | | 16 | | | 0 | | 0 | | 16 | |
| Reclassified to retained earnings | 0 | | 169 | | 0 | | 0 | | | 0 | | 101 | | 270 | |
| Tax on amounts recognised/reclassified | 3 | | (4) | | 0 | | 6 | | | (11) | | 753 | | 747 | |
| Total, net of tax | 1,179 | | 233 | | 23 | | (160) | | (423) | | 100 | | (2,601) | | (1,649) | |
| Share of joint ventures and associates | 51 | | 118 | | 0 | | (92) | | | 0 | | 0 | | 77 | |
| Other comprehensive income/(loss) for the period | 1,230 | | 351 | | 23 | | (252) | | (423) | | 100 | | (2,601) | | (1,572) | |
| Less: non-controlling interest | 10 | | 0 | | 0 | | 0 | | | 0 | | 0 | | 10 | |
| Attributable to Royal Dutch Shell plc shareholders | 1,240 | | 351 | | 23 | | (252) | | (423) | | 100 | | (2,601) | | (1,562) | |
| At December 31, 2020 | (8,175) | | 1,144 | | 31 | | (485) | | (2,439) | | (187) | | (15,624) | | (25,735) | |
| At January 1, 2019 | (9,722) | | 906 | | (21) | | 117 | | (2,025) | | (353) | | (10,932) | | (22,030) | |
| Recognised in other comprehensive income | 302 | | (17) | | 24 | | (592) | | 13 | | 9 | | (3,106) | | (3,367) | |
| Reclassified to income | 38 | | 0 | | 5 | | 268 | | 0 | | 86 | | 0 | | 397 | |
| Reclassified to the balance sheet | 0 | | 0 | | 0 | | 11 | | | 0 | | 0 | | 11 | |
| Reclassified to retained earnings | 0 | | (85) | | 0 | | 0 | | | 0 | | 11 | | (74) | |
| Tax on amounts recognised/reclassified | 4 | | (13) | | 0 | | 37 | | (4) | | (29) | | 1,004 | | 999 | |
| Total, net of tax | 344 | | (115) | | 29 | | (276) | | 9 | | 66 | | (2,091) | | (2,034) | |
| Share of joint ventures and associates | (2) | | 2 | | 0 | | (74) | | | 0 | | 0 | | (74) | |
| Other comprehensive loss for the period | 342 | | (113) | | 29 | | (350) | | 9 | | 66 | | (2,091) | | (2,108) | |
| Less: non-controlling interest | (35) | | 0 | | 0 | | 0 | | | 0 | | 0 | | (35) | |
| Attributable to Royal Dutch Shell plc shareholders | 307 | | (113) | | 29 | | (350) | | 9 | | 66 | | (2,091) | | (2,143) | |
| At December 31, 2019 | (9,415) | | 793 | | 8 | | (233) | | (2,016) | | (287) | | (13,023) | | (24,173) | |
| At January 1, 2018 | (6,711) | | 1,975 | | (6) | | (627) | | (2,024) | | (144) | | (14,645) | | (22,182) | |
| Recognised in other comprehensive income | (3,793) | | (147) | | (15) | | 50 | | (1) | | (362) | | 5,213 | | 945 | |
| Reclassified to income | 651 | | 0 | | 0 | | 722 | | 0 | | 95 | | 0 | | 1,468 | |
| Reclassified to the balance sheet | 0 | | 0 | | 0 | | (30) | | | 0 | | 0 | | (30) | |
| Reclassified to retained earnings | 0 | | (1,108) | | 0 | | 0 | | | 0 | | 137 | | (971) | |
| Tax on amounts recognised/reclassified | (29) | | (6) | | 0 | | (12) | | | 58 | | (1,625) | | (1,614) | |
| Total, net of tax | (3,171) | | (1,261) | | (15) | | 730 | | (1) | | (209) | | 3,725 | | (202) | |
| Share of joint ventures and associates | (25) | | 193 | | 0 | | 14 | | | 0 | | 1 | | 183 | |
| Other comprehensive loss/income for the period | (3,196) | | (1,068) | | (15) | | 744 | | (1) | | (209) | | 3,726 | | (19) | |
| Less: non-controlling interest | 185 | | (1) | | 0 | | 0 | | | 0 | | (13) | | 171 | |
| Attributable to Royal Dutch Shell plc shareholders | (3,011) | | (1,069) | | (15) | | 744 | | (1) | | (209) | | 3,713 | | 152 | |
| At December 31, 2018 | (9,722) | | 906 | | (21) | | 117 | | (2,025) | | (353) | | (10,932) | | (22,030) | |
[A] As from 2020, 'Net investment hedging (losses)/gains" are presented separately. Prior to 2020, these were aggregated within 'Currency translation differences' and 'Cash flow hedging (losses)/gains'. Prior period comparatives for these categories have been revised to conform with current year presentation.
| | | | | | | | |
FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL FORM 20-F 2020 | 206 | Interim dividends |
23 – DIVIDENDS
| | | | | | $ per share | | $ million |
| Interim dividends | $ per share | | $ million | | |
| | 2020 | 2019 | 2018 | | 2020 | 2019 | 2018 | | | 2022 | 2021 [A] | 2020 [A] | | 2022 | 2021 [B] | 2020 [B] |
| A shares: | | | | | | |
| | Cash: | Cash: | | | | | Cash: | | | | |
| March | March | 0.47 | | 0.47 | | 0.47 | | | 1,862 | | 2,100 | | 2,176 | | | March | 0.24 | 0.1665 | 0.47 | | 1,829 | 1,290 | 3,482 |
| June | June | 0.16 | | 0.47 | | 0.47 | | | 653 | | 2,062 | | 2,140 | | | June | 0.25 | 0.1735 | 0.16 | | 1,850 | 1,331 | 1,239 |
| September | September | 0.16 | | 0.47 | | 0.47 | | | 654 | | 2,007 | | 2,165 | | | September | 0.25 | 0.24 | 0.16 | | 1,818 | 1,854 | 1,236 |
| December | December | 0.1665 | | 0.47 | | 0.47 | | | 691 | | 1,978 | | 2,124 | | | December | 0.25 | 0.24 | 0.1665 | | 1,786 | 1,846 | 1,313 |
| Total - A shares | 0.9565 | | 1.88 | | 1.88 | | | 3,860 | | 8,147 | | 8,605 | | | |
| B shares: | | | | | | |
| Cash: | | | | | |
| March | 0.47 | | 0.47 | | 0.47 | | | 1,620 | | 1,775 | | 1,794 | | | |
| June | 0.16 | | 0.47 | | 0.47 | | | 586 | | 1,762 | | 1,746 | | | |
| September | 0.16 | | 0.47 | | 0.47 | | | 582 | | 1,765 | | 1,784 | | | |
| December | 0.1665 | | 0.47 | | 0.47 | | | 622 | | 1,749 | | 1,746 | | | |
| Total - B shares | 0.9565 | | 1.88 | | 1.88 | | | 3,410 | | 7,051 | | 7,070 | | | |
| Total | Total | | | | 7,270 | | 15,198 | | 15,675 | | | Total | 0.99 | 0.82 | 0.9565 | | 7,283 | 6,321 | 7,270 |
|
In addition,[B]Dividends paid on A share totalled in 2021: $3,330 million and in 2020: $3,860 million; dividends paid on B share totalled in 2021: $2,991 million and in 2020: $3,410 million.
On February 4, 2021,2, 2023, the Directors announced a further interim dividend in respect of 20202022 of $0.1665$0.2875 per A share and $0.1665 per Bordinary share. The total dividend is estimated to be $1,300$1,998 million and is payable on March 29, 2021,27, 2023, to shareholders on the register at February 19, 2021.17, 2023.
Dividends on A shares are by default paid in euros, although holders mayShareholders will be able to elect to receive their dividends in US dollars, sterling or in sterling. Dividends on B shares are by default paid in sterling, although holders may elect to receive dividends in US dollars or in euros. Dividends on ADSs are paid in dollars.
24 – EARNINGS PER SHARE30. Earnings per share
| | | | | | | | | | | |
| |
| 2020 | 2019 | 2018 |
| (Loss)/income attributable to Royal Dutch Shell plc shareholders ($ million) | (21,680) | | 15,842 | | 23,352 | |
| | | |
| Weighted average number of A and B shares used as the basis for determining: | | | |
| Basic earnings per share (million of shares) | 7,795.6 | | 8,058.3 | | 8,282.8 | |
| Diluted earnings per share (million of shares) | 7,795.6 | | 8,112.5 | | 8,348.7 | |
| | | | | | | | | | | |
| 2022 | 2021 | 2020 |
| Income/(loss) attributable to Shell plc shareholders ($ million) | 42,309 | 20,101 | (21,680) |
| | | |
| Weighted average number of shares used as the basis for determining: | | | |
| Basic earnings per share (million of shares) | 7,347.5 | 7,761.7 | 7,795.6 |
| Diluted earnings per share (million of shares) | 7,410.5 | 7,806.8 | 7,795.6 |
Basic earnings per share are calculated by dividing the income attributable to Royal Dutch Shell plc shareholders for the year by the weighted average number of A and B shares outstanding during the year. The weighted average number of shares outstanding excludes shares held in trust.
Diluted earnings per share are based on the same income/(loss)income figures. The weighted average number of shares outstanding during the year is increased by dilutive shares related to share-based compensation plans. If the inclusion of potentially issuable shares could decrease diluted loss per share, the potentially issuable shares are excluded from the weighted average number of shares outstanding used to calculate diluted earnings per share. The number of potentially issuable shares that has been excluded from the calculation for 2020 is 36.0 million shares.
Earnings per share are identical for A and B shares.
25 – LEGAL PROCEEDINGS AND OTHER CONTINGENCIES31. Legal proceedings and other contingencies
General
In the ordinary course of business, Shell subsidiaries are subject to a number of contingencies arising from litigation and claims brought by governmental authorities, including tax authorities, and private parties. The operations and earnings of Shell subsidiaries continue, from time to time, to be affected to varying degrees by political, legislative, fiscal and regulatory developments, including those relating to the protection of the environment and indigenous groups in the countries in which they operate. The industries in which Shell subsidiaries are engaged are also subject to physical risks of various types.
The amounts claimed in relation to such events and, if such claims against Shell were successful, the costs of implementing the remedies sought in the various cases could be substantial. Based on information available to date and taking into account that in some cases it is not practicable to estimate the possible magnitude or timing of any resultant payments, management believes that the foregoing are not expected to have a material adverse impact on Shell’s Consolidated Financial Statements. However, there remains a high degree of uncertainty around these contingencies, as well as their potential effect on future operations, earnings, cash flows and Shell’s financial condition.
In certain divestment transactions, liabilities related to decommissioning and restoration are de-recognised upon transfer of these obligations to the buyer. For certain of these obligations Shell has issued guarantees to third parties and continues to be liable in case the primary obligor is not able to meet its obligation. These potential obligations arising from issuance of these guarantees are assessed to be remote.
| | | | | | | | |
FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL FORM 20-F 2020 | 207 | |
Decommissioning and restoration of manufacturing facilities
IndustryPrior to 2020, in line with industry practice, hasShell’s policy had been not to recognise decommissioning and restoration provisions associated with manufacturing facilities in Oil Products and Chemicals. This was on the basis that these assets were considered to have indefinite lives and, therefore, that it was considered remote that an outflow of economic benefits would be required.
In 2020, the changed macroeconomic fundamentals were considered, together with Shell’s plans to rationalise the Group’s manufacturing portfolio. It was also reconsidered whether it remained appropriate not to recognise decommissioning and restoration provisions for manufacturing facilities.
Financial Statements and Supplements
31. Legal proceedings and other contingencies continued
It was concluded that the assumption of indefinite lives for manufacturing facilities iswas no longer appropriate, and the need for either recognition of decommissioning and restoration provisions or contingent liability disclosure was reviewed. In 2020, provisions havehad been recognised for certain shorter-lived manufacturing facilities, (See Note 18). Forbut for the remaining longer-lived facilities, where decommissioning would generally be more than 50 years away, it was concluded that, while there is a present obligation that has arisen from past events, the amount of the obligation cannot be measured with sufficient reliability. This conclusion was reached on the basis that the settlement dates are indeterminate; and that other estimates, such as extremely long-term discount rates for which there is no observable measure, are not reliable. Consequently, a decommissioning and restoration obligation exists that cannot be recognised or quantified and that is disclosed as a contingent liability.
Pesticide litigation
Shell Oil Company (SOC)USA, Inc. (Shell USA), along with another agricultural chemical pesticide manufacturer and several distributors, has been sued by public and quasi-public water purveyors, water storage districts, and private landowners alleging responsibility for groundwater contamination caused by applications of chemical pesticides. There are approximately 6034 such cases currently pending.pending, four claims made but not yet filed, and an active subpoena for records. These suitsmatters assert various theories of strict liability and negligence, and seekseeking to recover actual damages, including drinking well treatment and remediation costs. Most assert claims for punitive damages. While the CompanyShell USA continues to vigorously defend these lawsuits, a newactions, in January 2018 an environmental regulatory standard became effective in the State of California, where a majority of the suits are pending. Effective JanuaryThe 2018 the new standard requires public water systems state-wide to perform quarterly or monthly sampling of their drinking water sources for a chemical contained in certain pesticides. Water systems deemed out of compliance with the five parts per trillion regulatory standard must take corrective action to resolve the exceedance or take the potable water source out of service. In response to this new regulatory standard, the Company is monitoringShell USA monitors the sampling results to determine the number of wells potentially impacted. Based on the claims asserted and SOC’s track record,Shell USA’s history with regard to amounts paid to resolve varying claims,actions, management does not expect the outcome of these lawsuitsthe matters pending at December 31, 2020,2022, to have a material adverse impact on Shell. However, there remains a high degree of uncertainty regarding the potential outcome of some of these pending lawsuits, as well as their potential effect on future operations, earnings, cash flows and Shell’s financial condition.
Climate change litigation
In the USA, 1822 lawsuits have been filed by several municipalities and/or states against oil and gas companies, including Royal Dutchone industry group, and Shell plc.plc are pending as of December 31, 2022. The plaintiffs seek damages for a variety of claims including harm to their public and private infrastructure from rising sea levels and other alleged impacts of climate change caused by the defendants’ fossil fuel products. A similar suit has been filed by a crab-fishing industry group claiming harm to their fisheries as a result of alleged ocean-related impacts of climate change. In the Netherlands, in a case has been filed against Shell brought by a group of environmental non-governmental organisations (eNGOs) and individual claimants, seekingthe Court found that while Shell is not currently acting unlawfully, Shell must reduce the aggregate annual volume of CO2 emissions of Shell Group operations and energy-carrying products sold across Scopes 1, 2 and 3 by 45% (net) by the end of 2030 relative to its 2019 emissions levels (the "Dutch Court Order"). For Scopes 2 and 3, this is a court ordersignificant best-efforts obligation. Shell has appealed that emission levels from Shell’s activities and sold energy products are unlawful and that by 2030 it should reduce those emissions by least (net) 45%, alternatively 35% or 25% (as compared with 2019 levels).ruling. Management believes the outcome of these matters should be resolved in a manner favourable to Shell, but there remains a high degree of uncertainty regarding the ultimate outcome of these lawsuits, as well as their potential effect on future operations, earnings, cash flows and Shell’s financial condition.
Brazil tax
PursuantIn the UK, the environmental law group ClientEarth sent a pre-action letter in March 2022 threatening to Law 7.183/2015 issued by the Statecommence, purportedly on behalf of Rio de Janeiro (RJ State) and effective March 2016,Shell plc, a value-added levy has been imposed on oil extractionlegal claim in the RJ State. The Company understands thatUK courts against Shell plc's Board of Directors (known as a "derivative action") regarding the obligations arising from this law are not legally sustainable andway in which the Directors have allegedly handled "climate change related risk". On February 8, 2023, ClientEarth filed the claim with the English High Court against Shell obtained favourable injunctions suspending the enforcement of the law in 2 separate lawsuits, one filed to cover year 2016plc and the other covering year 2017 onwards.current Board of Directors. The injunctions remainclaim does not seek monetary relief but asks the Court to order the Directors to: (i) adopt and implement a different strategy to manage climate risk in effectcompliance with their statutory duties; and Shell received favourable decisions on the subject matter from the RJ State Court. The RJ State has appealed against both decisions and one is pending confirmation by the State Court while the other is pending final decisions by the Brazilian Superior and Supreme Courts. In addition, and as this is an industry-wide issue, the Brazilian Association of Oil and Gas Exploration and Production Companies, of which Shell is a member, filed a suit in February 2016 before the Brazilian Supreme Court, challenging the constitutionality of the law. This matter is currently pending(ii) comply immediately with the Supreme Court. Should Shell be requiredDutch Court Order. The High Court must grant permission for ClientEarth to pay such a levy, it could result in a potential total liability of approximately $5,473 million as of end 2020.
Louisiana coast litigation
The State of Louisiana and multiple local governments have initiated 43 lawsuits against more than 200 oil and gas companies, claiming either current or historical oil and gas operations caused or contributed to contamination, land loss and the erosion of the Louisiana coastline. Shell entities are named in 14 of the suits. Although the State and local parishes fail to claim specified amounts, these claims represent potentially material matters. The cases are of first impression, arise out of an untested 1980 Louisiana statute and represent a novel attempt to render illegal operations that federal and state agencies permitted and authorised at the time. ManagementIn late 2022, certain jurisdictional questions were decided by a federal appeals court in New Orleans, which resulted in the cases being remanded from federal court back to state court. While disappointed, management believes the outcome of these matters should ultimately be resolved in a manner favourable to Shell; there remains a high degree of uncertainty, however, concerning the scope of the claims and the ultimate outcomes, as well as their potential effects on future operations, earnings, cash flows, reputation and Shell’s financial condition.
NAM (Groningen gas field) litigation
Since 1963, NAM – a joint venture between Shell and ExxonMobil (50%—:50%) – has been producing gas from the Groningen field, the largest gas field in Western Europe. After smaller tremors in the 1990s and the late 2000s, an earthquake measuring 3.6 on the Richter scale occurred in 2012, causing damage to properties in the affected area, and the area continues to experience tremor/earthquake-type events. NAM has received more than 100,000 claims for physical damage to property – the majority of which have been successfully settled. The Dutch State has taken over the damage-claim-handling from NAM for all claim categories (physical(strengthening, physical damage to property, housing value loss, emotional damages and loss of living enjoyment), while NAM remains financially responsible. In February 2022, NAM commenced arbitral proceedings against the State to get clarity on these financial responsibilities. NAM still faces a declining number of claims in civil litigation from claimants who elect not to use the government arrangement or from claims pre-dating the governmental arrangements. These claims include but are not limited to:
•to housing claims where NAM was found liable for value loss;
•loss, emotional damages and loss of living enjoyment ~5,000 claimants; and
•other civil litigation matters.
There remains a high degree of uncertainty concerning the ultimate outcomes and their potential effects on future operations, earnings, cash flows, reputation and Shell’s financial condition.
| | | | | | | | |
| 284 | FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORMShell | Form 20-F 20202022 | 208 | |
Financial Statements and Supplements
31. Legal proceedings and other contingencies continued
Nigerian litigation
Shell subsidiaries and associates operating in Nigeria are parties to various environmental, non-environmental and contractual disputes brought in the courts of Nigeria, England and the Netherlands. These disputes are at different stages in litigation, including at the appellate stage, where judgements have been rendered against Shell entities.entities in some of these disputes. If taken at face value, the aggregate amount of these judgements could be seen as material. Management, however, believes that once the outcomes of these matters are ultimately determined, the overall outcome of these disputes will ultimately be resolved in a manner favourable to Shell. However, there remains a high degree of uncertainty regarding these cases, as well as their potential effect on future operations, earnings, cash flows and Shell’s financial condition.
OPL 245
Authorities are investigating Shell Nigeria Exploration and Production Company Ltd.’s (SNEPCO’s) investment in Nigerian oil block OPL 245 and the 2011 settlement of litigation pertaining to that block with regard to potential anti-bribery and anti-corruption laws.
On January 27, 2017, the Nigeria Federal High Court issued an Interim Order of Attachment for Oil Prospecting Licence 245 (OPL 245), pending the conclusion of the investigation. SNEPCO applied for and was granted a discharge of this order on constitutional and procedural grounds. Also in Nigeria, in March 2017, criminal charges alleging official corruption and conspiracy to commit official corruption were filed against SNEPCO, one current Shell employee and third parties including ENI SpA and one of its subsidiaries. Those proceedings are ongoing.in abeyance. In January 2020, criminal charges alleging disobeying direction of law related to tax waivers were filed in Nigeria against Shell Nigeria Ultra Deep Ltd., SNEPCO, and third parties including Nigeria Agip Exploration Limited (NAE). Those proceedings are ongoing. In March 2017, parties alleging to be shareholders of Malabu Oil and Gas Company Ltd. (Malabu) filed 2two actions to challenge the 2011 settlement and the award of OPL 245 to SNEPCO and an ENI SpA subsidiary by the Federal Government of Nigeria. Both actions are currently stayed awaiting the outcome of appeals filed against procedural decisions. Those appeal proceedings are also ongoing. On May 8, 2018, Human Environmental Development Agenda (HEDA) sought permission from the Federal High Court of Nigeria to apply for an order to direct the Attorney General of the Federation to revoke OPL 245 on grounds that the entire Malabu transaction in relation to the OPL is unconstitutional, illegal and void as it was obtained through fraudulent and corrupt practice. On October 4, 2018, SNEPCO was joined as a defendant in the HEDA action. Those proceedings are ongoing. On July 3, 2019, the Nigerian Federal High Court upheld objections from SNEPCO and NAE and struck the lawsuit filed by HEDA. The suit was struck because of the statute of limitations and the determination by the court that it lackedlack of jurisdiction to hear the matter. HEDA has appealed the judgement.
On December 12, 2018, the Federal Republic of Nigeria (FRN) issued a claim form in the UK against Shell and six of its subsidiaries, ENI SpA and two of its subsidiaries, Malabu as well as two other entities for the amount of $1,092 million plus damages for having participated in a fraudulent and corrupt scheme leading to the acquisition by Shell and ENI corporate defendants in 2011 of OPL 245. The Shell entities were served with proceedings in April and May 2019, following which they, and other defendants, challenged the jurisdiction of the English courts. Following a hearing in April 2020, the English High Court rendered judgement in May 2020, dismissing the claims in England and refusing the FRN’s request for permission to appeal. In September 2020, the UK Court of Appeal also refused the FRN’s permission to appeal, meaning the case is now concluded.
On February 14, 2017, Royal Dutch Shell plc received a notice of request for indictment from the Milan public prosecutor with respect to this matter. On December 20, 2017, Royal Dutch Shell plc and four former Shell employees including one former executive were remanded to trial in Milan. On May 14, 2018, a trial commenced in the Court of Milan. The FRN was admitted as a civil claimant by a court decision on July 20, 2018. On September 18, 2018, Shell was joined to the proceedings as the civilly responsible party for the damages caused by the alleged illegal acts of the four former Shell employees. Three other Shell entities (Shell UK Ltd, Shell Petroleum Development Company of Nigeria Ltd. and Shell Exploration and Production Africa Ltd.) also joined the proceedings as responsabileresponsible civile for their respective former employees at that phase of the proceedings. On March 17, 2021, the Court of Milan acquitted the Shell entities and four former Shell employees of all charges on the grounds that there was no case to answer. The trial is ongoing with closing arguments completed in JanuaryCourt of Milan published the full grounds for its decision on June 9, 2021. The Milan public prosecutor and rebuttals scheduled for February. Based on Shell’s reviewthe FRN appealed the decision to the Court of Appeal. On July 19, 2022, the Milan public prosecutor’s fileprosecutor withdrew its appeal, meaning the criminal case is closed and the informationacquittal of all defendants is final. On November 11, 2022, the Court of Appeal rejected the FRN’s appeal and facts currently availableordered the FRN to Shell, management does not believe there is a basis to convict Shell orpay legal costs. The Court of Appeal issued the four former Shell employees.
On September 20, 2018, a guilty judgement was filed by the Milan Judge of the Preliminary Hearing in a separate OPL 245 fast-track trial of two individuals, neither of whom worked for or on behalf of Shell. That decision is under appeal.was appealed to the Court of Appeal which rendered its judgement on June 24, 2021, acquitting both individuals. Separate OPL 245 pre-trial criminal proceedings are pending against another individual who also did not work for or on behalf of Shell.
In February 2019, we were informed by the Dutch Public Prosecutor’s Office (DPP) that they were nearing the conclusion of their investigation and preparing to prosecute Royal Dutch Shell plc for criminal charges directly or indirectly related to the 2011 settlement of disputes over OPL 245 in Nigeria. On October 2, 2019, the US Department of Justice (DOJ) informed Shell that it was closing its inquiry into Shell in relation to OPL 245. We understandIt is understood that the decision was based on the facts available to the DOJ, including ongoing legal proceedings in Europe. On April 22, 2020, the United States Securities and Exchange Commission notified us that it had also closed its inquiry into Shell in relation to OPL 245. On July 21, 2022, the Dutch Public Prosecutor’s office announced it had dismissed its investigation into bribery allegations related to OPL 245.
On October 24, 2022, Re:Common, HEDA and Corner House announced that they filed a complaint at the Court of Appeal in The Hague, pursuant to Article 12 of the Dutch Code for Criminal Procedure, challenging the decision by the DPP to dismiss its investigation. There remains a high degree of uncertainty around the OPL 245 matters and contingencies discussed above, as well as their potential effect on future operations, earnings, cash flows and Shell’s financial condition. Accordingly, at this time, it is not practicable to estimate the magnitude and timing of any possible obligations or payments. Any violation of anti-bribery, anti-corruption or anti-money laundering legislation could have a material adverse effect on Royal Dutch Shell plc’s earnings, cash flows and financial condition.
26 – EMPLOYEES
| | | | | | | | | | | |
|
| Employee costs | $ million |
| 2020 | 2019 | 2018 |
| Remuneration | 9,128 | | 10,075 | | 10,167 | |
| Social security contributions | 793 | | 844 | | 810 | |
| Retirement benefits (see Note 17) | 1,851 | | 1,753 | | 1,878 | |
| Share-based compensation (see Note 21) | 359 | | 537 | | 531 | |
| Total [A] | 12,131 | | 13,209 | | 13,386 | |
[A] Excludes employees seconded to joint ventures and associates.
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Financial Statements and Supplements
Notes to the Consolidated Financial Statements continued
32. Employees
| | | | | | | | | | | |
|
| Average employee numbers | Thousand |
| 2020 | 2019 | 2018 |
| Integrated Gas | 11 | 10 | 9 |
| Upstream [A] | 14 | 14 | 14 |
| Oil Products [A] | 34 | 32 | 35 |
| Chemicals [A] | 2 | 4 | 4 |
| Corporate [B] | 25 | 23 | 20 |
| Total [C] | 86 | 83 | 82 |
| | | | | | | | | | | |
| $ million |
| 2022 | 2021 | 2020 |
| Remuneration | 10,509 | 9,038 | 9,128 |
| Social security contributions | 860 | 819 | 793 |
| Retirement benefits (see Note 23) | 1,795 | 1,696 | 1,851 |
| Share-based compensation (see Note 27) | 807 | 539 | 359 |
| Total [A] | 13,971 | 12,092 | 12,131 |
[A] DueExcludes employees seconded to the resegmentations. (See Note 4)joint ventures and associates.
| | |
| Average employee numbers [A] |
| | | | | | | | | | | |
| Thousand |
| 2022 | 2021 | 2020 |
| Integrated Gas | 6 | 6 | 6 |
| Upstream | 12 | 13 | 15 |
| Marketing | 17 | 14 | 15 |
| Chemicals and Products | 21 | 22 | 23 |
| Renewables and Energy Solutions | 4 | 3 | 3 |
| Corporate | 27 | 25 | 25 |
| - of which Shell Business Service Centre (SBSC) | 20 | 19 | 18 |
| Total [B] | 87 | 83 | 87 |
[A]Employee numbers, including comparatives, have been updated from full time equivalents (FTE) to headcount.
[B] Includes all employees working in business service centres irrespective of the segment they support.
[C] Excludes employees seconded to joint ventures and associates (2020:(2022: 2,000 employees; 2019: 3,0002021: 2,000 employees; 2018: 3,0002020: 2,000 employees).
27 – DIRECTORS AND SENIOR MANAGEMENT
| | | | | | | | | | | |
|
| Remuneration of Directors of the Company | $ million |
| 2020 | 2019 | 2018 |
| Emoluments | 6 | | 8 | | 12 | |
| Value of released awards under long-term incentive plans | 6 | | 12 | | 20 | |
| Employer contributions to pension plans | 1 | | 1 | | 1 | |
| | |
| Remuneration of Directors of the Company |
| | | | | | | | | | | |
| $ million |
| | 2022 | 2021 | 2020 |
| Emoluments | 12 | 12 | 6 |
| Value of released awards under long-term incentive plans | 7 | 5 | 6 |
| Employer contributions to pension plans | 1 | 1 | 1 |
Emoluments comprise salaries and fees, annual bonuses (for the period for which performance is assessed) and other benefits. The value of released awards under long-term incentive plans for the period is in respect of the performance period ending in that year. In 20202022, retirement benefits were accrued in respect of qualifying services under defined benefit plans by 2 Directors.
Further information on the remuneration of the Directors can be found in the Directors’ Remuneration Report on pages 116-119.166-170.
| | | | | | | | | | | |
| |
| Directors and Senior Management expense | $ million |
| 2020 | 2019 | 2018 |
| Short-term benefits | 14 | | 18 | | 26 | |
| Retirement benefits | 3 | | 3 | | 3 | |
| Share-based compensation | 17 | | 15 | | 14 | |
| Termination and related amounts | 2 | | 2 | | 0 | |
| Total | 36 | | 38 | | 43 | |
| | |
| Directors and Senior Management expense |
| | | | | | | | | | | |
| $ million |
| 2022 | 2021 | 2020 |
| Short-term benefits | 33 | 27 | 14 |
| Retirement benefits | 2 | 3 | 3 |
| Share-based compensation | 17 | 16 | 17 |
| Termination and related amounts | 1 | 2 | 2 |
| Total | 53 | 48 | 36 |
Directors and Senior Management comprise members of the Executive Committee and the Non-executive Directors of the Company.
Short-term benefits comprise salaries and fees, annual bonuses delivered in cash and shares (for the period for which performance is assessed), other benefits and employer social security contributions.
28 – AUDITOR’S REMUNERATION
| | | | | | | | | | | |
|
| $ million |
| 2020 | 2019 | 2018 |
| Fees in respect of the audit of the Consolidated and Parent Company Financial Statements, including audit of consolidation returns | 36 | | 32 | | 31 | |
| Other audit fees, principally in respect of audits of accounts of subsidiaries | 17 | | 18 | | 16 | |
| Total audit fees | 53 | | 50 | | 47 | |
| Audit-related fees | 3 | | 4 | | 5 | |
| Fees in respect of other non-audit services [A] | 2 | | 0 | | 1 | |
| Total | 58 | | 54 | | 53 | |
[A] Various services that were classified as ‘Audit-related’ in the past are classified as ‘Other non-audit services’ under the revised UK auditor rules that apply since March 15, 2020Financial Statements and Supplements
34. Auditor’s remuneration
| | | | | | | | | | | |
| $ million |
| 2022 | 2021 | 2020 |
| Fees in respect of the audit of the Consolidated and Parent Company Financial Statements, including audit of consolidation returns | 45 | 39 | 36 |
| Other audit fees, principally in respect of audits of accounts of subsidiaries | 18 | 18 | 17 |
| Total audit fees | 63 | 57 | 53 |
| Audit-related fees | 3 | 3 | 3 |
| Fees in respect of other non-audit services | 3 | 3 | 2 |
| Total | 69 | 63 | 58 |
In addition, the auditor provided audit services to retirement benefit plans for employees of subsidiaries. Remuneration paid by those benefit plans amounted to $1 million in 2020 (2019:2022 (2021: $1 million; 2018:2020: $1 million).
35. Post-balance sheet events
29 – EMISSION SCHEMES AND RELATED ENVIRONMENTAL PLANS
Emission trading schemes
Generally, emission trading schemes (ETS)On January 30, 2023, Shell announced that it will reduce the size of its Executive Committee from nine to seven members. Under the changes, which are mandated governmental schemesexpected to control emission levelstake effect on July 1, 2023, Shell’s Integrated Gas and enhance clean energy transition, allowingUpstream businesses will be combined to form a new Integrated Gas and Upstream Directorate and the Downstream business will be combined with Renewables and Energy Solutions to form a new Downstream and Renewables Directorate. Separately, the Strategy, Sustainability and Corporate Relations Directorate will be discontinued. The changes announced will not affect Shell’s financial reporting segments for the tradingyear ending December 31, 2023, which remain unchanged.
On February 2, 2023, Shell announced the commencement of emission certificates. In most ETS, governments seta $4 billion share buyback programme covering an emission cap for one or more sectors. Generally, entities in scopeaggregate contract term of approximately three months (the "programme"). The purpose of the scheme are allowed to buy emission certificates to cover shortages or sell surplus emission certificates. In certain countries emissions are priced through a carbon tax. For Shell, the most significant carbon pricing mechanisms are established in the EU, Canada, Singapore and the USA.
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FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2020 | 210 | |
Biofuel schemes
Biofuel schemes are mandated schemes that set binding national targets on the share of renewables in fuel consumption or measures on reducing GHG emissions by fuel suppliers. Biofuels are blended with existing fuels such as gasoline and dieselprogramme is to reduce net emissions.the issued share capital of the Company. All shares repurchased as part of the programme will be cancelled. It is intended that, subject to market conditions, the programme will be completed prior to the Company’s First Quarter 2023 results announcement, scheduled for May 4, 2023. The shareCompany has entered into an arrangement with a single broker consisting of biofuel inthree irrevocable, non-discretionary contracts, to enable the total sales mix of fuel is used to comply with regulatory requirements. This can be achieved by biofuel production through ‘selfblending’ in jurisdictions that grant the biofuel certificates at blending stage or through purchase of renewable, certified feedstock like ethanol used subsequently inordinary shares.
On February 20, 2023, Shell completed the manufacturing process.
Renewable power schemes
Renewable power schemes create a financial incentive to consume power that is sourced from renewable origins or requires that a minimum percentageacquisition of power sold meets the green definition100% of the relevant standard. These regulations are typically accompanied by schemes supporting investmentsshares of Nature Energy Biogas A/S ("Nature Energy") from Davidson Kempner Capital Management LP, Pioneer Point Partners and Sampension for cash consideration of nearly $2 billion. Based in the renewable technology.Denmark, Nature Energy is a producer of Renewable power schemes generally use certificates to monitor compliance, where renewable power credits are granted for each MWh of energy generated that meets the predefined renewable criteria. Shell’s compliance obligation under renewable power schemes comes primarilyNatural Gas from energy supplyagricultural, industrial, and results from regulations applying in Europe, North America and Australia.
| | | | | | | | | | | | | | | | | | | | |
| |
| 2020 | | | $ million |
| ETS and related schemes | | Biofuels | | Renewable power | Total |
| Emission and related cost recognised in the Income Statement | 150 | | [A] | 1,137 | | [B] | 364 | | 1,651 | |
| | | | | | |
| Purchased certificates presented under intangible assets | 157 | | | 780 | | | 76 | | 1,013 | |
| Obligation at the end of the period presented under other liabilities | (154) | | [C] | (1,603) | | | (296) | | (2,053) | |
| Of which: | | | | | | |
| Short term | (154) | | | (1,549) | | | (290) | | (1,993) | |
| Long term | 0 | | | (54) | | | (6) | | (60) | |
| | | | | | |
| Net asset/(liability) at the end of the period | 3 | | | (823) | | | (220) | | (1,040) | |
[A] Includes cost of emission certificates that were allocated free of charge, with an equivalent fair value at grant date of $377 million.
[B] Represents the cost of biofuel certificates required in addition to own blending activities performed.
[C] Includes emission certificates that were allocated free of charge with a carrying amount of 0 and an equivalent fair value at grant date of $398 million.
Emission certificates acquired that are held for compliance purposes are recognised at cost under intangible assets.household wastes. In addition, a portfolio of emission certificates is held for trading purposes and classified under inventory (see Notes 2 and Note 12).
Cost recognised in theShell's First Quarter 2023 Consolidated Statement of Income representsCash Flows, the compliance cost associated with emissions or with products sold during the year. The liability at year-end represents the compliance cost recognised over current and past compliance periods to the extent not settled to date. Liabilities are settled in line with compliance periods, which depend on the scheme and may not coincide with the calendar year.
Due to the increasing importance of emission schemes and related environmental plans, this Notecash consideration paid will be reflected as an outflow through 'Cash flow from investing activities'. Measurement is newly included in 2020 and comparatives are not provided. The figures present compliance schemes only, excluding voluntary activities.
30 – POST-BALANCE SHEET EVENTS
A restructuring plan named Reshape was announced in the third quarter 2020. Under Reshape, between 7,000 and 9,000 job reductions are expected by the end of 2022, including around 1,500 people who have already elected to take selective voluntary severance in 2020. In January 2021 the impact of Reshape was communicated to employees, establishing for some employees, a constructive obligation that satisfies the IFRS criteria for recognising a provision. This represents a non-adjusting post-balance sheet event under IFRS. The costs for this phasenow underway of the plan,fair value of the net assets acquired and whereany goodwill to be recognised as a result of the IFRS recognition criteria have been satisfied, are in the rangeacquisition. The acquisition of $650 million to $850 million (Shell share pre-tax) andNature Energy will be recognised inreported through the first quarter of 2021. Further redundancy costs will be recognised once the IFRS recognition criteria are met during 2021 and 2022.
On February 17, 2021, an agreement was reached with publicly listed Canadian energy company Crescent Point28, 2023, Shell completed the sale of its 100% interest in Shell Onshore Ventures LLC, which holds a 51.8% membership interest in Aera Energy Corp.LLC, to sell the Duvernay shale light oil position in Alberta, Canada, for aIKAV. The total consideration of $707 million (C$900 million). The transactionis $2 billion with additional contingent payments based on oil prices and has an effective date of JanuaryOctober 1, 2021. The consideration is comprised of $550 million in cash and 50 million shares (valued at $157 million) in Crescent Point Energy common stock (TSX: CPG). Subject to regulatory approvals, the transaction is expected to close in April 2021.
On March 9, 2021, we announced that Shell Egypt and one of its affiliates have signed an agreement with a consortium made up of subsidiaries of Cheiron Petroleum Corporation and Cairn Energy plc to acquire Shell’s upstream assets in Egypt’s Western Desert for a base consideration of $646 million and additional payments of up to $280 million between 2021 and 2024, contingent on the oil price and the results of further exploration. The transaction is subject to government and regulatory approvals and is expected to complete in the second half of 2021.
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SUPPLEMENTARY INFORMATION – OIL AND GAS (UNAUDITED) |
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Financial Statements and Supplements
ABOUT THIS SECTIONSupplementary information – oil and gas (unaudited)
About this section
The purpose of this section is to comply with the requirements of the Financial Accounting Standards Board (FASB) “Extractive"Extractive Activities – Oil and Gas (Topic 932)”". Extractive activities for this purpose include exploration and production activities to extract oil, condensates, natural gas liquids, oil sands and natural gas from their natural reservoirs.
In Shell, extractive activities, or oil and gas exploration and production activities, are undertaken within the Upstream segment, Integrated Gas, segmentthe Upstream and Oilthe Chemicals and Products segment (oil(includes oil sands). segments. Shell’s extractive activities do not represent the full extent of the Upstream, Integrated Gas, Upstream and OilChemicals and Products activities, and exclude downstream GTL, some LNG activities, Marketing business in Oil Products, Power and New Energies, trading and optimisation, as well as other non-extractive activities. TheAs a result, the information in this "extractive activities"extractive activities section is therefore not suitable for modelling Shell’s integrated businesses, for which we refer to the segment information. Full segment information to the Consolidated Financial Statements is available on pages 177-180.
The information set out on pages 211-228288-306 is referred to as “unaudited”"unaudited" as a means of clarifying that it is not covered by the audit opinion of the independent registered public accounting firm that has audited and reported on the Consolidated Financial Statements.
PROVED RESERVESProved reserves
Proved reserves estimates are calculated pursuant to the US Securities and Exchange Commission (SEC) Rules and the FASB’s Topic 932. Proved reserves can be either developed or undeveloped. The definitions used are in accordance with the SEC Rule 4–10 (a) of Regulation S-X. We include proved reserves associated with future production that will be consumed in operations.
Proved reserves shown are net of any quantities of crude oil or natural gas that are expected to be (or could be) taken as royalties in kind. Proved reserves outside North America include quantities that will be settled as royalties in cash. Proved reserves include certain quantities of crude oil or natural gas that will be produced under arrangements that involve Shell subsidiaries, joint ventures and associates in risks and rewards but do not transfer title of the product to those entities.
Subsidiaries’ proved reserves at December 31, 2020,2022, were divided into 85%75% developed and 15%25% undeveloped on a barrel of oil equivalent basis. For the Shell share of joint ventures and associates, the proved reserves at December 31, 2020,2022, were divided into 88%48% developed and 12%52% undeveloped on a barrel of oil equivalent basis.
Proved reserves are recognised under various forms of contractual agreements. Shell’s proved reserves volumes at December 31, 2020,2022, present in agreements such as production-sharing contracts (PSC), tax/variable royalty contracts or other forms of economic entitlement contracts, where the Shell share of reserves can vary with commodity prices, were 2,0441,920 million barrels of crude oil and natural gas liquids, and 12,13310,202 thousand million standard cubic feet (scf) of natural gas.
Proved reserves cannot be measured exactly because estimation of reserves involves subjective judgement (see “Risk factors”"Risk factors" on page 1924 and our “Proved"Proved reserves assurance process”process" below). These estimates remain subject to revision and are unaudited supplementary information.
PROVED RESERVES ASSURANCE PROCESSProved reserves assurance process
A central group of reserves experts, who on average have around 2527 years’ experience in the oil and gas industry, undertake the primary assurance of the proved reserves bookings. This group of experts is part of the Resources Assurance and Reporting (RAR) organisation within Shell. A Vice President with 3537 years’ experience in the oil and gas industry currently heads the RAR organisation. He is a member of the Society of Petroleum Engineers, Society of Petroleum Evaluation Engineers and holds a BA in mathematics from Oxford University and an MEng in Petroleum Engineering from Heriot-Watt University. The RAR organisation reports directly to an Executive Vice President of Finance, who is a member of the Upstream Reserves Committee (URC). The URC is a multidisciplinary committee consisting of senior representatives from the Finance, Legal, Projects & TechnologyIntegrated Gas and Upstream organisations. The URC reviews and endorses all major (larger than 20 million barrels of oil equivalent) proved reserves bookings and de-bookingsdebookings and endorses the total aggregated proved reserves. Final approval of all proved reserves bookings remains with Shell’s Executive Committee,CEO, and all proved reserves bookings are reviewed by Shell’s Audit Committee. The Internal Audit function also provides secondary assurance through audits of the control framework.
CRUDE OIL, NATURAL GAS LIQUIDS, SYNTHETIC CRUDE OIL AND BITUMENCrude oil, natural gas liquids, synthetic crude oil and bitumen
Shell subsidiaries’ proved reserves of crude oil, natural gas liquids (NGLs), synthetic crude oil and bitumen at the end of the year; their share of the proved reserves of joint ventures and associates at the end of the year; and the changes in such reserves during the year are set out on pages 212-215.289-292. Significant changes in these proved reserves are discussed below (except where specific disclosures are prohibited), where "revisions and reclassifications" are changes based on new information that resulted from development drilling, production history, and changes in economic factors.
PROVED RESERVES 2020–2019
Shell subsidiaries
Asia
The net increase of 181 million barrels in revisions and reclassifications was mainly in Kazakhstan and Oman.
USA
The net decrease of 116 million barrels in revisions and reclassifications of which half was mainly in Permian and Belridge Light Oil.
Canada
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Financial Statements and Supplements
Proved reserves 2022–2021
Shell subsidiaries
Canada
▪The increase of 240 million barrels in purchases was mainly in Jackpine Mine.
South America
▪The increase of 55 million barrels in purchases was in Atapu in Brazil.
Proved reserves 2021–2020
Shell subsidiaries
Asia
▪The net increase of 121 million barrels in revisions and reclassifications was mainly in Kashagan and Upper Salym.
USA
▪The net increase of 119 million barrels in revisions and reclassifications was mainly in Mars and Stones.
▪The decrease of 136 million barrels in sales in place was in Permian.
▪The increase of 55 million barrels in extensions and discoveries was mainly in Whale Dev.
Canada
▪The net decrease of 90 million barrels in revisions and reclassifications was mainly in Jackpine Mine and Muskeg River mine.
South America
▪The net decreaseincrease of 82325 million barrels in revisions and reclassifications half of which was mainly in Mero.
▪The increase of 103 million barrels in extensions and discoveries was mainly in Mero.
Europe
▪The increase of 67 million barrels in revisions and reclassifications was mainly in Brazil.Schiehallion and Val d'Agri.
Africa
PROVED RESERVES 2019▪–2018
Shell subsidiaries
Europe
The net decrease of 65 million barrels in sales and purchases resulted from divestments carried out in Denmark.
Asia
The net increase of 22653 million barrels in revisions and reclassifications was mainly in Oman and Kazakhstan.
USA
The increase of 86 million barrels in revisions and reclassifications mainly resulted from field performance studies and development activities in the Permian Basin and in the Mars and Ursa fields in the Gulf of Mexico. The increase of 74 million barrels in extensions and discoveries was in the Permian Basin and PowerNap.
South America
The increase of 72 million barrels in revisions and reclassifications mainly resulted from field performance studies and development activities in the Lula (recently renamed Tupi) and Lapa fields (Brazil). The net increase of 60 million barrels in extensions and discoveries was mainly in Mero (Brazil).
Proved developed and undeveloped reserves 2020
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| Proved developed and undeveloped reserves 2020 | Million barrels |
| | | | | North America | | | | | |
| Europe | Asia | Oceania | Africa | USA | Canada | | | South America | Total |
| Oil and NGL | Oil and NGL | Oil and NGL | Oil and NGL | Oil and NGL | Oil and NGL | Synthetic crude oil | Bitumen | Oil and NGL | Oil and NGL | Synthetic crude oil | Bitumen | All products |
| Shell subsidiaries | | | | | | | | | | | | | |
| At January 1 | 274 | 1,551 | 121 | 395 | 982 | 18 | 607 | — | 1,033 | 4,374 | 607 | — | 4,981 |
| Revisions and reclassifications | (46) | 181 | (41) | 42 | (116) | (2) | 57 | — | (82) | (63) | 57 | — | (6) |
| Improved recovery | — | — | — | — | — | — | — | — | — | — | — | — | — |
| Extensions and discoveries | — | 14 | — | — | 27 | 7 | — | — | — | 48 | — | — | 48 |
| Purchases of minerals in place | — | 9 | — | — | — | — | — | — | — | 9 | — | — | 9 |
| Sales of minerals in place | (1) | — | — | — | — | — | — | — | — | (1) | — | — | (1) |
| Production [A] | (49) | (182) | (7) | (58) | (165) | (9) | (20) | — | (136) | (606) | (20) | — | (626) |
| At December 31 | 178 | 1,573 | 73 | 379 | 728 | 15 | 644 | — | 815 | 3,761 | 644 | — | 4,405 |
| Shell share of joint ventures and associates | | | | | | | | | | | | | |
| At January 1 | 12 | 271 | — | — | — | — | — | — | — | 283 | — | — | 283 |
| Revisions and reclassifications | (5) | (27) | — | — | — | — | — | — | — | (32) | — | — | (32) |
| Improved recovery | — | — | — | — | — | — | — | — | — | — | — | — | — |
| Extensions and discoveries | — | — | — | — | — | — | — | — | 1 | 1 | — | — | 1 |
| Purchases of minerals in place | — | — | — | — | — | — | — | — | — | — | — | — | — |
| Sales of minerals in place | — | — | — | — | — | — | — | — | — | — | — | — | — |
| Production | (1) | (34) | — | — | — | — | — | — | (1) | (36) | — | — | (36) |
| At December 31 | 6 | 210 | — | — | — | — | — | — | — | 216 | — | — | 216 |
| | | | | | | | | | | | | |
| Total | 184 | 1,783 | 73 | 379 | 728 | 15 | 644 | — | 815 | 3,977 | 644 | — | 4,621 |
| Reserves attributable to non-controlling interest in Shell subsidiaries at December 31 | 0 | — | — | — | — | — | 322 | — | — | — | 322 | — | 322 |
[A] Includes 1 million barrels consumed in operations for synthetic crude oil.
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Financial Statements and Supplements
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| Proved developed reserves 2020 | Million barrels |
| | | | | North America | | | | | |
| Europe | Asia | Oceania | Africa | USA | | | Canada | South America | Total |
| Oil and NGL | Oil and NGL | Oil and NGL | Oil and NGL | Oil and NGL | Oil and NGL | Synthetic crude oil | Bitumen | Oil and NGL | Oil and NGL | Synthetic crude oil | Bitumen | All products |
| Shell subsidiaries | | | | | | | | | | | | | |
| At January 1 | 156 | 1,403 | 106 | 314 | 641 | 15 | 607 | — | 675 | 3,310 | 607 | — | 3,917 |
| At December 31 | 103 | 1,417 | 69 | 316 | 539 | 12 | 644 | — | 674 | 3,130 | 644 | — | 3,774 |
| Shell share of joint ventures and associates | | | | | | | | | | | | | |
| At January 1 | 11 | 240 | — | — | — | — | — | — | — | 251 | — | — | 251 |
| At December 31 | 6 | 192 | — | — | — | — | — | — | 1 | 199 | — | — | 199 |
| | | | | | | | | | | | | | |
| Proved developed and undeveloped reserves 2022 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Million barrels |
| | | | | North America | South America | | | | | |
| Europe | Asia | Oceania | Africa | USA | Canada | | Total |
| Oil and NGL | Oil and NGL | Oil and NGL | Oil and NGL | Oil and NGL | Oil and NGL | Synthetic crude oil | | Oil and NGL | | Oil and NGL | Synthetic crude oil | | All products |
| Shell subsidiaries | | | | | | | | | | | | | | |
| At January 1 | 208 | 1,521 | 80 | 265 | 610 | 5 | 533 | | 1,131 | | 3,820 | 533 | | 4,353 |
| Revisions and reclassifications | 16 | 34 | 11 | (18) | 48 | (1) | (25) | | 47 | | 137 | (25) | | 112 |
| Improved recovery | — | — | — | — | — | — | — | | 32 | | 32 | — | | 32 |
| Extensions and discoveries | 5 | 13 | 24 | — | 7 | 1 | — | | 11 | | 61 | — | | 61 |
| Purchases of minerals in place | — | 12 | — | — | — | — | 240 | | 55 | | 67 | 240 | | 307 |
| Sales of minerals in place | — | (1) | — | — | — | — | — | | — | | (1) | — | | (1) |
| Production [A] | (37) | (168) | (9) | (29) | (122) | (1) | (17) | | (138) | | (504) | (17) | | (521) |
| At December 31 | 192 | 1,411 | 106 | 218 | 543 | 4 | 731 | | 1,138 | | 3,612 | 731 | | 4,343 |
| Shell share of joint ventures and associates | | | | | | | | | | | | |
| At January 1 | 7 | 217 | — | — | — | — | — | | 4 | | 228 | — | | 228 |
| Revisions and reclassifications | (3) | (23) | — | — | — | — | — | | 1 | | (25) | — | | (25) |
| Improved recovery | — | — | — | — | — | — | — | | — | | — | — | | — |
| Extensions and discoveries | — | — | — | — | — | — | — | | 4 | | 4 | — | | 4 |
| Purchases of minerals in place | — | 159 | — | — | — | — | — | | — | | 159 | — | | 159 |
| Sales of minerals in place | — | — | — | — | — | — | — | | — | | — | — | | — |
| Production | (1) | (26) | — | — | — | — | — | | (2) | | (29) | — | | (29) |
| At December 31 | 3 | 327 | — | — | — | — | — | | 7 | | 337 | — | | 337 |
| Total [B] | 195 | 1,738 | 106 | 218 | 543 | 4 | 731 | | 1,145 | | 3,949 | 731 | | 4,680 |
| Reserves attributable to non-controlling interest in Shell subsidiaries at December 31 | | | | | | | 365 | | | | | 365 | | 365 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| Proved undeveloped reserves 2020 | Million barrels |
| | | | | North America | | | | | |
| Europe | Asia | Oceania | Africa | USA | | | Canada | South America | | | | Total |
| Oil and NGL | Oil and NGL | Oil and NGL | Oil and NGL | Oil and NGL | Oil and NGL | Synthetic crude oil | Bitumen | Oil and NGL | Oil and NGL | Synthetic crude oil | Bitumen | All products |
| Shell subsidiaries | | | | | | | | | | | | | |
| At January 1 | 118 | 149 | 15 | 80 | 341 | 3 | — | — | 358 | 1,064 | — | — | 1,064 |
| At December 31 | 76 | 156 | 5 | 63 | 189 | 3 | — | — | 141 | 633 | — | — | 633 |
| Shell share of joint ventures and associates | | | | | | | | | | | | | |
| At January 1 | 1 | 31 | — | — | — | — | — | — | — | 32 | — | — | 32 |
| At December 31 | — | 18 | — | — | — | — | — | — | — | 18 | — | — | 18 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| Proved developed and undeveloped reserves 2019 | Million barrels |
| | | | | North America | | | | | |
| Europe | Asia | Oceania | Africa | USA | | | Canada | South America | | | | Total |
| Oil and NGL | Oil and NGL | Oil and NGL | Oil and NGL | Oil and NGL | Oil and NGL | Synthetic crude oil | Bitumen | Oil and NGL | Oil and NGL | Synthetic crude oil | Bitumen | All products |
| Shell subsidiaries | | | | | | | | | | | | | |
| At January 1 | 368 | | 1,502 | | 129 | | 420 | | 1,017 | | 23 | | 661 | | — | | 1,027 | | 4,486 | | 661 | | — | | 5,147 | |
| Revisions and reclassifications | 27 | | 226 | | 2 | | 33 | | 86 | | (2) | | (34) | | — | | 72 | | 444 | | (34) | | — | | 410 | |
| Improved recovery | — | | — | | — | | — | | — | | — | | — | | — | | 4 | | 4 | | — | | — | | 4 | |
| Extensions and discoveries | — | | 7 | | — | | 6 | | 74 | | 11 | | — | | — | | 60 | | 158 | | — | | — | | 158 | |
| Purchases of minerals in place | — | | — | | — | | — | | 5 | | — | | — | | — | | — | | 5 | | — | | — | | 5 | |
| Sales of minerals in place | (65) | | — | | — | | — | | (29) | | (2) | | — | | — | | — | | (96) | | — | | — | | (96) | |
| Production [A] | (56) | | (184) | | (10) | | (64) | | (171) | | (12) | | (20) | | — | | (130) | | (627) | | (20) | | — | | (647) | |
| At December 31 | 274 | | 1,551 | | 121 | | 395 | | 982 | | 18 | | 607 | | — | | 1,033 | | 4,374 | | 607 | | — | | 4,981 | |
| Shell share of joint ventures and associates | | | | | | | | | | | | | |
| At January 1 | 9 | | 281 | | — | | — | | — | | — | | — | | — | | — | | 290 | | — | | — | | 290 | |
| Revisions and reclassifications | 4 | | 21 | | — | | — | | — | | — | | — | | — | | — | | 25 | | — | | — | | 25 | |
| Improved recovery | — | | 4 | | — | | — | | — | | — | | — | | — | | — | | 4 | | — | | — | | 4 | |
| Extensions and discoveries | — | | 2 | | — | | — | | — | | — | | — | | — | | — | | 2 | | — | | — | | 2 | |
| Purchases of minerals in place | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | |
| Sales of minerals in place | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | |
| Production | (1) | | (37) | | — | | — | | — | | — | | — | | — | | — | | (38) | | — | | — | | (38) | |
| At December 31 | 12 | | 271 | | — | | — | | — | | — | | — | | — | | — | | 283 | | — | | — | | 283 | |
| Total | 286 | | 1,822 | | 121 | | 395 | | 982 | | 18 | | 607 | | — | | 1,033 | | 4,657 | | 607 | | — | | 5,264 | |
| Reserves attributable to non-controlling interest in Shell subsidiaries at December 31 | — | | — | | — | | — | | — | | — | | 304 | | — | | — | | — | | 304 | | — | | 304 | |
[A]Includes 1 million barrels consumed in operations for synthetic crude oil.
[B]As announced on February 28, 2023, Shell completed the sale of its 100% interest in Shell Onshore Ventures LLC, which holds a 51.8% membership interest in Aera Energy LLC, to IKAV.
As of December 31, 2022, we had proved reserves of 112 million barrels in crude oil. For more information See Note 35 on page 287.
| | | | | | | | | | | | | | |
| Proved developed reserves 2022 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Million barrels |
| | | | | North America | South America | | | | | |
| Europe | Asia | Oceania | Africa | USA | Canada | | Total |
| Oil and NGL | Oil and NGL | Oil and NGL | Oil and NGL | Oil and NGL | Oil and NGL | Synthetic crude oil | | Oil and NGL | | Oil and NGL | Synthetic crude oil | | All products |
| Shell subsidiaries | | | | | | | | | | | | | | |
| At January 1 | 140 | 1,348 | 71 | 218 | 397 | 2 | 533 | | 786 | | 2,962 | 533 | | 3,495 |
| At December 31 | 140 | 999 | 73 | 187 | 356 | 3 | 731 | | 831 | | 2,589 | 731 | | 3,320 |
| Shell share of joint ventures and associates | | | | | | | | | | | | |
| At January 1 | 7 | 197 | — | — | — | — | — | | 4 | | 208 | — | | 208 |
| At December 31 | 3 | 154 | — | — | — | — | — | | 7 | | 164 | — | | 164 |
| | | | | | | | | | | | | | |
| Proved undeveloped reserves 2022 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Million barrels |
| | | | | North America | South America | | | | | |
| Europe | Asia | Oceania | Africa | USA | Canada | | Total |
| Oil and NGL | Oil and NGL | Oil and NGL | Oil and NGL | Oil and NGL | Oil and NGL | Synthetic crude oil | | Oil and NGL | | Oil and NGL | Synthetic crude oil | | All products |
| Shell subsidiaries | | | | | | | | | | | | | | |
| At January 1 | 68 | 173 | 9 | 47 | 213 | 3 | — | | 345 | | 858 | — | | 858 |
| At December 31 | 52 | 412 | 33 | 31 | 187 | 1 | — | | 307 | | 1,023 | — | | 1,023 |
| Shell share of joint ventures and associates | | | | | | | | | | | | |
| At January 1 | — | 20 | — | — | — | — | — | | — | | 20 | — | | 20 |
| At December 31 | — | 173 | — | — | — | — | — | | — | | 173 | — | | 173 |
| | | | | | | | |
| 290 | FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORMShell | Form 20-F 20202022 | 214 | |
Financial Statements and Supplements
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| Proved developed reserves 2019 | Million barrels |
| | | | | North America | | | | | |
| Europe | Asia | Oceania | Africa | USA | | | Canada | South America | Total |
| Oil and NGL | Oil and NGL | Oil and NGL | Oil and NGL | Oil and NGL | Oil and NGL | Synthetic crude oil | Bitumen | Oil and NGL | Oil and NGL | Synthetic crude oil | Bitumen | All products |
| Shell subsidiaries | | | | | | | | | | | | | |
| At January 1 | 243 | | 1,318 | | 108 | | 335 | | 629 | | 21 | | 661 | | — | | 634 | | 3,288 | | 661 | | — | | 3,949 | |
| At December 31 | 156 | | 1,403 | | 106 | | 314 | | 641 | | 15 | | 607 | | — | | 675 | | 3,310 | | 607 | | — | | 3,917 | |
| Shell share of joint ventures and associates | | | | | | | | | | | | | |
| At January 1 | 8 | | 251 | | — | | — | | — | | — | | — | | — | | — | | 259 | | — | | — | | 259 | |
| At December 31 | 11 | | 240 | | — | | — | | — | | — | | — | | — | | — | | 251 | | — | | — | | 251 | |
| | |
| Proved developed and undeveloped reserves 2021 |
| | | | Million barrels |
| Proved undeveloped reserves 2019 | Million barrels | |
| | North America | | | North America | South America | | | |
| | Europe | Asia | Oceania | Africa | USA | | Canada | South America | | Total | | Europe | Asia | Oceania | Africa | USA | Canada | | Total |
| | Oil and NGL | Synthetic crude oil | Bitumen | Oil and NGL | Synthetic crude oil | Bitumen | All products | | Oil and NGL | Synthetic crude oil | | Oil and NGL | | Oil and NGL | Synthetic crude oil | | All products |
| Shell subsidiaries | Shell subsidiaries | | Shell subsidiaries | | | | | |
| At January 1 | At January 1 | 124 | | 185 | | 21 | | 85 | | 388 | | 2 | | — | | — | | 394 | | 1,199 | | — | | — | | 1,199 | | At January 1 | 178 | 1,573 | 73 | 379 | 728 | 15 | 644 | | 815 | | 3,761 | 644 | | 4,405 |
| Revisions and reclassifications | | Revisions and reclassifications | 67 | 121 | 18 | (53) | 119 | — | (90) | | 325 | | 597 | (90) | | 507 |
| Improved recovery | | Improved recovery | — | 9 | — | | 21 | | 30 | — | | 30 |
| Extensions and discoveries | | Extensions and discoveries | 4 | 11 | — | 1 | 55 | 1 | — | | 103 | | 175 | — | | 175 |
| Purchases of minerals in place | | Purchases of minerals in place | — | | — | | — | | — |
| Sales of minerals in place | | Sales of minerals in place | — | (21) | (136) | (8) | — | | — | | (165) | — | | (165) |
| Production [A] | | Production [A] | (41) | (184) | (11) | (41) | (165) | (3) | (21) | | (133) | | (578) | (21) | | (599) |
| At December 31 | At December 31 | 118 | | 149 | | 15 | | 80 | | 341 | | 3 | | — | | — | | 358 | | 1,064 | | — | | — | | 1,064 | | At December 31 | 208 | 1,521 | 80 | 265 | 610 | 5 | 533 | | 1,131 | | 3,820 | 533 | | 4,353 |
| Shell share of joint ventures and associates | Shell share of joint ventures and associates | | Shell share of joint ventures and associates | | | | | |
| At January 1 | At January 1 | 1 | | 30 | | — | | — | | — | | — | | — | | — | | — | | 31 | | — | | — | | 31 | | At January 1 | 6 | 210 | — | | — | | 216 | — | | 216 |
| Revisions and reclassifications | | Revisions and reclassifications | 2 | 40 | — | | 4 | | 46 | — | | 46 |
| Improved recovery | | Improved recovery | — | | — | | — | | — |
| Extensions and discoveries | | Extensions and discoveries | — | | 2 | | 2 | — | | 2 |
| Purchases of minerals in place | | Purchases of minerals in place | — | | — | | — | | — |
| Sales of minerals in place | | Sales of minerals in place | — | | — | | — | | — |
| Production | | Production | (1) | (33) | — | | (2) | | (36) | — | | (36) |
| At December 31 | At December 31 | 1 | | 31 | | — | | — | | — | | — | | — | | — | | — | | 32 | | — | | — | | 32 | | At December 31 | 7 | 217 | — | | 4 | | 228 | — | | 228 |
| Total [B] | | Total [B] | 215 | 1,738 | 80 | 265 | 610 | 5 | 533 | | 1,135 | | 4,048 | 533 | | 4,581 |
| Reserves attributable to non-controlling interest in Shell subsidiaries at December 31 | | Reserves attributable to non-controlling interest in Shell subsidiaries at December 31 | — | 267 | | — | | — | 267 | | 267 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| Proved developed and undeveloped reserves 2018 | Million barrels |
| | | | | North America | | | | | |
| Europe | Asia | Oceania | Africa | USA | | | Canada | South America | | | | Total |
| Oil and NGL | Oil and NGL | Oil and NGL | Oil and NGL | Oil and NGL | Oil and NGL | Synthetic crude oil | Bitumen | Oil and NGL | Oil and NGL | Synthetic crude oil | Bitumen | All products |
| Shell subsidiaries | | | | | | | | | | | | | |
| At January 1 | 356 | | 1,482 | | 132 | | 463 | | 899 | | 22 | | 649 | | — | | 946 | | 4,300 | | 649 | | — | | 4,949 | |
| Revisions and reclassifications | 94 | | 227 | | 14 | | 18 | | 81 | | 7 | | 32 | | — | | 48 | | 489 | | 32 | | — | | 521 | |
| Improved recovery | — | | 27 | | — | | — | | — | | — | | — | | — | | 14 | | 41 | | — | | — | | 41 | |
| Extensions and discoveries | 2 | | 3 | | — | | — | | 179 | | 6 | | — | | — | | 139 | | 329 | | — | | — | | 329 | |
| Purchases of minerals in place | — | | — | | — | | — | | — | | — | | — | | — | | 3 | | 3 | | — | | — | | 3 | |
| Sales of minerals in place | (14) | | (52) | | (8) | | — | | (2) | | — | | — | | — | | — | | (76) | | — | | — | | (76) | |
| Production [A] | (70) | | (185) | | (9) | | (61) | | (140) | | (13) | | (20) | | — | | (122) | | (600) | | (20) | | — | | (620) | |
| At December 31 | 368 | | 1,502 | | 129 | | 420 | | 1,017 | | 23 | | 661 | | — | | 1,027 | | 4,486 | | 661 | | — | | 5,147 | |
| Shell share of joint ventures and associates | | | | | | | | | | | | | |
| At January 1 | 12 | | 301 | | — | | — | | — | | — | | — | | — | | — | | 313 | | — | | — | | 313 | |
| Revisions and reclassifications | (2) | | (2) | | — | | — | | — | | — | | — | | — | | — | | (4) | | — | | — | | (4) | |
| Improved recovery | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | |
| Extensions and discoveries | — | | 18 | | — | | — | | — | | — | | — | | — | | — | | 18 | | — | | — | | 18 | |
| Purchases of minerals in place | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | |
| Sales of minerals in place | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | |
| Production | (1) | | (37) | | — | | — | | — | | — | | — | | — | | — | | (38) | | — | | — | | (38) | |
| At December 31 | 9 | | 281 | | — | | — | | — | | — | | — | | — | | — | | 290 | | — | | — | | 290 | |
| Total | 377 | | 1,783 | | 129 | | 420 | | 1,017 | | 23 | | 661 | | — | | 1,027 | | 4,776 | | 661 | | — | | 5,437 | |
| Reserves attributable to non-controlling interest in Shell subsidiaries at December 31 | — | | — | | — | | — | | — | | — | | 331 | | — | | — | | — | | 331 | | — | | 331 | |
[A]Includes 1 million barrels consumed in operations for synthetic crude oil.
[B]As of December 31, 2021, we had proved reserves of 93 million barrels in crude oil relating to activities in Russia.
| | |
| Proved developed reserves 2021 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Million barrels |
| | | | | North America | South America | | | | | |
| Europe | Asia | Oceania | Africa | USA | Canada | | Total |
| Oil and NGL | Oil and NGL | Oil and NGL | Oil and NGL | Oil and NGL | Oil and NGL | Synthetic crude oil | | Oil and NGL | | Oil and NGL | Synthetic crude oil | | All products |
| Shell subsidiaries | | | | | | | | | | | | | | |
| At January 1 | 103 | 1,417 | 69 | 316 | 539 | 12 | 644 | | 674 | | 3,130 | 644 | | 3,774 |
| At December 31 | 140 | 1,348 | 71 | 218 | 397 | 2 | 533 | | 786 | | 2,962 | 533 | | 3,495 |
| Shell share of joint ventures and associates | | | | | | | | | | | | |
| At January 1 | 6 | 192 | — | — | — | — | — | | 1 | | 199 | — | | 199 |
| At December 31 | 7 | 197 | — | — | — | — | — | | 4 | | 208 | — | | 208 |
| | |
| Proved undeveloped reserves 2021 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Million barrels |
| | | | | North America | South America | | | | | |
| Europe | Asia | Oceania | Africa | USA | Canada | | Total |
| Oil and NGL | Oil and NGL | Oil and NGL | Oil and NGL | Oil and NGL | Oil and NGL | Synthetic crude oil | | Oil and NGL | | Oil and NGL | Synthetic crude oil | | All products |
| Shell subsidiaries | | | | | | | | | | | | | | |
| At January 1 | 76 | 156 | 5 | 63 | 189 | 3 | — | | 141 | | 633 | — | | 633 |
| At December 31 | 68 | 173 | 9 | 47 | 213 | 3 | — | | 345 | | 858 | — | | 858 |
| Shell share of joint ventures and associates | | | | | | | | | | | | |
| At January 1 | — | 18 | — | — | — | — | — | | — | | 18 | — | | 18 |
| At December 31 | — | 20 | — | — | — | — | — | | — | | 20 | — | | 20 |
| | | | | | | | |
| 291 | FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORMShell | Form 20-F 20202022 | 215 | |
Financial Statements and Supplements
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Proved developed reserves 2018 | Million barrels |
| | | | | North America | | | | | |
| Europe | Asia | Oceania | Africa | USA | | Canada | | South America | | | | Total |
| Oil and NGL | Oil and NGL | Oil and NGL | Oil and NGL | Oil and NGL | Oil and NGL | Synthetic crude oil | Bitumen | Oil and NGL | Oil and NGL | Synthetic crude oil | Bitumen | All products |
| Shell subsidiaries | | | | | | | | | | | | | |
| At January 1 | 250 | | 1,364 | | 46 | | 373 | | 569 | | 21 | | 649 | | — | | 651 | | 3,274 | | 649 | | — | | 3,923 | |
| At December 31 | 243 | | 1,318 | | 108 | | 335 | | 629 | | 21 | | 661 | | — | | 634 | | 3,288 | | 661 | | — | | 3,949 | |
| Shell share of joint ventures and associates | | | | | | | | | | | | | |
| At January 1 | 11 | | 253 | | — | | — | | — | | — | | — | | — | | — | | 264 | | — | | — | | 264 | |
| At December 31 | 8 | | 251 | | — | | — | | — | | — | | — | | — | | — | | 259 | | — | | — | | 259 | |
| | |
| Proved developed and undeveloped reserves 2020 |
| | | | Million barrels |
| Proved undeveloped reserves 2018 | Million barrels | |
| | North America | | | North America | South America | | | |
| | Europe | Asia | Oceania | Africa | USA | | Canada | South America | | Total | | Europe | Asia | Oceania | Africa | USA | Canada | | Total |
| | Oil and NGL | Oil and NGL | Synthetic crude oil | Bitumen | Oil and NGL | Synthetic crude oil | Bitumen | All products | | Oil and NGL | Synthetic crude oil | | Oil and NGL | | Oil and NGL | Synthetic crude oil | | All products |
| Shell subsidiaries | Shell subsidiaries | | Shell subsidiaries | | | | | |
| At January 1 | At January 1 | 106 | | 118 | | 86 | | 90 | | 330 | | 1 | | — | | — | | 295 | | 1,026 | | — | | — | | 1,026 | | At January 1 | 274 | 1,551 | 121 | 395 | 982 | 18 | 607 | | 1,033 | | 4,374 | 607 | | 4,981 |
| Revisions and reclassifications | | Revisions and reclassifications | (46) | 181 | (41) | 42 | (116) | (2) | 57 | | (82) | | (63) | 57 | | (6) |
| Improved recovery | | Improved recovery | — | | — | | — | | — |
| Extensions and discoveries | | Extensions and discoveries | — | 14 | — | 27 | 7 | — | | — | | 48 | — | | 48 |
| Purchases of minerals in place | | Purchases of minerals in place | — | 9 | — | | — | | 9 | — | | 9 |
| Sales of minerals in place | | Sales of minerals in place | (1) | — | | — | | (1) | — | | (1) |
| Production [A] | | Production [A] | (49) | (182) | (7) | (58) | (165) | (9) | (20) | | (136) | | (606) | (20) | | (626) |
| At December 31 | At December 31 | 124 | | 185 | | 21 | | 85 | | 388 | | 2 | | — | | — | | 394 | | 1,199 | | — | | — | | 1,199 | | At December 31 | 178 | 1,573 | 73 | 379 | 728 | 15 | 644 | | 815 | | 3,761 | 644 | | 4,405 |
| Shell share of joint ventures and associates | Shell share of joint ventures and associates | | Shell share of joint ventures and associates | | | | | |
| At January 1 | At January 1 | 1 | | 48 | | — | | — | | — | | — | | — | | — | | — | | 49 | | — | | — | | 49 | | At January 1 | 12 | 271 | — | | — | | 283 | — | | 283 |
| Revisions and reclassifications | | Revisions and reclassifications | (5) | (27) | — | | — | | (32) | — | | (32) |
| Improved recovery | | Improved recovery | — | | — | | — | | — |
| Extensions and discoveries | | Extensions and discoveries | — | | 1 | | 1 | — | | 1 |
| Purchases of minerals in place | | Purchases of minerals in place | — | | — | | — | | — |
| Sales of minerals in place | | Sales of minerals in place | — | | — | | — | | — |
| Production | | Production | (1) | (34) | — | | (1) | | (36) | — | | (36) |
| At December 31 | At December 31 | 1 | | 30 | | — | | — | | — | | — | | — | | — | | — | | 31 | | — | | — | | 31 | | At December 31 | 6 | 210 | — | | — | | 216 | — | | 216 |
| Total | | Total | 184 | 1,783 | 73 | 379 | 728 | 15 | 644 | | 815 | | 3,977 | 644 | | 4,621 |
| Reserves attributable to non-controlling interest in Shell subsidiaries at December 31 | | Reserves attributable to non-controlling interest in Shell subsidiaries at December 31 | — | 322 | | — | | — | 322 | | 322 |
NATURAL GAS | | |
| Proved developed reserves 2020 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Million barrels |
| | | | | North America | South America | | | | | |
| Europe | Asia | Oceania | Africa | USA | Canada | | Total |
| Oil and NGL | Oil and NGL | Oil and NGL | Oil and NGL | Oil and NGL | Oil and NGL | Synthetic crude oil | | Oil and NGL | | Oil and NGL | Synthetic crude oil | | All products |
| Shell subsidiaries | | | | | | | | | | | | | | |
| At January 1 | 156 | 1,403 | 106 | 314 | 641 | 15 | 607 | | 675 | | 3,310 | 607 | | 3,917 |
| At December 31 | 103 | 1,417 | 69 | 316 | 539 | 12 | 644 | | 674 | | 3,130 | 644 | | 3,774 |
| Shell share of joint ventures and associates | | | | | | | | | | | | |
| At January 1 | 11 | 240 | — | — | — | — | — | | — | | 251 | — | | 251 |
| At December 31 | 6 | 192 | — | — | — | — | — | | 1 | | 199 | — | | 199 |
| | |
| Proved undeveloped reserves 2020 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Million barrels |
| | | | | North America | South America | | | | | |
| Europe | Asia | Oceania | Africa | USA | Canada | | Total |
| Oil and NGL | Oil and NGL | Oil and NGL | Oil and NGL | Oil and NGL | Oil and NGL | Synthetic crude oil | | Oil and NGL | | Oil and NGL | Synthetic crude oil | | All products |
| Shell subsidiaries | | | | | | | | | | | | | | |
| At January 1 | 118 | 149 | 15 | 80 | 341 | 3 | — | | 358 | | 1,064 | — | | 1,064 |
| At December 31 | 76 | 156 | 5 | 63 | 189 | 3 | — | | 141 | | 633 | — | | 633 |
| Shell share of joint ventures and associates | | | | | | | | | | | | |
| At January 1 | 1 | 31 | — | — | — | — | — | | — | | 32 | — | | 32 |
| At December 31 | — | 18 | — | — | — | — | — | | — | | 18 | — | | 18 |
Financial Statements and Supplements
Supplementary information – oil and gas (unaudited) continued
Natural gas
Shell subsidiaries’ proved reserves of natural gas at the end of the year, their share of the proved reserves of joint ventures and associates at the end of the year, and the changes in such reserves during the years are set out on pages 216-218.293-296. Significant changes in these proved reserves
are discussed below. below (except where specific disclosures are prohibited).
Volumes are not adjusted to standard heat content. Apart from integrated projects, volumes of gas are reported on an “as-sold”"as-sold" basis. The price used to calculate future revenue and cash flows from proved gas reserves is the contract price or the 12-month average on “as-sold”"as-sold" volumes. Volumes associated with integrated projects are those measured at a designated transfer point between the upstream and downstream portions of the integrated project. Natural gas volumes are converted into oil equivalent using a factor of 5,800 scf per barrel.
PROVED RESERVES 2020–2019Proved reserves 2022–2021
Shell subsidiaries
Asia
Oceania▪The increase of 581 thousand million scf in extensions and discoveries was mainly in Marjoram and Rosmari in Malaysia.
▪The net decrease of 3,512906 thousand million scf in revisions and reclassifications was mainly due to higher prices resulting in Gorgon, Jansz-Io and Surat QGC.
USA
The net decrease of 319 thousand million scfa lower reserves entitlement in revisions and reclassifications was mainly in Permian. The 542 thousand million scf of Sales of minerals in place are mainly in Tioga.
PROVED RESERVES 2019–2018
Shell subsidiaries
Asia
The net increase of 859 thousand million scf in revisions and reclassifications was mainly in Qatar and Malaysia (Sabah and Sarawak).
Oceania
▪The net increase of 699959 thousand million scf in revisions and reclassifications was mainly in Surat Gorgon and Jansz-lo.QGC in Australia.
Africa
The net increase of 290453 thousand million scf in extensions and discoveries was due to FID of Crux in Australia.
Canada
▪The decrease of 540 thousand million scf in revisions and reclassifications was mainly in Bonny and Gbaran (Nigeria).Groundbirch in Canada.
South America
Canada
The net increase of 317288 thousand million scf in revisions and reclassifications was mainly in Trinidad and Tobago.
Shell share of joint ventures and associates
Asia
▪The decrease of 776 thousand million scf in revisions and reclassifications was mainly in Lunskoye in Russia.
Proved reserves 2021–2020
Shell subsidiaries
Asia
▪The increase of 559 thousand million scf in extensions and discoveries was mainly in Groundbirch.Jerun and Timi.
Oceania
Shell shareThe increase of joint ventures and associates
Europe
The net decrease of 3221,905 thousand million scf in revisions and reclassifications was mainly in Groningen (Netherlands).Surat QGC, JanzIo and Prelude.
Europe
▪The increase of 838 thousand million scf in revisions and reclassifications was mainly in Ormen Lange.
South America
▪The increase of 535 thousand million scf in revisions and reclassifications mainly in Dolphin, Starfish and Mero.
▪The increase of 357 thousand million scf in extensions and discoveries was mainly in Cassra and Bounty.
Shell share of joint ventures and associates
Asia
▪The increase of 313 thousand million scf in revisions and reclassifications was mainly in South West Ampa.
| | | | | | | | |
| 293 | FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORMShell | Form 20-F 20202022 | 216 | |
Financial Statements and Supplements
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| Proved developed and undeveloped reserves 2020 | Thousand million standard cubic feet |
| | | | | North America | South America | |
| Europe | Asia | Oceania | Africa | USA | Canada | Total |
| Shell subsidiaries | | | | | | | | |
| At January 1 | 2,998 | | 10,618 | | 8,360 | | 2,608 | | 1,868 | | 1,281 | | 1,259 | | 28,992 | |
| Revisions and reclassifications | (209) | | 249 | | (3,512) | | 93 | | (319) | | 59 | | 162 | | (3,477) | |
| Improved recovery | — | | — | | — | | — | | — | | — | | — | | — | |
| Extensions and discoveries | — | | 2 | | 33 | | 5 | | 66 | | 122 | | — | | 228 | |
| Purchases of minerals in place | — | | — | | — | | — | | — | | — | | — | | — | |
| Sales of minerals in place | (28) | | (29) | | — | | — | | (542) | | — | | — | | (599) | |
| Production [A] | (319) | | (913) | | (705) | | (343) | | (272) | | (167) | | (293) | | (3,012) | |
| At December 31 | 2,442 | | 9,927 | | 4,176 | | 2,363 | | 801 | | 1,295 | | 1,128 | | 22,132 | |
| Shell share of joint ventures and associates | | | | | | | | |
| At January 1 | 595 | | 4,198 | | 36 | | — | | — | | — | | — | | 4,829 | |
| Revisions and reclassifications | (200) | | (62) | | 27 | | — | | — | | — | | 1 | | (234) | |
| Improved recovery | — | | — | | — | | — | | — | | — | | — | | — | |
| Extensions and discoveries | — | | 1 | | — | | — | | — | | — | | 1 | | 2 | |
| Purchases of minerals in place | — | | — | | — | | — | | — | | — | | — | | — | |
| Sales of minerals in place | — | | — | | — | | — | | — | | — | | — | | — | |
| Production [B] | (133) | | (459) | | (22) | | — | | — | | — | | (1) | | (615) | |
| At December 31 | 262 | | 3,678 | | 41 | | — | | — | | — | | 1 | | 3,982 | |
| Total | 2,703 | | 13,605 | | 4,219 | | 2,363 | | 801 | | 1,295 | | 1,128 | | 26,114 | |
| Reserves attributable to non-controlling interest in Shell subsidiaries at December 31 | — | | — | | — | | — | | — | | — | | — | | — | |
| | | | | | | | | | | | | | |
| Proved developed and undeveloped reserves 2022 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Thousand million standard cubic feet |
| | | | | North America | South America | |
| Europe | Asia | Oceania | Africa | USA | Canada | Total |
| Shell subsidiaries | | | | | | | | |
| At January 1 | 2,991 | 9,573 | 5,307 | 2,016 | 615 | 1,540 | 1,753 | 23,795 |
| Revisions and reclassifications | 131 | (906) | 959 | 15 | 22 | (540) | 288 | (31) |
| Improved recovery | — | — | — | — | — | — | — | — |
| Extensions and discoveries | 64 | 581 | 453 | — | 10 | 81 | 81 | 1,270 |
| Purchases of minerals in place | — | 682 | — | — | — | — | 33 | 715 |
| Sales of minerals in place | — | (53) | — | — | — | — | — | (53) |
| Production [A] | (302) | (799) | (770) | (190) | (126) | (125) | (336) | (2,648) |
| At December 31 | 2,884 | 9,078 | 5,949 | 1,841 | 521 | 956 | 1,819 | 23,048 |
| Shell share of joint ventures and associates | | | | | | | | |
| At January 1 | 312 | 3,560 | 71 | — | — | — | 6 | 3,949 |
| Revisions and reclassifications | (3) | (776) | 45 | — | — | — | 1 | (733) |
| Improved recovery | — | — | — | — | — | — | — | — |
| Extensions and discoveries | — | — | 77 | — | — | — | 3 | 80 |
| Purchases of minerals in place | — | 2,549 | — | — | — | — | — | 2,549 |
| Sales of minerals in place | — | — | — | — | — | — | — | — |
| Production [B] | (134) | (325) | (24) | — | — | — | (3) | (486) |
| At December 31 | 175 | 5,008 | 169 | — | — | — | 7 | 5,359 |
| Total [C] | 3,059 | 14,086 | 6,118 | 1,841 | 521 | 956 | 1,826 | 28,407 |
| Reserves attributable to non-controlling interest in Shell subsidiaries at December 31 | — | — | — | — | — | — | — | — |
[A]Includes 225228 thousand million standard cubic feet consumed in operations.
[B]Includes 4231 thousand million standard cubic feet consumed in operations.
[C]As announced on February 28, 2023, Shell completed the sale of its 100% interest in Shell Onshore Ventures LLC, which holds a 51.8% membership interest in Aera Energy LLC, to IKAV. As of December 31, 2022, we had proved reserves of 31 Thousand million standard cubic feet. See Note 35 on page 287.
| | | | | | | | | | | | | | |
| Proved developed reserves 2022 |
| | | | Thousand million standard cubic feet |
| Proved developed reserves 2020 | Thousand million standard cubic feet | |
| | North America | South America | | | North America | South America | |
| | Europe | Asia | Oceania | Africa | USA | Canada | Total | | Europe | Asia | Oceania | Africa | USA | Canada | Total |
| Shell subsidiaries | Shell subsidiaries | | Shell subsidiaries | |
| At January 1 | At January 1 | 2,060 | | 10,091 | | 5,769 | | 1,523 | | 1,615 | | 781 | | 968 | | 22,807 | | At January 1 | 2,532 | 8,789 | 4,089 | 981 | 373 | 757 | 1,301 | 18,822 |
| At December 31 | At December 31 | 1,590 | | 9,675 | | 3,656 | | 1,341 | | 670 | | 720 | | 924 | | 18,576 | | At December 31 | 2,460 | 6,698 | 4,111 | 984 | 275 | 712 | 1,582 | 16,822 |
| Shell share of joint ventures and associates | Shell share of joint ventures and associates | | Shell share of joint ventures and associates | |
| At January 1 | At January 1 | 555 | | 3,519 | | 36 | | — | | — | | — | | — | | 4,110 | | At January 1 | 265 | 3,097 | 71 | — | 6 | 3,439 |
| At December 31 | At December 31 | 227 | | 3,175 | | 42 | | — | | — | | — | | 1 | | 3,445 | | At December 31 | 175 | 2,261 | 129 | — | 7 | 2,572 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| Proved undeveloped reserves 2020 | Thousand million standard cubic feet |
| | | | | North America | South America | |
| Europe | Asia | Oceania | Africa | USA | Canada | Total |
| Shell subsidiaries | | | | | | | | |
| At January 1 | 937 | | 528 | | 2,591 | | 1,085 | | 254 | | 499 | | 291 | | 6,185 | |
| At December 31 | 852 | | 252 | | 520 | | 1,022 | | 132 | | 575 | | 203 | | 3,556 | |
| Shell share of joint ventures and associates | | | | | | | | |
| At January 1 | 39 | | 680 | | — | | — | | — | | — | | — | | 719 | |
| At December 31 | 35 | | 502 | | — | | — | | — | | — | | — | | 537 | |
| | | | | | | | | | | | | | |
| Proved undeveloped reserves 2022 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Thousand million standard cubic feet |
| | | | | North America | South America | |
| Europe | Asia | Oceania | Africa | USA | Canada | Total |
| Shell subsidiaries | | | | | | | | |
| At January 1 | 459 | 784 | 1,218 | 1,035 | 242 | 783 | 452 | 4,973 |
| At December 31 | 424 | 2,380 | 1,838 | 857 | 246 | 244 | 237 | 6,226 |
| Shell share of joint ventures and associates | | | | | | | | |
| At January 1 | 47 | 463 | — | — | — | — | — | 510 |
| At December 31 | — | 2,747 | 40 | — | — | — | — | 2,787 |
| | | | | | | | |
| 294 | FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORMShell | Form 20-F 20202022 | 217 | |
Financial Statements and Supplements
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| Proved developed and undeveloped reserves 2019 | Thousand million standard cubic feet |
| | | | | North America | South America | |
| Europe | Asia | Oceania | Africa | USA | Canada | Total |
| Shell subsidiaries | | | | | | | | |
| At January 1 | 3,600 | | 10,631 | | 8,427 | | 2,544 | | 2,147 | | 989 | | 1,509 | | 29,847 | |
| Revisions and reclassifications | (46) | | 859 | | 699 | | 290 | | 114 | | 235 | | 29 | | 2,180 | |
| Improved recovery | — | | — | | — | | — | | — | | — | | 3 | | 3 | |
| Extensions and discoveries | — | | 36 | | — | | 152 | | 142 | | 317 | | 37 | | 684 | |
| Purchases of minerals in place | — | | — | | — | | — | | 5 | | — | | — | | 5 | |
| Sales of minerals in place | (210) | | — | | — | | — | | (132) | | (30) | | — | | (372) | |
| Production [A] | (346) | | (908) | | (766) | | (378) | | (408) | | (230) | | (319) | | (3,355) | |
| At December 31 | 2,998 | | 10,618 | | 8,360 | | 2,608 | | 1,868 | | 1,281 | | 1,259 | | 28,992 | |
| Shell share of joint ventures and associates | | | | | | | | |
| At January 1 | 1,163 | | 4,581 | | 24 | | — | | — | | — | | — | | 5,768 | |
| Revisions and reclassifications | (322) | | 64 | | 34 | | — | | — | | — | | — | | (224) | |
| Improved recovery | — | | 1 | | — | | — | | — | | — | | — | | 1 | |
| Extensions and discoveries | — | | 5 | | — | | — | | — | | — | | — | | 5 | |
| Purchases of minerals in place | — | | — | | — | | — | | — | | — | | — | | — | |
| Sales of minerals in place | — | | — | | — | | — | | — | | — | | — | | — | |
| Production [B] | (246) | | (453) | | (22) | | — | | — | | — | | — | | (721) | |
| At December 31 | 595 | | 4,198 | | 36 | | — | | — | | — | | — | | 4,829 | |
| Total | 3,593 | | 14,816 | | 8,396 | | 2,608 | | 1,868 | | 1,281 | | 1,259 | | 33,821 | |
| Reserves attributable to non-controlling interest in shell subsidiaries at December 31 | — | | — | | — | | — | | — | | — | | — | | — | |
| | |
| Proved developed and undeveloped reserves 2021 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Thousand million standard cubic feet |
| | | | | North America | South America | |
| Europe | Asia | Oceania | Africa | USA | Canada | Total |
| Shell subsidiaries | | | | | | | | |
| At January 1 | 2,442 | 9,927 | 4,176 | 2,363 | 801 | 1,295 | 1,128 | 22,132 |
| Revisions and reclassifications | 838 | (37) | 1,905 | (63) | 90 | 123 | 535 | 3,391 |
| Improved recovery | — | — | — | — | 5 | — | 4 | 9 |
| Extensions and discoveries | 1 | 559 | — | 126 | 158 | 277 | 357 | 1,477 |
| Purchases of minerals in place | 1 | — | — | — | — | — | — | 1 |
| Sales of minerals in place | — | — | — | (122) | (225) | (37) | — | (384) |
| Production [A] | (291) | (876) | (774) | (288) | (214) | (118) | (271) | (2,831) |
| At December 31 | 2,991 | 9,573 | 5,307 | 2,016 | 615 | 1,540 | 1,753 | 23,795 |
| Shell share of joint ventures and associates | | | | | | | | |
| At January 1 | 262 | 3,678 | 41 | — | — | — | 1 | 3,982 |
| Revisions and reclassifications | 210 | 313 | 51 | — | — | — | 3 | 577 |
| Improved recovery | — | — | — | — | — | — | — | — |
| Extensions and discoveries | — | — | — | — | — | — | 2 | 2 |
| Purchases of minerals in place | — | — | — | — | — | — | — | — |
| Sales of minerals in place | — | — | — | — | — | — | — | — |
| Production [B] | (160) | (431) | (21) | — | — | — | — | (612) |
| At December 31 | 312 | 3,560 | 71 | — | — | — | 6 | 3,949 |
| Total [C] | 3,303 | 13,133 | 5,378 | 2,016 | 615 | 1,540 | 1,759 | 27,744 |
| Reserves attributable to non-controlling interest in Shell subsidiaries at December 31 | — | — | — | — | — | — | — | — |
[A]Includes 247232 thousand million standard cubic feet consumed in operations.
[B]Includes 4241 thousand million standard cubic feet consumed in operations.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| Proved developed reserves 2019 | Thousand million standard cubic feet |
| | | | | North America | South America | |
| Europe | Asia | Oceania | Africa | USA | Canada | Total |
| Shell subsidiaries | | | | | | | | |
| At January 1 | 2,658 | | 10,092 | | 5,820 | | 1,573 | | 1,706 | | 721 | | 1,238 | | 23,808 | |
| At December 31 | 2,060 | | 10,091 | | 5,769 | | 1,523 | | 1,615 | | 781 | | 968 | | 22,807 | |
| Shell share of joint ventures and associates | | | | | | | | |
| At January 1 | 1,136 | | 3,938 | | 24 | | — | | — | | — | | — | | 5,099 | |
| At December 31 | 555 | | 3,519 | | 36 | | — | | — | | — | | — | | 4,110 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| Proved undeveloped reserves 2019 | Thousand million standard cubic feet |
| | | | | North America | South America | |
| Europe | Asia | Oceania | Africa | USA | Canada | Total |
| Shell subsidiaries | | | | | | | | |
| At January 1 | 942 | | 539 | | 2,607 | | 971 | | 441 | | 268 | | 271 | | 6,039 | |
| At December 31 | 937 | | 528 | | 2,591 | | 1,085 | | 254 | | 499 | | 291 | | 6,185 | |
| Shell share of joint ventures and associates | | | | | | | | |
| At January 1 | 27 | | 643 | | — | | — | | — | | — | | — | | 670 | |
| At December 31 | 39 | | 680 | | — | | — | | — | | — | | — | | 719 | |
| | |
| Proved developed reserves 2021 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Thousand million standard cubic feet |
| | | | | North America | South America | |
| Europe | Asia | Oceania | Africa | USA | Canada | Total |
| Shell subsidiaries | | | | | | | | |
| At January 1 | 1,590 | 9,675 | 3,656 | 1,341 | 670 | 720 | 924 | 18,576 |
| At December 31 | 2,532 | 8,789 | 4,089 | 981 | 373 | 757 | 1,301 | 18,822 |
| Shell share of joint ventures and associates | | | | | | | | |
| At January 1 | 227 | 3,175 | 42 | — | — | — | 1 | 3,445 |
| At December 31 | 265 | 3,097 | 71 | — | — | — | 6 | 3,439 |
| | |
| Proved undeveloped reserves 2021 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Thousand million standard cubic feet |
| | | | | North America | South America | |
| Europe | Asia | Oceania | Africa | USA | Canada | Total |
| Shell subsidiaries | | | | | | | | |
| At January 1 | 852 | 252 | 520 | 1,022 | 132 | 575 | 203 | 3,556 |
| At December 31 | 459 | 784 | 1,218 | 1,035 | 242 | 783 | 452 | 4,973 |
| Shell share of joint ventures and associates | | | | | | | | |
| At January 1 | 35 | 502 | — | — | — | — | — | 537 |
| At December 31 | 47 | 463 | — | — | — | — | — | 510 |
| | | | | | | | |
| 295 | FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORMShell | Form 20-F 20202022 | 218 | |
Financial Statements and Supplements
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| Proved developed and undeveloped reserves 2018 | Thousand million standard cubic feet |
| | | | | North America | South America | |
| Europe | Asia | Oceania | Africa | USA | Canada | Total |
| Shell subsidiaries | | | | | | | | |
| At January 1 | 3,100 | | 11,822 | | 7,978 | | 2,082 | | 2,569 | | 1,272 | | 1,501 | | 30,324 | |
| Revisions and reclassifications | 1,183 | | (483) | | 1,438 | | 896 | | (296) | | (153) | | 181 | | 2,766 | |
| Improved recovery | — | | — | | — | | — | | — | | — | | 7 | | 7 | |
| Extensions and discoveries | 3 | | 354 | | — | | — | | 283 | | 131 | | 65 | | 836 | |
| Purchases of minerals in place | — | | — | | — | | — | | — | | — | | 14 | | 14 | |
| Sales of minerals in place | (192) | | (157) | | (232) | | — | | (32) | | — | | — | | (613) | |
| Production [A] | (494) | | (906) | | (757) | | (434) | | (377) | | (261) | | (258) | | (3,487) | |
| At December 31 | 3,600 | | 10,631 | | 8,427 | | 2,544 | | 2,147 | | 989 | | 1,509 | | 29,847 | |
| Shell share of joint ventures and associates | | | | | | | | |
| At January 1 | 5,125 | | 4,964 | | 19 | | — | | — | | — | | — | | 10,108 | |
| Revisions and reclassifications | (3,653) | | 62 | | 25 | | — | | — | | — | | — | | (3,566) | |
| Improved recovery | — | | — | | — | | — | | — | | — | | — | | — | |
| Extensions and discoveries | — | | 5 | | — | | — | | — | | — | | — | | 5 | |
| Purchases of minerals in place | — | | — | | — | | — | | — | | — | | — | | — | |
| Sales of minerals in place | (37) | | — | | — | | — | | — | | — | | — | | (37) | |
| Production [B] | (273) | | (450) | | (20) | | — | | — | | — | | — | | (743) | |
| At December 31 | 1,163 | | 4,581 | | 24 | | — | | — | | — | | — | | 5,768 | |
| Total | 4,763 | | 15,212 | | 8,451 | | 2,544 | | 2,147 | | 989 | | 1,509 | | 35,615 | |
| Reserves attributable to non-controlling interest in Shell subsidiaries at December 31 | — | | — | | — | | — | | — | | — | | — | | — | |
| | |
| Proved developed and undeveloped reserves 2020 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Thousand million standard cubic feet |
| | | | | North America | South America | |
| Europe | Asia | Oceania | Africa | USA | Canada | Total |
| Shell subsidiaries | | | | | | | | |
| At January 1 | 2,998 | 10,618 | 8,360 | 2,608 | 1,868 | 1,281 | 1,259 | 28,992 |
| Revisions and reclassifications | (209) | 249 | (3,512) | 93 | (319) | 59 | 162 | (3,477) |
| Improved recovery | — | — | — | — | — | — | — | — |
| Extensions and discoveries | — | 2 | 33 | 5 | 66 | 122 | — | 228 |
| Purchases of minerals in place | — | — | — | — | — | — | — | — |
| Sales of minerals in place | (28) | (29) | — | — | (542) | — | — | (599) |
| Production [A] | (319) | (913) | (705) | (343) | (272) | (167) | (293) | (3,012) |
| At December 31 | 2,442 | 9,927 | 4,176 | 2,363 | 801 | 1,295 | 1,128 | 22,132 |
| Shell share of joint ventures and associates | | | | | | | | |
| At January 1 | 595 | 4,198 | 36 | — | — | — | — | 4,829 |
| Revisions and reclassifications | (200) | (62) | 27 | — | — | — | 1 | (234) |
| Improved recovery | — | — | — | — | — | — | — | — |
| Extensions and discoveries | — | 1 | — | — | — | — | 1 | 2 |
| Purchases of minerals in place | — | — | — | — | — | — | — | — |
| Sales of minerals in place | — | — | — | — | — | — | — | — |
| Production [B] | (133) | (459) | (22) | — | — | — | (1) | (615) |
| At December 31 | 262 | 3,678 | 41 | — | — | — | 1 | 3,982 |
| Total | 2,703 | 13,605 | 4,219 | 2,363 | 801 | 1,295 | 1,128 | 26,114 |
| Reserves attributable to non-controlling interest in Shell subsidiaries at December 31 | — | — | — | — | — | — | — | — |
[A]Includes 245225 thousand million standard cubic feet consumed in operations.
[B]Includes 4142 thousand million standard cubic feet consumed in operations.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| Proved developed reserves 2018 | Thousand million standard cubic feet |
| | | | | North America | South America | |
| Europe | Asia | Oceania | Africa | USA | Canada | Total |
| Shell subsidiaries | | | | | | | | |
| At January 1 | 2,978 | | 11,460 | | 5,026 | | 1,493 | | 1,652 | | 859 | | 1,225 | | 24,693 | |
| At December 31 | 2,658 | | 10,092 | | 5,820 | | 1,573 | | 1,706 | | 721 | | 1,238 | | 23,808 | |
| Shell share of joint ventures and associates | | | | | | | | |
| At January 1 | 5,055 | | 4,275 | | 19 | | — | | — | | — | | — | | 9,349 | |
| At December 31 | 1,136 | | 3,938 | | 24 | | — | | — | | — | | — | | 5,099 | |
| | |
| Proved developed reserves 2020 |
| | | | Thousand million standard cubic feet |
| Proved undeveloped reserves 2018 | Thousand million standard cubic feet | |
| | North America | South America | | | North America | South America | |
| | Europe | Asia | Oceania | Africa | USA | Canada | Total | | Europe | Asia | Oceania | Africa | USA | Canada | Total |
| Shell subsidiaries | Shell subsidiaries | | Shell subsidiaries | |
| At January 1 | At January 1 | 122 | | 362 | | 2,952 | | 589 | | 917 | | 413 | | 276 | | 5,631 | | At January 1 | 2,060 | 10,091 | 5,769 | 1,523 | 1,615 | 781 | 968 | 22,807 |
| At December 31 | At December 31 | 942 | | 539 | | 2,607 | | 971 | | 441 | | 268 | | 271 | | 6,039 | | At December 31 | 1,590 | 9,675 | 3,656 | 1,341 | 670 | 720 | 924 | 18,576 |
| Shell share of joint ventures and associates | Shell share of joint ventures and associates | | Shell share of joint ventures and associates | |
| At January 1 | At January 1 | 70 | | 689 | | — | | — | | — | | — | | — | | 759 | | At January 1 | 555 | 3,519 | 36 | — | 4,110 |
| At December 31 | At December 31 | 27 | | 643 | | — | | — | | — | | — | | — | | 670 | | At December 31 | 227 | 3,175 | 42 | — | 1 | 3,445 |
| | |
| Proved undeveloped reserves 2020 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Thousand million standard cubic feet |
| | | | | North America | South America | |
| Europe | Asia | Oceania | Africa | USA | Canada | Total |
| Shell subsidiaries | | | | | | | | |
| At January 1 | 937 | 528 | 2,591 | 1,085 | 254 | 499 | 291 | 6,185 |
| At December 31 | 852 | 252 | 520 | 1,022 | 132 | 575 | 203 | 3,556 |
| Shell share of joint ventures and associates | | | | | | | | |
| At January 1 | 39 | 680 | — | — | — | — | — | 719 |
| At December 31 | 35 | 502 | — | — | — | — | — | 537 |
STANDARDISED MEASURE OF DISCOUNTED FUTURE CASH FLOWS
Financial Statements and Supplements
Supplementary information – oil and gas (unaudited) continued
Standardised measure of discounted future cash flows
The SEC Form 20-F requires the disclosure of a standardised measure of discounted future net cash flows, relating to proved reserves quantities and based on a 12-month unweighted arithmetic average sales price, calculated on a first-day-of-the-month basis, with cost factors based on those at the end of each year, currently enacted tax rates and a 10% annual discount factor. In our view, the information so calculated does not provide a reliable measure of future cash flows from proved reserves, nor does it permit a realistic comparison to be made of one entity with another because the assumptions used cannot reflect the varying
| | | | | | | | |
FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2020 | 219 | |
circumstances within each entity. In addition, a substantial but unknown proportion of future real cash flows from oil and gas production activities is expected to derive from reserves which have already been discovered, but which cannot yet be regarded as proved.
Standardised measure of discounted future cash flows relating to proved reserves at December 31
STANDARDISED MEASURE OF DISCOUNTED FUTURE CASH FLOWS RELATING TO PROVED RESERVES AT DECEMBER | | | | | | | | | | | | | | |
| 2022 – Shell subsidiaries |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | $ million |
| | | | | North America | South America | |
| Europe | Asia | Oceania | Africa | USA | Canada | Total |
| Future cash inflows | 82,513 | 157,030 | 67,551 | 28,054 | 52,231 | 66,059 | 115,529 | 568,967 |
| Future production costs | 16,781 | 32,416 | 22,764 | 9,762 | 23,546 | 28,520 | 46,947 | 180,736 |
| Future development costs | 6,125 | 15,240 | 8,696 | 3,004 | 7,720 | 5,269 | 15,917 | 61,971 |
| Future tax expenses | 43,626 | 50,771 | 6,917 | 9,670 | 3,821 | 7,004 | 15,074 | 136,883 |
| Future net cash flows | 15,981 | 58,603 | 29,174 | 5,618 | 17,144 | 25,266 | 37,591 | 189,377 |
| Effect of discounting cash flows at 10% | 5,193 | 25,770 | 10,529 | 1,580 | 4,056 | 17,478 | 13,104 | 77,710 |
| Standardised measure of discounted future net cash flows | 10,788 | 32,833 | 18,645 | 4,038 | 13,088 | 7,788 | 24,487 | 111,667 |
| Non-controlling Interest Included | — | — | — | — | — | 3,314 | — | 3,314 |
| | | | | | | | | | | | | | |
| 2022 – Shell share of joint ventures and associates |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | $ million |
| | | | | North America | South America | |
| Europe | Asia | Oceania | Africa | USA | Canada | Total |
| Future cash inflows | 6,576 | 86,464 | 1,227 | — | — | — | 577 | 94,844 |
| Future production costs | 3,626 | 31,569 | 760 | — | — | — | 162 | 36,117 |
| Future development costs | 778 | 7,139 | 536 | — | — | — | 15 | 8,468 |
| Future tax expenses | 2,257 | 34,551 | — | — | — | — | 81 | 36,889 |
| Future net cash flows | (85) | 13,205 | (69) | — | — | — | 319 | 13,370 |
| Effect of discounting cash flows at 10% | 85 | 6,152 | (130) | — | — | — | 67 | 6,174 |
| Standardised measure of discounted future net cash flows | (170) | 7,053 | 61 | — | — | — | 252 | 7,196 |
| | |
| 2021 – Shell subsidiaries |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | $ million |
| | | | | North America | South America | |
| Europe | Asia | Oceania | Africa | USA | Canada | Total |
| Future cash inflows | 37,801 | 115,068 | 37,462 | 22,663 | 41,431 | 34,835 | 81,239 | 370,499 |
| Future production costs | 11,977 | 30,567 | 13,446 | 8,742 | 23,314 | 15,565 | 35,787 | 139,398 |
| Future development costs | 5,347 | 12,989 | 6,718 | 3,078 | 7,787 | 4,063 | 16,130 | 56,112 |
| Future tax expenses | 12,311 | 28,834 | 2,206 | 7,584 | 1,572 | 3,153 | 7,829 | 63,489 |
| Future net cash flows | 8,166 | 42,678 | 15,092 | 3,259 | 8,758 | 12,054 | 21,493 | 111,500 |
| Effect of discounting cash flows at 10% | 1,754 | 18,771 | 4,205 | 497 | 1,207 | 7,331 | 7,270 | 41,035 |
| Standardised measure of discounted future net cash flows | 6,412 | 23,907 | 10,887 | 2,762 | 7,551 | 4,723 | 14,223 | 70,465 |
| Non-controlling Interest Included | — | — | — | — | — | 1,906 | — | 1,906 |
Financial Statements and Supplements
Supplementary information – oil and gas (unaudited) continued
| | |
| 2021 – Shell share of joint ventures and associates |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | $ million |
| | | | | | North America | South America | |
| Europe | | Asia | Oceania | Africa | USA | Canada | Total |
| Future cash inflows | 4,006 | | 36,365 | 326 | — | — | — | 283 | 40,980 |
| Future production costs | 2,869 | | 15,653 | 245 | — | — | — | 128 | 18,895 |
| Future development costs | 931 | | 6,819 | 82 | — | — | — | 15 | 7,847 |
| Future tax expenses | 1,623 | | 6,229 | — | — | — | — | 9 | 7,861 |
| Future net cash flows | (1,417) | | 7,664 | (1) | — | — | — | 131 | 6,377 |
| Effect of discounting cash flows at 10% | (316) | | 1,630 | (29) | — | — | — | 34 | 1,319 |
| Standardised measure of discounted future net cash flows | (1,101) | [A] | 6,034 | 28 | — | — | — | 97 | 5,058 |
[A]While proved reserves are economically producible at the 2021 yearly average price, the standardised measure of discounted future net cash flows was negative for those proved reserves
at December 31, 2021, due to addition of overhead, tax and abandonment costs and ongoing commitments post production of proved reserves.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| 2020 - Shell subsidiaries | | | | | $ million |
| | | | | North America | South America | |
| Europe | Asia | Oceania | Africa | USA | Canada | Total |
| Future cash inflows | 16,581 | 75,128 | 25,970 | 19,743 | 27,891 | 22,447 | 34,502 | 222,262 |
| Future production costs | 6,776 | 26,896 | 10,240 | 9,837 | 20,341 | 15,475 | 19,137 | 108,702 |
| Future development costs | 4,352 | 12,416 | 7,441 | 3,354 | 7,274 | 4,559 | 7,440 | 46,836 |
| Future tax expenses | 4,525 | 12,585 | 254 | 4,713 | 54 | 407 | 1,847 | 24,385 |
| Future net cash flows | 928 | 23,231 | 8,035 | 1,839 | 222 | 2,006 | 6,078 | 42,339 |
| Effect of discounting cash flows at 10% | 338 | 9,791 | 1,316 | -50 | -1,469 | 1,231 | 1,369 | 12,526 |
| Standardised measure of discounted future net cash flows | 590 | 13,440 | 6,719 | 1,889 | 1,691 | 775 | 4,709 | 29,813 |
| Non Controlling Interest Included | 0 | 0 | 0 | 0 | 0 | 398 | 0 | 398 |
| | |
| 2020 – Shell subsidiaries |
| | | | | | $ million |
| 2020 - Shell share of joint ventures and associates | | $ million | |
| | North America | South America | | | North America | South America | |
| | Europe | Asia | Oceania | Africa | USA | Canada | Total | | Europe | Asia | Oceania | | Africa | USA | Canada | Total | |
| Future cash inflows | Future cash inflows | 1,209 | 22,209 | 139 | 0 | 21 | 23,578 | Future cash inflows | 16,581 | 75,128 | 23,787 | | 19,743 | 27,891 | 22,447 | 34,502 | 220,079 | |
| Future production costs | Future production costs | 2,801 | 11,472 | 136 | 0 | 17 | 14,426 | Future production costs | 6,776 | 26,896 | 10,240 | | 9,837 | 20,341 | 15,475 | 19,137 | 108,702 | |
| Future development costs | Future development costs | 948 | 5,165 | 111 | 0 | 2 | 6,226 | Future development costs | 4,352 | 12,416 | 7,441 | | 3,354 | 7,274 | 4,559 | 7,440 | 46,836 | |
| Future tax expenses | Future tax expenses | 0 | 3,026 | 0 | 3,026 | Future tax expenses | 4,525 | 12,585 | 254 | | 4,713 | 54 | 407 | 1,847 | 24,385 | |
| Future net cash flows | Future net cash flows | (2,540) | 2,546 | (108) | 0 | 2 | (100) | Future net cash flows | 928 | 23,231 | 5,852 | | 1,838 | 222 | 2,006 | 6,079 | 40,156 | |
| Effect of discounting cash flows at 10% | Effect of discounting cash flows at 10% | (583) | 412 | (35) | 0 | (206) | Effect of discounting cash flows at 10% | 338 | 9,792 | 493 | | (50) | (1,469) | 1,231 | 1,369 | 11,704 | |
| Standardised measure of discounted future net cash flows | Standardised measure of discounted future net cash flows | (1,957)[A] | 2,134 | (73)[A] | 0 | 2 | 106 | Standardised measure of discounted future net cash flows | 590 | 13,440 | 5,359 | [A] | 1,889 | 1,691 | 775 | 4,709 | 28,452 | [B] |
| Non-controlling interest included | | Non-controlling interest included | — | | — | 398 | — | 398 | |
[A] Corrected from 6,719.
[B] Corrected from 29,813.
| | |
| 2020 – Shell share of joint ventures and associates |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | $ million |
| | | | | | North America | South America | |
| Europe | | Asia | Oceania | Africa | USA | Canada | Total |
| Future cash inflows | 1,209 | | 22,209 | 139 | — | — | — | 21 | 23,578 |
| Future production costs | 2,801 | | 11,472 | 136 | — | — | — | 17 | 14,426 |
| Future development costs | 948 | | 5,165 | 111 | — | — | — | 2 | 6,226 |
| Future tax expenses | — | | 3,026 | — | — | — | — | — | 3,026 |
| Future net cash flows | (2,540) | | 2,546 | (108) | — | — | — | 2 | (100) |
| Effect of discounting cash flows at 10% | (583) | | 412 | (35) | — | — | — | — | (206) |
| Standardised measure of discounted future net cash flows | (1,957) | [A] | 2,134 | (73) | — | — | — | 2 | 106 |
[A]While proved reserves are economically producible at the 2020 yearly average price, the standardised measure of discounted future net cash flows was negative for those proved reserves
at December 31, 2020, due to addition of overhead, tax and abandonment costs and ongoing commitments post production of proved reserves.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| 2019 - Shell subsidiaries | | | | $ million |
| | | | | North America | South America | |
| Europe | Asia | Oceania | Africa | USA | Canada | Total |
| Future cash inflows | 33,762 | | 111,802 | | 71,775 | | 31,046 | | 55,800 | | 31,522 | | 64,957 | | 400,664 | |
| Future production costs | 11,818 | | 32,581 | | 21,589 | | 12,158 | | 30,139 | | 16,651 | | 32,362 | | 157,298 | |
| Future development costs | 6,047 | | 13,449 | | 10,103 | | 4,081 | | 11,137 | | 4,603 | | 13,219 | | 62,639 | |
| Future tax expenses | 9,285 | | 25,938 | | 7,016 | | 10,542 | | 2,397 | | 2,313 | | 5,429 | | 62,920 | |
| Future net cash flows | 6,612 | | 39,834 | | 33,067 | | 4,265 | | 12,127 | | 7,955 | | 13,947 | | 117,807 | |
| Effect of discounting cash flows at 10% | 1,917 | | 17,851 | | 13,328 | | 377 | | 1,815 | | 5,571 | | 4,094 | | 44,953 | |
| Standardised measure of discounted future net cash flows | 4,695 | | 21,983 | | 19,739 | | 3,888 | | 10,312 | | 2,384 | | 9,853 | | 72,854 | |
| Non-controlling interest included | — | | — | | — | | — | | — | | 1,371 | | — | | 1,371 | |
| | | | | | | | |
| 298 | FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORMShell | Form 20-F 20202022 | 220 | |
Financial Statements and Supplements
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| 2019 - Shell share of joint ventures and associates | | | | | $ million |
| |
| | | | North America | South America | |
| Europe | | Asia | Oceania | Africa | USA | Canada | Total |
| Future cash inflows | 3,615 | | | 38,099 | | 122 | | — | | — | | — | | — | | 41,836 | |
| Future production costs | 2,810 | | | 18,336 | | 81 | | — | | — | | — | | — | | 21,227 | |
| Future development costs | 935 | | | 6,946 | | 36 | | — | | — | | — | | — | | 7,917 | |
| Future tax expenses | 718 | | | 6,160 | | 4 | | — | | — | | — | | — | | 6,882 | |
| Future net cash flows | (848) | | | 6,657 | | 1 | | — | | — | | — | | — | | 5,812 | |
| Effect of discounting cash flows at 10% | (266) | | | 1,190 | | (7) | | — | | — | | — | | — | | 917 | |
| Standardised measure of discounted future net cash flows | (582) | | [A] | 5,467 | | 8 | | — | | — | | — | | — | | 4,893 | |
[A] While proved reserves are economically producible at the 2019 yearly average price, theChange in standardised measure of discounted future net cash flows was negative for thoserelating to proved reserves at December 31, 2019, due to addition of overhead, tax and abandonment costs and ongoing commitments post production of proved reserves.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| 2018 - Shell subsidiaries | | | | South America | $ million |
| | | | | North America | |
| Europe | Asia | Oceania | Africa | USA | Canada | Total |
| Future cash inflows | 50,392 | | 122,037 | | 72,355 | | 36,080 | | 68,546 | | 34,719 | | 74,417 | | 458,545 | |
| Future production costs | 18,400 | | 32,773 | | 22,219 | | 13,237 | | 32,533 | | 17,378 | | 42,301 | | 178,842 | |
| Future development costs | 8,649 | | 12,301 | | 11,598 | | 4,672 | | 11,486 | | 4,674 | | 6,991 | | 60,370 | |
| Future tax expenses | 12,603 | | 30,994 | | 5,899 | | 12,805 | | 1,948 | | 3,257 | | 7,764 | | 75,271 | |
| Future net cash flows | 10,739 | | 45,969 | | 32,639 | | 5,366 | | 22,578 | | 9,411 | | 17,360 | | 144,062 | |
| Effect of discounting cash flows at 10% | 3,024 | | 20,957 | | 12,130 | | 572 | | 5,039 | | 6,446 | | 6,048 | | 54,217 | |
| Standardised measure of discounted future net cash flows | 7,715 | | 25,012 | | 20,509 | | 4,794 | | 17,539 | | 2,964 | | 11,312 | | 89,845 | |
| Non-controlling interest included | — | | 1 | | — | | — | | — | | 1,638 | | — | | 1,639 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| 2018 - Shell share of joint ventures and associates | | | | | | $ million |
| | | | | | North America | South America | |
| Europe | Asia | Oceania | | Africa | USA | Canada | Total |
| Future cash inflows | 5,260 | | 44,327 | | 104 | | | — | | — | | — | | — | | 49,691 | |
| Future production costs | 2,712 | | 20,886 | | 80 | | | — | | — | | — | | — | | 23,677 | |
| Future development costs | 1,083 | | 6,726 | | 36 | | | — | | — | | — | | — | | 7,844 | |
| Future tax expenses | 1,136 | | 7,128 | | 1 | | | — | | — | | — | | — | | 8,265 | |
| Future net cash flows | 329 | | 9,588 | | (13) | | | — | | — | | — | | — | | 9,904 | |
| Effect of discounting cash flows at 10% | (76) | | 2,759 | | (8) | | | — | | — | | — | | — | | 2,675 | |
| Standardised measure of discounted future net cash flows | 405 | | 6,829 | | (5) | | [A] | — | | — | | — | | — | | 7,229 | |
| | | | | | | | | | | |
| | | $ million |
| Shell
subsidiaries | Shell share
of joint ventures
and associates | Total |
| At January 1 | 70,465 | 5,058 | 75,523 |
| Net changes in prices and production costs | 107,637 | 10,441 | 118,078 |
| Revisions of previous reserves estimates | 12,378 | (5,544) | 6,834 |
| Extensions, discoveries and improved recovery | 7,422 | 439 | 7,861 |
| Purchases and sales of minerals in place | 3,187 | 10,374 | 13,561 |
| Development cost related to future production | (11,233) | (1,619) | (12,852) |
| Sales and transfers of oil and gas, net of production costs | (54,486) | (7,029) | (61,515) |
| Development cost incurred during the year | 10,079 | 1,545 | 11,624 |
| Accretion of discount | 9,796 | 888 | 10,684 |
| Net change in income tax | (43,578) | (7,357) | (50,935) |
| At December 31 | 111,667 | 7,196 | 118,863 |
| | | | | | | | | | | |
| | | $ million |
| Shell
subsidiaries | Shell share
of joint ventures
and associates | Total |
| At January 1 | 28,452 | 106 | 28,558 |
| Net changes in prices and production costs | 74,896 | 9,188 | 84,084 |
| Revisions of previous reserves estimates | 19,435 | 3,253 | 22,688 |
| Extensions, discoveries and improved recovery | 5,631 | 60 | 5,691 |
| Purchases and sales of minerals in place | (880) | — | (880) |
| Development cost related to future production | (10,652) | (982) | (11,634) |
| Sales and transfers of oil and gas, net of production costs | (35,754) | (4,455) | (40,209) |
| Development cost incurred during the year | 8,594 | 969 | 9,563 |
| Accretion of discount | 3,832 | 170 | 4,002 |
| Net change in income tax | (23,089) | (3,251) | (26,340) |
| At December 31 | 70,465 | 5,058 | 75,523 |
| | | | | | | | | | | | | | | | | |
| | | | $ million |
| Shell
subsidiaries | | Shell share
of joint ventures
and associates | Total | |
| At January 1 | 72,854 | | 4,893 | 77,747 | |
| Net changes in prices and production costs | (71,184) | | (6,097) | (77,281) | |
| Revisions of previous reserves estimates | 574 | | (459) | 115 | |
| Extensions, discoveries and improved recovery | 691 | | 17 | 709 | |
| Purchases and sales of minerals in place | (540) | | — | (540) | |
| Development cost related to future production | 2,906 | | (426) | 2,480 | |
| Sales and transfers of oil and gas, net of production costs | (16,990) | | (1,954) | (18,944) | |
| Development cost incurred during the year | 8,197 | | 759 | 8,956 | |
| Accretion of discount | 9,881 | | 832 | 10,713 | |
| Net change in income tax | 22,063 | | 2,541 | 24,604 | |
| At December 31 | 28,452 | [A] | 106 | 28,558 | [B] |
[A] While proved reserves are economically producible at the 2018 yearly average price, the standardised measure of discounted future net cash flows was negative for those proved reserves at December 31, 2018, due to addition of overhead, tax and abandonment costs and ongoing commitments post production of proved reserves.Corrected from 29,813.
[B] Corrected from 29,919.
| | | | | | | | |
| 299 | FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORMShell | Form 20-F 20202022 | 221 | |
Financial Statements and Supplements
CHANGE IN STANDARDISED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED RESERVES
| | | | | | | | | | | |
| | | | |
| 2020 | | | $ million |
| Shell subsidiaries | Shell share of joint ventures and associates | Total |
| At January 1 | 72,854 | 4,893 | 77,747 |
| Net changes in prices and production costs | (69,363) | (6,097) | (75,460) |
| Revisions of previous reserves estimates | 695 | 17 | 712 |
| Extensions, discoveries and improved recovery | (540) | 0 | (540) |
| Purchases and sales of minerals in place | 24 | (459) | (435) |
| Development cost related to future production | 2,906 | (426) | 2,480 |
| Sales and transfers of oil and gas, net of production costs | (16,904) | (1,954) | (18,858) |
| Development cost incurred during the year | 8,197 | 759 | 8,956 |
| Accretion of discount | 9,881 | 832 | 10,713 |
| Net change in income tax | 22,063 | 2,541 | 24,604 |
| At December 31 | 29,813 | 106 | 29,919 |
| | | | | | | | | | | |
| | | | |
| 2019 | | | $ million |
| Shell subsidiaries | Shell share of joint ventures and associates | Total |
| At January 1 | 89,845 | | 7,229 | | 97,074 | |
| Net changes in prices and production costs | (18,759) | | (1,017) | | (19,776) | |
| Revisions of previous reserves estimates | 13,777 | | (293) | | 13,484 | |
| Extensions, discoveries and improved recovery | 5,193 | | 93 | | 5,286 | |
| Purchases and sales of minerals in place | (2,831) | | — | | (2,831) | |
| Development cost related to future production | (9,417) | | (2) | | (9,419) | |
| Sales and transfers of oil and gas, net of production costs | (33,319) | | (3,918) | | (37,237) | |
| Development cost incurred during the year | 10,430 | | 702 | | 11,132 | |
| Accretion of discount | 12,004 | | 1,133 | | 13,137 | |
| Net change in income tax | 5,931 | | 966 | | 6,897 | |
| At December 31 | 72,854 | | 4,893 | | 77,747 | |
| | | | | | | | | | | |
| | | | |
| 2018 | | | $ million |
| Shell subsidiaries | Shell share of joint ventures and associates | Total |
| At January 1 | 50,524 | | 7,109 | | 57,633 | |
| Net changes in prices and production costs | 58,128 | | 6,156 | | 64,284 | |
| Revisions of previous reserves estimates | 15,265 | | (1,447) | | 13,818 | |
| Extensions, discoveries and improved recovery | 8,936 | | 532 | | 9,468 | |
| Purchases and sales of minerals in place | (3,401) | | (20) | | (3,421) | |
| Development cost related to future production | (3,876) | | (308) | | (4,184) | |
| Sales and transfers of oil and gas, net of production costs | (38,014) | | (4,858) | | (42,872) | |
| Development cost incurred during the year | 10,724 | | 666 | | 11,390 | |
| Accretion of discount | 7,060 | | 994 | | 8,054 | |
| Net change in income tax | (15,501) | | (1,595) | | (17,096) | |
| At December 31 | 89,845 | | 7,229 | | 97,074 | |
OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES CAPITALISED COSTSOil and gas exploration and production activities capitalised costs
The aggregate amount of property, plant and equipment and intangible assets, excluding goodwill, relating to oil and gas exploration and production activities, and the aggregate amount of the related depreciation, depletion and amortisation at December 31, are shown in the tables below.
| | | | | | | | |
FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2020 | 222 | |
Shell subsidiaries
| | | | | | | | | | | | |
| | $ million | | | $ million |
| | 2020 | 2019 | | | 2022 | 2021 |
| Cost | Cost | | | Cost | | |
| Proved properties [A] | Proved properties [A] | 276,762 | | 265,700 | | | Proved properties [A] | 251,173 | 261,085 |
| Unproved properties | Unproved properties | 14,563 | | 18,669 | | | Unproved properties | 11,641 | 12,754 |
| Support equipment and facilities | Support equipment and facilities | 10,803 | | 11,043 | | | Support equipment and facilities | 11,329 | 11,067 |
| | 302,128 | | 295,412 | | | | 274,143 | 284,906 |
| Depreciation, depletion and amortisation | Depreciation, depletion and amortisation | | | Depreciation, depletion and amortisation | | |
| Proved properties [A] | Proved properties [A] | 158,149 | | 129,809 | | | Proved properties [A] | 149,884 | 156,554 |
| Unproved properties | Unproved properties | 5,342 | | 4,089 | | | Unproved properties | 5,238 | 5,660 |
| Support equipment and facilities | Support equipment and facilities | 5,031 | | 4,078 | | | Support equipment and facilities | 6,241 | 5,891 |
| | 168,522 | | 137,976 | | | | 161,363 | 168,105 |
| Net capitalised costs | Net capitalised costs | 133,606 | | 157,436 | | | Net capitalised costs | 112,780 | 116,801 |
[A]Includes capitalised asset decommissioning and restoration costs and related depreciation.
Shell share of joint ventures and associates
| | | | $ million | | | $ million |
| | 2020 | 2019 | | | 2022 | 2021 |
| Cost | Cost | | | Cost | | |
| Proved properties [A] | Proved properties [A] | 50,592 | | 46,895 | | | Proved properties [A] | 46,244 | 52,762 |
| Unproved properties | Unproved properties | 2,512 | | 2,428 | | | Unproved properties | 1,528 | 1,853 |
| Support equipment and facilities | Support equipment and facilities | 5,037 | | 4,882 | | | Support equipment and facilities | 4,577 | 4,982 |
| | 58,141 | | 54,205 | | | | 52,349 | 59,597 |
| Depreciation, depletion and amortisation | Depreciation, depletion and amortisation | | | Depreciation, depletion and amortisation | | |
| Proved properties [A] | Proved properties [A] | 36,876 | | 34,120 | | | Proved properties [A] | 34,683 | 38,844 |
| Unproved properties | Unproved properties | 473[B] | — | | | Unproved properties | 452 | 452 |
| Support equipment and facilities | Support equipment and facilities | 3,070 | | 2,817 | | | Support equipment and facilities | 3,023 | 3,182 |
| | 40,419 | | 36,937 | | | | 38,158 | 42,478 |
| Net capitalised costs | Net capitalised costs | 17,722 | | 17,268 | | | Net capitalised costs | 14,191 | 17,119 |
[A]Includes capitalised asset decommissioning and restoration costs and related depreciation.
[B] The major part of this cost consists of an impairment charge for the year.
OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES COSTS INCURREDOil and gas exploration and production activities costs incurred
Costs incurred during the year in oil and gas property acquisition, exploration and development activities, whether capitalised or charged to income currently, are shown in the tables below. As a result of the adoption of IFRS 16 Leases as of January 1, 2019, leases are included in all years 2020 and 2019.shown below. Development costs include capitalised asset decommissioning and restoration costs (including increases or decreases arising from changes to cost estimates or to the discount rate applied to the obligations) and exclude costs of acquiring support equipment and facilities, but include depreciation thereon.
Shell subsidiaries
| | | | $ million |
| 2020 | | $ million | | |
| | North America | South America | | | North America | South America | |
| | Europe | Asia | Oceania | Africa | USA | Other [A] | Total | | | Europe | Asia | Oceania | Africa | USA | Other [A] | Total |
| Acquisition of properties | Acquisition of properties | | Acquisition of properties | |
| Proved | Proved | 4 | | 156 | | — | | 5 | | — | | — | | — | | 165 | | | Proved | (1) | — | 102 | — | 184 | 285 |
| Unproved | Unproved | 115 | | 19 | | — | | 48 | | 80 | | 6 | | 180 | | 448 | | | Unproved | — | (1) | 66 | 8 | 27 | 100 |
| Exploration | Exploration | 287 | | 102 | | 33 | | 168 | | 951 | | 275 | | 390 | | 2,206 | | [B] | Exploration | 422 | 141 | 21 | 259 | 721 | 140 | 591 | 2,295 |
| Development | Development | 1,612 | | 1,018 | | 1,465 | | 807 | | 4,186 | | 325 | | 1,930 | | 11,343 | | | Development | 981 | 1,001 | 547 | 727 | 1,951 | 213 | 3,966 | 9,386 |
[A]Comprises Canada, Mexico and Mexico.
[B] Includes $504 million of Shales-related exploration activities. In 2020, we participated in 161 Shales productive exploratory wells with proved reserves allocated (Shell share: 77 wells).Barbados.
| | | | | | | | |
| 300 | FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORMShell | Form 20-F 20202022 | 223 | |
Financial Statements and Supplements
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| 2019 | | | | | | | | $ million | |
| | | | | North America | South America | | |
| Europe | Asia | Oceania | Africa | USA | Other [A] | Total | |
| Acquisition of properties | | | | | | | | | |
| Proved | 3 | | 105 | | — | | 10 | | — | | — | | — | | 118 | | |
| Unproved | — | | 11 | | — | | 67 | | 118 | | 5 | | 3 | | 204 | | |
| Exploration | 428 | | 165 | | 117 | | 253 | | 1,723 | | 402 | | 500 | | 3,588 | | [B] |
| Development | 2,054 | | 1,434 | | 1,225 | | 1,480 | | 4,455 | | 287 | | 2,418 | | 13,353 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | $ million |
| | | | | | | North America | South America | |
| Europe | | Asia | | Oceania | Africa | USA | Other [A] | Total |
| Acquisition of properties | | | | | | | | | | |
| Proved | 2 | | — | | — | 246 | — | — | — | 247 |
| Unproved | — | | — | | — | 2 | 26 | 34 | 42 | 103 |
| Exploration | 298 | [B] | 106 | [B] | 26 | 136 | 920 | 217 | 170 | 1,873 |
| Development | 996 | | 693 | | 600 | 166 | 3,116 | 106 | 1,436 | 7,113 |
[A]Comprises Canada and Mexico.
[B] Includes $1,195 million of Shales-related exploration activities. In 2019, we participated in 231 Shales productive exploratory wells with proved reserves allocated (Shell share: 117 wells).As revised, following a reassessment.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| 2018 | | | | | | | | $ million | |
| | | | | North America | South America | | |
| Europe | Asia | Oceania | Africa | USA | Other [A] | Total | |
| Acquisition of properties | | | | | | | | | |
| Proved | 3 | | 3 | | — | | 596 | | 44 | | | — | | 646 | | |
| Unproved | 2 | | 6 | | — | | 76 | | 44 | | 310 | | 486 | | 924 | | |
| Exploration | 384 | | 182 | | 49 | | 188 | | 1,912 | | 251 | | 502 | | 3,468 | | [B] |
| Development | 1,452 | | 1,102 | | 1,632 | | 962 | | 4,052 | | 505 | | 2,095 | | 11,800 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | $ million |
| | | | | | | North America | South America | |
| Europe | | Asia | | Oceania | Africa | USA | Other [A] | Total |
| Acquisition of properties | | | | | | | | | | |
| Proved | 4 | | 156 | | — | 5 | — | — | — | 165 |
| Unproved | 115 | | 19 | | — | 48 | 80 | 6 | 180 | 448 |
| Exploration | 271 | [B] | 118 | [B] | 33 | 168 | 951 | 275 | 390 | 2,206 |
| Development | 1,612 | | 1,018 | | 1,465 | 807 | 4,186 | 325 | 1,930 | 11,343 |
[A]Comprises Canada Honduras and Mexico.
[B] Includes $1,581 million of Shales-related exploration activities. In 2018, we participated in 234 Shales productive exploratory wells with proved reserves allocated (Shell share: 118 wells).
Shell share of joint ventures and associates
Joint ventures and associates did not incur costs in the acquisition of oil and gas properties in 2019 or 2018.2022 and 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| 2020 | | | | | | | | $ million |
| | | | | North America | South America | |
| Europe | Asia | Oceania | Africa | USA | Canada | Total |
| Acquisition of properties | | | | | | | | |
| Unproved | — | | | — | | — | | — | | — | | 128 | | 128 | |
| Exploration | — | | 94 | | 10 | | — | | — | | — | | 105 | | 209 | |
| Development | 124 | | 2,173 | | 67 | | — | | — | | — | | 2 | | 2,366 | |
| | | | $ million |
| 2019 | | $ million | |
| | | North America | South America | |
| | | Europe | Asia | Oceania | Africa | USA | Other | Total |
| | North America | South America | | |
| | Europe | Asia | Oceania | Africa | USA | Canada | Total | |
| Exploration | Exploration | 1 | | 116 | | 12 | | — | | — | | — | | — | | 129 | | Exploration | — | 50 | 3 | — | 51 | 104 |
| Development | Development | 94 | | 1,400 | | 65 | | — | | — | | — | | — | | 1,559 | | Development | (8) | 2,250 | 246 | — | 87 | 2,575 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| 2018 | | | | | | | | | $ million |
| | | | | | North America | South
America | |
| Europe | | Asia | Oceania | Africa | USA | Canada | Total |
| Exploration | — | | | 90 | | 14 | | — | | — | | — | | — | | 104 | |
| Development | 229 | | | 1,026 | | 79 | | — | | — | | — | | — | | 1,334 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | $ million |
| | | | | North America | South America | |
| Europe | Asia | Oceania | Africa | USA | Other | Total |
| Exploration | — | 69 | 1 | — | — | — | 41 | 111 |
| Development | 101 | 1,648 | 205 | — | — | — | 49 | 2,002 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | $ million | |
| | | | | | North America | South
America | | |
| Europe | Asia | | Oceania | Africa | USA | Other | Total | |
| Acquisition of properties | | | | | | | | | | |
| Unproved | — | — | | — | — | — | — | 128 | 128 | |
| Exploration | — | 94 | | 10 | — | — | — | 105 | 209 | |
| Development | 124 | 2,225 | [A] | 67 | — | — | — | 2 | 2,418 | [A] |
OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES EARNINGS
Financial Statements and Supplements
Oil and gas exploration and production activities earnings
In Shell, extractive activities, or oil and gas exploration and production activities, are undertaken within the Integrated Gas, segment, the Upstream segment and the OilChemicals and Products segment.segments. Shell’s extractive activities do not represent the full extent of Integrated Gas, Upstream and OilChemicals and Products activities, and exclude downstream GTL, some LNG activities, Marketing business in Oil Products, Power and New Energies, trading and optimisation, as well as other non-extractive activities.
The earnings disclosed in this "extractive activities" section are only a subset of Shell’s total earnings and as a result are therefore not suitable for modelling Shell’s integrated businesses, for which we refer to the full segment earnings and descriptions of the Integrated Gas, Upstream and Oil Products businesses, whichChemicals and Products. These are available on pages 30, 3643, 49 and 5170 respectively. The earnings disclosed in this "extractive activities" section are not adjusted for items such as impairment charges, restructuring charges and charges for onerous contract provisions. Full segment information to the Consolidated Financial Statements is available on pages 177-180.
| | | | | | | | |
FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2020 | 224 | |
The results of operations for oil and gas producing activities are shown in the tables below. Taxes other than income tax include cash-paid royalties in cash to governments, without option to pay in kind outside North America.USA and Canada.
Shell subsidiaries
| | | | $ million |
| 2020 | $ million | |
| | North America | South
America | | | North America | South
America | |
| | Europe | Asia | Oceania | Africa | USA | Other [A] | Total | | Europe | Asia | Oceania | Africa | USA | Other [A] | Total |
| Revenue | Revenue | | Revenue | |
| Third parties | Third parties | 767 | | 2,104 | | 589 | | 1,540 | | 1,008 | | 753 | | 567 | | 7,328 | | Third parties | 1,986 | 3,832 | 1,394 | 2,173 | 257 | 888 | 2,459 | 12,989 |
| Sales between businesses | Sales between businesses | 2,879 | | 6,360 | | 1,951 | | 1,816 | | 5,239 | | 943 | | 4,656 | | 23,844 | | Sales between businesses | 11,115 | 14,503 | 8,457 | 2,013 | 12,221 | 2,713 | 12,107 | 63,129 |
| Total | Total | 3,646 | | 8,464 | | 2,540 | | 3,356 | | 6,247 | | 1,696 | | 5,223 | | 31,172 | | Total | 13,101 | 18,335 | 9,851 | 4,186 | 12,478 | 3,601 | 14,566 | 76,118 |
| Production costs excluding taxes | Production costs excluding taxes | 2,023 | | 1,811 | | 1,040 | | 1,064 | | 2,615 | | 735 | | 936 | | 10,224 | | Production costs excluding taxes | 2,151 | 1,956 | 1,331 | 825 | 1,556 | 731 | 1,331 | 9,881 |
| Taxes other than income tax | Taxes other than income tax | 64 | | 389 | | 93 | | 245 | | 64 | | — | | 1,494 | | 2,349 | | Taxes other than income tax | 102 | 831 | 688 | 238 | (3) | — | 3,837 | 5,693 |
| Exploration | Exploration | 256 | | 149 | | 234 | | 202 | | 325 | | 108 | | 473 | | 1,747 | | Exploration | 274 | 121 | 74 | 233 | 621 | 92 | 297 | 1,712 |
| Depreciation, depletion and amortisation | Depreciation, depletion and amortisation | 3,618 | | 2,120 | | 10,178 | | 2,589 | | 7,927 | | 2,147 | | 6,282 | | 34,861 | | Depreciation, depletion and amortisation | 1,468 | 2,090 | (211) | 1,090 | 4,462 | 403 | 1,722 | 11,024 |
| Other costs/(income) | Other costs/(income) | 553 | | 1,127 | | (981) | | 645 | | 230 | | 631 | | 161 | | 2,366 | | Other costs/(income) | 3,772 | 1,089 | 135 | (336) | 629 | 1,557 | 1,030 | 7,876 |
| Earnings before taxation | Earnings before taxation | (2,868) | | 2,868 | | (8,024) | | (1,389) | | (4,914) | | (1,925) | | (4,123) | | (20,375) | | Earnings before taxation | 5,334 | 12,248 | 7,834 | 2,136 | 5,213 | 818 | 6,349 | 39,932 |
| Taxation charge/(credit) | Taxation charge/(credit) | (423) | | 1,854 | | (3,175) | | (104) | | (790) | | (449) | | (300) | | (3,387) | | Taxation charge/(credit) | 5,151 | 7,561 | 3,025 | 527 | 739 | 229 | 1,681 | 18,913 |
| Earnings after taxation | Earnings after taxation | (2,445) | | 1,014 | | (4,849) | | (1,285) | | (4,124) | | (1,476) | | (3,823) | | (16,988) | | Earnings after taxation | 183 | 4,687 | 4,809 | 1,609 | 4,474 | 589 | 4,668 | 21,019 |
[A]Comprises Canada, Mexico and Barbados.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| $ million |
| | | | | | | North America | South
America | | | |
| Europe | | Asia | | Oceania | Africa | USA | Other [A] | | Total | |
| Revenue | | | | | | | | | | | | |
| Third parties | 1,502 | | 3,084 | [B] | 681 | 1,849 | 3,411 | 816 | 1,167 | [B] | 12,510 | [B] |
| Sales between businesses | 5,524 | | 11,107 | | 5,256 | 2,214 | 8,009 | 1,815 | 8,249 | | 42,174 | |
| Total | 7,026 | | 14,191 | [B] | 5,937 | 4,063 | 11,420 | 2,631 | 9,416 | [B] | 54,684 | [B] |
| Production costs excluding taxes | 1,892 | | 1,817 | | 1,222 | 1,013 | 2,165 | 679 | 1,045 | | 9,833 | |
| Taxes other than income tax | 77 | | 858 | [B] | 234 | 250 | 120 | — | 2,847 | [B] | 4,386 | [B] |
| Exploration | 239 | [B] | 73 | [B] | 21 | 133 | 616 | 191 | 150 | | 1,423 | |
| Depreciation, depletion and amortisation | 1,342 | | 2,817 | | 1,805 | 1,227 | 5,201 | 181 | 3,973 | | 16,546 | |
| Other costs/(income) | 3,747 | [B] | 1,330 | [B] | (155) | (349) | (2,550) | 1,045 | 233 | | 3,301 | |
| Earnings before taxation | (271) | [B] | 7,296 | [B] | 2,810 | 1,789 | 5,868 | 535 | 1,168 | | 19,195 | |
| Taxation charge/(credit) | 494 | [B] | 4,452 | [B] | 831 | 35 | 1,268 | 180 | 256 | | 7,516 | |
| Earnings after taxation | (765) | [B] | 2,844 | [B] | 1,979 | 1,754 | 4,600 | 355 | 912 | | 11,679 | |
[A]Comprises Canada and Mexico.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| 2019 | $ million |
| | | | | North America | South
America | |
| Europe | Asia | Oceania | Africa | USA | Other [A] | Total |
| Revenue | | | | | | | | |
| Third parties | 1,257 | | 3,065 | | 931 | | 1,936 | | 2,638 | | 632 | | 844 | | 11,303 | |
| Sales between businesses | 4,911 | | 10,526 | | 4,719 | | 3,289 | | 7,786 | | 1,936 | | 7,647 | | 40,814 | |
| Total | 6,168 | | 13,591 | | 5,650 | | 5,225 | | 10,424 | | 2,568 | | 8,491 | | 52,117 | |
| Production costs excluding taxes | 1,582 | | 2,065 | | 1,178 | | 1,062 | | 2,807 | | 983 | | 1,135 | | 10,812 | |
| Taxes other than income tax | 94 | | 749 | | 136 | | 370 | | 103 | | — | | 2,613 | | 4,065 | |
| Exploration | 619 | | 583 | | 107 | | 187 | | 411 | | 159 | | 288 | | 2,354 | |
| Depreciation, depletion and amortisation | 2,604 | | 2,130 | | 1,957 | | 1,354 | | 6,932 | | 858 | | 3,929 | | 19,764 | |
| Other costs/(income) | (20) | | 1,599 | | (105) | | 121 | | (575) | | 818 | | 1,379 | | 3,217 | |
| Earnings before taxation | 1,289 | | 6,465 | | 2,377 | | 2,131 | | 746 | | (250) | | (853) | | 11,905 | |
| Taxation charge/(credit) | 848 | | 4,013 | | 1,094 | | 1,431 | | 154 | | (110) | | (78) | | 7,352 | |
| Earnings after taxation | 441 | | 2,452 | | 1,283 | | 700 | | 592 | | (140) | | (775) | | 4,553 | |
[A] Comprises Canada, Honduras and Mexico.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| 2018 | $ million |
| | | | | North America | South
America | |
| Europe | Asia | Oceania | Africa | USA | Other [A] | Total |
| Revenue | | | | | | | | |
| Third parties | 1,875 | | 3,364 | | 1,389 | | 2,401 | | 2,165 | | 507 | | 1,023 | | 12,724 | |
| Sales between businesses | 6,705 | | 11,284 | | 4,683 | | 3,586 | | 7,716 | | 1,946 | | 7,154 | | 43,074 | |
| Total | 8,580 | | 14,648 | | 6,072 | | 5,987 | | 9,881 | | 2,453 | | 8,177 | | 55,798 | |
| Production costs excluding taxes | 2,262 | | 2,143 | | 1,073 | | 1,093 | | 2,573 | | 1,069 | | 1,401 | | 11,614 | |
| Taxes other than income tax | 122 | | 841 | | 199 | | 328 | | 83 | | — | | 2,767 | | 4,340 | |
| Exploration | 277 | | 149 | | 78 | | 144 | | 341 | | 114 | | 237 | | 1,340 | |
| Depreciation, depletion and amortisation | 2,684 | | 2,301 | | 1,571 | | 1,394 | | 4,543 | | (346) | | 3,271 | | 15,418 | |
| Other costs/(income) | 947 | | (180) | | (514) | | 609 | | 447 | | 667 | | 849 | | 2,825 | |
| Earnings before taxation | 2,288 | | 9,394 | | 3,665 | | 2,419 | | 1,894 | | 949 | | (348) | | 20,261 | |
| Taxation charge/(credit) | 2,047 | | 4,851 | | 893 | | 902 | | 550 | | 236 | | 1,162 | | 10,641 | |
| Earnings after taxation | 241 | | 4,543 | | 2,772 | | 1,517 | | 1,344 | | 713 | | (1,510) | | 9,620 | |
[A] Comprises Canada, Honduras and Mexico.B]As revised, following a reassessment.
| | | | | | | | |
| 302 | FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORMShell | Form 20-F 20202022 | 225 | |
Financial Statements and Supplements
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| $ million |
| | | | | | | North America | South
America | | | |
| Europe | | Asia | | Oceania | Africa | USA | Other [A] | | Total | |
| Revenue | | | | | | | | | | | | |
| Third parties | 734 | [B] | 2,128 | [B] | 589 | 1,540 | 1,008 | 753 | 546 | [B] | 7,298 | [B] |
| Sales between businesses | 2,879 | | 6,792 | | 3,366 | 1,816 | 5,239 | 943 | 4,656 | | 25,691 | |
| Total | 3,613 | [B] | 8,920 | [B] | 3,955 | 3,356 | 6,247 | 1,696 | 5,202 | [B] | 32,989 | [B] |
| Production costs excluding taxes | 2,023 | | 1,811 | | 1,040 | 1,064 | 2,615 | 735 | 936 | | 10,224 | |
| Taxes other than income tax | 31 | [B] | 413 | [B] | 93 | 245 | 64 | — | 1,473 | [B] | 2,319 | [B] |
| Exploration | 240 | [B] | 165 | [B] | 234 | 202 | 325 | 108 | 473 | | 1,747 | |
| Depreciation, depletion and amortisation | 3,618 | | 2,120 | | 10,178 | 2,589 | 7,927 | 2,147 | 6,282 | | 34,861 | |
| Other costs/(income) | 463 | [B] | 1,649 | [B] | 314 | 645 | 230 | 631 | 161 | | 4,093 | |
| Earnings before taxation | (2,762) | [B] | 2,762 | [B] | (7,904) | (1,389) | (4,914) | (1,925) | (4,123) | | (20,255) | |
| Taxation charge/(credit) | (423) | | 1,854 | | (3,175) | (104) | (790) | (449) | (300) | | (3,387) | |
| Earnings after taxation | (2,339) | [B] | 908 | [B] | (4,729) | (1,285) | (4,124) | (1,476) | (3,823) | | (16,868) | |
[A]Comprises Canada, Honduras and Mexico.
[B]As revised, following a reassessment.
Shell share of joint ventures and associates
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| 2020 | $ million |
| | | | | North America | South
America | |
| Europe | Asia | Oceania | Africa | USA | Canada | Total |
| Third-party revenue | 514 | | 3,464 | | 65 | | — | | — | | — | | 32 | | 4,075 | |
| Total | 514 | | 3,464 | | 65 | | — | | — | | — | | 32 | | 4,075 | |
| Production costs excluding taxes | 272 | | 726 | | 72 | | — | | — | | — | | 8 | | 1,078 | |
| Taxes other than income tax | 22 | | 423 | | 5 | | — | | — | | — | | 4 | | 454 | |
| Exploration | 2 | | 97 | | — | | — | | — | | — | | — | | 99 | |
| Depreciation, depletion and amortisation | 366 | | 1,219 | | 270 | | — | | (7) | | — | | 23 | | 1,871 | |
| Other costs/(income) | 296 | | 365 | | (14) | | — | | (1) | | — | | 12 | | 658 | |
| Earnings before taxation | (444) | | 634 | | (268) | | — | | 8 | | — | | (15) | | (85) | |
| Taxation charge | (281) | | 162 | | — | | — | | 2 | | — | | (9) | | (126) | |
| Earnings after taxation | (163) | | 472 | | (268) | | — | | 6 | | — | | (6) | | 41 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| 2019 | $ million |
| | | | | North America | South
America | |
| Europe | Asia | Oceania | Africa | USA | Canada | Total |
| Third-party revenue | 1,233 | | 5,475 | | 81 | | — | | — | | — | | — | | 6,789 | |
| Total | 1,233 | | 5,475 | | 81 | | — | | — | | — | | — | | 6,789 | |
| Production costs excluding taxes | 249 | | 669 | | 88 | | — | | — | | — | | — | | 1,006 | |
| Taxes other than income tax | 75 | | 1,037 | | 6 | | — | | — | | — | | — | | 1,118 | |
| Exploration | 4 | | 51 | | — | | — | | — | | — | | — | | 55 | |
| Depreciation, depletion and amortisation | 217 | | 949 | | 415 | | — | | — | | — | | — | | 1,581 | |
| Other costs/(income) | 547 | | 622 | | (18) | | — | | 1 | | 1 | | — | | 1,153 | |
| Earnings before taxation | 141 | | 2,147 | | (410) | | — | | (1) | | (1) | | — | | 1,876 | |
| Taxation charge | 39 | | 957 | | — | | — | | — | | — | | — | | 996 | |
| Earnings after taxation | 102 | | 1,190 | | (410) | | — | | (1) | | (1) | | — | | 880 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| 2018 | $ million |
| | | | | North America | South
America | |
| Europe | Asia | Oceania | Africa | USA | Canada | Total |
| Third-party revenue | 1,395 | | 5,884 | | 79 | | — | | — | | — | | — | | 7,358 | |
| Total | 1,395 | | 5,884 | | 79 | | — | | — | | — | | — | | 7,358 | |
| Production costs excluding taxes | 307 | | 674 | | 105 | | — | | — | | — | | — | | 1,086 | |
| Taxes other than income tax | 82 | | 1,259 | | 4 | | — | | — | | — | | — | | 1,345 | |
| Exploration | 5 | | 45 | | — | | — | | — | | — | | —�� | | 50 | |
| Depreciation, depletion and amortisation | 318 | | 1,016 | | 163 | | — | | — | | — | | — | | 1,497 | |
| Other costs/(income) | 595 | | 615 | | (26) | | — | | — | | — | | — | | 1,184 | |
| Earnings before taxation | 88 | | 2,275 | | (167) | | — | | — | | — | | — | | 2,196 | |
| Taxation charge | 7 | | 975 | | — | | — | | — | | — | | — | | 982 | |
| Earnings after taxation | 81 | | 1,300 | | (167) | | — | | — | | — | | — | | 1,214 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| $ million |
| | | | | North America | South
America | |
| Europe | Asia | Oceania | Africa | USA | Canada | Total |
| Third-party revenue | 2,899 | 5,997 | 190 | — | — | — | 219 | 9,305 |
| Total | 2,899 | 5,997 | 190 | — | — | — | 219 | 9,305 |
| Production costs excluding taxes | 289 | 617 | 97 | — | — | — | 23 | 1,026 |
| Taxes other than income tax | 231 | 1,402 | 18 | — | — | — | 25 | 1,676 |
| Exploration | 1 | 26 | — | — | — | — | — | 27 |
| Depreciation, depletion and amortisation | 155 | 2,910 | 46 | — | — | — | 47 | 3,158 |
| Other costs/(income) | (2,061) | 184 | 14 | — | (2) | — | 18 | (1,847) |
| Earnings before taxation | 4,284 | 858 | 15 | — | 2 | — | 106 | 5,265 |
| Taxation charge | 2,958 | 1,437 | — | — | 1 | — | 22 | 4,418 |
| Earnings after taxation | 1,326 | (579) | 15 | — | 1 | — | 84 | 847 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| $ million |
| | | | | | North America | South
America | | |
| Europe | Asia | | Oceania | Africa | USA | Canada | Total | |
| Third-party revenue | 1,632 | 5,236 | [A] | 78 | — | — | — | 102 | 7,048 | [A] |
| Total | 1,632 | 5,236 | [A] | 78 | — | — | — | 102 | 7,048 | [A] |
| Production costs excluding taxes | 246 | 770 | | 82 | — | — | — | 9 | 1,107 | |
| Taxes other than income tax | 48 | 900 | | 7 | — | — | — | 12 | 967 | |
| Exploration | 2 | 27 | | — | — | — | — | — | 29 | |
| Depreciation, depletion and amortisation | 254 | 1,262 | | 32 | — | — | — | 38 | 1,586 | |
| Other costs/(income) | 732 | 118 | [A] | (22) | — | (8) | — | 11 | 831 | [A] |
| Earnings before taxation | 350 | 2,159 | | (21) | — | 8 | — | 32 | 2,528 | |
| Taxation charge | 62 | 877 | | — | — | 2 | — | (2) | 939 | |
| Earnings after taxation | 288 | 1,282 | [A] | (21) | — | 6 | — | 34 | 1,589 | [A] |
[A]As revised, following a reassessment.
Financial Statements and Supplements
Supplementary information – oil and gas (unaudited) continued
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| $ million |
| | | | | | North America | South
America | |
| Europe | Asia | | Oceania | Africa | USA | Canada | Total |
| Third-party revenue | 514 | 3,313 | [A] | 65 | — | — | — | 32 | 3,924 |
| Total | 514 | 3,313 | [A] | 65 | — | — | — | 32 | 3,924 |
| Production costs excluding taxes | 272 | 726 | | 72 | — | — | — | 8 | 1,078 |
| Taxes other than income tax | 22 | 423 | | 5 | — | — | — | 4 | 454 |
| Exploration | 2 | 97 | | — | — | — | — | — | 99 |
| Depreciation, depletion and amortisation | 366 | 1,219 | | 270 | — | (7) | — | 23 | 1,871 |
| Other costs/(income) | 296 | 214 | [A] | (14) | — | (1) | — | 12 | 507 |
| Earnings before taxation | (444) | 634 | | (268) | — | 8 | — | (15) | (85) |
| Taxation charge | (281) | 162 | | — | — | 2 | — | (9) | (126) |
| Earnings after taxation | (163) | 472 | [A] | (268) | — | 6 | — | (6) | 41 |
[A]As revised, following a reassessment.
Acreage and wells
The tables below reflect acreage and wells of Shell subsidiaries, joint ventures and associates. The term “gross”"gross" refers to the total activity in which Shell subsidiaries, joint ventures and associates have an interest. The term “net”"net" refers to the sum of the fractional interests owned by Shell subsidiaries plus the Shell share of joint ventures and associates’ fractional interests. Data below are rounded to the nearest whole number.
| | |
| Oil and gas acreage (at December 31) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | Thousand Acres |
| 2022 | | 2021 | | 2020 |
| Developed | Undeveloped | | Developed | | Undeveloped | | Developed | | Undeveloped |
| Gross | Net | Gross | Net | | Gross | | Net | | Gross | | Net | | | Gross | | Net | | Gross | | Net | |
| Europe | 6,008 | 1,873 | 6,121 | 3,095 | | 6,022 | [A] | 1,880 | [A] | 8,083 | [B] | 3,839 | [B] | | 6,075 | | 1,900 | | 13,399 | | 5,663 | |
| Asia | 20,678 | 7,370 | 33,382 | 18,524 | | 21,360 | | 7,651 | | 31,620 | | 17,022 | | | 21,360 | | 7,651 | | 34,545 | | 18,003 | |
| Oceania | 2,368 | 854 | 8,978 | 4,940 | | 2,343 | [C] | 839 | [C] | 9,714 | [D] | 5,237 | [D] | | 2,323 | [E] | 824 | [E] | 9,977 | [F] | 5,418 | [F] |
| Africa | 3,086 | 1,141 | 71,934 | 37,199 | | 3,937 | | 1,457 | | 71,398 | | 35,633 | | | 4,764 | | 1,996 | | 67,197 | | 36,944 | |
| North America - USA | 486 | 286 | 2,180 | 1,457 | | 487 | | 286 | | 2,049 | | 1,555 | | | 1,145 | | 728 | | 1,916 | | 1,408 | |
| North America - Mexico | — | — | 5,406 | 3,335 | | — | | — | | 5,407 | | 3,335 | | | — | | — | | 5,178 | | 3,291 | |
| North America - Canada | 379 | 209 | 1,126 | 626 | | 367 | [G] | 208 | [G] | 1,326 | [H] | 821 | [H] | | 498 | [I] | 338 | [I] | 1,681 | [J] | 1,175 | [J] |
| South America | 1,669 | 755 | 26,156 | 14,393 | | 1,463 | | 616 | | 23,467 | | 12,629 | | | 1,449 | | 609 | | 20,037 | | 11,709 | |
| Total | 34,674 | 12,488 | 155,283 | 83,569 | | 35,979 | | 12,937 | | 153,064 | | 80,071 | | | 37,614 | | 14,046 | | 153,930 | | 83,611 | |
[B]Corrected from 8,090 Gross (3,833 Net).
[C]Corrected from 2485 Gross (947 Net).
[D]Corrected from 9577 Gross (5132 Net).
[E]Corrected from 2653 Gross (993 Net).
[F]Corrected from 9654 Gross (5256 Net).
[G] Corrected from 359 Gross (206 Net).
[H]Corrected from 1334 Gross (823 Net).
[I]Corrected from 490 Gross (336 Net).
[J]Corrected from 1689 Gross (1177 Net).
| | | | | | | | |
| 304 | FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORMShell | Form 20-F 20202022 | 226 | |
Financial Statements and Supplements
Oil and gas acreage | | |
| Number of productive wells [A] (at December 31) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| Thousand acres | |
| 2020 | | 2019 | | | 2018 |
| Developed | Undeveloped | | Developed | | Undeveloped | | | Developed | | | Undeveloped |
| Gross | Net | Gross | Net | | Gross | | Net | | Gross | | Net | | | Gross | | Net | | | Gross | | Net | |
| Europe [A] | 6,075 | 1,900 | 13,399 | 5,663 | | 6,278 | [B] | 1,910 | [B] | 13,844 | [C] | 6,077 | [C] | | 6,022 | | 1,954 | | | 13,732 | [D] | 6,322 | [D] |
| Asia | 21,360 | 7,651 | 34,545 | 18,003 | | 21,387 | | 7,672 | | 31,486 | | 14,880 | | | 22,087 | | 7,885 | | | 31,676 | | 15,433 | |
| Oceania | 3,151 | 1,275 | 9,156 | 4,974 | | 3,025 | | 1,215 | | 11,720 | | 6,260 | | | 3,202 | | 1,220 | | | 15,319 | | 10,095 | |
| Africa | 4,764 | 1,996 | 69,194 | 37,743 | | 4,663 | | 1,938 | | 62,965 | | 32,564 | | | 4,666 | | 1,940 | | | 38,874 | | 22,732 | |
| North America - USA | 1,145 | 728 | 1,916 | 1,408 | | 1,346 | [E] | 906 | [E] | 2,483 | [F] | 1,911 | [F] | | 1,548 | [G] | 977 | [G] | | 2,133 | | 1,638 | [H] |
| North America - Mexico | — | — | 5,178 | 3,291 | | - | | - | | 5,178 | | 3,291 | | | - | | - | | | 5,178 | | 3,885 | |
| North America - Canada | 490 | 336 | 1,689 | 1,177 | | 483 | | 329 | | 1,783 | | 1,265 | | | 1,108 | | 752 | | | 1,681 | | 1,193 | |
| South America | 1,449 | 609 | 20,147 | 11,731 | | 1,393 | | 595 | | 16,446 | | 10,214 | | | 1,490 | | 710 | | | 10,352 | | 6,725 | |
| Total | 38,434 | 14,495 | 155,224 | 83,990 | | 38,575 | | 14,565 | | 145,905 | | 76,462 | | | 40,123 | | 15,438 | | | 118,945 | | 68,023 | |
[A] Includes Greenland for 2018.
[B] Corrected from 6,289 Gross (1,915 Net)
[C] Corrected from 13,864 Gross (6,082 Net)
[D] Corrected from 14,385 Gross (6,540 Net)
[E] Corrected from 1,333 Gross (877 Net)
[F] Corrected from 2,489 Gross (1,917 Net)
[G] Corrected from 1,541 Gross (952 Net)
[H] Corrected from 1,635 Net
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
| Oil | Gas | | Oil | | Gas | | Oil | | Gas |
| Gross | Net | Gross | Net | | Gross | | Net | | Gross | | Net | | | Gross | | Net | | Gross | | Net | |
| Europe | 749 | 199 | 963 | 306 | | 796 | | 193 | | 1,021 | | 324 | | | 814 | | 197 | | 1,047 | | 335 | |
| Asia | 8,147 | 2,837 | 316 | 201 | | 8,804 | [B] | 3,213 | [B] | 362 | [C] | 209 | [C] | | 8,492 | [D] | 3,100 | [D] | 340 | [E] | 192 | [E] |
| Oceania | — | — | 3,382 | 1,964 | | — | | — | | 3,398 | | 1,974 | | | — | | — | | 3,369 | | 1,920 | |
| Africa | 321 | 106 | 84 | 34 | | 391 | | 126 | | 114 | | 56 | | | 567 | | 235 | | 209 | | 141 | |
| North America – USA | 13,021 | 6,617 | 26 | 18 | | 13,042 | | 6,627 | | 28 | | 20 | | | 14,505 | | 7,402 | | 401 | | 223 | |
| North America – Canada | — | — | 530 | 459 | | — | | — | | 510 | | 440 | | | — | | — | | 757 | | 684 | |
| South America | 294 | 145 | 69 | 40 | | 229 | | 112 | | 67 | | 39 | | | 179 | | 82 | | 63 | | 37 | |
| Total | 22,532 | 9,904 | 5,370 | 3,022 | | 23,262 | | 10,271 | | 5,500 | | 3,062 | | | 24,557 | | 11,016 | | 6,186 | | 3,532 | |
Number of productive wells [A] (at December 31)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
|
| 2020 | 2019 | | 2018 |
| Oil | Gas | Oil | Gas | | Oil | Gas |
| Gross | Net | Gross | Net | Gross | | Net | | Gross | | Net | | Gross | | Net | | Gross | | Net | |
| Europe | 814 | | 197 | | 1,055 | | 336 | | 894 | | [B] | 217 | | | 1,095 | | [C] | 345 | | | 1,077 | | | 277 | | | 1,205 | | [D] | 379 | | |
| Asia | 8,505 | | 3,105 | | 342 | | 193 | | 7,860 | | [E] | 2,874 | | [E] | 336 | | | 193 | | | 7,449 | | [F] | 2,728 | | | 331 | | | 189 | | |
| Oceania | — | | — | | 3,394 | | 1,927 | | — | | | — | | | 3,348 | | [G] | 1,891 | | [G] | — | | | — | | | 3,411 | | | 1,924 | | |
| Africa | 567 | | 235 | | 209 | | 141 | | 514 | | | 206 | | | 202 | | | 139 | | | 478 | | | 189 | | | 195 | | | 132 | | |
| North America – USA | 14,505 | | 7,402 | | 401 | | 223 | | 14,953 | | [H] | 7,650 | | [H] | 824 | | [I] | 518 | | [I] | 15,238 | | [J] | 7,755 | | [J] | 1,481 | | [K] | 674 | | [K] |
| North America – Canada | — | | — | | 757 | | 684 | | — | | | — | | | 748 | | | 676 | | | 1 | | | 1 | | | 936 | | | 846 | | |
| South America | 179 | | 82 | | 63 | | 37 | | 137 | | | 63 | | | 58 | | | 36 | | | 117 | | | 52 | | | 63 | | | 41 | | |
| Total | 24,570 | | 11,021 | | 6,221 | | 3,541 | | 24,358 | | | 11,010 | | | 6,611 | | | 3,798 | | | 24,360 | | | 11,002 | | | 7,622 | | | 4,185 | | |
[A]The number of productive wells with multiple completions at December 31, 2020,2022, was 956 gross (416869 Gross (400 Net); December 31, 2019: 9502021: 956 Gross (418 net) corrected from 955 Gross,(427 Net); December 31, 2018: 1,0552020: 956 Gross (454 net) corrected from 1,061 Gross
(416 Net).
[B]Corrected from 8938,819 Gross (3,219 Net).
[C]Corrected from 1,091364 Gross (210 Net).
[D]Corrected from 1,2018,505 Gross (3,105 Net).
[E]Corrected from 7,767342 Gross (2,841(193 Net)
[F] Corrected from 7,455
[G] Corrected from 3,352 Gross (1,896 Net)
[H] Corrected from 14,935 Gross (7,638 Net)
[I] Corrected from 822 Gross (516 Net)
[J] Corrected from 15,224 Gross (7,745 Net)
[K] Corrected from 1,479 Gross (672 Net)
| | | | | | | | |
FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2020Number of net productive wells and dry holes drilled [A] | 227 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
| Productive | Dry | | Productive | Dry | | Productive | Dry |
| Exploratory [A] | | | | | | | | |
| Europe | 5 | 2 | | — | — | | — | 1 |
| Asia | 4 | 5 | | 5 | 10 | | 10 | 8 |
| Oceania | 20 | 1 | | — | 2 | | — | 6 |
| Africa | — | 2 | | — | 11 | | 5 | 7 |
| North America - USA | — | 5 | | 3 | 39 | | 57 | 81 |
| North America - Canada | — | — | | — | 15 | | 17 | 1 |
| South America | 18 | 2 | | 5 | 1 | | 5 | 3 |
| Total | 47 | 17 | | 13 | 78 | | 94 | 107 |
| Development | | | | | | | | |
| Europe | 3 | — | | 3 | 1 | | 5 | — |
| Asia | 217 | — | | 218 | — | | 169 | — |
| Oceania | 84 | 1 | | 7 | — | | 20 | — |
| Africa | 5 | — | | 6 | — | | 19 | — |
| North America - USA | 54 | — | | 46 | — | | 110 | — |
| North America - Canada | 22 | — | | — | — | | — | — |
| South America | 23 | — | | 31 | — | | 14 | — |
| Total | 408 | 1 | | 311 | 1 | | 337 | — |
Number of net productive wells and dry holes drilled
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| 2020 | | 2019 | | | 2018 |
| Productive | Dry | | Productive | | Dry | | | Productive | | Dry |
| Exploratory [A] | | | | | | | | | | | |
| Europe | 0 | 1 | | 0 | | 4 | | | 1 | | 2 |
| Asia | 10 | 8 | | 25 | | 17 | | | 22 | | 11 |
| Oceania | 0 | 6 | [B] | 0 | | 2 | | | 0 | | 0 |
| Africa | 5 | 7 | | 8 | | 8 | | | 6 | | 6 |
| North America - USA | 57 | 81 | [C] | 89 | | 9 | | | 104 | | 4 |
| North America - Canada | 17 | 1 | | 24 | | 0 | | | 14 | | 0 |
| South America | 5 | 3 | | 8 | | 1 | | | 6 | | 7 |
| Total | 94 | 107 | | 154 | | 41 | | | 153 | | 30 |
| Development | | | | | | | | | | | |
| Europe | 6 | 0 | | 4 | | 1 | | | 4 | | 0 |
| Asia | 169 | 0 | | 182 | | 0 | | | 198 | | 0 |
| Oceania | 22 | 0 | | 16 | | 0 | | | 54 | | 0 |
| Africa | 19 | 0 | | 34 | | 0 | | | 24 | | 1 |
| North America - USA | 110 | 0 | | 280 | | 5 | | | 276 | | 0 |
| North America - Canada | 0 | 0 | | 6 | | 0 | | | 53 | | 0 |
| South America | 14 | 0 | | 10 | | 1 | | | 5 | | 0 |
| Total | 340 | 0 | | 532 | | 7 | | | 614 | | 1 |
[A]Productive wells are wells with proved reserves allocated. Wells in the process of drilling are excluded and presented separately below.
[B] Includes 4 Wells in Shell Australia (SAL) which were relinquished in June 2020
[C] Includes 75 sold wells in Tioga that were pending determination at time of sale
Number of wells in the process of exploratory drilling [A]
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
|
| At January 1 | Wells in the process of drilling at January 1 and allocated proved reserves during the year | Wells in the process of drilling at January 1 and determined as dry during the year | New wells in the process of drilling at December 31 | At December 31 |
|
| Gross | | Net | | Gross | Net | Gross | Net | Gross | Net | Gross | Net |
| Europe | 15 | | 8 | | 0 | 0 | (3) | (1) | 0 | 0 | 12 | 7 |
| Asia | 53 | | 20 | | (7) | (3) | (7) | (2) | 18 | 7 | 57 | 22 |
| Oceania | 44 | [B] | 17 | [B] | (1) | 0 | (11) | (6) | 0 | 0 | 32 | 11 |
| Africa | 36 | [C] | 24 | [C] | (1) | (1) | (7) | (4) | 0 | 0 | 28 | 19 |
| North America - USA | 219 | [D] | 132 | [D] | (101) | (38) | (90) | (79) | 64 | 28 | 92 | 43 |
| North America - Canada | 21 | | 21 | | (16) | (16) | 0 | 0 | 10 | 10 | 15 | 15 |
| South America | 33 | | 15 | [E] | (7) | (3) | (5) | (3) | 14 | 4 | 35 | 13 |
| Total | 421 | | 237 | | (133) | (61) | (123) | (95) | 106 | 49 | 271 | 130 |
[A] Wells in the process of exploratory drilling includes wells pending further evaluation.
[B] Corrected from 40 Gross (15 Net); Includes 8 Gross (4 Net) in Shell Australia (SAL) which were relinquished in June 2020
[C] Corrected from 45 (28 Net)
[D] Corrected from 197 (126 Net); Includes 75 Gross (75 Net) sold wells in Tioga that were pending determination at time of sale
[E] Corrected from 16
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| 305 | FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORMShell | Form 20-F 20202022 | 228 | |
Financial Statements and Supplements
| | |
| Number of wells in the process of exploratory drilling [A] |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 |
| At January 1 | Wells in the process of drilling at January 1 and allocated proved reserves during the year | Wells in the process of drilling at January 1 and determined as dry during the year | New wells in the process of drilling at December 31 | At December 31 |
|
| Gross | Net | Gross | Net | Gross | Net | Gross | Net | Gross | Net |
| Europe | 12 | 8 | (5) | (5) | (1) | (1) | 3 | 3 | 9 | 5 |
| Asia | 53 | 20 | (5) | (3) | (11) | (3) | 23 | 8 | 60 | 22 |
| Oceania | 68 | 30 | (36) | (18) | (2) | (1) | 41 | 20 | 71 | 31 |
| Africa | 19 | 11 | | | | | 1 | | 20 | 11 |
| North America - USA | 11 | 9 | | | (4) | (3) | 4 | 3 | 11 | 9 |
| North America - Canada | | | | | | | 6 | 6 | 6 | 6 |
| South America | 29 | 11 | (18) | (7) | (2) | (1) | 15 | 7 | 24 | 10 |
| Total | 192 | 89 | (64) | (33) | (20) | (9) | 93 | 47 | 201 | 94 |
[A]Wells in the process of developmentexploratory drilling
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| 2020 |
| At January 1 | | At December 31 |
| Gross | | Net | | | Gross | Net |
| Europe | 9 | | [A] | 3 | | | | 7 | | 2 | |
| Asia | 53 | | | 21 | | | | 41 | | 24 | |
| Oceania | 122 | | [B] | 71 | | | | 191 | | 124 | |
| Africa | 5 | | | 2 | | | | 4 | | 1 | |
| North America - USA | 41 | | | 34 | | | | 30 | | 20 | |
| North America - Canada | — | | | — | | | | — | | — | |
| South America | 12 | | | 8 | | | | 30 | | 21 | |
| Total | 242 | | | 139 | | | | 303 | | 192 | |
| | |
| Number of wells in the process of development drilling |
[A] Corrected from 11
[B] Corrected from 123
| | | | | | | | | | | | | | |
| 2022 |
| At January 1 | At December 31 |
| Gross | Net | Gross | Net |
| Europe | 1 | 1 | 2 | 1 |
| Asia | 38 | 20 | 29 | 16 |
| Oceania | 181 | 111 | 282 | 184 |
| Africa | 5 | 2 | 1 | 1 |
| North America - USA | 9 | 6 | 21 | 12 |
| North America - Canada | 6 | 5 | 6 | 5 |
| South America | 46 | 30 | 18 | 7 |
| Total | 286 | 175 | 359 | 226 |
In addition to the present activities mentioned above, the following recovery methods are operational in the following countries: water flooding (Brazil (including water alternating gas), Brunei, Egypt, Malaysia, Nigeria, Norway, Oman, Russia, the UK and the USA); gas injection (Brunei,(Brazil, Brunei, Kazakhstan, Malaysia, Nigeria and Oman); steam injection (the Netherlands, Oman and the USA), and polymer flooding (Oman).
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| 306 | FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORMShell | Form 20-F 20202022 | 229 | |
Financial Statements and Supplements
Supplementary information – EU taxonomy disclosure
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| | | | |
| Understanding the EU taxonomy Report
What is the EU taxonomy? Regulation EU 2020/852 (the "Taxonomy Regulation") is a classification system for determining when an economic activity can be considered environmentally sustainable according to EU standards. It aims to encourage investment in a low-carbon economy by creating common definitions of Independent Registered Public Accounting Firmsustainability and mandatory disclosures to help investors make informed decisions. How does it work? Non-financial companies screen their eligible activities against the taxonomy’s technical criteria for environmental sustainability and minimum safeguards. This allows them to calculate the share of revenue (turnover), capital expenditure (capex) and operating expenditure (opex) that can be classified as aligned. Why does Shell report voluntarily? Shell supports the EU’s ambition to achieve net zero emissions, which aligns with our own target to become a net-zero emissions energy business by 2050. We report against the taxonomy voluntarily because we recognise the importance of increasing transparency about how companies are progressing in the energy transition, even if the regulation is evolving and not yet mature. What is the reporting scope? The taxonomy’s reporting scope covers Shell’s global business, based on the financial consolidation boundary. Shell’s eligible activities include elements of our chemicals, power, hydrogen, biofuels, electric vehicle charging, carbon capture and storage (CCS) and nature-based solutions (NBS) businesses. Our remaining businesses are non-eligible. | | How does it compare with Shell's other disclosures? The taxonomy's reporting basis differs from that used in our financial statements, which are based on International Financial Reporting Standards (IFRS). For example, it does not recognise our interests in equity accounted joint ventures and associates, goodwill, feasibility expenses or integrated value chains. These and other differences result in lower reported turnover, capex and opex under the taxonomy compared to our other disclosures. What is the significance of the technical criteria? The taxonomy’s technical criteria recognise stringent levels of environmental performance rather than transitional steps or alternative pathways. Due to their complexity and reliance on EU standards, the criteria can be difficult to interpret and apply, especially for activities outside the EU. What share of Shell's business is eligible and aligned? In 2022, Shell’s eligible turnover was 3%, capex was 21% and opex was 16%. At present, there is a lack of consensus in the market about how to interpret various aspects of the technical screening criteria. Shell elects to take a prudent approach, which for 2022 implies zero alignment. However, we assess elements of our solar, wind, hydrogen, low-carbon road transport and renewable energy technology activities to be close to alignment. When fully aligned, this would result in a range of 0.1-0.2% for turnover, 9-10% for capex and 0.3-1.5% for opex. What is Shell doing to increase transparency? The taxonomy does not, in our view, provide a complete picture of Shell's low-carbon business. Nevertheless, we support efforts to improve the framework and advance climate-related disclosure more broadly. For more information, see "Our Journey to Net Zero" on pages 82-109. | |
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Financial Statements and Supplements
Supplementary information – EU taxonomy disclosure continued
Overview
The EU taxonomy is a classification system that translates the European Union’s environmental objectives into criteria for determining when an economic activity can be considered environmentally sustainable for investment purposes.
The taxonomy is designed as a transparency tool to enable investors to compare companies and investment portfolios on a consistent basis. It is not a mandatory list of activities for investors to invest in, nor does it set mandatory environmental performance requirements for companies or financial products.
The taxonomy framework
The Taxonomy Regulation establishes technical criteria for environmental sustainability across more than 100 economic activities and six environmental objectives. So far, criteria have been approved for activities contributing to the first two objectives, climate change mitigation and climate change adaptation. Criteria for the four remaining objectives – water, circular economy, pollution control and biodiversity – are expected to be adopted by the EU in 2023.
An activity is "taxonomy-eligible" if it is described in a delegated act adopted under the Taxonomy Regulation. Such an activity is eligible irrespective of whether it complies with the technical screening criteria.
An activity is "taxonomy-aligned" if it contributes substantially to one or more environmental objectives, does no significant harm to any of the other objectives, is carried out in compliance with minimum human and labour rights safeguards, and complies with the relevant technical screening criteria.
The taxonomy’s disclosure requirements have been phased-in over two years. In 2021, the first year of reporting, non-financial undertakings were required to disclose the total share of turnover, capex and opex associated with their eligible activities. From 2022, they are required to disclose detailed activity-level data on eligibility and alignment as well as additional contextual information.
The EU has stated that the taxonomy will develop over time. The fact that an activity is not recognised as substantially contributing to one of the EU’s environmental objectives does not necessarily mean it is not sustainable. In addition, not all activities with the potential to make a substantial contribution to the environmental objectives are yet included in the framework.
As a UK company with its registered office and headquarters in London, Shell plc is not currently subject to the Taxonomy Regulation. We expect to come into scope in 2024 via the EU’s Corporate Sustainability Reporting Directive (CSRD), which extends the Taxonomy
Regulation’s reporting obligation to third country issuers that list on European exchanges.
Our eligibility
In 2022, Shell’s taxonomy-eligible turnover was $12 billion, capex was $6.7 billion and opex was $0.8 billion. Eligible capex increased by $2.2 billion in 2022 compared to the previous year, driven by higher expenditure for wind, solar, low-carbon road transport and hydrogen. Opex remained steady. Turnover decreased by $3 billion, mainly due to lower chemicals revenues.
Eligible capex as a share of total capex increased to 21% in 2022 from 18% in 2021. Opex increased to 16% in 2022 from 15% in 2021 due in part to lower non-eligible expenditure. Turnover is particularly sensitive to the performance of our non-eligible businesses, decreasing to 3% in 2022 from 6% in 2021 due to a combination of lower chemicals revenue and a 50% increase in turnover for non-eligible activities driven by higher commodity prices.
At present, there is a lack of consensus in the market about how to interpret various aspects of the technical screening criteria. In view of these uncertainties, Shell elects to take an approach which for 2022 implies zero alignment. However, we assess elements of our solar, wind, hydrogen, low-carbon road transport and renewable energy technology activities to be close to alignment. When fully aligned, this would result in a range of 0.1-0.2% for turnover, 9-10% for capex and 0.3-1.5% for opex.
Basis of preparation
Shell seeks to prepare its disclosure in accordance with Delegated Regulation EU 2021/2178 (the "Disclosures Delegated Act") as well as several Commission Notices containing answers to frequently asked questions about taxonomy reporting issued in 2021 and 2022.
Shell has adopted a three-step process to prepare its taxonomy disclosure. Firstly, we begin by identifying our eligible activities and mapping these to our assets and projects. Secondly, we screen those activities for alignment with the technical criteria and the minimum safeguards. Finally, we calculate the metrics for eligibility and alignment, based on the screening results. Each step is discussed below.
Identification of eligible activities
Shell has assessed its business against the economic activities qualifying for the taxonomy’s climate mitigation and climate adaptation objectives. These include the activities listed in Delegated Regulation EU 2021/2139 (the "Climate Delegated Act") and the
gas-related activities listed in Delegated Regulation EU 2022/1214 (the "Complementary Climate Delegated Act").
| | |
| EU taxonomy eligibility 2022 |
| | | | | | | | | | | | | | | | | | | | | | | |
| $ million, except where indicated |
| 2022 | | 2021 |
| Turnover | Capex | Opex | | Turnover | Capex | Opex |
| Eligible | 11,986 | 6,744 | 796 | | 14,984 | 4,548 | 820 |
| Non-eligible | 369,328 | 25,556 | 4,138 | | 246,520 | 20,845 | 4,479 |
| Total | 381,314 | 32,300 | 4,934 | | 261,504 | 25,393 | 5,299 |
| Eligible % of total | 3% | 21% | 16% | | 6% | 18% | 15% |
| Non-eligible % of total | 97% | 79% | 84% | | 94% | 82% | 85% |
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Supplementary information – EU taxonomy disclosure continued
The Taxonomy Regulation does not provide criteria for determining when an economic activity is in scope for reporting. According to EU guidance, an economic activity takes place when resources such as capital, goods, labour, manufacturing techniques or intermediary products are combined to produce specific goods or services. Based on this definition, Shell treats economic activities as in scope for reporting if they correspond to final goods or services offered for sale to customers, or if they are intended to be offered for sale in the future based on current business plans. We do not report on factors of production or overheads, such as real estate or IT, since these do not represent a final good or service. We also do not report on activities which are immaterial to our results and are not intended to operate as stand-alone businesses, such as sales of waste heat or electricity from refineries and chemical plants. In our view, reporting on such activities results in a more complex disclosure and creates double-counting risks, reducing transparency and comparability for users.
For 2022, we identified a total of 12 economic activities as eligible for reporting. All of these contribute to the climate change mitigation objective. The only addition to our activities since last year is 4.29 Electricity Generation from Fossil Gaseous Fuels, which became an eligible activity with the adoption of the Complementary Climate Delegated Act in 2022.
Electric vehicle charging is referenced by multiple economic activities in the taxonomy, each of which has a different set of technical screening criteria. There is a lack of consensus in the market about which one to apply. For 2022, Shell has elected to categorise all its electric vehicle charging businesses under the activity with the most stringent criteria, 6.15 Infrastructure Enabling Low-Carbon Road Transport and Public Transport.
Alignment screening
The Taxonomy Regulation does not prescribe how screening for alignment should be carried out. Shell has developed an internal process to assess its eligible activities for alignment with the technical screening criteria and minimum safeguards, based on our understanding of the requirements of the Disclosures Delegated Act.
For each eligible activity, we begin by identifying the assets in scope for reporting. An asset is typically a discrete element of physical plant or equipment that contributes to an economic activity, such as a chemical plant or a wind farm, or a project in development that is intended to become an asset in the future.
Once the assets for each activity have been defined, we review the Substantial Contribution and Do No Significant Harm (DNSH) criteria and proceed to screen the assets. Screening is carried out by subject matter experts and subject to cross-checking at various levels.
The technical criteria are highly detailed, with extensive references to European standards and regulations which are not widely used outside the region. Applying them poses several challenges. Examples include situations where it is difficult to translate EU standards or regulations to a non-EU context; where Shell is materially aligned with a complex technical standard but varies in certain details; where the criteria are expressed in qualitative terms that are open to interpretation; or where the criteria are designed for narrower range of applications than the one implied by the activity description. These situations require us to apply judgement in determining whether the criteria are met.
Sometimes it is not possible to associate eligible turnover, capex or opex with a specific asset. For example, this can happen when we incur research and development expenses for an activity but the expenditure cannot be tied to a specific project for screening purposes. If alignment cannot be reasonably established, the relevant amounts are classified as eligible but non-aligned.
Situations can arise where we may not be able to screen all assets in scope of an activity. This can occur when an activity contains a large number of early-stage projects and it is more efficient to focus on the most material projects and treat the remaining ones as eligible but
non-aligned. This situation can also arise when assets are acquired
late in the reporting cycle and there is insufficient time to conduct a high quality screening, or when it has not been possible to obtain information about a non-operated asset from joint venture partners. Such assets are treated as eligible but non-aligned by default.
Assets that do not have eligible turnover, capex or opex to report are non-eligible and are not subject to technical screening. In practice, many early-stage projects are non-eligible because they have no turnover or capex to report, while feasibility expenditures incurred prior to a Final Investment Decision (FID) are non-eligible under the opex KPI. Technical screening outcomes described in this disclosure apply only to eligible assets that have been screened in 2022.
Where uncertainty exists with regard to how to interpret or apply any of the technical screening criteria, the relevant assets are assessed as non-aligned. In such cases, we intend to monitor future developments and update our approach as appropriate.
Substantial Contribution
The Substantial Contribution criteria are designed to ensure that an economic activity either has a substantial positive impact on one of the environmental objectives or substantially reduces negative impacts on the environment. The exact criteria vary from activity to activity.
In 2022, all of Shell’s eligible economic activities contribute to the climate change mitigation objective. For five activities, assets in scope for screening were assessed as aligned with the Substantial Contribution criteria, including solar, wind, hydrogen manufacturing, low-carbon road transport, and installation, maintenance and repair of renewable energy technology.
Assets in scope for our remaining activities were assessed as non-aligned. For two activities, alignment could not be established due to uncertainty about how to interpret and apply the technical screening criteria. This was the case for carbon transport and storage, where there are questions as to whether local standards are equivalent to the international and EU standards referenced by the criteria, and for conservation forestry, where the technical criteria differ from internationally recognised carbon credit standards.
Do No Significant Harm
The Do No Significant Harm criteria are designed to ensure that an economic activity does not impede other environmental objectives being reached. The combination of the Substantial Contribution and DNSH criteria are intended to ensure coherence between the taxonomy’s objectives and to avoid progress towards one objective being made at the expense of another.
The DNSH criteria for activities contributing to climate change mitigation include detailed requirements for climate change adaptation, water, circular economy, pollution prevention and biodiversity. The exact criteria vary per objective and activity.
There are four so-called "generic" DNSH criteria, addressing the objectives of climate adaptation, water, pollution control and biodiversity. These generic criteria apply to several of our eligible activities.
Although mitigation of physical risks, whether or not related to climate change, are considered and embedded in the design, construction and operation of assets, Shell’s current approach differs from the Generic Criteria for DNSH to Climate Change Adaptation (Appendix A). We
Financial Statements and Supplements
Supplementary information – EU taxonomy disclosure continued
therefore assess ourselves as non-aligned in 2022. For more information, see "Climate Related Physical Risk" on page 89.
We assess our operating standards as aligned with the Generic Criteria for DNSH to Sustainable Use and Protection of Water and Marine Resources (Appendix B) and Protection and Restoration of Biodiversity and Ecosystems (Appendix D). We review the application of these standards at an asset level during the screening process.
The Generic Criteria for DNSH to Pollution Prevention and Control Regarding Use and Presence of Chemicals (Appendix C) specify that an economic activity should not lead to the manufacture, placing on the market or use of certain specified substances. Shell assesses itself as aligned with paragraphs (a) to (e), with the exception of one chemicals site located outside the EU containing non-aligned electrical equipment. Paragraphs (f) and (g) expand the scope of these substances "except where their use has proven to be essential for society". As the criteria for determining "essential use" are not yet defined in EU regulation, it is not possible to determine alignment with these paragraphs.
Minimum safeguards
The Taxonomy Regulation defines the minimum safeguards as procedures implemented by a company to ensure alignment with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights, including the eight fundamental conventions identified in the Declaration of the International Labour Organisation on Fundamental Principles and Rights at Work and the International Bill of Human Rights.
Respect for human rights is embedded in the Shell General Business Principles and our Code of Conduct. We have an integrated approach to human rights that is embedded into our policies and processes, which are applicable to all employees and contractors. This approach is informed by the UN Guiding Principles on Business and Human Rights.
We assess our taxonomy-eligible activities as compliant with the minimum safeguards. For more information, see "Human Rights" on page 117.
Capex Plan assessment
As specified in points 1.1.2.2 and 1.1.3.2 of the Disclosures Delegated Act, capex and opex can be treated as aligned when such expenditures form part of a "Capex Plan" aimed at expanding an aligned activity or upgrading an eligible activity to enable it to become aligned.
To qualify, a Capex Plan must be approved by management and disclosed at the economic activity aggregated level. The expansion or upgrade must take place within five years unless a longer period is justified by the specific features of the activity and the upgrade concerned, up to a maximum of ten years. The justification for a longer transition period must feature in the Capex Plan and be included in the disclosure. If the Capex Plan fails to meet the conditions within the specified timeframe, previously published KPIs must be restated.
Due to a lack of consensus in the market about how to interpret various aspects of the technical screening criteria, and uncertainty about how the criteria might apply to future performance conditions, Shell has elected not to recognise any capex or opex as aligned under the Capex Plan provision in 2022.
Calculating the key performance indicators
The taxonomy KPIs consist of separate measures for eligible and aligned turnover, capex and opex. Each measure is calculated as the amount associated with eligible or aligned economic activities (numerator) divided by the total (denominator).
Turnover
The turnover KPI comprises the Revenue line from the Consolidated Statement of Income. This measure is reconciled as follows.
| | |
| EU taxonomy turnover 2022 |
| | | | | | | | |
| | $ million |
| 2022 | 2021 |
| Revenue from contracts with customers | 369,606 | 261,378 |
| Revenue from other sources | 11,708 | 126 |
| Total EUT Turnover | 381,314 | 261,504 |
There is uncertainty about the conditions under which hedging effects should be included or excluded when calculating the numerator and denominator for the turnover KPI. Shell’s reporting of revenue in the Consolidated Statement of Income follows the IFRS definition, under which realised and unrealised gains and losses from hedging are recognised in revenue. We follow the same principles when calculating the numerator and denominator for the turnover KPI. In 2022, excluding hedging effects would have an immaterial impact on the numerator and denominator.
Capex
The capex KPI comprises the Additions line from Note 11 – Goodwill and Other Intangible Assets and the Additions line from Note 12 – Property, Plant and Equipment of the Consolidated Financial Statements. As the treatment of goodwill under the taxonomy is uncertain, it is excluded from the measure.
When business combinations involving an eligible activity occur in a prior reporting period but Purchase Price Allocation takes place within the current period, we recognise the resulting movements to Property, Plant and Equipment and Intangible Assets as an addition. These amounts are contained within Note 11 – Goodwill and Other Intangible Assets and Note 12 – Property, Plant and Equipment
in the Sales, Retirements and Other Movements line and are added to the numerator and denominator.
This measure is reconciled as follows.
| | | | | | | | |
| | $ million |
| 2022 | 2021 |
| Additions to property, plant and equipment | 28,254 | 21,719 |
| Additions to goodwill and other intangible assets | 5,555 | 5,220 |
| Less: Goodwill | 1,954 | 1,546 |
| Add: Other movements | 445 | — |
| Total EUT Capex | 32,300 | 25,393 |
The numerator for aligned capex comprises the part of eligible capex that is (a) associated with taxonomy-aligned economic activities; (b) part of a Capex Plan to expand an aligned activity or to enable a non-aligned activity to become aligned; and (c) related to the purchase of output from taxonomy-eligible activities. Due to limited guidance about how (c) should be calculated, our reporting focuses on (a) and (b) only.
Financial Statements and Supplements
Supplementary information – EU taxonomy disclosure continued
The capex KPI as defined by the Taxonomy Regulation differs from Shell’s cash capital expenditure measure. The latter monitors investing activities on a cash basis, excluding items such as lease additions which do not necessarily result in cash outflows in the period. This measure comprises the following lines from the Consolidated Statement of Cash Flows: Capital expenditure, Investments in joint ventures and associates and Investments in equity securities. The cash capex measure is presented on page 333.
Opex
The Taxonomy Regulation defines the opex KPI as costs associated with maintenance and repair, research and development and short-term leases. This is narrower than Shell’s definition of operating expenses and does not capture all of our expenditure on otherwise eligible activities. This measure is reconciled as follows.
| | | | | | | | |
| | $ million |
| 2022 | 2021 |
| Production and manufacturing expenses | 25,518 | 23,822 |
| Selling, distribution and administrative expenses | 12,883 | 11,328 |
| Research and development | 1,075 | 815 |
| Total operating expenses | 39,476 | 35,964 |
| Less: Non-maintenance expenses | 22,211 | 19,981 |
| Less: Selling, distribution and administrative expenses | 12,883 | 11,328 |
| Add: Expenses relating to short-term leases | 552 | 644 |
| Total EUT Opex | 4,934 | 5,299 |
The numerator for aligned opex comprises the part of eligible opex that is (a) associated with taxonomy-aligned economic activities; (b) part of a Capex Plan to expand an aligned activity or to enable a non-aligned activity to become aligned; and (c) related to the purchase of output from taxonomy-eligible activities. Due to limited guidance about how (c) should be calculated, our reporting focuses on (a) and (b) only.
Other accounting policies
Eligibility and alignment are calculated separately for each economic activity.
The reporting boundary for each activity is determined by the description contained in the relevant delegated act. This boundary frequently differs from our integrated value chains and segmental reporting. As a result, various adjustments are needed to calculate the required figures. For example, we exclude sales of third-party products as well as trading and retailing from the calculation of the KPIs. These are significant for Shell’s integrated business model but are not eligible for the taxonomy. Although intra-group sales are non-eligible, sales to our trading and marketing business are used in certain circumstances to calculate the turnover attributable to eligible parts of the value chain.
When a reporting entity is engaged in multiple economic activities, an allocation method is applied so that only the appropriate part is counted. Reconciliation is made to total turnover, capex and opex to avoid double counting.
In some cases, a subsidiary or other related undertaking may have interests in more than one economic activity but there is insufficient data available to disaggregate turnover, capex and opex. In these cases, we allocate the KPIs to the activity that best describes the primary business of the entity.
Shell’s eligible and aligned turnover, capex and opex are presented on pages 313-315 in accordance with templates specified in Annex II of the Disclosures Delegated Act. Disclosures concerning our gas-related activities are presented on pages 316-319 in accordance with the requirements of the Disclosures Delegated Act, Articles 8(6) and (7), including the templates specified in Annex XII.
Contextual information on the KPIs
This section provides additional contextual information to accompany the presentation of the turnover, capex and opex KPIs on pages 313-315.
Turnover
In 2022, Shell’s taxonomy-eligible turnover was $12 billion or 3% of the total. The economic activities that made the biggest contribution to eligible turnover were chemicals and plastics, renewable power (including wind, solar and installation of renewable energy technologies), gas-fired power and low-carbon road transport.
Eligible turnover for renewable power (including wind, solar and installation of renewable energy technologies) increased to $462 million in 2022 from $228 million in 2021. For low-carbon road transport, eligible turnover increased to $99 million in 2022 from $71 million in 2021. The addition of gas-fired power as an economic activity in 2022 added $153 million to turnover in 2022.
Capex
In 2022, Shell’s taxonomy-eligible capex was $6.7 billion or 21% of the total. The economic activities that made the biggest contribution to eligible capex include chemicals and plastics, wind, solar, biofuels, low-carbon road transport and hydrogen.
Eligible capex for solar and wind was a combined $2.9 billion in 2022 compared to $259 million in 2021, driven by business acquisitions and organic growth. Eligible capex for low-carbon transport, which includes electric vehicle charging and hydrogen mobility, was $346 million in 2022 compared to $118 million in 2021. Eligible capex for biofuels increased to $580 million in 2022 from $273 million in 2021, driven by business acquisitions and the construction of our new biofuels facility in Rotterdam. Eligible capex for hydrogen was $139 million in 2022 compared to $11 million in 2021. Eligible capex for plastics fell to $1.9 billion in 2022 from $3 billion in 2021, reflecting the completion of construction activity at our Shell Polymers Monaca polyethylene production facility in Pennsylvania.
Opex
In 2022, Shell’s taxonomy-eligible opex was $796 million or 16% of the total. The economic activities that made the biggest contribution to eligible opex include chemicals, biofuels and hydrogen. Our chemicals business is relatively mature compared to our other eligible activities and accounts for the largest share of opex.
Eligible opex decreased to $796 million in 2022 from $820 million in 2021. A decrease in opex for chemicals was partly offset by increased opex for hydrogen. Eligible opex as share of the total increased to 16% in 2022 from 15% in 2021, due in part to lower
non-eligible expenditure.
Financial Statements and Supplements
Supplementary information – EU taxonomy disclosure continued
| | |
| Scope of taxonomy-eligible activities |
| | | | | | | | | | | |
| No | Economic activity | Scope | Notes |
| 1.4 | Conservation forestry | Nature-based solutions projects that meet the EU taxonomy activity description for conservation forestry and generate capital assets. | [A], [B], [C] |
| 3.10 | Manufacture of hydrogen | Development and operation of hydrogen manufacturing assets. | [A], [B], [C], [D], [E] |
| 3.14 | Manufacture of organic basic chemicals | Manufacture of taxonomy-eligible chemical products. | [A], [B], [C], [D], [F] |
| 3.17 | Manufacture of plastics in primary form | Manufacture of polyethylene. | [A], [B], [C], [D] |
| 4.1 | Electricity generation using solar photovoltaic technology | Development and operation of solar photovoltaic power assets. | [A], [B], [C], [D], [G], [H] |
| 4.3 | Electricity generation from wind power | Development and operation of wind power assets. | [A], [B], [C], [D], [G], [H] |
| 4.13 | Manufacture of biogas and biofuels for use in transport and of bioliquids | Development and operation of assets for the manufacture of biogas and biofuels for use in transport. | [A], [B], [C], [D], [I] |
| 4.29 | Electricity generation from fossil gaseous fuels | Development and operation of gas-fired power assets. | [A], [B], [C], [D], [J], [K] |
| 5.11 | Transport of CO2 | Development and operation of CO2 transport assets. | [A], [B], [L], [M] |
| 5.12 | Underground permanent geological storage of CO2 | Development and operation of CO2 storage assets. | [A], [B], [L], [M] |
| 6.15 | Infrastructure enabling low-carbon road transport and public transport | Development and operation of electric vehicle charging points and hydrogen infrastructure for road transport. | [A], [B], [G] |
| 7.6 | Installation, maintenance and repair of renewable energy technologies | Installation, maintenance and repair of renewable energy technologies, on-site. | [A], [B], [H] |
[A]Excludes interests in equity-accounted joint ventures and associates.
[B]Excludes feasibility expenses incurred prior to final investment decision.
[C]Excludes trading activity.
[D]Excludes sales of third-party products.
[E]Excludes integrated hydrogen units whose outputs are primarily intended for internal consumption, such as desulphurisation in refineries.
[F]Excludes taxonomy non-eligible chemical products.
[G]Excludes B2B/B2C retail sales of electricity.
[H]Excludes expenditure on renewable power projects to reduce Scope 1 and 2 emissions for taxonomy non-eligible target activities.
[I]Excludes ventures engaged in the development of feedstocks for biofuels manufacturing.
[J]Does not include integrated generation or cogeneration units whose outputs are primarily intended for internal consumption.
[K]Does not include upstream exploration and production, midstream, LNG or GTL.
[L]Excludes carbon capture, subject to the remarks in Note [M].
[M]For integrated CCS projects where it not practically possible to distinguish carbon capture, transport and/or storage, the "Storage of CO₂" activity is used.
Financial Statements and Supplements
Supplementary information – EU taxonomy disclosure continued
Turnover KPI
| | |
| Proportion of turnover from products or services associated with taxonomy-aligned economic activities, 2022 [A] |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Substantial contribution criteria | DNSH criteria | Minimum Safeguards (17) | Taxonomy-aligned proportion of turnover 2022 (18) | Taxonomy-aligned proportion of turnover 2021 (19) | Category (enabling activity) (20) | Category (transitional activity) (21) |
Economic
Activities (1) | NACE Code (2) | Absolute turnover (3) | Proportion of turnover (4) | Climate change mitigation (5) | Climate change adaptation (6) | Water and marine resources (7) | Circular economy (8) | Pollution (9) | Biodiversity and ecosystems (10) | Climate change mitigation (11) | Climate change adaptation (12) | Water and marine resources (13) | Circular economy (14) | Pollution (15) | Biodiversity and ecosystems (16) |
| $ million | % | % | % | % | % | % | % | Y/N | Y/N | Y/N | Y/N | Y/N | Y/N | Y/N | % | % | E | T |
| A. TAXONOMY-ELIGIBLE ACTIVITIES |
| A.1 Environmentally sustainable activities (taxonomy-aligned) |
| Turnover of A.1 | | 0 | 0% | | | | | | | | | | | | | | 0% | N/A | | |
| A.2 Taxonomy-eligible but not environmentally sustainable activities (not taxonomy-aligned) |
| 1.4 Conservation forestry | A2.10 | — | —% | | | | | | | | | | | | | | | | | |
| 3.10 Manufacture of hydrogen | C20.11 | — | —% | | | | | | | | | | | | | | | | | |
| 3.14 Manufacture of organic basic chemicals | C20.14 | 11,187 | 3% | | | | | | | | | | | | | | | | | |
| 3.17 Manufacture of plastics in primary form | C20.16 | 69 | 0% | | | | | | | | | | | | | | | | | |
| 4.1 Electricity generation using solar photovoltaic technology | D35.11 | 38 | 0% | | | | | | | | | | | | | | | | | |
| 4.3 Electricity generation from wind power | D35.11 | 59 | 0% | | | | | | | | | | | | | | | | | |
| 4.13 Manufacture of biogas and biofuels for use in transport and of bioliquids | C35.21 | — | —% | | | | | | | | | | | | | | | | | |
| 4.29 Electricity generation from fossil gaseous fuels | D35.11 | 153 | 0% | | | | | | | | | | | | | | | | | |
5.11 Transport of CO2 | H49.50 | — | —% | | | | | | | | | | | | | | | | | |
5.12 Underground permanent geological storage of CO2 | E39.00 | 16 | 0% | | | | | | | | | | | | | | | | | |
| 6.15 Infrastructure enabling low-carbon road transport and public transport | M71 | 99 | 0% | | | | | | | | | | | | | | | | | |
| 7.6 Installation, maintenance and repair of renewable energy technologies | C27 | 366 | 0% | | | | | | | | | | | | | | | | | |
| Turnover of A.2 | | 11,986 | 3% | | | | | | | | | | | | | | | | | |
| Total turnover A1 + A2 | | 11,986 | 3% | | | | | | | | | | | | | | | | | |
| B. TAXONOMY NON-ELIGIBLE ACTIVITIES |
| Turnover of B | | 369,328 | 97% | | | | | | | | | | | | | | | | | |
| Total turnover A + B | | 381,314 | 100% | | | | | | | | | | | | | | | | | |
[A]The taxonomy’s reporting basis differs from that used in Shell’s financial statements, which are based on International Financial Reporting Standards. For example, the taxonomy does not recognise our interests in equity accounted joint ventures and associates; goodwill; feasibility expenses; or the non-eligible parts of integrated value chains. These differences, and others, result in lower reported turnover, capex and opex under the taxonomy compared to our other disclosures.
Financial Statements and Supplements
Supplementary information – EU taxonomy disclosure continued
Capex KPI
| | |
| Proportion of capex from products or services associated with taxonomy-aligned economic activities, 2022 [A] |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Substantial contribution criteria | DNSH criteria | Minimum Safeguards (17) | Taxonomy-aligned proportion of capex 2022 (18) | Taxonomy-aligned proportion of capex 2021 (19) | Category (enabling activity) (20) | Category (transitional activity) (21) |
Economic
Activities (1) | NACE Code (2) | Absolute capex (3) | Proportion of capex (4) | Climate change mitigation (5) | Climate change adaptation (6) | Water and marine resources (7) | Circular economy (8) | Pollution (9) | Biodiversity and ecosystems (10) | Climate change mitigation (11) | Climate change adaptation (12) | Water and marine resources (13) | Circular economy (14) | Pollution (15) | Biodiversity and ecosystems (16) |
| $ million | % | % | % | % | % | % | % | Y/N | Y/N | Y/N | Y/N | Y/N | Y/N | Y/N | % | % | E | T |
| A. TAXONOMY-ELIGIBLE ACTIVITIES |
| A.1 Environmentally sustainable activities (taxonomy-aligned) |
| Capex of A.1 | | 0 | 0% | | | | | | | | | | | | | | 0% | N/A | | |
| A.2 Taxonomy-eligible but not environmentally sustainable activities (not taxonomy-aligned) |
| 1.4 Conservation forestry | A2.10 | 6 | 0% | | | | | | | | | | | | | | | | | |
| 3.10 Manufacture of hydrogen | C20.11 | 139 | 0% | | | | | | | | | | | | | | | | | |
| 3.14 Manufacture of organic basic chemicals | C20.14 | 800 | 2% | | | | | | | | | | | | | | | | | |
| 3.17 Manufacture of plastics in primary form | C20.16 | 1,914 | 6% | | | | | | | | | | | | | | | | | |
| 4.1 Electricity generation using solar photovoltaic technology | D35.11 | 1,753 | 5% | | | | | | | | | | | | | | | | | |
| 4.3 Electricity generation from wind power | D35.11 | 1,109 | 3% | | | | | | | | | | | | | | | | | |
| 4.13 Manufacture of biogas and biofuels for use in transport and of bioliquids | C35.21 | 580 | 2% | | | | | | | | | | | | | | | | | |
| 4.29 Electricity generation from fossil gaseous fuels | D35.11 | 45 | 0% | | | | | | | | | | | | | | | | | |
5.11 Transport of CO2 | H49.50 | — | —% | | | | | | | | | | | | | | | | | |
5.12 Underground permanent geological storage of CO2 | E39.00 | 17 | 0% | | | | | | | | | | | | | | | | | |
| 6.15 Infrastructure enabling low-carbon road transport and public transport | M71 | 346 | 1% | | | | | | | | | | | | | | | | | |
| 7.6 Installation, maintenance and repair of renewable energy technologies | C27 | 35 | 0% | | | | | | | | | | | | | | | | | |
| Capex of A.2 | | 6,744 | 21% | | | | | | | | | | | | | | | | | |
| Total capex A1 + A2 | | 6,744 | 21% | | | | | | | | | | | | | | | | | |
| B. Taxonomy non-eligible activities |
| Capex of B | | 25,556 | 79% | | | | | | | | | | | | | | | | | |
| Total capex A + B | | 32,300 | 100% | | | | | | | | | | | | | | | | | |
[A]The taxonomy’s reporting basis differs from that used in Shell’s financial statements, which are based on International Financial Reporting Standards. For example, the taxonomy does not recognise our interests in equity accounted joint ventures and associates; goodwill; feasibility expenses; or the non-eligible parts of integrated value chains. These differences, and others, result in lower reported turnover, capex and opex under the taxonomy compared to our other disclosures.
Financial Statements and Supplements
Supplementary information – EU taxonomy disclosure continued
Opex KPI
| | |
| Proportion of opex from products or services associated with taxonomy-aligned economic activities, 2022 [A] |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Substantial contribution criteria | DNSH criteria | Minimum Safeguards (17) | Taxonomy-aligned proportion of opex 2022 (18) | Taxonomy-aligned proportion of opex 2021 (19) | Category (enabling activity) (20) | Category (transitional activity) (21) |
Economic
Activities (1) | NACE Code (2) | Absolute opex (3) | Proportion of opex (4) | Climate change mitigation (5) | Climate change adaptation (6) | Water and marine resources (7) | Circular economy (8) | Pollution (9) | Biodiversity and ecosystems (10) | Climate change mitigation (11) | Climate change adaptation (12) | Water and marine resources (13) | Circular economy (14) | Pollution (15) | Biodiversity and ecosystems (16) |
| $ million | % | % | % | % | % | % | % | Y/N | Y/N | Y/N | Y/N | Y/N | Y/N | Y/N | % | % | E | T |
| A. Taxonomy-eligible activities |
| A.1 Environmentally sustainable activities (taxonomy-aligned) |
| Opex of A.1 | | 0 | 0% | | | | | | | | | | | | | | 0% | N/A | | |
| A.2 Taxonomy-eligible but not environmentally sustainable activities (not taxonomy-aligned) |
| 1.4 Conservation forestry | A2.10 | — | —% | | | | | | | | | | | | | | | | | |
| 3.10 Manufacture of hydrogen | C20.11 | 56 | 1% | | | | | | | | | | | | | | | | | |
| 3.14 Manufacture of organic basic chemicals | C20.14 | 658 | 13% | | | | | | | | | | | | | | | | | |
| 3.17 Manufacture of plastics in primary form | C20.16 | 4 | 0% | | | | | | | | | | | | | | | | | |
| 4.1 Electricity generation using solar photovoltaic technology | D35.11 | 0 | 0% | | | | | | | | | | | | | | | | | |
| 4.3 Electricity generation from wind power | D35.11 | 12 | 0% | | | | | | | | | | | | | | | | | |
| 4.13 Manufacture of biogas and biofuels for use in transport and of bioliquids | C35.21 | 56 | 1% | | | | | | | | | | | | | | | | | |
| 4.29 Electricity generation from fossil gaseous fuels | D35.11 | — | —% | | | | | | | | | | | | | | | | | |
5.11 Transport of CO2 | H49.50 | 0 | 0% | | | | | | | | | | | | | | | | | |
5.12 Underground permanent geological storage of CO2 | E39.00 | 4 | 0% | | | | | | | | | | | | | | | | | |
| 6.15 Infrastructure enabling low-carbon road transport and public transport | M71 | 6 | 0% | | | | | | | | | | | | | | | | | |
| 7.6 Installation, maintenance and repair of renewable energy technologies | C27 | — | —% | | | | | | | | | | | | | | | | | |
| Opex of A.2 | | 796 | 16% | | | | | | | | | | | | | | | | | |
| Total opex A1 + A2 | | 796 | 16% | | | | | | | | | | | | | | | | | |
| B. Taxonomy non-eligible activities |
| Opex of B | | 4,138 | 84% | | | | | | | | | | | | | | | | | |
| Total opex A + B | | 4,934 | 100% | | | | | | | | | | | | | | | | | |
[A]The taxonomy’s reporting basis differs from that used in Shell’s financial statements, which are based on International Financial Reporting Standards. For example, the taxonomy does not recognise our interests in equity accounted joint ventures and associates; goodwill; feasibility expenses; or the non-eligible parts of integrated value chains. These differences, and others, result in lower reported turnover, capex and opex under the taxonomy compared to our other disclosures.
Financial Statements and Supplements
Supplementary information – EU taxonomy disclosure continued
Disclosures for nuclear and fossil gas activities
| | |
| Template 1: Nuclear and fossil gas related activities |
| | | | | | | | |
| Row | | 2022 |
| Nuclear energy related activities | |
| 1 | The undertaking carries out, funds or has exposures to research, development, demonstration and deployment of innovative electricity generation facilities that produce energy from nuclear processes with minimal waste from the fuel cycle. | No |
| 2 | The undertaking carries out, funds or has exposures to construction and safe operation of new nuclear installations to produce electricity or process heat, including for the purposes of district heating or industrial processes such as hydrogen production, as well as their safety upgrades, using best available technologies. | No |
| 3 | The undertaking carries out, funds or has exposures to safe operation of existing nuclear installations that produce electricity or process heat, including for the purposes of district heating or industrial processes such as hydrogen production from nuclear energy, as well as their safety upgrades. | No |
| Fossil gas related activities | |
| 4 | The undertaking carries out, funds or has exposures to construction or operation of electricity generation facilities that produce electricity using fossil gaseous fuels. | Yes |
| 5 | The undertaking carries out, funds or has exposures to construction, refurbishment, and operation of combined heat/cool and power generation facilities using fossil gaseous fuels. | No [A] |
| 6 | The undertaking carries out, funds or has exposures to construction, refurbishment and operation of heat generation facilities that produce heat/cool using fossil gaseous fuels. | No [A] |
[A]Shell’s facilities include integrated gas-fired heating, cooling and power generation units which support one or more primary activities. Such units do not operate on a stand-alone basis and are not treated as a separate economic activity for reporting purposes.
| | |
| Template 2: Taxonomy-aligned economic activities (denominator), 2022 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | $ million, except where indicated |
| | Turnover | | Capex | | Opex |
| | CCM + CCA | Climate change mitigation (CCM) | Climate change adaptation (CCA) | | CCM + CCA | Climate change mitigation (CCM) | Climate change adaptation (CCA) | | CCM + CCA | Climate change mitigation (CCM) | Climate change adaptation (CCA) |
| Row | Economic activities | Amount | % | Amount | % | Amount | % | | Amount | % | Amount | % | Amount | % | | Amount | % | Amount | % | Amount | % |
| 1 | Amount and proportion of taxonomy-eligible but not taxonomy-aligned economic activity referred to in Section 4.26 of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI | — | — | — | — | — | — | | — | — | — | — | — | — | | — | — | — | — | — | — |
| 2 | Amount and proportion of taxonomy-aligned economic activity referred to in Section 4.27 of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI | — | — | — | — | — | — | | — | — | — | — | — | — | | — | — | — | — | — | — |
| 3 | Amount and proportion of taxonomy-aligned economic activity referred to in Section 4.28 of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI | — | — | — | — | — | — | | — | — | — | — | — | — | | — | — | — | — | — | — |
| 4 | Amount and proportion of taxonomy-aligned economic activity referred to in Section 4.29 of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI | 0 | 0% | 0 | 0% | — | — | | 0 | 0% | 0 | 0% | — | — | | 0 | 0% | 0 | 0% | — | — |
| 5 | Amount and proportion of taxonomy-aligned economic activity referred to in Section 4.30 of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI | — | — | — | — | — | — | | — | — | — | — | — | — | | — | — | — | — | — | — |
| 6 | Amount and proportion of taxonomy-aligned economic activity referred to in Section 4.31 of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI | — | — | — | — | — | — | | — | — | — | — | — | — | | — | — | — | — | — | — |
| 7 | Amount and proportion of other taxonomy-aligned economic activities not referred to in rows 1 to 6 above in the denominator of the applicable KPI | 0 | 0% | 0 | 0% | — | — | | 0 | 0% | 0 | 0% | — | — | | 0 | 0% | 0 | 0% | — | — |
| 8 | Total applicable KPI | 0 | 0% | 0 | 0% | — | — | | 0 | 0% | 0 | 0% | — | — | | 0 | 0% | 0 | 0% | — | — |
Financial Statements and Supplements
Supplementary information – EU taxonomy disclosure continued
| | |
| Template 3: Taxonomy-aligned economic activities (numerator), 2022 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | $ million, except where indicated |
| | Turnover | | Capex | | Opex |
| | CCM + CCA | Climate change mitigation (CCM) | Climate change adaptation (CCA) | | CCM + CCA | Climate change mitigation (CCM) | Climate change adaptation (CCA) | | CCM + CCA | Climate change mitigation (CCM) | Climate change adaptation (CCA) |
| Row | Economic activities | Amount | % | Amount | % | Amount | % | | Amount | % | Amount | % | Amount | % | | Amount | % | Amount | % | Amount | % |
| 1 | Amount and proportion of taxonomy-aligned economic activity referred to in Section 4.26 of Annexes I and II to Delegated Regulation 2021/2139 in the numerator of the applicable KPI | — | — | — | — | — | — | | — | — | — | — | — | — | | — | — | — | — | — | — |
| 2 | Amount and proportion of taxonomy-aligned economic activity referred to in Section 4.27 of Annexes I and II to Delegated Regulation 2021/2139 in the numerator of the applicable KPI | — | — | — | — | — | — | | — | — | — | — | — | — | | — | — | — | — | — | — |
| 3 | Amount and proportion of taxonomy-aligned economic activity referred to in Section 4.28 of Annexes I and II to Delegated Regulation 2021/2139 in the numerator of the applicable KPI | — | — | — | — | — | — | | — | — | — | — | — | — | | — | — | — | — | — | — |
| 4 | Amount and proportion of taxonomy-aligned economic activity referred to in Section 4.29 of Annexes I and II to Delegated Regulation 2021/2139 in the numerator of the applicable KPI | 0 | 0% | 0 | 0% | — | — | | 0 | 0% | 0 | 0% | — | — | | 0 | 0% | 0 | 0% | — | — |
| 5 | Amount and proportion of taxonomy-aligned economic activity referred to in Section 4.30 of Annexes I and II to Delegated Regulation 2021/2139 in the numerator of the applicable KPI | — | — | — | — | — | — | | — | — | — | — | — | — | | — | — | — | — | — | — |
| 6 | Amount and proportion of taxonomy-aligned economic activity referred to in Section 4.31 of Annexes I and II to Delegated Regulation 2021/2139 in the numerator of the applicable KPI | — | — | — | — | — | — | | — | — | — | — | — | — | | — | — | — | — | — | — |
| 7 | Amount and proportion of other taxonomy-aligned economic activities not referred to in rows 1 to 6 above in the numerator of the applicable KPI | 0 | 0% | 0 | 0% | — | — | | 0 | 0% | 0 | 0% | — | — | | 0 | 0% | 0 | 0% | — | — |
| 8 | Total amount and proportion of taxonomy-aligned economic activities in the numerator of the applicable KPI | 0 | 0% | 0 | 0% | — | — | | 0 | 0% | 0 | 0% | — | — | | 0 | 0% | 0 | 0% | — | — |
Financial Statements and Supplements
Supplementary information – EU taxonomy disclosure continued
| | |
| Template 4: Taxonomy-eligible but not taxonomy-aligned economic activities, 2022 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | $ million, except where indicated |
| | Turnover | | Capex | | Opex |
| | CCM + CCA | Climate change mitigation (CCM) | Climate change adaptation (CCA) | | CCM + CCA | Climate change mitigation (CCM) | Climate change adaptation (CCA) | | CCM + CCA | Climate change mitigation (CCM) | Climate change adaptation (CCA) |
| Row | Economic activities | Amount | % | Amount | % | Amount | % | | Amount | % | Amount | % | Amount | % | | Amount | % | Amount | % | Amount | % |
| 1 | Amount and proportion of taxonomy-eligible but not taxonomy-aligned economic activity referred
to in Section 4.26 of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI | — | — | — | — | — | — | | — | — | — | — | — | — | | — | — | — | — | — | — |
| 2 | Amount and proportion of taxonomy-eligible but not taxonomy-aligned economic activity referred
to in Section 4.27 of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI | — | — | — | — | — | — | | — | — | — | — | — | — | | — | — | — | — | — | — |
| 3 | Amount and proportion of taxonomy-eligible but not taxonomy-aligned economic activity referred
to in Section 4.28 of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI | — | — | — | — | — | — | | — | — | — | — | — | — | | — | — | — | — | — | — |
| 4 | Amount and proportion of taxonomy-eligible but not taxonomy-aligned economic activity referred
to in Section 4.29 of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI | 153 | 1.3% | 153 | 1.3% | — | — | | 45 | 0.7% | 45 | 0.7% | — | — | | — | —% | — | —% | — | — |
| 5 | Amount and proportion of taxonomy-eligible but not taxonomy-aligned economic activity referred
to in Section 4.30 of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI | — | — | — | — | — | — | | — | — | — | — | — | — | | — | — | — | — | — | — |
| 6 | Amount and proportion of taxonomy-eligible but not taxonomy-aligned economic activity referred
to in Section 4.31 of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI | — | — | — | — | — | — | | — | — | — | — | — | — | | — | — | — | — | — | — |
| 7 | Amount and proportion of other taxonomy-eligible but not taxonomy-aligned economic activities not referred to in rows 1 to 6 above in the denominator of the applicable KPI | 11,833 | 98.7% | 11,833 | 98.7% | — | — | | 6,699 | 99.3% | 6,699 | 99.3% | — | — | | 796 | 100% | 796 | 100% | — | — |
| 8 | Total amount and proportion of taxonomy-eligible but not taxonomy-aligned economic activities in the denominator of the applicable KPI | 11,986 | 100% | 11,986 | 100% | — | — | | 6,744 | 100% | 6,744 | 100% | — | — | | 796 | 100% | 796 | 100% | — | — |
Financial Statements and Supplements
Supplementary information – EU taxonomy disclosure continued
| | |
| Template 5: Taxonomy non-eligible economic activities, 2022 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | $ million, except where indicated |
| | Turnover | | Capex | | Opex |
| Row | Economic activities | Amount | % | | Amount | % | | Amount | % |
| 1 | Amount and proportion of economic activity referred to in row 1 of Template 1 that is taxonomy non-eligible in accordance with Section 4.26 of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI | — | — | | — | — | | — | — |
| 2 | Amount and proportion of economic activity referred to in row 2 of Template 1 that is taxonomy non-eligible in accordance with Section 4.27 of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI | — | — | | — | — | | — | — |
| 3 | Amount and proportion of economic activity referred to in row 3 of Template 1 that is taxonomy non-eligible in accordance with Section 4.28 of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI | — | — | | — | — | | — | — |
| 4 | Amount and proportion of economic activity referred to in row 4 of Template 1 that is taxonomy non-eligible in accordance with Section 4.29 of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI [A] | 0 | 0% | | 0 | 0% | | 0 | 0% |
| 5 | Amount and proportion of economic activity referred to in row 5 of Template 1 that is taxonomy non-eligible in accordance with Section 4.30 of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI | — | — | — | — | — | | — | — |
| 6 | Amount and proportion of economic activity referred to in row 6 of Template 1 that is taxonomy non-eligible in accordance with Section 4.31 of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI | — | — | | — | — | | — | — |
| 7 | Amount and proportion of other taxonomy non-eligible economic activities not referred to in rows 1 to 6 above in the denominator of the applicable KPI | 369,328 | 100% | | 25,556 | 100% | | 4,138 | 100% |
| 8 | Total amount and proportion of taxonomy non-eligible economic activities in the denominator of the applicable KPI | 369,328 | 100% | | 25,556 | 100% | | 4,138 | 100% |
[A]The scope of this requirement is not possible to determine based on current EU guidance. Shell intends to monitor future developments and update our approach as appropriate
TO COMPUTERSHARE TRUSTEES (JERSEY) LIMITED AS TRUSTEE OF ROYAL DUTCH SHELL DIVIDEND ACCESS TRUST AND THE BOARD OF DIRECTORS AND SHAREHOLDERS OF ROYAL DUTCH SHELL PLC
Financial Statements
Report of Independent Registered Public Accounting Firm
To computershare Trustees (Jersey) Limited as trustee
of Royal Dutch Shell Dividend Access Trust and the Board of Directors and shareholders of Shell plc
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Royal Dutch Shell Dividend Access Trust (the Trust) as of December 31, 20202022 and 2019,2021, the related statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2020,2022, and the related notes (collectively referred to as the ‘Financial Statements’). In our opinion, the Financial Statements present fairly, in all material respects, the financial position of the Trust at December 31, 20202022 and 2019,2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020,2022, in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Trust's internal control over financial reporting as of December 31, 2020,2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 10, 2021,8, 2023, expressed an unqualified opinion thereon.
Basis for Opinion
These Financial Statementsfinancial statements are the responsibility of the trustee of the Trust (the Trustee) and the management of Royal Dutch Shell plc (the management).plc. Our responsibility is to express an opinion on the Trust’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Financial Statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the Financial Statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the Financial Statements. Our audits also included evaluating the accounting principles used and significant estimates made by the Trustee and the management of Shell plc, as well as evaluating the overall presentation of the Financial Statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statementsFinancial Statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statementsFinancial Statements and (2) involved our especially challenging, subjective, or complex judgements. We determined that there are no critical audit matters.
We have served as the Trust’s auditor since 2016.
London, United Kingdom
March 10, 20218, 2023
TO COMPUTERSHARE TRUSTEES (JERSEY) LIMITED AS TRUSTEE OF ROYAL DUTCH SHELL DIVIDEND ACCESS TRUST AND THE BOARD OF DIRECTORS AND SHAREHOLDERS OF ROYAL DUTCH SHELL PLCTo computershare Trustees (Jersey) Limited as trustee
of Royal Dutch Shell Dividend Access Trust and the Board of Directors and shareholders of Shell plc
Opinion on Internal Control over Financial Reporting
We have audited Royal Dutch Shell Dividend Access Trust’s (the Trust) internal control over financial reporting as of December 31, 2020,2022, based on criteria established in Internal Control— Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (2013 framework) (the COSO criteria).
In our opinion, the Trust maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020,2022, based on the COSO criteria.criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Financial Statements of the Trust, and our report dated March 10, 2021,8, 2023, expressed an unqualified opinion thereon.thereon.
Basis for Opinion
The trustee of the Trust (the Trustee) and the management of Royal Dutch Shell plc (the Management) are responsible for maintaining effective internal control over financial reporting and for their assessment of the effectiveness of internal control over financial reporting included in
the accompanying Trustee’s and Management’s Report on Internal Control over Financial Reporting set out on page 148.198. Our responsibility is to express an opinion on the Trust’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.PCAOB.
| | | | | | | | |
FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2020 | 230 | |
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.statements.
Financial Statements
Report of Independent Registered Public Accounting Firm continued
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
London, United Kingdom
March 10, 20218, 2023
Financial Statements and Supplements
Royal Dutch Shell Dividend Access Trust Financial Statements
Statement of Income
| | | | | | | | | | | |
| | | £ million |
| 2022 | 2021 | 2020 |
| Dividend income | — | 2,201 | 2,777 |
| Income for the period | — | 2,201 | 2,777 |
Statement of Comprehensive Income
| | | | | | | | | | | |
| | | £ million |
| 2022 | 2021 | 2020 |
| Income for the period | — | 2,201 | 2,777 |
| Comprehensive income for the period | — | 2,201 | 2,777 |
Balance Sheet
| | | | | | | | | | | |
| | | £ million |
| Notes | Dec 31, 2022 | Dec 31, 2021 |
| Assets | | | |
| Other current assets | | 6 | 7 |
| Cash and cash equivalents | | — | — |
| Total assets | | 6 | 7 |
| Liabilities | | | |
| Unclaimed dividends | 4 | 6 | 7 |
| Total liabilities | | 6 | 7 |
| Equity | | | |
| Capital account | 5 | — | — |
| Revenue account | | — | — |
| Total equity | | — | — |
| Total liabilities and equity | | 6 | 7 |
Signed on behalf of Computershare Trustees (Jersey) Limited as Trustee of the Royal Dutch Shell Dividend Access Trust.
John Le Marquand
March 8, 2023
Financial Statements and Supplements
Royal Dutch Shell Dividend Access Trust Financial Statements continued
Statement of Changes in Equity
| | | | | | | | | | | | | | |
| | | | £ million |
| Notes | Capital
account | Revenue
account | Total
equity |
| At January 1, 2022 | | — | — | — |
| Comprehensive income for the period | | — | — | — |
| Distributions made | 6 | — | — | — |
| At December 31, 2022 | | — | — | — |
| At January 1, 2021 | | — | — | — |
| Comprehensive income for the period | | — | 2,201 | 2,201 |
| Distributions made | 6 | — | (2,201) | (2,201) |
| At December 31, 2021 | | — | — | — |
| At January 1, 2020 | | — | — | — |
| Comprehensive income for the period | | — | 2,777 | 2,777 |
| Distributions made | 6 | — | (2,777) | (2,777) |
| At December 31, 2020 | | — | — | — |
Statement of Cash Flows
| | | | | | | | | | | |
| | | £ million |
| 2022 | 2021 | 2020 |
| Income for the period | — | 2,201 | 2,777 |
| Adjustment for: | | | |
| Dividends received | — | (2,201) | (2,777) |
| Cash flow from operating activities | — | — | — |
| Dividends received | — | 2,200 | 2,772 |
| Cash flow from investing activities | — | 2,200 | 2,772 |
| Cash distributions made | — | (2,200) | (2,775) |
| Cash flow from financing activities | — | (2,200) | (2,775) |
| Change in cash and cash equivalents | — | — | (3) |
| Cash and cash equivalents at January 1 | — | — | 3 |
| Cash and cash equivalents at December 31 | — | — | — |
| | | | | | | | |
| 323 | FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORMShell | Form 20-F 20202022 | 231 | |
Financial Statements and Supplements
Notes to the Royal Dutch Shell Dividend
Access Trust Financial Statements
| | | | | |
ROYAL DUTCH SHELL DIVIDEND ACCESS TRUST FINANCIAL STATEMENTS |
| |
| | | | | | | | |
FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2020 | 232 | |
| | | | | | | | | | | |
| | | |
| STATEMENT OF INCOME | | | £ million |
| 2020 | 2019 | 2018 |
| Dividend income | 2,777 | | 5,484 | | 5,328 | |
| Income before taxation and for the period | 2,777 | | 5,484 | | 5,328 | |
| | | | | | | | | | | |
| | | |
| STATEMENT OF COMPREHENSIVE INCOME | | | £ million |
| 2020 | 2019 | 2018 |
| Income for the period | 2,777 | | 5,484 | | 5,328 | |
| Comprehensive income for the period | 2,777 | | 5,484 | | 5,328 | |
| | | | | | | | | | | |
| | | |
| BALANCE SHEET | | | £ million |
| Notes | Dec 31, 2020 | Dec 31, 2019 |
| Assets | | | |
| Other current assets | | 7 | | — | |
| Cash and cash equivalents | | — | | 3 | |
| Total assets | | 7 | | 3 | |
| Liabilities | | | |
| Unclaimed dividends | 4 | | 7 | | 3 | |
| Total liabilities | | 7 | | 3 | |
| Equity | | | |
| Capital account | 5 | | — | | — | |
| Revenue account | | — | | — | |
| Total equity | | — | | — | |
| Total liabilities and equity | | 7 | | 3 | |
| | | | | | | | |
Signed on behalf of Computershare Trustees (Jersey) Limited
as Trustee of the Royal Dutch Shell Dividend Access Trust
| | |
| | |
/s/John Le Marquand | | /s/ Martin Fish |
| | |
John Le Marquand | | Martin Fish |
March 10, 2021 | | |
| | | | | | | | | | | | | | |
| | | | |
| STATEMENT OF CHANGES IN EQUITY | | | | £ million |
| Notes | Capital
account | Revenue
account | Total
equity |
| At January 1, 2020 | | — | | — | | — | |
| Comprehensive income for the period | | — | | 2,777 | | 2,777 | |
| Distributions made | 6 | | — | | (2,777) | | (2,777) | |
| At December 31, 2020 | | — | | — | | — | |
| At January 1, 2019 | | — | | — | | — | |
| Comprehensive income for the period | | — | | 5,484 | | 5,484 | |
| Distributions made | 6 | | — | | (5,484) | | (5,484) | |
| At December 31, 2019 | | — | | — | | — | |
| At January 1, 2018 | | — | | — | | — | |
| Comprehensive income for the period | | — | | 5,328 | | 5,328 | |
| Distributions made | 6 | | — | | (5,328) | | (5,328) | |
| At December 31, 2018 | | — | | — | | — | |
| | | | | | | | |
FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2020 | 233 | |
| | | | | | | | | | | |
| | | |
| STATEMENT OF CASH FLOWS | | | £ million |
| 2020 | 2019 | 2018 |
| Income for the period | 2,777 | | 5,484 | | 5,328 | |
| Adjustment for: | | | |
| Dividends received | (2,777) | | (5,484) | | (5,328) | |
| Cash flow from operating activities | — | | — | | — | |
| Dividends received | 2,772 | | 5,484 | | 5,328 | |
| Cash flow from investing activities | 2,772 | | 5,484 | | 5,328 | |
| Cash distributions made | (2,775) | | (5,484) | | (5,327) | |
| Cash flow from financing activities | (2,775) | | (5,484) | | (5,327) | |
| Change in cash and cash equivalents | (3) | | — | | 1 | |
| Cash and cash equivalents at January 1 | 3 | | 3 | | 2 | |
| Cash and cash equivalents at December 31 | — | | 3 | | 3 | |
| | | | | | | | |
FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2020 | 234 | |
| | | | | | | | | | | | | | |
NOTES TO THE ROYAL DUTCH SHELL DIVIDEND ACCESS TRUST FINANCIAL STATEMENTS |
| | | | |
1 THE TRUST
The Royal Dutch Shell Dividend Access Trust (the "Trust") was established on May 19, 2005, by The “Shell”"Shell" Transport and Trading Company, plc,p.l.c., now The Shell Transport and Trading Company Limited (Shell Transport), and Royal Dutch Shell plc, now Shell plc (the "Company"). The Trust is governed by the applicable laws of England and Wales and is resident and domiciled in Jersey. The Trust is not subject to taxation. The Trustee of the Trust is Computershare Trustees (Jersey) Limited, registration number 92182 (the "Trustee"), 13 Castle Street, St Helier, Jersey, JE1 1ES. The Trust was established as part of a dividend access mechanism.
Shell Transport and BG Group Limited (BG), have each issued a dividend access share to the Trustee. FollowingPrior to the assimilation outlined below, following the announcement of a dividend by the Company on the B shares, Shell Transport and BG may declaredeclared a dividend on their dividend access shares.
The primary purposes of the Trust areprior to the assimilation outlined below were to receive, on behalf of the B shareholders of the Company and
in accordance with their respective holdings of B shares in the Company, any amounts paid by way of dividend on the dividend access shares and to pay such amounts to the B shareholders on the same pro rata basis. The Trust is not subject to significant market risk, credit risk or liquidity risk.
On January 29, 2022, one line of shares was established through assimilation of A shares and B shares into a single line of ordinary shares of the Company. This assimilation had no impact on voting rights or dividend entitlements. Dutch withholding tax, applied previously on dividends on A shares, no longer applies on dividends paid on the ordinary shares following assimilation. No further dividends are expected to be declared on the dividend access shares.
The Trust will continue in existence for the foreseeable future to facilitate the payment of unclaimed dividend liabilities for B shareholders,
declared prior to the assimilation of the Company's Class A and B shares, until these are either claimed or forfeited in line with the terms
outlined (see Note 4).
As these unclaimed dividends relate to dividends that were announced by the Company during the period the Company was still named Royal Dutch Shell plc, and it is expected that the Company will not announce any further dividends on the dividend access shares, the Trust continues
to be named The Royal Dutch Shell Dividend Access Trust.
The Trust shall not endure for a period in excess of 80 years from May 19, 2005, being the date on which the Trust Deed was executed.
2 BASIS OF PREPARATION2. Basis of preparation
The Financial Statements of the Trust have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued
by the International Accounting Standards Board (IASB).
The Financial Statements have been prepared under the historical cost convention.convention and on a going concern basis. The accounting policies described in Note 3 have been applied consistently in all periods presented.
The Financial Statements were approved and authorised for issue by the Trustee on March 10, 2021.
The financial results of the Trust are included in the Consolidated Financial Statements on pages 163-210.216-287.
3 SIGNIFICANT ACCOUNTING POLICIES3. Significant accounting policies
The Trust’s accounting policies follow those of Shell as set out in Note 2 ofto the Consolidated Financial Statements (see page 169-176)pages 220-230).
The following are Trust-specific policies.
Presentation and functional currency
The Trust’s presentation and functional currency is sterling. The Trust’s dividend income and dividends paid areprior to the assimilation were principally in sterling.
Dividend income
Dividends on the dividend access shares areprior to the assimilation were recognised on a paid basis unless the dividend hashad been confirmed
by a general meeting of Shell Transport or BG, in which case income iswas recognised on the date on which receipt iswas deemed virtually certain. Dividend income includesincluded amounts receivable from Shell Transport and BG in respect of dividends declared but unclaimed (see Note 4).
Distributions made
Amounts areprior to the assimilation were recorded as distributed once a payment iswas made in the appropriate currency using various electronic transfer methods, or an unconditional payment obligation iswas established. Shell Transport or BG (as appropriate) may have, each at their respective discretion, withholdwithheld any part of the funding relating to an unpayable dividend until such time as the relevant B shareholder providesprovided accurate or complete details for payment of any such dividend.
4 UNCLAIMED DIVIDENDS4. Unclaimed dividends
Unclaimed dividends of £7£6 million (2019: £3(2021: £7 million) include any pre-electronic transfer dividend cheque payments that have not been presented, within 12 months, have expired or have been returned unpresented. Dividends are also classified as unclaimed where amounts have been withheld due to incomplete or incorrect electronic payment details.details. Dividends which are unclaimed after 12 years will unconditionally revert to Shell Transport
and BG once forfeited.
Financial Statements and Supplements
Notes to the Royal Dutch Shell Dividend
Access Trust Financial Statements continued
5 CAPITAL ACCOUNT5. Capital account
The capital account is represented by the dividend access share of 25 pence settled in the Trust by Shell Transport and the dividend access share of 10 pence settled in the Trust by BG. There have been no changes in the capital account in the current or prior year.
6 DISTRIBUTIONS MADE6. Distributions made
Distributions areprior to the assimilation were made to the B shareholders of the Company in accordance with the Trust Deed. See Note 23 of29 to the Consolidated Financial Statements (see page 206)283) for information about dividends per share.
7 RELATED PARTIES7. Related parties
The Trust recognised dividend income of £1,805£0 million (2019: £3,573(2021: £1,437 million; 2018: £3,4702020: £1,805 million) in respect of the dividend access share from Shell Transport and £972£0 million (2019: £1,911(2021: £764 million; 2018: £1,8582020: £972 million) in respect of the dividend access share from BG. The Trust made distributions of £2,777£0 million (2019: £5,484(2021: £2,201 million; 2018: £5,3282020: £2,777 million) to the B shareholders of the Company.
As at December 31, 20202022, the Trust recorded amounts due from Shell Transport of £5£4 million and BG of £2 million relating to unclaimed dividends following a move to electronic settlement of dividend payments in the year.
The Company pays the general and administrative expenses of the Trust, including the auditor’s remuneration.
8 AUDITOR’S REMUNERATION8. Auditor’s remuneration
Auditor’s remuneration for 20202022 audit services was £33,750 (2019:£53,868 (2021: £33,750; 2018:2020: £33,750).
| | | | | | | | |
| 325 | FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORMShell | Form 20-F 20202022 | 235 | |
ADDITIONAL INFORMATIONShareholder Information
Royal Dutch Shell plc (the Company) was incorporated in England and Wales on February 5, 2002, as a private company under the Companies Act 1985, as amended. On October 27, 2004, the Company was re-registered as a public company limited by shares and changed its name from Forthdeal Limited to Royal Dutch Shell plc. On January 21, 2022, the Company changed its name from Royal Dutch Shell plc to Shell plc. The Company is registered at Companies House, Cardiff, under company number 4366849, and at the Chamber of Commerce, The Hague, under company number 34179503.4366849. The Legal Entity Identifier (LEI) issued by the London Stock Exchange is 21380068P1DRHMJ8KU70. The business address for the Directors and Senior Management is Carel van Bylandtlaan 30, 2596 HR, The Hague, The Netherlands.Shell Centre, London, SE1 7NA.
TheOn December 31, 2021, the Company isbecame tax resident in the Netherlands for Dutch and UK tax purposes and itsUnited Kingdom. Its primary objective is to carry on the business of a holding company. It is not directly or indirectly owned or controlled by another corporation or by any government and does not know of any arrangements that may result in a change of control of the Company.
NATURE OF TRADING MARKET
TheOn January 29, 2022, the Company has two classesestablished one single line of ordinary shares: Ashares, each having a nominal value of €0.07. All shares are listed and B shares. The principal trading market for A shares isable to trade at Euronext Amsterdam and the principal trading market for B shares is the London Stock Exchange. Furthermore, all shares are transferable between these two markets. This makes both these exchanges primary exchanges for the ordinary shares.
Ordinary shares are traded in registered form.
A and BThe Company’s American Depositary Shares (ADSs) are listed on the New York Stock Exchange [A]. A depositary receipt is a certificate that evidences ADSs. Depositary receipts are issued, cancelled and exchanged at the office of JP Morgan Chase Bank, N.A., 383 Madison Avenue, New York, New York 10179, USA, as depositary (the Depositary), under a deposit agreement between the Company, the Depositary and the holders of ADSs. Each ADS representsis equivalent to two €0.07ordinary shares of Royal Dutch Shell plc deposited under the agreement. All ordinary shares are capable of being deposited with the Depository in exchange for the corresponding amount of ADSs which may be traded at the New York Stock Exchange. This makes the New York Stock Exchange the primary exchange for the Company’s ADRs. More information relating to ADSs is given on pages 237-238.page 327.
[A]At February 12, 2021, 307,263,635 A ADSs and 292,034,995 B20, 2023, 490,387,002 ADSs were outstanding, representing 14.98% and 15.76%14.12% of the respectiveordinary share capital, class, held by 4,872 and 910 holders of record with an address in the USA, respectively.USA. In addition to holders of ADSs, at February 12, 2021, 21,790 A shares and 929,184 B20, 2023, 911,437 ordinary shares of €0.07 each were outstanding, representing 0.0002% and 0.119%0.0131% of the respectiveordinary share capital, class, held by 299 and 3,0633,031 holders of record registered with an address in the USA, respectively.USA.
| | | | | | | | |
| | |
| Listing information | | |
| A shares | B shares |
| Ticker symbol London | RDSA | RDSB |
| Ticker symbol Amsterdam | RDSA | RDSB |
| Ticker symbol New York (ADS [A]) | RDS.A | RDS.B |
| ISIN for shares | GB00B03MLX29 | GB00B03MM408 |
| ISIN for ADS | US7802592060 | US7802591070 |
| CUSIP | G7690A100 | G7690A118 |
| SEDOL Number Amsterdam | B09CBL4 | B09CBN6 |
| SEDOL Number London | B03MLX2 | B03MM40 |
| SEDOL Number New York | B03MM62 | B03MM73 |
| Weighting on FTSE 100 at 31/12/20 | 3.09 | % | 2.71 | % |
| Weighting on AEX at 31/12/20 | 10.58 | % | not included |
| | | | | | | | | | | |
| Euronext Amsterdam | London Stock Exchange | NYSE |
| Identifiers | Ordinary share | Ordinary share | ADS [A] |
| Market | Primary | Primary | Primary |
| Ticker symbol | SHELL | SHEL | SHEL |
| ISIN | GB00BP6MXD84 | GB00BP6MXD84 | US7802593050 |
| SEDOL | BP6MXT4 | BP6MXD8 | BPK3CG3 |
| CUSIP | G80827 101 | G80827 101 | 780259 305 |
| Index weight at 31/12/22 | AEX: 14.47% | FTSE: 8.60% | —% |
[A] Each A ADS represents two A shares of €0.07 each and each B ADS represents two Bordinary shares of €0.07 each.
SHARE CAPITALShare capital
On January 29, 2022 as part of the Simplification announced on 20 December 2021, the Company’s share capital was assimilated from ordinary A shares and ordinary B shares, into a single line of ordinary shares. Below we provide information on our share capital as at December 31, 2022.
| | |
| Share capital as at December 31, 2022 |
The issued and fully paid share capital of the Company at February 12, 2021,December 31, 2022, was as follows:
| | | | | | | | |
| | |
| | |
| Issued and fully paid |
| Number | Nominal value |
| Ordinary shares of €0.07 each | | |
A shares7,003,503,393 | 4,101,239,499 | | €287,086,765 |
B shares | 3,706,183,836 | | €259,432,869490,245,238 |
| Sterling deferred shares of £1 each [A] | 50,000 | £50,000 |
| | |
| Share capital as at February 20, 2023 |
The issued and fully paid share capital of the Company at February 20, 2023, was as follows:
| | | | | | | | |
| Issued and fully paid |
| Number | Nominal value |
| Ordinary shares of €0.07 each | 6,948,045,092 | €486,363,156.44 |
| Sterling deferred shares of £1 each [A] | 50,000 | £50,000 |
The Directors may only allot new ordinary shares if they have authority from shareholders to do so. The Company seeks to renew this authority annually at its AGM. Under the resolution passed at the Company’s 20202022 AGM, the Directors were granted authority to allot ordinary shares up to an aggregate nominal amount equivalent to approximately one-third of the issued ordinary share capital of the Company (in line with the guidelines issued by institutional investors).
The following is a summary of the material terms of the Company’s ordinary shares, including brief descriptions of the provisions contained in the Articles of Association (the Articles) and applicable laws of England and Wales in effect on the date of this document. This summary does not purport to include complete statements of these provisions:
▪upon issuance, A and Bthe ordinary shares are fully paid and free from all liens, equities, charges, encumbrances and other interest of the Company and not subject to calls of any kind;
▪all A and Bordinary shares rank equally for all dividends and distributions
on ordinary share capital; and
▪A and Ball ordinary shares are admitted to the Official List of the UK Financial Conduct Authority and to trading on the market for listed securities of the London Stock Exchange. A and BOrdinary shares are also admitted to trading on Euronext Amsterdam. A and B ADSs are listed on the New York Stock Exchange.
At December 31, 2020,2022, trusts and trust-like entities holding shares for the benefit of employee share plans of Shell held (directly and indirectly) 2533 million shares of the Company with an aggregate market value of $526$811 million and an aggregate nominal value of €2€3 million.
| | | | | | | | |
| 326 | ADDITIONAL INFORMATION SHELL FORMShell | Form 20-F 20202022 | 236 | |
SIGNIFICANT SHAREHOLDINGSShareholder Information
Significant shareholdings
Significant shareholdings
Interests of investors with 3% or more of A and Bthe Company's ordinary shares combined as at February 12, 202120, 2023 are givenprovided below. The information provided includes the percentage of issued share capital as at February 12, 2021.20,2023.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| A shares | | B shares | | Total |
| Number | % | | Number | % | | Number | % |
| BlackRock Inc. [A] | 308,886,474 | | 7.50 | | | 284,692,962 | | 7.70 | | | 593,579,436 | | 7.60 | |
| The Capital Group Companies, Inc. | 42,482,002 | | 1.04 | | | 349,161,475 | | 9.42 | | | 391,643,477 | | 5.00 | |
| Norges Bank (The Central Bank of Norway) [B] | — | | — | | | 239,413,729 | | 6.50 | | | 239,413,729 | | 3.10 | |
[A] Information presented per Schedules 13G/A filed on February 1, 2021 and February 5, 2021.
[B] Information presented per Schedule 13G/A filed on February 10, 2021.
DIVIDENDS
The following tables show the dividends on each class of share and each class of ADS for the years 2016-2020.
| | | | | | | | | | | | | | | | | |
| | | | | |
| A and B shares | | | | | $ |
| 2020 | 2019 | 2018 | 2017 | 2016 |
| Q1 | 0.16 | | 0.47 | | 0.47 | | 0.47 | | 0.47 | |
| Q2 | 0.16 | | 0.47 | | 0.47 | | 0.47 | | 0.47 | |
| Q3 | 0.17 | | 0.47 | | 0.47 | | 0.47 | | 0.47 | |
| Q4 | 0.17 | | 0.47 | | 0.47 | | 0.47 | | 0.47 | |
| Total announced in respect of the year | 0.65 | | 1.88 | | 1.88 | | 1.88 | | 1.88 | |
| | | | | | | | | | | | | | | | | |
| | | | | |
| A shares | | | | | € [A] |
| 2020 | 2019 | 2018 | 2017 | 2016 |
| Q1 | 0.14 | | 0.42 | | 0.40 | | 0.42 | | 0.42 | |
| Q2 | 0.14 | | 0.43 | | 0.40 | | 0.39 | | 0.42 | |
| Q3 | 0.14 | | 0.42 | | 0.41 | | 0.40 | | 0.44 | |
| Q4 [B] | TBA | 0.42 | | 0.42 | | 0.38 | | 0.44 | |
| Total announced in respect of the year [B] | TBA | 1.68 | | 1.64 | | 1.59 | | 1.72 | |
| Amount paid during the year | 0.84 | | 1.68 | | 1.60 | | 1.65 | | 1.70 | |
[A] Euro equivalent, rounded to the nearest euro cent.
[B] Q4 2020 euro equivalent will be announced on March 15,2021.
| | | | | | | | | | | | | | | | | |
| | | | | |
| B shares | | | | | Pence [A] |
| 2020 | 2019 | 2018 | 2017 | 2016 |
| Q1 | 12.68 | | 36.97 | | 35.18 | | 37.12 | | 32.98 | |
| Q2 | 12.09 | | 38.01 | | 36.50 | | 36.28 | | 35.27 | |
| Q3 | 12.48 | | 35.73 | | 36.77 | | 35.02 | | 37.16 | |
| Q4 [B] | TBA | 36.40 | | 35.94 | | 33.91 | | 38.64 | |
| Total announced in respect of the year [B] | TBA | 147.11 | | 144.39 | | 142.33 | | 144.05 | |
| Amount paid during the year | 73.65 | | 146.65 | | 142.36 | | 147.06 | | 138.19 | |
[A] Sterling equivalent.
[B] Q4 2020 sterling equivalent will be announced on March 15, 2021
| | | | | | | | | | | | | | | | | |
| | | | | |
| A and B ADSs | | | | | $ |
| 2020 | 2019 | 2018 | 2017 | 2016 |
| Q1 | 0.32 | | 0.94 | | 0.94 | | 0.94 | | 0.94 | |
| Q2 | 0.32 | | 0.94 | | 0.94 | | 0.94 | | 0.94 | |
| Q3 | 0.33 | | 0.94 | | 0.94 | | 0.94 | | 0.94 | |
| Q4 | 0.33 | | 0.94 | | 0.94 | | 0.94 | | 0.94 | |
| Total announced in respect of the year | 1.31 | | 3.76 | | 3.76 | | 3.76 | | 3.76 | |
| Amount paid during the year | 1.91 | | 3.76 | | 3.76 | | 3.76 | | 3.76 | |
METHOD OF HOLDING SHARES OR AN INTEREST IN SHARES
| | | | | | | | |
ADDITIONAL INFORMATION SHELL FORM 20-F 2020 | 237 | Investor |
| | | | | | | | | | | |
| | Ordinary Shares |
| | Number | % |
| BlackRock, Inc. [A] | | 666,814,460 | 9.5 |
Designation of the Netherlands as EU Home Member State for regulatory purposes
Following the exit of the UK from the EU and the end of the transition period, the Company announced that the EU Home Member State of the Company for the purposes of the EU Transparency Directive would be the Netherlands as from January 1, 2021. As a consequence, the Company files Transparency Directive and Market Abuse Regulation-related regulatory information with the Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten, or AFM). Major shareholders are required to report substantial holdings in Shell to the AFM in accordance with applicable Dutch law, in addition to their ongoing disclosure obligations under the UK Disclosure Guidance and Transparency Rules (DTR).
Method of holding shares or an interest in shares
There are several ways in which Royal Dutch Shell plc registered shares or an interest in these shares can be held, including:
▪directly as registered shares either in uncertificated form or in certificated form in a shareholder’s own name;
▪indirectly through Euroclear Nederland (in respect of which the Dutch Securities Giro Act (Wet giraal effectenverkeer) is applicable);
▪through the Royal Dutch Shell Corporate Nominee Service;
▪through another third-party nominee or intermediary company; and
▪as a direct or indirect holder of either an A or a B ADS with the Depositary.
AMERICAN DEPOSITARY SHARESAmerican Depositary Shares
The Depositary is the registered shareholder of the shares underlying the A or B ADSs and enjoys the rights of a shareholder under the Articles. Holders of ADSs will not have shareholder rights. The rights of the holder of an A or a B ADS are specified in the Deposit Agreement with the Depositary and are summarised below.
The Depositary will receive all cash dividends and other cash distributions made on the deposited shares underlying the ADSs and, where possible and on a reasonable basis, will distribute such dividends and distributions to holders of ADSs. Rights to purchase
additional shares will also be made available to the Depositary who may make such rights available to holders of ADSs. All other distributions made on the Company’s shares will be distributed by the Depositary in any means that the Depositary thinks is equitable and practical. The Depositary may deduct its fees and expenses and the amount of any taxes owed from any payments to holders and it may sell a holder’s deposited shares to pay any taxes owed. The Depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to holders of ADSs.
The Depositary will notify holders of ADSs of shareholders’ meetings
of the Company and will arrange to deliver voting materials to such holders of ADSs if requested by the Company. Upon request by a holder, the Depositary will endeavour to appoint such holder as proxy in respect of such holder’s deposited shares entitling such holder to attend and vote at shareholders’ meetings. Holders of ADSs may also instruct the Depositary to vote their deposited securities and the Depositary will try, as far as practical and lawful, to vote deposited shares in accordance with such instructions. The Company cannot ensure that holders will receive voting materials or otherwise learn of an upcoming shareholders’ meeting in time to ensure that holders can instruct the Depositary to vote their shares.
Upon payment of appropriate fees, expenses and taxes: (i) shareholders may deposit their shares with the Depositary and receive the corresponding class and amount of ADSs; and (ii) holders of ADSs may surrender their ADSs to the Depositary and have the corresponding class and amount of shares credited to their account.
Further, subject to certain limitations, holders may, at any time, cancel ADSs and withdraw their underlying shares or have the corresponding class and amount of shares credited to their account.
FEES PAID BY HOLDERS OFFees paid by holders of ADSs
The Depositary collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The Depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The Depositary may generally refuse to provide fee-attracting services until its fees for those services are paid. See page 236.328.
PAYMENTS BY DEPOSITARY TO THE COMPANYPayments by Depositary to the Company
J.P. Morgan Chase Bank, N.A., as Depositary, has agreed to share with the Company portions of certain fees collected, less ADS programme expenses paid by the Depositary. For example, these expenses include the Depositary’s annual programme fees, transfer agency fees, custody fees, legal expenses, postage and envelopes for mailing annual and interim financial reports, printing and distributing dividend cheques, electronic filing of US federal tax information, mailing required tax forms, stationery, postage, facsimile and telephone calls and the standard out-of-pocket maintenance costs for the ADSs. From January 1, 2020,2022, to February 12, 2021,December 31, 2022, the Company received $6,418,504.69$2,744,521.66 from the Depositary.
DIVIDEND REINVESTMENT PLAN
Equiniti Financial Services Limited, part of the same group of companies as the Company’s Registrar, Equiniti Limited, operates a Dividend Reinvestment Plan (DRIP) which enables RDS shareholders to elect to have their dividend payments used to purchase RDS shares of the same class as those already held by them. More information can be found at www.shareview.co.uk/info/drip or by contacting Equiniti.
ABN AMRO Bank N.V. and JP Morgan Chase Bank N.A. also operate dividend reinvestment options. More information can be found by contacting the relevant provider.
Additional Information
Shareholder Information
| | | | | |
| Persons depositing or withdrawing shares must pay: | For: |
| $5.00 or less per 100 ADSs (or portion of 100 ADSs) | ▪Issuance of ADSs, including those resulting from a distribution of shares, rights or other property;
▪Cancellation of ADSs for the purpose of their withdrawal, including if the deposit agreement terminates; and
▪Distribution of securities to holders of deposited securities by the Depositary to ADS registered holders. |
| Registration and transfer fees | ▪Registration and transfer of shares on the share register to or from the name of the Depositary or its agent when they deposit or withdraw shares. |
| Expenses of the Depositary | ▪Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement); and ▪Converting foreign currency into dollars. |
| Taxes and other governmental charges the Depositary or the custodian has to pay on any ADS or share underlying an ADS, for example, share transfer taxes, stamp duty or withholding taxes | ▪As necessary. |
In addition to the above, the Depositary may charge: (i) a dividend fee of $5.00 or less per 100 ADSs (or portion of 100 ADSs) for cash dividends or issuance of ADSs resulting from share dividends and (ii) an administrative fee of $5.00 or less per 100 ADSs (or portion of 100 ADSs) per calendar year. The Company and Depositary have agreed not to charge these fees at this time.
EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERSEquiniti Financial Services Limited, part of the same group of companies as the Company’s Registrar, Equiniti Limited, operates a Dividend Reinvestment Plan (DRIP) which enables Shell plc shareholders to elect to have their dividend payments used to purchase Shell plc ordinary shares. More information can be found at www.shareview.co.uk/info/drip or by contacting Equiniti.
ABN AMRO Bank N.V. and JP Morgan Chase Bank N.A. also operate dividend reinvestment options. More information can be found by contacting the relevant provider.
Exchange controls and other limitations affecting security holders
Other than restrictions affecting those individuals, entities, government bodies, corporations, or agenciesactivities that are subject totargeted by European Union (EU) or UK sanctions for example, regarding Syria, and those sanctions adopted by the government of the UK,Russia or North Korea, and the general EU prohibition to transfer funds to and from for example, North Korea or Syria, we are not aware of any other
legislative or other legal provision currently in force in the UK, the Netherlands, the EU or arising under the Articles restricting remittances to holders of the Company’s ordinary shares who are non-residents of the UK, or affecting the import or export of capital.
TAXATION
Taxation
General
The Company is incorporated in England and Wales and was tax-resident in the Netherlands. Netherlands during 2021. The Company changed tax residence from the Netherlands to the UK on December 31, 2021.
As a tax resident of the Netherlands, it is generally required by Dutch law to withhold tax at a rate of 15% on dividends on its ordinary shares and ADSs, subject to the provisions of any applicable tax convention or domestic law. Depending on their particular circumstances, non-Dutch tax-resident holders may be entitled to a full or partial refund of Dutch withholding tax. The following sets forth the operation of other provisions
| | | | | | | | |
ADDITIONAL INFORMATION SHELL FORM 20-F 2020 | 238 | |
on dividends on the Company’s various ordinary shares and ADSs to UK and US holders, as well as certain other tax rules pertinent to holders.holders for the 2021 financial year. Holders should consult their own tax adviser if they are uncertain as to the tax treatment of any dividend.
Dividends paid on the dividend access shares
There isAs part of the Simplification, the A ordinary shares and B ordinary shares were assimilated into one single line of ordinary shares. Prior to the assimilation, there was no Dutch withholding tax on dividends on B shares or B ADSs, provided that such dividends are paid on the dividend access shares pursuant to the dividend access mechanism (see “Dividend"Dividend access mechanism for B shares”shares" on page 154)206). Dividends paid on the dividend access shares are treated as UK-source for tax purposes and there is no UK withholding tax on them.
In 2020,2021, all dividends with respect to B shares and B ADSs were paid on the dividend access shares pursuant to the dividend access mechanism.
Additional Information
Shareholder Information
Dutch withholding tax
On January 29, 2022, one line of shares was established through assimilation of each A share and each B share into one single line of ordinary shares of the Company. This assimilation had no impact on voting rights or dividend entitlements. Dutch dividend withholding tax, applied previously on dividends on A shares, no longer applies on dividends paid on the now assimilated ordinary shares following the move of the Company’s tax residence to the UK.
The following applies to dividends paid in the 2021 and prior financial years and is included in the report for reference:
When Dutch withholding tax applies on dividends paid to a US holder (that is, dividends on A shares or A ADSs, or on B shares or B ADSs that are not paid on the dividend access shares pursuant to the dividend access mechanism), the US holder will be subject to Dutch withholding tax at the rate of 15%. A US holder who is entitled to the benefits of the 1992 Double Taxation Convention (the Convention) between the USA and the Netherlands as amended by the protocol signed on March 8, 2004, will be entitled to a reduction in the Dutch withholding tax, either by way of a full or a partial exemption at source or by way of a partial refund or a credit as follows:
▪if the US holder is an exempt pension trust as described in article 35 of the Convention, or an exempt organisation as described in article 36 thereof, the US holder will be exempt from Dutch withholding tax; or
▪if the US holder is a company that holds directly at least 10% of the voting power in the Company, the US holder will be subject to Dutch withholding tax at a rate not exceeding 5%.
In general, the entire dividend (including any amount withheld) will be dividend income to the US holder and the withholding tax will be treated as a foreign income tax that is eligible for credit against the US holder’s income tax liability or a deduction subject to certain limitations. A “US holder”"US holder" includes, but is not limited to, a citizen or resident of the USA, or a corporation or other entity organised under the laws of the USA or any of its political subdivisions.
When Dutch withholding tax applies on dividends paid to UK tax-resident holders (that is, dividends on A shares or A ADSs, or on B shares or B ADSs that are not paid on the dividend access shares pursuant to the dividend access mechanism), the dividend will typically be subject to withholding tax at a rate of 15%. Such UK tax-resident holder may be entitled to a credit (not repayable) for withholding tax against their UK tax liability. However, certain corporate shareholders are, subject to conditions, exempt from UK tax on dividends. Withholding tax suffered cannot be offset against such exempt dividends. UK tax-resident holders should also be entitled to claim a refund of one-third of the Dutch withholding tax from the Dutch tax authorities in reliance on the tax convention between the Netherlands
and the UK. Pension plans meeting certain defined criteria can, however, be entitled to claim a full refund or exemption at source of the dividend tax withheld. Also, UK tax-resident corporate shareholders holding at least a 5% shareholding and meeting other defined criteria are exempted at source from dividend tax.
For holders who are tax-resident in any other country, the availability of a whole or partial exemption or refund of Dutch withholding tax is governed by Dutch tax law and/or the tax convention, if any, between the Netherlands and the country of the holder’s residence.
There may be other grounds on which holders who are tax-resident in the UK, the USA or any other country can obtain a full or partial refund of the Dutch withholding tax, depending on their particular circumstances; see “Taxation: General”"Taxation: General" above.
Dutch capital gains taxation
Capital gains on the sale of shares of a Dutch tax-resident company by a US holder are generally not subject to taxation by the Netherlands unless the US holder has a permanent establishment therein and the capital gain is derived
from the sale of shares that are part of the business property of the permanent establishment.
Dutch succession duty and gift taxes
Shares of a Dutch tax-resident company held by an individual who is not a resident or a deemed resident of the Netherlands will generally not be subject to succession duty in the Netherlands
on the individual’s death.
A gift of shares of a Dutch tax-resident company by an individual who is not a resident or a deemed resident of the Netherlands is generally not subject to Dutch gift tax.
UK stamp duty and stamp duty reserve tax
Sales or transfers of the Company’s ordinary shares within a clearance service (such as Euroclear Nederland) or of the Company’s ADSs within the ADS depositary receipts system will not give rise to a stamp duty reserve tax (SDRT) liability and should not in practice require the payment of UK stamp duty.
The transfer of the Company’s ordinary shares to a clearance service (such as Euroclear Nederland) or to an issuer of depositary shares (such as ADSs) will generally give rise to a UK stamp duty or SDRT liability at the rate of 1.5% of consideration given or, if none, of the value of the shares. A sale of the Company’s ordinary shares that are not held within a clearance service (for example, settled through the UK’s CREST system of paperless transfers) will generally be subject to UK stamp duty or SDRT at the rate of 0.5% of the amount of the consideration, normally paid by the purchaser.
Capital gains tax
For the purposes of UK capital gains tax, the market values [A] of the shares of the former public parent companies of the Royal Dutch/Shell Group at the relevant dates were:
| | | | £ | | | £ |
| | March 31, 1982 | July 20, 2005 | | March 31, 1982 | July 20, 2005 |
| Royal Dutch Petroleum Company (N.V. Koninklijke Nederlandsche Petroleum Maatschappij) which ceased to exist on December 21, 2005 | Royal Dutch Petroleum Company (N.V. Koninklijke Nederlandsche Petroleum Maatschappij) which ceased to exist on December 21, 2005 | 1.1349 | | 17.6625 | | Royal Dutch Petroleum Company (N.V. Koninklijke Nederlandsche Petroleum Maatschappij) which ceased to exist on December 21, 2005 | 1.1349 | 17.6625 |
| The “Shell” Transport and Trading Company, p.l.c. which delisted on July 19, 2005 | 1.4502 | | Not applicable | |
| The "Shell" Transport and Trading Company, p.l.c. which delisted on July 19, 2005 | | The "Shell" Transport and Trading Company, p.l.c. which delisted on July 19, 2005 | 1.4502 | Not
applicable |
[A]Restated where applicable to reflect all capitalisation issues since the relevant date. This includes the change in the capital structure in 2005, when Shell plc (at the time known as Royal Dutch Shell plcplc) became the single parent company of Royal Dutch Petroleum Company and of The “Shell”"Shell" Transport and Trading Company, p.l.c., now The Shell Transport and Trading Company Limited, and one share in Royal Dutch Petroleum Company was exchanged for two Royal Dutch Shell plc A shares and one share in The “Shell”"Shell" Transport and Trading Company, p.l.c. was exchanged for 0.287333066 Royal Dutch Shell plc B shares.
| | | | | | | | |
| 329 | ADDITIONAL INFORMATION SHELL FORMShell | Form 20-F 20202022 | 239 | |
| | | | | |
SECTION 13(r) OF THE US SECURITIES EXCHANGE ACT OF 1934 DISCLOSURE |
| |
Section 13(r) of the US Securities Exchange Act of 1934 Disclosure
In accordance with our General Business Principles and Code of Conduct, Shell seeks to comply with all applicable international trade laws, including applicable sanctions and embargoes.
The activities listed below have been conducted outside the USA by non-US affiliates of Royal Dutch Shell plc. None of the payments disclosed below were made in US dollars, nor are any of the balances disclosed below held in US dollars; however, for disclosure purposes, all have been converted into US dollars at the appropriate exchange rate.
We do not believe that any of the transactions or activities listed below violated US sanctions.
In 2020, we discovered2022, a 2017 paymentfee of $101$66 for the legalization of a meal between aPower of Attorney for General Representative of the Branch in the Islamic Republic of Iran of Shell employee and an employee of National Iranian Gas Company (NIGC) and the NIGC employee’s wife thatDevelopment Iran B.V. was not previously disclosed.
In 2020, we discovered payments made in 2018 of $22 for an insurance fee to Iran Insurance Company and $122 for passports/visa feespaid through CIBT (intermediary company) to the Consulate GeneralEmbassy of the Islamic Republic of Iran in Dubai, United Arab Emirates, neither of which were previously disclosed.
In 2020, Saba & Co. Intellectual Property s.a.l (Offshore) (Saba & Co.) made the following payments on our behalf to the Iranian Intellectual Property Office (IIPO): (i) $137 for trademark registration fees and (ii) $195 for filing an opposition against trademark SHELL no 139850140001082181 in Iran. In addition, Saba & Co. made payments on our behalf to Abardad International Law Offices of $808 for professional, translation and publication services related to our trademark registration and $1,368 for professional, translation and legalization services related to the trademark opposition matter before the IIPO. There was no gross revenue or net profit associated with these transactions.
During 20202022, we paid $7,758$162 for the clearance of overflight permits for Shell aircraft over Iranian airspace.airspace to Civil Aviation Organisation (Iran). There was no gross revenue or net profit associated with these transactions. On occasion, our aircraft may be routed over Iran and therefore these payments may continue in the future.
We maintain accounts with Karafarin Bank, where our cash deposits (balance of $5,764,076$5,682,796 at December 31, 2020)2022) generated non-taxable interest income of $232,115$267,709 in 2020. In addition,2022 and we paid $5$2 in bank charges in 2020.
| | | | | | | | |
| 330 | ADDITIONAL INFORMATION SHELL FORMShell | Form 20-F 20202022 | 240 | |
| | | | | |
NON-GAAP MEASURES RECONCILIATION |
| |
Non-GAAP measures reconciliations
These non-GAAP measures, also known as alternative performance measures, are financial measures other than those defined in International Financial Reporting Standards, which Shell considers provide useful information. With effect from January 1, 2022, the reporting segments are aligned with Shell’s Powering Progress strategy. The Renewables and Energy Solutions business is now reported separately from Integrated Gas. Shales assets in Canada are now reported as part of the Integrated Gas segment instead of the Upstream segment. The Oil Products and Chemicals segments are reorganised into two segments – Marketing, and Chemicals and Products. Prior period comparatives have been revised to conform with current year presentation. The reporting segment changes have no impact at a Group level.
EARNINGS ON A CURRENT COST OF SUPPLIES BASISEarnings on a current cost of supplies basis
Segment earnings are presented on a current cost of supplies basis (CCS earnings), which is the earnings measure used by the Chief Executive Officer for the purposes of making decisions about allocating resources and assessing performance. On this basis, the purchase price of volumes sold during the period is based on the current cost of supplies during the same period after making allowance for the tax effect. CCS earnings therefore exclude the effect of changes in the oil price on inventory carrying amounts. The current cost of supplies adjustment does not impact cash flow from operating activities in the “Consolidated"Consolidated Statement of Cash Flows”Flows".
| | | | | | | | | | | |
| | | |
| Reconciliation of income for the period to CCS earnings | $ million |
| 2020 | 2019 | 2018 |
| Income/(loss) attributable to Royal Dutch Shell plc shareholders | (21,680) | | 15,842 | | 23,352 | |
| Income/(loss) attributable to non-controlling interest | 146 | | 590 | | 554 | |
| Income/(loss) for the period | (21,534) | | 16,432 | | 23,906 | |
| Current cost of supplies adjustment | 1,833 | | (605) | | 458 | |
| Of which: | | | |
| Attributable to Royal Dutch Shell plc shareholders | 1,759 | | (572) | | 481 | |
| Attributable to non-controlling interest | 74 | | (33) | | (23) | |
| CCS earnings | (19,701) | | 15,827 | | 24,364 | |
| Of which: | | | |
| Attributable to Royal Dutch Shell plc shareholders | (19,921) | | 15,270 | | 23,833 | |
| Attributable to non-controlling interest | 220 | | 557 | | 531 | |
| | |
| Reconciliation of income for the period to CCS earnings |
| | | | | | | | | | | |
| $ million |
| 2022 | 2021 | 2020 |
| Income/(loss) attributable to Shell plc shareholders | 42,309 | 20,101 | (21,680) |
| Income/(loss) attributable to non-controlling interest | 565 | 529 | 146 |
| Income/(loss) for the period | 42,874 | 20,630 | (21,534) |
| Current cost of supplies adjustment | (1,312) | (3,148) | 1,833 |
| Of which: | | | |
| Attributable to Shell plc shareholders | (1,196) | (3,029) | 1,759 |
| Attributable to non-controlling interest | (116) | (119) | 74 |
| CCS earnings | 41,562 | 17,482 | (19,701) |
| Of which: | | | |
| Attributable to Shell plc shareholders | 41,113 | 17,072 | (19,921) |
| Attributable to non-controlling interest | 449 | 410 | 220 |
ADJUSTED EARNINGSAdjusted Earnings and Adjusted Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA)
The “Adjusted Earnings”"Adjusted Earnings" measure aims to facilitate a comparative understanding of Shell’s financial performance from period to period by removing the effects of oil price changes on inventory carrying amounts and removing the effects of identified items. These items are in some cases driven by external factors and may, either individually or collectively, hinder the comparative understanding of Shell’s financial results from period to period.
The "Adjusted EBITDA (CCS basis)" measure is used by management to evaluate Shell’s performance in the period and over time. We define "Adjusted EBITDA (CCS basis)" as "Income/(loss) for the period" adjusted for current cost of supplies; identified items; tax charge/(credit); depreciation, amortisation and depletion; exploration well write-offs and net interest expense. All items include the non-controlling interest component.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| $ million |
| 2022 | 2021 | 2020 |
| Shell | IG | UP | Mark | C&P | R&ES | Corp | Shell | IG | UP | Mark | C&P | R&ES | Corp | Shell | IG | UP | Mark | C&P | R&ES | Corp |
| CCS Earnings [A] | 41,562 | | 22,212 | | 16,222 | | 2,133 | | 4,515 | | (1,059) | | (2,461) | | 17,482 | | 8,060 | | 9,603 | | 3,535 | | 404 | | (1,514) | | (2,606) | | (19,701) | | (7,230) | | (9,300) | | 4,081 | | (3,821) | | (479) | | (2,952) | |
| Less: Identified items | 1,259 | | 6,075 | | (1,096) | | (622) | | (204) | | (2,805) | | (90) | | (2,235) | | (988) | | 1,587 | | 68 | | (1,712) | | (1,272) | | 81 | | (24,777) | | (11,443) | | (6,874) | | 13 | | (6,656) | | (277) | | 460 | |
| Adjusted Earnings - segments | | 16,137 | | 17,319 | | 2,754 | | 4,719 | | 1,745 | | (2,371) | | | 9,048 | | 8,015 | | 3,468 | | 2,115 | | (243) | | (2,686) | | | 4,213 | | (2,426) | | 4,068 | | 2,835 | | (202) | | (3,412) | |
| Less: CCS earnings attributable to NCI | 449 | | | | | | | | 410 | | | | | | | | 220 | | | | | | | |
| Add: Identified items attributable to NCI | 15 | | | | | | | | (19) | | | | | | | | (10) | | | | | | | |
| Adjusted Earnings | 39,870 | | | 19,289 | | | 4,846 | | |
[A]See Note 8 to the Consolidated Financial Statements on pages 245-249.
[B]Non-controlling interest (NCI).
[C]Segments above are as follows: Integrated Gas (IG); Upstream (UP); Marketing (Mark); Chemicals and Products (C&P); Renewables and Energy Solutions (R&ES); and Corporate (Corp).
Additional Information
| | | | | | | | | | | |
| Adjusted Earnings | $ million |
| 2020 | 2019 | 2018 |
| Income/(loss) attributable to Royal Dutch Shell shareholders | (21,680) | | 15,842 | | 23,352 | |
| Add: Current cost of supplies adjustment attributable to Royal Dutch Shell plc shareholders | 1,759 | | (572) | | 481 | |
| Less: Identified items attributable to Royal Dutch Shell plc shareholders | (24,767) | (1,192) | 2,429 |
| Adjusted Earnings | 4,846 | 16,462 | 21,404 |
| Of which: | | | |
| Integrated Gas | 4,383 | | 8,955 | | 9,399 | |
| Upstream | (2,852) | | 4,452 | | 6,472 | |
| Oil Products | 5,995 | | 6,231 | | 5,794 | |
| Chemicals | 962 | | 741 | | 2,076 | |
| Corporate | (3,412) | | (3,383) | | (1,806) | |
| less: Non-controlling interest | (230) | | (535) | | (531) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| $ million |
| 2022 | 2021 | 2020 |
| Shell | IG | UP | Mark | C&P | R&ES | Corp | Shell | IG | UP | Mark | C&P | R&ES | Corp | Shell | IG | UP | Mark | C&P | R&ES | Corp |
| Adjusted Earnings | 39,870 | | | | | | | | 19,289 | | | | | | | | 4,846 | | | | | | | |
| Add: NCI | 434 | | | | | | | | 429 | | | | | | | | 230 | | | | | | | |
| Adjusted Earnings plus NCI | 40,304 | | 16,137 | | 17,319 | | 2,754 | | 4,719 | | 1,745 | | (2,371) | | 19,718 | | 9,048 | | 8,015 | | 3,468 | | 2,115 | | (243) | | (2,686) | | 5,076 | | 4,213 | | (2,426) | | 4,068 | | 2,835 | | (202) | | (3,412) | |
| Add: Taxation charge/(credit) excluding tax impact of identified items | 18,578 | | 4,704 | | 11,831 | | 952 | | 841 | | 346 | | (96) | | 8,482 | | 2,231 | | 5,662 | | 955 | | 277 | | (55) | | (588) | | 2,252 | | 1,314 | | 992 | | 893 | | (398) | | (14) | | (535) | |
| Add: Depreciation, depletion and amortisation excluding impairments | 22,393 | | 5,544 | | 11,889 | | 1,573 | | 3,004 | | 365 | | 18 | | 23,071 | | 5,389 | | 12,574 | | 1,575 | | 3,235 | | 281 | | 17 | | 24,981 | | 5,851 | | 13,805 | | 1,455 | | 3,604 | | 244 | | 22 | |
| Add: Exploration well write-offs | 881 | | 142 | | 738 | | | | | — | | 639 | | 15 | | 624 | | | | | — | | 815 | | 452 | | 363 | | | | | — | |
| Add: Interest expense excluding identified items | 3,181 | | 84 | | 345 | | 45 | | 22 | | 2 | | 2,683 | | 3,607 | | 71 | | 331 | | 26 | | 44 | | — | | 3,135 | | 4,089 | | 78 | | 368 | | 43 | | 15 | | 3 | | 3,582 | |
| Less: Interest income | 1,046 | | 43 | | 22 | | — | | 24 | | (2) | | 959 | | 511 | | — | | 37 | | 3 | | 36 | | 4 | | 431 | | 679 | | — | | 56 | | 4 | | 25 | | 5 | | 589 | |
| Adjusted EBITDA (CCS basis) | 84,289 | | 26,569 | | 42,100 | | 5,324 | | 8,561 | | 2,459 | | (725) | | 55,004 | | 16,754 | | 27,170 | | 6,021 | | 5,635 | | (21) | | (554) | | 36,533 | | 11,908 | | 13,045 | | 6,455 | | 6,032 | | 25 | | (933) | |
Adjusted Earnings per share[A] Non-controlling interest (NCI).
| | | | | | | | | | | |
| $ million |
| 2020 | 2019 | 2018 |
| Adjusted Earnings | 4,846 | 16,462 | 21,404 |
| Basic weighted average number of shares | 7,795.6 | | 8,058.3 | | 8,282.8 | |
| Adjusted EPS | 0.62 | | 2.04 | | 2.58 | |
Identified Items
The objective of identified items is to remove material impacts on net income/loss arising from transactions which are generally uncontrollable and unusual (infrequent or non-recurring) in nature or giving rise to a mismatch of accounting and economic results, or certain transactions that are generally excluded from underlying results in the industry.
| | | | | | | | | | | | | | |
| $ million |
| 2022 | | 2021 | 2020 |
| Identified items included in Income/(loss) before taxation | | | | |
| Divestment gains/(losses) | 657 | | 5,996 | 316 |
| Impairment reversals/(impairments) | 2,260 | | (3,884) | (28,061) |
| Redundancy and restructuring | 44 | | (227) | (883) |
| Provisions for onerous contracts | (508) | | (340) | (1,392) |
| Fair value accounting of commodity derivatives and certain gas contracts | 3,244 | | (3,249) | (1,151) |
| Other | (1,519) | [A] | (621) | (706) |
| Total identified items included in Income/(loss) before taxation | 4,178 | | (2,326) | (31,877) |
| Total identified items included in Taxation charge/(credit) | (2,919) | [B] | 91 | 7,100 |
| Identified items included in Income/(loss) for the period | 1,259 | | (2,235) | (24,777) |
| Divestment gains/(losses) | 418 | | 4,632 | 4 |
| Impairment reversals/(impairments) | 725 | | (2,993) | (21,267) |
| Redundancy and restructuring | 43 | | (140) | (644) |
| Provisions for onerous contracts | (487) | | (299) | (1,120) |
| Fair value accounting of commodity derivatives and certain gas contracts | 3,421 | | (2,764) | (1,034) |
| Impact of exchange rate movements on tax balances | (57) | | (128) | (240) |
| Other | (2,804) | [C] | (543) | (475) |
| Impact on CCS earnings | 1,259 | | (2,235) | (24,777) |
| Of which: | | | | |
| Integrated Gas | 6,075 | | (988) | (11,443) |
| Upstream | (1,096) | | 1,587 | (6,874) |
| Marketing | (622) | | 68 | 13 |
| Chemicals and Products | (204) | | (1,712) | (6,656) |
| Renewables and Energy Solutions | (2,805) | | (1,272) | (277) |
| Corporate | (90) | | 81 | 460 |
| Identified items attributable to Non-controlling interest | 15 | | (19) | (10) |
| Identified items attributable to Shell plc shareholders | 1,243 | | (2,216) | (24,767) |
[A]Includes $(940) million related to the EU solidarity contribution.
[B]Includes $(528) million related to the EU solidarity contribution and $(802) million related to the UK Energy Profits Levy.
[C]Includes $(2,270) million related to the EU solidarity contribution and to the UK Energy Profits Levy.
| | | | | | | | |
| 332 | ADDITIONAL INFORMATION SHELL FORMShell | Form 20-F 20202022 | 241 | |
Additional Information
| | | | | | | | | | | |
| $ million |
| 2020 | 2019 | 2018 |
| Identified items before tax | (31,877) | | (1,844) | | 3,089 | |
| Of which: | | | |
| Divestment gains/(losses) | 316 | | 2,611 | | 3,283 | |
| Impairments | (28,061) | | (4,155) | | (1,020) | |
| Fair value accounting of commodity derivatives and certain gas contracts | (1,151) | | 602 | | 1,145 | |
| Redundancy and restructuring | (883) | | (132) | | (203) | |
| Other | (2,098) | | (770) | | (116) | |
| Total identified items before tax | (31,877) | | (1,844) | | 3,089 | |
| Tax impact | 7,100 | | 674 | | (660) | |
| Identified items after tax | (24,777) | | (1,170) | | 2,429 | |
| Of which: | | | |
| Divestment gains/(losses) | 4 | | 2,170 | | 3,064 | |
| Impairments | (21,267) | | (3,162) | | (1,112) | |
| Fair value accounting of commodity derivatives and certain gas contracts | (1,034) | | 650 | | 863 | |
| Redundancy and restructuring | (644) | | (89) | | (150) | |
| Impact of exchange rate movements on tax balances | (240) | | (69) | | (338) | |
| Other | (1,596) | | (670) | | 102 | |
| Impact on CCS earnings | (24,777) | | (1,170) | | 2,429 | |
| Of which: | | | |
| Identified items attributable to Royal Dutch Shell plc shareholders | (24,767) | (1,192) | 2,429 |
| Identified items attributable to Non-controlling interest | (10) | | 22 | | 0 |
CASH CAPITAL EXPENDITURE Cash capital expenditure
Cash capital expenditure monitors investing activities on a cash basis, excluding items such as lease additions which do not necessarily result in cash outflows in the period. The measure comprises the following lines from the Consolidated Statement of Cash flows: Capital expenditure, Investments in joint ventures and associates and Investments in equity securities.
With effect from January 1, 2020, "Capital investment" is no longer presented in this announcement since Cash capital expenditure is considered to be more closely aligned with management's focus on free cash flow generation.
The reconciliation of “Capital expenditure”"Capital expenditure" to “Cash"Cash capital expenditure”expenditure" is as follows.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| $ million |
| 2022 | 2021 | 2020 |
| Shell | IG | UP | Mark | C&P | R&ES | Corp | Shell | IG | UP | Mark | C&P | R&ES | Corp | Shell | IG | UP | Mark | C&P | R&ES | Corp |
| Capital expenditure [A] | 22,600 | | 3,432 | | 8,020 | | 4,527 | | 3,835 | | 2,609 | | 175 | | 19,000 | | 3,306 | | 6,277 | | 2,122 | | 5,091 | | 2,069 | | 135 | | 16,585 | | 3,491 | | 6,714 | | 1,684 | | 4,163 | | 363 | | 169 | |
| Investments in joint ventures and associates [A] | 1,973 | | 833 | | 123 | | 304 | | 2 | | 703 | | 9 | | 479 | | 196 | | (109) | | 149 | | 80 | | 154 | | 10 | | 1,024 | | 68 | | 379 | | 84 | | 34 | | 458 | | — | |
| Investments in equity securities [A] | 260 | | — | | — | | — | | 1 | | 157 | | 103 | | 218 | | — | | | 3 | | 4 | | 136 | | 75 | | 218 | | 7 | | 6 | | 6 | | 1 | | 107 | | 92 | |
| Cash capital expenditure | 24,833 | | 4,265 | | 8,143 | | 4,831 | | 3,838 | | 3,469 | | 287 | | 19,698 | | 3,502 | | 6,168 | | 2,273 | | 5,175 | | 2,359 | | 221 | | 17,827 | | 3,566 | | 7,099 | | 1,774 | | 4,198 | | 928 | | 262 | |
| | | | | | | | | | | |
| | | |
| Cash capital expenditure | $ million |
| 2020 | 2019 | 2018 |
| Capital expenditure [A] | 16,585 | | 22,971 | | 23,011 | |
| Investments in joint ventures and associates [A] | 1,024 | | 743 | | 880 | |
| Investments in equity securities [A] | 218 | | 205 | | 187 | |
| Cash capital expenditure | 17,827 | | 23,919 | | 24,078 | |
| Of which: | | | |
| Integrated Gas | 4,301 | | 4,299 | | 3,819 | |
| Upstream | 7,296 | | 10,205 | | 12,134 | |
| Oil Products | 3,328 | | 4,907 | | 4,643 | |
| Chemicals | 2,640 | | 4,090 | | 3,212 | |
| Corporate | 262 | | 418 | | 269 | |
[A]Included within Cash flow from investing activities in the “Consolidated"Consolidated Statement of Cash Flows”Flows".
[B]Segments above are as follows: Integrated Gas (IG); Upstream (UP); Marketing (Mark); Chemicals and Products (C&P); Renewables and Energy Solutions (R&ES); and Corporate (Corp).
OPERATING EXPENSESOperating expenses and underlying operating expenses
Operating expenses is a measure of Shell’s cost management performance, comprising the following items from the “Consolidated"Consolidated Statement of Income”Income": production and manufacturing expenses; selling, distribution and administrative expenses; and research and development expenses.
Underlying operating expenses is a measure aimed at facilitating a comparative understanding of performance from period to period by removing the effects of identified items, which, either individually or collectively, can cause volatility, in some cases driven by external factors.
| | |
| Operating expenses and underlying operating expenses |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| $ million |
| 2022 | 2021 | 2020 |
| Shell | IG | UP | Mark | C&P | R&ES | Corp | Shell | IG | UP | Mark | C&P | R&ES | Corp | Shell | IG | UP | Mark | C&P | R&ES | Corp |
| Production and manufacturing expenses | 25,518 | | 4,907 | | 9,676 | | 810 | | 7,583 | | 2,520 | | 22 | | 23,822 | | 4,194 | | 9,797 | | 950 | | 6,815 | | 2,098 | | (32) | | 24,001 | | 4,957 | | 10,195 | | 779 | | 6,952 | | 1,091 | | 27 | |
| Selling, distribution and administrative expenses | 12,883 | | 218 | | 233 | | 7,351 | | 3,592 | | 972 | | 517 | | 11,328 | | 231 | | 186 | | 6,384 | | 3,375 | | 596 | | 556 | | 9,881 | | 60 | | (31) | | 5,380 | | 3,391 | | 606 | | 475 | |
| Research and development | 1,075 | | 112 | | 456 | | 222 | | 187 | | 98 | | — | | 815 | | 101 | | 339 | | 167 | | 157 | | 51 | | — | | 907 | | 84 | | 486 | | 147 | | 171 | | 19 | | — | |
| Total | 39,477 | | 5,238 | | 10,364 | | 8,384 | | 11,361 | | 3,590 | | 540 | | 35,964 | | 4,526 | | 10,324 | | 7,501 | | 10,347 | | 2,745 | | 524 | | 34,789 | | 5,100 | | 10,650 | | 6,305 | | 10,514 | | 1,716 | | 505 | |
| Identified items | (21) | | (354) | | 438 | | (103) | | 7 | | (7) | | (1) | | (655) | | (230) | | (238) | | (135) | | (48) | | (8) | | 4 | | (2,287) | | (782) | | (756) | | (144) | | (597) | | (5) | | (3) | |
| Underlying operating expenses | 39,456 | | 4,884 | | 10,802 | | 8,281 | | 11,368 | | 3,583 | | 539 | | 35,309 | | 4,295 | | 10,086 | | 7,366 | | 10,298 | | 2,737 | | 527 | | 32,502 | | 4,318 | | 9,894 | | 6,161 | | 9,916 | | 1,711 | | 501 | |
[A] Segments above are as follows.follows: Integrated Gas (IG); Upstream (UP); Marketing (Mark); Chemicals and Products (C&P); Renewables and Energy Solutions (R&ES); and Corporate (Corp) | | | | | | | | | | | |
| | | |
| Operating expenses | $ million |
| 2020 | 2019 | 2018 |
| Production and manufacturing expenses | 24,001 | | 26,438 | | 26,970 | |
| Selling, distribution and administrative expenses | 9,881 | | 10,493 | | 11,360 | |
| Research and development | 907 | | 962 | | 986 | |
| Total | 34,789 | | 37,893 | | 39,316 | |
| Of which | | | |
| Integrated Gas | 6,555 | | 6,667 | | 6,014 | |
| Upstream | 10,983 | | 11,582 | | 11,690 | |
| Oil Products | 13,511 | | 15,730 | | 17,615 | |
| Chemicals | 3,235 | | 3,430 | | 3,594 | |
| Corporate | 505 | | 486 | | 402 | |
Additional Information
RETURN ON AVERAGE CAPITAL EMPLOYEDReturn on average capital employed
Return on average capital employed (ROACE) measures the efficiency of our utilisation of the capital that we employ. In this calculation, ROACE is defined as income for the period, adjusted for after-tax interest expense, as a percentage of the average capital employed for the period. Capital employed consists of total equity, current debt and non-current debt.
| | | | | | | | | | | |
| | | |
| Calculation of return on average capital employed | $ million |
| 2020 | 2019 | 2018 |
| Income for the period | (21,534) | | 16,432 | | 23,906 | |
| Interest expense after tax | 2,822 | | 3,024 | | 2,513 | |
| Income before interest expense | (18,712) | | 19,456 | | 26,419 | |
| Capital employed - opening | 286,887 | | 295,398 | | 283,477 | |
| Capital employed - closing | 266,551 | | 286,887 | | 279,358 | |
| Capital employed - average | 276,719 | | 291,142 | | 281,417 | |
| ROACE | (6.8) | % | 6.7 | % | 9.4 | % |
| | |
| Calculation of return on average capital employed |
| | | | | | | | | | | |
| $ million |
| 2022 | 2021 | 2020 |
| Income for the period | 42,874 | 20,630 | (21,534) |
| Interest expense after tax | 2,290 | 2,741 | 2,822 |
| Income before interest expense | 45,164 | 23,371 | (18,712) |
| Capital employed - opening | 264,413 | 266,551 | 286,887 |
| Capital employed - closing | 276,392 | 264,413 | 266,551 |
| Capital employed - average | 270,402 | 265,482 | 276,719 |
| ROACE | 16.7% | 8.8% | (6.8)% |
Net debt and gearing
Net debt is defined as the sum of current and non-current debt, less cash and cash equivalents, adjusted for the fair value of derivative financial instruments used to hedge foreign exchange and interest rate risk relating to debt, and associated collateral balances.
Gearing is a measure of Shell’s capital structure and is defined as net debt (total debt less cash and cash equivalents) as a percentage of total capital (net debt plus total equity).
| | |
| Calculation of net debt and gearing |
| | | | | | | | | | | |
| $ million |
| 2022 | 2021 | 2020 |
| Current debt | 9,001 | 8,218 | 16,899 |
| Non-current debt | 74,794 | 80,868 | 91,115 |
| Total debt | 83,795 | 89,086 | 108,014 |
| Add: Debt-related derivative financial instruments: net liability / (asset) | 3,071 | 424 | (1,979) |
| Add: Collateral on debt-related : net liability / (asset) | (1,783) | 16 | 1,181 |
| Less: Cash and cash equivalents | (40,246) | (36,970) | (31,830) |
| Net Debt | 44,837 | 52,556 | 75,386 |
| Add: Total equity | 192,597 | 175,326 | 158,537 |
| Total capital | 237,434 | 227,882 | 233,923 |
| Gearing | 18.9% | 23.1% | 32.2% |
Free cash flow and organic free cash flow
FREE CASH FLOW AND ORGANIC FREE CASH FLOW
Free cash flow is used to evaluate cash available for financing activities, including dividend payments,shareholder distributions and debt servicing, after investment in maintaining and growing our business.
| | | | | | | | |
ADDITIONAL INFORMATION SHELL FORM 20-F 2020 | 242 | |
Organic free cash flow is defined as Free cash flow excluding the cash flows from acquisition and divestment activities. It is a measure used by management to evaluate generation of cash flow without these activities.
| | | | | | | | | | | |
| | | |
| Free cash flow and Organic free cash flow | $ million |
| 2020 | 2019 | 2018 |
| Cash flow from operating activities | 34,105 | | 42,178 | | 53,085 | |
| Cash flow from investing activities | (13,278) | | (15,779) | | (13,659) | |
| Free cash flow | 20,828 | | 26,399 | | 39,426 | |
Less: Cash inflows related to divestments [A] | 4,010 | | 7,871 | | 10,465 | |
| Add: Tax paid on divestments | — | | 187 | | 482 | |
Add: Cash outflows related to inorganic capital expenditure [B] | 817 | | 1,400 | | 1,740 | |
| Organic free cash flow | 17,634 | | 20,116 | | 31,183 | |
| | |
| Free cash flow and Organic free cash flow |
| | | | | | | | | | | |
| $ million |
| 2022 | 2021 | 2020 |
| Cash flow from operating activities | 68,414 | 45,104 | 34,105 |
| Cash flow from investing activities | (22,448) | (4,761) | (13,278) |
| Free cash flow | 45,965 | 40,343 | 20,828 |
| Less: Cash inflows related to divestments [A] | 2,059 | 15,113 | 4,010 |
| Add: Tax paid on divestments | 17 | 188 | — |
| Add: Cash outflows related to inorganic capital expenditure [B] | 4,205 | 1,658 | 817 |
| Organic free cash flow | 48,128 | 27,076 | 17,634 |
[A]Cash inflows related to divestments includes Proceeds from sale of property, plant and equipment and businesses, Proceeds from sale of joint ventures and associates from sale, capital reduction and repayment of long-term loans, and Proceeds from sale of equity securities as reported in the "Consolidated Statement of Cash Flows".
[B]Cash outflows related to inorganic capital expenditure includes portfolio actions which expand Shell's activities through acquisitions and restructuring activities as reported in capital expenditure lines in the "Consolidated Statement of Cash Flows".
SHAREHOLDER DISTRIBUTION Shareholder distribution
Shareholder distribution is used to evaluate the level of cash distribution to shareholders. It is defined as the sum of Cash dividends paid to Royal Dutch Shell plc shareholders and Repurchases of shares, both of which are reported in the Consolidated Statement of Cash Flows.
| | | | | | | | | | | |
| | | |
| Calculation of shareholder distribution | $ million |
| 2020 | 2019 | 2018 |
| Cash dividends paid to Royal Dutch Shell plc shareholders | (7,424) | | (15,198) | | (15,675) | |
| Repurchases of shares | (1,702) | | (10,188) | | (3,947) | |
| Shareholder distribution | (9,126) | | (25,386) | | (19,622) | |
| | |
| Calculation of shareholder distribution |
DIVESTMENT PROCEEDS | | | | | | | | | | | |
| $ million |
| 2022 | 2021 | 2020 |
| Cash dividends paid to Shell plc shareholders | (7,405) | (6,253) | (7,424) |
| Repurchases of shares | (18,437) | (2,889) | (1,702) |
| Shareholder distribution | (25,842) | (9,142) | (9,126) |
Divestment proceeds
Divestment proceeds represent cash received from divestment activities in the period. Management regularly monitors this measure as a key lever to deliver sustainable cash flow.
| | | | | | | | | | | |
| | | |
| Calculation of Divestment proceeds | $ million |
| 2020 | 2019 | 2018 |
| Proceeds from sale of property, plant and equipment and businesses | 2,489 | | 4,803 | | 4,366 | |
| Proceeds from sale of joint ventures and associates [A] | 1,240 | | 2,599 | | 1,594 | |
| Proceeds from sale of equity securities | 281 | | 469 | | 4,505 | |
| Divestment proceeds | 4,010 | | 7,871 | | 10,465 | |
| Of which: | | | |
| Integrated Gas | 503 | 723 | 3156 |
| Upstream | 1909 | 5384 | 3364 |
| Oil Products | 1368 | 1517 | 540 |
| Chemicals | 26 | 22 | 1 |
| Corporate | 205 | | 225 | | 3,405 | |
[A] includes $313 million (2019: $155 million) of long-term of loan repayments received from joint ventures and associates
| | |
| Calculation of divestment proceeds |
| | | | | | | | | | | |
| $ million |
| 2022 | 2021 | 2020 |
| Proceeds from sale of property, plant and equipment and businesses | 1,431 | 14,233 | 2,489 |
| Proceeds from joint ventures and associates from sale, capital reduction and repayment of long-term loans | 511 | 584 | 1,240 |
| Proceeds from sale of equity securities | 117 | 296 | 281 |
| Divestment proceeds | 2,059 | 15,113 | 4,010 |
| Of which: | | | |
| Integrated Gas | 241 | 3,931 | 486 |
| Upstream | 558 | 10,147 | 1,903 |
| Marketing | 266 | 42 | 56 |
| Chemicals and Products | 776 | 903 | 1,338 |
| Renewables and Energy Solutions | 191 | 47 | 22 |
| Corporate | 26 | 44 | 205 |
| | | | | | | | |
| 334 | ADDITIONAL INFORMATION SHELL FORMShell | Form 20-F 20202022 | 243 | |
| | | | | | | | | | | |
| Exhibit No. | | Description | |
| 1.1 | | | |
| | | |
| 1.2 | | | |
| | | |
| 2.1 | | | |
| | | |
2.2 | | Senior Debt Securities Indenture among Shell International Finance B.V., as issuer,2020 between Royal Dutch Shell plc, as guarantor,BG Group Limited, Computershare Trustees (Jersey) Limited and Deutsche Bank Trustthe Shell Transport and Trading Company Americas, as trustee, dated June 27, 2006,Limited (incorporated by reference to Exhibit 4.32.1 to the Registration StatementAnnual Report for the fiscal year ended December 31, 2020, on Form F-3ASR (No. 333-222005)20-F (File No. 001-32575) of Royal Dutch Shell plc filed with the US Securities and Exchange Commission on December 12, 2017)March 11, 2021). | |
| 2.3 | | | |
| 2.4 | | | |
| 2.5 | | | |
| | | |
| 4.1 | | | |
| | | |
| 4.2 | | | |
| | | |
| 4.3 | | | |
| | | |
| 4.4 | | | |
| 4.5 | | | |
7.14.6 | | | |
| | | |
7.24.7 | | | |
| 4.8 | | | |
| 8.1 | | | |
| | | |
| 12.1 | | | |
| | | |
| 12.2 | | | |
| | | |
| 13.1 | | | |
| | | |
| 99.1 | | | |
| | | |
| 99.2 | | | |
| | | |
| 101 | | Inline Interactive data files. | |
| 104 | | Cover page inline interactive data file (formatted as Inline XBRL and contained in Exhibit 101). | |
| | | | | | | | |
| 335 | ADDITIONAL INFORMATION SHELL FORMShell | Form 20-F 20202022 | 244 | |
Signatures
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorised the undersigned to sign this annual report on its behalf.
Royal Dutch Shell plc
| | | | | |
/s/ Ben van BeurdenWael Sawan | |
| |
Ben van BeurdenWael Sawan | |
| Chief Executive Officer | |
March 10, 20218, 2023 | |
| | | | | | | | |
| 336 | ADDITIONAL INFORMATION SHELL FORMShell | Form 20-F 20202022 | 245 | |
INTENTIONALLY LEFT BLANK
| | | | | | | | |
ADDITIONAL INFORMATION SHELL FORM 20-F 2020 | 246 | |
INTENTIONALLY LEFT BLANK
| | | | | | | | |
ADDITIONAL INFORMATION SHELL FORM 20-F 2020 | 247 | |
FINANCIAL CALENDAR IN 2021Financial calendar in 2023
The Annual General Meeting will be held on May 19, 2021.23, 2023.
| | | | | | | | | | | | | | |
| 20202022 Fourth quarter [A] | 20212023 First
quarter [B] | 20212023 Second quarter [B] | 20212023 Third quarter [B] |
| Results announcements | February 42 | April 29May 4 | July 2927 | October 28November 2 |
| Interim dividend timetable | | | | |
| Announcement date | February 42 [C] | April 29May 4 | July 2927 | October 28November 2 |
| Ex-dividend date for SHEL ADS [D] | February 1816 | May 1318 | August 1210 | November 1116 |
| Ex-dividend date for SHEL ordinary shares | February 16 | May 18 | August 10 | November 16 |
| Record date | February 1917 | May 1419 | August 1311 | November 1217 |
| Closing of currency election date [E] | March 53 | May 28June 5 | August 2725 | November 26December 1 |
| Pounds sterling and euro equivalents announcement date | March 1513 | June 712 | September 64 | December 611 |
| Payment date | March 2927 | June 2126 | September 2018 | December 20 |
[A]In respect of the financial year ended December 31, 2020.2022.
[B]In respect of the financial year endingended December 31, 2021.2023.
[C]The Directors do not propose to recommend any further distribution in respect of 2020.2022.
[D]The New York Stock Exchange (NYSE), with effect from September 5, 2017, reduced the standard settlement cycle in accordance with the SEC amendments to Exchange Act Rule 15c6-1(a).
Under these Under these rules, regular settlement will occur on a T+2 basis for trades occurring on or after the SEC’fsSEC’s implementation date of September 5, 2017. As a result RDS ASHEL ADSs and RDS B ADSs
tradedtraded on thethe NYSE markets will now settle in line with RDS A shares and RDS BSHEL shares traded on European markets, whichwho moved to a T+2 settlement basis for trades in 2014, resulting in the
same ex-dividend date same ex-dividend date for RDS ASHEL shares RDS B shares, RDS A ADSs and RDS BSHEL ADSs. Record dates will not change. The timings of these are detailed above.
[E]A different currency election date may apply to shareholders holding shares in a securities account with a bank or financial institution ultimately through Euroclear Nederland. This may also apply
to other shareholders who do not hold their shares either directly on the Register of Members or in the corporate sponsored nominee arrangement. Shareholders can contact their broker, financial intermediary, bank or financial institution for the election deadline that applies.
Contact Us
The best way to get in touch is via the "Contact us" section of the Shell website www.shell.com/investors. From here questions are properly directed to the Shell team that can assist. In addition, we have introduced an automated question response tool to assist with the most popular questions that we receive and reviewed and updated the "Frequently asked Questions" section of our website to provide the most time efficient information for our investors.
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Registered Office and HQ Shell plc Shell Centre London SE1 7NA United Kingdom
Registered in England and Wales Company number 4366849
| Shareholder Relations Shell plc Carel van Bylandtlaan 30 2596 HR The Hague The Netherlands
or
Shell plc Shell Centre London SE1 7NA United Kingdom www.shell.com/investors | Investor Relations Shell plc PO Box 162 2501 AN The Hague The Netherlands
or
Shell Oil Company Investor Relations 150 N Dairy Ashford Houston, TX 77079 USA www.shell.com/investors |
| | |
Share registration Equiniti Aspect House Spencer Road Lancing West Sussex BN99 6DA United Kingdom 0800 169 1679 customer@equiniti.com
For online information about your holding and to change the way you receive your company documents: www.shareview.co.uk | American Depositary Shares (ADSs) JPMorgan Chase Bank, N.A. Shareowner Services P.O. Box 64504 St. Paul, MN 55164-0504 USA
Overnight correspondence to: Shareowner Services 1110 Centre Pointe Curve, Suite 101 Mendota Heights, MN 55120-4100 USA +1 888 737 2377 (USA only) +1 651 453 2128 (International) Email: https://www.shareowneronline.com/informational/contact-us/ www.adr.com/shareholder | Report ordering www.shell.com/order Annual Report/20-F service for US residents +1 888 301 0504 |
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REGISTERED OFFICE
Royal Dutch Shell plc
Shell Centre
London SE1 7NA
United Kingdom
Registered in England and Wales
Company number 4366849
Registered with the Dutch Trade Register
under number 34179503
HEADQUARTERS
Royal Dutch Shell plc
Carel van Bylandtlaan 30
2596 HR The Hague
The Netherlands | | SHAREHOLDER RELATIONS
Royal Dutch Shell plc
Carel van Bylandtlaan 30
2596 HR The Hague
The Netherlands
+31 (0)70 377 1272
or
Royal Dutch Shell plc
Shell Centre
London SE1 7NA
United Kingdom
+44 (0)20 7934 3363
royaldutchshell.shareholders@shell.com
www.shell.com/shareholder
| | INVESTOR RELATIONS
Royal Dutch Shell plc
PO Box 162
2501 AN The Hague
The Netherlands
+31 (0)70 377 4540
or
Shell Oil Company
Investor Relations
150 N Dairy Ashford
Houston, TX 77079
USA
+1 832 337 2034
ir-europe@shell.com
ir-usa@shell.com
www.shell.com/investor
|
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SHARE REGISTRATION
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
United Kingdom
0800 169 1679 (UK)
+44 (0)121 415 7073
For online information about your holding
and to change the way you receive your
company documents:
www.shareview.co.uk
| | AMERICAN DEPOSITARY
SHARES (ADSS)
JPMorgan Chase Bank, N.A.
P.O. Box 64504
St. Paul, MN 55164-0504
USA
Overnight correspondence to:
JPMorgan Chase Bank, N.A.
1110 Centre Pointe Curve, Suite 101
Mendota Heights, MN 55120-4100
USA
+1 888 737 2377 (USA only)
+1 651 453 2128 (International)
jpmorgan.adr@eq-us.com
www.adr.com/shareholder
| | REPORT ORDERING
www.shell.com/order
Annual Report/Form 20-F service for
US residents
+1 888 301 0504
2022 |
