Ben van Beurden - Royal Dutch Shell Plc Jessica Uhl - Royal Dutch Shell Plc Thomas Adolff - Credit Suisse Securities (Europe) Ltd..

Oswald Clint - Sanford C. Bernstein Ltd. Jon Rigby - UBS Ltd. Jason Gammel - Jefferies International Ltd. Christyan F. Malek - JPMorgan Securities Plc Lydia Rainforth - Barclays Capital Securities Ltd. Alastair R. Syme - Citigroup Global Markets Ltd. Biraj Borkhataria - RBC Europe Ltd. Christopher Kuplent - Bank of America Merrill Lynch.

Welcome to the Royal Dutch Shell 2017 Quarter Two Announcement. There will be a presentation followed by a question-and-answer session. I would like to introduce the first speaker, Mr. Ben van Beurden. Please go ahead..

Thank you very much, and thank you everybody for joining us on today's call. Let's get straight into it, but not without pausing for a moment on the disclaimer statement, of course. Really pleased to report that the second quarter of the year was another strong quarter for Shell. We had CCS earnings, excluding identified items, of $3.6 billion.

That compares with $1 billion in the same quarter of 2016. We also increased our cash flow from operations to $1.3 billion (sic) [$11.3 billion], that's up from $2.3 billion again in the previous year.

Over this quarter now, we have a solid track record over a 12-month period with $38 billion of cash flow from operations, and that's at an average oil price of less than $50 a barrel. So, we have more than covered the cash dividend for the fourth consecutive quarter. We have reduced net debt by almost $9 billion.

We have reduced the gearing to 25.3%, that's from a 28.1% level a year ago. So, I think these are great measures of the progress that we are making, and that show that our strategy of delivering a world-class investment case is working.

They also show that we are transforming Shell through the reshaping of the portfolio, as well as through structural changes in our culture and our ways of working.

Now becoming a world-class investment case and Royal Shell also being a leader reducing its carbon intensity, contributing to shared value with society, it means having a strategy that is resilient for the long term.

Today, I'm going to talk to you about how we are transforming Shell, so that we can become more competitive and resilient in that future and, of course, about the results so far. And I will show you how we are strengthening our financial framework by pulling on four powerful levers; divestments, capital investment, operating costs and new projects.

And then our Chief Financial Officer, Jessica UhI, will take you through the details of this quarter's result, this time with a focus on the Downstream business, which has reported one of its best quarterly results. But first I'd like to start with some of Shell's highlights in the last quarter, you can see them here on the slide.

In June, Prelude, our floating liquefied natural gas facility, left the construction yard in South Korea and arrived two days ago at the gas fields off the coast of Australia. The LNG that it will produce will be sold around the world, and Shell expects to see cash flow from the project during 2018.

In Brazil, deep-water production started at our 10th floating production storage and offloading vessel in the pre-salt fields of the Santos Basin. And in the North Atlantic ocean, production has started at the Schiehallion deep-water oilfield. And we have continued the launch of a new version of our premium fuel V-Power.

It is now sold in more than 60 markets around the world and is the number one differentiated fuel amongst international oil companies, delivering not only great performance and efficiency to our customers, but also higher margins for our group.

So, these are all important milestones for us that will make a significant contribution to our financial performance over time. But another important event was the ramp-up of the production back at Pearl GTL in Qatar. The plant is now operating at full plant production and that's including base oils.

But I would also like to highlight that Shell is supporting the Task Force for Climate-Related Financial Disclosures that were set up at the request of G20 and its efforts to improve transparency around the risks and opportunities that a transition to low-carbon energy presents. And we look forward to working with the Task Force on the details here.

Now let me give you an update on the first of the financial levers that I mentioned at the beginning of my talk, which is divestments.

They are an important part of the reshaping of our portfolio and this quarter was a quarter of completions, including two large transactions; the sale of the majority of our oil sands business in Canada and the split of the Motiva joint venture in the U.S.

We also completed the sale of our Australian aviations fuel business and the sale of our stake in Vivo Energy, which distributes and markets Shell-branded fuels and lubricants in Africa. More recently, we announced the sale of our stake in the in Corrib gas venture in Ireland for up to $1.2 billion.

And these deals together bring us to more than $25 billion in completed, announced or in progress divestments, setting us well on track to meet our target of $30 billion of divestments between 2016 and 2018.

So far, we have completed $15 billion of that $25 billion and we have received $11.5 billion in cash, and we expect that these divestments will lead to higher returns as we sold businesses with a lower return on capital employed than the average for the group.

We have provided you with some figures showing the impact of some of the main divestments on our portfolio and, of course, as you know, we included these impacts in the 2020 outlook that we provided during our Capital Markets Day last year. Now, let's take a look at the second of our financial levers, capital investment.

We've said we would operate with capital investments in the range of a soft floor of $25 billion and a hard ceiling of $30 billion, and that's every year until 2020. And we can confirm that we will be at the lower end of that range this year with $25 billion of capital investment and $23 billion of that is expected to be in cash.

In the current economic environment, the lower end of the range and the right level that's affordable and it's consistent with our free cash flow growth to 2020.

Of course, we continue to look for ways to use our capital more efficiently, driven partly by a deflationary market environment, but mostly by changes in the way we design and execute our projects. You will see three examples here on this slide, the first is our Appomattox deep-water project in the Gulf of Mexico.

Here we have saved around 20% on this project compared to our original investment proposal, and that's by reducing the number of wells, renegotiating contracts with suppliers and other things. So, that's 20% since sanctioning of the project.

At our Geismar chemicals plant in Louisiana in the U.S., we have reduced cost on the construction of a fourth linear alpha olefins unit by 17% compared to the original proposal at sanction. And we have reduced cost also on the redevelopment of the Gannet C fields in the North Sea by more than 20%.

So, now we deliver more for less, which means that growth also becomes more affordable, and that we are more resilient when low oil prices prevail. And this brings me to the third of our levers, operating cost. Also, here I think we have made good progress.

We have reduced underlying operating cost by more than 20%, so about $11 billion since 2014 and that's while growing also, at the same time, the company's free cash flow.

We have spent $38 billion over the last 12 months, that is below the $40 billion level that we indicated last year and we have achieved these reductions, of course, by cost cutting, but also by changing our company's culture, by changing how we work and by adopting what we call lower forever mindset. And let me give you a few examples of what I mean.

The first one is the greater use of Shell Business Operations. These are operations that support the whole company from a few countries, including India, Malaysia, the Philippines and Poland, and we think we're actually one of the leaders in this area and that will continue.

Shell Business Operations help us reduce cost and just as importantly also allow us to standardize, to simplify and increasingly also digitalize the way we work in operations such as IT and finance, of course, but also human resources, contracting and procurement and also now in customer services and technology.

Shell Business Operations hold now over 12,000 employees and they generate significant savings. The second example comes from our Upstream business in the UK.

Taking practices from the shipping industry, we have retrained the crew on our Curlew floating production storage and offloading vessel in the North Sea, so that they can do more maintenance themselves.

And this training has reduced our reliance on outside contractors by half since 2014, which has helped us to reduce cost by 35% between 2014 and 2016, while at the same time increasing the availability of our assets.

And these are just two examples of structural changes to the way we do business and we now have 13% lesser employees than we did at the beginning of 2016. So, to be clear, cost must continue to go down and then stay down. The final lever I'm going to talk about today is the delivery of new projects.

But as you can see from this slide, we have a portfolio of large projects that we have either delivered or are about to deliver. By 2018, we expect these projects to be producing more than 1 million barrels of oil equivalent per day. That represents some $10 billion of cash flow from operations at a 60% oil price.

You will see from this slide that most of these projects are now producing, such as our Stones deep-water oil and gas project in the Gulf of Mexico, Kashagan field in Kazakhstan or the Queensland Curtis LNG plant in Australia and, of course, the 10 FPSOs in Brazil.

And the projects still under construction are either at an advanced stage, like Prelude that I mentioned earlier, or they are replicating an already successful model such as in Brazil.

So, I'm confident that we are on track to deliver these projects and expect half of that $10 billion of extra cash flow already to contribute to our financial results in this year. As much as we are focusing on our four financial levers, safety and day-to-day operational excellence, they remain top priorities for Shell as well.

And I would like to share with you three examples to illustrate this. The first one is in the Gulf of Mexico, where better surveillance of our equipment has halved our unplanned downtime between 2015 and 2017.

The second example is from our Pernis refinery in the Netherlands, where we have increased availability by 6% between 2012 and 2017 compared to the period between 2008 and 2011.

And the third example is our Gumusut deep-water project in Malaysia where we've had a strong process safety record in the past two years, while at the same time reaching an availability of 98% in 2017. Excellent performance, one that I'm really proud of.

And in all these examples, we have seen that operational performance going hand in hand with safety performance. There is simply no trade-off between the two. And now, let me hand you over to Jessica who will talk to us about this quarter financial performance in a bit more detail..

Thank you, Ben, and welcome everyone on the call. As Ben has said, one of our main strategic aims is to be a world-class investment case and that means being a competitive and resilient company with a relentless focus on performance management to deliver better returns to shareholders. We're making good progress towards that goal.

I'm especially pleased to say that we continue to demonstrate the resilience and competitiveness of our business in this quarter. In short, our strategy of capital efficiency, reducing costs, delivering new projects and divestments is translating into higher earnings and strong cash flow momentum. You can see that in the figures in this slide.

We have increased CCS earnings, excluding identified items, to $3.6 billion in the second quarter of this year from $1 billion in the same quarter of the prior year. And we've generated $11.3 billion in cash flow from operations, $9 billion more than in the second quarter of 2016.

At $12.2 billion, our free cash flow includes $6.7 billion of cash proceeds from divestments. It is $15.3 billion higher than in the second quarter of 2016. We've increased our return on average capital employed in the second quarter to 4.2% from 2.5% in the same quarter of the previous year.

Higher oil prices and better industry conditions in chemicals and refining have contributed significantly to our stronger earnings in the second quarter, in addition to the growth achieved in our Upstream and Integrated Gas businesses and the improved operational performance in Downstream.

Upstream earnings have also been supported by lower depreciation, including the impact of assets held for sale and divestments. In Downstream, strong performance from refining and marketing has offset the effect of the split of the Motiva joint venture.

The strongest evidence of the impact of the BG acquisition and of the effectiveness of the four financial levers Ben has talked about is our cash flow momentum. As this slide shows, cash flow from operations, excluding working capital, has risen to $38 billion over the past four quarters when the average oil price was less than $50 per barrel.

The last time we achieved a comparable level of cash flow from operations, the oil price was close to $100 per barrel. I would now like to look at the performance of Downstream in more detail. As you've heard, Downstream had another strong quarter, increasing CCS earnings to $2.5 billion, almost 40% higher than in the second quarter of 2016.

The trend of improved cash generation and returns in Downstream is a great example of how we are making Shell a more competitive and resilient company. We have strengthened our Downstream business by reducing costs and increasing asset availability, while refocusing the portfolio through divestments.

We're disciplined about how we use capital and we are leveraging the strength of our brand and marketing. As you can see from this slide, our Downstream business now delivers around $10 billion per year in cash flow from operations, excluding working capital, and a 50% return on capital employed at different points in the economic cycle.

The integration of our refining, trading and marketing activities as well as the performance of our chemicals business is improving margins and making Shell's portfolio more resilient to lower oil prices. Shell's brand and retail network are two great strengths of our Downstream business.

Shell is the most valuable brand in the oil and gas industry, and we are the world's largest fuel retailer. Every day Shell serves more than 30 million customers across our 4,300 sites in close to 80 countries; that is more sites than Starbucks, it is more than McDonald's.

Our marketing business is not only profitable delivering over $4 billion in earnings per year; it is also growing rapidly and offers attractive short cycle investment opportunities. As we've said, the acquisition of BG Group has worked well for us on many levels.

It has given us growth in deep-water and Integrated Gas, and it has been a catalyst to reduce costs across the business to make Shell a more competitive and resilient company and we're making good progress here.

We expect to achieve $4.5 billion in synergies already by the end of 2017, assuming the same exchange rates we had at the time of the combination. For example, we've already achieved $0.5 billion of savings in contracting and procurement. We're delivering more and faster than we initially expected.

We're confident that we will achieve the synergies that we have announced and they're included in our operating costs and capital investment guidance. Put simply, we're now operating BG and Shell combined with lower costs and fewer employees than it took to operate Shell alone before the combination.

We've reduced the number of employees from 98,000 at the time of the combination to 85,000 in the middle of 2017.

What does our cash flow momentum mean for our financial framework? It means that even though oil price was at less than $50 per barrel over the last 12 months, we were able to maintain capital investment at a level that still delivers growth, cover our cash dividends for the last four quarters, reduce our net debt, and reduce gearing to 25% from 28% a year ago.

This gives you a sense of the resilience of our financial framework. Still on cash flow, there is no change to our priorities, reducing debt, paying dividends and turning off the scrip, followed by a balance of capital investment in share buybacks. As Ben has highlighted, the delivery of our divestment programs and new projects is on track.

We've also made significant progress in reducing operating costs and reducing capital investment. We expect to pull even harder on these levers in the future. This is an important opportunity to improve Shell's competitive performance. Looking forward, the slide has some indication for the third quarter of 2017.

Today's quarterly results announcement provides more detail..

Okay. Thank you, Jessica. Let me end our presentation section here with some numbers that demonstrate that our strategy is really working. As you can see here, we have increased our free cash flow, excluding the divestment proceeds, to $16.6 billion on a four quarter rolling basis.

Now compare that to an average of $5 billion in the period between 2013 and 2015, at a time when oil prices have fallen more than 40% to $50 a barrel.

Our strong results this quarter show that we are delivering on our strategy following the integration of BG Group and show that we are succeeding in reshaping the company into a world-class investment case.

The external price environment and the developments in the energy sector mean that we will remain disciplined with an absolute focus on the four levers within our control, namely capital efficiency, cost reduction, the delivery of new project, and divestments to high-grade the portfolio.

I look forward to updating you further on our progress during presentations by our Scenarios team, the chemicals business later in the year and, of course, during the next Management Days in November, and I hope that you will be able to join us then. But in the meantime, I'm sure there's also plenty of questions for you to ask today.

So, let's open the floor for you now. Thank you..

Thank you. Ladies and gentlemen, at this time we will now begin the question-and-answer session. We now have our first question from Oswald Clint from Bernstein. Please go ahead..

Thank you very much. Yeah. I just have two questions. The first one, Ben, is really you make a comment here by de-risking the cash flow outlook that you have from the new volume startups.

I just wanted to ask about that, because that's happened over the last 12 months, does that make you even more confident in those 2020 targets that you laid out for us last year? Was there a certain amount of risk attached to them this time last year that's kind of dissipated over the last 12 months? And ultimately, the 10% return on capital employed, you're at 4.2% already, does that feel like those – that it could actually be a higher double-digit number as you look at that number today? And the second question was really on the repeatability of the earnings and cash flow that's coming through the last couple of quarters.

I wondered if you could talk about in terms of production efficiency in the Upstream and kind of plant availability in Integrated Gas and refining and chemicals. Just maybe put some – some of those numbers around the actual operations kind of within the numbers, please. Thank you..

Okay. Thanks very much, Oswald. Let me have a first stab at it and then I'm sure Jessica will have a few things to say on it as well. Yeah.

Are we more confident that we can get to the outlook that we gave you in June last year? Absolutely, of course, we have now four quarters of good results, so it is very easy from here to bridge to the numbers that we gave.

Take $38 billion of cash flow over the last four quarters, add some price effect into it, $7 billion to $8 billion, add the effects of new projects into it, $7 billion to $9 billion because, of course, new projects will continue to ramp up and contribute post the end of next year.

And soon you'll be talking to somewhere between $52 billion, $55 billion of CFFO, take away from it the capital investments, $25 billion up to $30 billion, if you take the cash number it would be a bit lower and exactly you come to the numbers that we talked about, $20 billion to $25 billion organic free cash flow.

So, indeed, we are on track, that's why I'm saying it all goes into the right direction. So, definitely confidence is increasing and let's see where we are at the end of Q3, but I have no reason to doubt that we are going to get where we need to be by the end of the decade.

And the same story actually applies to the return, I could give you a similar bridge from where we are today on returns to something that is above 10%.

Now, we – of course, as we sort of engage with you on Management Day, there will be a good opportunity to sort of dissect that all in a bit more detail and I hope you will see that there is a lot more to it than I just mentioned with a number of high-level statements.

On production efficiency, Jessica, would you mind taking that one and the repeatability of it and how much progress we have made and the consistency of it?.

Sure, Ben. Before I do, I just would like to take the opportunity to respond also to the ROACE question. And first of all, to point out, we have businesses in our portfolio that are consistently delivering ROACE of 15% to 20%, those are our Downstream and chemicals businesses.

And overall, we're going to drive our businesses to have returns on capital employed to the full extent possible. And so, there is not a ceiling, I think we have a lot of ambition when it comes to what's possible with these assets.

We're going to continue to drive the cost agenda as well as the capital efficiency agenda, so both the numerator and the denominator to really – and drive the right outcomes from a ROACE perspective going forward. On the OpEx side – or the operational excellence agenda rather, a key part of our focus areas for the business at the moment.

That's true in the Downstream business, it's true in our Upstream business as well as our Integrated Gas business. That is part of what's contributing to the improved performance in all of those businesses.

Downstream, in particular, we've seen the availabilities improving substantially year-on-year going from some 88% to 90%, 92% between the manufacturing businesses and the chemicals businesses. So, clearly an important area for us, that agenda is delivering and is contributing to the results that you see.

But again, it is across the portfolio and the Upstream business, Ben talked about some of the things that we're doing in other parts of the Upstream business. In the Gulf of Mexico, we've seen marked improvements. In Malaysia, we've seen marked improvements.

And again, we believe that one of the best ways to drive more value from our assets is simply running our assets better day in and day out, and that's what we are doing..

Okay. Thank you. Thanks, Oswald. And let's have the next question..

We will now take our next question from Jon Rigby from UBS. Please go ahead..

Thank you. Hello. You advertise a lot of progress both in the underlying operating performance, debt reduction, which I guess is allied to, I mean, acceleration of the disposal plan against where we were probably at the start of this year, and just a general de-risking of the delivery of projects.

So, I just wondered where you sit with regards to actually removing or ending the Scrip Dividend and what needs to take place for the board to feel confident in doing that. It feels to me that you must be getting pretty close. I mean that's the first question.

And sort of allied to that, just in the Downstream if I look back over the last five or six years, I think you can see it's in one of your charts is, the earnings vary between about $5 billion and potentially annualized $10 billion this year or something close. You look like you're on target to spend about $5 billion on CapEx.

So, how do you judge the free cash flow contribution from the Downstream to the business, and how does that work its way into the decision-making process that you have around the dividend, because clearly that's an important cash contributor to the cash coverage of that dividend? Thanks..

Yeah. Let me say a few things about the second one, which I'm sure Jessica will have something to say on as well and she will also cover the scrip story.

Indeed, there is a range in our Downstream earnings, which in a large measure has to do with the refining cycle, this business and to a lesser degree with this cycle in chemicals, although we are exposed to a number of commodity cycles in the chemicals business. But by and large, refining, of course, brings volatility to our earnings.

And there is just not much you can do about it. We mitigate that to a degree, of course, by making sure that even at the bottom of the refining cycle, we have acceptable results. And we have high-graded our portfolio to achieve just that, but it's a cyclical business you can't avoid, therefore cyclical earning effects.

If you look at the cash story and if you look at the free cash flow of these businesses, they're actually pretty strong, relatively speaking. They are amongst our strongest contributors and including the refining business for that matter over the cycle. And that's simply because they need very little maintenance capital to keep them where they are.

Now at the same time, we want to grow these businesses as well and particularly the chemicals business. It's a growth priority, we want to double that business over the next, well, five, six, seven years now. And then maybe we want to continue to keep on growing it, let's see where we get to first by the end of the decade or early next decade.

So, we will be investing at elevated levels about $4 billion in chemicals. But if you were to remove all the growth that sits in there, this is a business that can sustain itself at levels that are much closer to $1 billion, $1.2 billion. So, you have to look at the Downstream into two different segments.

Now, at the same time, of course, in the marketing businesses, we see growth opportunities in emerging markets.

We want to also dedicate more capital to those segments, particularly not that the business is high-graded, restructured and fit for receiving more growth, but they are relatively modest capital numbers and individual projects, of course, do not sort of usually make the cut of being showcased in presentations like this.

But, in general, Jon, I like the oil products business because of its free cash flow credentials. Free cash flow per investment dollar is amongst one of the highest. And if you were to basically stop growing your chemicals business, it would be in exactly the same place.

Jessica?.

Good. Thanks, Ben. And indeed, we are running kind of the financial framework on a portfolio basis and clearly oil products business is part of our cash engine that does support overall growth and investment in other parts of the portfolio. And as Ben mentioned, it has very attractive free cash flow characteristics.

We're, of course, trying to make that even more resilient in terms of some of the strategies we're deploying in those businesses, growing our retail portion, et cetera and making more parts of those cash flows less priced, if you will, or less oil market tied than other parts of our portfolio.

And generally, that's moving in the right direction and feeling confident in terms of the stability of the cash flow profile of the Downstream business, which should hopefully make us – overall, the company more resilient and better able to support the dividend over time.

In terms of the scrip and our cash priorities, as I mentioned before, they haven't changed. Our priorities are debt repayment first, followed by dividend, scrip removal and then finding the right balance between repurchases and capital investment.

We made a clear commitment to the market in terms of getting our financial framework in the right place, and we did the BG acquisition, took on the debt. We're working through that. We've made tremendous progress over the last year achieving a gearing of 25% for the quarter, paying down some $3.8 billion of debt in this quarter alone.

So, indeed, a lot more confidence in terms of the delivery of the business, the underlying cash generation of the business, all of that is making us more confident, but in terms of when the scrip comes off, we do want to be prudent in that choice. And the macro does matter, our divestment program matters.

But again, if you look at the underlying cash flow generation of the business on a rolling four-quarter basis, that was some $38 billion, excluding working capital. Free cash flow for the company rolling four-quarter basis organic, so excluding any impact from divestments was some $16 billion.

So, I think we're showing results that indicate our ability to take off the scrip should we continue at this pace and with the right circumstances should be doable in the future on the horizon.

But again, we want to demonstrate the underlying performance of the business and be wise when we make that choice, because we certainly don't want to make that choice and then have to come back on it, because conditions change. I think the underlying performance of the business is very supportive in terms of that coming sooner rather than later..

Okay. Thanks, Jessica. Thanks, Jon.

Operator, can we have the next question, please?.

Absolutely. Our next question comes from Jason Gammel from Jefferies. Please go ahead..

Thanks very much. My question, Ben, is really about the potential medium-term conflict between two of the levers that you're pulling to bring the financial framework together right now. And that would be the reduction in capital spending versus the delivery of new projects as you look beyond, let's say, the 2020 timeframe.

Can you address whether you think that capital spending in the $25 billion to $30 billion range is going to be sufficient to keep the project queue loaded up to be able to continue to generate cash flow growth from new projects, sort of in that post 2020 timeframe? And maybe just as a sub-component of that question, do you expect to achieve any new project sanctions over the course of, let's say, the next 18 months particularly in your key Upstream growth engine in the deep-water?.

Okay. Good questions. Thanks, Jason. Yeah, I must admit that question we have heard before and I think it's important to be very clear about it.

When we look at the $25 billion to $30 billion range when we mentioned it, it is of course driven by affordability, but it's also driven by the objectives that we have set ourselves of achieving that world-class investment case.

It's not an arbitrary number, it is a number that is also made up of what we know is committed spend, what we can see coming in the near term and what we really want to have lined up as the future projects, of course, with a certain degree of un-knowability as to when exactly which sequence will take place.

So, in other words, there is actually thought, planning and analysis that has gone into these numbers. Now, at this point in time, as I said in the little speech earlier on, we think spending at the bottom of this range is about right.

You can see, if you'd listened to what Jessica just said, we will be able to get with this spending program at our current operating cash flow. We will be able to comfortably cover the cash dividend, pay down the debt and you can see us indeed moving towards that moment where we will turn off the scrip.

But then, the other question you have to ask which is your question then Jason is, is that $25 million, shouldn't that be a little bit higher? Are you under-investing? No, I don't think we are.

If you sort of fast-forward it a little bit, because we're only for you – fast-forward it till the end of the decade, but believe me, we also fast-forward till the end of next decade to understand how this is playing out. We believe that $25 billion to $30 billion is the right level to significantly continue to grow the business.

If you wanted to, we can go lower, of course.

I think we can – if you wanted to keep the business where it is, and I'm not talking here about volume metrics, but talking about the financial performance of the business at reference conditions, I think we can keep the business at its current level, at levels that are probably around $20 billion or even lower than $20 billion a year.

Of course, we can go even lower than that, but then we would be looking at a shrinking business.

So, I think there is indeed a range of choices here, the choice that we have taken is that we want to continue to grow the business and at $25 billion we do that, and we do it in a way that is completely affordable and is also, I think, completely compatible with the capacity of the organization that we have at the moment.

Jessica?.

Great. Thank you, Jason. Just perhaps a couple more points on the first question, and then I'll turn to the second question. I think it's important to note the significant impact we've had in terms of capital efficiency in our business. And $25 billion today is perhaps more like a $31 billion, $32 billion in the past.

So, I think it's important to kind of reset what $25 billion buys us and what we accomplish with $25 billion than perhaps what $25 billion looked like in the past.

And, of course, we're continuing to drive that agenda and, as Ben mentioned, with projects like Appo, we're continuing to deliver efficiencies in these projects even under construction, and we don't think we're done with that agenda.

So, I think perhaps there needs to be a bit of a reframe around what these numbers represent in terms of activity and future value for the company. From a growth perspective, I personally do not feel constrained, I don't feel the trade-off. We've got a huge growth agenda already. We're delivering a lot of growth at the moment.

And we feel like we're making the right choices from a capital perspective, from a management attention perspective. We're also trying to do other areas of growth in our marketing business, which are low capital spend opportunities for us.

So, in terms of managing the overall growth of our cash flow, we're feeling comfortable and not feeling constrained from a capital spending perspective. In terms of sanctions, we offer some detail in terms of the projects that we're considering sanctioning in the next couple of years in the backup, so that provides a bit more detail.

Indeed, there's a couple deep-water opportunities for us in Nigeria and in the Gulf of Mexico. What I would say overall is, we're going to make these choices based on value. All of these projects are competing for capital either within their strategic theme or across the company.

We are looking for the ones that are the most competitive, the most resilient, the lowest breakeven price. And then also to get the timing right, and things like timing matters very much for our LNG choices. There's enough LNG at the moment in the market. In the early 2020s, that will start to – demand will start exceeding the supply.

We believe there'll need to be more LNG brought into the market, but getting that timing right is important.

So, I think there is an element of what's the market telling us from a timing perspective, when is the right time to build the project and then, of course, choosing the most value accretive project from, I think, a pretty good portfolio of options..

Okay. Thank you, Jessica. Thanks, Jason.

Can I have the next question please, operator?.

Absolutely. Our next question comes from Thomas Adolff from Credit Suisse. Please go ahead..

Thanks. Jessica, thanks. I have two questions, please. Firstly, on disposals, I recall your former CFO saying that Shell has identified twice the level targeted over 2016 and 2018. So, that's over $60 billion.

Now that you are close to reaching that $30 billion target potentially a year ahead of plan, how should we think about the overall target, more than $30 billion or once the $30 billion is done, the deal is done and beyond 2018, we go to the usual annual run rate for asset sales? And in the case of more disposals beyond the normal run rate, would there be appetite for further inorganic deals to use these extra proceeds to further high-grade your portfolio, perhaps in areas you treat today longer term in nature? The second question, I guess going back to 2014, before the downturn, I'm just very curious, Ben, where you said, oh, I'm surprised that this was possible and I'm referring to things that you can control internally, perhaps things where you thought you could face internal opposition to certain changes.

And with that on the cultural evolution that you talked about earlier on, where are we? Have we reached the halfway mark or are we further advanced? And is that why you talked about earlier this morning that we could be fit for an oil price of $40? Thank you..

Good questions, Thomas. Why don't you take the first one, Jessica. I can think about the second one..

Okay, good. In terms of the disposal program – divestment program, first of all, the overall objectives of the program is to ensure we high-grade our portfolio and align our portfolio with our strategy that was part of bringing BG in. We've got more options in terms of growth.

Certainly a larger portfolio and so it's a opportune time to remove the tail and further high-grade. So, that's been an important part of the overall process. We've gotten through, I think, a good chunk of that. There's still more to go, some $5 billion in terms of meeting that original target. But again, we'll continue to manage the tail.

We'll continue to challenge the organization, are we the best owner of these assets. And in that sense, the program's never really over. I don't think we'll be moving from, let's say, oh, we're going to go from $30 billion to $40 billion.

But as you mentioned, we're going to have an ongoing approach to high-grading our portfolio over time and upgrading the portfolio. And on the annual basis, we should be seeing some $5 billion to $10 billion of divestments as kind of normal course of business.

In terms of inorganic deals, I think – I don't expect we're considering anything particularly major at this point in time, but of course, we will be looking for opportunities as appropriate. I wouldn't say it's necessarily on our agenda. Again, I've already talked about we're pretty pleased with the growth profile that we have at the moment.

Some of the kind of new businesses that we're looking at, new energies, there may be opportunities. I think they'd be relatively small in scale at this point in time. But again, I think that's probably more on the margin conversation than really fundamental in terms of how we're managing our capital program and our portfolio going forward..

Okay. On the second one, it's a very good and very open question, of course. So, it's a bit of a choice how you answer it. Let me say a few things though. And let me start off with the one that is maybe obvious, but it – or maybe not.

But definitely, when I came into this job, I didn't think I would do a large acquisition, not because I didn't think we couldn't do it, but it simply wasn't on my mind. And we ended up doing one, and I'm very happy and very proud that we did it.

It feels not only good that, of course, after sort of looked at BG for 15-plus years, we found the moment that it was right to do it just in time, I should say.

But also, what it has brought us in terms of not only rejuvenation of the portfolio and opportunities, but also rejuvenation of the culture, the way of working, the impetus that it has provided to do things differently, I think has been very rewarding as well.

So, was that something I considered impossible? No, not necessarily, but it was definitely something that I had on my mind when I came into this job.

What I had on my mind coming in was how can we drive a much, much stronger bottom line orientation, away from the focus of excellence, deep competence, doing the right things, being efficient and waiting for the result to then follow, to complement that with a – also, let's work back from the outcomes that we need to have.

And I think we've made progress there as well. It feels differently in the organization, the sort of appraisals that we are having are different types of appraisals. I think we have a much more strong focus on delivery of credible results, a better understanding of what competitive performance really looks like financially, et cetera.

And I would say, yeah, I'm quite happy with where we are, but are we there? No, I would say, we're probably 60% of the way. And let me say two more things, and again I could go on much longer, Adolff, but that would probably be inappropriate. I think strategic intents have really helped us to focus.

I think they have provided more clarity within the organization about what are the things that we need to get right, what do we really expect from a deep-water business, what do we really expect from a chemicals business.

What do they need to contribute – which ones can we grow, we can't grow them all at the same time, so how do we have different time horizons. I think that has really helped clarify in the organization how we want to prioritize things, so that's a big deal as well.

And with it, I think, a much more centralized discipline on capital spending, which is something that, again, I wasn't considering as impossible, but I think we have made there a lot of progress. On the latter one, centralized decision making on capital, I think we are pretty much there. But thanks for the question.

And operator, can we have the next one, please?.

Certainly. And our next question comes from Christyan Malek from JPMorgan. Please go ahead..

Hi, good afternoon, Jessica and Ben. Two questions, forgive me. First, today you've referenced the lower forever mentality. In the 2016 Annual Report, you've got a (46:16) Brent around 2020 may average 60% to 80% higher than the 2016 average. That would imply an oil price in the range of $70 to $80.

So, how do I square that? And related to that, you are cash neutral at $50 a barrel, but surely a lower forever outlook would imply a more realistic gravitational center sort of around $40. The second question is regarding the capital framework.

Is there a pain threshold that would prevent you from executing those priorities or is the critical path a lower gearing? But put another way, if oil goes below $40, would you kick the can down the road on the scrip removal? And the third slightly unrelated to quarter, but in light of the various corruption cases that have hit the oil sector, which seem to be more and more frequent, is there anything you think needs to be done better at the industry level to de-risk violation of the FCPA? And I say this in light of the indictment from the Italian prosecution in the year on block OPL 245 in Nigeria..

Okay. That's a rich list of questions there, Christyan. Let me say a few things on lower forever, maybe you can say also something about scrip, Jessica. And then I will also take care of the FCPA comment you made. And let me start with the FCPA comment. I think we are very clear about our business principles.

We have had our business principles for a long time. We enforce them with vigor and conviction. There is absolutely no room for unethical conduct in our organization and definitely not where it comes to bribery and corruption.

Everybody in our organization knows that and everybody knows also what the consequences of violating that rule is, which says you do not work for us anymore and we will refer you to the appropriate authorities if need be.

And there is absolutely no doubt in the organization that that's the culture that we would like to have, that's the conduct that we would like to have and that's definitely the way we enforce it. So, now having said that, is our industry an industry that operates in places where there is a troublesome environment here and there? Yes, absolutely.

And that's also exactly one of the reasons why we have to be so diligent when it comes to these values and these rules.

Precisely because it's what people in the front line of operations would actually like, that would much rather have a black-and-white clarity than one of exercise your judgment, which basically means that you put the onus back on the people that are being confronted with the issues.

So, therefore, you will find that also in places where corruption in society is endemic or established that the Shell people who operate in there find it actually quite good, pleasant and comforting that they have a company that has their back when they have to say no, I work for Shell, I don't do these things.

And I think that's a value that is not only sort of makes common sense for a company from a sort of business perspective, et cetera, I think it is what we need to do.

If we want to be a company with long life and a company with a good standing and reputation, one of the key things we need to get right in my mind is that we are being seen as a welcome participant in the society and indeed, where possible even a force for good. I'm not going to comment in detail on OPL 245, we have done that before.

If you want to read up on it, I would refer you to our website, where we give you a little bit more background that we have disclosed a reason for it. It is a live legal case and I hope you would understand that. Lower forever, yeah, that's the mindset.

Yeah, to be perfectly honest, I do think we will have quite a bit of movement in the oil price going forward and there is a better than 50-50 chance that we will see oil prices trend up, as the fundamentals of supply and demand reassert themselves over the longer period of time, we can talk about maybe separately as well.

But that's not the mindset that we want to have in the organization. We do not want to have the mindset that higher oil prices are around the corner to help us out. So, the mindset in which we work is lower forever for operating cost levels, lower forever also for efficiency metrics, et cetera, et cetera.

In terms of practical planning, we take a very conservative outlook. So, we understand how much cash we have coming in. Therefore, we can understand also what is affordable in terms of an investment level and that, of course, is driven not by see how lower you can go, but more like what is your realistic sort of conservative outlook.

In some places of our annual disclosures, we've referred to higher prices, but these are often the prices that we reference. For instance, how would a certain outlook look like and quite often then we actually reference market averages, so that you can see it's not our oil price outlook, but the average oil price outlook of the market.

Let me pause there and, Jessica, I hand it off to you to talk about the other points, and if there is anything to come back to me, then let me know..

Right. Perhaps just a couple more words on the lower forever piece. Just to point out, there was, I think, a statement cash neutral at $50, I would just want to emphasize that in the last 12 months, our organic free cash flow has been $16 billion.

So, I think that's important to keep in mind that at $50 we're generating significant organic free cash flow, so that's at today's prices. In terms of thinking about a world of $40, I just want to point out a few things.

First of all, we're – sanctioning projects for breakeven prices are at $40 or below, that's more or less the threshold we're applying to our Upstream business. In our LNG business, we're looking at technical costs of $5.

So, in terms of the direction we're sending to the organization, it's about having the most resilient, the most competitive marginal barrel, marginal MTPA of LNG in the industry.

And that's very much the mindset that we're trying to drive in the organization to ensure that we have the most capital efficient and, ultimately, the most competitive production going forward. I'd also want to say we tested many ranges and prices and have test on prices that are below current prices.

In terms of the scrip and a $40 world, $40 world is a different world. It's a different financial framework, if you will.

We certainly ensure that our financial framework is robust under many scenarios and many low scenarios, so overall have confidence in terms of our ability to manage our financial framework and make choices, but I think that is a different world. I think the industry would respond as well.

There'd be different – kind of different opportunities and different options with respect to capital choices, et cetera. So, I wouldn't necessarily want to speculate and, again, I'd go back to the fact that we're generating significant free cash flow today at $50.

We're making capital choices for a world that's much less than $50 and ensuring that our financial framework is robust even to very low moments through the cycle..

Okay. Thanks, Jessica.

Can we have the next question, please, operator?.

Certainly. We would now take our next question from Lydia Rainforth from Barclays. Please go ahead..

Thanks, and good afternoon. A couple of questions, if I could. Back to the scrip option and the capital allocation side, is there a way that you would consider actually doing a share repurchase being before you felt the scrip? That's just in terms of that additional flexibility that that might give you without having to turn off the scrip fully.

The second one was, just in terms of the cost base figuring (54:55) at $38 billion, which is below that $40 billion number this last year. Can you just talk a little bit more about the direction of travel of that towards the year-end? And apologies, one very final one.

Ben, just when you were talking about at the beginning the priority of reducing carbon intensity, can you talk through what metrics you think is most appropriate for us to assess that on? Thanks..

Thank you, Lydia. Good questions. Let me start with the carbon intensity, say a few words about cost, and then Jessica will take that one as well and the scrip one and the repurchase one. Yeah. Capital intensity, we've said we want to be a company that thrives in the energy transition.

That means a number of things, but amongst others it also means that we have to have a portfolio of assets and business models that are, shall we say, competitive or at least future proof in a world where carbon will increasingly become a constraining factor or be put a price on or somehow be needed to come down.

We at the moment, of course, have a number of metrics that we look at, that are a proxy for or directly related to carbon intensity. They are part of our scorecard on which we remunerate our entire organization. And that is the carbon intensity of our refining operations, our chemical operations as well as the amount of flaring that takes place.

Between these three categories, that's about 60-plus percent of our total greenhouse gas emissions. So, it's a very significant part of our emission base. The reason why we have chosen those is because we can – we think we can set targets for them.

Flaring, of course, we want to eliminate operational flaring, so that's basically a year-on-year reduction target. And when it comes to the intensity or the carbon efficiency of our refining and chemicals footprint, well, actually there's industry benchmarking that can help you take a look at the sort of achievable and necessary emissions there.

Is that going to be enough? I don't think so, to be perfectly honest. This whole world is moving, of course, very rapidly. You will have observed the discussions that we had around our AGM.

I made a commitment there, that we needed to be in a dialogue with our shareholders to understand better what our Paris commitments are and to give periodic updates of it and we will be doing that. That commitment was made and that we'll be obviously on it.

An important part of it also is, and this is why I would imagine also investors are interested in it or should be interested in it is, is our business resilient in the sort of future that we see and even in the longer run, is it still relevant? And it's exactly for those reasons that these questions need to be answered appropriately honestly and correctly that we have embraced the TCFD effort or the G20 effort, the Task Force for financial carbon – Climate-Related Financial Disclosures, sorry.

We've been involved in it quite a bit, I have spoken myself a few times with Governor Carney. We have been interacting with the Task Force at Jessica's level. We have decided to completely embrace this with a few caveats like, we can't put this stuff in a 20-F, it is – that's not what the 20-F is intended for.

But in principle, we love the idea of having a credible recognized methodology to demonstrate that our business that we have at the moment is also resilient in the next 5 to 10 years, come what may.

I'm confident that we are, that's the work that we do all the time also with the board, but we have to demonstrate it in a way that is recognized by financial markets as a credible assessment methodology.

And we are working with the TCFD to work it out in detail and to therefore be if you like the poster child of doing it correctly in the oil and gas industry.

But the other thing we need to get right is the longer term, because financial markets are only interested in the next 5 to 10 years when it comes to stability, et cetera, but what about the company in the 1930s, in the 1940s, in the 1950s, are we still relevant there? And here it's still so much a matter of stress testing and understanding what could happen to us, et cetera.

It is more scenario thinking, how can the energy system evolve, how can we adapt. Also there we do a lot of work because we are a long-term company. And also here, we can demonstrate that we maintain relevance. A part of it, of course, is because of the ease of portfolio adjustment.

If you invest $25 billion to $30 billion a year in a company with a $280 billion balance sheet, you have a new company every decade.

So, we can adjust quite a bit and we can see things coming, but also here there is no established methodology of proving that up, and therefore again, we welcome the fact that a body as credible as the FSB is actually working on providing that sort of objective measure.

Now that's a long answer, but I hope it will also – sort of addresses your other questions that could have been there down the line. And it is an important thing we need to get right. Why don't I pause here, Jessica, you talk about cost and scrip..

Great. Thank you, Lydia, for the question. There was a phrase that Shell used at the beginning of the 19th century, which I find compelling and charming, which is You can be sure of Shell. And I think that's important when trying to respond to this question.

We've given the market a clear perspective in terms of what our cash priorities are, the financial framework we're working towards. And we have a plan, we're delivering against that plan and we believe it's the right plan for the company.

It's not that we want to be dogmatic, it's not that we don't consider different options in terms of the financial framework, but there is a lot of careful consideration that goes into it.

And we do believe stepping through our priorities by giving debt where it needs to be, focusing on dividends and then getting scrip off and then moving to repurchases and balancing with capital investment is the right path forward.

It's not that there aren't alternatives, but again we've made commitments, we think commitments matter, we want to demonstrate our delivery against those commitments. And ultimately we're focusing on the fundamentals, we want to have the company have cash flow, underlying cash flow that supports our dividends on a cash basis.

And that's really what we want to get right. We think we're definitely on the path. We've made a few references to the key numbers as proof points, the $38 billion of the FFO, last 12-month basis excluding working capital, $16 billion of organic free cash flow, I think, demonstrates we are moving the company in that direction.

We are eager to get the scrip off, it's clearly a priority, but again we want to do it in a right sequence and we want it to be done based on fundamentals and not kind of interrupt that by trying to make near-term kind of interventions, if you will.

But really to focus on the fundamentals and hope in the medium term, we can get to where we want to be both from a debt perspective and removing the scrip.

From a cost perspective, things are moving in the good direction, our clean OpEx on a rolling 12-quarter – 12-month, four-quarter basis is $38 billion, which is well below the $40 billion number that we indicated. I think Ben's made mention before this isn't enough, we're going to continue to push the organization.

We're not taking the pedal off the cost – foot pedal, I guess, we're not – foot off the pedal when it comes to the cost agenda. We think there is more to come from that space and we're going to continue to drive it, but we're pleased with the $38 billion, but expect that there is more to come..

Okay. Good. Thanks very much. Let's have the next question..

Thank you. We will now take our next question from Alastair Syme from Citi..

Thanks very much. Couple of questions. There's obviously a very large debate going on, on the oil market about the role of the Permian and the future supply and you've got a strong position in the core of the Permian.

So, I guess the question is, where do you rank that investment and that asset versus other capital options you have in the Upstream? And my follow-up, which is not necessarily directly related to kind of is LNG Canada and Lake Charles both sit in the potential FID queue.

What has to happen to make one or both of those projects work?.

Okay. Thanks, Alastair. Good questions. Let me talk a little bit about LNG Canada, Lake Charles. Would you like to take the Permian, Jessica? Yeah. I think they're both good projects. I think LNG Canada, I used to say, is the best project in Canada. I can probably now say it's the only remaining project in Canada.

And we are still looking to sort of refine the plans for it by taking cost out further, that we were clearly not at a point that this was considered to be competitive enough when the industry started to change on us. And we potentially could have taken an investment decision and we are in the middle of doing that.

So, where we need to get to with this project is two points really. First of all, do we think we have a project with a breakeven price that is very resilient? So, this needs to be a project that can, of course, survive also under down-cycles.

It has many sort of fundamental advantages in terms of its feed gas position that is somewhat more stranded than anywhere else in North America and proximity to premium markets, et cetera, but the key thing of course is, do we have the confidence that the capital will come out, where we think we can get it to.

Having sort of witnessed cost escalation cycles in Canada, that's of course big on our mind. And then the second thing that we need to get to – in addition to what is the sort of credible breakeven price and is it competitive enough, the second point that we need to get to is the timing, how does it fit in to the sequence.

Now, these things are related. If you have the best possible project and the cost of supply curve for new projects, you are a little bit less obsessed with the timing, because you will be able to get it into the market. Of course, we are able also to take a large part of the supply ourselves in our own portfolio of shorts.

But nevertheless, we need to get – as Jessica said earlier on, we need to get the timing roughly right, that we think we can.

If we look at an investment decision in the next 18 months or so, this is going to be a project that could start producing quite right at the moment when the markets, spot market, the short-term market is getting very tight again. So, projects will be able to find a home in the lead up to it. And in a way, the same is true for Lake Charles.

We have to take a look on that too, I would also dare say Lake Charles is the best LNG project on the U.S. Gulf Coast. But again, we need to get it to a point, there's a bit of restructuring required there as well of a different nature in LNG Canada. But we need to get it to a point that is really competitive, it's really resilient.

And we believe it is the right moment to lend this project in the market when it starts up. Can we do two projects at the same time? Yes, we can. We have room for that. But can we absorb both projects at the same time in the market? We have to think a little bit harder for that, definitely not exactly at the same time..

Good. Also turning to Permian, again, I go back to the point, I think, I made a bit earlier around our overall approach to capital allocation and ensuring we're getting the most value accretive competitive projects sanctioned.

And in that sense, we're looking for the most competitive marginal barrel and that can be from our conventional oil and gas business, it could be from our deep-water business, it could be from our shales business, and all of them are actively competing for that capital.

I think that's really driven the right behaviors in the organization and all of those businesses have been driving the breakeven prices down. And frankly, all of them can compete with one another in ways that perhaps weren't possible just a couple of years ago.

In the shales business, we're spending some $2 billion to $3 billion in capital already, Permian alone over $1 billion. So, we're making significant investment in that asset. We're pleased with that asset. But at the same time, we have great opportunities in deep-water, either near-field or potentially new projects.

Again, those projects are being assessed, whether they're the most kind of capital efficient and the most value accretive. We're sanctioning projects in the deep-water with breakeven prices on a go-forward basis of less than $40 a barrel. So, I think competing very much with the other marginal barrel opportunities.

So, again like the assets, we're investing a good chunk of money already in the shales business. We'll continue to have that competition between the businesses for the best marginal barrel.

But we've got a great deep-water business, unique capabilities, unique positions, all of that combines into having, I believe, some of the most competitive barrels possible in the deep-water business..

Yeah. Thanks, Jessica.

Can we have the next question, operator?.

Absolutely. Our next question comes from Biraj Borkhataria from RBC. Please go ahead..

Hi, thanks for taking my questions. I had a few. Firstly, on the OpEx run rate, so the $38 billion. I know you don't like to give targets, but could you say whether you have line of sight to the $35 billion at this point? That's the first question. Second one is on your finance charges or interest paid.

I'm a little bit surprised as to not see the interest charge fall as your debt is coming down.

So, I was wondering if you could just talk about as you get to that 20% gearing, is there a figure – interest figure that you can guide us to on a more normalized basis? And then one maybe going back to your big strategy there in 2016, one of the big deltas on a theme-by-theme basis was conventional oil and gas, which was negative free cash flow in the old world and you wanted to generate $5 billion a year.

I was wondering if you could talk about that business today or that theme today. Where you are now and whether you've been happy with the progress made so far. Thank you..

Okay. Thanks, Biraj. Why don't I start with the last one a little bit, and then Jessica will take the other two.

Yeah, the conventional oil and gas business, of course, bear in mind that that was a – also I think back of June last year, that wasn't quite near the bottom, but it was of course still in a very, very severe downturn that we were then looking at the business and the numbers.

In the meantime, of course, we have done a tremendous amount of work in the entire portfolio, but definitely also in conventional oil and gas. I think you're right; in the conventional oil and gas business, we had some of the most troubling performance on a number of fronts, but it was not a business without a potential.

What we have done with it is, first of all, a significant amount of high-grading. So, look through the list of things that we are getting out of, the conventional oil and gas components are all, of course, businesses that were in one form or other not anymore strategic or otherwise troubled for us. That has really helped.

And we have done a tremendous amount of improving the remainder of the business. Now these things are correlated. If you have a very strong program, which we did have, and do have still, we call Fit for the Future, which was actually sort of born within the conventional oil and gas heartlands.

You can really drive a lot of improvement, not only by getting the people to focus on the right things and having a cadence of improvement programs and reviews, et cetera having what we called in place chief irritants to make sure that everybody sort of kept focus on the right things.

But if people also see that the consequence of not getting there is exit from the portfolio, there's an extra motivation to spur them along.

So, where we have gotten to is – and maybe this is something we should cover also in the Management Days in November, a tremendous amount of progress in what is the remaining part of the conventional oil and gas portfolio, very significant reductions in operating cost, very significant improvements in uptime, and crucially also a much stronger and more successful focus on what we call WRFM.

So, basically restoring production, improving reservoir monitoring and performance, running the assets much more to the limit diagrams, so that we can sweat them harder, et cetera, et cetera. Where we are now, I think is in a much better place. This business is holding its own. It is not good enough. We need to get still more out of it.

And there is much more scope to do so, but it is in a fundamentally different place from where it has been before. And in terms of cash, it is actually doing not too badly. What is the remaining problem I have with the conventional oil and gas business, which is how do we maintain its longevity through the 30s.

So, where we see, still a business that will be performing well on our free cash flow basis in the 20s. If I look to the latter half of the 20s, you will see that that free cash flow is the product of a declining operating cash flow and a declining investments.

And therefore, we need to work now on what we call the strategic battlegrounds to unlock barrels that we have in our contingent resources, but still need to be brought into production.

And they are currently not progressing, because either they're sitting behind challenged fiscals or they're sitting behind challenged capital intensity levels or they have otherwise complications. I think we're working our way through that as well.

So, I hope that we can continue to present the conventional oil and gas business as a real core of our portfolio and not something that we'll basically run as a cash cow and deplete it. But maybe it's indeed one of these businesses that we need to put a spotlight on a little bit more when we come back in in November for you.

Jessica?.

Great. So, Biraj, thank you for offering us a target, if we're not providing one of $35 billion. What I would say is two things. I think hopefully what you're hearing from Ben and myself is a high degree of ambition, and what we're currently delivering, as Ben just said, not good enough.

So, I think we're going to continue to drive that number down even though we've achieved a lot in the last two years, so going from $50 billion to $40 billion between 2014 and 2016, and then a further couple billion dollars down on a rolling 12-month basis to the $38 billion that you quoted.

So, the ambition remains high to continue to drive that down. I'd also mention the divestment program is not kind of inconsequential in terms of the impact on the overall profile of our financial statements and our operational expense as well. We've provided some of those details.

Things like oil sands coming out, Motiva being consolidated, et cetera, and the large growth program really will change the composition of a number of lines in our financial statements.

And so I think it's important to take that into consideration in terms of really understanding the underlying performance of the business and also the impact of timing, as we go through these divestments which will again have a major impact on the financial statements.

In terms of the finance charges, it's probably not entirely visible what's happening, because these numbers often have a number of things in them, interest payments, lease impacts, et cetera.

And you can speak with the IR team for more detail, but in fact interest payments Q1 to Q2 did decline and we will expect them to continue to decline as we pay down debt further. And that should be what you're seeing coming through the results going forward, as we pay down the debt, in fact, the interest will continue to decline over time..

Okay. Thanks, Jessica. I think we're down to the final question.

Operator?.

Thank you. We will now take our last question from Christopher Kuplent from BoA. Please go ahead..

Thank you very much. I'll try and keep it short, but I do have two questions. Firstly, I feel like you've had several opportunities today in questions that were asked to go back to earlier guidance you've given us and refer to having line of sight to get gearing back at 20% as a precondition for removing the scrip or stopping share buybacks.

And if I may remind you, we've now, since you stopped the share buyback program, looked at more than $10 billion of scrip issuance.

So, to get to 2020, aren't you concerned you're running out of time keeping the scrip in place? And coming back to Jon's earlier question, don't you feel you've got a good line of sight moving gearing down towards 20%? So, that's question number one, a bit of a repeat on earlier questions. Apologies for that.

And lastly, very specifically, can you comment on what your perception is around risk that you've got exposure to around Nord Stream 2 considering the U.S. Senate and House moves? Thank you..

Okay. Thanks, Christopher. I will take the second one. I'm sure that Jessica is happy to go over the first one, one more time. But I will say also a few things maybe to make sure that we provide a consistent perspective. On Nord Stream, well, I think it is still, I wouldn't say early days, but we need to see how this things plays out. Yeah.

So, we have of course seen the Senate bill, a slightly modified version going through the House. We now can expect that bill to go back to the Senate and probably before the week is up, it will be on President Trump's desk.

Let's see what happens, but if we assume that the bill gets enacted, then really we have still – have to go through the phase of rule making to understand exactly how that bill should be implemented. And only answer, that phase is done, really to be clear what the implications are.

Now you can, of course, speculate about what will happen, I think that is at this point in time unhelpful, as plenty of people speculating it already. And indeed, let me just say there is a wide range of what this could mean.

In the meantime, of course, we are in Nord Stream 2, we are authorized to be in Nord Stream 2, we have authorization of the Dutch government, which is the way it works for us, as a Dutch company investing or interacting with the Nord Stream project through Dutch subsidiaries as well.

And we are working on that authorization to the commitments of the agreements that we have with Gazprom. And we are just honoring these commitments because we are so minded and because we are also obliged.

And we will continue to do that until we have clarity on what the sanctions mean, and let's be very clear, if we find ourselves not being able to take the next commitment in that project, because it would be outlawed for sanctions, well, then we have no choice. We will comply with the law and obey the sanctions that had been put upon us.

But before we get there, there's probably a little bit more water that has to flow through the rain. We also have, of course, a potential response from Brussels, who are concerned with the extraterritoriality of the legislation. We don't know how that plays out either. And therefore, it is somewhat speculative what is happening here.

Make no mistake, we follow this very closely, because it – indeed it does have implications and as I'm sure other vendors will have told you as well or you can figure out yourself, it also has implications beyond Nord Stream 2, not just for us, but for energy provision, in general, in Europe. So, that's why it is an important topic.

Back to the scrip and the 20%, yeah, I think we have been very consistent and clear, and it – and indeed a bit on the banner of You can be sure of Shell, we have been saying the same thing all along. We have two, I wouldn't say conflicting, but competing objectives that we have to work on in harmony.

One is to service our debtors and to take care of debt market and debt market sentiment, and the other one of course, equity markets.

And we need to have both right, but we have very early on in this process decided and I think, that is still the right decision is that we need to have a certain measure of financial buffer in our framework through debt reduction before we can turn off the scrip and pay out a full dividend. Ideally, of course, that would have happened a lot earlier.

We have been very clear, we want to get sort of towards the 20% range before we turn off the scrip and start buying back. And again, we have been extremely consistent on it. Now, we can focus a little bit upon what does line of sight mean, this 25% line of sight to 20%, but I would say no, otherwise we would have announced something different today.

But we are definitely on the right track and you can probably figure out that we will get in a certain timeframe, which depends a little bit, of course, on how oil prices will develop as well.

Make no mistake, Christopher, I dislike the scrip as much as many of our other investors and I fully though (01:24:05) realize that, of course, the longer we have the scrip on, the bigger the headline dividend is and the larger the buyback program to compensate for it.

But compensate for it we will and I'm very minded to make sure that we put a significant dent in our headline dividend by a very material buyback program and the first $25 billion of that's already, of course, being mentioned. But ultimately it is an act of balancing and judgment, when we have to get this right, when we have to do it.

Jessica said, we cannot find ourselves doing this prematurely or doing it regretting it, or finding ourselves in a corner. And I think the judgment that we have on this is still appropriate.

We're not on autopilot on this, we debate this from time to time and this is where we come out, but partly why we are where we are is because we are confident of how things are developing, because how they have developed over the last few quarters.

Maybe that's a long way of saying something similar than Jessica said earlier, but opportunity for you to have the last word as a CFO, Jessica..

Great. And I do want it to be very clear, our commitment to taking the scrip off as soon as it's appropriate to do so. So, the – if I've used different language, I would not want that to leave any other impression than that one.

It is about getting our gearing down to 20%, getting our debt to the right levels and taking the scrip off as soon as possible. We're absolutely committed to doing that. Again, we're focusing on the fundamentals of the company and driving our cash flow to a different level, driving our profitability to a different level.

This will make us a healthier company, a resilient company that ultimately can pay our dividends by cash year in year out and that's really what we're driving our company to be and again to get the scrip off as soon as we possibly can..

Good. That seems to be the right endnote for this session. So, thank you very much again for all your questions, as usual, very helpful and good and insightful ones as well.

Let me remind you that we have, of course, the third quarter results coming up, that will be announced on the 2nd of November of this year and we look forward to talking to all of you then. Thank you very much..

This concludes the Royal Dutch Shell 2017 quarter two announcement presentation. Thank you for participating..