REG-Royal Dutch Shell: Company development & recommended BG combination update <Origin Href="QuoteRef">RDSa.L</Origin>

ShellAnnouncement

30/07/2015 06:50

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Royal Dutch Shell plc updates on company development and recommended
combination with BG Group plc

  * Competitive performance in low oil prices; planning for prolonged downturn
  * Dividend commitment unchanged: 2015 $1.88/share, 2016 at least $1.88/share
  * Share buy-back commitment unchanged: $25 billion 2017-2020
  * Operating cost reduction in 2015 totalling $4 billion (-10%); 6,500 job
    reductions in 2015
  * Capital investment reduction in 2015 totalling $7 billion (-20%)
  * Pro-forma capital investment 2016 for Shell + BG  expected to be around $35
    billion
  * Further reductions in operating costs expected in 2016
  * BG transaction on track - 'grow to simplify' leads to a more resilient and
    competitive Shell

London, 30th July 2015 - Updating shareholders and investors at a presentation
in London today, Shell's CEO Ben van Beurden said:

"Shell's integrated business and our performance drive are helping to mitigate
the impact of low oil prices on our bottom line.

As our results today show, we're successfully reducing our capital spending and
operating costs, and delivering a competitive performance in today's oil market
downturn.

We have to be resilient in a world where oil prices remain low for some time,
whilst keeping an eye on recovery. We're taking a prudent approach, pulling on
powerful financial levers to manage through this downturn, always making sure
we have the capacity to pay attractive dividends for shareholders.

At the same time, we are making good progress with the recommended combination
with BG, which should enhance our free cash flow, create an IOC leader in LNG
and deep water innovation, and be a springboard to change Shell into a simpler
and more profitable company.  The regulatory filings process and integration
planning are both progressing well.

We will re-shape the company once this transaction is complete. This will
include reduced exploration spend, a fresh look at capital allocation in longer
term plays, and asset sales spanning upstream and downstream. This should
concentrate our portfolio into fewer, higher value positions, where we can
apply our know-how with better economy of scale. In essence, we 'grow to
simplify'.

The result should be a simpler, more profitable, resilient and competitive
Shell, able to deliver better returns to shareholders

These are challenging times for the industry, and we are responding with
urgency and determination, but also with a great sense of excitement for the
future."


 

Pulling levers to manage returns in the downturn

Today's oil price downturn could last for several years, and Shell's planning
assumptions reflect today's market realities. The company has to be resilient
in today's oil price environment, even though we see the potential for a return
to a $70-$90 oil price band in the medium term.

  * Gearing stands at 13% relative to 12% at end 2014, despite lower oil
    prices, reflecting good operational performance during the downturn and the
    introduction of the scrip dividend
  * Operating costs are expected to fall by over $4 billion, or around 10%, in
    2015, as our sustainable cost reduction programmes gather pace. We plan to
    reduce costs further in 2016.
  * We are anticipating some 6,500 staff and direct contractor reductions in
    2015
  * 2015 capital investment is expected to be around $30 billion, a reduction
    of $3 billion since Shell's last update in April, and $7 billion from 2014
    levels, reflecting cost reductions, project cancellations and re-phasing of
    growth options. Overall this is a reduction of 20% from 2014 levels, and
    35% compared to 2013.
  * Shell continues to review both the ongoing projects under construction, and
    the medium term investment options, to balance returns, affordability and
    medium term growth potential
  * Underlying performance in each of the focus areas of Resources Plays, Oil
    Products and the mature Upstream 'engines' business has improved compared
    with 2014, as we continue to restructure there
  * Asset sales should total $20 billion for 2014 and 2015 combined, despite
    weak market conditions
  * At the same time, Shell is continuing to invest in significant new
    projects, which should add material cash flow and free cash flow in the
    medium term

Progressing with the recommended combination with BG: 'grow to simplify'

In April 2015, Shell announced its recommended combination with BG.

  * Enhanced free cash flow - this enhances Shell's dividend potential in any
    expected oil price environment.
  * An IOC LNG and deep water innovation leader - accelerating and de-risking
    our current strategy.
  * Springboard to change Shell - asset sales and refocused spending would
    result in a simpler, more focused company, concentrated around three
    pillars - upstream and downstream engines, deep water and LNG.

  * We remain on track for completion in early 2016, as planned. We are making
    good progress with the regulatory approvals process, including approvals
    received from Brazil CADE, South Korea FTC and US FTC. Pre-conditional
    filings have been submitted, covering Australia, China and the EU, and we
    are progressing well in other jurisdictions.
  * A joint team has been established with BG to plan for a world class
    integration of the two companies once the transaction has closed, and to
    retain the top talent from both companies.
  * Synergies from the transaction should be at least $2.5 billion per year
    from 2018, subject to the bases of belief, principal assumptions and
    sources of information set out in Appendix 5 to the announcement of the
    recommended combination.
  * By combining Shell's current complementary positions with BG's LNG and deep
    water assets, Shell can add significant value - beyond the announced
    synergies - by applying its technology and know-how at greater scale, at a
    lower cost, concentrating on areas of existing competitive advantage, and
    through better optimization of the combined portfolio.
  * Pro-forma combined capital investment for Shell and BG in 2016 is expected
    to be around $35 billion in the current environment.
  * Shell expects $30 billion of asset sales between 2016 and 2018, as the
    combined portfolios are restructured.
  * The free cash flow expansion expected from BG's Australia and Brazil growth
    is a natural fit with Shell's 2017+ free cash flow growth potential.
  * This in turn enhances Shell's continued intention to pay a dividend of
    $1.88/share for 2015 and at least $1.88/share for 2016, and reflects
    confidence in future financial capacity.
  * Share buy-back of at least $25 billion expected for 2017-2020, subject to
    the assumptions set out in the announcement of the recommended combination,
    supported by the re-shaping of the portfolio we are planning, and enhanced
    free cash flow from the combination with BG.

Analyst and investor presentation

Shell will be presenting to investors and analysts on company development and
the recommended combination with BG Group plc at 14.00-17.00 UK time today.

There will also be live webcasts of these presentations. Information on how to
access the live audio webcast can be found at www.shell.com.

Subject to certain restrictions, the recorded presentation and the accompanying
slides will be available to all interested parties at www.shell.com. Your
attention is also drawn to the important information at the back of this
Announcement.

Publication on website

Subject to certain restrictions, a copy of this announcement is also available
on the website of Shell at www.shell.com, in accordance with Rule 26.1 of the
Takeover Code.

Contacts:

- Investor Relations: International + 31 (0) 70 377 4540; North America +1 832
337 2034

- Media: International +44 (0) 207 934 5550; USA +1 713 241 4544


 

CAUTIONARY STATEMENT

This announcement is not intended to and does not constitute or form part of
any offer to sell or subscribe for or any invitation to purchase or subscribe
for any securities or the solicitation of any vote or approval in any
jurisdiction pursuant to the recommended combination of Royal Dutch Shell plc
("Shell") and BG Group plc ("BG") (the "Combination") or otherwise nor shall
there be any sale, issuance or transfer of securities of Shell or BG pursuant
to the Combination in any jurisdiction in contravention of applicable laws.

No statement in this announcement (including the statement of estimated
synergies) is intended as a profit forecast or estimate for any period and no
statement in this announcement should be interpreted to mean that cash flow or
earnings per share for the current or future financial years would necessarily
match or exceed the historical published cash flow or earnings per share for
Shell or BG, as appropriate.

Statements of estimated cost savings and synergies relate to future actions and
circumstances which, by their nature, involve risks, uncertainties and
contingencies. As a result, the cost savings and synergies referred to may not
be achieved, may be achieved later or sooner than estimated, or those achieved
could be materially different from those estimated. For the purposes of Rule 28
of the City Code on Takeovers and Mergers ("Takeover Code"), the quantified
financial benefits statement contained in this announcement is the
responsibility of Shell and the Shell directors. Neither this statement nor any
other statement in this announcement should be construed as a profit forecast
or interpreted to mean that the combined group's earnings in the first full
year following implementation of the Combination, or in any subsequent period,
would necessarily match or be greater than or be less than those of Shell or BG
for the relevant preceding financial period or any other period. The bases of
belief, principal assumptions and sources of information in respect of the
quantified financial benefits statement, as well as the reports provided for
the purposes of Rule 28 of the Takeover Code by Deloitte LLP as reporting
accountant and Bank of America Merrill Lynch as financial adviser, are set out
in the announcement published on 8 April, 2015 in connection with the
Combination.

All amounts shown throughout this announcement are unaudited.

The companies in which Royal Dutch Shell plc directly and indirectly owns
investments are separate entities. In this announcement "Shell", "Shell group"
and "Royal Dutch Shell" are sometimes used for convenience where references are
made to Royal Dutch Shell plc and its subsidiaries in general. Likewise, the
words "we", "us" and "our" are also used to refer to subsidiaries in general or
to those who work for them. These expressions are also used where no useful
purpose is served by identifying the particular company or companies.
''Subsidiaries'', "Shell subsidiaries" and "Shell companies" as used in this
announcement refer to companies over which Royal Dutch Shell plc either
directly or indirectly has control. Companies over which Shell has joint
control are generally referred to as "joint ventures" and companies over which
Shell has significant influence but neither control nor joint control are
referred to as "associates". The term "Shell interest" is used for convenience
to indicate the direct and/or indirect ownership interest held by Shell in a
venture, partnership or company, after exclusion of all third-party interest.

This announcement contains forward-looking statements concerning the financial
condition, results of operations and businesses of Royal Dutch Shell and of the
Combination. 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 Royal Dutch Shell, BG and the combined group 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 ''anticipate'', ''believe'', ''could'',
''estimate'', ''expect'', ''goals'', ''intend'', ''may'', ''objectives'',
''outlook'', ''plan'', ''probably'', ''project'', ''risks'', "schedule",
''seek'', ''should'', ''target'', ''will'' and similar terms and phrases. There
are a number of factors that could affect the future operations of Royal Dutch
Shell and could cause those results to differ materially from those expressed
in the forward-looking statements included in this announcement, 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, 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; and (m) changes in
trading conditions. All forward-looking statements contained in this
announcement 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. Additional risk factors that may
affect future results are contained in Royal Dutch Shell's Form 20-F for the
year ended December 31, 2014 (available at www.shell.com/investor and
www.sec.gov). These risk factors also expressly qualify all forward-looking
statements contained in this announcement and should be considered by the
reader. Each forward-looking statement speaks only as of the date of this
announcement, July 30, 2015. Neither Royal Dutch Shell plc 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
from those stated, implied or inferred from the forward-looking statements
contained in this announcement. There can be no assurance that dividend
payments will match or exceed those set out in this announcement in the future,
or that they will be made at all.

We may have used certain terms, such as resources, in this announcement that
the United States Securities and Exchange Commission (SEC) strictly prohibits
us from including in our filings with the SEC. U.S. investors are urged to
consider closely the disclosure in our Form 20-F, File No 1-32575, available on
the SEC website www.sec.gov. You can also obtain this form from the SEC by
calling 1-800-SEC-0330.



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