Van der Veer Comments on Shell's Refocused Portfolio

As part of his annual strategy update, Shell's Chief Executive Jeroen van der Veer made the following comments:

"We have made solid progress with our strategy and portfolio development in 2006. I expect reserves replacement including oil sands to be some 150%. In addition, our exploration and business development activities upstream have added well over 2 billion barrels oil equivalent of new conventional resources, for the second successive year. In Downstream, we have added to our growth portfolio, especially in China.

"We took important investment decisions in 2006. Upstream, we have launched major investments in unconventionals and deep water. Downstream, our plans are progressing to expand refining capacity on US Gulf Coast, and chemicals capacity in Singapore. We announced a recommended offer to buy out the minority interests in Shell Canada Limited, and we signed a protocol with Gazprom that stabilizes our position in the Sakhalin II project in Russia, with a strong partner.

"We recognized some time ago that our industry was witnessing important changes. Today, I am pleased with our response. We look for competitive returns and take a long-term, global approach. Shell adds value through technology, and we are shifting our investment to where we can best apply our know-how, often in more complex barrels. We are rejuvenating our portfolio through new, long-life growth projects. These will become legacy assets, and produce steady cash flow, for decades to come. They will be the foundations for Shell in the first half of the 21st century.

"Our Upstream investment is driven by a combination of exploration, LNG and unconventionals. Downstream, we are investing in size and complexity in manufacturing world-wide, and growth markets in the East. Today, we have around 45 major projects under construction world-wide. Our strategy is on track.

"We have now implemented a deliberate policy of investing in large stakes in major integrated projects. As part of the funding for that policy, we expect asset sales to accelerate in 2007 to some $9 billion, as we continue to refocus our company. Taken together with the purchase of the minority shares in Shell Canada Limited, I therefore anticipate that net capital spending will be around $22-23 billion in 2007, compared to some $21 billion in 2006.

"As a result of these portfolio developments, I expect a reduction in near term refining capacity. For Upstream, the outlook continues to be impacted by security problems in Nigeria, affecting 2007 production and future growth. We now expect overall oil and gas production in 2007 to be in the range 3.3-3.5 million boe/d, in the event that Nigerian volumes remain deferred for the rest of the year. The reduced Nigeria outlook, and divestments including the dilution of our stake in Sakhalin II, mean we expect only modest production growth to the end of the decade.

"Downstream, we are a leading global player, with clear growth plans. Our upstream investment focuses on building on our global leadership in LNG, GTL, deepwater and oil sands, and we have the resource base to grow long term upstream production by some 2-3%/year. But I am value-driven, so that absolute production growth is not a core target for the Group, and is the outcome of our value choices.

"Technology also has a major role to play in the environmental challenge. We continue to invest in cleaner fuels. We are developing clean coal and renewables technologies. And we are researching technologies for CO2 solutions. In all these themes, and especially for CO2, we have a clear view that governments need to set frameworks to allow business-driven solutions.

"In 2006, we recruited some 1500 young graduates, and around 4500 experienced professionals, from over 60 countries, all to help on our agenda for delivery."

Van der Veer concluded:

"Royal Dutch Shell is in a good position to drive new, standardized ways of working through the company, to reduce complexity and speed up decision making. Operational synergies and cost savings should add some $0.5 billion to earnings each year, across the medium term.

"We are announcing a step-up in dividend payment for 2007, with an increase in the Q1 2007 dividend of 14%, to $0.36/ordinary share. This increase will give our investors an early share in the profitability and success I expect for the future."


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