Shell E&P Unit to Take $330 Million Charge in Second Quarter

Companies of the Royal Dutch/Shell Group of Companies ('Shell') today announced portfolio actions in the United States and Peru and a charge to earnings for certain exploration assets.

Shell's Exploration and Production business (EP) will take a charge to earnings of about $330 million after tax in the second quarter on various exploration assets after drilling several unsuccessful exploration wells and completing extensive geological studies. The assets were acquired with Enterprise Oil plc in 2002. Shell's proved reserves are unaffected by this charge.

Shell Oil Products US today announced the sale of Midwest refined product pipeline system and storage assets in the United States for $530 million. This follows the sale last week of Texas and Great Plains product pipeline and storage assets in the United States for $492 million.

In Peru, Shell Peru S.A. announced today the proposed sale of the Peruvian retail, commercial and marine businesses. These sales are expected to be completed later this year. The proposed Peruvian divestments follow the divestment of Oil Products businesses in Portugal (excluding LPG and Lubricants marketing businesses), and proposed divestment of Oil Products businesses in Spain (excluding LPG, Lubricants, Aviation and Marine businesses).

The combined financial effect of these announcements is expected to be broadly neutral in terms of their combined contribution to net income for the year, although only the exploration assets charge will be taken in the second quarter.

To date in 2004, divestment proceeds from confirmed and disclosed sales (excluding proposed sales) exceed $3.5 billion, of which $1.7 billion of divestment proceeds was realised in the first quarter. Included in the $3.5 billion are, among others, the Delaware City refinery (partly reflected in the first quarter results but subject to conditions and working capital settlement), the Angolan upstream assets, and the Midwest, Texas and Great Plains product pipelines.

EP also announced this week that Final Investment Decision has been taken on the Pohokura field in New Zealand.

Upstream issues

EP today announced that after several unsuccessful exploration wells and essential extensive geological studies completed in Q2 it is to take a charge to earnings of around $330 million after tax relating to the book value of certain exploration assets acquired in the takeover of Enterprise Oil plc by Shell.

The charge follows drilling and detailed geological and seismic studies including, among others, wells drilled in the UK sector of the North Sea in late 2003, the Cong prospect offshore Ireland in December 2003 and the Beluga wildcat well in the Norwegian sector of the North Sea in May 2004. Around $35 million of the charge (after tax) relates to exploration costs incurred by Shell post the acquisition; the remaining amount relates to the allocation of the original purchase price to exploration assets.

These assets were acquired in the takeover of Enterprise Oil plc by Shell. Shell has already delivered synergies from the Enterprise acquisition of $355 million at the end of 2003 against an original expectation of $300 million. In just over two years since the acquisition, the Enterprise assets have contributed around $3 billion to Shell's cash from operations.

In this period, Shell has benefited from production from bringing on stream new Enterprise projects in Brazil and the Gulf of Mexico, and has seen progress on important development projects in the North Sea, Italy and Ireland. In addition, the Tahiti prospect in the Gulf of Mexico has been successfully explored and appraised.

Divestment of Midwest refined product pipeline system and storage assets

Shell Oil Products US announced today it has signed a Purchase and Sale Agreement with Buckeye Partners, L.P., for the sale of pipeline and storage assets located in Illinois, Indiana, Ohio, Michigan and Wisconsin.

The ownership of these pipeline and terminal systems is no longer of strategic interest to Shell Oil Products US, and greater shareholder value can be generated by selling them to a more natural owner such as Buckeye Partners, L.P.

Major assets included in the sale consist of the East Line Pipeline, North Line Pipeline, St. Louis ATF Pipeline, St. Louis 6-inch Pipeline and the 2Rivers Pipeline. These pipeline assets, along with associated distribution terminal assets, form an integrated system that carries refined products from primarily U.S. mid-continent refineries to points throughout the Midwest region. Major markets include Chicago, St. Louis, Cleveland, Indianapolis and Cincinnati.

The transaction is expected to close in the third quarter of 2004 after completion of due diligence and appropriate regulatory review.

Proposed divestment of some Oil Products assets in Peru

In Peru, Shell Peru S.A. is offering for sale, as a continuing business, its service station network and industrial and marine fuels businesses, which have been in operation since 1994.

Shell will retain its lubricants business in Peru, where plans include generating growth through the integration of the acquired Pennzoil-Quaker State business.

The proposed transaction is consistent with Shell's strategy to increase the profitability of the downstream assets through greater focus in key countries.

Final Investment Decision on Pohokura gas field

Shell New Zealand has announced the green light for the development of the Pohokura gas field, approving final investment decision. Shell New Zealand anticipates that the first gas will flow from Pohokura in mid 2006. Shell owns 48% of the shares in the Pohokura field. OMV New Zealand and Todd Pohokura Ltd each own 26%. The Pohokura field is being developed on behalf of the Joint Venture by Shell Todd Oil Services. The Pohokura field was discovered in early 2000, and Shell acquired the majority of its interest in the field in the acquisition of Fletcher Energy in the same year.