Le Lézard
Classified in: Covid-19 virus
Subjects: MISCELLANEOUS, MISCELLANEOUS, MISCELLANEOUS

ROYAL DUTCH SHELL PLC 3RD QUARTER 2020 UNAUDITED RESULTS


SHELL SETS OUT A COMPELLING INVESTMENT CASE

The Hague, October 29, 2020 - Shell today announced a cash allocation framework that will enable it to reduce debt, increase distributions to shareholders, and allow for disciplined growth as it reshapes its business for the future of energy. Ongoing work to reshape Shell's portfolio is expected to deliver continued cash generation to grow its low-carbon businesses as well as to increase shareholder distributions, making a compelling investment case.
In confirming its progressive dividend policy, Shell announces a dividend per share growth by around 4% to 16.65 US cents for the third quarter 2020 and annually thereafter, subject to Board approval.
The cash allocation framework includes a target to reduce net debt to $65 billion (from $73.5 billion as of September 30, 2020) ? and, on achieving this milestone, a target to distribute a total of 20-30% of cash flow from operations to shareholders. Increased shareholder distributions will be achieved through a combination of Shell's progressive dividend and share buybacks. Remaining cash will be allocated to disciplined and measured capex growth and further debt reduction, targeting AA credit metrics through the cycle.
Shell's decisive steps this year have significantly strengthened its financial resilience, allowing the acceleration of strategic plans and providing clarity on cash priorities. These actions support Shell's ambition to become a net-zero energy emissions business by 2050 or sooner, in step with society and its customers.
"Our sector-leading cash flows will enable us to grow our businesses of the future while increasing shareholder distributions, making us a compelling investment case," said Royal Dutch Shell Chief Executive Officer, Ben van Beurden.
"We must continue to strengthen the financial resilience of our portfolio as we make the transition to become a net-zero emissions energy business. Our decisive actions taken earlier in the year have solidified our operational and cash delivery. The strength of our performance gives us the confidence to lay out our strategic direction, resume dividend growth and to provide clarity on the cash allocation framework, with clear parameters to increase shareholder distributions."
Chair of the Board of Royal Dutch Shell, Chad Holliday commented: "The Board has reviewed Shell's recent performance and its plans to grow its businesses of the future, and we are confident that Shell can sustainably grow its shareholder distributions as well as invest for growth.
As a result, the Board has decided to increase the dividend per share to 16.65 US cents for the third quarter 2020. The Board has additionally approved a cash allocation framework for Shell which, on reducing its net debt to $65 billion, will target total shareholder distributions of 20-30% of cash flow from operations."
Shell will continue with its strong capital discipline, including annual Cash capex of between $19 and $22 billion in the near term and a focus on reducing net debt. Shell will continue its relentless high grading of the portfolio with expected divestment proceeds of $4 billion a year on average.
LEADING ENERGY TRANSITION STRATEGY AND A STRONG PORTFOLIO
Shell will reshape its portfolio of assets and products to meet the cleaner energy needs of its customers in the coming decades. The key elements of Shell's strategic direction include:
?Ambition to be a net-zero emissions energy business by 2050 or sooner, in step with society and its customers.
?Grow its leading marketing business, further develop the integrated power business and commercialise hydrogen and biofuels to support customers' efforts to achieve net-zero emissions.
?Transform the Refining portfolio from the current fourteen sites into six high-value energy and chemicals parks, integrated with Chemicals. Growth in Chemicals will pivot to more performance chemicals and recycled feedstocks.
?Extend leadership in liquefied natural gas (LNG) to enable decarbonisation of key markets and sectors.
?Focus on value over volume by simplifying Upstream to nine significant core positions, generating more than 80% of Upstream cash flow from operations.
?Enhanced value delivery through Trading and Optimisation.

A comprehensive strategy update, with details on the future shape of the Shell portfolio, actions to deliver the net-zero ambition, and a full financial outlook will be presented on February 11, 2021.


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NOTES TO EDITOR
?Our nine core Upstream positions are: Brazil, Brunei, Gulf of Mexico (US/Mexico GoM), Kazakhstan, Malaysia, Nigeria, Oman, Permian and UK North Sea.
?The six sites expected to form our energy and chemicals parks include: Deer Park (US), Norco (US), Pernis (NL), Pulau Bukom (Singapore), Rheinland (Germany) and Scotford (Canada).
?The chemicals-only production sites, which sit alongside the energy and chemicals parks are: CSPC (China- JV with CNOOC), Fife Ethylene Plant (Scotland - JV with Exxon), Geismar (US), Jurong Island (Singapore), Moerdijk (NL), and Pennsylvania Chemicals (US - under construction).


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ROYAL DUTCH SHELL PLC
3RD QUARTER 2020 UNAUDITED RESULTS
    


                           
 
SUMMARY OF UNAUDITED RESULTS
Quarters$ million Nine Months
Q3 2020Q2 2020Q3 2019 Reference20202019%
489  (18,131) 5,879  -92Income/(loss) attributable to shareholders (17,666) 14,878  -219
177  (18,377) 6,081  -97CCS earnings attributable to shareholdersNote 2(15,443) 14,399  -207
955  638  4,767  -80Adjusted Earnings²A4,453  13,530  -67
10,403  2,563  12,252  -15Cash flow from operating activities 27,818  31,913  -13
(2,833) (2,320) (2,130)  Cash flow from investing activities (7,871) (10,918)  
7,571  243  10,122   Free cash flowG19,947  20,995   
3,737  3,617  6,098   Cash capital expenditureC12,324  17,036   
7,854  7,504  8,657  -9Underlying operating expensesF23,958  27,000  -11
(4.9)%(2.9)%8.6% ROACE (Net income basis)D(4.9)%8.6% 
3.9%5.3%8.1% ROACE (CCS basis excluding identified items)D3.9%8.1% 
31.4%32.7%27.9% GearingE31.4%27.9% 
3,081  3,379  3,563  -14Total production available for sale (thousand boe/d) 3,392  3,632  -7
0.06  (2.33) 0.73  -92Basic earnings per share ($) (2.27) 1.84  -223
0.1665  0.16  0.47  -65Dividend per share ($) 0.4865  1.41  -65


1.     Q3 on Q3 change.
2.     Adjusted Earnings is defined as income/(loss) attributable to shareholders plus cost of supplies adjustment (see Note 2) and excluding identified items (see Reference A).

Income attributable to Royal Dutch Shell plc shareholders was $0.5 billion for the third quarter 2020, which reflected lower realised prices for oil and LNG as well as lower realised refining margins and production volumes compared with the third quarter 2019. This was partly offset by lower operating expenses, well write-offs, depreciation and strong marketing margins. Income attributable to Royal Dutch Shell plc shareholders included an impairment charge of $1.1 billion, partly offset by gains on fair value accounting of commodity derivatives of $0.5 billion.

Cost of supplies adjustment attributable to Royal Dutch Shell plc shareholders for the third quarter 2020 was negative $0.3 billion.

Adjusted Earnings were $1.0 billion for the third quarter 2020, reflecting lower realised prices for oil and LNG as well as lower realised refining margins and production volumes compared with the third quarter 2019. This was partly offset by lower operating expenses, well write-offs, depreciation and strong marketing margins.

Cash flow from operating activities for the third quarter 2020 was $10.4 billion, which included positive working capital movements of $1.4 billion. Cash flow from investing activities for the quarter was an outflow of $2.8 billion, driven mainly by capital expenditure, partly offset by proceeds from divestments.

Gearing was 31.4% at the end of the third quarter 2020, compared with 32.7% at the end of the second quarter 2020, mainly driven by strong cash flow generation in the quarter.

Total dividends distributed to Royal Dutch Shell plc shareholders in the quarter were $1.2 billion.

Shell announces a dividend per share growth by around 4% to 16.65 US cents for the third quarter 2020 and annually thereafter, subject to Board approval.

Supplementary financial and operational disclosure and a separate press release for this quarter are available at www.shell.com/investor1.



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3RD QUARTER 2020 UNAUDITED RESULTS


1. Not incorporated by reference.


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THIRD QUARTER 2020 PORTFOLIO DEVELOPMENTS

Integrated Gas

During the quarter, the CrossWind consortium, a joint venture between Shell (79.9% interest) and Eneco (20.1% interest), was awarded the tender for the subsidy-free offshore wind farm Hollandse Kust (noord) in the Netherlands. The wind farm has a planned installed capacity of 759 MW and is expected to help meet the objectives of the Dutch Climate Accord and the EU's Green Deal. Both companies have already taken their final investment decisions on the project. This investment is part of Shell's ambition for a new wind-to-hydrogen value chain.

Upstream
During the quarter, Shell completed the sale of its Appalachia shale gas position in the USA for $541 million paid fully in cash, less closing adjustments. The transaction has an effective date of January 1, 2020.

In August, Shell took the final investment decision to contract the Mero-3 floating production, storage and offloading (FPSO) vessel to be deployed at the Mero field within the offshore Santos Basin in Brazil. This production system has a daily operational capacity rate of 180,000 barrels of oil equivalent, with production coming online over the next four years.


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ROYAL DUTCH SHELL PLC
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PERFORMANCE BY SEGMENT

                        
 
INTEGRATED GAS   
Quarters$ millionNine Months
Q3 2020Q2 2020Q3 2019 20202019%
(151) (7,959) 2,597  -106Segment earnings(6,298) 6,731  -194
(920) (8,321) (77)  Of which: Identified items (Reference A)(9,572) (237)  
768  362  2,674  -71Adjusted Earnings3,274  6,968  -53
2,323  2,663  4,224  -45Cash flow from operating activities8,972  11,854  -24
2,396  2,871  4,271  -44Cash flow from operating activities excluding working capital movements (Reference H)8,619  10,811  -20
1,020  736  894   Cash capital expenditure (Reference C)2,638  2,976   
143  151  166  -14Liquids production available for sale (thousand b/d)152  154  -1
4,067  4,369  4,586  -11Natural gas production available for sale (million scf/d)4,343  4,397  -1
844  904  957  -12Total production available for sale (thousand boe/d)901  912  -1
7.80  8.36  8.95  -13LNG liquefaction volumes (million tonnes)25.03  26.34  -5
17.13  16.65  18.90  -9LNG sales volumes (million tonnes)52.78  54.36  -3


1.     Q3 on Q3 change.

Third quarter segment earnings were a loss of $151 million. This included an impairment charge of $924 million mainly related to the Prelude floating LNG operations in Australia. Also included were a divestment gain of $118 million related to a lease liability remeasurement and a charge of $126 million related to provisions for an onerous contract. These charges are part of identified items (see Reference A).
Compared with the third quarter 2019, Integrated Gas Adjusted Earnings of $768 million primarily reflected lower realised prices for LNG, oil and gas and lower contributions from trading and optimisation, partly offset by lower operating expenses.

Cash flow from operating activities for the quarter was $2,323 million, primarily driven by Adjusted Earnings before non-cash expenses including depreciation, as well as cash inflows from commodity derivatives.

Compared with the third quarter 2019, total production decreased by 12% mainly due to more maintenance activities and lower well performance, partly offset by the transfer in the first quarter 2020 of the Rashpetco operations in Egypt from the Upstream segment. LNG liquefaction volumes decreased mainly as a result of more maintenance activities in Australia.

Nine Months segment earnings were a loss of $6,298 million. This included an impairment charge of $9,135 million mainly related to the Queensland Curtis LNG and Prelude floating LNG operations in Australia. Also included was a net charge of $450 million due to the fair value accounting of commodity derivatives. These charges are part of identified items (see Reference A).
Compared with the first nine months of 2019, Integrated Gas Adjusted Earnings of $3,274 million primarily reflected lower realised prices for LNG, oil and gas, lower contributions from trading and optimisation, higher well write-offs and unfavourable deferred tax movements, partly offset by lower operating expenses.

Cash flow from operating activities for the first nine months of 2020 was $8,972 million, primarily driven by Adjusted Earnings before non-cash expenses including depreciation and well write-offs.

Compared with the first nine months of 2019, total production decreased by 1% mainly due to more maintenance activities and lower well performance, partly offset by the transfer in the first quarter 2020 of the Rashpetco operations in Egypt from the Upstream segment. LNG liquefaction volumes decreased mainly as a result of feedgas availability, cargo timing and more maintenance activities.


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UPSTREAM    
Quarters$ millionNine Months
Q3 2020Q2 2020Q3 2019 20202019%
(1,110) (6,721) 1,651  -167Segment earnings(8,694) 4,709  -285
(226) (5,209) 818   Of which: Identified items (Reference A)(6,590) 966   
(884) (1,512) 833  -206Adjusted Earnings(2,104) 3,743  -156
2,101  319  4,334  -52Cash flow from operating activities8,026  15,090  -47
2,629  548  4,597  -43Cash flow from operating activities excluding working capital movements (Reference H)6,894  15,112  -54
1,245  1,876  2,625   Cash capital expenditure (Reference C)5,642  7,437   
1,520  1,609  1,652  -8Liquids production available for sale (thousand b/d)1,619  1,652  -2
3,960  4,673  5,224  -24Natural gas production available for sale (million scf/d)4,768  5,904  -19
2,203  2,415  2,553  -14Total production available for sale (thousand boe/d)2,441  2,669  -9


1.    Q3 on Q3 change.

Third quarter segment earnings amounted to a loss of $1,110 million, which reflected lower prices as a result of unfavourable macroeconomic conditions, as well as lower production volumes mainly driven by OPEC+ restrictions and severe weather conditions affecting US Gulf of Mexico production compared with the third quarter 2019. This was partly offset by comparatively lower well write-offs. Segment earnings included impairment charges of $101 million and divestment losses of $100 million. These charges are part of identified items (see Reference A).
Compared with the third quarter 2019, Upstream Adjusted Earnings were a loss of $884 million, reflecting lower oil and gas prices as a result of unfavourable macroeconomic conditions, as well as lower production volumes mainly driven by OPEC+ restrictions and severe weather conditions affecting US Gulf of Mexico production. This was partly offset by comparatively lower well write-offs.

Cash flow from operating activities for the quarter was $2,101 million, primarily driven by Adjusted Earnings before non-cash expenses including depreciation.

Compared with the third quarter 2019, total production decreased by 14%, mainly due to the impact of OPEC+ restrictions, lower production in the NAM joint venture and severe weather conditions in the US Gulf of Mexico. Divestments and field declines were largely offset by new fields and ramp-ups.

Nine Months segment earnings amounted to a loss of $8,694 million. This included an impairment charge of $5,175 million mainly related to unconventional assets in North America, offshore assets in Brazil and Europe, a project in Nigeria (OPL245), and an asset in the US Gulf of Mexico. Also included were a net charge of $985 million related to the impact of the weakening Brazilian real on a deferred tax position, and redundancy and restructuring costs of $170 million. These net charges are part of identified items (see Reference A).
Compared with the first nine months of 2019, Upstream Adjusted Earnings amounted to a loss of $2,104 million, primarily reflecting lower realised oil and gas prices.

Cash flow from operating activities for the first nine months of 2020 was $8,026 million, primarily driven by Adjusted Earnings before non-cash expenses including depreciation.

Compared with the first nine months of 2019, total production decreased by 9%, mainly due to the impact of lower production in the NAM joint venture and OPEC+ restrictions. Divestments and field declines were largely offset by new fields and ramp-ups mainly in Brazil.



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ROYAL DUTCH SHELL PLC
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OIL PRODUCTS   
Quarters$ millionNine Months
Q3 2020Q2 2020Q3 2019 20202019%
2,092  (3,023) 2,433  -14Segment earnings²1,281  4,956  -74
411  (5,433) 430   Of which: Identified items (Reference A)(4,174) 226   
1,680  2,411  2,003  -16Adjusted Earnings²5,454  4,730  +15
    Of which:   
55  1,500  522  -90Refining & Trading1,713  995  +72
1,626  911  1,481  +10Marketing3,742  3,735  ?
5,131  (362) 3,137  +64Cash flow from operating activities9,647  3,807  +153
3,476  2,430  2,948  +18Cash flow from operating activities excluding working capital movements (Reference H)6,259  7,618  -18
832  606  1,308   Cash capital expenditure (Reference C)2,019  3,279   
1,972  1,944  2,522  -22Refinery processing intake (thousand b/d)2,104  2,606  -19
4,740 ³4,041 ³6,731  -30Oil Products sales volumes (thousand b/d)4,686 ³6,603  -29


1.    Q3 on Q3 change.
2.    Earnings are presented on a CCS basis (see Note 2).
3.    With effect from January 1, 2020, the reporting of Oil Products sales volumes has changed (see Note 2). Sales volumes would be 5,413 thousand b/d in the third quarter 2020 on a comparable basis with 2019.

Third quarter segment earnings were $2,092 million, which reflected lower realised refining margins and lower marketing sales volumes due to a weak macroeconomic environment and the COVID-19 pandemic compared with the third quarter 2019. This was partly offset by lower operating expenses, strong marketing margins and favourable deferred tax movements. Segment earnings included a gain of $542 million due to the fair value accounting of commodity derivatives and impairment charges of $117 million. These net gains are part of identified items (see Reference A).
Compared with the third quarter 2019, Oil Products Adjusted Earnings of $1,680 million for the quarter reflected lower realised refining margins and lower marketing sales volumes due to a weak macroeconomic environment and the COVID-19 pandemic. This was partly offset by lower operating expenses, strong marketing margins and favourable deferred tax movements.

Cash flow from operating activities for the third quarter 2020 was $5,131 million, primarily driven by Adjusted Earnings before depreciation, as well as positive working capital movements and cash inflows from commodity derivatives.

With effect from January 1, 2020, certain Oil Products contracts are no longer included in sales volumes (see Note 2). Excluding this impact, Oil Products sales volumes decreased due to lower refining & trading and marketing sales volumes, compared with the third quarter 2019.

For the third quarter 2020, Refining & Trading contributed 3% of Adjusted Earnings, and Marketing contributed 97% of Adjusted Earnings.

?Refining & Trading Adjusted Earnings reflected lower realised refining margins. This was partly offset by lower operating expenses and favourable deferred tax movements, compared with the third quarter 2019.
?Marketing Adjusted Earnings reflected strong retail and global commercial margins, lower operating expenses and favourable deferred tax movements, despite lower marketing sales volumes, compared with the third quarter 2019.
With effect from January 1, 2020, Shell discloses utilisation instead of availability to improve transparency on refinery production volumes. Utilisation is defined as the actual usage of the plants as a percentage of the rated capacity. Refinery utilisation was 65% compared with 78% in the third quarter 2019, mainly due to lower demand and economic optimisation of the plants.

Nine Months segment earnings were $1,281 million. This included an impairment charge of $4,205 million, as a result of revised medium- and long-term price outlook assumptions in response to the energy market demand and supply fundamentals as well as the COVID-19 pandemic and macroeconomic conditions. Also included were a net gain of $251 million due to the fair value accounting of commodity derivatives and redundancy and restructuring costs of $133 million. These net charges are part of identified items (see Reference A).


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Compared with the first nine months of 2019, Oil Products Adjusted Earnings of $5,454 million reflected lower operating expenses, strong marketing margins and very strong contributions from crude and oil products trading and optimisation. This was partly offset by lower realised refining margins and lower marketing sales volumes due to the weak macroeconomic environment and the COVID-19 pandemic.

Cash flow from operating activities for the first nine months of 2020 was $9,647 million, primarily driven by Adjusted Earnings before depreciation and positive working capital movements. This was partly offset by cost-of-sales adjustments for the first nine months of 2020.

With effect from January 1, 2020, certain Oil Products contracts are no longer included in sales volumes (see Note 2). Excluding this impact, Oil Products sales volumes decreased due to lower refining & trading and marketing sales volumes, compared with the first nine months of 2019.

For the first nine months of 2020, Refining & Trading contributed 31% of Adjusted Earnings, and Marketing contributed 69% of Adjusted Earnings.

?Refining & Trading Adjusted Earnings reflected very strong contributions from crude and oil products trading and optimisation as well as lower operating expenses. This was partly offset by lower realised refining margins, compared with the first nine months of 2019.

?Marketing Adjusted Earnings reflected strong retail and global commercial margins and lower operating expenses, despite lower marketing sales volumes, compared with the first nine months of 2019.

With effect from January 1, 2020, Shell discloses utilisation instead of availability to improve transparency on refinery production volumes. Utilisation is defined as the actual usage of the plants as a percentage of the rated capacity. Refinery utilisation was 72% compared with 78% in the first nine months of 2019, mainly due to lower demand and economic optimisation of the plants.


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CHEMICALS   
Quarters$ millionNine Months
Q3 2020Q2 2020Q3 2019 20202019%
131  164  211  -38Segment earnings²441  556  -21
(96) (41) (13)  Of which: Identified items (Reference A)(140) (250)  
227  206  224  +1Adjusted Earnings²581  806  -28
335  734  181  +85Cash flow from operating activities891  1,438  -38
488  304  346  +41Cash flow from operating activities excluding working capital movements (Reference H)981  1,383  -29
595  369  1,160   Cash capital expenditure (Reference C)1,810  3,067   
3,823  3,623  3,845  -1Chemicals sales volumes (thousand tonnes)11,318  11,769  -4


1.    Q3 on Q3 change.
2.    Earnings are presented on a CCS basis (see Note 2).

Third quarter segment earnings were $131 million, which reflected lower realised margins due to a weak price environment compounded by the COVID-19 pandemic compared with the third quarter 2019. This was offset by favourable deferred tax movements. Segment earnings included a charge of $104 million mainly due to a legal provision, which is part of identified items (see Reference A).
Compared with the third quarter 2019, Chemicals Adjusted Earnings of $227 million reflected lower realised margins due to a weak price environment compounded by the COVID-19 pandemic. This was offset by favourable deferred tax movements.
Cash flow from operating activities for the quarter was $335 million, primarily driven by Adjusted Earnings before depreciation and partly offset by negative working capital movements.

With effect from January 1, 2020, Shell discloses utilisation instead of availability to improve transparency on chemicals production volumes. Utilisation is defined as the actual usage of the plants as a percentage of the rated capacity. Chemicals manufacturing plant utilisation was 80% compared with 78% in the third quarter 2019, mainly due to a higher level of maintenance activities in 2019.

Nine Months segment earnings were $441 million, which reflected lower realised margins due to a weak price environment compounded by the COVID-19 pandemic compared with the first nine months of 2019. Segment earnings included a charge of $104 million due to a legal provision and redundancy and restructuring costs of $28 million. These net charges are part of identified items (see Reference A).

Compared with the first nine months of 2019, Chemicals Adjusted Earnings of $581 million reflected lower realised margins due to a weak price environment compounded by the COVID-19 pandemic.

Cash flow from operating activities for the first nine months of 2020 was an inflow of $891 million, primarily driven by Adjusted Earnings before depreciation. This was partly offset by cost-of-sales adjustments for the first nine months of 2020.

With effect from January 1, 2020, Shell discloses utilisation instead of availability to improve transparency on chemicals production volumes. Utilisation is defined as the actual usage of the plants as a percentage of the rated capacity. Chemicals manufacturing plant utilisation was 81% compared with 78% in the first nine months of 2019, mainly due to higher maintenance activities in Asia and Europe in 2019, including the impact of strike actions in the Netherlands last year.



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CORPORATE  
Quarters$ millionNine Months
Q3 2020Q2 2020Q3 2019 20202019
(739) (805) (663) Segment earnings(1,998) (2,122) 
52  (9) 154  Of which: Identified items (Reference A)578  185  
(792) (796) (817) Adjusted Earnings(2,576) (2,307) 
514  (791) 375  Cash flow from operating activities282  (276) 
(33) 390  (80) Cash flow from operating activities excluding working capital movements (Reference H)118  (265) 


Third quarter segment earnings were an expense of $739 million. This included a gain of $48 million from the impact of the weakening Brazilian real on financing positions, which is part of identified items (see Reference A).
Adjusted Earnings were an expense of $792 million, reflecting higher operating expenses, largely offset by favourable currency exchange rate effects and higher tax credits, compared with the third quarter 2019.

Nine Months segment earnings were an expense of $1,998 million. This included a gain of $578 million from the impact of the weakening Brazilian real on financing positions, which is part of identified items (see Reference A).
Adjusted Earnings were an expense of $2,576 million, reflecting adverse currency exchange rate effects and lower interest expenses, compared with the first nine months of 2019.

OUTLOOK FOR THE FOURTH QUARTER 2020
As a result of COVID-19, there continues to be significant uncertainty in the macroeconomic conditions with an expected negative impact on demand for oil, gas and related products. Furthermore, global developments and uncertainty in oil supply have caused volatility in 2020 in commodity markets. The fourth quarter 2020 outlook provides ranges for operational and financial metrics based on current expectations, but these are subject to change in the light of current evolving market conditions. Due to demand or regulatory requirements and/or constraints in infrastructure, Shell may need to take measures to curtail or reduce oil and/or gas production, LNG liquefaction as well as utilisation of refining and chemicals plants and similarly sales volumes could be impacted. Such measures will likely have a variety of impacts on our operational and financial metrics.

Integrated Gas production is expected to be approximately 830 - 870 thousand boe/d. LNG liquefaction volumes are expected to be approximately 7.9 - 8.5 million tonnes.

Upstream production is expected to be approximately 2,300 - 2,500 thousand boe/d.

Refinery utilisation is expected to be approximately 69% - 77%.
Oil Products sales volumes are expected to be approximately 4,000 - 5,000 thousand b/d.

Chemicals manufacturing plant utilisation is expected to be approximately 77% - 85%.
Chemicals sales volumes are expected to be approximately 3,500 - 3,900 thousand tonnes.

Corporate Adjusted Earnings are expected to be a net expense of approximately $800 - $875 million in the fourth quarter 2020 and a net expense of approximately $3,200 - $3,500 million for the full year 2020. This excludes the impact of currency exchange rate effects.


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FORTHCOMING EVENTS

Fourth quarter 2020 and full year results and dividends are scheduled to be announced on February 4, 2021. First quarter 2021 results and dividends are scheduled to be announced on April 29, 2021. Second quarter 2021 and half year results and dividends are scheduled to be announced on July 29, 2021. Third quarter 2021 results and dividends are scheduled to be announced on October 28, 2021.
The Shell Strategy Day is scheduled to take place on February 11, 2021.



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UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

                  
 
CONSOLIDATED STATEMENT OF INCOME  
Quarters$ millionNine Months
Q3 2020Q2 2020Q3 2019 20202019
44,021  32,504  86,592  Revenue¹136,554  260,871  
461  (161) 769  Share of profit of joint ventures and associates1,154  2,885  
234  148  2,180  Interest and other income458  3,285  
44,717  32,491  89,541  Total revenue and other income138,167  267,041  
27,276  18,093  63,900  Purchases88,582  192,413  
5,496  5,822  6,002  Production and manufacturing expenses17,299  19,191  
2,366  2,370  2,429  Selling, distribution and administrative expenses7,130  7,662  
233  232  219  Research and development708  656  
222  723  644  Exploration1,239  1,389  
7,689  28,089  6,815  Depreciation, depletion and amortisation²42,871  19,464  
992  1,070  1,161  Interest expense3,181  3,572  
44,275  56,398  81,169  Total expenditure161,009  244,346  
442  (23,907) 8,372  Income/(loss) before taxation(22,842) 22,695  
(104) (5,806) 2,348  Taxation charge/(credit)(5,265) 7,351  
546  (18,101) 6,024  Income/(loss) for the period¹(17,578) 15,344  
57  30  145  Income/(loss) attributable to non-controlling interest88  466  
489  (18,131) 5,879  Income/(loss) attributable to Royal Dutch Shell plc shareholders(17,666) 14,878  
0.06  (2.33) 0.73  Basic earnings per share ($)³(2.27) 1.84  
0.06  (2.33) 0.73  Diluted earnings per share ($)³(2.27) 1.83  


1.    See Note 2 "Segment information".
2.    See Note 7 "Other notes to the Condensed Consolidated Interim Financial Statements".
3.    See Note 3 "Earnings per share".

                  
 
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME  
Quarters$ millionNine Months
Q3 2020Q2 2020Q3 2019 20202019
546  (18,101) 6,024  Income/(loss) for the period(17,578) 15,344  
   Other comprehensive income/(loss) net of tax:  
   Items that may be reclassified to income in later periods:  
1,246  1,588  (1,514) ? Currency translation differences(1,101) (1,123) 
 43   ? Debt instruments remeasurements20  31  
75  (137) 192  ? Cash flow hedging gains/(losses)(214) (156) 
(153) (99) 22  ? Net investment hedging gains/(losses)(253) 24  
(59) 55   ? Deferred cost of hedging97  111  
(51) 30  (45) ? Share of other comprehensive income/(loss) of joint ventures and associates(80) (101) 
1,063  1,481  (1,339) Total(1,530) (1,214) 
   Items that are not reclassified to income in later periods:  
(580) (4,924) (2,010) ? Retirement benefits remeasurements(3,747) (4,655) 
36  77  (53) ? Equity instruments remeasurements(24) (23) 
45  19   ? Share of other comprehensive income/(loss) of joint ventures and associates112  (4) 
(499) (4,828) (2,062) Total(3,659) (4,683) 
564  (3,347) (3,401) Other comprehensive income/(loss) for the period(5,189) (5,897) 
1,111  (21,448) 2,624  Comprehensive income/(loss) for the period(22,767) 9,447  
82  43  124  Comprehensive income/(loss) attributable to non-controlling interest 482  
1,029  (21,490) 2,499  Comprehensive income/(loss) attributable to Royal Dutch Shell plc shareholders(22,768) 8,965  




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ROYAL DUTCH SHELL PLC
3RD QUARTER 2020 UNAUDITED RESULTS



         
 
CONDENSED CONSOLIDATED BALANCE SHEET
$ million  
 September 30, 2020December 31, 2019
Assets  
Non-current assets  
Intangible assets22,536  23,486  
Property, plant and equipment211,976  238,349  
Joint ventures and associates22,008  22,808  
Investments in securities3,090  2,989  
Deferred tax15,713  10,524  
Retirement benefits¹2,191  4,717  
Trade and other receivables7,551  8,085  
Derivative financial instruments²1,874  689  
 286,939  311,647  
Current assets  
Inventories17,306  24,071  
Trade and other receivables33,033  43,414  
Derivative financial instruments²6,258  7,149  
Cash and cash equivalents35,714  18,055  
 92,311  92,689  
Total assets379,250  404,336  
Liabilities  
Non-current liabilities  
Debt91,245  81,360  
Trade and other payables2,831  2,342  
Derivative financial instruments²843  1,209  
Deferred tax10,707  14,522  
Retirement benefits¹16,201  13,017  
Decommissioning and other provisions¹26,541  21,799  
 148,369  134,249  
Current liabilities  
Debt17,811  15,064  
Trade and other payables36,546  49,208  
Derivative financial instruments²5,499  5,429  
Taxes payable6,874  6,693  
Retirement benefits¹380  419  
Decommissioning and other provisions¹3,431  2,811  
 70,541  79,624  
Total liabilities218,909  213,873  
Equity attributable to Royal Dutch Shell plc shareholders157,168  186,476  
Non-controlling interest¹3,173  3,987  
Total equity160,341  190,463  
Total liabilities and equity379,250  404,336  


1.    See Note 7 "Other notes to the Condensed Consolidated Interim Financial Statements".
2.    See Note 6 "Derivative financial instruments and debt excluding lease liabilities".



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ROYAL DUTCH SHELL PLC
3RD QUARTER 2020 UNAUDITED RESULTS



                        
 
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
 Equity attributable to Royal Dutch Shell plc shareholders  
$ millionShare capital¹Shares held in trustOther reserves²Retained earningsTotalNon-controlling interestTotal equity
At January 1, 2020657  (1,063) 14,451  172,431  186,476  3,987  190,463  
Comprehensive income/(loss) for the period  (5,102) (17,666) (22,768)  (22,767) 
Transfer from other comprehensive income  185  (185)    
Dividends³   (5,956) (5,956) (242) (6,198) 
Repurchases of shares(6)   (1,214) (1,214)  (1,214) 
Share-based compensation 539  (237) (230) 73   73  
Other changes in non-controlling interest   557  557  (573) (16) 
At September 30, 2020651  (523) 9,303  147,737  157,168  3,173  160,341  
At January 1, 2019685  (1,260) 16,615  182,610  198,650  3,888  202,538  
Comprehensive income/(loss) for the period  (5,913) 14,878  8,965  482  9,447  
Transfer from other comprehensive income  (56) 56     
Dividends   (11,472) (11,472) (403) (11,875) 
Repurchases of shares(20)  20  (7,526) (7,526)  (7,526) 
Share-based compensation 749  (131) (619) (1)  (1) 
Other changes in non-controlling interest     (3) (3) 
At September 30, 2019666  (511) 10,535  177,927  188,617  3,964  192,580  


1.    See Note 4 "Share capital".
2.    See Note 5 "Other reserves".
3.    The amount charged to retained earnings is based on prevailing exchange rates on payment date.


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ROYAL DUTCH SHELL PLC
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CONSOLIDATED STATEMENT OF CASH FLOWS  
Quarters$ millionNine Months
Q3 2020Q2 2020Q3 2019 20202019
442  (23,907) 8,372  Income before taxation for the period(22,842) 22,695  
   Adjustment for:  
814  889  921  ? Interest expense (net)2,600  2,846  
7,689  28,089  6,815  ? Depreciation, depletion and amortisation42,871  19,464  
14  518  402  ? Exploration well write-offs615  722  
(103) (128) (2,039) ? Net (gains)/losses on sale and revaluation of non-current assets and businesses(124) (2,483) 
(461) 161  (769) ? Share of (profit)/loss of joint ventures and associates(1,154) (2,885) 
468  610  859  ? Dividends received from joint ventures and associates1,609  2,820  
405  (3,713) 813  ? (Increase)/decrease in inventories6,286  (2,089) 
(540) 3,959  2,644  ? (Increase)/decrease in current receivables9,733  1,527  
1,583  (4,226) (3,289) ? Increase/(decrease) in current payables(11,073) (2,184) 
233  837  (149) ? Derivative financial instruments899  (1,738) 
152  293  (634) ? Retirement benefits355  (582) 
43  392  (250) ? Decommissioning and other provisions333  (544) 
265  (480) 67  ? Other363  54  
(601) (730) (1,511) Tax paid(2,653) (5,710) 
10,403  2,563  12,252  Cash flow from operating activities27,818  31,913  
(3,679) (3,436) (5,992) Capital expenditure(11,379) (16,264) 
(34) (161) (30) Investments in joint ventures and associates(754) (631) 
(23) (20) (76) Investments in equity securities(190) (141) 
571  211  2,932  Proceeds from sale of property, plant and equipment and businesses2,395  3,754  
159  423  922  Proceeds from sale of joint ventures and associates1,129  1,567  
139  62  126  Proceeds from sale of equity securities274  414  
112  118  229  Interest received422  686  
588  1,174  732  Other investing cash inflows2,617  2,004  
(665) (691) (973) Other investing cash outflows(2,384) (2,308) 
(2,833) (2,320) (2,130) Cash flow from investing activities(7,871) (10,918) 
(176) 90  44  Net increase/(decrease) in debt with maturity period within three months236  98  
   Other debt:  
4,745  15,238  2,107  ? New borrowings20,986  2,427  
(2,688) (7,113) (7,180) ? Repayments(12,523) (11,561) 
(831) (1,088) (1,088) Interest paid(2,952) (3,417) 
419  324  76  Derivative financial instruments662  76  
 (32)  Change in non-controlling interest(40) (2) 
   Cash dividends paid to:  
(1,236) (1,397) (3,773) ? Royal Dutch Shell plc shareholders¹(6,117) (11,473) 
(65) (68) (133) ? Non-controlling interest(242) (404) 
 (216) (2,944) Repurchases of shares(1,702) (7,340) 
 (18) (94) Shares held in trust: net sales/(purchases) and dividends received(198) (557) 
169  5,721  (12,985) Cash flow from financing activities(1,892) (32,153) 
36  164  (190) Currency translation differences relating to cash and cash equivalents(395) (166) 
7,775  6,128  (3,054) Increase/(decrease) in cash and cash equivalents17,659  (11,324) 
27,939  21,811  18,470  Cash and cash equivalents at beginning of period18,055  26,741  
35,714  27,939  15,417  Cash and cash equivalents at end of period35,714  15,417  


1.     Cash dividends paid represents the payment of net dividends (after deduction of withholding taxes where applicable) and payment of withholding taxes on dividends paid in the previous quarter.


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ROYAL DUTCH SHELL PLC
3RD QUARTER 2020 UNAUDITED RESULTS


NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

1. Basis of preparation
These unaudited Condensed Consolidated Interim Financial Statements ("Interim Statements") of Royal Dutch Shell plc ("the Company") and its subsidiaries (collectively referred to as "Shell") have been prepared in accordance with IAS 34 Interim Financial Reporting as issued by the International Accounting Standards Board ("IASB") and as adopted by the European Union, and on the basis of the same accounting principles as those used in the Annual Report and Accounts (pages 190 to 238) and Form 20-F (pages 142 to 189) for the year ended December 31, 2019 as filed with the Registrar of Companies for England and Wales and the US Securities and Exchange Commission, respectively, and should be read in conjunction with these filings.
The financial information presented in the unaudited Interim Statements does not constitute statutory accounts within the meaning of section 434(3) of the Companies Act 2006 ("the Act"). Statutory accounts for the year ended December 31, 2019 were published in Shell's Annual Report and Accounts, a copy of which was delivered to the Registrar of Companies for England and Wales, and in Shell's Form 20-F. The auditor's report on those accounts was unqualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report and did not contain a statement under sections 498(2) or 498(3) of the Act.
Key accounting considerations, significant judgements and estimates
Future commodity price assumptions and management's view on the future development of refining margins represent a significant estimate and both were subject to change in the second quarter 2020, resulting in the recognition of impairments in the second quarter 2020. These assumptions continue to apply for impairment testing purposes in the third quarter 2020. The tax impact of impairments in the second and third quarter 2020 has been fully recognised in deferred tax positions as of September 30, 2020.

After the finalisation of the operating plan in the fourth quarter 2020, the overall deferred tax position will be reviewed.

The finalisation of the operating plan in the fourth quarter 2020 may lead to identification of impairment triggers for certain assets.

The refining portfolio is expected to be transformed during the energy transition from fifteen sites into six high-value energy and chemical parks integrated with Chemicals. This is expected to be followed by further evaluation and decisions on assets that could result in the recognition of significant provisions and charges to earnings, some as early as in the fourth quarter 2020.

2. Segment information
With effect from January 1, 2020, Shell's reporting segments consist of Integrated Gas, Upstream, Oil Products, Chemicals and Corporate, reflecting the way Shell reviews and assesses its performance. Oil Products and Chemicals businesses were previously reported under the Downstream segment. Oil sands mining activities, previously included in the Upstream segment, are reported under Oil Products. Comparative information has been reclassified.
Segment earnings are presented on a current cost of supplies basis (CCS earnings), which is the earnings measure used by the Chief Executive Officer for the purposes of making decisions about allocating resources and assessing performance. On this basis, the purchase price of volumes sold during the period is based on the current cost of supplies during the same period after making allowance for the tax effect. CCS earnings therefore exclude the effect of changes in the oil price on inventory carrying amounts. Sales between segments are based on prices generally equivalent to commercially available prices.
With effect from January 1, 2020, additional contracts are classified as held for trading purposes and consequently revenue is reported on a net rather than gross basis. The effect on revenue for the third quarter 2020 is a reduction of $11,478 million (Q2 2020: $8,028 million, nine months 2020: $35,819 million).


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ROYAL DUTCH SHELL PLC
3RD QUARTER 2020 UNAUDITED RESULTS



                  
 
INFORMATION BY SEGMENT  
Quarters$ millionNine Months
Q3 2020Q2 2020Q3 2019 20202019
   Third-party revenue  
7,684  7,436  9,735  Integrated Gas25,277  30,316  
1,670  1,177  2,231  Upstream5,191  6,878  
31,823  21,596  71,218  Oil Products97,716  213,106  
2,831  2,283  3,397  Chemicals8,335  10,535  
13  12  12  Corporate35  36  
44,021  32,504  86,592  Total third-party revenue¹136,554  260,871  
   Inter-segment revenue²  
864  558  1,025  Integrated Gas2,313  3,162  
5,111  4,117  7,960  Upstream15,704  26,319  
1,547  1,082  2,059  Oil Products4,480  6,190  
715  475  1,009  Chemicals2,065  3,062  
   Corporate  
   CCS earnings  
(151) (7,959) 2,597  Integrated Gas(6,298) 6,731  
(1,110) (6,721) 1,651  Upstream(8,694) 4,709  
2,092  (3,023) 2,433  Oil Products1,281  4,956  
131  164  211  Chemicals441  556  
(739) (805) (663) Corporate(1,998) (2,122) 
222  (18,343) 6,230  Total CCS earnings(15,268) 14,831  


1.    Includes revenue from sources other than from contracts with customers, which mainly comprises the impact of fair value accounting of commodity derivatives. Third quarter 2020 included income of $1,803 million (Q2 2020: $1,405 million income; nine months 2020: $9,894 million income). This amount includes both the reversal of prior losses of $15 million (Q2 2020: $686 million gains) related to sales contracts and prior gains of $22 million (Q2 2020: $507 million losses) related to purchase contracts that were previously recognised and where physical settlement has taken place in the third quarter 2020.
2.    Comparative information for inter-segment revenue for Upstream, Oil Products and Chemicals has been revised to conform with reporting segment changes applicable from January 1, 2020.

                  
 
RECONCILIATION OF INCOME FOR THE PERIOD TO CCS EARNINGS  
Quarters$ millionNine Months
Q3 2020Q2 2020Q3 2019 20202019
489  (18,131) 5,879  Income/(loss) attributable to Royal Dutch Shell plc shareholders(17,666) 14,878  
57  30  145  Income/(loss) attributable to non-controlling interest88  466  
546  (18,101) 6,024  Income/(loss) for the period(17,578) 15,344  
   Current cost of supplies adjustment:  
(395) (432) 240  Purchases2,947  (715) 
100  98  (56) Taxation(719) 181  
(29) 92  22  Share of profit/(loss) of joint ventures and associates82  21  
(324) (242) 206  Current cost of supplies adjustment2,310  (513) 
   of which:  
(312) (246) 202  Attributable to Royal Dutch Shell plc shareholders2,222  (479)
(12)  4Attributable to non-controlling interest88  (34)
222  (18,343) 6,230  CCS earnings(15,268) 14,831  
   of which:  
177  (18,377) 6,081  CCS earnings attributable to Royal Dutch Shell plc shareholders(15,443) 14,399  
45  34  149  CCS earnings attributable to non-controlling interest176  432  



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ROYAL DUTCH SHELL PLC
3RD QUARTER 2020 UNAUDITED RESULTS



3. Earnings per share

                  
 
EARNINGS PER SHARE
Quarters Nine Months
Q3 2020Q2 2020Q3 2019 20202019
489  (18,131) 5,879  Income/(loss) attributable to Royal Dutch Shell plc shareholders ($ million)(17,666) 14,878  
   Weighted average number of shares used as the basis for determining:  
7,788.7  7,789.8  8,017.5  Basic earnings per share (million)7,799.4  8,097.6  
7,823.6  7,789.8  8,067.6  Diluted earnings per share (million)7,799.4  8,151.4  

4. Share capital

                  
 
ISSUED AND FULLY PAID ORDINARY SHARES OF ?0.07 EACH1
 Number of sharesNominal value ($ million)
 ABABTotal
At January 1, 20204,151,787,517  3,729,407,107  349308657
Repurchases of shares(50,548,018) (23,223,271) (4)(2)(6)
At September 30, 20204,101,239,499  3,706,183,836  345306651
At January 1, 20194,471,889,296  3,745,486,731  376309685
Repurchases of shares(227,226,527) (11,488,283) (19)(1)(20)
At September 30, 20194,244,662,769  3,733,998,448  357308665


1.    Share capital at September 30, 2020 also included 50,000 issued and fully paid sterling deferred shares of £1 each.
At Royal Dutch Shell plc's Annual General Meeting on May 19, 2020 the Board was authorised to allot ordinary shares in Royal Dutch Shell plc, and to grant rights to subscribe for, or to convert, any security into ordinary shares in Royal Dutch Shell plc, up to an aggregate nominal amount of ?182.7 million (representing 2,611 million ordinary shares of ?0.07 each), and to list such shares or rights on any stock exchange. This authority expires at the earlier of the close of business on August 19, 2021, and the end of the Annual General Meeting to be held in 2021, unless previously renewed, revoked or varied by Royal Dutch Shell plc in a general meeting.5. Other reserves

                     
 
OTHER RESERVES
$ millionMerger reserveShare premium reserveCapital redemption reserveShare plan reserveAccumulated other comprehensive incomeTotal
At January 1, 202037,298  154  123  1,049  (24,173) 14,451  
Other comprehensive income/(loss) attributable to Royal Dutch Shell plc shareholders    (5,102) (5,102) 
Transfer from other comprehensive income    185  185  
Repurchases of shares      
Share-based compensation   (237)  (237) 
At September 30, 202037,298  154  129  812  (29,091) 9,303  
At January 1, 201937,298  154  95  1,098  (22,030) 16,615  
Other comprehensive income/(loss) attributable to Royal Dutch Shell plc shareholders    (5,913) (5,913) 
Transfer from other comprehensive income    (56) (56) 
Repurchases of shares  20    20  
Share-based compensation   (131)  (131) 
At September 30, 201937,298  154  116  966  (27,998) 10,535  




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ROYAL DUTCH SHELL PLC
3RD QUARTER 2020 UNAUDITED RESULTS


The merger reserve and share premium reserve were established as a consequence of Royal Dutch Shell plc becoming the single parent company of Royal Dutch Petroleum Company and The "Shell" Transport and Trading Company, p.l.c., now The Shell Transport and Trading Company Limited, in 2005. The merger reserve increased in 2016 following the issuance of shares for the acquisition of BG Group plc. The capital redemption reserve was established in connection with repurchases of shares of Royal Dutch Shell plc. The share plan reserve is in respect of equity-settled share-based compensation plans.

6. Derivative financial instruments and debt excluding lease liabilities
As disclosed in the Consolidated Financial Statements for the year ended December 31, 2019, presented in the Annual Report and Accounts and Form 20-F for that year, Shell is exposed to the risks of changes in fair value of its financial assets and liabilities. The fair values of the financial assets and liabilities are defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Methods and assumptions used to estimate the fair values at September 30, 2020, are consistent with those used in the year ended December 31, 2019, though the carrying amounts of derivative financial instruments measured using predominantly unobservable inputs have changed since that date.
The table below provides the comparison of the fair value with the carrying amount of debt excluding lease liabilities, disclosed in accordance with IFRS 7 Financial Instruments: Disclosures.

         
 
DEBT EXCLUDING LEASE LIABILITIES
$ millionSeptember 30, 2020December 31, 2019
Carrying amount80,126  65,887  
Fair value¹87,127  71,163  


1.    Mainly determined from the prices quoted for these securities.7. Other notes to the Condensed Consolidated Interim Financial Statements
Consolidated Statement of Income
Depreciation, depletion and amortisation

                  
 
Quarters$ millionNine Months
Q3 2020Q2 2020Q3 2019 20202019
7,689  28,089  6,815  Depreciation, depletion and amortisation42,871  19,464  


Impairment losses of $1,636 million, of which $1,615 million recognised in depreciation, depletion and amortisation and $21 million recognised in share of profit of joint ventures and associates (Q2 2020: $22,332 million, of which $21,780 million recognised in depreciation, depletion and amortisation and $552 million recognised in share of profit of joint ventures and associates; nine months: $24,718 million, of which $24,145 million recognised in depreciation, depletion and amortisation and $573 million recognised in share of profit of joint ventures and associates), mainly relate to Prelude floating LNG in Australia ($1,327 million pre-tax and $929 million post-tax). This impairment reflects Q3 2020 updates to the production plan including a revised outlook on near to medium-term availability as well as an updated view on backfill opportunities. The commodity price assumptions and the discount rate applied remained unchanged from those disclosed in the notes to the Condensed Consolidated Interim Financial Statements for the period ended June 30, 2020. For further information regarding the impairments recognised in the second quarter 2020, see notes 1 and 7 to the Condensed Consolidated Interim Financial Statements for the period ended June 30, 2020.



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ROYAL DUTCH SHELL PLC
3RD QUARTER 2020 UNAUDITED RESULTS

Condensed Consolidated Balance Sheet
Retirement benefits

         
 
$ million  
 September 30, 2020December 31, 2019
Non-current assets  
Retirement benefits2,191  4,717  
Non-current liabilities  
Retirement benefits16,201  13,017  
Current liabilities  
Retirement benefits380  419  
Net liability14,390  8,719  


The increase in the net retirement benefit liability is mainly driven by a decrease of the market yield on high-quality corporate bonds.
Decommissioning and other provisions

         
 
$ million  
 September 30, 2020December 31, 2019
Non-current liabilities  
Decommissioning and other provisions26,541  21,799  
Current liabilities  
Decommissioning and other provisions3,431  2,811  


The discount rate applied at September 30, 2020 was 1.75% (December 31, 2019: 3.0%). Compared with December 31, 2019, non-current decommissioning and restoration provisions increased by $3,999 million at June 30, 2020 as a result of the change in the discount rate as at that date.Non-controlling interest

         
 
$ million  
 September 30, 2020December 31, 2019
Non-controlling interest3,173  3,987  


The change in the non-controlling interest is mainly related to the non-controlling interest in Shell Midstream Partners, L.P. ("SHLX") following the completion of the sale of Shell's 79% interest in the Mattox Pipeline Company LLC and certain logistics assets at the Shell Norco Manufacturing Complex to SHLX in the second quarter 2020.


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ROYAL DUTCH SHELL PLC
3RD QUARTER 2020 UNAUDITED RESULTS



ALTERNATIVE PERFORMANCE (NON-GAAP) MEASURES
A.Adjusted Earnings
The "Adjusted Earnings" measure aims to facilitate a comparative understanding of Shell's financial performance from period to period by removing the effects of oil price changes on inventory carrying amounts and removing the effects of identified items. These items are in some cases driven by external factors and may, either individually or collectively, hinder the comparative understanding of Shell's financial results from period to period. This measure excludes earnings attributable to non-controlling interest. This measure was previously referred to as "CCS earnings attributable to shareholders excluding identified items" and was renamed for simplicity with effect from the second quarter 2020.

                  
 
ADJUSTED EARNINGS
Quarters$ millionNine Months
Q3 2020Q2 2020Q3 2019 20202019
489  (18,131) 5,879  Income/(loss) attributable to Royal Dutch Shell plc shareholders(17,666) 14,878  
(312) (246) 202  Add: Current cost of supplies adjustment attributable to Royal Dutch Shell plc shareholders (Note 2)2,222  (479) 
(778) (19,015) 1,313  Less: Identified items attributable to Royal Dutch Shell plc shareholders(19,897) 868  
955  638  4,767  Adjusted Earnings4,453  13,530  


Identified items
Identified items comprise: divestment gains and losses, impairments, fair value accounting of commodity derivatives and certain gas contracts, redundancy and restructuring, the impact of exchange rate movements on certain deferred tax balances, and other items.

                  
 
IDENTIFIED ITEMS
Quarters$ millionNine Months
Q3 2020Q2 2020Q3 2019 20202019
   Identified items before tax  
103  128  2,039  Divestment gains/(losses)154  2,483  
(1,636) (22,332) (509) Impairments(24,718) (1,214) 
721  (1,884) 47  Fair value accounting of commodity derivatives and certain gas contracts(195) (14) 
25  (518)  Redundancy and restructuring(511) (74) 
(267) (427)  Other(694) (437) 
(1,055) (25,033) 1,584  Total identified items before tax(25,963) 744  
276  6,018  (271) Total tax impact of identified items6,066  146  
   Identified items after tax  
46  10  1,756  Divestment gains/(losses)24  2,058  
(1,143) (16,842) (430) Impairments(18,521) (921) 
532  (1,540) 91  Fair value accounting of commodity derivatives and certain gas contracts(171) 124  
 (375)  Redundancy and restructuring(378) (43) 
13  (44) (106) Impact of exchange rate movements on tax balances(397) (98) 
(230) (224)  Other(454) (229) 
(778) (19,015) 1,313  Impact on CCS earnings(19,897) 890  
   Of which:  
(920) (8,321) (77) Integrated Gas(9,572) (237) 
(226) (5,209) 818  Upstream(6,590) 966  
411  (5,433) 430  Oil Products(4,174) 226  
(96) (41) (13) Chemicals(140) (250) 
52  (9) 154  Corporate578  185  
(778) (19,015) 1,313  Impact on CCS earnings attributable to shareholders(19,897) 868  
   Impact on CCS earnings attributable to non-controlling interest 22  



         Page 22



   
 
ROYAL DUTCH SHELL PLC
3RD QUARTER 2020 UNAUDITED RESULTS



The identified items categories above may include after-tax impacts of identified items of joint ventures and associates which are fully reported within "Share of profit of joint ventures and associates" in the Consolidated Statement of Income, and fully reported as identified items before tax in the table above. Identified items related to subsidiaries are consolidated and reported across appropriate lines of the Consolidated Statement of Income. Only pre-tax identified items reported by subsidiaries are taken into account in the calculation of underlying operating expenses (Reference F).
Fair value accounting of commodity derivatives and certain gas contracts: In the ordinary course of business, Shell enters into contracts to supply or purchase oil and gas products, as well as power and environmental products. Shell also enters into contracts for tolling, pipeline and storage capacity. Derivative contracts are entered into for mitigation of resulting economic exposures (generally price exposure) and these derivative contracts are carried at period-end market price (fair value), with movements in fair value recognised in income for the period. Supply and purchase contracts entered into for operational purposes, as well as contracts for tolling, pipeline and storage capacity, are, by contrast, recognised when the transaction occurs; furthermore, inventory is carried at historical cost or net realisable value, whichever is lower. As a consequence, accounting mismatches occur because: (a) the supply or purchase transaction is recognised in a different period, or (b) the inventory is measured on a different basis. In addition, certain contracts are, due to pricing or delivery conditions, deemed to contain embedded derivatives or written options and are also required to be carried at fair value even though they are entered into for operational purposes. The accounting impacts are reported as identified items.
Impacts of exchange rate movements on tax balances represent the impact on tax balances of exchange rate movements arising on (a) the conversion to dollars of the local currency tax base of non-monetary assets and liabilities, as well as losses (this primarily impacts the Upstream and Integrated Gas segments) and (b) the conversion of dollar-denominated inter-segment loans to local currency, leading to taxable exchange rate gains or losses (this primarily impacts the Corporate segment).
Other identified items represent other credits or charges that based on Shell management's assessment hinder the comparative understanding of Shell's financial results from period to period. The third quarter 2020 reflects the impacts of a provision for an onerous contract in Integrated Gas and provisions for litigation in Chemicals.
B.    Basic CCS earnings per share
Basic CCS earnings per share is calculated as CCS earnings attributable to Royal Dutch Shell plc shareholders (see Note 2), divided by the weighted average number of shares used as the basis for basic earnings per share (see Note 3).
C.    Cash capital expenditure
Cash capital expenditure represents cash spent on maintaining and developing assets as well as on investments in the period. Management regularly monitors this measure as a key lever to delivering sustainable cash flows. Cash capital expenditure is the sum of the following lines from the Consolidated Statement of Cash flows: Capital expenditure, Investments in joint ventures and associates and Investments in equity securities.
With effect from the first quarter 2020, "Capital investment" is no longer presented in this announcement since Cash capital expenditure is considered to be more closely aligned with management's focus on free cash flow generation.

                  
 
Quarters$ millionNine Months
Q3 2020Q2 2020Q3 2019 20202019
3,679  3,436  5,992  Capital expenditure11,379  16,264  
34  161  30  Investments in joint ventures and associates754  631  
23  20  76  Investments in equity securities190  141  
3,737  3,617  6,098  Cash capital expenditure12,324  17,036  
   Of which:  
1,020  736  894  Integrated Gas2,638  2,976  
1,245  1,876  2,625  Upstream5,642  7,437  
832  606  1,308  Oil Products2,019  3,279  
595  369  1,160  Chemicals1,810  3,067  
45  30  111  Corporate215  277  



         Page 23



   
 
ROYAL DUTCH SHELL PLC
3RD QUARTER 2020 UNAUDITED RESULTS


D.    Return on average capital employed

Return on average capital employed (ROACE) measures the efficiency of Shell's utilisation of the capital that it employs. Shell uses two ROACE measures: ROACE on a Net income basis and ROACE on a CCS basis excluding identified items, both adjusted for after-tax interest expense. With effect from the second quarter 2020, the after-tax interest expense adjustment is calculated using an applicable blended statutory tax rate. This change is implemented to eliminate the distorting volatility effects of the effective tax rate. There is no significant impact on prior periods comparatives, which therefore have not been revised.
Both measures refer to Capital employed which consists of total equity, current debt and non-current debt.
ROACE on a Net income basis
In this calculation, the sum of income for the current and previous three quarters, adjusted for after-tax interest expense, is expressed as a percentage of the average capital employed for the same period.

            
 
$ millionQuarters
 Q3 2020Q2 2020Q3 2019
Income - current and previous three quarters(16,489)(11,011)20,989
Interest expense after tax - current and previous three quarters2,9333,0143,115
Income before interest expense - current and previous three quarters(13,556)(7,997)24,105
Capital employed ? opening281,505288,900279,864
Capital employed ? closing269,397265,435281,505
Capital employed ? average275,451277,168280,684
ROACE on a Net income basis(4.9)%(2.9)%8.6%

ROACE on a CCS basis excluding identified items
In this calculation, the sum of CCS earnings excluding identified items for the current and previous three quarters, adjusted for after-tax interest expense, is expressed as a percentage of the average capital employed for the same period.

            
 
$ millionQuarters
 Q3 2020Q2 2020Q3 2019
CCS earnings - current and previous three quarters(14,272)(8,264)22,284
Identified items - current and previous three quarters(21,957)(19,865)2,536
Interest expense after tax ? current and previous three quarters2,9333,0143,115
CCS earnings excluding identified items before interest expense - current and previous three quarters10,61814,61622,864
Capital employed ? average275,451277,168280,684
ROACE on a CCS basis excluding identified items3.9%5.3%8.1%


E.    Gearing
Gearing is a key measure of Shell's capital structure and is defined as net debt as a percentage of total capital. Net debt is defined as the sum of current and non-current debt, less cash and cash equivalents, adjusted for the fair value of derivative financial instruments used to hedge foreign exchange and interest rate risks relating to debt, and associated collateral balances. Management considers this adjustment useful because it reduces the volatility of net debt caused by fluctuations in foreign exchange and interest rates, and eliminates the potential impact of related collateral payments or receipts. Debt-related derivative financial instruments are a subset of the derivative financial instrument assets and liabilities presented on the balance sheet. Collateral balances are reported under "Trade and other receivables" or "Trade and other payables" as appropriate.


         Page 24



   
 
ROYAL DUTCH SHELL PLC
3RD QUARTER 2020 UNAUDITED RESULTS



            
 
$ millionQuarters
 September 30, 2020June 30, 2020September 30, 2019
Current debt17,81117,53012,812
Non-current debt91,24587,46076,112
Total debt¹109,056104,99088,924
Add: Debt-related derivative financial instruments: net liability/(asset)(564)5251,013
Add: Collateral on debt-related derivatives: net liability/(asset)686266148
Less: Cash and cash equivalents(35,714)(27,939)(15,417)
Net debt73,46377,84374,668
Add: Total equity160,341160,445192,580
Total capital233,804238,288267,249
Gearing31.4 %32.7 %27.9 %


1.    Includes lease liabilities of $28,930 million at September 30, 2020 and $29,073 million at June 30, 2020, and $31,085 million at September 30, 2019.
F.    Operating expenses
Operating expenses is a measure of Shell's cost management performance, comprising the following items from the Consolidated Statement of Income: production and manufacturing expenses; selling, distribution and administrative expenses; and research and development expenses.
Underlying operating expenses is a measure aimed at facilitating a comparative understanding of performance from period to period by removing the effects of identified items, which, either individually or collectively, can cause volatility, in some cases driven by external factors.

                  
 
Quarters$ millionNine Months
Q3 2020Q2 2020Q3 2019 20202019
5,496  5,822  6,002  Production and manufacturing expenses17,299  19,191  
2,366  2,370  2,429  Selling, distribution and administrative expenses7,130  7,662  
233  232  219  Research and development708  656  
8,095  8,423  8,650  Operating expenses25,137  27,509  
   Of which identified items:  
25  (508)  Redundancy and restructuring (charges)/reversal(501) (72) 
(267) (411)  (Provisions)/reversal(678) (306) 
   Other (131) 
(242) (919)   (1,179) (509) 
7,854  7,504  8,657  Underlying operating expenses23,958  27,000  


G.    Free cash flow
Free cash flow is used to evaluate cash available for financing activities, including dividend payments and debt servicing, after investment in maintaining and growing the business. It is defined as the sum of "Cash flow from operating activities" and "Cash flow from investing activities".
Cash flows from acquisition and divestment activities are removed from Free cash flow to arrive at the Organic free cash flow, a measure used by management to evaluate the generation of free cash flow without these activities.


         Page 25



   
 
ROYAL DUTCH SHELL PLC
3RD QUARTER 2020 UNAUDITED RESULTS



                  
 
Quarters$ millionNine Months
Q3 2020Q2 2020Q3 2019 20202019
10,403  2,563  12,252  Cash flow from operating activities27,818  31,913  
(2,833) (2,320) (2,130) Cash flow from investing activities(7,871) (10,918) 
7,571  243  10,122  Free cash flow19,947  20,995  
869  696  3,979  Less: Divestment proceeds (Reference I)3,798  5,736  
   Add: Tax paid on divestments (reported under "Other investing cash outflows") 80  
12  199  484  Add: Cash outflows related to inorganic capital expenditure1614  849  
6,713  (254) 6,630  Organic free cash flow216,763  16,189  


1.Cash outflows related to inorganic capital expenditure includes portfolio actions which expand Shell's activities through acquisitions and restructuring activities as reported in capital expenditure lines in the Consolidated Statement of Cash Flows.
2.Free cash flow less divestment proceeds, adding back outflows related to inorganic expenditure.
H.    Cash flow from operating activities excluding working capital movements
Working capital movements are defined as the sum of the following items in the Consolidated Statement of Cash Flows:     (i) (increase)/decrease in inventories, (ii) (increase)/decrease in current receivables, and (iii) increase/(decrease) in current payables.
Cash flow from operating activities excluding working capital movements is a measure used by Shell to analyse its operating cash generation over time excluding the timing effects of changes in inventories and operating receivables and payables from period to period.

                  
 
Quarters$ millionNine Months
Q3 2020Q2 2020Q3 2019 20202019
10,403  2,563  12,252  Cash flow from operating activities27,818  31,913  
405  (3,713) 813  (Increase)/decrease in inventories6,286  (2,089) 
(540) 3,959  2,644  (Increase)/decrease in current receivables9,733  1,527  
1,583  (4,226) (3,289) Increase/(decrease) in current payables(11,073) (2,184) 
1,448  (3,980) 168  (Increase)/decrease in working capital4,947  (2,746) 
8,955  6,543  12,083  Cash flow from operating activities excluding working capital movements22,871  34,658  
   Of which:  
2,396  2,871  4,271  Integrated Gas8,619  10,811  
2,629  548  4,597  Upstream6,894  15,112  
3,476  2,430  2,948  Oil Products6,259  7,618  
488  304  346  Chemicals981  1,383  
(33) 390  (80) Corporate118  (265) 


I.    Divestment proceeds
Divestment proceeds represent cash received from divestment activities in the period. Management regularly monitors this measure as a key lever to deliver sustainable cash flow.

                  
 
Quarters$ millionNine Months
Q3 2020Q2 2020Q3 2019 20202019
571  2112,932Proceeds from sale of property, plant and equipment and businesses2,3953,754
159  423922Proceeds from sale of joint ventures and associates1,1291,567
139  62126Proceeds from sale of equity securities274414
869  6963,979Divestment proceeds3,7985,736



         Page 26



   
 
ROYAL DUTCH SHELL PLC
3RD QUARTER 2020 UNAUDITED RESULTS



CAUTIONARY STATEMENT
All amounts shown throughout this announcement are unaudited. All peak production figures in Portfolio Developments are quoted at 100% expected production. The numbers presented throughout this announcement may not sum precisely to the totals provided and percentages may not precisely reflect the absolute figures, due to rounding.
The companies in which Royal Dutch Shell plc directly and indirectly owns investments are separate legal 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 Royal Dutch Shell plc and its subsidiaries in general or to those who work for them. These terms are also used where no useful purpose is served by identifying the particular entity or entities. "Subsidiaries", "Shell subsidiaries" and "Shell companies" as used in this announcement refer to entities over which Royal Dutch Shell plc either directly or indirectly has control. Entities and unincorporated arrangements over which Shell has joint control are generally referred to as "joint ventures" and "joint operations", respectively. Entities 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 an entity or unincorporated joint arrangement, after exclusion of all third-party interest.
This announcement contains forward-looking statements (within the meaning of the US Private Securities Litigation Reform Act of 1995) concerning the financial condition, results of operations and businesses of Royal Dutch Shell. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements are statements of future expectations that are based on management's current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in these statements. Forward-looking statements include, among other things, statements concerning the potential exposure of Royal Dutch Shell to market risks and statements expressing management's expectations, beliefs, estimates, forecasts, projections and assumptions. These forward-looking statements are identified by their use of terms and phrases such as "aim", "ambition", "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; (m) risks associated with the impact of pandemics, such as the COVID-19 (coronavirus) outbreak; and (n) changes in trading conditions. No assurance is provided that future dividend payments will match or exceed previous dividend payments. 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 Annual Report and Accounts and Form 20-F for the year ended December 31, 2019 (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, October 29, 2020. 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.
This announcement contains references to Shell's website. These references are for the readers' convenience only. Shell is not incorporating by reference any information posted on www.shell.com.
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. 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.
This announcement contains inside information.
October 29, 2020

   
The information in this announcement reflects the unaudited consolidated financial position and results of Royal Dutch Shell plc. Company No. 4366849, Registered Office: Shell Centre, London, SE1 7NA, England, UK.

Contacts:

- Linda M. Coulter, Company Secretary
- Media: International +44 (0) 207 934 5550; USA +1 832 337 4355

LEI number of Royal Dutch Shell plc: 21380068P1DRHMJ8KU70
Classification: Inside Information



         Page 27


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