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ROYAL DUTCH SHELL PLC 3RD QUARTER 2020 UNAUDITED RESULTS

/EIN News/ --

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 2020 Q2 2020 Q3 2019   Reference 2020 2019 %
489    (18,131)   5,879    -92 Income/(loss) attributable to shareholders   (17,666)   14,878    -219
177    (18,377)   6,081    -97 CCS earnings attributable to shareholders Note 2 (15,443)   14,399    -207
955    638    4,767    -80 Adjusted Earnings² A 4,453    13,530    -67
10,403    2,563    12,252    -15 Cash 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 flow G 19,947    20,995     
3,737    3,617    6,098      Cash capital expenditure C 12,324    17,036     
7,854    7,504    8,657    -9 Underlying operating expenses F 23,958    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) D 3.9% 8.1%  
31.4% 32.7% 27.9%   Gearing E 31.4% 27.9%  
3,081    3,379    3,563    -14 Total production available for sale (thousand boe/d)   3,392    3,632    -7
0.06    (2.33)   0.73    -92 Basic earnings per share ($)   (2.27)   1.84    -223
0.1665    0.16    0.47    -65 Dividend per share ($)   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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ROYAL DUTCH SHELL PLC
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
3RD QUARTER 2020 UNAUDITED RESULTS


PERFORMANCE BY SEGMENT

                                               
 
INTEGRATED GAS      
Quarters $ million Nine Months
Q3 2020 Q2 2020 Q3 2019   2020 2019 %
(151)   (7,959)   2,597    -106 Segment earnings (6,298)   6,731    -194
(920)   (8,321)   (77)     Of which: Identified items (Reference A) (9,572)   (237)    
768    362    2,674    -71 Adjusted Earnings 3,274    6,968    -53
2,323    2,663    4,224    -45 Cash flow from operating activities 8,972    11,854    -24
2,396    2,871    4,271    -44 Cash 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    -14 Liquids production available for sale (thousand b/d) 152    154    -1
4,067    4,369    4,586    -11 Natural gas production available for sale (million scf/d) 4,343    4,397    -1
844    904    957    -12 Total production available for sale (thousand boe/d) 901    912    -1
7.80    8.36    8.95    -13 LNG liquefaction volumes (million tonnes) 25.03    26.34    -5
17.13    16.65    18.90    -9 LNG 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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ROYAL DUTCH SHELL PLC
3RD QUARTER 2020 UNAUDITED RESULTS



                                               
 
UPSTREAM        
Quarters $ million Nine Months
Q3 2020 Q2 2020 Q3 2019   2020 2019 %
(1,110)   (6,721)   1,651    -167 Segment earnings (8,694)   4,709    -285
(226)   (5,209)   818      Of which: Identified items (Reference A) (6,590)   966     
(884)   (1,512)   833    -206 Adjusted Earnings (2,104)   3,743    -156
2,101    319    4,334    -52 Cash flow from operating activities 8,026    15,090    -47
2,629    548    4,597    -43 Cash 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    -8 Liquids production available for sale (thousand b/d) 1,619    1,652    -2
3,960    4,673    5,224    -24 Natural gas production available for sale (million scf/d) 4,768    5,904    -19
2,203    2,415    2,553    -14 Total 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
3RD QUARTER 2020 UNAUDITED RESULTS



                                               
 
OIL PRODUCTS      
Quarters $ million Nine Months
Q3 2020 Q2 2020 Q3 2019   2020 2019 %
2,092    (3,023)   2,433    -14 Segment earnings² 1,281    4,956    -74
411    (5,433)   430      Of which: Identified items (Reference A) (4,174)   226     
1,680    2,411    2,003    -16 Adjusted Earnings² 5,454    4,730    +15
        Of which:      
55    1,500    522    -90 Refining & Trading 1,713    995    +72
1,626    911    1,481    +10 Marketing 3,742    3,735   
5,131    (362)   3,137    +64 Cash flow from operating activities 9,647    3,807    +153
3,476    2,430    2,948    +18 Cash 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    -22 Refinery processing intake (thousand b/d) 2,104    2,606    -19
4,740  ³ 4,041  ³ 6,731    -30 Oil Products sales volumes (thousand b/d) 4,686  ³ 6,603    -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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ROYAL DUTCH SHELL PLC
3RD QUARTER 2020 UNAUDITED RESULTS


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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ROYAL DUTCH SHELL PLC
3RD QUARTER 2020 UNAUDITED RESULTS



                                               
 
CHEMICALS      
Quarters $ million Nine Months
Q3 2020 Q2 2020 Q3 2019   2020 2019 %
131    164    211    -38 Segment earnings² 441    556    -21
(96)   (41)   (13)     Of which: Identified items (Reference A) (140)   (250)    
227    206    224    +1 Adjusted Earnings² 581    806    -28
335    734    181    +85 Cash flow from operating activities 891    1,438    -38
488    304    346    +41 Cash 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    -1 Chemicals 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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ROYAL DUTCH SHELL PLC
3RD QUARTER 2020 UNAUDITED RESULTS



                                   
 
CORPORATE    
Quarters $ million Nine Months
Q3 2020 Q2 2020 Q3 2019   2020 2019
(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 activities 282    (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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ROYAL DUTCH SHELL PLC
3RD QUARTER 2020 UNAUDITED RESULTS


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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ROYAL DUTCH SHELL PLC
3RD QUARTER 2020 UNAUDITED RESULTS


UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

                                   
 
CONSOLIDATED STATEMENT OF INCOME    
Quarters $ million Nine Months
Q3 2020 Q2 2020 Q3 2019   2020 2019
44,021    32,504    86,592    Revenue¹ 136,554    260,871   
461    (161)   769    Share of profit of joint ventures and associates 1,154    2,885   
234    148    2,180    Interest and other income 458    3,285   
44,717    32,491    89,541    Total revenue and other income 138,167    267,041   
27,276    18,093    63,900    Purchases 88,582    192,413   
5,496    5,822    6,002    Production and manufacturing expenses 17,299    19,191   
2,366    2,370    2,429    Selling, distribution and administrative expenses 7,130    7,662   
233    232    219    Research and development 708    656   
222    723    644    Exploration 1,239    1,389   
7,689    28,089    6,815    Depreciation, depletion and amortisation² 42,871    19,464   
992    1,070    1,161    Interest expense 3,181    3,572   
44,275    56,398    81,169    Total expenditure 161,009    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 interest 88    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 $ million Nine Months
Q3 2020 Q2 2020 Q3 2019   2020 2019
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 remeasurements 20    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 hedging 97    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 associates 112    (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   




         Page 13



     
 
ROYAL DUTCH SHELL PLC
3RD QUARTER 2020 UNAUDITED RESULTS



                 
 
CONDENSED CONSOLIDATED BALANCE SHEET
$ million    
  September 30, 2020 December 31, 2019
Assets    
Non-current assets    
Intangible assets 22,536    23,486   
Property, plant and equipment 211,976    238,349   
Joint ventures and associates 22,008    22,808   
Investments in securities 3,090    2,989   
Deferred tax 15,713    10,524   
Retirement benefits¹ 2,191    4,717   
Trade and other receivables 7,551    8,085   
Derivative financial instruments² 1,874    689   
  286,939    311,647   
Current assets    
Inventories 17,306    24,071   
Trade and other receivables 33,033    43,414   
Derivative financial instruments² 6,258    7,149   
Cash and cash equivalents 35,714    18,055   
  92,311    92,689   
Total assets 379,250    404,336   
Liabilities    
Non-current liabilities    
Debt 91,245    81,360   
Trade and other payables 2,831    2,342   
Derivative financial instruments² 843    1,209   
Deferred tax 10,707    14,522   
Retirement benefits¹ 16,201    13,017   
Decommissioning and other provisions¹ 26,541    21,799   
  148,369    134,249   
Current liabilities    
Debt 17,811    15,064   
Trade and other payables 36,546    49,208   
Derivative financial instruments² 5,499    5,429   
Taxes payable 6,874    6,693   
Retirement benefits¹ 380    419   
Decommissioning and other provisions¹ 3,431    2,811   
  70,541    79,624   
Total liabilities 218,909    213,873   
Equity attributable to Royal Dutch Shell plc shareholders 157,168    186,476   
Non-controlling interest¹ 3,173    3,987   
Total equity 160,341    190,463   
Total liabilities and equity 379,250    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”.



         Page 14



     
 
ROYAL DUTCH SHELL PLC
3RD QUARTER 2020 UNAUDITED RESULTS



                                               
 
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
  Equity attributable to Royal Dutch Shell plc shareholders    
$ million Share capital¹ Shares held in trust Other reserves² Retained earnings Total Non-controlling interest Total equity
At January 1, 2020 657    (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, 2020 651    (523)   9,303    147,737    157,168    3,173    160,341   
At January 1, 2019 685    (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, 2019 666    (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.


         Page 15



     
 
ROYAL DUTCH SHELL PLC
3RD QUARTER 2020 UNAUDITED RESULTS



                                   
 
CONSOLIDATED STATEMENT OF CASH FLOWS    
Quarters $ million Nine Months
Q3 2020 Q2 2020 Q3 2019   2020 2019
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 amortisation 42,871    19,464   
14    518    402    – Exploration well write-offs 615    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 associates 1,609    2,820   
405    (3,713)   813    – (Increase)/decrease in inventories 6,286    (2,089)  
(540)   3,959    2,644    – (Increase)/decrease in current receivables 9,733    1,527   
1,583    (4,226)   (3,289)   – Increase/(decrease) in current payables (11,073)   (2,184)  
233    837    (149)   – Derivative financial instruments 899    (1,738)  
152    293    (634)   – Retirement benefits 355    (582)  
43    392    (250)   – Decommissioning and other provisions 333    (544)  
265    (480)   67    – Other 363    54   
(601)   (730)   (1,511)   Tax paid (2,653)   (5,710)  
10,403    2,563    12,252    Cash flow from operating activities 27,818    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 businesses 2,395    3,754   
159    423    922    Proceeds from sale of joint ventures and associates 1,129    1,567   
139    62    126    Proceeds from sale of equity securities 274    414   
112    118    229    Interest received 422    686   
588    1,174    732    Other investing cash inflows 2,617    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 months 236    98   
      Other debt:    
4,745    15,238    2,107    – New borrowings 20,986    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 instruments 662    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 equivalents 17,659    (11,324)  
27,939    21,811    18,470    Cash and cash equivalents at beginning of period 18,055    26,741   
35,714    27,939    15,417    Cash and cash equivalents at end of period 35,714    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.


         Page 16



     
 
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).


         Page 17



     
 
ROYAL DUTCH SHELL PLC
3RD QUARTER 2020 UNAUDITED RESULTS



                                   
 
INFORMATION BY SEGMENT    
Quarters $ million Nine Months
Q3 2020 Q2 2020 Q3 2019   2020 2019
      Third-party revenue    
7,684    7,436    9,735    Integrated Gas 25,277    30,316   
1,670    1,177    2,231    Upstream 5,191    6,878   
31,823    21,596    71,218    Oil Products 97,716    213,106   
2,831    2,283    3,397    Chemicals 8,335    10,535   
13    12    12    Corporate 35    36   
44,021    32,504    86,592    Total third-party revenue¹ 136,554    260,871   
      Inter-segment revenue²    
864    558    1,025    Integrated Gas 2,313    3,162   
5,111    4,117    7,960    Upstream 15,704    26,319   
1,547    1,082    2,059    Oil Products 4,480    6,190   
715    475    1,009    Chemicals 2,065    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 Products 1,281    4,956   
131    164    211    Chemicals 441    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 $ million Nine Months
Q3 2020 Q2 2020 Q3 2019   2020 2019
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 interest 88    466   
546    (18,101)   6,024    Income/(loss) for the period (17,578)   15,344   
      Current cost of supplies adjustment:    
(395)   (432)   240    Purchases 2,947    (715)  
100    98    (56)   Taxation (719)   181   
(29)   92    22    Share of profit/(loss) of joint ventures and associates 82    21   
(324)   (242)   206    Current cost of supplies adjustment 2,310    (513)  
      of which:    
(312)   (246)   202    Attributable to Royal Dutch Shell plc shareholders 2,222    (479)
(12)     4 Attributable to non-controlling interest 88    (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 interest 176    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 2020 Q2 2020 Q3 2019   2020 2019
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 shares Nominal value ($ million)
  A B A B Total
At January 1, 2020 4,151,787,517    3,729,407,107    349 308 657
Repurchases of shares (50,548,018)   (23,223,271)   (4) (2) (6)
At September 30, 2020 4,101,239,499    3,706,183,836    345 306 651
At January 1, 2019 4,471,889,296    3,745,486,731    376 309 685
Repurchases of shares (227,226,527)   (11,488,283)   (19) (1) (20)
At September 30, 2019 4,244,662,769    3,733,998,448    357 308 665


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
$ million Merger reserve Share premium reserve Capital redemption reserve Share plan reserve Accumulated other comprehensive income Total
At January 1, 2020 37,298    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, 2020 37,298    154    129    812    (29,091)   9,303   
At January 1, 2019 37,298    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, 2019 37,298    154    116    966    (27,998)   10,535   




         Page 19



     
 
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
$ million September 30, 2020 December 31, 2019
Carrying amount 80,126    65,887   
Fair value¹ 87,127    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 $ million Nine Months
Q3 2020 Q2 2020 Q3 2019   2020 2019
7,689    28,089    6,815    Depreciation, depletion and amortisation 42,871    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, 2020 December 31, 2019
Non-current assets    
Retirement benefits 2,191    4,717   
Non-current liabilities    
Retirement benefits 16,201    13,017   
Current liabilities    
Retirement benefits 380    419   
Net liability 14,390    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, 2020 December 31, 2019
Non-current liabilities    
Decommissioning and other provisions 26,541    21,799   
Current liabilities    
Decommissioning and other provisions 3,431    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, 2020 December 31, 2019
Non-controlling interest 3,173    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 $ million Nine Months
Q3 2020 Q2 2020 Q3 2019   2020 2019
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 Earnings 4,453    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 $ million Nine Months
Q3 2020 Q2 2020 Q3 2019   2020 2019
      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 items 6,066    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    Corporate 578    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   



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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 $ million Nine Months
Q3 2020 Q2 2020 Q3 2019   2020 2019
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   
3,737    3,617    6,098    Cash capital expenditure 12,324    17,036   
      Of which:    
1,020    736    894    Integrated Gas 2,638    2,976   
1,245    1,876    2,625    Upstream 5,642    7,437   
832    606    1,308    Oil Products 2,019    3,279   
595    369    1,160    Chemicals 1,810    3,067   
45    30    111    Corporate 215    277   



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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.

                       
 
$ million Quarters
  Q3 2020 Q2 2020 Q3 2019
Income - current and previous three quarters (16,489) (11,011) 20,989
Interest expense after tax - current and previous three quarters 2,933 3,014 3,115
Income before interest expense - current and previous three quarters (13,556) (7,997) 24,105
Capital employed – opening 281,505 288,900 279,864
Capital employed – closing 269,397 265,435 281,505
Capital employed – average 275,451 277,168 280,684
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.

                       
 
$ million Quarters
  Q3 2020 Q2 2020 Q3 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 quarters 2,933 3,014 3,115
CCS earnings excluding identified items before interest expense - current and previous three quarters 10,618 14,616 22,864
Capital employed – average 275,451 277,168 280,684
ROACE on a CCS basis excluding identified items 3.9% 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.


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ROYAL DUTCH SHELL PLC
3RD QUARTER 2020 UNAUDITED RESULTS



                       
 
$ million Quarters
  September 30, 2020 June 30, 2020 September 30, 2019
Current debt 17,811 17,530 12,812
Non-current debt 91,245 87,460 76,112
Total debt¹ 109,056 104,990 88,924
Add: Debt-related derivative financial instruments: net liability/(asset) (564) 525 1,013
Add: Collateral on debt-related derivatives: net liability/(asset) 686 266 148
Less: Cash and cash equivalents (35,714) (27,939) (15,417)
Net debt 73,463 77,843 74,668
Add: Total equity 160,341 160,445 192,580
Total capital 233,804 238,288 267,249
Gearing 31.4  % 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 $ million Nine Months
Q3 2020 Q2 2020 Q3 2019   2020 2019
5,496    5,822    6,002    Production and manufacturing expenses 17,299    19,191   
2,366    2,370    2,429    Selling, distribution and administrative expenses 7,130    7,662   
233    232    219    Research and development 708    656   
8,095    8,423    8,650    Operating expenses 25,137    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 expenses 23,958    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.


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ROYAL DUTCH SHELL PLC
3RD QUARTER 2020 UNAUDITED RESULTS



                                   
 
Quarters $ million Nine Months
Q3 2020 Q2 2020 Q3 2019   2020 2019
10,403    2,563    12,252    Cash flow from operating activities 27,818    31,913   
(2,833)   (2,320)   (2,130)   Cash flow from investing activities (7,871)   (10,918)  
7,571    243    10,122    Free cash flow 19,947    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 expenditure1 614    849   
6,713    (254)   6,630    Organic free cash flow2 16,763    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 $ million Nine Months
Q3 2020 Q2 2020 Q3 2019   2020 2019
10,403    2,563    12,252    Cash flow from operating activities 27,818    31,913   
405    (3,713)   813    (Increase)/decrease in inventories 6,286    (2,089)  
(540)   3,959    2,644    (Increase)/decrease in current receivables 9,733    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 capital 4,947    (2,746)  
8,955    6,543    12,083    Cash flow from operating activities excluding working capital movements 22,871    34,658   
      Of which:    
2,396    2,871    4,271    Integrated Gas 8,619    10,811   
2,629    548    4,597    Upstream 6,894    15,112   
3,476    2,430    2,948    Oil Products 6,259    7,618   
488    304    346    Chemicals 981    1,383   
(33)   390    (80)   Corporate 118    (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 $ million Nine Months
Q3 2020 Q2 2020 Q3 2019   2020 2019
571    211 2,932 Proceeds from sale of property, plant and equipment and businesses 2,395 3,754
159    423 922 Proceeds from sale of joint ventures and associates 1,129 1,567
139    62 126 Proceeds from sale of equity securities 274 414
869    696 3,979 Divestment proceeds 3,798 5,736



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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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