Royal Dutch Shell plc 3rd Quarter 2010 Results

Oct 28, 2010, 04:19 ET from Royal Dutch Shell plc

    LONDON, October 28, 2010 /PRNewswire-FirstCall/ --

    - Royal Dutch Shell's third quarter 2010 earnings, on a
      current cost of supplies (CCS) basis, were $3.5 billion compared to
      $3.0 billion a year ago. Basic CCS earnings per share increased by
      16% versus the same quarter a year ago.

    - Third quarter 2010 CCS earnings, excluding identified items
      (see page 5), were $4.9 billion compared to $2.6 billion in the third
      quarter 2009.

    - Cash flow from operating activities for the third quarter
      2010 was $9.0 billion.

    - Net capital investment for the quarter was $10.3 billion,
      including the business acquisition of East Resources, Inc. in the USA
      and the joint acquisition of Arrow Energy Limited in Australia. Total
      dividends paid to shareholders during the third quarter 2010 were
      $2.6 billion.

    - Gearing at the end of the third quarter 2010 was 19.0%.

    - A third quarter 2010 dividend has been announced of $0.42
      per ordinary share. With the introduction of the Scrip Dividend
      Programme, effective from the third quarter 2010 interim dividend,
      eligible shareholders have a choice to receive dividends in cash or
      in new shares.



    Summary of unaudited results

             Quarters                    $ million              Nine months
    Q3 2010 Q2 2010 Q3 2009 %(1)                              2010   2009   %

      3,153   3,270   1,543     Upstream                    10,838  5,818

        325   1,471   1,292     Downstream                   2,539  2,020

                                Corporate and
         43    (212)    155     Non-controlling interest      (430)   789

      3,521   4,529   2,990 +18 CCS earnings                12,947  8,627 +50

                                Estimated CCS adjustment for
        (58)   (136)    257     Downstream                     390  1,930

      3,463   4,393   3,247  +7 Income attributable to      13,337 10,557 +26
                                shareholders

                                Basic CCS earnings per share
       0.57    0.74    0.49 +16 ($)                           2.11   1.41 +50

      (0.01)  (0.02)   0.04     Estimated CCS adjustment per  0.07   0.31
                                share ($)

       0.56    0.72    0.53  +6 Basic earnings per share ($)  2.18   1.72 +27

                                Cash flow from operating
      9,016   8,096   7,350 +23 activities                  21,894 15,828 +38

                                Cash flow from operating
       1.47    1.32    1.20 +23 activities per share ($)      3.57   2.58 +38

       0.42    0.42    0.42   - Dividend per share ($)        1.26   1.26   -

    (1) Q3 on Q3 change

Royal Dutch Shell Chief Executive Officer Peter Voser commented:

"Our results have rebounded substantially from year-ago levels, driven by some improvement in industry conditions, and Shell's strategy. We are seeing new growth, with improved earnings and cash flow, underpinned by a 5% increase in oil and gas production, a 22% increase in LNG sales and increased downstream volumes. This is a better performance from Shell, achieved despite continued difficult industry conditions in refining and natural gas markets.

We are making good progress on implementing our strategy, with a focus on performance improvement, delivering a new wave of growth, and maturing the next generation of growth options for shareholders, with achievements in all of these themes during the quarter.

With an emphasis on continuous improvement, Shell is driving down costs and improving capital efficiency. We have achieved some $2 billion of asset sales so far in 2010, and announced the disposal of late-life oil and gas positions at Statfjord in Norway, and refining capacity at Heide in Germany during the quarter. Our cash generation from operations continues to improve. We expect some $7-8 billion of asset sales in the 2010-11 timeframe, including exits from non-core refining and marketing positions in Europe and Africa, and rationalisation of our tight gas portfolio in North America, following recent acquisitions there."

Turning to growth delivery, Voser commented: "We are in a delivery window for new growth. Our new oil sands mine - Jackpine - started production during the quarter, part of the 100,000 boe/d Athabasca Oil Sands Project Expansion 1. AOSP-1 is the 5th start-up in a sequence of 13 new projects for 2010-11, which will drive us to achieve our cash flow and production targets for 2012.

Shell has continued to make progress with longer term growth options during the quarter, with the final investment decision on two new deep water projects - the 100,000 boe/d Mars B development in the Gulf of Mexico, and Phase 2 of the BC-10 development in Brazil. We have signed a purchase agreement with East Resources, Inc., acquiring tight gas acreage in the USA, bringing our total North America gas potential resources to some 40 tcfe, completed the joint acquisition of Arrow Energy Limited, an Australian CBM-LNG play, and progressed our Brazil retail and biofuels joint venture with Cosan."

Voser concluded: "We are making good progress against our targets, and there is more to come from Shell."

Third Quarter 2010 portfolio developments

Upstream

In Australia, Shell and PetroChina announced the successful completion of their joint acquisition of the Australian coal seam gas company, Arrow Energy Limited.

In Canada, Shell announced the successful start of production of the 100 thousand barrels of oil equivalent per day (boe/d) expansion of its oil sands operations in Canada (Shell share 60%). Production from the new Jackpine Mine combined with existing production from the Muskeg River Mine will feed the Scotford Upgrader, which processes the oil sands bitumen - heavy oil - for refined oil products. Construction for the expansion of the Scotford Upgrader is underway, and will come on-stream in early 2011 which will allow AOSP's synthetic crude production to rise to the new 255 thousand boe/d (Shell share 60%) production capacity.

In Norway, Shell agreed to sell its interests in the Statfjord field and associated satellite fields in the Norwegian sector of the North Sea, with a Shell share production of some 13 thousand barrels of oil equivalent per day (boe/d), for some $0.2 billion.

Shell completed a strategic trade to acquire additional interests in Gabon and in the UK North Sea, in return for its interest in a pair of Norwegian offshore fields.

In Saudi Arabia, Shell has entered into the second contract period for the South Rub Al Khali Company Limited (SRAK) joint venture (Shell share 50%). SRAK will now move forward with the appraisal of the Kidan sour gas fields.

In the USA, Shell signed a purchase agreement with East Resources, Inc., a private company, with a primary focus on tight gas acreage in the Marcellus shale, in the northeast USA. A multi-well appraisal programme is now on the way, with encouraging initial results.

Also in the USA, Shell announced the final investment decision for the Mars B project (Shell share 71.5%), a 100 thousand boe/d tension leg platform in the Gulf of Mexico. In Brazil, Shell also announced the final investment decision on the BC-10 Phase 2 project (Shell share 50%).

Downstream

In Germany, Shell announced a binding agreement for the sale of Shell's (100%-owned) Heide refinery (90 thousand barrels per day capacity) and associated local infrastructure and businesses. The transaction is subject to regulatory approval.

In Brazil, Shell signed a binding agreement to form a joint venture (Shell share 50%) with Cosan for the production of ethanol, sugar and power, and the supply, distribution and retail of transportation fuels. The transaction is subject to regulatory approvals.

    Key features of the Third quarter 2010

    - Third quarter 2010 CCS earnings were $3,521 million, 18%
      higher than in the same quarter a year ago.

    - Third quarter 2010 CCS earnings, excluding identified items
      (see page 5), were $4,933 million compared to $2,619 million in the
      third quarter 2009.

    - Third quarter 2010 reported earnings were $3,463 million
      compared to $3,247 million in the same quarter a year ago.

    - Basic CCS earnings per share increased by 16% versus the
      same quarter a year ago.

    - Cash flow from operating activities for the third quarter
      2010 was $9.0 billion, compared to $7.3 billion in the same quarter
      last year. Excluding net working capital movements, cash flow from
      operating activities in the third quarter 2010 was $8.1 billion,
      compared to $7.7 billion in the same quarter last year.

    - Total dividends paid to shareholders during the third
      quarter 2010 were $2.6 billion.

    - Capital investment for the third quarter 2010 was $11.0
      billion. Net capital investment (capital investment, less divestment
      proceeds) for the third quarter 2010 was $10.3 billion, including
      $5.5 billion related mainly to the business acquisition of East
      Resources, Inc. in the USA and the joint acquisition of Arrow Energy
      Limited in Australia.

    - Return on average capital employed (ROACE), on a reported
      income basis, was 8.8%.

    - Gearing was 19.0% at the end of the third quarter 2010
      versus 13.7% at the end of the third quarter 2009.


    Upstream

    - Oil and gas production for the third quarter 2010 was 3,058
      thousand boe/d, 5% higher than in the third quarter 2009.

Production for the third quarter 2010 excluding the impact of divestments, production sharing contracts (PSC) pricing effects and OPEC quota restrictions was 7% higher compared to the same period last year.

Underlying production in the third quarter increased by some 180 thousand boe/d from new field start-ups and the continuing ramp-up of fields, more than offsetting the impact of field declines.

    - LNG sales volumes of 4.26 million tonnes in the third
      quarter 2010 were 22% higher than in the same quarter a year ago.


    Downstream

    - Oil Products sales volumes were 4% higher than in the third
      quarter 2009. Chemical product sales volumes in the third quarter
      2010 increased by 13% compared to the third quarter 2009.

    - Oil Products refinery availability was 93% compared to 94%
      in the third quarter 2009. Chemicals manufacturing plant availability
      increased to 96% from 95% in the third quarter 2009.

    - Supplementary financial and operational disclosure for the
      third quarter 2010 is available at www.shell.com/investor.

Summary of identified items

Earnings in the third quarter 2010 reflected the following items, which in aggregate amounted to a net charge of $1,412 million (compared to a net gain of $371 million in the third quarter 2009), as summarised in the table below:

    - Upstream earnings included a net charge of $284 million,
      reflecting asset impairments and write-offs of $1,442 million, a
      charge related to the estimated fair value accounting of commodity
      derivatives (see Note 4), tax charges and provisions, which were
      partly offset by gains related to portfolio transactions and
      mark-to-market valuation of certain gas contracts. Earnings for the
      third quarter 2009 included a net charge of $123 million.

    - Downstream earnings included charges of $1,128 million
      reflecting asset impairments of $873 million, a charge related to the
      estimated fair value accounting of commodity derivatives (see Note 4)
      and provisions. Earnings for the third quarter 2009 included a net
      gain of $536 million.

    - Corporate earnings and Non-controlling interest for the
      third quarter 2009 included charges of $42 million.



    Summary of Identified Items

           Quarters                    $ million              Nine months
    Q3 2010 Q2 2010 Q3 2009                                   2010    2009
                            Segment earnings impact of
                            identified items:

      (284)      10   (123) Upstream                          (164)    92

    (1,128)     311    536  Downstream                        (852)  (347)

         -        -    (42) Corporate and Non-controlling        -    103
                            interest
    (1,412)     321    371  CCS earnings impact             (1,016)  (152)

These identified items generally relate to events with an impact of more than $50 million on Royal Dutch Shell's earnings and are shown to provide additional insight into its segment earnings, CCS earnings and income attributable to shareholders. Further additional comments on the business segments are provided in the section 'Earnings by Business Segment' on page 6 and onwards.

    Earnings by Business segment

    Upstream
              Quarters                    $ million             Nine months
    Q3 2010 Q2 2010 Q3 2009  %(1)                             2010   2009   %

      3,153   3,270   1,543 +104 Upstream earnings          10,838  5,818 +86

      6,139   5,411   4,168  +47 Upstream cash flow from    19,276 13,952 +38
                                 operations

      9,554   5,664   5,404  +77 Net capital investment     20,700 16,379 +26

      1,709   1,655   1,652   +3 Crude oil production        1,699  1,672  +2
                                 (thousand b/d)

      7,823   8,440   7,343   +7 Natural gas production      9,008  8,181 +10
                                 available for sale (million
                                 scf/d)

      3,058   3,110   2,917   +5 Barrels of oil equivalent   3,252  3,082  +6
                                 (thousand boe/d)

       4.26    3.88    3.49  +22 LNG sales volumes (million  12.36   9.44 +31
                                 tonnes)
    (1) Q3 on Q3 change

Third quarter Upstream earnings were $3,153 million compared to $1,543 million a year ago. Earnings included a net charge of $284 million related to identified items, compared to a net charge of $123 million in the third quarter 2009 (see page 5).

Upstream earnings, excluding the impact of identified items, compared to the third quarter 2009 reflected the effect on revenues from improved crude oil and natural gas realised prices and increased production volumes, lower operating costs and lower exploration well write-off expenses which were partially offset by increased production taxes. Earnings also reflected increased LNG sales volumes, improved LNG realised prices and higher dividends received from an LNG joint venture.

Global liquids realisations were 15% higher than in the third quarter 2009. Global gas realisations were 17% higher than in the same quarter a year ago. In the Americas, gas realisations increased by 25%. Outside the Americas, gas realisations increased by 16%.

Third quarter 2010 production was 3,058 thousand boe/d compared to 2,917 thousand boe/d a year ago. Crude oil production was up 3% and natural gas production was up 7% compared to the third quarter 2009. In Nigeria, Shell's share of Shell Petroleum Development Nigeria Company (SPDC) joint venture production increased by 175 thousand boe/d driven by the ramp-up of new projects and improved security conditions.

Underlying production, compared to the third quarter 2009, increased by some 180 thousand boe/d from new field start-ups and the continuing ramp-up of fields over the past 12 months, more than offsetting field declines.

LNG sales volumes of 4.26 million tonnes were 22% higher than in the same quarter a year ago. Volumes improved globally, with major contributions from the Sakhalin II LNG project and Nigeria LNG.

    Downstream

    Quarters                             $ million            Nine months
    Q3 2010 Q2 2010 Q3 2009 %(1)                              2010   2009   %

        325   1,471   1,292 -75 Downstream CCS earnings      2,539  2,020 +26

        (61)   (142)    251     Estimated CCS adjustment       381  1,986

        264   1,329   1,543 -83 Downstream earnings          2,920  4,006 -27

      1,953   3,197   3,157 -38 Downstream cash flow from    2,309  1,813 +27
                                operations

        701     (21)  1,677 -58 Net capital investment       1,367  5,024 -73

      3,292   3,296   2,997 +10 Refinery plant intake        3,196  3,095  +3
                                (thousand b/d)

      6,385   6,615   6,121  +4 Oil Products sales volumes   6,389  6,109  +5
                                (thousand b/d)

      5,333   5,254   4,723 +13 Chemicals sales volumes     15,356 13,476 +14
                                (thousand tonnes)
    (1) Q3 on Q3 change

Third quarter Downstream CCS earnings were $325 million compared to $1,292 million in the third quarter 2009. Earnings included charges of $1,128 million related to identified items, compared to a net gain of $536 million in the third quarter 2009 (see page 5).

Downstream CCS earnings, excluding the impact of identified items, compared to the third quarter 2009 reflected improved refining contributions, higher Chemicals earnings and lower operating costs.

Oil Products marketing CCS earnings, excluding the impact of identified items, improved compared to the same period a year ago, mainly reflecting higher lubricants earnings and reduced trading contributions.

Oil Products sales volumes increased by 4% compared to the same quarter last year. Excluding the impact of divestments, sales volumes increased by 6%.

Refining CCS results, excluding impairment charges, improved from the third quarter 2009, benefiting from higher realised refining margins globally and higher refinery plant intake volumes. Refinery availability was 93% compared to 94% in the third quarter 2009.

Chemicals CCS earnings compared to the third quarter 2009 reflected improved realised chemicals margins, higher chemicals sales volumes and lower operating costs.

Chemicals sales volumes increased by 13% compared to the same quarter last year, mainly due to start-up of the Shell Eastern Petrochemicals Complex in Singapore. Chemicals manufacturing plant availability increased to 96% from 95% in the third quarter 2009.

    Corporate and Non-controlling Interest

           Quarters                     $ million                Nine months
    Q3 2010 Q2 2010  Q3 2009                                     2010   2009

        148   (112)      202  Corporate                          (140)   883

       (105)  (100)      (47) Non-controlling interest           (290)   (94)
                              Corporate and Non-controlling

         43   (212)      155  Interest                           (430)   789

Third quarter Corporate earnings and Non-controlling interest were $43 million compared to $155 million for the same period last year. Earnings for the third quarter 2009 included charges of $42 million related to identified items (see page 5).

Corporate earnings for the third quarter 2010 reflected higher tax credits, which were more than offset by lower currency exchange gains and a lower net interest result compared to the same period in 2009.

FORTHCOMING EVENTS

Fourth quarter 2010 results and fourth quarter 2010 dividend are scheduled to be announced on February 3, 2011. First quarter 2011 results and first quarter 2011 dividend are scheduled to be announced on April 28, 2011. Second quarter 2011 results and second quarter 2011 dividend are scheduled to be announced on July 28, 2011. Third quarter 2011 results and third quarter 2011 dividend are scheduled to be announced on October 27, 2011. A Shell strategy update is planned for March 15, 2011.

    Unaudited Condensed Consolidated Interim Financial Statements

    Consolidated Statement of income

             Quarters                   $ million              Nine months
    Q3 2010 Q2 2010 Q3 2009 %(1)                              2010    2009  %

     90,712  90,568  75,009     Revenue                   267,342 197,113

      1,020   1,308     746     Share of profit of          3,974   3,209
                                equity-accounted
                                investments

      1,010     (16)    271     Interest and other income(3) 1,311  1,388

     92,742  91,860  76,026     Total revenue and other   272,627 201,710
                                income

     70,278  69,759  55,781     Purchases                 205,038 142,196

      6,052   5,925   5,885     Production and             17,164  17,919
                                manufacturing expenses

      3,701   3,433   4,306     Selling, distribution and  11,227  11,898
                                administrative expenses

        203     180     318     Research and development      597     794

        610     403     637     Exploration                 1,390   1,509

      6,196   3,237   4,341     Depreciation, depletion    12,359  10,710
                                and amortisation

        317     191     189     Interest expense              769     538

      5,385   8,732   4,569 +18 Income before taxation     24,083  16,146 +49

      1,820   4,245   1,281     Taxation                   10,465   5,439

      3,565   4,487   3,288  +8 Income for the period      13,618  10,707 +27

        102      94      41     Income attributable to        281     150
                                non-controlling interest

      3,463   4,393   3,247  +7 Income attributable to     13,337  10,557 +26
                                Royal Dutch Shell plc
                                shareholders

                                Estimated CCS adjustment for
         58     136    (257)           Downstream            (390) (1,930)

      3,521   4,529   2,990 +18 CCS earnings               12,947   8,627 +50



    Basic earnings per share

           Quarters                                             Nine months

    Q3 2010 Q2 2010 Q3 2009                                    2010    2009
     0.56    0.72    0.53   Earnings per share ($)             2.18    1.72
     0.57    0.74    0.49   CCS earnings per share ($)         2.11    1.41

    Diluted earnings per share

           Quarters                                             Nine months

    Q3 2010 Q2 2010 Q3 2009                                    2010    2009
     0.56    0.72    0.53   Earnings per share ($)             2.17    1.72
     0.57    0.74    0.49   CCS earnings per share ($)         2.11    1.41

    Shares(2)

           Quarters                     Millions                Nine months

    Q3 2010 Q2 2010 Q3 2009                                    2010    2009
                            Weighted average number of shares
                            as the basis for:

    6,132.6 6,134.0 6,127.0 Basic earnings per share          6,131.1 6,125.1

    6,138.3 6,143.7 6,131.0 Diluted earnings per share        6,137.1 6,128.2

    6,132.0 6,132.5 6,125.2 Shares outstanding at the end of  6,132.0 6,125.2
                            the period

    (1) Q3 on Q3 change.

    (2) Royal Dutch Shell plc ordinary shares of EUR0.07 each.

    (3) Other income includes dividend income, net gains on sale of assets
    and net foreign exchange effects on financing activities.



    Condensed Statement of Changes in Equity

    $ million     Ordinary Shares  Other  Retained  Total Non-         Total
                     share   held  res-   earnings        controlling equity
                   capital   in    erves                  interest
                            trust

    At December 31,
    2009             527 (1,711)  9,982  127,633 136,431  1,704    138,135

    Income for the
    period             -      -       -   13,337  13,337    281     13,618

    Other              -      -    (271)       -    (271)    57       (214)
    comprehensive
    income

    Capital            -      -       -      294     294     16        310
    contributions
    from and other
    changes in
    non-controlling
    interest

    Dividends paid     -      -       -   (7,586) (7,586)  (357)    (7,943)

    Shares held in     -    368       -        -     368      -        368
    trust: net
    sales/(purchases)
    and dividends
    received

    Share-based        -      -     (52)     223     171      -        171
    compensation

    At September 30,
    2010             527 (1,343)  9,659  133,901 142,744  1,701    144,445




    $ million    Ordinary Shares  Other  Retained  Total Non-         Total
                    share   held  res-   earnings        controlling equity
                  capital   in    erves                  interest
                            trust

    At December 31,
    2008            527   (1,867)  3,178  125,447  127,285  1,581   128,866
    Income for the    -        -       -   10,557   10,557    150    10,707
    period
    Other             -        -   6,562        -    6,562     49     6,611
    comprehensive
    income
    Capital           -        -       -        3        3     33        36
    contributions
    from and other
    changes in
    non-controlling
    interest
    Dividends paid    -        -       -   (7,913)  (7,913)  (164)   (8,077)
    Shares held in    -      201       -        -      201      -       201
    trust: net
    sales/(purchases)
    and dividends
    received
    Share-based       -        -     (22)     190      168      -       168
    compensation
    At September 30,527   (1,666)  9,718  128,284  136,863  1,649   138,512
    2009

    Condensed Consolidated balance sheet
                                                      $ million
                                           Sept 30,   Jun 30, 2010   Sept 30,
                                              2010                      2009

    Assets
    Non-current assets:
    Intangible assets                         5,171        5,171        5,288
    Property, plant and equipment           139,863      133,179      127,207
    Equity-accounted investments             34,015       31,128       30,265
    Investments in securities                 3,968        3,860        4,187
    Deferred tax                              5,372        4,480        4,309
    Pre-paid pension costs                   10,383        9,316        9,691
    Other                                     8,909        7,528        9,646
                                            207,681      194,662      190,593

    Current assets:
    Inventories                              28,922       27,972       25,420
    Accounts receivable                      62,769       62,615       66,966
    Cash and cash equivalents                11,282       12,008       14,275
                                            102,973      102,595      106,661

    Total assets                            310,654      297,257      297,254

    Liabilities
    Non-current liabilities:
    Debt                                     35,148       35,796       31,522
    Deferred tax                             13,179       13,802       13,917
    Retirement benefit obligations            6,048        5,873        5,918
    Other provisions                         14,352       13,322       13,523
    Other                                     4,696        4,869        4,719
                                             73,423       73,662       69,599

    Current liabilities:
    Debt                                      9,932        4,505        4,774
    Accounts payable and accrued             65,980       64,553       69,489
    liabilities
    Taxes payable                            13,431       12,096       11,879
    Retirement benefit obligations              397          388          435
    Other provisions                          3,046        2,890        2,566
                                             92,786       84,432       89,143

    Total liabilities                       166,209      158,094      158,742

    Equity attributable to Royal Dutch      142,744      137,488      136,863
    Shell plc shareholders

    Non-controlling interest                  1,701        1,675        1,649
    Total equity                            144,445      139,163      138,512

    Total liabilities and equity            310,654      297,257      297,254


    Condensed Consolidated statement of cash flows

            Quarters                    $ million               Nine months
    Q3 2010  Q2 2010 Q3 2009                                   2010     2009

                              Cash flow from operating
                              activities:

       3,565   4,487   3,288  Income for the period          13,618   10,707

                              Adjustment for:
       3,545   4,210   1,677  - Current taxation             11,869    5,888

         264     161     157  - Interest (income)/expense       656      857

                              - Depreciation, depletion and
       6,196   3,237   4,341  amortisation                   12,359   10,710

                              - Net (gains)/losses on sale
        (681)    (28)    (81) of assets                        (932)    (366)

                              - Decrease/(increase) in net
         937    (482)   (384) working capital                (5,175)  (3,584)

                              - Share of profit of
      (1,020) (1,308)   (746) equity-accounted investments   (3,974)  (3,209)

       1,486   1,425     993  - Dividends received from       4,455    3,212
                              equity-accounted
                              investments

                              - Deferred taxation and other
      (1,941)    182    (401) provisions                     (1,466)    (987)

        (86)     425     332  - Other                           686   (1,458)

                              Cash flow from operating
      12,265  12,309   9,176  activities (pre-tax)           32,096   21,770

      (3,249) (4,213) (1,826) Taxation paid                 (10,202)  (5,942)

                              Cash flow from operating
       9,016   8,096   7,350  activities                     21,894   15,828

                              Cash flow from investing
                              activities:
     (9,609) (6,513) (6,219)  Capital expenditure           (21,369) (19,010)

                              Investments in
     (1,179)   (136)   (448)  equity-accounted investments   (1,940)  (2,302)

         666   1,007     327  Proceeds from sale of assets    2,039      805

                              Proceeds from sale of
          44     136     267  equity-accounted investments      211      487

        (37)      26    (16)  (Additions to)/proceeds from      (18)     (68)
                              sale of securities

          51      13     118  Interest received                 102      288

                              Cash flow from investing
    (10,064) (5,467) (5,971)  activities                    (20,975) (19,800)

                              Cash flow from
                              financing
                              activities:

       3,232   1,017    (57)  Net (decrease)/increase in      4,399   (5,691)
                              debt with maturity period
                              within three months

         199   3,323   5,353  Other debt: New borrowings      7,729   19,281

       (491)   (414)   (241)  Repayments                     (2,852)  (2,057)

       (307)   (379)    (86)  Interest paid                  (1,204)    (610)

                              Change in non-controlling
         (3)     330      23  interest                          315       42

                              Dividends paid to:
                              - Royal Dutch Shell plc
     (2,583) (2,448) (2,656)  shareholders                   (7,586)  (7,913)

       (168)   (150)    (65)  - Non-controlling interest       (357)    (164)

                              Shares held in trust:

                              - Net sales/(purchases) and
        (34)      86    (17)  dividends received                170       70

                              Cash flow from financing
       (155)   1,365   2,254  activities                        614    2,958

         477   (434)      46  Currency translation               30      101
                              differences relating to cash
                              and
                              cash equivalents

                              (Decrease)/increase in cash
       (726)   3,560   3,679  and cash equivalents            1,563     (913)

                              Cash and cash equivalents at
      12,008   8,448  10,596  beginning of period             9,719   15,188

                              Cash and cash equivalents at
      11,282  12,008  14,275  end of period                  11,282   14,275


    EXPLANATORY NOTES
    1. Basis of preparation

The quarterly financial report and tables of Royal Dutch Shell plc and its subsidiaries (collectively known as "Shell") are prepared on the same accounting principles as, and should be read in conjunction with, the Annual Report on Form 20-F for the year ended December 31, 2009 (pages 101 to 106) as filed with the US Securities and Exchange Commission.

With effect from January 1, 2010, acquisitions and divestments are accounted for in accordance with revised IFRS 3 Business Combinations and IAS 27 Consolidated and Separate Financial Statements. The revised standards apply with prospective effect to the acquisition of a business or for certain types of transactions involving an additional investment or a partial disposal, requiring for example the recognition in income of certain transaction costs, the recognition at fair value of contingent consideration payable and the re-measurement of existing interests held or retained. The exact impact depends on the individual transaction concerned, with potentially different amounts being recognised in the Consolidated Financial Statements than would previously have been the case.

2. Earnings on an estimated current cost of supplies (CCS) basis

To facilitate a better understanding of underlying business performance, the financial results are also analysed on an estimated current cost of supplies (CCS) basis as applied for the Downstream segment earnings. Earnings on an estimated current cost of supplies basis provides useful information concerning the effect of changes in the cost of supplies on Shell's results of operations and is a measure to manage the performance of the Downstream segment but is not a measure of financial performance under IFRS.

On this basis, the purchase price of the volumes sold during the period is based on the estimated current cost of supplies during the same period after making allowance for the estimated tax effect, instead of the first-in, first-out (FIFO) method of inventory accounting. Earnings calculated on this basis do not represent an application of the last-in, first-out (LIFO) inventory basis and do not reflect any inventory drawdown effects.

3. Return on average capital employed (ROACE)

ROACE is defined as the sum of the current and previous three quarters' income adjusted for interest expense, after tax, divided by the average capital employed for the period.

4. Impacts of Accounting for Derivatives

IFRS requires derivative instruments to be recognised in the financial statements at fair value. Any change in the current period between the period-end market price and the contract settlement price is recognised in income where hedge accounting is either not permitted or not applied to these contracts.

The physical crude oil and related products held by the Downstream business as inventory are recorded at historical cost or net realisable value, whichever is lower, as required under IFRS. Consequently, any increase in value of the inventory over cost is not recognised in income until the sale of the commodity occurs in subsequent periods.

In the Downstream business, the buying and selling of commodities includes transactions conducted through the forward markets using commodity derivatives to reduce economic exposure. Some derivatives are associated with a future physical delivery of the commodities.

Differences in the accounting treatment for physical inventory (at cost or net realisable value, whichever is lower) and derivative instruments (at fair value) have resulted in timing differences in the recognition of gains or losses between reporting periods.

Similarly, earnings from long-term contracts held in the Upstream business are recognised in income upon realisation. Associated commodity derivatives are recognised at fair value as of the end of each quarter.

These differences in accounting treatment for long-term contracts (on accrual basis) and derivative instruments (at fair value) have resulted in timing differences in the recognition of gains or losses between the reporting periods.

The aforementioned timing differences for Downstream and Upstream are reported as identified items in the quarterly results and are estimates derived from the overall portfolio of derivatives.

Certain UK gas contracts held by Upstream contain embedded derivatives or written options, for which IFRS requires recognition at fair value, even though they are entered into for operational purposes. The impact of the mark-to-market calculation is also reported as an identified item in the quarterly results.

CAUTIONARY STATEMENT

All amounts shown throughout this Report are unaudited.

The companies in which Royal Dutch Shell plc (NYSE: RDS.B; NYSE: RDS.A) directly and indirectly owns investments are separate entities. In this document "Shell", "Shell group" and "Royal Dutch Shell" are sometimes used for convenience where references are made to Royal Dutch Shell plc and its subsidiaries in general. Likewise, the words "we", "us" and "our" are also used to refer to subsidiaries in general or to those who work for them. These expressions are also used where no useful purpose is served by identifying the particular company or companies. ''Subsidiaries'', "Shell subsidiaries" and "Shell companies" as used in this document refer to companies in which Royal Dutch Shell either directly or indirectly has control, by having either a majority of the voting rights or the right to exercise a controlling influence. The companies in which Shell has significant influence but not control are referred to as "associated companies" or "associates" and companies in which Shell has joint control are referred to as "jointly controlled entities". In this document, associates and jointly controlled entities are also referred to as "equity-accounted investments". The term "Shell interest" is used for convenience to indicate the direct and/or indirect (for example, through our 34% shareholding in Woodside Petroleum Ltd.) ownership interest held by Shell in a venture, partnership or company, after exclusion of all third-party interest.

This document contains forward-looking statements 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 "anticipate", "believe", "could", "estimate", "expect", "intend", "may", "plan", "objectives", "outlook", "probably", "project", "will", "seek", "target", "risks", "goals", "should", "scheduled" 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 document, 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) reserve 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 potential litigation and regulatory effects arising from recategorisation of reserves; (k) economic and financial market conditions in various countries and regions; (l) political risks, including the risks of expropriation and renegotiation of the terms of contracts with governmental entities, delays or advancements in the approval of projects and delays in the reimbursement for shared costs; and (m) changes in trading conditions. All forward-looking statements contained in this document 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 factors that may affect future results are contained in Royal Dutch Shell's Annual Report and Form 20-F for the year ended December 31, 2009 (available at http://www.shell.com/investor and http://www.sec.gov). These factors also should be considered by the reader. Each forward-looking statement speaks only as of the date of this document, October 28, 2010. Neither Royal Dutch Shell 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 document.

The United States Securities and Exchange Commission (SEC) permits oil and gas companies, in their filings with the SEC, to disclose only proved reserves that a company has demonstrated by actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions. We use certain terms in this document that SEC's guidelines strictly prohibit us from including in filings with the SEC. U.S. Investors are urged to consider closely the disclosure in our Form 20-F, File No 1-32575, available on the SEC website http://www.sec.gov. You can also obtain these forms from the SEC by calling 1-800-SEC-0330.

SOURCE Royal Dutch Shell plc