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Executives

Peter Voser - CEO

Simon Henry - CFO

Analysts

Mark Bloomfield - Citi

Irene Himona - Exane BNP Paribas

John Rigby - UBS

Ian Reed - Macquarie

Mark Gilman - Benchmark

Lucy Haskins - Barclay Capital

Colin Smith - ICAP

Michele della Vigna - Goldman Sachs

Robert Kessler - Simmons & Co.

Joseph Tovey - Tovey & Co.

Peter Hutton - NCB

Neil McMahon - Sanford Bernstein

David Klein - RBS

Jason Kenney - ING

Paul Spedding - HSBC

Stephen Joslin Gum - Morgan Stanley

Christine Tiscareno - Standard & Poor's

Royal Dutch Shell (RDS.A) Q4 2009 Earnings Call February 4, 2010 8:30 AM ET

Operator

Ladies and gentlemen, welcome to Royal Dutch Shell Quarter Four Results Announcement Call. There will be a presentation followed by a Q&A session. (Operator Instructions).

I would now like to introduce our first speaker, Mr. Peter Voser.

Peter Voser

Thank you operator, and welcome to this Royal Dutch Shell PLC presentation. Simon and I will take you through the results and portfolio developments for the fourth quarter and toward the full-year 2009. After that we have plenty of time for your questions.

Take your time now to read the disclaimer.

So our industry is facing a challenging environment. Weak energy demands and the lowest refining margins in some 20 years are having a major impact on Shell. When I look at our results for 2009, we are seeing some benefits from the reorganization and new field startups last year but we simply have to do better.

I’ll give you more details in a moment, but we’ve taken out $2 billion of cost in 2009, and we are planning to reduce costs again in 2010, by a further $1 billion. We have restructured the company and 5,000 employees will leave Shell as a result of these changes. New top management is now in place, that’s a 20% reduction in senior management positions. They have been given tough performance targets, including a further staff reduction of at least 1,000 employees.

Everybody is clear on what they have to deliver in 2010. One of the main issues for our profitability is the weakness of industry refining margins. We have taken actions in '09 to cut our costs, and to reduce our exposure there. We want to refocus on the most profitable downstream positions with the best growth potential. We have decided to close a refinery in Canada, and we have added our Gothenburg refinery to the list of positions under review. In total some 15% of Shell’s refining capacity.

These are important steps forward to drive better production and cash generation in the company in the future. We have made a good start over the last year but there is more to do.

Turning to the macro in more detail. There has been a substantial downturn in industry margins in 2009, and the outlook for 2010 is rather uncertain. You can see on the chart here a decline in upstream and downstream trackers from 2008 to 2009. In the fourth quarter '09, oil prices increased from year-ago levels, but refining margins and natural gas prices were sharply lower. According to the International Energy Agency, '09 oil demands declined by 1.5%, or 1.3 million barrels per day in '09, which is the largest decline since 1982.

OPEC quota restrictions have been effective in supporting oil prices, but this leaves over 5 million barrels per day of spare capacity as an overhang to the market. Oil inventories remain at high levels and so the outlook for the 2010 oil price is uncertain, and it’s likely that OPEC will be managing against the downside for some time here.

Then we turn to natural gas, gas demand in the EU declined by some 7% in '09 and by about 2% in the US. At the same time, global LNG capacity increased by some 20% in '09, or 44 million tonnes per year, and it is expected to increase by another 14% this year.

All of this puts pressure on global gas prices. The '10 outlook is uncertain, and very much linked to any recovery in economic activity.

On the refining side, some 2 million barrels per day of new refining capacity came on line in '09, adding to a significant capacity overhang in the market. This, combined with weak demand, rising oil prices and high inventories, has resulted in very weak refining margins in 2009. Let's be clear, this is the toughest refining environment we have seen in some 20 years. The refining industry is responding to all of this, with some 1 million barrels per day of capacity closures announced, and an additional 0.5 million barrels per day idled.

However, it will take time for the refining system to rebalance with demand, and the 2010 outlook for downstream is difficult. So that’s the picture and at Shell we just get on and work with all of that. Our self-help programmes are on track, and made a positive contribution to '09 earnings.

Let me recap on our 2009 self-help programmes. Things like the reorganization, cost savings programmes, downstream divestments and new production startups. Mid way through last year, we launched the Transition '09 programme, which is a fundamentally new way of managing Shell. I am pleased to say that Transition 2009 is now complete. This is all about simpler structures. This will enable more accountability, and faster implementation of our strategy. We have simplified the organization, especially Upstream, and created a new Projects & Technology division.

Projects & Technology and you can see some details on the slide; this is all about innovation and R&D, technology solutions & deployment, and project execution.

This organisation can deliver fully integrated solutions by combining our proprietary technology and capabilities with third party products. In the past, many of these activities were spread across the Shell group. That has now changed. Today, we have one organisation with one executive with single point accountability for it all. This makes us more efficient, helps to reduce costs and links upstream and downstream technologies closely together.

We are already seeing the benefits of this P&T outfit. In '09, we renegotiated a 10% to 20% day rate reduction for North American land rigs, and locked in deep water rig cover to the end of 2012, at day rates at least 10% lower than where we see major competitors.

Transition '09 is one of a series of cost and simplification initiatives underway at Shell. In '09, we announced that 5,000 employees will leave Shell, mostly from management and non-technical functions. These changes, combined with other initiatives, have reduced underlying costs by over $2 billion in 2009. The pace has picked up here, with around $1 billion of cost savings in the fourth quarter, compared to $1 billion in the first nine months of the year.

As I’ve said before, these figures exclude things like exchange rates, identified items and non-cash accounting impacts. These simply aren’t costs you can control. Cost reduction and performance are now embedded in Shell, and we will push this programme forward in 2010, with more focus and more urgency. For '10, I expect a further reduction of some 1,000 staff, and cost savings of at least $1 billion.

Now let me make some comments on Downstream. Shell’s strengths in downstream are all around our industry-leading brand, attractive products for customers and operating performance. But this is a business where we have historically invested not only in large integrated positions in key markets, but also in smaller assets in a long list of countries. So we are taking action here. We are refocusing this rather large portfolio into the best downstream integrated positions, and make only selective growth investments. We have been working on this for some time, and have sold some 13% of our refining capacity in the last 5 years, with total Downstream disposals proceeds of some $11 billion.

'09 has been a more difficult year for asset sales, due to weak credit markets and low downstream margins. Nevertheless, we have sold $1.2 billion of downstream assets in 2009. This was mostly in marketing and chemicals positions. We have announced the closure of the 130,000 barrels per day Montreal East refinery which we will convert into a products terminal. We are also in talks with counterparties on divestments in New Zealand and Europe, for some 15% of Shell’s refining capacity. So let’s see where we go with that in 2010.

Now turning to the portfolio. In '09 we are making real progress with new projects both Upstream and Downstream, and I am pleased with the operating performance as we start up these complex projects. So let me give you some examples. In Russia, the Sakhalin II project reached its design capacity of some 400,000 barrels per day of oil and gas last October. Ahead of the schedule we expected at the March start-up and LNG deliveries from this project have exceeded expectations, with 81 cargos in '09.

In Norway, the Ormen Lange gas field reached its production plateau, and has produced a peak of around 430,000 barrels per day and in Brazil, the deep water BC-10 field has ramped-up to its planned phase 1 production of 60,000 barrels per day. So, this is really good progress in 2009.

So looking into the Upstream outlook for 2010, we expect to start up the 100,000 barrels per day Perdido project in the deep water Gulf of Mexico in the next few months. And later in the second half of the year, the Canadian oil sands will add 100,000 barrels per day of capacity. And at the end of '10, we expect to finish major construction at our two large projects in Qatar, Pearl GTL and Qatargas 4 LNG, with production ramp-up soon after.

Looking into the medium term, we are making good progress with new projects. In Australia, we have taken the final investment decision on the 15 million tones per year Gorgon LNG project, and launched a Front End Engineering and Design study for an innovative Floating LNG scheme at Prelude. In Iraq, we have signed development agreements on the Majnoon field, which will be operated by us by Shell, and the West Qurna 1, which will be operated by ExxonMobil.

Majnoon is one of the largest undeveloped oil fields in the world, with estimates of some 38 billion barrels of resources in place. Now we aim to increase its production from currently some 45,000 barrels of oil per day to a production plateau of 1.8 million barrels per day. So, overall, good progress on delivering new projects and new investment options for the future.

Finally, before I hand over to Simon on the results, let me update you on exploration in '09. Spending was around $3.3 billion on exploration in '09, and I expect a similar amount in 2010. We made good progress with exploration and appraisal in 2009, with 10 notable new finds, and further appraisal success. Now we are studying all of these results, and will update you on the resource additions during the Strategy Presentation in March as we have done in previous years.

We had particular success in North America tight gas, in the Western Canada Groundbirch play and in the United States in the Haynesville play. We have also added new acreage positions in '09. Some of this acreage builds on our strong positions in our core basins, where there are proven hydrocarbon systems, like Australia and the United States. But we have also stepped out a bit in '09. Some of the new acreage, for example in Guyana, is in frontier basins, where the terms are attractive relative to the upside potential. So again, good progress on portfolio.

And with that, I pass you to Simon on the results.

Simon Henry

Thanks Peter. Good afternoon, good morning wherever you may be. I’ll start with the macro environment of the fourth quarter building on what Peter has said. Signs are little complex with the oil and gas on the left, chemicals on the right, the refining margins in the middle but if you look at the picture in Q4 2009 compared to the fourth quarter of 2008 we had pretty unusual situation for the upstream in Q4.

The oil prices were quite a bit higher than year-ago levels around $20 a barrel higher, but most natural gas marker prices and our gas realizations, were down, quite significantly down compared to the fourth quarter of 2008. So the Upstream earnings in the fourth quarter are a mix of positive effects on the oil side, and negative impacts on the gas.

The refining margins were under pressure for the quarter, and were significantly lower than year-ago levels, with particular weakness in Asia and Europe, which that’s the red and the green bars with Asia negative territory for both the last two quarters. Whish is a relative disadvantage for Shell in the quarter. The chemicals environment remains challenging overall though you can see some regional signs of recovery here.

Turning to the earnings in the fourth quarter. The headline earnings for the quarter included identified items of $1.6 billion, and for example restructuring charges, asset impairments and some other worn off effects. Excluding identified items the current cost of supplies earnings were $2.8 billion, and earnings per share decreased by about 30% compared to Q408. The quarter was characterized by lower earnings in both Upstream and Downstream largely a result of lower natural gas prices and lower industry refining margins I just referred to, but did benefit from the cost programmes as Peter has discussed.

The cash flow from operations was a relatively healthy $5.7 billion for the quarter.

Now let me just talk about the business performance in a bit more detail. First on Upstream. Upstream earnings decreased by 15% to $2.8 billion in the fourth quarter of 2009. (inaudible) the oil price increase from '08 levels. This is more than offset by the results of the lower natural gas prices and the generally weak environment, the natural gas market and trading.

In addition, much of Shell's natural gas and LNG portfolio has price realization that lagged to spot oil prices, typically on a four to six-month time lag. That leaves that in Q4 '08 you are essentially looking at $100 plus per barrel environment driving gas prices compared to what essentially is a $60 per barrel oil price driving the gas environment in Q4 2009. In the quarter, relative to the previous quarter, Q3 2009, we did see some increase in the gas realizations while you would expect the recovery to trail behind the headline oil prices.

Turning to volumes, the full year oil and gas production declined by 3%, and there are several factors behind that. Many of these, we regard as uncontrollable as you can plan for the outcomes but you can't actually influence things like OPEC quotas, the gas demand, and weather patterns. What is important here is that in 2009, the impact to production ramp-up at new fields at some 200,000 barrels a day was greater than the natural decline in the portfolio at some 450,000 barrels a day.

LNG volumes increased by 3% for the year, but 18% in Q4 and that reflects cycling coming on-stream. And this is despite the security challenges that we face in Nigeria, that has clearly reduced Nigerian exports and the generally weak demand for gas in oil markets around the world. So the underlying perception, operational reliability, performance was very robust here in 2009.

Turning to the downstream, the downstream earnings declined to a loss of $0.4 billion in the fourth quarter 2009 versus a profit a year ago of $1 billion. The earnings from oil products declined quite significantly from year-ago levels with chemicals actually seeing an increase, as we saw earlier. Some of the markets were showing signs of recovery.

The industry refining margins were under pressure in all regions of the quarter. But for Shell over 60% of our refining capacity sits in Asia and Europe. That's the highest percentage in the global refining peer group. And you can see from the earlier charts, these are the areas where the industry margins were by far the weakest during the quarter.

Our Q4 to Q4 refinery intake with volumes going through the refineries fell by some 4% as a result of weak demand in the markets but also some choices to [cut runs] for economic reasons. Our marketing portfolio remains resilient across the cycle, not just the past quarter but the past two years as prices have gone up and down. But the earnings in Q4 declined significantly from both the fourth quarter of 2008 and in the third quarter of 2009.

The steadily increasing oil price in the quarter combined with the weak demand squeezes margins in both refining and marketing and that's a very different picture to the fourth quarter in 2008 when oil prices fell by around $55 per barrel in the quarter itself and that does lead to some parachute effects which helps down stream marketing margins in such a scenario. Chemicals earnings for $200 million in Q4 2009 were similar to third quarter levels. The environment does remain difficult but with some positive trends in Asia.

So those are the results, the earnings. And turning to cash flow and the balance sheet, looking at the cash position over the last 12 months, upstream and downstream cash inflows and outflows have been broadly balanced. However, we've been running a deficit at the group level in 2009 as cash flow is essentially half. That’s cash flow generated from operations, half from the 2008 levels, including the $5 billion deduction from operating cash flow to reflect the pension fund contribution that we made largely in the second quarter.

This has meant an increase of the debt and the gearing and we've used the balance sheet to maintain the investment program for the medium term and to maintain the dividend. During the end of the year it was 15.5% and that’s a bit low where we've previously projected. That was due to slightly lower level of actual pension contributions and net capital spending was lower than planned, as well as the fact that the cash flow remains resilient through the year. The gearing is well below the 30% ceiling that we see as acceptable. So we're watching this very closely but so far, so good.

Now let me turn to investments. At the beginning of the year, we gave you guidance for 2009 net capital spending of $31 billion to $32 billion and we delivered at the end of year below this level. For 2010, let me reconfirm prior guidance for net spending of some $28 billion. This figure includes our latest view on likely spending for 2010 in Iraq, which of course is an additional activity that was not foreseen when we first talked about $28 billion.

Now, we typically have $2 billion to $3 billion of asset sales in any given year. We did achieve that 2009. For 2010, we do have some divestments due and some are already in progress that you will be aware of although the market is pretty tough and whether we are able to deliver them or not will depend a bit on the market situation.

So we'll update you on likely proceeds as we go through the year. You will have seen that we signed on Monday an MOU for biofuels and downstream joint venture in Brazil, which over time could include the cash payments of $1.6 billion. This figure is not included in the 2010 guidance here. We'll update you on that once the joint venture agreement (inaudible) is actually signed.

So those are the numbers, and Peter, I'll hand it back to you just to summarize before we move into Q&A.

Peter Voser

Yeah, great. Thanks, Simon. Before we go into your questions, let me summarize. We are facing challenging market conditions, especially downstream and natural gas, despite the headline increases in oil prices and the outlook for 2010 remains difficult. I am pleased with the operating performance in '09 despite this environment. We are taking a prudent approach to the downturn.

Our cost programs are on track, $2 billion of cost reduction in '09, a further $1 billion in plans for '10 with additional staff reductions. We have the financial flexibility to continue with our investment program and at the same time, we are keeping an eye on the medium term, launching selected new projects and finding new wells with exploration in '09. So by delivering on our strategy, we are bridging the company and our shareholders into a period of production and cash flow growth in '11 and '12.

So with that, let's take your questions. Before that, let me remind you that we are having a strategy update for financial markets on the 16th of March 2010. So we may well defer some of your longer-term questions until then. Please, give everybody a chance and therefore limit yourself to one or two questions each so that we really can go around. With that, operator, please ask for questions.

Question-and-Answer Session

Operator

(Operator Instructions) And the first question is from Mark Bloomfield from Citi.

Mark Bloomfield - Citi

Yes, two questions on the downstream environment, please. First, I wondered if you could give us a sense of the quantum of the presumably negative trading result and marketing profitability in the and whether current conditions point to that being repeated in the first quarter and perhaps beyond. And secondly, I wondered if you could give us a sense of the impact of margin compression on this marketing throughout the quarter and whether there are any initial signs heading into Q1 that that's perhaps easing and indeed whether that’s a realistic assumption to make over the next six months or so.

Peter Voser

I'll give this to Simon.

Simon Henry

The oil products in the fourth quarter overall was a loss of $600 million. That reflects a loss of $900 million in manufacturing and a profit of $300 million in marketing and trading. Over the past two years, that's significantly below the lowest level of earnings that we've recorded in marketing and trading, which is around $800 million per quarter. So that's a more normal minimum earnings in that activity. So you can see how that Q4 circumstances were not easy.

Having said that, we maintained both market share and in fact increased market share in some important markets during the period. Some of the factors in Q4 were pretty much one-off and the trading environment was very flat. There was not a lot of volatility and to a large extent, traders were closing positions established earlier in the year. Though Q4 did have less opportunity to earn we don't see those conditions as pertaining to the future, although clearly demand will have some impact. But things should recover in the market environment.

I think I'll make the second question as well. The margin compression in the refining is driven by different factors. That’s basically oversupply against the net demand bearing in mind that overall demand fell by about 1.3 million barrels a day we believe in 2009 against 2008. And roughly 2 million barrels a day of new refining capacity came on-stream in Asia-Pacific and in the Middle East. So that situation may well pertain and that's the major driver. The factors for marketing and trading were more one-off in Q4.

Operator

Thank you. The next question is from (inaudible) from Merrill Lynch.

Unidentified Analyst

Two questions if I may. The first question is on cost saving target of at least $1 billion. It does look a bit large versus what you have achieved in '09. Maybe you can provide us some indication of what are the elements that you are seeing driving that 1 billion and if there is any kind of room for improvement on that. The second question is coming back to your downstream portfolio that 15% that you up for sale, is there a kind of a deadline for that or would you be prepared to close down those refineries if you cannot find a buyer for them?

Peter Voser

Let me start with the first one. First, I have to stay I'm very pleased how the company reacted and you have seen we have $1 billion additional in Q4 of underlying cost savings. So the message has arrived that we are driving urgencies in the system and now we are getting on with it. Now, this will go into 2010. I've set very tough targets on the revenue, on the profit, and on the cost side. We will get on. We will start to deliver. I'm happy that we have got these targets now out there. I think you have great visibility of what we are doing. If it's more than $1 billion we will take it, we will just go on and deliver them.

The 15% and the deadline. So portfolio management for us is very important as I said in my introduction as well. We are looking at that and we are clearly very determined to make that work. But let me also be very clear that value is important when you are selling. So we are not just selling for the sake of selling. So we will have a close look at the value. If we can't get the value, you may actually take the time or as we have done in the case of Montreal where there is another alternative of using it at the time, we may also go for that. So I keep these options open for the time being, but clearly we want to reduce the capacity on refining and that will happen either through selling or through maybe going for [turn mills] or complete closures.

Unidentified Analyst

I would like to follow-up on your first answer. Maybe you can give us some indication of exactly what are the measures that you're going to be taking to achieve that $1 billion that you're talking about.

Peter Voser

The measures have been taken. They are now rolling. We have 5000 staff who we reduced in 2009. These financial impacts actually come in 2010 mainly because they are either now out or they're going out in the first quarter. Now, by getting staff out, you immediately reduce also activities. Those activities will also come in 2010. Other things which we are doing is clearly simplifying our processes, our management systems, et cetera. These will again allow us to take costs out from an underlying and continuous improvement perspective. Then we will certainly also work on further reductions coming from contracting and procurement. Whilst there I have to say the market is a little bit more flat but still there are efficiency gains to be achieved there.

Operator

Thank you. The next question is from Irene Himona from Exane BNP Paribas.

Irene Himona - Exane BNP Paribas

I have three short questions. Firstly, you mentioned that the $28 billion CapEx guidance for this year now includes Iraq. Could you just clarify how much Iraqi spending will be? Secondly, could you remind us, if we look at the income statement for 2009, what was the pension charge included in the P&L and if you could update us on the position on the pension fund at the end of the year? And thirdly, in the fourth quarter you had $255 million of interest and investment income in the corporate item. That compares with an average of only about $35 million a quarter in the first three quarters. Is there any particular reason or is there any guidance for that particular line?

Peter Voser

In the past I would have (inaudible) to this one. This time I can pass it on to Simon.

Simon Henry

The first one, relatively simple. The amount we actually spend this year in Iraq will depend upon the pace of progress, but if we make progress as we currently hope to its going to be a order of a few hundred million, sort of $400 million-500 million maximum for this year. And we'll talk a bit more in March when we see hopefully the timing at which we'll be able to get operations started with boots on the ground.

Pension fund, better give an overview here because there are quite a few numbers flying around. So it always helps to put things in context. The actual funding of an actuarial basis at the end of 2008 showed a deficit of $8.8 billion. That deficit at the end of '09 has reduced to be just over $3 billion. That in part reflects the cash that we injected during the year, the $5 billion, but also you would appreciate that changes in discount rates, inflation factors, going to assumptions for liabilities and the improvement in the equities markets have also played a big factor. So both assets and liabilities have increased but the deficit is just over $3 billion, which actually is pretty close to the level of unfunded scheme. The funded schemes are basically funded.

That covers the actuarial evaluation. The cash that we injected at the end of the year was $5.2 billion, of which $1.6 billion is what we might regard as a normal contribution that we will make again in 2010. The remaining $3.6 billion is in essence the one-off correction that was required, injected in the second quarter to cover the deficit at the end of 2008, particularly in the Netherlands.

And your actual question I think was about on the P&L impact. In 2009, the total P&L impact after tax was $1.1 billion. That compared to the credit in 2008 of 0.6 billion. So year on year impact post tax was effectively a reduction in earnings of $1.7 billion. Looking forward into 2010, it will be slightly better as it will be about $0.9 billion we will project. That’s about $50 million a quarter better in terms of a net impact on the bottom line but it is a net charge.

Just to be clear, all those figures given for the P&L statement are noncash. The cash injection is likely to be around $.6 billion phased through the year. Hopefully that covers all questions you might get on pension and you will manage to take a stand. And the last question on the investment income I believe the IR guys will come back to you on that one, Irene, if that's okay?

Operator

Thank you. The next question is from John Rigby from UBS.

John Rigby - UBS

Two actually. The first is just on Oil Sands. I just wanted to know when you looked at your position in Canada at the end of the year, given that, I think you've been quite public about deferring some of those projects, whether they were close to requiring impairments. I'm conscious of the Shell Canada and BlackRock transactions. You've invested quite a lot of money into that area.

The second is just, and I'm sure you look at this is if you look at the way that your earnings have travelled particularly I think in the second half of 2009 they have underperformed your peers and yet, your footprint is not overly different to perhaps your largest three or four competitors. And I just wonder whether there's any observations you could provide but it will give us some kind of comfort about why that was taking place and whether that was likely to be recovered as far as this was a cyclical element of the market or whether there was something structural going on, perhaps that existed in '07 and '08, which is not going to come back for the foreseeable future. Thanks.

Peter Voser

Thanks John. I think the impairment question, then to Simon, but just in general on oil sands it is actually I've been quite public that’s correct but this is not a change to the position which we have taken already 12 months ago. Where we said quite clearly we will finish our expansion which we are doing. We are further improving our operating kind of performance first which will be half today and add the 100,000 barrels expansion.

Then we go into the next place having two minds where we now have the possibility in a lower capital intensity to actually bring some additional barrels in and then at the same time, we've watched the cost curve and will then decide on how we are going after the next few expansions, because even actually bringing a few projects in order to bring in a few 10,000 barrels here and there, that has a limit. At one stage you can no longer go on with that you need them to get in to another expansion.

But we have got the flexibility there; the barrels will not walk away there hours so we can take the time. Now then all the impairment and the cost question I leave to Simon but I'll go quickly into the footprint discussion. The way or the results you actually call it. I think let us start with refining. I do disagree with the fact that you think we have pretty much the same kind of portfolio. If you have 64% of our refineries are in Europe and in Asia, if you look at our competitors, for example, in the UK, that's just above 40%.

Now, the weakest margins were in those two areas over the last few months. Quite clearly, that has significantly contributed to that, and so that is what. I think also in terms of cash, in terms of LNG, we are the global leader in LNG. We have an enormous portfolio there and we are driving that. That is second to none, quite clearly, and therefore the earnings stream coming out of that compared to the past let's say '08 clearly was different and hence had an impact on that.

European gas market has performed in a different way. Again there we are slightly different to our competitors. So I think the portfolio element quite clearly has a lot to do. Simon already explained the marketing side of it, which normally for us is a very resilient one, and we just had the lowest point on the marketing side in Q4 '09 and that will come up again.

So the underlying earnings stream, the delay factor which we have from both the LNG side of 4 to 6, even up to 9 months on the oil price kind of link, this has quite clearly given us the more negative kind of earnings flow. But the way I look at it is we are most probably at the lowest point in Q4 and now we are going into the 2010, where some of these things will reverse.

Now I'll give it back to Simon on the Oil Sands.

Simon Henry

Thanks, Pete. I'll just cover the costs and potential for impairment. If you look at the different assets we actually have mining, the balance sheet is essentially the investment in the initial project and the investment to date in the expansion project, and that was functioned in 2006. Below there will be some cost pressures and still a profitable project and of course the initial project has been very profitable. Therefore, no likely impairment on the Oil Sands mining, certainly not in the current oil price scenario.

The costs of operation actually are coming down. We've got new leadership on the [filed] and we're bringing the unit cost down and fairly consistent way over the past year or so. The profitability there is in fact improving. You mentioned BlackRock that was an acquisition made by Shell Canada three years ago, three or four years ago. We did recognize some impairment on BlackRock assets in the fourth quarter, around 900 million if I remember, the third quarter, sorry. Third quarter 2009, around 900 million, if I remember correctly and that was effectively reflect a goodwill on the original acquisition of BlackRock.

And the final amends or activities that we have and Shell assets in that were in Peace River where the small operating production and not much investment and in expiration acreage in the Grosmont play, which was for future technology and at the moment there are no intent or need to look at impairments of those [answers]. We did a full impairment review in Q3 of all assets every year anyway, so no real changes in that area in Q4.

Operator

Thank you. The next question is from Ian Reed from Macquarie.

Ian Reed - Macquarie

Two questions please. One, on gas prices and the other one on Nigeria. You obviously are large seller of gas on the long-term contract basis linked to oil and there's been some chat about the customers trying to move the oil price linkage much closer to where spot prices are. Are you seeing that sort of impetus coming from some of your major buyers? And if so, what sort of effect do you think that might have on your position? And secondly, on Nigeria, you've sold a few assets recently there. Is this the beginning of some sort of exit strategy given the fact the government there seems to want to try to move some of the licenses held by the majors in, say, independent hands?

Peter Voser

Okay. Thank you for the questions, Ian. I'll give kind of a very quick strategic view on gas then I'll leave the prices to Simon and I take the Nigeria question. For us, the long-term view which we have on gas growth hasn't changed. We see that the fossil fuel which will actually grow. We have our investments in that and we are driving that quite clearly for our long-term value generation.

So that has not changed by, let's say the more difficult few quarters which we've now had in terms of demand drives. So we keep our long-term view. On the pricing at the various regions I'll leave that to Simon.

On the Nigeria thing, quite clearly Nigeria has its challenges. We talked a lot about security. We talked a lot about the petroleum build, the funding issues, etcetera. We made great progress, I have to say in 2009 on the funding, and we could give our input into the petroleum industry build, and we are not yet completely satisfied. We are working on that. Security situation improved, but worsen now again in January.

I've made it very clear that A Shell is not depending on the Nigeria growth to achieve its growth targets over the next decade. There are resources. We are happy to develop them if the funding and the situation is right, but it is part of our portfolio optimization like any other country or any other assets. What we have done now is we passed on a few licenses to, among others Nigerian company we see this strategy to be quite important and we're having to tell there are actually local companies operating alongside the IOCs.

So I think Nigeria has potential. It's part of our portfolio thinking and we will capture value in whatever way we want to capture value. And back to Simon on the gas prices.

Simon Henry

Thanks Peter. There are two quite different examples of markets behind the question. Firstly, Asia, which is essentially an LNG market. A long-term contract market as well. Our total volumes are in the 5%, has been sold on the spot basis over the past six months or so, so 95% contract. Within that contract bases, well over 80% is oil price linked. We are currently in various negotiations, both on renewal and expiring contracts, and on new long-term contracts basically for those starting within the middle of the next decade. And all of those negotiations and discussions reflect oil price linkage and that's how we would expect the market to continue for sometime yet.

In Europe, our typical portfolio is about 60% contract, 40% spot. There is, however, quite a bit of demand for flexibility within the contracts, where uptakes of customers can switch their volume between quarters and contract years also typically start in October. So the flexibility is greatest in the fourth quarter to switch from spot to that term basis or the other way around and of course the exercise that option in the last quarter to the maximum extent they could.

So the rather mid 60/40 contract and therefore old pricing. Typically it was 40/60, our share in the fourth quarter of 2009. And clearly those volumes have to come back to the contract prices as opposed to the spot to make the annual percentage back up to the contracts that are in place. There is talk of course that the customers are renegotiating and there are some negotiations ongoing but of course we do remember that 18 months ago the headlines were not about spot prices. They were about security of supply and you need to be a little bit careful what you wish for if you want to invest in spot gas prices in the market looking forward [long nor deep] and therefore we do expect quite significant amount of the market to remain oil price linked for sometime to come.

Unidentified Analyst

Simon just one quick follow-up. Could you remind us how much of your (inaudible) volumes are on price linked long-term contracts versus spot?

Peter Voser

At the moment, everything we've said is heading to Asia. So it's long-term oil prices. There was some that was headed the other direction but it's basically, over half was targeted at China and there are ongoing negotiations to take the majority at least.

Operator

Thank you. The next question is from Mark Gilman of Benchmark.

Mark Gilman - Benchmark

Just a couple of things, if I could. There has been a lot of talk I've seen in the trades regarding the ultimate recoverable resource at Ormen Lange raising some questions as to whether or not it's as robust as originally envisioned. I was hoping perhaps you might comment on that. Secondly, regarding your 2010 capital program, do your numbers include the $800 million participation in the Woodside equity offering? Thirdly and more specifically, can you give me a clean fourth quarter DD&A number? Obviously the 3748 number includes impairments.

Peter Voser

I think I'll give the second one and the third one to Simon and I'll take the Ormen Lange.

Simon Henry

Okay. The clean Q4 DD&A is not a number that we are actually sharing. The second question was the Woodside $800 million and there are two tranches to this, Mark. A, $400 million effectively committed last year. $400 million will be committed this year because the retail tranche is the second. So $400 million was in 2009 CapEx, $400 million will be in 2010 CapEx and our initial aim is to look at that within the $28 billion. But we'll update that as we go through the year.

Peter Voser

And on the first one, Mark, Ormen Lange. I think, what I could say to you is recent (inaudible) wells in the Northern part of the field, there was one in '08, one in '09 have been disappointing and I have reduced the upside total resource case on the oil field. But these will most probably have implications for the development plans for the Northern part of the field but it will only impact the back end of the production profile. What is important also, reserved booked on an [ASCC] basis are not expected to be impacted.

Operator

Thank you. The next question is from Lucy Haskins from Barclay Capital.

Lucy Haskins - Barclay Capital

Could I ask a couple of questions? The first is what sort of cost savings were in 2009 including Forex movements.

Peter Voser

I'll give that to Simon. Just give us all of your questions we'll run though them.

Lucy Haskins - Barclay Capital

Okay, and the second issue. Simon, you talked about fairly healthy cash generation in fourth quarter but I think excluding working capital movements it is about 4.4. So it was down about 3.3 on a like-for-like basis in the third quarter. Could you explain what the moving parts were there, please?

Simon Henry

Do you have another one, Lucy?

Peter Voser

No it was two. One was cost savings and the other one was on working capital. So I'll give both to Simon.

Simon Henry

We had $1.5 billion benefit overall for the year in FX. It actually went the other way in Q4 as you can probably calculate and we also in our total costs that you can see in the face of the supplementary data, the additional costs were severance and the pension demand I mentioned earlier which pretax pensions plus severance is over $4 billion. So essentially we had $4 billion up there, $1.5 billion down with FX, $2 billion down from our own savings and a couple other one-offs make up the difference.

Lucy Haskins - Barclay Capital

So it's actually, the third quarter was actually much more representative of the operational performance?

Simon Henry

In terms of the cost, no. In fourth quarter, the underlying cost was more representative of the trend that we're seeing. In terms of the movement in working capital and the cash flow implications, there are one or two one-off movements in the working capital underlying payments, particularly the tax that are Q4 specific from our perspective. The cash flow, and while clearly impacted by what we talk about in the downstream was relatively healthy in the upstream and that was the basis of my comment that I made earlier.

Operator

Thank you. The next question is from Colin Smith from ICAP.

Colin Smith - ICAP

Its Colin from ICAP. Your volumes is a little light to me and looking at the breakdown, Europe and other Americas look particularly weak and I wondered if there's anything in particular going on there or any other comment you might have to make about that?

Peter Voser

You were fading out in the beginning.

Colin Smith - ICAP

I thought your volumes looked a little light in the fourth quarter and just looking at the breakdown it looks as though European oil and other Americas gas were particularly weak in the quarter and I just wondered if there was anything in particular going on there that you can comment on?

Peter Voser

Yeah, I'll give that to Simon.

Simon Henry

The European oil, we had a couple of operational issues. One of them is (inaudible) the tanker drive in to it I believe. So that was down for all the partners and clearly a brand we're also at down for operational reasons and clearly coming hands of a shutdown. The other Americas gas, that's primarily Canada, where I don’t think, there is not a big boom in there I don't think. Its primarily driven by some shutdowns I think in the Canadian foothills and also got higher royalties that make a difference on the actual net gas production that Shell receives.

Those are the primary drivers. I think the other thing that we need to reflect is that despite what you might think if you live in Europe and the northeastern states, Q4 was actually quite warm relative to previous years and history. Q1 of course has been cold and that temperature is one of the biggest factors driving our production in any short-term quarter across the winter season. Q4 was definitely demand down for pure weather-related reasons.

Operator

Thank you. The next question is from Michele della Vigna from Goldman Sachs.

Michele della Vigna - Goldman Sachs

It's Michele della Vigna here. Two questions for Simon, if I may. Could you tell us what you expect for depreciation in 2010? And also, what kind of oil price would you need to reach the cash neutrality in 2010?

Peter Voser

I'll give both to Simon.

Simon Henry

The unit DD&A is on an upwards trend. As we're bringing on production we typically have a higher unit cost. If we have to give you a specific forecast, it's probably going to be somewhere $14 billion, $15 billion to be honest and that will impact obviously the cash flow calculation as well. The oil price to balance the books, we've only taken a view and maintained a view that that in any given year is not really a relevant piece of information and not that important in terms of the strategic financial management. However, we would know that in 2009 we did increase the gearing quite substantively in a year when the oil price averaged about 60. But the gas price and the refining margins were substantially below where you might expect, in mid-cycle type environment.

As we go into 2010, our plan is to spend a bit less. We said 28 versus what have actually started at 32 from 2009 and we will benefit from, for example, the new production that comes on and relatively attractive activities such as Brazil and Gulf of Mexico. And that together with whatever view you or I choose to take on the refining margins will determine the answer to what the oil price is that actually are as you might think is break even.

Strategically, our aim is to stay with the gearing comfortably below the 30% maximum what we talk about in policy terms and we believe that with oil prices where they are and some recovery in the gas price and the refining margins, that we will be moving towards breakeven, particularly as we get towards the end of the year. We see the cash generation from new projects either coming on stream or within close range.

As we go into 2011, we expect that the dynamics overall to change, as our cash generation improves. And we'll see where gas refining margins go. That is driven by a lot of factors and oil price is only one of them. That's the best answer I can give.

Operator

Thank you. The next question is from Robert Kessler from Simmons & Co.

Robert Kessler - Simmons & Co.

Just a quick one for me. I was wondering if you might be able to add some specificity to your Perdido start-up guidance. You say the next few months and I believe in MMS official was quoted as saying end of February was line of sight for startup there. Are you just being a little bit more conservative or is there something else that needs to be taken into consideration on the start-up timing?

Peter Voser

Yeah, I'll take that. Thanks for the question. We have stopped to give precise kind of dates. If you go back to the strategy presentation last year we said actually in 2010 we said it's early in 2010, which means the first few months and that's exactly what I'm repeating. It's working very well. It's going the right way. We are in the final phases, so nothing to report which would at this stage enormously concern me there.

Robert Kessler - Simmons & Co.

And then should we expect ramp-up within the first call it six to nine months or somewhat longer than that?

Peter Voser

We'll see how it is, but typically I was very pleased so far with how the guys on the technology side and the Upstream have done the ramp-up of the new project. So I'm positive that they will do their best job and do it as fast as possible.

Operator

The next question is from Joseph Tovey from Tovey & Co.

Joseph Tovey - Tovey & Co.

Three, rather brief questions, I think. First question is in respect of the shutdown of refineries, I believe that that's an indication that the company believes that there is a long-term oversupply of capacity of refining, particularly in the Atlantic basin. Do you have a number that you care to share as to what you believe the extent of this oversupply of capacity is? And also as to what the sources are, whether it's the government actions in terms of requiring different types of fuel, fuel components, or as to whether there are additional factors?

Second question relates to the natural gas. The increase in the natural gas supply from what are called unconventional sources in the United States, and apparently it's spreading into Europe. Apparently there's going to be having some impact, presumably also in the demand for LNG into those markets. To what extent, if any, has that impacted upon your plans that you care to discuss? Has it also had an impact upon capital requirements for things like LNG, tankers, and that sort of thing?

Third item relates to the financial side. Have you, perhaps I misunderstood the response to one of the questions. Have you built in, or do you choose to layout a number as to the approximate cost in terms of additional payments into the pension fund or whatever for the reduction in staff? And are those all in the 19, pardon me, in the 2009 number, or are those part of them going to be seen in subsequent years?

Peter Voser

I'll take the first one. And Simon will take the second and third. On the shutdown long-term, I think the way we have talked about is clearly, as I said in the opening, we want to reduce our capacity by 15%. This is on a global basis. We have been always very clear that the European refining market is actually something which we look at from a capacity point of view, but also from a linkage point of view to our marketing business.

It's a refining market, which is rather kind of long and small refining businesses. We are with our strategy going into the long-term scalable, complex, bigger refineries and hence we want to actually reduce our capacity from that point of view. I think you should not read into it that this is about capital expenditures for new fuel standards, diesel standards in Europe. I think we have done a lot of that in the past, so that is not the driver. The driver is to size the marketing markets against it and actually the resilience in downturns or in the cycle where you just need bigger beast to run rather than the smaller ones. So that would be my answer to number one then the LNG and the pension question over to Simon.

Simon Henry

The impact on conventional gas supplies in Europe and tight gas or Shell gas, yes, there's a lot of talk about potential from Europe, but as of today there's very little actual activity or production. In fact, those who tried it so far come up with being a bit more difficult than they might think. Yes, there may be some impact in terms of production every time, but we don't see it as being a major impact relative to the other sources of gas such as LNG in Porto the pipelines from Russia and North Africa.

The financial side, the payments to the pension fund I talked about both the cash and the charges. In all cases, they reflect the changes in the number of staff who are impacted. So there was part of the severance charge in the Q4 account did reflect an adjustment on pensions to reflect the people who believe in but the go-forward charge of $1.6 billion of cash and the $0.9 billion charge to the P&L, both reflect the numbers of people who believe in.

Operator

Thank you. The next question is from Peter Hutton from NCB. .

Peter Hutton - NCB

It’s a clarification on the statements on the cost savings. I think you said 1 billion in the first nine months of last year, an additional billion in the fourth quarter. Two questions, was that additional billion in the fourth quarter discreet in the fourth quarter, or it's an annual run rate? And also, could you provide a rough split of the separation of those savings between the upstream and the downstream and core product?

Peter Voser

By understanding correctly the fourth quarter the 1 billion was the effect in the fourth quarter. And the second one is it was predominantly actually in the functions and in downstream and not in upstream yet. Thank u.

Operator

Thank you. the next question is from Neil McMahon from with Sanford Bernstein. .

Neil McMahon - Sanford Bernstein

Hi I have two or three together so you may not answer some of them. First of all you haven’t really given any indication of reserves and yet pretty much everybody else of your piers have stopped to buy reserves to some degree. Can you give us any indication on those may be I've missed them somewhere.

Secondly, it looks like there are continuing debate about the reason why the Woodside investment is still within the portfolio. I don't think you probably plan to have to spend 0.8 billion on more of their shares during the year. If you could give us some idea what you're feeling towards this investment is going forward and as it sort of serves its claim as an investment.

And lastly, just on the downstream, some of the smaller European players in refining have been talking about an upturn in terms of demand so far in 2010. To me that looks like cold weather related rather than sustainable change in demand and could you from your could you give us a view on what's happening with demand in downstream, particularly in Europe?

Peter Voser

On the reserve side this is really for March. We have to [boss]. The way we do it here is actually get out we get joint here around so for the strategy day that’s where we will publish the reserves and also the resources which we have added from our exploration. That's one. The second one, Woodside, we have always said Woodside for us looks like an LNG play though we typically have 30%-40% in an LNG play. So that's the way I look at Woodside.

The recent $800 million, let me just be clear absolutely no keen to get diluted, but also absolutely no keen that we got investment profiles in the company where shareholders have to finance. I think that something which as a shareholder you don't like and I don't like. So we will watch this closely, how it goes forward. So far we have been okay with the portfolio they are running there.

On the downstream side, I think I think I'm in the camp of this is more weather related, cold weather related and actually on the line consumption coming up. But I'm still very concerned that unemployment in Europe and in the United States were still writing. Consumer demand therefore will not get too far ahead of itself that this will have an impact apart from the high stocks which we have on the refining side. So I think 2010 looks pretty, pretty difficult for me still and I haven't seen these underlying trends.

Operator

Thank you. It's from Paul (inaudible) from Fortis Bank Nederland.

Unidentified Analyst

First a question about production. I think your statement earlier today was that you expect flat production. Could you perhaps discuss your biggest contributors to new production plus ramp-up on a year on year comparison? And the second question, can you elaborate a bit on the potential of your recent Brazilian deal?

Peter Voser

On the first one, 2009 production was 3.1 million barrels per day, this positive impact from new production startups more than offsetting fee declines. That's what you heard earlier. But it had negative impacts from Nigeria OpEx quote restrictions and the weak natural gas environment. For 2010, we had start up at Perdido in first half of the year followed by Oil Sands and mine startup and the year on year growth from (inaudible) and BC-10 are still ramping up. But for 2010, there are several external factors like Nigeria, the demand picture, which make a precise forecast rather difficult. If you assume a similar environment to 2009, which was much worse than '08, then we would expect production to be broadly similar to 2009, with growth coming in 2011. So we will have to see how these uncertainties play out, but for me the important thing is actually that we are quite clearly more new barrels than we have decline. I think your second question was around the deal in Brazil, the biofuels deal?

Unidentified Analyst

Yes, yes. That one.

Peter Voser

Great opportunity. Very pleased with the deal. We need to obviously bring it to the finishing line. It is the entry for Shell into the low carbon world, the cheapest solution for ethanol. Its the best way for us actually to make sure that our second generation biofuels efforts, we can link that to first. These will give a boost as well. We are combining two great downstream bases in Brazil together. So this is a well positioned deal. It will also allow us in the medium, longer term to use our trading activities to export ethanol. The world will need biofuels and from that point of view, very pleased to have come together [west coast] to now go through the next step. They have best technologies on the first generation. We bring knowledge on downstream and second generation. So I'm very pleased with the deal.

Operator

The next question is from David Klein from RBS.

David Klein - RBS

On Iraq, could you just talk around the strategic logic of investments which such low remuneration fees and can you say what you hope to be doing during the course of this year?

Peter Voser

Well let me cover Iraq. So first of all I'm very pleased to be back in Iraq. It was interest in both fields Majnoon and West Qurna. This is a really unique opportunity in the oil industry given the [bios] in place there. It's some of the largest undeveloped fees. For Shell, this is really all about applying our operating skills and the technology. We see the deal as earning value in its own right but as the foot in the door in to one of the most important oil and gas countries in the world. Now there are some countries, the contract has been designed to pay back the IOC investment as quickly as possible delivering our financial exposure to Iraq and to generate year-over-year growth for Iraq, which the government wants.

Yes the headline margins are low compared to other parts of the world and there is limited oil price upside. But the way I look at this, however, is from an IOC perspective, these are unique fees and the terms will provide attractive IRR's and the cash flows for shareholders. In the next couple of months, what we are doing at the moment, contracting all the effects. Two are steps to take there. There I signed in and bumped up a few weeks ago and there is one more. We are mobilizing at the moment our people. We named them already. The next one is actually we are tendering, we are looking with the contractors on actually, I think we are the first ones to actually have done this. We are going in. We are selecting the development plans, et cetera, et cetera.

So this is all the work which we are doing year or in the next couple of months in order to have a smooth startup. Simon already talked about the amount involved already. We have the last 15 minutes we take shorter questions and give you; we'll try also shorter answers to cover everybody. So go ahead with the next question.

Operator

Which is from Bert von (inaudible) from Dresdner.

Unidentified Analyst

I had questions about Shell gas position in the U.S. Can you shed some light on the acreage or your production targets et cetera?

Peter Voser

I think we are in five places. Two are in Canada which is the Deep Basin and Groundbirch. Then we are in three in the states which Pinedale, South Texas and Haynesville. We have got the Deep Basin Pinedale Downtown Texas already operational. The others are actually kind of in development phase. We will take you though production targets. We will take you though the technology et cetera we are using the March presentation. So I pass this on to March but these are the basins which we're operating in and I'm pleased with the progress but be with us. On the 16th you get more.

Operator

The next question is from Jason Kenney from ING.

Jason Kenney - ING

Hi, there. I was looking for a breakdown of the $28 billion CapEx by division if possible. And secondly on the asset impairments in the downstream, I would say we're related to the refineries that are now at the tail.

Peter Voser

I'll give both to Simon.

Simon Henry

And asset impairment, the Q4 item, the deal is like the items that were Montreal primarily rather than selling and the conversion to the terminal. The U.K and the German refineries are under review anyway. The breakdown of the CapEx by division, typically and strategically its been a quarter downstream, three quarters upstream. That’s pretty much what we would expect in 2010. The downstream spend in Singapore does come up with a cracker after the first quarter and quite a lot of the upstream expenditure you will see going into the America's, certainly a much higher proportion than the current production because that’s the growth region.

Operator

Is from Paul Spedding from HSBC.

Paul Spedding - HSBC

A quick question on the production guidance you've given in the past, 2011-2012 which if my ruler is working, works out at about 3.3 million barrels a day. I was wondering whether you might be able to give a little bit of a hint as to the phasing of that in terms of the timing as to when the key projects are coming through.

Peter Voser

Paul, thanks for the question but I think this is really about our March presentation and we give you more clarity on that when all this goes forward. So I would like to ask you to be with us until March. I've given you 2010 the rest will come.

Operator

Next question is from Stephen Joslin Gum from Morgan Stanley.

Stephen Joslin Gum - Morgan Stanley

Just a question on CapEx actually, just coming back to the 2010 CapEx can you talk about what flexibility you've got built into that $28 billion and then sort of just a follow-up on and Peter I know you've been talking sort or conventional, unconventional resource bases recently. I was just wondering whether you could put that into context of whether you see capital intensity for Shell sort of peaking out in 2010 or not.

Peter Voser

I think CapEx came on to Simon. I take the conventional, unconventional. On the second question, the conventional, unconventional, I think again we will talk about that in March. But let me just be very clear that the unconventional side. So we are actually looking at Shell from time to time as an unconventional company. But let me just be clear. We have a very low percentage of unconventional production and you know quite clearly from my earlier talks I don’t consider TTL as an unconventional that’s pretty much refinery on the gas upstream. So from that point of view I think we are still going very much conventional. But I would like to say that we said that before that the CapEx quite clearly will depend on how fast we want to grow and that is our really what we are going to talk about in March. So I defer that answer to March. But on the first one over to Simon.

Simon Henry

Thanks Peter. The CapEx flexibility with the $28 billion is pretty limited given the big projects which Qatar, Canada, (inaudible) to absorb quite a significant demand. And therefore the flexibility of the margin is typically in that North American gas programme just for return to Shell gas, while we do have bit of up and down flexibility. And separately in the exploration programme where they can be choices made but we believe it's in our interest to continue at the reasonably high level around the $3 billion.

Operator

Thank you. The next question, I apologies for the delay is from (inaudible). Thank you I apologies just one moment. The line seems to have disconnected. I do apologies.

Peter Voser

No problems take the next one operator and these are the last two now.

Operator

Thank you. The last one is Christine Tiscareno.

Christine Tiscareno - Standard & Poor's

I just wanted to find out if we have natural gas prices depressed for the next two to three years and that obviously will affect LNG prices. What LNG projects would you delay or cancel? How would that change your strategy or is that something that you'll talk about in March?

Peter Voser

We will certainly talk about it. Thanks for the questions Christine. Certainly talk about the long-term gas market etcetera, the project in March. Let's just be clear we are investing for the longer-term here for the next 20-30 years and therefore we look at the long-term positioning of the gas and that as I've said earlier on this remains positive that’s where we see the growth. So clearly LNG will be key in our thinking going forward, the rest in March.

Operator

Thank you. The final question is a follow-up question from Mark Gilman from Benchmark Company. .

Mark Gilman - Benchmark Company

Peter a real quick. It was my understanding that BC-10 was the plateau at a 100,000 a day. I wasn’t aware that there was any Phase 1 at 60 if I heard the prior comment correctly. Could you clarify that for me please?

Peter Voser

That’s correct we call it Phase 1 60 and now we are continuing the ramp-up until its capacity is a 100,000. So that’s right we've broken down the ramp-up in phases and that’s how we are looking at it, so, no change to the past, so we are just on the way up. And just as an additional information Mark the next two wells are coming the next two months.

Okay, thank you very much for all the questions, and for joining us today. As I said 16th of March is the strategy update and both Simon and I look forward to talking to you by March, 16th. Thank you very much and we close the call.

Operator

Thank you. And this does conclude the Royal Dutch Shell Quarter Four Result Announcement Call. Thank you for your participation and you may now disconnect.

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