11-Mar-2021
Royal Dutch Shell plc published its Annual
Report and Accounts for the year ended December 31, 2020.
The 2020 Annual Report and Accounts can be
downloaded from www.shell.com/annualreport.
In compliance with 9.6.1 of the Listing Rules, on March 11,
2021, a copy of the 2020 Annual Report and Accounts was submitted
to the National Storage Mechanism. This document will shortly be
available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism. In
compliance with section 5:25m(5) Financial Markets Supervision Act
the Annual Report and Accounts was submitted to the Netherlands
Authority for the Financial Markets (AFM). The AFM publishes the
report in its public register.
Printed copies of the 2020 Annual Report and Accounts will be
available from April 15, 2021, and can be requested, free of
charge, at www.shell.com/annualreport.
The Annual Report and Accounts will be submitted
to the Annual General Meeting to be held on May 18, 2021.
Royal Dutch Shell plc will also file its Form
20-F for the year ended December 31, 2020, with the U.S. Securities
and Exchange Commission today. The Form 20-F will be available for
download from
www.shell.com/investors/financial-reporting/sec-filings.html
or www.sec.gov.
A condensed set of the Royal Dutch Shell plc
financial statements and information on important events that have
occurred during the financial year and their impact on the
financial statements were included in the 4th quarter 2020 and full
year unaudited results announcement released on February 4, 2021.
In addition, a condensed set of the Royal Dutch Shell plc interim
financial statements was included in the 2nd quarter 2020 and half
year unaudited results announcement released on Jul 30, 2020. This
information, together with the information set out in the Appendix
below, which is extracted from the 2020 Annual Report and Accounts
constitutes the material required for the purposes of compliance
with DTR 6.3.5R. This announcement should be read in conjunction
with, and is not a substitute for reading, the full 2020 Annual
Report and Accounts.
The extracts from the 2020 Annual Report and
Accounts included in this announcement may contain forward-looking
statements concerning the financial condition, results of
operations and businesses of Royal Dutch Shell plc. 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
Shell to market risks and statements expressing management’s
expectations, beliefs, estimates, forecasts, projections and
assumptions. These forward-looking statements are identified by
their use of terms and phrases such as “aim”, “ambition”,
“anticipate”, “believe”, “could”, “estimate”, “expect”, “goals”,
“intend”, “may”, “objectives”, “outlook”, “plan”, “probably”,
“project”, “risks”, “schedule”, “seek”, “should”, “target”, “will”
and similar terms and phrases.
There are a number of factors that could affect
the future operations of Royal Dutch Shell plc and could cause
those results to differ materially from those expressed in any
forward-looking statements set out in the extracts from the 2020
Annual Report and Accounts included in this announcement, including
(without limitation): (a) price fluctuations in crude oil and
natural gas; (b) changes in demand for Royal Dutch Shell plc’s
products; (c) currency fluctuations; (d) drilling and production
results; (e) reserves estimates; (f) loss of market share and
industry competition; (g) environmental and physical risks; (h)
risks associated with the identification of suitable potential
acquisition properties and targets, and successful negotiation and
completion of such transactions; (i) the risk of doing business in
developing countries and countries subject to international
sanctions; (j) legislative, fiscal and regulatory developments
including regulatory measures addressing climate change; (k)
economic and financial market conditions in various countries and
regions; (l) political risks, including the risks of expropriation
and renegotiation of the terms of contracts with governmental
entities, delays or advancements in the approval of projects and
delays in the reimbursement for shared costs; (m) risks associated
with the impact of pandemics, such as the COVID-19 (coronavirus)
outbreak; and (n) changes in trading conditions.
Shell’s operating plan and budgets are
established for a three-year period and are updated annually.
As society is not expected to reach net-zero emissions in the next
three years, Shell’s operating plan, budgets and pricing
assumptions also do not reflect its Net-Zero emissions
targets. Shell’s operating plan, budgets and pricing
assumptions reflect the current economic environment and what we
can reasonably expect to see over the next three years. In
the future, as society moves towards net-zero emissions, we expect
Shell’s operating plan, budgets and pricing assumptions also to
reflect such movement.
Also, in this announcement, we may refer to
Shell’s “Net Carbon Footprint”, which includes Shell’s carbon
emissions from the production of our energy products, our
suppliers’ carbon emissions in supplying energy for that production
and our customers’ carbon emissions associated with their use of
the energy products we sell. Shell only controls its own emissions.
The use of the term Shell’s “Net Carbon Footprint” is for
convenience only and not intended to suggest these emissions are
those of Shell or its subsidiaries.
The extracts from the 2020 Annual Report and
Accounts included in this announcement may contain references to
Royal Dutch Shell plc’s website and to the Shell Sustainability
Report. These references are for convenience only. Royal Dutch
Shell plc is not incorporating by reference into those extracts or
the 2020 Annual Report and Accounts any information posted on
www.shell.com or in the Shell Sustainability Report.
Page numbers and section cross-references in the
Appendix below refer to pages and sections in the 2020 Annual
Report and Accounts. Defined terms used in the Appendix below refer
to terms as defined in the 2020 Annual Report and Accounts.
APPENDIX
RISK FACTORS
The principal risks and uncertainties relating
to the Company are set out on pages 28-37 of the 2020 Annual Report
and Accounts. The following is extracted in full and unedited text
from the 2020 Annual Report and Accounts:
The risks discussed below could have a material adverse effect
separately, or in combination, on our earnings, cash flows and
financial condition. Accordingly, investors should carefully
consider these risks.Further background on each risk is set out in
the relevant sections of this Report indicated by way of cross
references under each risk factor.
The Board’s responsibility for identifying, evaluating and
managing our significant risks is discussed in “Other Regulatory
and Statutory Information” on pages 182-189.
STRATEGIC RISKS
Risk description:
We are exposed to macroeconomic risks including fluctuating
prices of crude oil, natural gas, oil products and chemicals.
The prices of crude oil, natural gas, oil products and chemicals
are affected by supply and demand, both globally and regionally.
Macroeconomic, geopolitical and technological uncertainties can
also affect production costs and demand for our products.
Government actions may also affect the prices of crude oil, natural
gas, oil products and chemicals. This could happen, for example, if
governments promote the sale of lower-carbon electric vehicles or
even prohibit future sales of new diesel or gasoline vehicles, such
as the prohibition in the United Kingdom (UK) that is expected to
come into force in 2030. Oil and gas prices can also move
independently of each other. Factors that influence supply and
demand include operational issues, natural disasters, weather,
pandemics such as COVID-19, political instability, conflicts,
economic conditions and actions by major oil and gas producing
countries. In a low oil and gas price environment, we would
generate less revenue from our Upstream and Integrated Gas
businesses, and parts of those businesses could become less
profitable or incur losses. Low oil and gas prices have also
resulted and could continue to result in the debooking of proved
oil or gas reserves, if they become uneconomic in this type of
price environment. Prolonged periods of low oil and gas prices, or
rising costs, have resulted and could continue to result in
projects being delayed or cancelled. Assets have been impaired in
the past, (including in 2020), and there could be impairments in
the future. Low oil and gas prices could also affect our ability to
maintain our long-term capital investment programme and dividend
payments. Prolonged periods of low oil and gas prices could
adversely affect the financial, fiscal, legal, political and social
stability of countries that rely significantly on oil and gas
revenue. In a high oil and gas price environment, we could
experience sharp increases in costs, and, under some
production-sharing contracts, our entitlement to proved reserves
would be reduced. Higher prices could also reduce demand for our
products, which could result in lower profitability, particularly
in our Oil Products and Chemicals business. Higher prices can also
lead to more capacity being built, potentially resulting in an
oversupply of products that can negatively affect our LNG and
Chemicals businesses.
Accordingly, price fluctuations could have a material adverse
effect on our earnings, cash flows and financial condition.
See “Market overview” on page 38.
How this risk is managed:
We maintain a diversified portfolio to mitigate the impact of
price volatility. We test the resilience of our projects and other
opportunities against a range of prices and costs for crude oil,
natural gas, oil products and chemicals. We prepare annual
strategic and financial plans that test different scenarios and
their impact on prices on our businesses and company as a whole.
These plans are appraised regularly throughout the year, especially
during periods of significant price and demand volatility as
experienced in 2020. We also aim to maintain a strong balance sheet
to provide resilience against weak market prices.
Risk description:
Our ability to deliver competitive returns and pursue commercial
opportunities depends in part on the accuracy of our price
assumptions.
We use a range of oil and gas price assumptions, which we review
on a periodic basis. These ranges help us to evaluate the
robustness of our capital allocation for our evaluation of projects
and commercial opportunities. If our assumptions prove to be
incorrect, it could have a material adverse effect on our earnings,
cash flows and financial condition.
See “Market overview” on page 38.
How this risk is managed:
The range of commodity prices used in our project and portfolio
evaluations is subject to a rigorous assessment of short-, medium-
and long-term market drivers. These drivers include the extent and
pace of the energy transition.
Risk description:
Our ability to achieve our strategic objectives depends on how
we react to competitive forces.
We face competition in all our businesses. In the crude oil,
natural gas, Oil Products and Chemicals businesses we seek to
differentiate our products, but many of them are competing in
commodity-type markets. Accordingly, failure to manage our costs
and our operational performance could result in a material adverse
effect on our earnings, cash flows and financial condition. We also
compete with state-owned oil and gas entities with access to vast
financial resources. State-owned entities could be motivated by
political or other factors in making their business decisions.
Accordingly, when bidding on new leases or projects, we could find
ourselves at a competitive disadvantage because these state-owned
entities may not require a competitive return. If we are unable to
obtain competitive returns when bidding on new leases or projects,
this could have a material adverse effect on our earnings, cash
flows and financial condition.
See “Strategy and outlook” on page 18.
How this risk is managed:
We continually assess the external environment - the markets and
the underlying economic, political, social and environmental
drivers that shape them - to evaluate changes in competitive forces
and business models. We use multiple future scenarios to assess the
resilience of our strategy. We maintain business strategies and
plans that focus on actions and capabilities to create and sustain
competitive advantage.
Risk description:
If we fail to stay in step with the pace and extent of society’s
demands with regard to the energy transition to a low-carbon
future, we could fail in sustaining and growing our business.
The pace and extent of the energy transition could pose a risk
to Shell if our own transition towards decarbonisation moves at a
different speed to society. If we are slower than society,
customers may prefer a different supplier which would adversely
impact our reputation and demand for our products. If we move much
faster than society, we risk investing in technologies, markets or
low-carbon products that are unsuccessful because there is limited
demand for them. This could have a material adverse effect on our
earnings, cash flows and financial condition.
See "Strategy and outlook" on page 19 and “Climate change
and energy transition” on page 94.
How this risk is managed:
We actively monitor societal developments, such as
regulation-driven carbon-pricing mechanisms and customer-driven
preferences for products. We incorporate these into scenarios which
provide insights into how the energy transition may unfold in the
medium and long term. These insights and those from various other
external scenarios (such as the IPCC Special Report 1.5 °C) guide
us how we set our strategic direction, capital allocation and
carbon emission commitments. We have updated our strategy and
organisational structure to be more focused on the sectors where
our customers operate, in order to make us better able to compete
in the current evolving energy landscape.
Risk description:
Rising climate change concerns and the effects of the energy
transition have led and could lead to a decrease in demand and
potentially affect prices for fossil fuels. This may also lead to
additional legal and/or regulatory measures which could result in
project delays or cancellations, potential litigation, operational
restrictions and additional compliance obligations.
Societal demand for urgent action has increased especially after
the Intergovernmental Panel on Climate Change (IPCC) 1.5°C special
report of 2018 and the Paris Agreement’s goal to keep the rise in
global average temperature this century to well below two degrees
Celsius above pre-industrial levels and to pursue efforts to limit
the temperature increase even further to 1.5 degrees Celsius.
Society's increasing focus on climate change and the effects of the
energy transition has created a risk landscape that is changing
rapidly in response to a wide range of stakeholder actions at
global, local and business levels. The potential impact and
likelihood of climate change effects on Shell could vary across
different time horizons, depending on the specific components of
the risk.
We expect that a growing share of our GHG emissions will be
subject to regulation, resulting in increased compliance costs and
operational restrictions. Regulators may seek to limit certain
fossil fuel projects or make it more difficult to obtain required
permits. Achieving our target to become net zero on all emissions
from our operations will result in additional cost. We also expect
that actions by customers to reduce their emissions will continue
to lower demand and potentially affect prices for fossil fuels, as
will GHG emissions regulation through taxes, fees and/or other
incentives. This could be a factor contributing to additional
provisions for our assets and result in lower earnings, cancelled
projects and potential impairment of certain assets.
The physical effects of climate change such as, but not limited
to, increases in temperature and sea levels and fluctuations in
water levels could also adversely affect our operations and supply
chains.
Some groups are putting pressure on certain investors to divest
their investments in fossil fuel companies. If this were to
continue, it could have a material adverse effect on the price of
our securities and our ability to access capital markets. Groups
are also putting pressure on commercial and investment banks to
stop financing fossil fuel companies. According to press reports,
some financial institutions have started to limit their exposure to
certain fossil fuel projects. Accordingly, our ability to use
financing for these types of future projects may be adversely
affected. This could also adversely affect our potential partners’
ability to finance their portion of costs, either through equity or
debt.
In some countries, governments, regulators, organisations and
individuals have filed lawsuits seeking to hold fossil fuel
companies liable for costs associated with climate change. While we
believe these lawsuits to be without merit, losing any of them
could have a material adverse effect on our earnings, cash flows
and financial condition.
In summary, rising climate change concerns and effects of the
energy transition have led and could lead to a decrease in demand
and potentially affect prices for fossil fuels. If we are unable to
find economically viable, publicly acceptable solutions that reduce
our GHG emissions and/or GHG intensity for new and existing
projects and for the products we sell, we could experience
financial penalties or extra costs, delayed or cancelled projects,
potential impairments of our assets, additional provisions and/or
reduced production and product sales. This could have a material
adverse effect on our earnings, cash flows and financial
condition.
How this risk is managed:
Our response to the evolving risk landscape requires
transparency and clarity around our plans and actions to achieve
our climate target. We have a climate change risk management
structure which is supported by standards, policies and controls,
as part of our health, safety, security and environment and social
performance (HSSE & SP) control framework. Climate change and
risks resulting from GHG emissions are reviewed and managed in
accordance with other significant risks through the Board and
Executive Committee. We have established several dedicated climate
change and GHG-related forums at different levels of the
organisation. These forums seek to address, monitor and review
climate change issues. Our strategy to assess and manage risks and
opportunities resulting from climate change includes considering
different time horizons and their relevance to risk identification
and business planning.
Overall, mitigation of the risk is addressed through our
strategy to accelerate the transition to net-zero emissions,
purposefully and profitably. This approach has three
components:
- reducing the GHG-emissions intensity of our operations. We
expect to reduce our carbon intensity primarily through altering
our product mix as customer (Scope 3) emissions represent the
largest component of our carbon intensity. Our aim is to
achieve this by shifting the focus of our portfolio as we build our
power, hydrogen, biofuels, carbon capture and storage and
nature-based solutions businesses and activities;
- demonstrating resilience by adopting the guidance on disclosure
by the Task Force on Climate-related Financial Disclosures;
and
- working towards our target to become a net-zero emissions
energy business by 2050, in step with society.
For further explanations of our climate change governance, risk
management, climate ambition and strategy, our portfolio and
performance, please refer to the section “Climate change and energy
transition” on page 94.For further explanations of how we manage
the risk of the physical effects of climate change affecting our
operations and supply chains, please refer to the risk factor "The
nature of our operations exposes us, and the communities in which
we work, to a wide range of health, safety, security and
environment risks". Risk description:
We seek to execute divestments in pursuing our strategy. We may
be unable to divest these assets successfully in line with our
strategy.
We may be unable to divest assets at acceptable prices or within
the timeline envisaged because of market conditions or credit risk.
This would result in increased pressure on our cash position and
potential impairments. In some cases, we have also retained certain
liabilities following a divestment. Even in cases where we have not
expressly retained certain liabilities, we may still be held liable
for past acts, failures to act or liabilities that are different
from those foreseen. We may also face liabilities if a purchaser
fails to honour their commitments. Accordingly, if any of the above
circumstances arise, this could have a material adverse effect on
our earnings, cash flows and financial condition.
See “Strategy and outlook” on page 19.
How this risk is managed:
We continually monitor market developments to assess potential
divestments in pursuing our strategy. We carefully tailor our sales
processes to buyers’ perceived expectations so we can deliver the
most competitive outcomes. As a general principle, the sales
processes are configured so that buyers will acquire the assets
including all related liabilities. For some assets, Shell may agree
to retain certain liabilities. We monitor these liabilities closely
and make appropriate provisions for them.
Risk description:
We operate in more than 70 countries that have differing degrees
of political, legal and fiscal stability. This exposes us to a wide
range of political developments that could result in changes to
contractual terms, laws and regulations. We and our joint
arrangements and associates also face the risk of litigation and
disputes worldwide.
Developments in politics, laws and regulations can and do affect
our operations. Potential impacts include: forced divestment of
assets; expropriation of property; cancellation or forced
renegotiation of contract rights; additional taxes including
windfall taxes, restrictions on deductions and retroactive tax
claims; antitrust claims; changes to trade compliance regulations;
price controls; local content requirements; foreign exchange
controls; changes to environmental regulations; changes to
regulatory interpretations and enforcement; and changes to
disclosure requirements. Tensions between nation states can also
affect our business. Any of these, individually or in
aggregate, could have a material adverse effect on our earnings,
cash flows and financial condition.
In 2020, many governments ran deficits to deal with the economic
impacts of the COVID-19 pandemic. Given the ongoing nature of the
pandemic, there will be uncertain long-term fiscal consequences,
with possible subsequent effects on government policies that affect
Shell’s business interests.
From time to time, social and political factors play a role in
unprecedented and unanticipated judicial outcomes that could
adversely affect Shell. Non‑compliance with policies and
regulations could result in regulatory investigations, litigation
and, ultimately, sanctions. Certain governments and regulatory
bodies have, in Shell’s opinion, exceeded their constitutional
authority by: attempting unilaterally to amend or cancel existing
agreements or arrangements; failing to honour existing contractual
commitments; and seeking to adjudicate disputes between private
litigants. Certain governments have also adopted laws and
regulations that could potentially conflict with other countries’
laws and regulations, potentially subjecting us to both criminal
and civil sanctions. Such developments and outcomes could have a
material adverse effect on our earnings, cash flows and financial
condition.
See “Other regulatory and statutory information” on page
182.
How this risk is managed:
We continually monitor geopolitical developments and societal
issues relevant to our interests. Our Legal and Tax functions are
organised globally and support our business lines in ensuring
compliance with local laws and fiscal regulations. Our Government
Relations department engages with governments in countries where we
operate to understand and influence local policies and to advocate
Shell’s position on topics relevant to our industry. We are
prepared to exit a country if we believe we can no longer operate
there in accordance with our standards and applicable law, and we
have done so in the past.
OPERATIONAL RISKS.
Risk description:
Our future hydrocarbon production depends on the delivery of
large and integrated projects, and our ability to replace proved
oil and gas reserves.
We face numerous challenges in developing capital projects,
especially those which are large and integrated. Challenges
include: uncertain geology; frontier conditions; the existence and
availability of necessary technology and engineering resources; the
availability of skilled labour; the existence of transportation
infrastructure; project delays; the expiration of licences; delays
in obtaining required permits; potential cost overruns; and
technical, fiscal, regulatory, political and other conditions.
These challenges are particularly relevant in certain developing
and emerging-market countries, in frontier areas and in deep-water
fields, such as off the coast of Mexico. We may fail to assess or
manage these and other risks properly. Such potential obstacles
could impair our delivery of these projects, our ability to fulfil
the full potential value of the project as assessed when the
investment was approved, and/or our ability to fulfil related
contractual commitments. This could lead to impairments and could
have a material adverse effect on our earnings, cash flows and
financial condition.
Future oil and gas production will depend on our access to new
proved reserves through exploration, negotiations with governments
and other owners of proved reserves and acquisitions, and through
developing and applying new technologies and recovery processes to
existing fields. Failure to replace proved reserves could result in
an accelerated decrease of future production, potentially having a
material adverse effect on our earnings, cash flows and financial
condition.
See “Shell story” on page 10.
Oil and gas production available for sale
|
|
Million boe [A] |
|
2020 |
2019 |
2018 |
Shell
subsidiaries |
1,104 |
|
1,182 |
|
1,179 |
|
Shell share of joint ventures and associates |
135 |
|
156 |
|
159 |
|
Total |
1,239 |
|
1,338 |
|
1,338 |
|
[A] Natural gas volumes are converted into oil equivalent using
a factor of 5,800 scf per barrel.
Proved developed and undeveloped oil and gas reserves [A][B] (at
December 31)
|
Million boe [C] |
|
December 31, 2020 |
December 31, 2019 |
December 31, 2018 |
Shell
subsidiaries |
8,222 |
|
9,980 |
|
10,294 |
|
Shell share of joint ventures and associates |
902 |
|
1,116 |
|
1,285 |
|
Total |
9,124 |
|
11,096 |
|
11,578 |
|
Attributable to
non-controlling interest in Shell subsidiaries |
322 |
|
304 |
|
331 |
|
[A] We manage our total proved reserves base without
distinguishing between proved reserves from subsidiaries and those
from joint ventures and associates. [B] Includes proved reserves
associated with future production that will be consumed in
operations. [C] Natural gas volumes are converted into oil
equivalent using a factor of 5,800 scf per barrel. How
this risk is managed:
We continue to explore for and mature hydrocarbons across our
Deep Water, Conventional Oil and Gas, Shales and Integrated Gas
businesses. We use our subsurface, project and technical expertise,
and actively manage non-technical risks across a diversified
portfolio of opportunities and projects. This involves adopting an
integrated approach for all stages, from basin choice to
development. We use competitive techniques and benchmark our
approach internally and externally.
Risk description:
The estimation of proved oil and gas reserves involves
subjective judgements based on available information and the
application of complex rules. This means subsequent downward
adjustments are possible.
The estimation of proved oil and gas reserves involves
subjective judgements and determinations based on available
geological, technical, contractual and economic information.
Estimates can change over time due to new information from
production or drilling activities, changes in economic factors,
such as oil and gas prices, alterations in the regulatory policies
of host governments, or other events. Estimates also change to
reflect acquisitions, divestments, new discoveries, extensions of
existing fields and mines, and improved recovery techniques.
Published proved oil and gas reserves estimates could also be
subject to correction because of errors in the application of
published rules and changes in guidance. Downward adjustments could
indicate lower future production volumes and could also lead to
impairment of assets. This could have a material adverse effect on
our earnings, cash flows and financial condition.
See “Supplementary information - oil and gas (unaudited)” on
page 265.
How this risk is managed:
A central group of reserves experts undertakes the primary
assurance of the proved reserves bookings. A multidisciplinary
committee reviews and endorses all major proved reserves bookings.
Shell’s Audit Committee reviews all proved reserves bookings and
Shell's Executive Committee is responsible for final approval. The
Internal Audit function also provides further assurance through
audits of the control framework, including the information
disclosed in ‘’Supplementary information – oil and gas
(unaudited).
Risk description:
The nature of our operations exposes us, and the communities in
which we work, to a wide range of health, safety, security and
environment risks.
The health, safety, security and environment (HSSE) risks to
which we and the communities in which we work are potentially
exposed cover a wide spectrum, given the geographic range,
operational diversity and technical complexity of our operations.
These risks include the effects of natural disasters (including
weather events), earthquakes, social unrest, pandemic diseases,
criminal actions by external parties, and safety lapses. If a major
risk materialises, such as an explosion or hydrocarbon leak or
spill, this could result in injuries, loss of life, environmental
harm, disruption of business activities, loss or suspension of
permits, loss of our licence to operate and loss of our ability to
bid on mineral rights. Accordingly, this could have a material
adverse effect on our earnings, cash flows and financial
condition.
Our operations are subject to extensive HSSE regulatory
requirements that often change and are likely to become more
stringent over time. Governments could require operators to adjust
their future production plans, as has occurred in the Netherlands,
affecting production and costs. We could incur significant extra
costs in the future because of the need to comply with such
requirements. We could also incur significant extra costs due to
violations of or liabilities under laws and regulations that
involve elements such as fines, penalties, clean-up costs and
third-party claims. Therefore, if HSSE risks materialise, they
could have a material adverse effect on our earnings, cash flows
and financial condition.
See “Environment and society” on page 85.
How this risk is managed:
We have standards and a clear governance structure to help
manage HSSE risks and avoid potential adverse effects. The
standards and governance structure also help us to develop
mitigation strategies aimed at ensuring that if an HSSE risk
materialises, we avoid catastrophic consequences and have ways of
trying to remediate any environmental damage. Our standards and
governance structure are defined in our Health, Safety, Security,
Environment and Social Performance (HSSE & SP) control
framework and supporting guidance documents. The process safety and
HSSE & SP assurance team provides assurance on the
effectiveness of HSSE & SP controls to the Board. We routinely
practise implementing our emergency response plans to significant
risks (such as a spill, toxic substances, fire or explosion).
We have assessed the impact of COVID-19 on activities and we are
implementing measures to minimise the adverse effect of the
pandemic on our operations. These measures include monitoring the
level of infections among staff, ensuring the safety and well-being
of all staff, (particularly critical staff who continue to operate
our assets), scenario planning, deploying continuity plans and
ensuring our sites and offices are “COVID safe".
Risk description:
A further erosion of the business and operating environment in
Nigeria could have a material adverse effect on us.
In our Nigerian operations, we face various risks and adverse
conditions. These include: security issues affecting the safety of
our people, host communities and operations; sabotage and theft;
our ability to enforce existing contractual rights; litigation;
limited infrastructure; potential legislation that could increase
our taxes or operating costs; the effect of lower oil and gas
prices on the government budget; and regional instability created
by militant activities. These risks or adverse conditions could
have a material adverse effect on our earnings, cash flows and
financial condition.
See “Upstream” on page 53.
How this risk is managed:
We test the economic and operational resilience of our Nigerian
projects against a wide range of assumptions and scenarios. We seek
to proportionally share risks and funding commitments with
joint-venture partners. When we participate in joint ventures in
Nigeria, we require that they operate to internationally accepted
business standards. We monitor the security situation, and liaise
with host communities, governmental and non-governmental
organisations to help promote peaceful and safe operations.
Risk description:
An erosion of our business reputation could have a material
adverse effect on our brand, our ability to secure new resources or
access capital markets, and on our licence to operate.
Our reputation is an important asset. The Shell General Business
Principles (Principles) govern how Shell and its individual
companies conduct their affairs, and the Shell Code of Conduct
tells employees and contract staff how to behave in line with the
Principles. Our challenge is to ensure that all employees and
contract staff comply with the Principles and the Code of Conduct.
Real or perceived failures of governance or regulatory compliance
or a perceived lack of understanding of how our operations affect
surrounding communities could harm our reputation.
Societal expectations of businesses are increasing, with a focus
on business ethics, quality of products, contribution to society,
safety and minimising damage to the environment. There is
increasing focus on the role of oil and gas in the context of
climate change and energy transition. This could negatively affect
our brand, reputation and licence to operate, which could limit our
ability to deliver our strategy, reduce consumer demand for our
branded and non-branded products, harm our ability to secure new
resources and contracts, and restrict our ability to access capital
markets or attract staff. Many other factors, including the
materialisation of the risks discussed in several of the other risk
factors, could negatively affect our reputation and could have a
material adverse effect on our earnings, cash flows and financial
condition.
See “Other Regulatory and Statutory Information” on page 182 and
"Our people" on page 108.
How this risk is managed:
We continually assess and monitor the external environment for
potential risks to our reputation. We engage in ongoing dialogue
with our key stakeholders such as investors, industry and trade
groups, universities, governments and non-governmental
organisations (NGOs) to gain greater insights into societal
expectations of our business. We have mitigation plans for
identified brand and reputation risks at the Group, country and
line of business level. Our country chairs are responsible for the
implementation of country reputation plans which are updated
annually. We continually develop and defend our brand in line with
Shell’s purpose and promises, and target our investments to drive
brand differentiation, relevance and preference.
Risk description:
We rely heavily on information technology systems in our
operations.
The operation of many of our business processes depends on
reliable information technology (IT) systems. Our IT systems are
increasingly concentrated in terms of geography and number of
systems. They are dependent on key contractors supporting the
delivery of IT services. During 2020, information and
cyber-security risks developed and changed rapidly. Globally the
COVID-19 pandemic and geopolitical tensions have altered the IT
threat landscape, increasing the frequency and ingenuity of malware
attacks and increasing the temptation to attack targets for
financial gain. Also, the prevalence of remote working introduces
additional risk because it expands the IT threat landscape. We have
experienced breaches and disruptions to our critical IT services in
the past. These factors continue to contribute to potential
breaches and disruptions of critical IT services. Additionally,
breaches can lead to data privacy issues. If the breaches are not
detected early and responded to effectively, they could harm our
reputation and have a material adverse effect on our earnings, cash
flows and financial condition.
See “Corporate” on page 80.
How this risk is managed:
We continually measure and improve our cyber-security
capabilities. To reduce the likelihood of successful cyber-attacks,
our cyber-security capabilities are embedded into our IT systems.
Our IT is protected by detective and protective technologies.
Identification and assessment capabilities are built into our IT
support processes and adhere to industry best practices. When
external companies provide us with IT services, the security of
those services is managed through contractual clauses and supplier
assurance reports. Shell invests constantly in efforts to embed and
improve our controls and monitoring. For example, we improved our
global web content filtering capability in response to the
challenge of increased remote working in 2020. If breaches occur,
all entities, including ones that have yet to be fully integrated
into Shell's systems and processes, are required to report the
incident and use Shell's information security
capabilities.
Risk description:
Our business exposes us to risks of social instability,
criminality, civil unrest, terrorism, piracy, cyber-disruption and
acts of war that could have a material adverse effect on our
operations.
As seen in recent years, these risks can manifest themselves in
the countries where we operate and elsewhere. These risks affect
people and assets. Potential risks include: acts of terrorism; acts
of criminality including maritime piracy; cyber-espionage or
disruptive cyber-attacks; conflicts including war, civil unrest and
environmental and climate activism (including disruptions by
non-governmental and political organisations).
The above risks can threaten the safe operation of our
facilities and the transport of our products. They can harm the
well-being of our people, inflict loss of life and injuries, damage
the environment and disrupt our operational activities. These risks
could have a material adverse effect on our earnings, cash flows
and financial condition.
See “Environment and society” on pages 85.
How this risk is managed:
We seek to obtain the best possible information to enable us to
assess threats and risks. We conduct detailed assessments for all
our sites and activities, and implement appropriate measures to
deter, detect and respond to security risks. Further mitigations
include strengthening the security of sites, reducing our exposure
as appropriate, journey management, information risk management,
crisis management and business continuity measures. We conduct
training and awareness campaigns for staff and provide them with
travel and health advice and access to 24/7 assistance while
travelling.
Risk description:
Production from the Groningen field in the Netherlands causes
earthquakes that affect local communities.
Shell and ExxonMobil are 50:50 shareholders in Nederlandse
Aardolie Maatschappij B.V. (NAM). An important part of NAM’s gas
production comes from the onshore Groningen gas field, in which
EBN, a Dutch government entity, has a 40% interest and NAM a 60%
interest. The gas field is in the process of being closed down due
to earthquakes induced by gas production. Some of these earthquakes
have damaged houses and other structures in the region, resulting
in complaints and lawsuits from the local community. The government
has announced it intends to accelerate the close-down, bringing the
end of production forward from 2030 to possibly mid-2022. The exact
shut-in date depends on security of supply considerations and is
still to be decided. While we expect the earlier closing down of
the Groningen gas field to further reduce the number and strength
of earthquakes in the region, any additional earthquakes could have
further adverse effects on our earnings, cash flows and financial
condition.
See “Upstream” on page 53.
How this risk is managed:
NAM is working with the Dutch government and other stakeholders
to fulfil its obligations to residents of the area. These include
compensating for damage caused by the earthquakes and paying to
strengthen houses where this is required for safety considerations.
Negotiations with the state are being conducted to determine how to
manage the accelerated close-down. Specific remediations within the
agreed scope of responsibilities are planned. NAM's joint-venture
partners will review its financial robustness against different
scenarios for Groningen's liabilities and costs, with the aim of
the venture being able to self-fund any additional expenses and
claims.
Risk description:
We are exposed to treasury and trading risks, including
liquidity risk, interest rate risk, foreign exchange risk and
credit risk. We are affected by the global macroeconomic
environment and the conditions of financial and commodity
markets.
Our subsidiaries, joint arrangements and associates are subject
to differing economic and financial market conditions around the
world. Political or economic instability affects such markets.
We use debt instruments, such as bonds and commercial paper, to
raise significant amounts of capital. Should our access to debt
markets become more difficult, the potential impact on our
liquidity could have a material adverse effect on our operations.
Our financing costs could also be affected by interest rate
fluctuations or any credit rating deterioration.
We are exposed to changes in currency values and to exchange
controls as a result of our substantial international operations.
Our reporting currency is the US dollar, although, to a material
extent, we also hold assets and are exposed to liabilities in other
currencies. While we undertake some foreign exchange hedging, we do
not do so for all our activities. Even where hedging is in
place, it may not function as expected.
We are exposed to credit risk; our counterparties could fail or
be unable to meet their payment and/or performance obligations
under contractual arrangements. Although we do not have significant
direct exposure to sovereign debt, it is possible that our partners
and customers may have exposure which could impair their ability to
meet their obligations. Our pension plans invest in government
bonds, and could therefore be affected by a sovereign debt
downgrade or other default.
If any of the above risks materialise, they could have a
material adverse effect on our earnings, cash flows and financial
condition.
See “Liquidity and capital resources” on page 81 and Note 19 to
the “Consolidated Financial Statements” on pages 251-255.
How this risk is managed:
We use various financial instruments for managing exposure to
foreign exchange and interest rate movements. Our treasury
operations are highly centralised and seek to manage credit
exposures associated with our substantial cash, foreign exchange
and interest rate positions. Our portfolio of cash investments
is diversified to avoid concentrating risk in any one instrument,
country or counterparty. Other than in exceptional cases, the use
of external derivative instruments is confined to specialist
trading and central treasury organisations that have the
appropriate skills, experience, supervision, control and reporting
systems. We have credit risk policies in place which seek to ensure
that products are sold to customers with appropriate
creditworthiness. These policies include detailed credit analysis
and monitoring of customers against counterparty credit
limits. Where appropriate, netting arrangements, credit
insurance, prepayments and collateral are used to manage credit
risk. We maintain committed credit facilities. Management believes
it has access to sufficient debt funding sources (capital markets)
and to undrawn committed borrowing facilities to meet foreseeable
requirements.
Risk description:
Our future performance depends on the successful development and
deployment of new technologies and new products.
Technology and innovation are essential to our efforts to meet
the world’s energy demands competitively. If we fail to continue
developing or deploying technology and new products, or fail to
make full, effective use of our data in a timely and cost-effective
manner, there could be a material adverse effect on the delivery of
our strategy and our licence to operate. We operate in environments
where advanced technologies are used. In developing new
technologies and new products, unknown or unforeseeable
technological failures or environmental and health effects could
harm our reputation and licence to operate or expose us to
litigation or sanctions. The associated costs of new technology are
sometimes underestimated. Sometimes the development of new
technology is subject to delays. If we are unable to develop the
right technology and products in a timely and cost-effective
manner, or if we develop technologies and products that harm the
environment or people's health, there could be a material adverse
effect on our earnings, cash flows and financial condition.
See “Shell story” on page 10.
How this risk is managed:
Shell’s Technology organisation and the relevant business lines
work together to determine the content, scope and budget for
developing new technology that supports our activities. The new
technology is developed to ensure portfolio alignment with Shell’s
strategic ambitions and deployment commitments. A significant
proportion of Shell’s technology contributes to Shell’s New
Energies portfolio and Net Carbon Footprint target, and is built
around key relationships with leading academic research institutes
and universities. We also benefit from working with start-ups. In
our Shell GameChanger programme, we help companies to mature
early-stage technologies. In our Shell Ventures scheme, we invest
in and partner with start-ups and small and medium-sized
enterprises that are in the early stages of developing new
technologies.
Risk description:
We have substantial pension commitments, the funding of which is
subject to capital market risks and other factors.
Liabilities associated with defined benefit pension plans are
significant, and the cash funding requirement of such plans can
also involve significant liabilities. They both depend on various
assumptions. Volatility in capital markets or government policies
could affect investment performance and interest rates, causing
significant changes to the funding level of future liabilities.
Changes in assumptions for mortality, retirement age or pensionable
remuneration at retirement could also cause significant changes to
the funding level of future liabilities. We operate a number of
defined benefit pension plans and, in case of a shortfall, we could
be required to make substantial cash contributions (depending on
the applicable local regulations). This could result in a material
adverse effect on our earnings, cash flows and financial
condition.
See “Liquidity and capital resources” on page 81.
How this risk is managed:
A pensions forum chaired by the Chief Financial Officer oversees
Shell’s input to pension strategy, policy and operation. A risk
committee supports the forum in reviewing the results of assurance
processes with respect to pension risks. Local trustees manage the
funded defined benefit pension plans, and the contributions paid
are based on independent actuarial valuations that align with local
regulations.
Risk description:
We mainly self-insure our risk exposure. We could incur
significant losses from different types of risks that are not
covered by insurance from third-party insurers.
Our insurance subsidiaries provide hazard insurance coverage to
other Shell entities, who may insure a portion of their risk
exposures with third parties. Such insurance would not provide any
material coverage in the event of a large-scale safety or
environmental incident. Accordingly, in the event of a material
incident, we would have to meet our obligations without access to
material proceeds from third-party insurance companies. Therefore,
we may incur significant losses from different types of risks that
are not covered by insurance from third-party insurers, potentially
resulting in a material adverse effect on our earnings, cash flows
and financial condition.
See “Corporate” on page 80.
How this risk is managed:
We continually assess the safety performance of our operations
and make risk mitigation recommendations, where relevant, to keep
the risk of an accident as low as possible. Our insurance
subsidiaries are adequately capitalised and they may transfer risks
to third-party insurers where economical, effective and
relevant.
Risk description:
Many of our major projects and operations are conducted in joint
arrangements or with associates. This could reduce our degree of
control and our ability to identify and manage risks.
When we are not the operator, we have less influence and control
over the behaviour, performance and operating costs of joint
arrangements or associates. Despite having less control, we could
still be exposed to the risks associated with these operations,
including reputational, litigation (where joint and several
liability could apply) and government sanction risks. For example,
our partners or members of a joint arrangement or an associate,
(particularly local partners in developing countries), may be
unable to meet their financial or other obligations to projects,
threatening the viability of a given project. Where we are the
operator of a joint arrangement, the other partner(s) could still
be able to veto or block certain decisions, which could be to our
overall detriment. Accordingly, where we have limited influence, we
are exposed to operational risks that could have a material adverse
effect on our earnings, cash flows and financial condition.
See “Other Regulatory and Statutory Information” on page
182.
How this risk is managed:
Shell appoints a Joint Venture Asset Manager, whose
responsibility is to manage performance and create and protect
value for Shell. The Joint Venture Asset Manager seeks to influence
operators and other partners to adapt their practices in order to
drive value appropriately and to mitigate identified risks. An
annual assurance review assesses how the joint venture’s standards
and processes align with those of Shell. The Joint Venture Asset
Manager follows up on any gaps identified.
CONDUCT RISKS
Risk description:
We are exposed to commodity trading risks, including market and
operational risks.
Commodity trading is an important component of our Upstream,
Integrated Gas, Oil Products and Chemicals businesses and is
integrated with our supply business. Processing, managing and
monitoring many trading transactions across the world, some of them
complex, exposes us to operational and market risks, including
commodity price risks which saw significant levels of volatility in
2020. We use derivative instruments such as futures and contracts
for differences to hedge market risks. We do not hedge all our
activities and where hedging is in place, it may not function as
expected. The risk of ineffective controls and oversight of trading
activities, and the risk that traders could deliberately act
outside limits and controls, either individually or as a group,
could have material adverse effects on our earnings, cash flows and
financial condition.
See “Liquidity and capital resources” on page 81 and Note 19 to
the “Consolidated Financial Statements” on pages 251-255.
How this risk is managed:
In effecting commodity trades and derivative contracts, the
company operates within procedures and policies designed to ensure
that risks are managed within authorised limits. For example,
the use of external derivative instruments is confined to
specialist trading organisations that have the appropriate skills,
experience, supervision, control and reporting systems. Our trading
organisation has a compliance manual addressing our operational
risks which all staff are required to follow. Senior Management
regularly reviews mandated trading limits. We monitor market risk
exposure daily, using value-at-risk (VAR) techniques. We monitor
trading positions against limits every day. We use marking to fair
value to assess trading exposures where appropriate, with a
department that is independent of the traders reviewing the market
values applied. In response to the COVID-19 pandemic, trader
monitoring tools have been upgraded. During the period of extreme
market volatility, additional oversight has been provided by a
dedicated 'Liquidity Forum', chaired by senior executives in our
trading organisation. We have increased the monitoring of the
financial resilience of our customers, suppliers and the clearing
houses that we deal with.
Risk description:
Violations of antitrust and competition laws carry fines and
expose us and/or our employees to criminal sanctions and civil
suits.
Antitrust and competition laws apply to Shell and its joint
arrangements and associates in the vast majority of countries where
we do business. Shell and its joint arrangements and associates
have been fined for violations of antitrust and competition laws in
the past. This includes a number of fines by the European
Commission Directorate-General for Competition (DG COMP).
Because of DG COMP’s fining guidelines, any future conviction of
Shell or any of its joint arrangements or associates for violation
of EU competition law could potentially result in significantly
larger fines and have a material adverse effect on us. Violation of
antitrust laws is a criminal offence in many countries, and
individuals can be imprisoned or fined. In certain circumstances,
directors may receive director disqualification orders. It is also
now common for persons or corporations allegedly injured by
antitrust violations to sue for damages. Any violation of these
laws can harm our reputation and could have a material adverse
effect on our earnings, cash flows and financial condition.
See “Other Regulatory and Statutory Information” on pages
182.
How this risk is managed:
We maintain an antitrust programme with adequate resources, a
comprehensive governance structure and established reporting lines.
Staff receive clear guidance that includes requirements in Shell’s
Ethics and Compliance Manual, an antitrust-specific website,
training modules where completion is monitored and regular messages
from Shell leaders on the importance of managing antitrust risks.
Staff must understand and comply with the “Protect Shell Policy”,
which explains Shell's position on managing antitrust risks in
engagements with parties external to Shell. As result of the
COVID-19 pandemic, we have issued guidance to address antitrust
risks arising from the disruption to supply chains, including
procurement guidance which outlines the risks associated with
exchanging information and collaborating with Shell’s procurement
competitors.
Risk description:
Violations of anti-bribery, tax-evasion and anti-money
laundering laws carry fines and expose us and/or our employees to
criminal sanctions, civil suits and ancillary consequences (such as
debarment and the revocation of licences).
Anti-bribery, tax-evasion and anti-money laundering laws apply
to Shell, its joint arrangements and associates in all countries
where we do business. Shell and its joint arrangements and
associates have in the past settled with the US Securities and
Exchange Commission regarding violations of the US Foreign Corrupt
Practices Act. Any violation of anti-bribery, tax-evasion or
anti-money laundering laws, including those potential violations
associated with Shell Nigeria Exploration and Production Company
Limited's investment in Nigerian oil block OPL 245 and the 2011
settlement of litigation pertaining to that block, could harm our
reputation or have a material adverse effect on our earnings, cash
flows and financial condition.
See “Our people” on pages 108, “Other Regulatory and Statutory
Information” on page 182 and Note 25 to the “Consolidated Financial
Statements” on pages 260.
How this risk is managed:
We maintain an anti-bribery and anti-money-laundering (ABC/AML)
programme with adequate resources, a comprehensive governance
structure and established reporting lines. Staff receive clear
guidance which includes requirements in Shell’s Ethics and
Compliance Manual, an ABC/AML-specific website, training modules
where completion is monitored and regular messages from Shell
leaders on the importance of managing ABC/AML risks. As regards OPL
245, the 2011 settlement was a fully legal transaction with Eni and
the Federal Government of Nigeria, represented by the most senior
officials of the relevant ministries. We maintain our view that
there is no basis to convict Shell, or any of our former employees
who are also on trial in Milan. In response to the COVID-19
pandemic, we have set up fast-track processes to deal with relief
donation requests. These processes include counterparty due
diligence and are supported by Shell's Ethics and Compliance
Office.
Risk description:
Violations of data protection laws carry fines and expose us
and/or our employees to criminal sanctions and civil suits.
Data protection laws apply to Shell and its joint arrangements
and associates in the vast majority of countries where we do
business. Most of the countries we operate in have data protection
laws and regulations. In some countries that are key to Shell’s
business operations, legislation continues to be amended or
introduced. Shell must be able to adapt dynamically to such
legislative changes and be capable of updating our internal
programmes if necessary. The EU General Data Protection Regulation
(GDPR), which came into effect in May 2018, imposed increased
financial penalties of up to a maximum of 4% of global annual
turnover. It requires mandatory breach notification in certain
situations, the standard which is also followed outside the EU
(particularly in Asia). Non-compliance with data protection laws
could expose us to regulatory investigations, which could result in
fines, penalties and harm to our reputation. With regard to data
breaches, we have breached the GDPR in the past and some
investigations are still ongoing with European regulators. To date,
no material fines have been imposed, but no assurance can be
provided that future breaches would have similar outcomes. In
addition to imposing fines, regulators may also issue orders to
stop processing personal data, which could disrupt operations. We
could also be subject to litigation from persons or entities
allegedly affected by data protection violations. With data privacy
legislation now in force in the USA, the risk of class actions is
increased. Class actions after large-scale data breaches are
increasingly common in the UK.
The COVID-19 pandemic has increased the level of processing of
personal data to track employees, suppliers or other visitors to
our premises. Some governments require immediate disclosure of
information, including sensitive personal data, to identify
infected individuals, with some mandating technologies such as
tracing applications on all devices, including corporate mobile
phones.
Violation of data protection laws is a criminal offence in some
countries, and individuals can be imprisoned or fined. Any
violation of these laws or harm to our reputation could have a
material adverse effect on our earnings, cash flows and financial
condition.
See “Other Regulatory and Statutory Information” on page
182.
How this risk is managed:
We maintain a data privacy programme with adequate resources, a
comprehensive governance structure and established reporting lines.
Shell has had Binding Corporate Rules in place for the last 10
years. These rules are part of a group wide global programme to
ensure consistent levels of data protection across the group. Staff
receive clear guidance which includes requirements in Shell’s
Ethics and Compliance Manual, a website focusing on data privacy,
training modules where completion is monitored, and regular
messages from Shell leaders on the importance of managing data
privacy risks.We have revised the requirements for incident
management that are set out in our Binding Corporate Rules, in
order to comply with GDPR reporting requirements. We have revised
our approach to privacy impact assessments, also to comply with
GDPR reporting requirements. We use our Privacy by Design programme
to enhance our controls in this area. We continue to address
challenges with compliance in data-heavy companies controlled by
Shell but not fully integrated into our systems. IT remediation
work remains a priority in such companies, as does the
strengthening of programmes to support data privacy compliance.
To respond to the increased risk resulting from the pandemic, we
have developed policies on temperature screening and published a
guidance note on "Privacy Best Practices for COVID-19".
Risk description:
Violations of trade compliance laws and regulations, including
sanctions, carry fines and expose us and our employees to criminal
sanctions and civil suits.
We use “trade compliance” as an umbrella term for various
national and international laws designed to regulate the movement
of items across national boundaries and restrict or prohibit trade
and other dealings with certain parties. The number and breadth of
such laws continue to expand. For example, the EU and the USA
continue to impose restrictions and prohibitions on certain
transactions involving countries such as Syria, Venezuela, Russia
and Cuba. The USA continues to impose comprehensive sanctions
against Iran, while the EU and other nations continue to maintain
targeted sanctions. The EU and the USA imposed restrictions and
controls on defined oil and gas activities in Russia in 2014, and
these remain in force. The USA introduced further restrictions
regarding Russia in 2017, expanding them in 2018. The EU and the
USA introduced sectoral sanctions against Venezuela in 2017, with
the USA expanding them in 2018 and 2019. The US sanctions primarily
target the government of Venezuela and the oil industry. Many other
nations are also adopting trade-control programmes similar to those
administered by the EU and the USA. The expansion of sanctions, the
frequent additions of prohibited parties, the number of markets in
which we operate and the large number of transactions we process,
make compliance with all sanctions complex and sometimes
challenging. Shell has voluntarily self-disclosed potential
violations of sanctions in the past. The COVID-19 pandemic has
increased trade compliance risks, due to factors such as growing
state involvement in business dealings, the need to maintain and
develop business opportunities and cross-border movement of goods
and technologies, and the increasing likelihood that counterparties
will change ownership as the economic crisis continues.
Any violation of sanctions could lead to loss of import or
export privileges and significant penalties on or prosecution of
Shell or its employees. This could harm our reputation and have a
material adverse effect on our earnings, cash flows and financial
condition
See “Other Regulatory and Statutory Information” on page
182.
How this risk is managed:
We continue to develop and maintain a trade compliance programme
with adequate resources, a comprehensive governance structure and
established reporting lines. Staff receive clear guidance, which
includes requirements in Shell’s Ethics and Compliance Manual, a
specific website for trade compliance, training modules where
completion is monitored and regular messages from Shell leaders on
the importance of managing trade compliance risks. The
effectiveness of the trade compliance programme is assessed
annually (or more frequently if necessary). In response to the
COVID-19 pandemic, we have promoted an increased focus on
compliance and assurance. For example, in Trading and Supply we
have promoted a particular focus on compliance with trade controls
in high-risk areas such as port agency, inspections and terminal
operations.
Investors should also consider the following, which could limit
shareholder remedies.
The Company’s Articles of Association determine the jurisdiction
for shareholder disputes. This could limit shareholder
remedies.
Our Articles of Association generally require that all disputes
between our shareholders in such capacity and the Company or our
subsidiaries (or our Directors or former Directors), or between the
Company and our Directors or former Directors, be exclusively
resolved by arbitration in The Hague, the Netherlands, under the
Rules of Arbitration of the International Chamber of Commerce. Our
Articles of Association also provide that, if this provision is to
be determined invalid or unenforceable for any reason, the dispute
could only be brought before the courts of England and Wales.
Accordingly, the ability of shareholders to obtain monetary or
other relief, including in respect of securities law claims, could
be determined in accordance with these provisions.
RELATED PARTY TRANSACTIONS
Disclosures in relation to the related party
transactions are set out on page 185 of the 2020 Annual Report and
Accounts. The following is extracted in full and unedited text from
the 2020 Annual Report and Accounts:
Save as set out below and other than disclosures given in Notes
9 and 27 to the “Consolidated Financial Statements” on pages 238
and 262, there were no transactions or proposed transactions that
were material to either the Company or any related party. Nor were
there any transactions with any related party that were unusual in
their nature or conditions.
On February 27, 2020 the fully-consolidated Shell Midstream
Partners, L.P. (SHLX) signed an agreement with its Shell-controlled
general partner to eliminate all incentive distribution rights and
economic general partner interest in SHLX and convert the general
partner’s two per cent general partner interest in SHLX into a
non-economic general partner interest in SHLX. SHLX also entered
into a Purchase and Sale Agreement with Shell affiliates to acquire
our 79% interest in the Mattox Pipeline Company LLC, which owns the
Mattox Pipeline, and certain logistics assets at the Shell Norco
Manufacturing Complex. Both transactions completed on April 1,
2020. As consideration for the assets and the elimination of
incentive distribution rights, Shell received 160 million newly
issued SHLX common units, plus $1.2 billion of Series A perpetual
convertible preferred units at a price of $23.63 per unit.
DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE
PREPARATION OF THE ANNUAL REPORT AND ACCOUNTS
The following statement is extracted in full and
is unedited text from page 189 of the 2020 Annual Report and
Accounts.
The Directors are responsible for preparing the Annual Report,
including the financial statements, in accordance with applicable
laws and regulations. These require the Directors to prepare
financial statements for each financial year. As such, the
Directors have prepared the (i) Consolidated Financial Statements
in accordance with international accounting standards in conformity
with the requirements of the UK Companies Act 2006, and therefore
in accordance with International Financial Reporting Standards
adopted pursuant to Regulation (EC) No 1606/2002 as it applies in
the European Union; and (ii) Parent Company Financial Statements in
accordance with international accounting standards in conformity
with the requirements of the UK Companies Act 2006. In preparing
these financial statements, the Directors have also elected to
comply with IFRS as issued by the International Accounting
Standards Board (IASB). The Directors must not approve the
financial statements unless they are satisfied that they give a
true and fair view of the state of affairs of Shell and the Company
and of the profit or loss of Shell and the Company for that period.
In preparing these financial statements, the Directors are required
to:
- adopt the going concern basis unless it is inappropriate to do
so;
- select suitable accounting policies and then apply them
consistently;
- make judgements and accounting estimates that are reasonable
and prudent; and
- state whether international accounting standards in conformity
with the requirements of the UK Companies Act 2006, International
Financial Reporting Standards adopted pursuant to Regulation (EC)
No 1606/2002 as it applies in the European Union and International
Financial Reporting Standards as issued by the IASB have been
followed.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the transactions of
Shell and the Company and disclose with reasonable accuracy, at any
time, the financial position of Shell and the Company and to enable
them to ensure that the financial statements comply with the
Companies Act 2006 (the Act) and, as regards the Consolidated
Financial Statements, with Article 4 of the IAS Regulation and
therefore are in accordance with IFRS as adopted by the EU. The
Directors are also responsible for safeguarding the assets of Shell
and the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
Each of the Directors, whose names and functions can be found on
pages 122-123, confirms that, to the best of their knowledge:
- the financial statements, which have been prepared in
accordance with international accounting standards in conformity
with the requirements of the UK Companies Act 2006, International
Financial Reporting Standards adopted pursuant to Regulation (EC)
No 1606/2002 as it applies in the European Union and International
Financial Reporting Standards as issued by the IASB, give a true
and fair view of the assets, liabilities, financial position and
profit of Shell and the Company; and
- the Management Report includes a fair review of the development
and performance of the business and the position of Shell, together
with a description of the principal risks and uncertainties that it
faces.
Furthermore, so far as each of the Directors is aware, there is
no relevant audit information of which the auditors are unaware,
and each of the Directors has taken all the steps that ought to
have been taken in order to become aware of any relevant audit
information and to establish that the auditors are aware of that
information.
The Directors consider that the Annual Report, including the
financial statements, taken as a whole, is fair, balanced and
understandable and provides the information necessary for
shareholders to assess Shell’s position and performance, business
model and strategy.
The Directors consider it appropriate to continue to adopt the
going concern basis of accounting in preparing the financial
statements.
The Directors are responsible for the maintenance and integrity
of the Shell website (www.shell.com). Legislation in the UK
governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
Signed on behalf of the Board
/s/ Linda M. Coulter
LINDA M. COULTERCompany SecretaryMarch 10, 2021
EnquiriesShell Media Relations
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of Royal Dutch Shell plc: 21380068P1DRHMJ8KU70Classification:
Annual financial and audit reports
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