Shell delivered a strong financial performance in 2017. We are making good progress towards building a world-class investment case.
Higher oil and gas prices, combined with our relentless focus on performance and competitiveness, enabled us to increase our operating cash flow.
We also further reshaped and refined our portfolio through our divestment programme. These factors helped to reduce debt and strengthen our financial framework. We continue to closely control costs and investment levels, working to improve our capital efficiency while improving the quality of our portfolio through asset sales and new projects.
There was a terrible incident in Pakistan in June when a contractor road tanker overturned while transporting fuel from a Shell depot, following which there was a spill that subsequently ignited. Tragically, the fire caused more than 200 fatalities. Sadly, a contractor also died in a road accident in Canada and we had a fatality in Nigeria. These incidents underscore the need for all Shell contractors, suppliers and employees to adhere to effective health and safety standards at all times. Any incident is one incident too many and we must reflect deeply on these events. We must redouble our focus on safety.
Income for the period was $13.4 billion in 2017 compared with $4.8 billion in 2016. Earnings on a current cost of supplies basis were $12.5 billion, compared with $3.7 billion in 2016.
A rise in crude oil and natural gas prices supported Upstream and Integrated Gas earnings. Our Downstream earnings benefited from improved refining and chemicals industry conditions.
We distributed $15.6 billion to shareholders in dividends in 2017, including those taken as shares under our Scrip Dividend Programme. The strength of our balance sheet, coupled with strong cash flows and continuing focus on capital efficiency, allowed us to cancel the Scrip Dividend Programme with effect from the fourth quarter 2017 dividend. I am confident that we can do this while investing at levels that maintain growth in our portfolio.
At Management Day in November, we confirmed our intention to undertake a share buyback programme of at least $25 billion in the period 2017 to 2020, subject to progress with debt reduction and a recovery in oil prices. We also raised our outlook for annual free cash flow to between $30 billion and $35 billion by 2020, at a Brent crude oil price of $60 a barrel (real terms 2016). This is $5 billion more than the outlook range we gave in June 2016. This includes the impact of acquisitions and proceeds from divestments, while excluding free cash flow from assets after planned divestments.
Our delivery of new projects continues and we remain on track to deliver 1 million barrels of oil equivalent a day (boe/d) from new projects between 2014 and 2018. Overall, our production averaged 3.7 million boe/d in 2017, in line with 2016, with production from new fields offsetting the impact of field declines and divestments.
Our $30 billion divestment programme for 2016-18 made good progress in 2017. Divestments included oil sands interests in Canada, onshore upstream operations in Gabon, a number of assets in the UK North Sea, and our shares in Woodside in Australia. Other divestments included our interest in a petrochemicals joint venture in Saudi Arabia and the separation of assets of the Motiva joint venture in the USA.
This streamlining of our portfolio is part of our ongoing effort to raise efficiency through reduced costs and concentrating on our most competitive businesses.
The progress of our divestments has helped us to reduce net debt, with gearing standing at 24.8% at the end of 2017, down from 28.0% at the end of 2016. Debt reduction remains a priority and after this programme is completed we expect to continue divestments at an average rate of more than $5 billion a year until at least 2020.
Capital investment in 2017 was $24 billion. That is lower than the $25 billion outlook we have given and reflects continued capital discipline and capital efficiency improvements. We will continue to carefully control our investment levels. We expect our annual organic capital investment to remain between $25 billion and $30 billion until 2020. But we see $30 billion as a ceiling, even if oil prices rise, while $25 billion is not a floor – we may go below this.
We maintain a “lower forever” approach to our cost management, with an outlook of less than $38 billion a year for operating expenses until at least 2020, assuming no portfolio impacts or other external effects. This outlook excludes potential impacts of restructuring and redundancies, as well as certain other provisions.
Over the next few decades, we plan to show leadership in the oil and gas industry, while responding to society’s need for more and cleaner energy as the world moves to a low-carbon energy system.
Tackling climate change is a multi-generational challenge for society – including businesses, governments and consumers. As the global population grows and living standards rise, it will mean society meeting increasing energy demand with an ever-lower carbon footprint. We will play our part.
In November, we announced a net carbon footprint reduction ambition covering not just emissions from our own operations but also those produced by customers when they use the energy products we sell. We plan to do this in step with society’s drive to align with the Paris climate agreement. We aim to reduce the overall footprint of our energy products by around 20% by 2035 and by around half by 2050. This measure will be reviewed every five years to ensure progress is in line with wider society’s progress towards the reductions required to meet the Paris goals.
Our New Energies unit, which we created in 2016, invested in commercial opportunities linked to the energy transition in 2017. We acquired NewMotion, one of Europe’s largest electric vehicle charging providers, in October. And, in December, we agreed to buy First Utility, a household energy provider in the UK.
We expect our capital investment in New Energies to be $1 billion to $2 billion a year, on average, until 2020. We will continue to target opportunities in new fuels and power, two areas where we can effectively apply our Downstream and Integrated Gas expertise.
Such steps, combined with the strategy and strength of our portfolio that underpins them, will help deepen Shell’s financial resilience and competitiveness, helping to ensure our long-term business relevance during the energy transition.
In a changing energy landscape, we will continue our focus on delivering strong shareholder returns and cash as we progress confidently along the path to becoming – and remaining – a world-class investment.
(Introduzione del Presidente Ben van Beurden)