Shell plc (SHEL) Earnings Call Transcript

Ladies and gentlemen, good morning and good afternoon to you all. I'm Wael Sawan, the Upstream Director at Shell, and I really appreciate you making the time to join us for this session for our Upstream strategy. For those of you who don't know me, I joined Shell some 24 years ago as a Project Engineer, and I've had the opportunity since then to work in our Upstream, Downstream and our Integrated Gas Businesses. Before taking on my current role in 2019, I led the Deep Water business for 4 years. And before that, I had the opportunity to lead our businesses in Qatar. Today, I'm joined by various members of the Upstream leadership team. Firstly, Sinead, the CFO of our Upstream business, will join me to discuss in more detail some of our broader upstream strategic elements that we introduced at our recent Strategy Day. We will also be joined by Paul, Gretchen and Zoe, who lead our Deep Water, Shales and Conventional Oil and Gas businesses, respectively, and who will update you on some of the exciting opportunities across our portfolio. We plan to first run through around 45 minutes of plenary presentation and leave plenty of time thereafter for your questions. To ask a question, you'll need to be dialed in via the phone line found in your invite materials. Now before we dive in, let me first show our cautionary note that we all will share relating to any forward-looking statements. Let me begin with our investment case. We believe Shell has an important role to play in the energy transition. At our Strategy Day in February, [indiscernible] introduced you to powering progress, our strategy to accelerate the transition of Shell into a provider of net-zero emissions energy products and services, and our Upstream business is going to be a crucial part of this strategy. Powering progress is set around 4 main goals, with the intent to deliver value for our shareholders, for our customers and for society as a whole. Generating value for our shareholders means delivering strong returns by taking a dynamic approach to managing our portfolio, continuing with our financial discipline and ensuring we are ready to realize future opportunities in the energy transition. Powering progress also means powering lives. From supplying affordable and reliable energy that is crucial to the global economy today, to the work that we are doing to become one of the most diverse and inclusive organizations in the world. It's also about achieving net-zero emissions by partnering with customers, with businesses and society as a whole to address the problem of greenhouse gas emissions in the atmosphere. Shell's target is to be a net-zero emissions energy business by 2050 or sooner in step with society. This means net-zero emissions from our operations, our Scope 1 and 2 emissions, and also net-zero from the end use of all the energy products we sell, our Scope 3 emissions. Finally, powering progress also means respecting nature by stepping up our environmental ambitions to protect and to enhance biodiversity. Shell has 3 integrated business businesses, and each has a critical role to play in delivering our strategy to ensure that we have a strong, profitable and resilient company now and well into the future. Our Upstream business, which we will focus more on today, aimed to responsibly manage our advantaged oil and gas resources. This Upstream business has a clear purpose: to build on the legacy we have of delivering reliable and affordable energy that are essential for modern life, while at the same time generating material cash flow that underpins shareholder distributions and funds our growth pillar through the energy transition. And this transition is already happening, of course. Around 70% of the world's global CO2 emissions stutter by net-zero commitments that have either been adopted or are in the process of being adopted by national governments across the world. And at the same time, our customers are increasingly demanding lower carbon energy products. The pace of this change will vary depending on the customer and the region, and Shell is playing an important and a leading role in that transition. But even the most ambitious scenarios tell us that as the world transitions, it will continue to need oil and gas for many decades to come. You will know that have seen analysis of the IEA's net-zero by 2050 scenario that was published just last week, including its assertion that in that scenario there will be no further need for new oil and gas supply projects. While it sets out an alternative pathway to our own SKY 1.5-degree C scenario, both underscore the urgency and the importance of ambitious policy, unprecedented collaboration and dramatic changes in the way the world consumes and produces energy. For us, this all means that we must have the highest-quality Upstream business possible, an Upstream business that is focused and leverages our core strengths, an Upstream business that is resilient to oil and gas prices as well as the carbon and an Upstream business that is highly competitive. This has been and will continue to be our focus going forward. Now as we look to the future of Upstream, we do so from a starting position of strength with a business that over the last 5 years has been focused on value over volume. Our Upstream business has generated more than $75 billion in CFFO, excluding working capital, over the last 5 years at an average oil price of $55 a barrel and over that same period has generated around $25 billion in organic free cash flow to Shell. While, of course, we are proud of this performance, make no mistake. This does not mean business as usual for us in Upstream. Powering progress will radically transform Shell over the next 30 years and will require our Upstream business to step up even further if we are to achieve Shell's ambitions of the energy transition. This will be reflected by the portfolio choices we make as we high grade and strengthen our Upstream portfolio. It will be reflected in our investment choices as we focus our CapEx program on our differentiated core positions to sustain material cash generation, and it will be reflected in the way we do work every single day, aiming to safely grow our margins by leveraging the strength of our integrated capabilities as an enterprise and digitally enabling our people. And I firmly believe that digitalization will be a key enabler to help us get to our full potential as a business. It's fundamentally changing the way we work, helping enhance our recovery from reservoirs, reducing development time and costs as well as improving performance, reliability and safety along the way. Let me give you just a couple of examples. We're using advanced data analytics on our critical equipment, such as our valves, to prevent incidents and avoid unplanned interruptions. We've also applied analytics in our subsurface, where if you take an example of the Gulf of Mexico, we have taken some 3,300 troubled events over 25 years of well history, integrated them into a user-friendly tool and complemented them with 6 AI models, allowing us to streamline the process of identifying subsurface hazards and optimizing well plans to avoid or mitigate risks. This saves millions in costs. It saves on emissions due to less nonproductive time and, of course, it improves safety of our operations. And that's just scratching the surface of the full value potential that I think we can unleash from digital. Now our ambitions all begin with being the most responsible operator possible and this starts with safety. In 2018, we rolled out our process safety fundamentals, which was not about new requirements, but a renewed focus on the rigor that we had to have in following our existing operating practices. Over the past 5 years, we have achieved an almost 50% reduction in the high-risk process safety incidents. Operating responsibly is also about protecting the environment by delivering on our climate targets. Today, our Upstream business has made good progress. We have reduced the total Scope 1 and 2 emissions of our portfolio by more than 25% since 2016, and we've cut our routine flaring in our operated assets by more than 65% in that same time period. We're on track to fully eliminate routine flaring by 2030. Our Upstream activities are also essential for the economic development of the countries in which we operate from providing vital energy for homes, businesses and transport to supporting economic growth and, of course, to the investment in and the development of local talents. And it's this talent base that we have across Upstream that will deliver our ambitions. As we reorient our company towards the energy of the future, our people will continue to proudly deliver the oil and gas that the world needs today, while supporting the Shell Group in areas of adjacencies, such as developing offshore wind farms, materially growing our CCS business and leveraging our current positions to support our host governments on their own transition journeys. We have outstanding people that are committed to playing their part in support of Shell's transformation by ensuring that Upstream delivers its full potential, and it's the same group of people that have already delivered significant improvements over the past 5 years. We've reduced our unit development cost by around 50% since 2015 and reduced our unit operating costs by more than 25% over the same period. Our controllable availability has also significantly improved, reaching around 90% last year. This means more uptime for our assets and more cash generation even in a world like what we saw in 2020 where our people were also managing through the pandemic. All of these improvements have led to an almost 70% increase in our Upstream unit cash flow from operations versus where we were in 2015, recognizing as well that in 2015 oil prices were higher than what we saw in 2020. Our focus over the last few years around resiliency, operational excellence, reducing costs and high grading our portfolio are what puts us in a position of strength. When we look at our combined Upstream and Integrated Gas business to be able to compare with our peers, not only are we by far generating the highest cash flows compared to our peers, they are also the highest quality cash flows as you can see when you look at the CFFO per barrel metric. We also have the most diversified portfolio. Diversity that provides us optionality. We have long plateau advantaged positions in our Conventional Oil and Gas business, short-cycle opportunities in our Shales business and world's leading high-margin Deep Water and Integrated Gas businesses. And on our carbon metrics, which are an important part of our investment decision-making process, we also are well ahead of other operators when it comes to carbon intensity on a Scope 1 and Scope 2 basis. But as I said earlier, we are not satisfied with the status quo. It is this track record of improvements, this position of strength and this organization and its capability that gives me great confidence in being able to achieve much more. So what do I mean by more? For Shell Upstream, this means structurally reducing risks while delivering material cash flows and improving returns. We will do this by becoming more focused, more resilient and even more competitive. We will focus our portfolio on our 9 core positions that generate around 80% of our CFFO. This is a unique and diversified portfolio with access to significant price upside, where we have deep expertise and where we have leadership positions with decades of history. As we high grade our portfolio, we will use both an economic and a carbon lens in our decision-making. Our positions outside of our core ventures will be operated under a lean venture model, which Zoe will talk about in just a moment. There are also parts of our core positions, where we are reviewing portfolio options. At Strategy Day, we talked about our onshore oil portfolio in Nigeria, where we have faced a consistent environmental challenge, mainly because of leaks caused by sabotage and theft in areas where security is a serious problem. The balance of risk and rewards associated with our onshore oil portfolio in Nigeria is simply no longer compatible with our strategic ambitions. Because of this, we have started discussions with the Nigerian Government to align on a way to move forward. From an investment perspective, we will be disciplined in our deployment of capital, and we'll look to make replicable project investments with low breakeven prices and faster payback times, and we will continue to look to reduce our cost structure further with an aspiration to reduce costs by an additional 20% to 30% by 2025 compared with our 2019 cost base. This focus, discipline and continued drive for improvements in our underlying performance will enable us to provide the energy that the world needs and, at the same time, to provide the best returns for our shareholders. Now with that, let me hand over to Sinead to talk through our funnel of opportunities that will drive our cash flow generation.

Thank you, Wael, and hello to everyone on the call. My name is Sinead Gorman. I'm the Executive Vice President for Upstream Finance. Since I joined Shell in 1999, I've held a variety of positions in different parts of Shell, including Trading, mergers and acquisitions, Shales and EVP Finance for Integrated Gas and New Energies. I've been the EVP Finance for Upstream since late 2019. So in order for us to provide the energy that the world needs today, we must ensure we have a strong project funnel and resilient future development opportunities. Our current funnel of projects is robust with more than 400,000 BOE a day of new projects under construction and a multiple of that, which are pre-FID. The projects listed here are only a subset of our portfolio, representing around 50% of volumes including Shales. And if I look at our broader 2P and commercial 2C resource base, we have over 20 years of production in our funnel. Our Upstream business will attract to around 30% to 40% of Shell's total CapEx between now and 2025. With this $7 billion to $9 billion per annum of CapEx, we will be selective in the projects we pursue. They will be projects where we have clear competitive advantages, subsurface expertise, strong integration value and can offer the highest returns. We currently have an attractive portfolio for projects with an average forward-looking breakeven price of around $30 per barrel and an average portfolio IRR between 20% to 25%. Going forward, approximately 80% of our investments will be into our core positions and the majority will be in our Deep Water business. We've been focused on value ongoing for many years now, and this has been key to driving our increase in unit cash flows. The future projects we choose to bring to a final investment decision will also have this same focus. Replenishing our portfolio to sustain material cash flows into the 2030s will also require some continued exploration with a focus on differentiated opportunities. Our exploration team has made a significant discovery in the Gulf of Mexico with our Leopard discovery that we announced earlier this month, extending our track record in the Deep Water Gulf of Mexico and to the Blacktip discovery in 2019. We have also seen continued near-field exploration successes over the last few years with multiple wells in PDO Oman, Malaysia and BSP Brunei, and we have added exciting new exploration acreage to our portfolio with [indiscernible] last year, for example. So going forward, we will spend around $1.5 billion per annum on Upstream exploration, and we'll develop projects that meet our expectations of payback by 2035. Our exploration strategy, like our development strategy, will be focused on value delivery, not volume. The majority of our exploration spend will also be focused on our core positions, ensuring that we continue to keep our hops full and leverage of our quality positions and deep expertise. There will be some frontier and emerging exploration we will pursue, and this will be focused on basins where we believe we have differentiated subsurface understanding. An area of focus for us will be pursuing opportunities around the Atlantic margin basins as you can see here. We have an exciting exploration drilling campaign in the next few years, mostly in Deep Water, for example, in Gulf of Mexico, both on the U.S. and Mexico sides, Sao Tome, Suriname and Namibia to name a few. And after 2025, we will not pursue any new entries into frontier positions. I believe that our top quarter on drilling performance and our focus on basins where we have deep subsurface knowledge gives us a real competitive advantage. Paul will go into this a little bit more in a minute. Before we move to hear from the various business leaders, let me spend 1 more minute on cash flow generation. As Wael mentioned earlier, with our combined Upstream and IG businesses delivering higher total and unit CFFO than our peers, we have demonstrated not only how we can maximize value from our assets, but also how we can generate differentiated value from integration. With the changes we are now making in our strategy, we expect a continued strong performance across the range of commodity prices. If I just take 2020 as an example, our core assets delivered $5 per BOE higher unit CFFO compared to the rest of the portfolio. And as we talked about at Strategy Day, our total oil production is expected to peak through 2019, and we expect our oil production to gradually decline by 1% to 2% a year, including divestments until 2030. And we also expect the percentage of total Shell gas production in our portfolio to gradually rise to around 55%. Our Upstream business is free cash flow positive at $40 a barrel, and our positions have significant access to price upside. For every $10 increase in Brent, we expect our Upstream business to be able to generate an additional $4 billion in cash flow per year. This underpins the material and resilient cash generation we expect from our Upstream business into 2030s. Now with that, let me hand over to Paul.

Thank you, Sinead. I am Paul Goodfellow, Executive Vice President for our Global Deep Water business. I've been with Shell for 30 years, where I've worked in operational and leadership roles in Wells, Deep Water, onshore, offshore and Shales. For 2 years, I served as the VP for the U.K. and Ireland before being appointed as the EVP of Wells in 2017, and I took over as EVP of Deep Water in 2019. As Wael mentioned, delivering our strategy requires the best possible upstream, and that will mean unlocking greater value from Deep Water. Our 4-decade history is filled with great successes, notable challenges and a resilient spirit. And today, with 2 prolific basins, an exciting exploration portfolio and a track record of strong operational performance, we have a significant competitive advantage in Deep Water. Over the last few years, we've also proven we're capable of further improvements, and we have many examples that bring this to life, but a few that stand out. In 2018, our availability across Deep Water was 85%, and in 2020, we reached 90%. This advance resulted from improving our asset management systems, allowing us to identify and mitigate risks to our production. We reduced our unit development cost by around 50% and our unit operating cost by 40% since 2015. Last year, we drilled our lowest cost, most efficient deep water wells ever in Brazil. At a cost of $34 million, our Saturno well went from spun to total depth in 20.6 days, a best-in-class result and 25% and 35% below the median time of cost performance across the industry in Brazil pre-salt wells. In totality, these examples and many more like it mean that in a $60 a barrel oil price environment, we're able to realize CFFOs greater than $30 a barrel. As others have mentioned, Shell's strategy includes increasing investments in our carbon energy solutions while continuing to pursue the highest returns and most energy-efficient upstream investments. The Gulf of Mexico isn't just about cash generation. Our U.S. Gulf of Mexico production is amongst the lowest greenhouse gas intensity in the world for producing oil. Even with these improvements and advantages, we know that there's more to do. Let's take a look at how it will generate even greater value from our assets. We are focused on doing deep water everywhere. We focused on delivering greater value from our advantage positions. For example, as part of the Perdido Phase 2 Topside turnaround, we increased capacity by 30,000 barrels per day. And through data science and analytics, Perdido originally designed for 82% availability is currently operating at 93%. We look at our portfolio as a collection of urban communities or corridors that can learn from each other and work together to drive better outcomes on a larger scale. Corridors give us the options and alternatives that you just don't have if you're a single block operator. As Sinead mentioned earlier, we'll focus our exploration spend and invest over 70% of that in Deep Water. So let me give you a sense of what that looks like. In the Perdido corridor, we've been able to explore for bigger opportunities like we've done with Whale, Blacktip and Leopard. With this focus, we can optimize our infrastructure, including pipeline to shore to unlock the full value potential of our discoveries. This urban planning isn't unique to Perdido. It's at the heart of value creation in Deep Water and speaks to the value that these strategic corridors represent. This is a very simple example, which highlights the benefits of this coordination. In 2015, we had more than 60 supply vessels to support our Gulf of Mexico operations. Through improved planning and resource sharing, we reduced that to less than 15. And in Brazil by taking a similar approach, we've realized a 25% cost reduction for supply vessels over the last 2 years. Now let's look at how replication is making a difference. Prior to our Vito final investment decision, we recognized an opportunity to reproduce the holes for Whale, which is up for final investment decision later this year. By leveraging the construction and supply chain of Vito, Whale will go from discovery to first oil in approximately 7.5 years and featured top quartile subsea facilities. And this cycle time includes the impact from COVID cash preservation efforts that delayed the project FID by approximately a year. With a 99% replicated hole and 80% replicated topside, the benefits go beyond reducing cycle time. We've realized months of reduced engineering time resulting in significant savings in engineering costs on both the hole and topsides as well as greatly improved manufacturing outcomes for the replicated topside equipment. While I trust the power of our corridors is clear, it's actually our unique capabilities and advantaged positions that show our true upside. We'll build on our strengths to drive better business outcomes, not just at an asset level, but across Deep Water. We've proven that we're best-in-class at well delivery, but we know there's an opportunity to take even more cost out. We've adjusted to a franchise model, where we've gone through a limited number of standardized well types that cover our global Deep Water portfolio. We've gone from 18 well archetypes to 3 and from 14 completion archetypes to 4. This method, similar to the franchise models of fast food restaurants around the world, brings together the right materials, services, people and procedures to reliably deliver world-class business outcomes regardless of location, and this launches a domino effect of efficiencies internally and in the supply chain. From a supply chain perspective, we're partnering with key suppliers to develop standard work packages based on a set of well archetypes to be deployed globally. This simplified and standardized approach has delivered an additional 20% cost reduction in the last 2 years in the Gulf of Mexico, where we've been developing it. But we know our more recent successes aren't enough. With our advancing assets, we are capable of more. We'll build on our strengths alone from all of our challenges so that we can deliver even greater value from this business. And with that, let me hand over to Gretchen.

Thanks, Paul. It's a pleasure to be here today. For those of you who don't know me, I'm Gretchen Watkins, Executive Vice President of our Shales Business and President of Shell in the United States. I took up those roles when I joined Shell in 2018. And before that, I was the CEO of Maersk Oil based in Copenhagen and previously worked for Marathon Oil and BP. Shales has been on a significant improvement journey over the last couple of years, a journey that's transformed our business by focusing on a high-graded portfolio, improved capital efficiency, strong operational performance and a simplified operating model that has significantly reduced costs, all of which underpins strong cash flow generation. To achieve a high-graded portfolio, we've divested from nonstrategic assets for strong valuations, allowing capital to be focused in our preferred basins. We divested our dry gas positions in the Haynesville and Appalachia and the United States. In Canada, we exited our foothills sour gas business, and in April of this year, we completed the divestment of our Fox Creek and Rocky Mountain House assets. In fact, our current portfolio has generated more CFFO in 2020 versus 2017 despite a smaller asset footprint, the impact from COVID-19 and prices that were 23% lower. This cash generation is a testament to the progress that we've made on our competitiveness journey. In 2020, we also transformed our operating model, resulting in more disciplined execution and 40% fewer handoffs. Our operating model puts us on track to see a further 30% reduction in costs by the end of this year. And more importantly, we are a smaller and more nimble organization. We have clearer accountabilities, simplified processes, which enable our teams to boldly take the business forward. Now let me highlight a couple of our assets. In Canada, our Groundbirch Montney natural gas asset continues to show additional potential for resource maturation and excellent well performance. The Groundbirch asset is uniquely positioned at the inlet of the Coastal GasLink pipeline. By sharpening the focus on execution and cost reductions in the Shales portfolio, Groundbirch has reached its breakeven price -- reduced its breakeven price by some 20% since 2018 and it will offer a lower cost of supply than the local AECO market. As a result, we can confirm today that Groundbirch will provide the majority of the feedstock for LNG Canada trains 1 and 2. Our Argentina asset sits in the Vaca Muerta, where reservoir quality matches the Permian. We have a large position in the best part of the basin, and we are ramping up oil production while continuing to appraise and unlock development potential. Wells that we have already drilled in the black oil window have exceeded our expectations. And now to the Permian, which delivers the majority of our high-margin volumes and free cash flow for our Shales business. Permian is an Upstream core asset and it will attract the majority of the capital within our Shales portfolio. We have a very attractive Permian position with more than 500,000 acres in the Delaware Basin in areas with the thickest formations. We have some of the highest oil yields in the basin and have derisked 8-plus years of Tier 1 inventory. We've seen a nearly 60% reduction in drilling and completion costs and a 53% reduction in unit operating costs since 2015. Here, technology is an enabler to the significant reduction in well costs. We use remote real-time monitoring and automation in our drilling activities. This capability allows us to deploy Shell proprietary AI techniques to optimize and continually refine our drilling parameters, leading to more capital-efficient wells. We are looking for cost-saving opportunities everywhere. For example, we've reduced our flowback costs through automation and simpler designs. This also improves our cycle time. It increases early production by almost 20%. Additionally, we've started using our own sand traps and tanks, eliminating more expensive rental equipment. We continue to progress development while looking for opportunities to consolidate and enhance our footprint. We're focused on strong operational performance and competitive cost structure. With prior infrastructure investments, we are now in our drill-to-fill stage here. We have forward-looking IRRs greater than 50% and breakevens of about $30 a barrel and paybacks within 2 to 3 years. We also capture additional commercial value through our Trading and Supply business. This integration enables Shell to reach the highest value markets and manage price exposures to increase the resilience of our investments. And as communicated in our first quarter results, the Permian has delivered 3 consecutive quarters of positive free cash flow. So now I want to talk about our efforts in the Permian to reduce flaring and emissions. Shell places a high priority on reducing methane emissions, and we support the direct regulation of methane. We have actively worked to significantly reduce our emissions and as a company have announced a target to maintain methane intensity below 0.2% by 2025 for operated oil and gas assets. This is an area that I personally am very passionate about. Today in the Permian, we have top-quartile performance in limiting methane emissions, and we are already below our 0.2% methane intensity target. Since 2017, we have reduced our greenhouse gas and methane intensity by around 80%. We also have reduced flaring by more than 80%, all while increasing our production of Shell-operated assets by nearly 120%. We've implemented infrared cameras along with drone technology as a means to improve methane emission leak detection and improve the speed of repair times. For example, drone-mounted detection cameras feed information to an artificial intelligence-based analytical platform, which is able to detect and analyze methane leaks from images collected by this camera. This produces a simple data analytics set and within 24 hours of a drone survey, we have all the information that we need to identify a potential leak, dispatch maintenance crew and remediate that leak. We've also stopped all routine flaring in the Permian Basin since 2018, and we applaud others who are moving in that direction now. With that, let me hand over to Zoe to talk about our conventional oil and gas business.

Thank you, Gretchen. It's great to be with you all today. I'm Zoe Yujnovich, the Executive Vice President for Conventional Oil and Gas. Let me also briefly introduce myself. Prior to my current role, which I took on in January of 2020, I was the Executive Vice President and Country Chair at the Shell in Australia, where I was responsible for our integrated gas assets. Before that, I was in Canada, leading our heavy oil business, including both oil sands and unconventionals. This is where I joined Shell in 2014. Before then, I worked with Rio Tinto as the CEO of our Iron Ore Company of Canada and prior to that was the Company President for Brazil. Conventional Oil and Gas is the heart of our Upstream business as it spans our legacy positions, which we've developed and operated over decades. Over the years, this portfolio has proven to be a material cash engine. The diversity of the portfolio also provides price resilience given the mix of production sharing contracts and tax royalty agreements. This is evident in 2020 when our conventional business delivered around 60% of the $4 billion organic free cash flow for Upstream. We're also well positioned to take advantage of price recovery and upside as we demonstrated in our recent Upstream quarter 1 results. To sustain this cash generation capacity into the future, we're focusing the majority of our capital and resources on 6 core positions: 3 key operated countries in the U.K., Nigeria and Malaysia; and 3 nonoperated positions in Oman, Kazakhstan and Brunei. We have unique leadership positions and competitive advantages in these countries based on our subsurface knowledge, integrated value chains, decades of production experience, deep relationships with customers -- sorry, governments and partners and very talented local staff. These 6 core positions provide longevity through production optimization, new project developments and also have near-field exploration running room, which will allow us to sustain cash delivery well into the 2030s. As we focus on our core positions, we are significantly reshaping the portfolio. We've made good progress with the divestments of noncore assets as you can see on the map. Earlier this year, we announced the divestments of our onshore Egypt assets. And last week, we signed a deal to sell our interest in Malampaya in the Philippines. The divestment of our ventures in Baram Delta in Malaysia is in progress, and we're also intending to hand back our Upstream licenses in Tunisia to the government in 2022 when the Miskar license expires. In Nigeria, we divested OML 17 earlier this year. And as Wael mentioned earlier, we're also discussing portfolio options for our remaining onshore oil positions in Nigeria with the Nigerian government. Looking forward, we will concentrate our efforts on our Deep Water and gas value chains in country. Focusing our portfolio will also allow us to further drive our operational performance and project delivery. Already, our capital efficiency has improved by around 45% over the last 5 years, and we've reduced our unit operating costs by around 10%, while keeping our controllable availability close to 90%. But there's more improvement potential as we leverage our extensive subsurface and operational data through advanced data analytics and digital technologies. In PDO, for example, the team implemented a new digital web-based system called [indiscernible], the arab word for collaboration. This optimizes well planning and delivery, coordinating more than 30 rigs, more than 100 fields and more than 700 wells. In 2020, almost 2 million barrels were accelerated, generating an incremental cash flow of more than $200 million. The other unique feature of our core positions is that these Upstream assets are part of an integrated value chain with Integrated Gas, Trading and Downstream. This allows us to maximize the value of our molecules and positions us strongly for the development of new value chains as we move towards net emissions or net-zero emissions. Let me turn to the U.K. as a great example of what we're doing in this space. The U.K. is a core part of our portfolio. We operate around 10% of the total U.K. oil and gas production. Our cash flow from operation unit margins in the U.K. are very attractive and resilient and among the best in our upstream portfolio. Our U.K. team increased production by more than 50% since 2015 after divestments. And the 7 major project FIDs we took in the last few years and with several upcoming will result in further growth in the years to come. Our U.K. portfolio can essentially be segmented into 2 parts. The first is the high-margin oil FPSOs, where we will focus on project replications, standardization and selective growth; and the second is in natural gas, where we expanded our unique integrated value chain from wet gas to chemicals. We realize that the external context is changing at pace in the U.K., and the U.K. government is a front-runner in development policy and legislation to achieve net-zero emissions. We are also committed to achieving net-zero emissions in the U.K. and have made good progress to reduce our Upstream emissions over the last 5 years. But as the landscape changes and shifts quickly, so are we, and we need to do much more. As we continue to develop our U.K. portfolio, we're actively pursuing a funnel of projects to further reduce our direct emissions through brownfield abatements, offshore electrification and selective portfolio high grading. We're also well placed to develop new value chains for blue hydrogen in combination with carbon capture and storage, addressing both Scope 1 and Scope 3 emissions by leveraging our gas assets and strategic infrastructure positions. For example, we're participating in the Acorn project, one of the largest and most mature carbon capture and storage and hydrogen projects in the U.K., which is centered around our St. Fergus gas plant. St. Fergus received large volumes of natural gas from U.K. offshore production and Norwegian imports and plays a critical part in supplying the U.K.'s energy needs. By reforming the gas into blue hydrogen and storing the carbon dioxide into nearby depleted fields through currently Shell-owned and operated infrastructure, the Acorn project has the potential to decarbonize industry and homes across Scotland and the U.K. and the ability to store over 5 million tonnes per annum of CO2. To enable these types of developments, the upstream industry and the U.K. government have recently entered into the North Sea transition deal in which Shell is a partner. This deal brings together a package of commitments and measures that will facilitate supply decarbonization while building policy frameworks, capability, supply chains and investments in clean technologies, all while supporting jobs. It's a powerful example of what can be achieved when government and our industry work together towards a common goal and can serve as a blueprint for other markets. Finally, let me also spend a few words on what we're doing in our lean portfolio. Last year, we identified 11 lean positions in our conventional portfolio, including countries such as Italy, Norway, Netherlands and Iraq. Since then, we've taken this number down to 8 with the portfolio decisions I mentioned earlier, showing evidence of our early action despite the challenges of 2020. My ambition to the lean portfolio is twofold. Firstly, to drive high performance in the assets, evidenced by reducing OpEx by more than 40% in the next 3 years, increasing free cash flow by more than 30% compared to a 2019 baseline and turning them into agile organizations, demonstrating our ability to drive a fit-for-purpose control framework in Shell. And secondly, to assess if these ventures have the potential to become core by unlocking significant materiality. And if not, to divest for value over time. Critically, the value in segmenting our conventional portfolio is not only in the focus that this brings to our lean assets that the clarity of purpose for the Shell Group on our core asset positions as well. We will manage our lean assets with a new operating model based on 6 key principles: more frontline autonomy and decision authorities within the ventures; a small supervisory team with lower central overheads; and more stringent investment hurdles for projects and exploration steering towards faster paybacks. The differentiated operating model means that, in general, the lean ventures will function with more autonomy, be liberated from the complexity so that they can focus on cash generation. Learnings will be taken front lane and implemented broadly across our Upstream organization at every relevant opportunity. We've already taken the first steps to implement this model, and I'm confident we can achieve these objectives within the next few years. Now let me hand back to Wael.

Thank you for that, Zoe. Let me now wrap up before we open up for questions. At our Strategy Day in February, we introduced you the powering progress, our strategy to transform Shell. And today, we build on that, hopefully, helping to explain how this translates for the Upstream business. In short, we believe our Upstream business has a critical role to play in responsibly providing energy that the world needs today and providing the financial strength to transform our company and to fund our shareholder returns. In recent years, our 3 lines of business have made good progress, building a compelling investment case through their competitive portfolios, attractive growth options and differentiated operating models. To support Shell's ambitious transformation, Upstream needs to continue to push for more. We need to become more focused, more resilient and even more competitive. And our Upstream business is well positioned to deliver that. With that, time to go to our questions. And Ali, if I can ask you to invite the first question.

[Operator Instructions] And we'll go ahead and take our first question from Oswald Clint from Bernstein.

Two questions. First one, I mean, really around exploration first, please. And really derisking these frontier exploration plays and enabling for you to feed your hubs going forward. Just one example here. I'm just thinking about risks. The Norphlet play was a good Shell success story. But then you -- I think you've ended up taking a bit of an impairment on Appomattox. So it's really a question around subsurface risks as you try and derisk the exploration plays. And I mean anything going on there with seismic imaging that could really help unlock a bit more resource? Some of your peers talk about this in recent years. And then secondly, a question on production. Obviously, it feels a lot easier to manage the 1% to 2% decline in oil than trying to grow 1% to 2%. But you're very offshore exposed. And of course, decline rates here are obviously an order of magnitude higher than 1% to 2%. So just getting a sense of your confidence around managing to this number. Should we expect it maybe to be a bit more lumpy some years and some years higher, some years lower? Or is this really down to Paul here and his Wells team to just enable you to do the 1% to 2%?

Oswald, thank you for the questions. Let me start with the production one and then dovetail into exploration and hand over to you, Paul, maybe to talk a bit about Appomattox, specifically the Norphlet and subsurface risks in general. Oswald, for the production declines, I think it's important to contextualize that the 1% to 2% that we talk about is on the overall portfolio. And that's going to be driven -- the majority of it is going to be driven through some of the divestment activities that we expect to see going forward. The majority of our 9 core positions, we will look to keep flat or to slightly grow, and that's where we are focusing the majority of our capital. With 80% of that capital going into those core positions, we have high confidence that we are able to continue to drive that sustainability in those positions. I think to your point around the nature of offshore positions and the higher decline rates. What I would say is we do have a very diversified portfolio. If you look at our Oman position, if you look at our Nigeria position, if you look at our Brunei, Malaysia positions and others, those tend to be lower decline rates and therefore, easier to manage at that rate. From an offshore perspective, the majority of our exploration spend, around 70-plus percent, goes into Deep Water to be able to sustain some of the levels that we talked about. And that's how we come up with a $7 billion to $9 billion of CapEx that we feel is important to be able to sustain the cash flow generation from this business well into the next decade. Just on the exploration piece, what I would say is, indeed, we are more geared towards Deep Water exploration. We have had many, many successes in this space. I think, in particular, as we -- as I hand over to Paul on Appo, that is an area where it's important to look at the entire urban corridor that Paul was referring to, and maybe give him an opportunity to reflect on both the subsurface, but also some of the players that surround. Paul?

Thank you, Wael, and Oswald, thank you for the question. Specifically on Appomattox, if I take a step back, then Appomattox was the play opening development of the Norphlet play. But clearly, it's not the only opportunity that we have within the Norphlet. It came on stream ahead of schedule, ahead of budget, and availability has been very, very good since we started that asset up. And clearly, we've seen more complexity from a subsurface perspective that we have -- now we've got a year or so of production behind us have been able to really sort of integrate that into our overall thinking and what that means going forward of how we position future infill wells, but also how we think about the satellites that we already have from a discovery point of view, so Dover, Rydberg and Fort Sumter, as well as with the other exploration opportunities that we have within that urban center in totality. So whilst, yes, we have clearly learned from the subsurface and that often happens with play opening developments such as Appomattox and the Norphlet, it's clear that the technology, some of the examples that we spoke about in terms of how we integrate that insight to further then reflect that in upcoming opportunities that we have, will be absolutely key. And seismic that you mentioned is just one of those technologies that we are using heavily. Yes, I will say that whilst the subsurface is more complex at Appomattox, we do see pressure connectivity there. We did start our first water injection well at the end of 2020, and that is progressing well. With that, Wael let me hand back to yourself.

Appreciate that, Paul. Thank you. Ali, if we can ask for the second question, and Oswald, thank you for that first question.

We'll go ahead and take our next question from Martijn Rats from Morgan Stanley.

It's Martijn. I've got 2 questions, if I may. While in your introductory remarks, you mentioned a little bit about the IEA report from last week, but it's come as such a sort of marked set of conclusions, so to say, that I I did want to ask you to elaborate a little bit about it. Sort of reading the report myself, there seems to be quite a wide gap between sort of the detail in the report and some of the media reporting. But the perceptions of it are not necessarily insignificant. And I was wondering if you have a view on how this might still, despite all the plans that you have, impact your ability to move forward with major FIDs and things like that. So that's one thing. And the second thing I wanted to ask relates to the Permian. You speak very positively about the Permian. But I was wondering about this. So 12-month forward WTI is trading a little over $60 a barrel. And you're talking about breakevens that are $30 a barrel. So that's a rather wide gap of $30. And yet, we're not seeing super major oil companies, like Shell, adding any rigs. We see privately owned companies adding a lot of rigs. But the super majors, including Shell, not really adding all rigs. So now I can understand the bit perhaps capital discipline, constrained framework, why that might be the case. But I was wondering if you could say a few more words about how you're thinking about allocating capital to Shale. Are you, in effect, saying, look, we want to do these short-cycle projects perhaps later in the decade when really we can only do short-cycle projects. So we don't want to do them now, we want to do them in the future. Is there thinking behind it like that?

Martijn, thank you for those 2 questions. I'm going to kick off with the first one and invite Gretchen to talk to the second one, including how we think about the capital allocation from an Upstream perspective. I think maybe let me start with the IEA report, which, of course, like you, I had the opportunity to review. I think, firstly to say, we as a company, of course, welcome that IEA report. And one can dispute, of course, the plausibility of some of the assumptions that underpin that scenario, we do find quite a lot of common ground with it. And maybe to be a bit more specific, if the world is to achieve the net-zero emissions by 2050, the report rightly points out, as we have been trying to point out for a long, long time now. It will take unprecedented levels of collaboration across all the countries with real policies and regulations that need to be implemented immediately. It also refers to that -- those policies, but also customer behaviors needing to change very quickly to be able to fundamentally impact the demand side of the formula. Like the talks about the uptake of electric vehicles, the installation of heat pumps, solar panels in the houses, refers to, for example, business travel being constrained to what we experienced in 2020, which, at least from my perspective, was minimum. And so you put all the context, what it tells you is that you do need policies and regulations and you do need significant demand shifts if we are to achieve the ambitions that are set by the report. If I then take it one step further, the report rightly points to a significant amount of capital being required to achieve that. We've talked about $5 trillion per annum, which is a significant step up from the roughly $2 trillion or so that we spend at the moment, which is absolutely right, but also placed our conviction and the underpinning of the powering progress strategy that we introduced in February, which is that if we are to truly move towards the ambitions of Paris, if the world is to collectively move there, it will require the right incentives to be able to create a pool for that $5 trillion per annum of capital to come through. And therein will lie a number of opportunities for companies like ours who have the customer connects to our retail side and B2B businesses, but also companies like ours that are able to integrate across the entire energy value chain. And that is very much the underpinning of why we talk about one thing to move with the transition, one thing to start to redirect capital towards our growth pillar and one thing to at least look to pivot, prove, see that we can create value and then pivot even further. If I then step back for a moment and say, that's how our strategy drives it, what does it mean for the Upstream business? I think it's very consistent with where we have been going, albeit, it looks at a different time frame and it is a scenario after all. I can give you 100 different scenarios. But what we have done is already guided towards that 1% to 2% oil production decline with a peak in 2019, and what we have done is we have also talked about no longer going for frontier exploration post 2025. So we are already in a mindset that plays into the scenario. And then the question is simply going to be, is the pace going to materialize or is it going to be slower? I hope for the best, but we need to be able to be wary and be ready to go in step for society rather than go too far ahead of it. Let me maybe pause on that question and then hand over to you, Gretchen, to talk a bit about the Permian.

Thanks, Wael. And thanks, Martijn, for the question. Yes, so from a capital allocation perspective, we actually feel really good with where we are right now in terms of allocating capital to the Permian. We're running 3 rigs that are operated by Shell. There's 3 to 4 rigs were operated by our non-operated partners. But we're in a free cash flow positive position right now, which is right where we want to be. We've been there for the last 3 quarters. We plan to stay there. As you say, the price environment is looking positive. So we have the ability to ramp up if and when we would like to do that. But right now, we're enjoying the free cash flow that's coming in from that. I mean, attribute that really to the fact that we've reduced our drilling and completion costs by almost 60% over the last 5 years, we've reduced our unit operating costs by 53% over the last 5 years. So we've taken a lot of efforts to simplify our operating model, reduce our costs, really get clear on accountabilities, and we feel like that free cash flow that's coming in right now is exactly where we want to be. So we do have an opportunity to increase our capital when we want to. We've got 8 plus years of Tier 1 inventory derisked at this point with an opportunity to derisk more over time, and we feel like that flexibility of inventory and capital when we want to use it is available for us.

Thank you for that, Gretchen. Martijn, thank you for that question. Ali, if we can go to the next question, please.

We'll take our next question from Christyan Malek from JPMorgan.

Two questions for me. First of all, just going back to the Slide 12, where you show your planning assumptions of the medium term for oil price and in the context of that, and what can be some of the variables you've talked about in terms of decline rates of $79 billion. The first question is around that, which is, well, say we are in a sustained higher oil price, $60 to $70, whatever. Does that dollar amount change? And would you then solve for potentially moving the needle towards no decline per annum? So I just want to understand the reaction function of oil price strip to your CapEx assumption in the context of that? Because it strikes me as slightly on that -- if all this is $70, you'll still be sticking at the low end of your lever $75 billion of Upstream investment when it would be more tempting to spend and generate more cash flow, particularly some of the inventory that you have in the Deep Water? The second question I have is regarding just this argument around a sustained period of other investment. And just how the NOCs that you're interacting with are responding to your sort of the selection process around where you invest. So in other words, how are the NOCs, without wanting to sort of think about one, responding to yourself and other majors' CapEx discipline and sort of in some cases, under investment versus previous years? How are they able to then sustain their own production levels without that funding that you've long put in there in the past?

Christyan, thank you for both those questions. I'm going to start with the second one, in particular, the context of the national oil companies and then, Sinead, I'll come back to you to maybe reflect a bit on how we're thinking about capital going forward. Christyan, I think it's fair to say that there's a very different dynamic that we have seen over the past, I'd say, 5 years, but that has accentuated in the last couple of years. I think the discussion around energy transition, the discussion around stranded assets has changed the dynamic. And in particular, as we have all, as a sector, I think, held back on capital, and we've talked about it from a value over volume respective at Shell, I think it's changing the narrative and the interactions with many of our counterparts. Not that there is anything that we're doing to hold back, it's much more to be able to try to get across in our discussions that we do need sanctity of contract, we do need disability of investment climate, we do need the right support and the right fiscal incentives to be able to do that. And that, I have to say, has landed a lot better in the last couple of years than I have seen in the last 2 decades, I would suspect, in our sector. And you'll see multiple examples of that around the patch. I mean, just earlier today, a deal that we have been working on for a few years to try to close with our counterparts in Nigeria, the extension of the OML 118 deep water block was finalized. That's taken us a long time, but it gives us now a deal that is commercially attractive and one that allows us to be able to continue to look at further opportunities there. Many of these things, I think we find ourselves at a point in time where there's a lot more sensibility in the discussion and that there is a recognition that capital will simply leave the country if it is not given the right level of protection and the right incentive, and we're trying to be as open and clear with our counterparts that we need to be able to have that environment if we are to continue to invest. Let me hand over to you, Sinead, maybe at this point, to get your perspectives.

Thank you, Wael. And thank you, Christyan. Indeed, so it's interesting to watch the oil price vary, as you say, at the moment. $79 billion of CapEx is a significant amount without a doubt. And that range gives us flexibility as we discussed earlier. You will see variability, depending on which year it is. In some years, you'll see us at the lower and some years, you'll see us towards the higher, and we will flex that according to both the readiness of our opportunities and, course of, what's happening in the macro situation as well. So we have flexibility, which is definitely there. Beyond that, as I discussed, we have a significant portfolio, a funnel of options coming towards us. We're not short of opportunities without a doubt it, and we talked about 400,000 BOE a day of just things in pre-FID coming towards us at the moment. So we will use those as they become ready to begin to ramp up further as comes through. But we've also talked about the options that we have in Shales. So we have that ability to swing between the different elements. Going back to that, I would say, the cash flow that comes from this portfolio, as you rightly point out, with price going up is significant. That $4 billion per annum flagship CFFO for every $10 is just very significant and wise as a group point of view and ability to consider what we do with that when we transition and how we return money to shareholders as we've discussed before.

Thank you for that, Sinead. And operator, before I go to you, Christyan, again, thank you for that question. And maybe the only thing to leave with you is we don't plan to jump outside of that $7 billion to $9 billion range. We would like to very much be able to ride the various cycles within that space, and it still gives us $2 billion of flex. And so what we don't want to do is the sins of the past where we get excited by a short-term oil price reality. And by the time that project comes in, the oil price has gone through the cycle. And so expect to see us really disciplined in staying within that space. Thank you, Christyan. And operator -- Ali, if I can go to you for the next question.

We'll take our next question from Jon Rigby from UBS.

Four questions, actually. So a couple and then just one clarification. So can you talk a little about how the way you run the business has changed since you sort of move to a value over volume strategy? How have sort of cost activities and behavior changed? Because I think one of the sort of conundrums that we have had externally in looking at oil companies and their financial performance that they advertise extraordinarily good IRRs, very often on a project basis and deliver extremely poor return on capital employed. And so there's always been a sort of gap between projects and corporate. And I just wondered whether as you sort of change the strategic behavior, whether there are things that drop out, either just absolute cost or risk or whatever. I just wondered whether you could just talk about that and maybe talk about how we can reconcile better between those 2 numbers. The second question is, is there a risk as you pursue a strategy about value over volume? I assume that you will be more selective about the projects that you go ahead with. The way that you will shape them will be focused on an IRR and a short payback, and yet, governments and resource holders may well be focused on something else, like a maximization of the resources under the ground, et cetera. And then you may have issues in, I guess, like Nigeria, where you were to exit bit of your portfolio but still pursue other bits. So I just wondered whether there were any sort of issues or obstacles sort of grit in the way of pursuing this strategy that arise because you'll not align the stakeholders in the way you might have been before. And then just one point of clarification. You've sort of laid out the FIDs but Groundbirch isn't on it. What's the -- how does that fit into your plans?

Jon, thank you for those questions. I'm going to give Gretchen the opportunity in a moment to basically clarify the Groundbirch ones. I'll take the first one, and maybe I'll come to you, Paul, given the amount of capital we're spending in the deep water space, I think it's worthwhile to sort of reflect on this move from pure NPV maximization to one that tries to new ones, NPV and IRR and the like, maybe in the context of Vito 1, Vito 2, Whale, et cetera. And I'll try to address your first question there, Jon. I think it's a great question. And it's one where I have to say we've evolved over the past 5 years. So it's not been a -- it's value over volume, therefore, you can see a change overnight. It has progressed. Before I get into that, maybe let me first acknowledge your point around the return on average capital employed. And there's nothing more painful or more transparent than the reality that the sins of the past continue to weigh us down. We still have, in our ROACE, a significant number of projects where our breakeven prices were closer to $70, $75 in the hay day of the early 2010s that it's going to take us until the early part of this decade to be able to really get past them and to get the ROACE impact of the projects where we have been investing in the last 4, 5 years in a much more value over volume mindset. So what does it mean, though, value over volume the way we work? I think it starts with the fundamental assumptions around oil price when you look at projects into the future. In the past, it would be one where you believe that oil prices are in perpetual inflationary mode. We don't look at that in the same way anymore. We look at, one, the resilience as determined by the breakeven price. Then we look at the resilience against a set of different oil prices, including the high that we would get in a high oil price. And so that mental model of what we are measuring for when we invest in the project has fundamentally changed from where it was. I'd say another element of value over volume that you also see at the moment is our appetite to be able to really go after the tail of our portfolio. When we were much more focused on volume, and I mean by that both production and reserves bookings, it made us not want to move on some of these opportunities. When we have liberated the organization to say, where do we truly get the value out of this -- out of our time and out of our capital, it's allowed us to really be a lot more scrutinizing of the portfolio and to focus on the key areas that make a big difference. And maybe the third and the last one I'll mention in terms of practical ways of where value over volume has changed the way we think about things is in the exploration space, where, again, a volume over value mindset or at least a volume-centric mindset was one where you are perpetually looking to put your exploration dollars into the highest potential contingent resource opportunities. The value, of course, typically sits in your near-field exploration opportunities. Even if you only get 30 million, 40 million barrels, it can be much more valuable than a 200 million-barrel discovery in a totally new environment, because you can tie it back very quickly, you can leverage existing infrastructure, you can leverage existing organizational structures. And so you see us shifting 80% of our capital towards those core countries, where we are truly focused on the value creation. Jon, I hope that just gives you a flavor of some of the things, and I have a long list I can describe to you of what we're doing, but it is this evolving change in the way we think and measure and screen how we do work that I think is an important element of this strategy. Let me now maybe go to you, Paul, to talk about the implications of that for some of the projects.

Thank you, Wael, and thank you, Jon, for the question. Maybe if I pick up where you left off Wael, so clearly, it's a shift from NPV maximization to a suite of metrics that help us think about the business where IRR is a key one, but also cash breakeven, what our payback time is. And clearly, that results in us thinking about the number of pathways that we have in a business such as Deep Water, where we have 2 tremendous basins and a very exciting frontier portfolio. Near-field exploration is one of those and the ability to quickly tie back projects such as [indiscernible] or the [indiscernible] project that's been upstream for a couple of years. It's also, as we think about those frontier exploration plays, how do we minimize cycle time and actually start off with a view of what will it take to derisk and polarize. I think you've seen that in our entry into Mexico, where we went from lease signing to spudding the first well within 2 years. And then once we sort of think about development, it's really about how do we think about developing the core and building options above that. And you see that's on Vito, where we took FID on sort of Vito as a core project, but now have options to think about waterflood as an add-on on top of that. I think in a maximized NPV world from 5, 10 years ago, we would have looked at the totality of that in one, which adds complexity, cost, scope, scale and size not necessarily for the betterment of sort of the piece overall. And I think you'll see similar type of thinking as we bring Whale towards FID as we think about other pre-FID options such as Gato do Mato in Brazil. So really, it's about thinking about the holistic whole and how do we sort of lock in the core and then how do we give ourselves options to build on top of that to further enhance value through the capabilities that we have. Thanks for the question, Jon. And Wael, let me hand back to you.

Yes. Thanks, Paul. And then to Jon's point there, I think we will continue to have to work with our partners, with our governments to go in this direction because that's the only basis under which we're going to be investing capital as per our strategy. Otherwise, I think we go back to where we were. And maybe Gretchen, just to close it off on the clarification around Groundbirch.

Yes. Thanks, Jon. Groundbirch is a great asset. It's got -- we have enough resource there to be matured through the whole 40-year window of LNG Canada operating window. And since we FID-ed LNG Canada, we've actually increased the -- our volumes there through some commercial deals that we've worked, and we've reduced our cost significantly. So our cost to supply LNG Canada is down 20% since FID. And as I said in my talk earlier, we're now able to supply LNG Canada Trains 1 and 2 below the AECO market. So we're really pleased with where we are there. We are planning to start ramping up drilling again in anticipation of LNG Canada probably late this year, early next year. And the reason you don't see it as an FID is we just don't FID Shales projects in the same way we do major projects. So you saw that on the slide, I think, that Sinead showed at the very bottom, where we have a constant capital allocation that's ongoing into our Shales businesses. But we just look at it differently in terms of batches and how we performance manage on a more of a short-interval basis than we do on our big, major projects.

Thanks, Gretchen. And Jon, thank you for those questions. Ali, can we go to the next question, please?

We will take our next question from Michele Della Vigna from Goldman Sachs.

It's Michele here from Goldman. I wanted to ask about your ambition to reduce OpEx by 40% over the next 3 years. It clearly very important for the returns in the business. It's very ambitious. I was wondering if you could unpick some of the moving parts there. How much is cash versus noncash? How much comes from portfolio change? Because when I look back since 2015, you reduced your unit OpEx by 26%, and that was a period of major improvement in availability of broader cost deflation in the industry. So 40% over the next 3 years certainly looks quite ambitious.

Michele, thank you for that question. And what I want to do is to split this one between Sinead and Zoe. And the reason I do that is just to clarify, we will be looking for roughly a 20% to 30% improvement or reduction in our cost structures between 2019 and say 2025. The 40% is very much what we're looking for the lean ventures portfolio, which we believe we have disproportionately more that we can take out of it. And so maybe I want to invite you, Sinead, just to talk about what we're doing across Upstream to Michele's point around cost, what's cash, what's not. And then give you the opportunity, Zoe, to further a bit what specifically we think we can do in the lean portfolio. Sinead?

Thanks, Michele. And you're right, you've seen that we've reduced our unit operating costs by more than 25% since 2015. And at the same time, actually, just as we talk about, impact to cash. Our unit development cost has come down by around 50% as well during that time. So we'll continue to look to reduce that further, and we're looking to reduce costs by an additional 20% to 30% by 2025 compared with our 2019 cost base. And to your point, how are we doing that? Part of it is by building a simpler portfolio that we powered by a leaner organization. And I'll stay away from lean specifically and let Zoe talk about that. But we are focusing in making sure we're more agile and increasing project standardization and replication. And that flows through, of course, not only in capital but also flows through in terms of what you see in OpEx as well. And you see it in terms of just having platform designs and operating platforms run in similar ways. And certainly on the design base, which I realize impacts capital more, but you've seen it in the Gulf of Mexico, and Paul talked about this a little bit, but also where we're seeing nearly 80% of the Vito design replicating into our Whale development. So that's showing through in terms of just reduction costs specifically. But more specifically on OpEx. We're being very, very focused on where we use our own expertise and where we turn to the external market. So recognizing where we truly differentiate and help drive the most value from our differentiators and not reinvent. So we will go externally when somebody else is more cost effective to do something. Wael also spoke, of course, about the digital technologies that are flowing through and at the heart of our transformation. I think he made it very clear about the absolute potential to drive cost down through those as well, both in terms of cost, but also improving performance line as well, which helps in the [indiscernible] of C elements. And if I take a step back and say, well, where is my confidence level? Certainly in our business plan, we've line of sight to 20% OpEx reductions over the next years. And that includes efficiency improvements in the assets. It also includes the reduced staffing levels that we're seeing as a result of the recent restructuring that we've talked about, and also, of course, selective divestments in there. But also beyond that, we're continuing to challenge each of the assets to close their full gapped potential and try and find further yield to bring that 20% up to the 30%, which is where we want to be. But Zoe, I think you can build on that in terms of the specifics around the lean portfolio.

Yes. Thanks, Sinead. I won't repeat some of the areas you've already explored around fundamentally how we want to go after the value stack that really will help us to drive the broader efficiencies in our underlying OpEx. I think worthwhile probably stepping back on our lead ventures and sort of remind ourselves that the broader synergies come really in 2 parts. It comes in our lean portfolio and our drive for additional efficiencies, and I'll come to that in a moment, but also in ensuring that the broader Shell organization, all of our functional expertise, our drive for project replication and standardization is duly focused on the core of our Upstream business. And so what we intend to achieve is a significant momentum and pace of delivery in our core business, which, of course, is what will sustain our cash flows into the forward decade and indeed be the most significant part of where we attract our capital investment. And for the lean ventures, indeed, our focus is really on 3 key things. I mean the lean assets are broadly categorized into 3 areas, what we call developing assets, mature assets and those that we're divesting. The developing assets are those that we're still maturing but we believe could have the potential for significant materiality or longevity. The mature assets are those that we're looking to maximize cash generation. And then, of course, those that we are divesting are those where we're driving the safe performance to maximize short-term value optimization, and these are largely around those things that we have recognized are unlikely to make a significant material shift to our business over time. So the shorter-term focus on the lean businesses is really around our governance and making sure that we can really go after our above-asset costs, making sure that we have significant leaner and simpler businesses. It also includes the way we organized our operating model. And I think in addition, as I mentioned in the earlier part of our speech, making sure that we're really focused on those payback periods and those shorter-term hurdle rates to maximize our benefits. So hopefully, that gives you a bit of a flavor, at least, for the lean, how we're really focusing on driving the efficiencies.

Thank you for that, Zoe. Michele, thank you for the questions. And I think as both Sinead and Zoe said lots more to do. Since 2019, if you compare to Q1 results, we are 12% down in terms of costs, and therefore, we're making good momentum, but we still also have, of course, potentially the headwinds coming our way around inflationary pressure. So the real focus right now is to go even faster than that and make sure we can get closer to that 30%. Thank you for the questions. And Ali, if I can go to the next question, please.

We'll take our next question from Irene Himona from Societe Generale.

I had 2 questions. So firstly, Wael, leaving aside things you don't control, like oil and gas prices, what to you is the key risk to Shell's Upstream business as you look ahead to the next 4 to 5 years? And my second question, and clearly, you presented today a strong progress made over the last 5 years in terms of your key metrics and further targeted improvements. In 2016, when you acquired BG Group, you presented that deal as an opportunity to reset the Shell portfolio. So looking today, on the one hand, the progress made since 2016, and on the other, on your projected further quite material improvements in key metrics. Would you say that, that post-BG portfolio reset in the Upstream has worked well or is it something that is still, let's say, unfolding and in progress?

Irene, thank you for both questions. Let me address them both. Maybe starting with the second one. I have to say, incredibly proud of what the organization has done since that BG acquisition. Indeed, we had set our store there. And I think by and large, everything we said we would do, we have done. On the Upstream side, we have driven the rigor, we have driven the portfolio rationalization, we have done the improvements that we talked about. But I think it's fair to say that this leadership team is not happy with doing better. We really want to achieve the full potential of this business. And in all honestly, I don't think we're there. I think there's a lot more to do. I think we have moved a long way forward. We have -- through our reorganization, our corporate-wide reorganization called Reshape, we have reduced the number of staff. And so you're looking at a significantly smaller group in Upstream as well. And we do believe that we're going to be able to fundamentally liberate that staff base that we will have left to be able to go after even more opportunities as we drive accountability deeper into the organization as we look to leverage the capability of the organization we have. And so I'm, in no way, satisfied with where we are. But I also realize that there is massive urgency in us getting there, both from us to being able to really continue to support RDS on its journey, but also to be able to, I think, demonstrate that we can continue to generate significant value for the group and for our shareholders. I think that plays into the first question you asked, and I can comment this in multiple ways. I mean fiscal concerns as, in particular, a number of governments put a significant amount of their capital in support of a post-COVID recovery. Will there be fiscal threats to our business? I think all those are going to be important and clearly are risks on our horizon. But the singular one that if you were to say the one that trumps all, in my mind, would be losing the passion, the energy and the spring in the step of our Upstream organization. As the outside world sometimes tries to delegitimize an oil and gas business that for decades has been an incredible force for good for society, which is maybe why, behind me here, you see this pride in Upstream. To me, that is going to be the key issue, retaining that passion in our staff, irrespective of where they sit in the world, letting them recognize that not only do we have a responsibility to continue to provide reliable and affordable energy, not only do we have a responsibility to support Shell in funding itself through the energy transition. But we also have capabilities that Shell absolutely needs as we go through the transition. I touched on things like CCS. I touched on offshore wind. But also, we have some incredibly strong legacy positions where our relationships with the government will serve us incredibly well, and our staff there have to help some of those governments as they transition with the energy transition. So making sure that as an enterprise we continue to support that is going to be a top of mind for me and my leadership team. Irene, I hope that addresses the question. Thank you. Ali, next question.

We'll take our next question from Biraj Borkhataria from RBC.

I had a couple, please. On the Groundbirch, this question might be for Maarten, but I guess it's kind of joint Upstream and ID development. But how are you thinking about the timing of Trains 3 and 4 because I suppose you'll be ramping up these Upstream spend alongside that and there's probably some economies of scale there in terms of timing? And then secondly, at the Upstream division level, you put out the targets in terms of unit development costs and things like that. But can you talk about return on capital? And how you expect that to evolve under your price scenarios once you hit those targets?