OBU – Oxford Brookes University BSc Honours in Applied Accounting.

Research and Analysis Project
BUSINESS AND FINANCIAL ANALYSIS OF:
ROYAL DUTCH SHELL PLC (SHELL)

Table of contents
1. Introduction
2. Research Objectives and overall research approach
3. Information gathering
4. Analysis
5. Findings and recommendations
6. References
7. Annexes

1. INTRODUCTION
As global population is rising and economic development is occurring to many developing countries, energy
consumptions are increasing significantly. This leads to the importance of supplying suitable, reliable
energy source.
Shell estimates that by 2050, global energy demand could increase by up to 80%; as living standards will
rise and the world’s population will grow from seven to nine billion this will cause significant pressure to
the environment and to the consumption levels of traditional energy sources. Although the continuous efforts
to improve energy from renewable sources, oil is still the most important source of energy; due to its non-
renewable nature oil companies need to exploit new fields in order to restore declining oil reserves.
Oil has a quite complicated chain value cycle that is going to require differentiated and articulated activities
to manage it; these activities go from exploration, drilling, extraction, refining, transport, marketing to final
distribution. Many players operate the industry according to geographical presence, targeted markets and
presence along the value chain; the most important players manage almost all the activities of the chain and
acting as multinational players with operations through the world with branches and local entities.
Much attention has been given to this industry since oil industry has been shaped in the years by waves of
consolidation, mergers and acquisitions (e.g. Exxon and Mobil, Total and Elf, Conoco and Phillips, BP and
Amoco), development of rising giants (China Petroleum or Petrobras for instance), waves of nationalization
in some countries (the case of YPF in Argentina as the most recent event) and sudden and dramatic oil price
changes due to political risks and lack of adequate supply.
Some points will be covered by this document with the purpose to analyse the performance and the effects of
the strategies for one of the most important players of this industry, but also of the world of the most know
multinational companies: Royal Dutch Shell.
In the following pages a disclosure about strategies, financial results and perspectives of this company will
be made in the attempt to assess its profitability, liquidity solvency and evaluation of the effectiveness of the
strategies undertaken in the last years.
2. RESEARCH OBJECTIVES AND OVERALL RESEARCH APPROACH
Choice and selection of the organization
I have selected the “The business and financial analysis” and the Research and Analysis Project is in the
context of Royal Dutch Shell financial statements. The financial analysis is based on the performance of
Shell over three financial years, from 2010 to 2012 with the purpose of evaluating both strategies, business
and financial performance for the period of analysis. Strategy and business aspects will allow to appreciate
the impact of the organization and of external factors that have affected the performance of the company
(Robinson 2012).
Reasons for selection
There are number of reasons for choosing “The business and financial analysis” basing on the financial
dimensions of Royal Dutch Shell plc. These reasons entail the following:

1. Financial ratio analysis is a vast and deeply related technique to assess performance of a company. It
permits to evaluate the effects of past strategies over the financial results and helps in understanding
the company’s actions. Financial results are the outcome of strategies which are deeply linked to the
constraints and opportunities offered by the industry and by the competitive positioning that result
from the actions of the other players that operate in the same business.
2. Although financial ratios are calculated according to historical figures, they improve knowledge
about the company and highlight relationships between operations and capital structure of the
business. This is a potential help in order to assess and predict future performance and for
operational management.
3. Shell is a multinational company which has its operations in most of the countries of the world; this
increases the interest about its operations and in particular on how it is managed, how it is viable
according to liquidity and solvency and how the impact of fluctuations of the prices of oil and gas
change its results.
4. Oil and gas industry is perceived to be one of the most lucrative industry. Is this perception real or is
it related to a common perception which is influenced by the fluctuation of the oil prices ?
5. The industry has been characterized by some important acquisitions in the last years. Oil and gas was
one on the most targeted industries in the most recent years with a 15% of the transaction volumes
occurring to energy industry (Bloomberg 2012). According to Dealogic, in 2012 oil & gas was the
leasing sector with 385 USD billion, a 14% share of global M&A volume (2,7 USD Trillion); this
makes this industry very attractive and interesting to analyse.
6. Analysis of Shell could offer an opportunity to understand why this company has been able to set its
competitive positioning and to become a leading player in this industry.
7. The competitive positioning and leadership of Shell could be related to financials and value creation
for its shareholders.
8. On the other side one needs to assess if the actual financial performance could be sustainable or if
the financial situation could lead to risks of liquidity and solvency that could create problems to the
company in the ability to pursue new investments and to undertake strategies to improve its
competitive positioning.
9. Should be Shell considered a potential target for other oil and gas companies or could be considered
a potential actor driving a further consolidation of the industry ?
In the following pages we are going to try to respond to these points.
Research objectives
1. To have understanding on how companies in oil and gas industry operate and what are the main
aspects in managing such kind of companies.
2. To conduct company corporate appraisal in order to identify company strengths and opportunities; to
highlight weaknesses and threats that could affect its operations.

3. To analyse the company business and financials over the three year period in order to assess for
profitability, solvency, liquidity, capital structure and highlights relationships between the different
types of ratios.
4. Analyse the industry competitive environment according to the Porter’s five forces and highlights
these point with the strategies pursued by Shell and how this company is creating its competitive
advantage over other competing players.
3. INFORMATION GATHERING
Most of the data and information have been taken according to the disclosure published by the oil & gas
companies in the investor relation section of their corporate website and in particular data disclosed in their
annual reports and investor’s presentations. Other data and have been taken according to published articles
on leading financial journals such as Financial Times, Wall Street Journal and finally some selected data
come from reliable sources such as providers of league tables such as Dealogic, Bloomberg and specialized
entities operating in the international analyses such as Chatam House.
4. ANALYSIS AND RECOMMENDATIONS
Shell and the Oil & Gas industry
Shell operates an industry which is characterized by a large number of players that compete in order to
exploit oil reserves, developing, refining and finally selling refined products to the market. As soon as the oil
& gas cycle is vast industry with many potential niches, players choose to position themselves on some
activities of the value chain (e.g. upstream for someone, downstream for others) or to operate the full cycle.
Usually the most important players such as Shell, BP, ExxonMobil and Chevron but also rising ginats such
as Petrobras and China Petroleum operate the entire value chain.
Due to their nature of non-renewable sources, both oil and gas resources have strategic issues related to the
need of securing the supply. Acquisition of rights and exploration of potential reserves have great importance
in order to permit companies to be able to supply in the long run. Ability to undertake investments, to avoid
extra costs in exploring and developing field and finally to optimize capital allocated has an impact on the
value generated by each project and the overall return on capital invested. In order to secure reserves many
companies undertake M&A transactions and acquire minor players which holds rights on some fields. In the
attempt to improve efficiency and recover profitability other companies divest assets or reduce their presence
in some businesses, and in particular in the downstream.
The industry is also influenced by the impact, at this time limited, of new source of energy, mainly from
renewable sources such as biofuels which are potentially reducing the monopoly of oil as a mass transport
manner. This is going to alter the strategies adopted by the most important companies and at this time some
of them, such as Shell, have started to improve their refining capacity in biofuels.

Gas is also gaining importance as an energy source to be used both for electricity generation, for heating and
also for mass transit thanks to its cleaner burning and lower pollution impact; hence some strategies have
pursued by the players in this segment such as building infrastructures to transport it.
Finally oil & gas industry is deeply related to geopolitics with prices that are widely affected by decisions of
OPEC and by political crisis and turmoil in the producing countries. Due to Asian development there is a
rising concern about the ability of the supply to secure needs of the developing economies and how these
issue could affect prices in the medium long term. Porter five forces model seems quite useful to highlight
and to summarize the main factors that are affecting the competitive positioning of the different players in
this industry:
Threat of new competitors: low
Barriers of entry to the sector are quite high with issue relate to capital needed to undertake investments, to
acquire rights and to develop projects. All these barriers make the potential risk of new competitors can be
ranked as low.
Threat of substitute products or services: medium to low
At this time, common concerns about the effects of oil and gas effects on environment have risen; further
concerns about reserves for the long run of these resources have increased with the results that new substitute
products such as biofuel or electricity produce from renewable sources are starting to gain market shares.
There is high possibility that new products and services can enter into the market although at this time,
according to the rise in the demand by developing countries, there is a limited risk that these new substitute
products would reduce significantly the demand of oil.
For this reason substitute risk can be ranked as medium to low.
Bargaining power of customers (buyers): low
Oil and gas demand is a traditionally characterized by a quite inelastic demand curve since people require
these resources in order to manage their productive cycle or to solve basilar and important issues. Although
customers can select from many suppliers at this time they do not have a significant power to influence
prices. For this reason, buyers power can be ranked a s low.
Bargaining power of suppliers: high
Oil & gas companies need to secure rights to develop field by the states or by land owners which have a
strong bargaining power in the selection of the most appealing offer. For this reason Bargaining power of
suppliers is high.
Degree of competition: high
Competition among oil and gas companies is high both in the upstream and downstream business; in
upstream business companies compete in order to secure rights to explore while in downstream they compete
in order to sell refined products to final customers. Final products are quite standardized and hence price and
marketing efforts plays a crucial role in order to create awareness among customers.
Shell: company corporate profile and recent strategies
Focusing on the company of this report, some highlights are useful to put complete the general framework
and to be viable for the following financial analysis.

Royal Dutch Shell (Shell) is a public limited company registered in England and Wales and headquartered in
the Netherlands. Thanks to a long time operating history the company is one of the most important
independent, that is not state owned players in the Oil and Gas industry. The group operates all around the
world with a presence around the world which is quite balanced. Revenues come from all around the world
with Europe and Asia leading the sales.
Business operated by Shell covers all the different phases of the industry cycle: both upstream (e.g.
acquisition of the rights, exploration, development and production) and downstream activities (e.g. refining
the crude product, processing and purifying the natural gas, marketing and distribution of the refined
products). Downstream is the most important revenue source although upstream is leading according to
invested capital. Corporate is a residual division which cover some activities offered to the group and to the
other companies which are accounted as equity investments.
In the last years the company has pursued a differentiated strategy with the purpose of maintaining capacity
of supply and to improve proven reserves thanks to development of new fields/projects which should allow
to achieve a target of 3.7 million boe/d 1
production for 2014, 12% higher than the 2010 level.
Around 30 new projects are being developed in order to create an integrated group with activities based on
oil, gas and biofuels. Investments were also made to improve operations in deep water explorations and LNG
2
project which should assist company strategy with outcomes in the medium long term. Some critical points
concerning investments occurred to Alaska drilling program which has been paused during 2013.
1
Boe/d: barrel oil equivalent per day
2
Liquified natural gas
Country Revenues Segmentation
USD mln 2010 2011 2012 2010 2011 2012
Europe 137,359 187,498 184,223 37.3% 39.9% 39.4%
Asia, Oceania, Africa 110,955 148,260 156,310 30.1% 31.5% 33.5%
USA 77,660 91,946 91,571 21.1% 19.6% 19.6%
Other Americas 42,082 42,467 35,049 11.4% 9.0% 7.5%
Revenues 368,056 470,171 467,153 100% 100% 100%
Source: company 20 F
Revenues segmentation
USD mln 2010 2011 2012 2010 2011 2012
Ustream 68,198 91,691 94,550 16.9% 17.6% 18.2%
Downstream 336,216 428,646 424,410 83.1% 82.4% 81.8%
Corporate 57 47 84 0.0% 0.0% 0.0%
Revenues 404,471 520,384 519,044 100% 100% 100%
Net Capital Investment
USD mln 2010 2011 2012 2010 2011 2012
Upstream 21,222 19,083 25,320 89.6% 81.2% 85.0%
Downstream 2,358 4,342 4,275 10.0% 18.5% 14.3%
Corporate 100 78 208 0.4% 0.3% 0.7%
Total 23,680 23,503 29,803 100% 100% 100%

Although Alaska is one of the most promising lands for oil & gas development, as the deep water project
explorations, Shell faced significant difficulties in exploring and drilling this area due to several
environmental issues arising; these problems caused the decision to stop the projects in order to have better
guarantees and avoid public shame which now has increase its interest as response of Gulf of Mexico
disaster and other environmental problems that occurred to Oil & Gas projects.
Shell operate also strategies to increase operating cash flow and improve efficiency; the group started to
restructure some activities within the Downstream business with transactions and assets sales to reduce
refining capacity and cost reduction policies.
Focusing on external strategies Shell operated acquisitions in order to improve its positioning in the LNG
business. The most recent acquisition occurred to LNG assets acquired by Repsol and located in South
America.
Financial Analysis
Accounting analysis
Shell financial analysis has been conducted according to the public disclosed financial reports issued by the
company according to the Annual Reports, 20-F and interim period repors issued by the company. Annual
financial figures for Shell are related to accounting values reported at December the 31st 2012, 2011 and
2010. Shell financial data have been used to calculate profitability ratios, solvency, liquidity and efficiency
ratios and to be compared with the same ratios taken form a panel of the most comparable and main
important competitors (Chevron, ExxonMobil and British Petroleum).
Shell files reports following IFRS (international financial reporting standards); independent registered public
accounting firm is PriceWaterhouseCoopers that issued its positive judegement on company accounts.
During the period 2009 – 2012 Shell did not make any change in accounting principles and no significant
and material changes in the business occurred.
Some particularities in the accounting statements are relate to some accounting criteria which are peculiar for
companies operating in the Oil & gas :
- Oil and natural gas exploration costs are accounted for under the successful efforts method:
exploration costs are recognized in income when incurred, except that exploratory costs that have
found proven reserves which are accounted in property plant and equipment.
- Shell has many agreements under which the company share control with another party. Whenever
these joint venture are not controlled and hence consolidated they are accounted for using the equity
method. According to disclosure in the notes the Assets of the Associates cover the liabilities; hence
no significant potential risks are disclosed in these notes.
- Inventories are valued according to FIFO for oil and chemicals and by the weighted average cost
method for materials. According to reports 2009 – 2012 oil and chemicals represented about 95% of
the total inventories

- Goodwill is tested for annual impairment according to a discounted cash flow valuation. Long term
growth rate of cash flow is equal to inflation rate for USA (2%) while discount tax rate used was 6%.
The rates are fair and hence potential manipulations could occur only to cash flow values
- Most of the investments in securities are held in non-marketable securities which are valued
according to valuation based on expected cash flow. The notes do not provide suitable indications
about the fairness of these values
- The company has a limited exposure to overdue trade receivables, which account for around the 7%
of balance sheet amount; most of them (69%) are overdue by 30 days
- The company holds significant amount in cash and cash equivalents
- Company recognizes provisions related to decommissioning, restoration, environmental and
litigation risks. decommissioning and restoration provisions account the higher share (around 80%
taking into account for both long and short term provisions). Most of the decommissioning and
restoration provisions have a cash flow impact over the 5 years. No significant risks are stated in the
notes.
Ratio analysis
Financial analysis will cover the following themes in order to assess Shell’s ability to manage:
- Profitability
- Liquidity
- Efficiency/operational performance
- Risk expectations / gearing
- Profitability
- Dividend policy
Results from comparable companies will be presented to conduct a benchmark analysis. All the companies
are quite well comparable according to business since all of them manage the entire value chain of the oil &
gas business. Some of these companies reports financial data according to US Gaap (ExxonMobil and
Chevron) while British Petroleum reports are base according to IFRS accounting standard, adopted for the
first time since 2013 with financial figures for the previous years that have been restated in order to meet
IFRS requirements. No material differences arise however for the sample and reclassification criteria have
been similar: hence ratios for all the companies in the panel are comparable.
All the companies close financial year at December the 31th and all of them operates globally although Shell
maintains a stronger presence in Europe and Exxon has a deep presence in Asia. Chevron and BP register
significant revenues in the U.S..

All the comparable companies operated important capital expenditure and although at a lesser extent some
external strategies. During the 2010 – 2012 Chevron acquired Atlas, BP acquired a company operating fields
in India while both Shell and Exxon did not operated significant acquisitions focusing mainly on developing
upstream pipeline and restoring conditions in downstream business.
Initial comparison is taken according to absolute values for all the companies of the panel according to USD
figures. Revenues have been adjusted in order to exclude excise taxes since in many countries oil and related
products are subject to excises.
Liquidity
Liquidity analysis provides an insight about the company’s ability to face short term liabilities thanks to cash
provided by the company’s short term assets. All the companies of the sample operates with negative
working capital, that it means the ability to pays suppliers with longer terms than those according which they
collect revenues. This mismatch has a positive effect on cash flow although it tends to reduce liquidity ratios
due to the higher value of the current liabilities.
In general all the companies seems quite liquid thanks to very short cash cycle length. Payable days are
almost comparable for Exxon, BP and Chevron while Shell has longer payable terms versus its suppliers
Revenues share segmentation (2012)
Shell Exxon BP Chevron
2012 2012 2012 2012
Europe 39.4% 17.5%
Asia, Oceania, Africa 33.5% 60.3%
USA 19.6% 15.4% 33.5% 40.3%
Other Americas 7.5% 6.8%
Total 100% 100% 100% 100%
66.4% 59.7%
2012 main financial results: comparison
Usd mln 2012 2012 2012 2012
Revenues 467,153 420,714 375,765 218,214
Ebitda 52,114 65,769 26,075 48,426
Net Income 26,592 44,880 11,017 26,179
Net Working Capital -10,849 -96,017 -46,587 -41,595
Fixed Assets 172,293 226,949 125,331 141,348
Intangible Assets 4,470 7,668 36,822 4,640
Net Financial Position 19,204 1,658 28,599 -9,721
Equity 188,494 165,863 118,546 136,524
Minorities 1,433 5,797 1,206 1,308

which reflect lower ability to collect cash on its receivables. Low cash cycle length could be related to some
factors which can apply to all the companies of the sample and in particular:
- High bargaining power versus suppliers which permit longer payable terms (in particular for
Shell)
- Favorable cash collection of products thanks to brand awareness and great distribution
network
- Limited inventory obsolescence and high inventory turnover ratio
Analysis of revenues breakdown between upstream and downstream do not reveal particular differences in
the business model and hence differences in cash cycle and longer receivable and payable days for Shell
cannot be related to a different business model and incidence of upstream vs downstream activities.
All the companies have important cash and cash equivalent amount and both trade receivables and
inventories are highly liquid. For this reason Shell and its competitors can turn quickly into cash their short
term assets and avoid potential risk arising from lack of liquidity. At this time hence liquidity risk is very
low.
Operational Performance
Efficiency ratios for Shell need to be calculated in order to assess the operational performance of the
company taking into account for the intense and significant development strategies pursued by the group to
improve their reserves and to increase efficiency in downstream business. Goodwill arising from acquisition
is subject to annual impairment test and this is potentially affecting efficiency ratios calculated taking into
account all LT assets (LT asset turnover ratio). In the period of analysis however goodwill was not subject
to write downs although the absolute value increased slightly due to newest acquisitions and other
investments (which are visible according to the capital expenditures/sales ratio). All the companies were able
Liquidity ratios
2010 2011 2012 2010 2011 2012 2010 2011 2012 2010 2011 2012
Current Ratio 1.20 1.24 1.26 0.94 0.95 1.01 1.31 1.29 1.45 2.14 1.96 2.06
Quick ratio 0.91 0.96 0.95 0.65 0.67 0.70 0.86 0.86 0.95 1.68 1.56 1.61
Acid ratio 0.13 0.11 0.19 0.13 0.17 0.15 0.28 0.20 0.30 0.72 0.71 0.77
Receivable dd 78 69 58 34 33 30 53 48 42 46 38 40
Inventory dd 38 29 30 24 21 20 44 33 35 17 13 16
Payable dd (cost of sales) 104 86 76 92 77 70 78 67 58 60 54 59
Cash Cycle 12 12 12 -34 -24 -19 19 15 19 3 -2 -3
Revenues share segmentation (2012)
2012 2012 2012 2012
Upstream 18.2% n.a. 7.9% 27.9%
Downstream 81.8% n.a. 91.8% 72.1%
Other & intersegment 0.0% n.a. 0.3%
Total 100% 0% 100% 100%

to improve efficiency ratios in 2011 thanks to significant increase in sales, which were achieved thanks to the
important rise in oil prices.
In general Shell efficiency ratios were in line with the values of its main competitors.
Risk ratios
Solvency/risk ratios attempt to analyze ability of the companies to meet their long-term liabilities.
Some ratios have been calculated for the sample such as:
- Financial gearing (net financial position / (net financial position + group equity) where net
financial position = financial borrowings – cash and marketable financial securities 3
- Debt / Equity (total debt, both operating and financial / equity)
- LT financial borrowing / total financial borrowing
All the companies of the sample have a mixed capital structure with the use of financial debt, operating debt
and equity. Financial debt is mainly related to acquisitions made and investments to improve upstream
capacity although gearing ratios are modest since all the companies tend to generate important cash flows
from their operations (that is cash flow before investing and financing).
3
Please note that according to analysts convention financial position is positive when financial debt exceeds cash and marketable securities
Annual growth rates - sales
2010 2011 2012 2010 2011 2012 2010 2011 2012 2010 2011 2012
Annual growth rates - sales n.a. 27.7% -0.6% n.a. 26.9% -3.0% n.a. 26.5% 0.0% n.a. 27.1% -4.6%
Oil prices
USD per barrel 2010 2011 2012 2011 2012
Brent 79.5 111.26 111.67 39.9% 0.4%
West Texas Intermediate 79.45 95.04 94.13 19.6% -1.0%
Source: Shell company 20 F
YoYgrowth rate
Efficiency ratio
2010 2011 2012 2010 2011 2012 2010 2011 2012 2010 2011 2012
Fixed asset turnover 2.58 3.09 2.71 1.71 2.02 1.85 2.70 3.04 3.00 1.72 1.87 1.54
LT asset turnover 1.83 2.17 1.97 1.40 1.68 1.56 1.70 1.91 1.86 1.34 1.49 1.25
Total asset turnover 1.14 1.36 1.30 1.13 1.31 1.26 1.10 1.29 1.26 0.97 1.09 0.94
Capital exenditures / Sales 6.0% 4.4% 6.1% 6.9% 4.6% 6.3% 1.5% 7.2% 3.5% 10.9% 13.1% 14.2%
Solvency ratios
2010 2011 2012 2010 2011 2012 2010 2011 2012 2010 2011 2012
Financial Gearing 17.3% 13.2% 9.2% 4.3% 2.5% 1.0% 20.8% 20.9% 19.4% -5.6% -8.9% -7.7%
Debt / Equity 1.2 1.0 0.9 1.1 1.1 1.0 1.9 1.6 1.5 0.8 0.7 0.7
LT borrowings % 77.6% 81.9% 79.3% 85.0% 56.1% 70.5% 67.7% 79.6% 79.4% 98.4% 96.7% 99.0%
Net Financial Position 30,888 25,883 19,204 6,561 3,965 1,658 25,001 29,499 28,599 -5,594 -9,919 -9,721

Composition of borrowings is characterized by maturities longer than 1 years with Shell financing its
operations thanks mainly with long term notes and bonds longer than 1 year and in particular with notes with
a residual maturity longer than 2 years. Financial gearing is modest and is backed by a capital structure
which is quite balanced with long term liabilities and equity financing long term assets while current
liabilities (trade payables and other shot term non-financial liabilities) financing short term assets. Both
inventories and receivables are liquid and this gives Shell a quite good ability to convert short-term assets in
cash without big issues and time delays.
Focusing on non-financial debts, Shell has ability to finance operations thanks to supplier’s credit. Looking
at some non-financial debts such as the pension liabilities some considerations could be made. In 2012
company paid around 5.4 USD million in pension expenses (both serviced and interest costs) with little
increase in net pension liability. According to notes of the report, plan assets are invested in a balanced
manner (48% equities, debt securities 40%, real estate 3% and other assets classes 9%) with an expected
return of these assets around 6% per year; a quite important and challenging value that could create some
issue about the value of the plan assets in the next years. However taking into account the company cash
ASSETS
Current Assets
Cash 4.2% 3.3% 5.1%
Receivables 24.5% 25.7% 20.6%
Inventories 9.1% 8.4% 8.5%
Current Assets 37.8% 37.4% 34.3%
Intangible Assets 1.6% 1.3% 1.2%
Property, Plant & Equipment 44.2% 44.0% 47.8%
Equity accounted investments 10.4% 11.0% 10.6%
Investment in securities 1.2% 1.6% 1.4%
Other LT Assets 4.9% 4.7% 4.6%
Long Term assets 62.2% 62.6% 65.7%
ASSETS 100% 100% 100%
LIABILITIES
Current liabilities
Payables 25.0% 25.1% 21.4%
Other ST liabilities 3.3% 3.2% 3.6%
ST Interest Bearing 3.1% 1.9% 2.2%
Current liabilities 31.4% 30.3% 27.2%
LT Interest Bearing 10.7% 8.8% 8.3%
Other LT liabililities 11.5% 11.4% 11.8%
Long term liabilities 22.1% 20.2% 20.1%
Shareholders' equity
Capital stock 0.2% 0.2% 0.2%
Retained earnings 45.7% 48.9% 52.2%
GroupEquity 45.9% 49.1% 52.3%
Minority Interests 0.5% 0.4% 0.4%
Equity 46.4% 49.5% 52.7%
SOURCES 100% 100% 100%

flow generation ability, the employee liability amount should not create potential risks to the company
solvency and liquidity.
Finally, it is useful to make an analysis of cash flow statement in order to assess company’s ability to
generate operating cash flow and uses/sources of these cash flows according to these ratios:
- Financial Debt / Operating Cash Flow
- Dividend Paid / Operating Cash Flow
- Dividend Pay-Out (dividends paid in year t / net income year t-1
These figures allow to appreciate the ability of the company to make changes to the financial policy and
ability to limit the financial exposition in terms of operating cash flow. Further dividend policy give insight
about the use of operating cash flow; high dividend pay-out that could be reduced whenever financial
resources could be required to finance extraordinary strategies.
Although operating cash flow in certain cases were negative due to high investment to improve reserves and
greenfield exploration and to certain acquisition in a certain year (such as in the case of BP with the
acquisition in India in 2011) all the companies had significant pay-out ratios and were able to keep their
financial debt under control. Some of these companies operated buy backs in order to redistribute capital to
shareholders and change the capital structure.
Taking into account for these points Shell solvency risks appears very low.
Profitability ratios
Profitability comparison for the companies has been made according to Ebitda figures which have been
reclassified according to homogeneous standards. Amortization and depreciation and revenues from
associates accounted according to the equity method are not part of the Ebitda.
In 2010 - 2012 Shell profitability according to Ebitda was almost the same with a lower value in comparison
with the profitability of Exxon and Chevron. Negative profitability of BP in 2010 was related to high
incidence of production and manufacturing due to Gulf of Mexico Oil well disaster.
Solvency ratios
2010 2011 2012 2010 2011 2012 2010 2011 2012 2010 2011 2012
Financial Debt / OCF 8.4x 2.3x 2.1x 0.3x 0.1x 0.1x 2.3x neg 2.9x -0.5x -0.9x -1.2x
Dividend / OCF 189.1% 45.6% 43.7% 35.0% 26.1% 34.9% 27.3% neg 55.1% 48.9% 55.5% 87.4%
Dividend Pay-out n.a. 36.3% 24.8% n.a. 30.6% 25.4% n.a. -106.2% 21.3% n.a. 32.6% 25.6%
Operating Cash Flow (OCF) 5,276 16,042 17,580 25,062 35,750 29,881 10,775 -3,392 9,765 11,742 11,184 7,874
USD mln 2010 2011 2012 2010 2011 2012 2010 2011 2012 2010 2011 2012
Buy Backs 0 -1,106 -1,492 -12,050 -21,131 -20,875 0 0 0 -306 -3,193 -4,142

All the companies in the sample exhibit higher profitability in the upstream business with downstream facing
some challenges in order to improve profitability and efficiency.
Focusing on Shell, major operating costs are related to raw materials (oil and gas) acquired with an incidence
of about 78% of the sales).
Other profitability ratios for the sample were affected by contribution of financial structure, income from
investments accounted with the equity method, gain on the sale of assets and different effective taxes.
In general profitability levels were deeply related with prices for crude oil and natural gas with rising
profitability that occurred in 2011 a year where oil prices increased by 30%.
It is possible to calculate return on assets and to assess how the company has employed its capital in order to
generate profits. High profitability on sales could not be related to efficiency in the use of capital and hence
low value generation could occur since the company would pay higher cost for its non-efficient use of
capital.
Three measures are calculated:
- ROE: Net Income / Equity shareholders
Ebitda margin
2010 2011 2012 2010 2011 2012 2010 2011 2012 2010 2011 2012
Ebitda mrg % 11.4% 11.9% 11.2% 16.1% 16.1% 15.6% -0.8% 11.4% 6.9% 21.4% 22.4% 22.2%
Income Statement Income Statement - common size
USD mln 2010 2011 2012 2010 2011 2012
Revenues 368,056 470,171 467,153 Revenues 100.0% 100.0% 100.0%
Purchases -283,176 -370,044 -369,725 Purchases -76.9% -78.7% -79.1%
Production & Manufacturing -24,458 -26,458 -26,280 Production & Manufacturing -6.6% -5.6% -5.6%
Selling, distribution, administration -15,528 -14,335 -14,616 Selling, distribution, administration -4.2% -3.0% -3.1%
Research & development -1,019 -1,125 -1,314 Research & development -0.3% -0.2% -0.3%
Exploration -2,036 -2,266 -3,104 Exploration -0.6% -0.5% -0.7%
Ebitda 41,839 55,943 52,114 Ebitda 11.4% 11.9% 11.2%
Depreciation & amortization -15,595 -13,228 -14,615 Depreciation & amortization -4.2% -2.8% -3.1%
Operating Profit 26,244 42,715 37,499 Operating Profit 7.1% 9.1% 8.0%
Financial income 3,147 4,208 3,842 Financial income 0.9% 0.9% 0.8%
Share of result of associates 5,953 8,737 8,948 Share of result of associates 1.6% 1.9% 1.9%
Pretax Income 35,344 55,660 50,289 Pretax Income 9.6% 11.8% 10.8%
Income taxexpense -14,870 -24,475 -23,449 Income taxexpense -4.0% -5.2% -5.0%
GroupNet Income 20,474 31,185 26,840 GroupNet Income 5.6% 6.6% 5.7%
Minority interests -347 -267 -248 Minority interests -0.1% -0.1% -0.1%
Net income 20,127 30,918 26,592 Net income 5.5% 6.6% 5.7%
Profitability ratios
2010 2011 2012 2010 2011 2012 2010 2011 2012 2010 2011 2012
Ebitda mrg % 11.4% 11.9% 11.2% 16.1% 16.1% 15.6% -0.8% 11.4% 6.9% 21.4% 22.4% 22.2%
Ebit mrg % 7.1% 9.1% 8.0% 11.7% 12.5% 11.9% -5.1% 7.8% 1.9% 14.1% 16.7% 16.0%
Pretaxincome % 9.6% 11.8% 10.8% 15.5% 16.9% 18.7% -1.8% 10.2% 4.8% 17.8% 20.8% 21.2%
Net Income % 5.5% 6.6% 5.7% 8.9% 9.5% 10.7% -1.4% 6.7% 2.9% 10.6% 11.8% 12.0%

- ROIC: Net Income / Net Invested Capital
- ROI: Ebit / Total Assets
All these measures refer to accounting measures with ROE and ROIC that takes into account net income, a
measure subject to the effect of the financial expenses, extraordinary gains and the taxes. For this reason the
results of the sample are not really comparable due to the effect of different tax regimes. Finally, these ratios
are subject to some extraordinary gains as already disclosed when speaking about profitability differences.
The most comparable measure is hence ROI which shows as Shell is not the most efficient company.
Return on capital ratios were largely influenced by efficiency in employing the capital; some ratios already
disclosed help to appreciate the higher efficiency of Shell in employing its capital and to explain the ROE
composition according to the DuPont formula.
Main points were related to positive incidence on non-operating incomes (e.g. Interest Burden) which
accounted significantly in 2012 for BP thanks to several extraordinary gains on sale of assets. Decline in
ROE % for Shell was mainly explained by lower operating profitability (Ebit margin) and lower financial
leverage.
5. FINDINGS AND RECOMMENDATIONS
Thanks to global presence and a long term history, Shell has become a recognized leader within the oil & gas
industry. The company is pursuing strategies in order to continuously improve their reserves and to replenish
oil & gas field which are eroded by product consumption. Current strategic programs are tailored to develop
deep water explorations and to improve refining capacity in biofuel industry; on the other side Alaska
explorations were stopped due to environmental issues and at this time it is uncertain if and when they will
restart.
Return on capital ratios
2010 2011 2012 2010 2011 2012 2010 2011 2012 2010 2011 2012
ROE % 13.8% 18.4% 14.2% 21.4% 27.3% 28.7% -3.9% 23.0% 9.5% 18.2% 22.3% 19.3%
ROIC % 11.3% 15.8% 12.8% 19.2% 24.9% 25.9% -3.0% 18.0% 7.6% 19.1% 24.1% 20.6%
ROI % 8.1% 12.4% 10.4% 13.3% 16.4% 15.0% -5.6% 10.0% 2.4% 13.7% 18.3% 15.0%
ROIC = NI / Invested capital
BP ChevronShell Exxon
ROEDisaggregation
2010 2011 2012 2010 2011 2012 2010 2011 2012 2010 2011 2012
EBIT Margin 7.1% 9.1% 8.0% 11.7% 12.5% 11.9% -5.1% 7.8% 1.9% 14.1% 16.7% 16.0%
Interest Burden 134.7% 130.3% 134.1% 132.0% 135.4% 157.8% 34.9% 130.7% 254.9% 126.3% 124.4% 132.3%
Pretax Margin 9.6% 11.8% 10.8% 15.5% 16.9% 18.7% -1.8% 10.2% 4.8% 17.8% 20.8% 21.2%
TaxBurden 57.9% 56.0% 53.4% 59.3% 57.6% 60.6% 69.1% 67.0% 62.1% 59.7% 56.7% 56.8%
Profit Margin 5.6% 6.6% 5.7% 9.2% 9.7% 11.3% -1.2% 6.8% 3.0% 10.6% 11.8% 12.1%
Total Asset Turnover 1.14 1.36 1.30 1.13 1.31 1.26 1.10 1.29 1.26 0.97 1.09 0.94
Return on Assets 6.3% 9.0% 7.4% 10.4% 12.8% 14.3% -1.4% 8.8% 3.8% 10.4% 12.9% 11.3%
Financial Leverage 2.18 2.04 1.91 2.06 2.14 2.01 2.86 2.62 2.52 1.76 1.73 1.71
Return on Equity 13.8% 18.4% 14.2% 21.4% 27.3% 28.7% -3.9% 23.0% 9.5% 18.2% 22.3% 19.3%

Looking at financial for the period 2010 – 2012, company showed quite good profitability, cash flow
generation and efficient return on invested capital. Comparing result with the main competitors Shell
showed, on average, lower profitability and lower return on capital than Exxon and Chevron. In the period
analyzed BP results were deeply impacted by Gulf of Mexico disaster and hence BP comparison could not be
significant due to these issues.
Thanks to good cash flow generation Sheel was able to maintain a stable and satisfactory dividend payout
policy with a limited financial gearing and very low risks concerning liquidity and solvency. Potential value
creation in the next years is being related to price fluctuation of oil and gas but also to the effective
completion of the restructuring and efficiency strategies which are being pursued to the downstream
business.
Limitations to this analysis are related to the use of accounting figures and to historical ratios; future
unexpected shifts of the business model are not incorporated in these figures and could hence lead to
unpredictable effects whenever the consolidation area or the strategies pursued by the company should
change significantly. The financial analysis has been taken according to the public information available at
this date, October the 25th
2013.
6. REFERENCES
Bloomberg, (2012), “Energy: merger and acquisition leagues”
British Petroleum, (2009 – 2012), “Investor Presentations, press releases and company 20F annual reports”
Chevron, (2009 – 2012), “Investor Presentations, press releases and company 10K annual reports”
Dealogic, (2012), “Oil & Gas: merger and acquisition leagues”
ExxonMobil, (2009 – 2012), “Investor Presentations, press releases and company 10K annual reports”
Mitchell, J., Mitchell, B., and Marcel V., (2012), “What next for the Oil and Gas Industry ?”, Chatam House
Robinson, T.R. (2012), “International Financial Statement Analysis”, CFA Institute/John Wiley & sons
Stickney, C. P. (2010), “Financial Reporting, Financial Statement Analysis, and Valuation: a strategic perspective”,
New York: Cengage Learning
Shell, (2009 – 2012), “Investor Presentations, press releases and company 20F annual reports”

7. ANNEXES
Shell
Cash Flow(reclassified)
USD mln 2010 2011 2012
Cash from operations 27,350 36,771 46,140
Capital expenditures -26,940 -26,301 -32,576
Investments in equity accounted -2,050 -1,886 -3,028
Sale of assets 6,916 7,458 7,044
Cash flowfrom Investing -22,074 -20,729 -28,560
Interest paid -1,312 -1,665 -1,428
Interest received 136 196 193
Sale of securities -34 90 -86
Share repurchases -1,106 -1,492
Dividends paid -9,979 -7,315 -7,682
Net change financial debt 9,256 -7,124 -17
Change non controlling interests 381 8 23
Other financial income/expenses 187 -929 -34
Exchange rate fluctuations -186 -349 201
Cash flowfrom Financing -1,551 -18,194 -10,322
Free cash flow 3,725 -2,152 7,258
Initial Cash 9,719 13,444 11,292
Final Cash 13,444 11,292 18,550
Income Statement
USD mln 2010 2011 2012
Revenues 368,056 470,171 467,153
Purchases -283,176 -370,044 -369,725
Production & Manufacturing -24,458 -26,458 -26,280
Selling, distribution, administration -15,528 -14,335 -14,616
Research & development -1,019 -1,125 -1,314
Exploration -2,036 -2,266 -3,104
Ebitda 41,839 55,943 52,114
Depreciation & amortization -15,595 -13,228 -14,615
Operating Profit 26,244 42,715 37,499
Financial income 3,147 4,208 3,842
Share of result of associates 5,953 8,737 8,948
Pretax Income 35,344 55,660 50,289
Income taxexpense -14,870 -24,475 -23,449
GroupNet Income 20,474 31,185 26,840
Minority interests -347 -267 -248
Net income 20,127 30,918 26,592
Balance Sheet
USD mln 2010 2011 2012
Inventories 29,348 28,976 30,781
Receivables 79,072 88,765 74,394
Payables -80,800 -86,767 -77,014
Other assets 15,729 16,140 16,620
Other liabilities -47,648 -50,302 -55,630
Net Working Capital -4,299 -3,188 -10,849
Intangible Assets 5,039 4,521 4,470
Property, Plant & Equipment 142,705 152,071 172,293
Equity accounted investments 33,414 37,990 38,350
Investment in securities 3,809 5,492 4,867
Total Assets 184,967 200,074 219,980
Net InvestedCapital 180,668 196,886 209,131
Net Financial Position 30,888 25,883 19,204
GroupEquity 148,013 169,517 188,494
Minority Interests 1,767 1,486 1,433
Equity 149,780 171,003 189,927
Sources 180,668 196,886 209,131

ExxonMobil
USD mln 2010 2011 2012
Acquisitions
Investments in PP&E, net -23,610 -19,842 -26,616
Interest paid -259 -247 -327
Dividends paid -8,779 -9,326 -10,419
Stsock repurchases -12,050 -21,131 -20,875
Financial investment changes -472 -1,659 1,082
Financial debt changes -6,210 1,533 -2,825
Change non controlling interests -7 -16 204
Free cash flow -2,868 4,819 -3,062
Initial Cash 10,693 7,825 12,644
Final Cash 7,825 12,644 9,582
Income Statement
USD mln 2010 2011 2012
Revenues 341,578 433,526 420,714
Purchases -197,959 -266,534 -265,149
Selling, distribution, administratio -50,801 -54,956 -49,435
Ebitda 54,882 69,687 65,769
Deprec, amort & impairment -14,760 -15,583 -15,888
Financial income -259 -247 -327
Pretax Income 52,959 73,257 78,726
GroupNet Income 31,398 42,206 47,681
Minority interests -938 -1,146 -2,801
Net income 30,460 41,060 44,880
Balance Sheet
USD mln 2010 2011 2012
Inventories 12,976 15,024 14,542
Receivables 32,284 38,642 34,987
Payables -50,034 -56,067 -50,728
Other assets 5,271 6,229 5,008
Total Assets 243,526 258,089 269,335
GroupEquity 146,389 154,396 165,863
Minority Interests 5,840 6,348 5,797
Equity 152,229 160,744 171,660
Sources 158,790 164,709 173,318

British Petroleum
USD mln 2010 2011 2012
Acquisitions 6,468 -12,482 -90
Interest paid -1,620 -1,346 -2,606
Dividends paid -2,942 -4,317 -5,376
Net issue of share capital 169 74 122
Financial debt changes 4,114 4,923 3,489
Cash flowfrom Financing -558 -1,159 -4,307
Free cash flow 10,217 -4,551 5,458
Initial Cash 8,339 18,556 14,005
Final Cash 18,556 14,005 19,463
Income Statement
USD mln 2010 2011 2012
Revenues 297,107 375,713 375,765
Purchases -216,211 -285,133 -292,774
Selling, distribution, administratio -12,555 -13,958 -13,357
Research & development -843 -1,520 -1,475
Ebitda -2,361 42,659 26,075
Operating Profit -15,214 29,244 7,113
Financial income -924 -899 39
Gain on sale of assets 6,074 4,200 7,044
Pretax Income -5,307 38,228 18,131
Income taxexpense 1,638 -12,619 -6,880
GroupNet Income -3,669 25,609 11,251
Net income -4,064 25,212 11,017
Balance Sheet
USD mln 2010 2011 2012
Inventories 26,218 26,073 28,203
Receivables 42,847 49,327 43,572
Payables -46,329 -52,000 -46,673
Other assets 15,365 12,636 11,806
Equity accounted investments 28,262 21,594 11,612
Held for sale assets 642 2,097 1,858
Total Assets 166,450 189,624 194,938
Cash / cash equivalents -18,556 -14,005 -19,463
Financial assets -1,779 -704 -738
Financial Debt 45,336 44,208 48,800
GroupEquity 94,987 111,568 118,546
Minority Interests 904 1,017 1,206
Equity 95,891 112,585 119,752
Sources 120,892 142,084 148,351

Chevron
USD mln 2010 2011 2012
Acquisitions -3,411
Stock buybacks -306 -3,193 -4,142
Dividends paid -5,741 -6,207 -6,885
Financial investment changes -1,303 2,423 6,142
Financial debt changes 882 -2,369 2,047
Exchange rate fluctuations 70 -33 39
Free cash flow 5,344 1,805 5,075
Initial Cash 8,716 14,060 15,865
Final Cash 14,060 15,865 20,940
Income Statement
USD mln 2010 2011 2012
Revenues 180,007 228,743 218,214
Purchases -116,467 -149,923 -140,766
Selling, distribution, administration -4,767 -4,745 -4,724
Ebitda 38,438 51,210 48,426
Financial income -50
Pretax Income 32,055 47,634 46,332
GroupNet Income 19,136 27,008 26,336
Net income 19,024 26,895 26,179
Balance Sheet
USD mln 2010 2011 2012
Inventories 5,493 5,543 6,144
Receivables 22,836 24,026 24,050
Payables -19,259 -22,147 -22,776
Other assets 8,729 9,716 11,169
Investments 21,520 22,868 23,718
Total Assets 130,641 150,118 169,706
Net Financial Position -5,594 -9,919 -9,721
GroupEquity 105,081 121,382 136,524
Minority Interests 730 799 1,308
Equity 105,811 122,181 137,832
Sources 100,217 112,262 128,111

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