Hulsey Presentation

SHELL TRADING RISK MANAGEMENT
Achieving Stability
Through Hedging
Experience Commitment
Kevin Hulsey
1
Copyright of Shell Trading Risk Management, LLC
Disclaimer
This material has been generated by employees of Shell Trading Risk Management, LLC (“STRM”) who are involved in sales
and marketing efforts. Accordingly, it should be considered to be a solicitation of derivatives business generally and not a
research report under the rules of the CFTC and under the Commodity Exchange Act. Notwithstanding the foregoing, this
material should not be construed as an offer or the solicitation of an offer to sell or to buy or subscribe for any particula r
product or services (including, without limitation, any commodities, swaps, securities or other financial instruments). STR M
is not soliciting any specific action based on this material. It is for the general information of STRM’s clients. It does not take
into account the particular investment objectives, financial conditions, or needs of individual clients. It does not constit ute a
recommendation or a suggestion that any investment or strategy referenced herein may be suitable for your company.
These materials are confidential and proprietary to, and may not be reproduced, disseminated or referred to, in whole or in
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materials do not contain all information that may be required to evaluate any transaction or matter and information may be
available to STRM and/or its affiliates that is not reflected herein.
Nothing in this material constitutes investment, legal, accounting or tax advice, or a representation that any investment or
strategy is suitable or appropriate to your unique circumstances, or otherwise constitutes an opinion or a recommendation to
you. STRM is not providing advice regarding the value or advisability of trading in swaps, commodity interests, including
futures contracts and commodity options or any other activity which would cause STRM or any of its affiliates to be
considered a commodity trading advisor under the U.S. Commodity Exchange Act. This material is not to be relied upon in
substitution for the exercise of independent judgment. Any recipient of these materials should conduct its own independent
analysis of the matters referred to herein. The recipient should seek advice based on its particular circumstances from its
own independent financial, tax, legal, accounting and other professional advisors .

DEFINITIONS & CAUTIONARY NOTE
Reserves: Our use of the term “reserves” in this presentation means SEC proved oil and gas reserves.
Resources: Our use of the term “resources” in this presentation includes quantities of oil and gas not yet classified as SEC proved oil and gas reserves. Resources are consistent with the Society of Petroleum
Engineers (SPE) 2P + 2C definitions.
Discovered and prospective resources: Our use of the term “discovered and prospective resources” are consistent with SPE 2P + 2C + 2U definitions.
Organic: Our use of the term Organic includes SEC proved oil and gas reserves excluding changes resulting from acquisitions, divestments and year-average pricing impact.
Shales: Our use of the term ‘shales’ refers to tight, shale and coal bed methane oil and gas acreage.
Underlying operating cost is defined as operating cost less identified items. A reconciliation can be found in the quarterly results announcement.
The companies in which Royal Dutch Shell plc directly and indirectly owns investments are separate legal entities. In this presentation “Shell”, “Shell group” and “Royal Dutch Shell” are sometimes used for
convenience where references are made to Royal Dutch Shell plc and its subsidiaries in general. Likewise, the words “we”, “us” and “our” are also used to refer to subsidiaries in general or to those who
work for them. These expressions are also used where no useful purpose is served by identifying the particular company or companies. ‘‘Subsidiaries’’, “Shell subsidiaries” and “Shell companies” as used in
this presentation refer to companies over which Royal Dutch Shell plc either directly or indirectly has control. Entities and unincorporated arrangements over which Shell has joint control are generally referred
to as “joint ventures” and “joint operations” respectively. Entities over which Shell has significant influence but neither control nor joint control are referred to as “associates”. The term “Shell interest” is used
for convenience to indicate the direct and/or indirect ownership interest held by Shell in a venture, partnership or company, after exclusion of all third-party interest.
This presentation contains forward-looking statements concerning the financial condition, results of operations and businesses of Royal Dutch Shell. All statements other than statements of historical fact are,
or may be deemed to be, forward-looking statements. Forward-looking statements are statements of future expectations that are based on management’s current expectations and assumptions and involve
known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in these statements. Forward-looking statements include,
among other things, statements concerning the potential exposure of Royal Dutch Shell to market risks and statements expressing management’s expectations, beliefs, estimates, forecasts, projections and
assumptions. These forward-looking statements are identified by their use of terms and phrases such as ‘‘anticipate’’, ‘‘believe’’, ‘‘could’’, ‘‘estimate’’, ‘‘expect’’, ‘‘goals’’, ‘‘intend’’, ‘‘may’’, ‘‘objectives’’,
‘‘outlook’’, ‘‘plan’’, ‘‘probably’’, ‘‘project’’, ‘‘risks’’, “schedule”, ‘‘seek’’, ‘‘should’’, ‘‘target’’, ‘‘will’’ and similar terms and phrases. There are a number of factors that could affect the future operations of
Royal Dutch Shell and could cause those results to differ materially from those expressed in the forward-looking statements included in this presentation, including (without limitation): (a) price fluctuations in
crude oil and natural gas; (b) changes in demand for Shell’s products; (c) currency fluctuations; (d) drilling and production results; (e) reserves estimates; (f) loss of market share and industry competition; (g)
environmental and physical risks; (h) risks associated with the identification of suitable potential acquisition properties and targets, and successful negotiation and completion of such transactions; (i) the risk
of doing business in developing countries and countries subject to international sanctions; (j) legislative, fiscal and regulatory developments including regulatory measures addressing climate change; (k)
economic and financial market conditions in various countries and regions; (l) political risks, including the risks of expropriation and renegotiation of the terms of contracts with governmental entities, delays
or advancements in the approval of projects and delays in the reimbursement for shared costs; and (m) changes in trading conditions. No assurance is provided that future dividend payments will match or
exceed previous dividend payments. All forward-looking statements contained in this presentation are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.
Readers should not place undue reliance on forward-looking statements. Additional risk factors that may affect future results are contained in Royal Dutch Shell’s Form 20-F for the year ended December 31,
2016 (available at www.shell.com/investor and www.sec.gov). These risk factors also expressly qualify all forward-looking statements contained in this presentation and should be considered by the reader.
Each forward-looking statement speaks only as of the date of this presentation, May 9, 2017. Neither Royal Dutch Shell plc nor any of its subsidiaries undertake any obligation to publicly update or revise
any forward-looking statement as a result of new information, future events or other information. In light of these risks, results could differ materially from those stated, implied or inferred from the forward-
looking statements contained in this presentation.
We may have used certain terms, such as resources, in this presentation that United States Securities and Exchange Commission (SEC) strictly prohibits us from including in our filings with the SEC. U.S.
investors are urged to consider closely the disclosure in our Form 20-F, File No 1-32575, available on the SEC website www.sec.gov. You can also obtain this form from the SEC by calling 1-800-SEC-0330.

CONTENTS
▪ Company Overview
▪ What value hedging brings to the business?
▪ What’s your hedging strategy?
• Fixed Price Products
• Options
▪ In this uncertain environment, can you afford not to have a hedging

program in place?
▪ What type of credit support and its impact on execution costs?
▪ How do you choose a hedge counterparty?
▪ Other Useful Information
▪ Contact Details

COMPANY OVERVIEW
DOWNSTREAM OPERATIONS
ROYAL DUTCH SHELL  DOWNSTREAM  GAS AND ENERGY MARKETING & TRADING
 SHELL ENERGY
N
C

THE SHELL TRADING NETWORK
ROYAL DUTCH SHELL  DOWNSTREAM –
TRADING & SUPPLY  GAS AND ENERGY MARKETING & TRADING  SHELL TRADING
CALGARY
STRU Moscow
STC/SENAC STIL/SEEL London
SILS The Hague SJT Tokyo
STR Rotterdam
STUSCO/SENA/STRM
SNALNG Houston
SITME/SMLNG Dubai
STM Mexico SWST Barbados SIETCO/SELNG Singapore
Crude Oil Trading LPG Trading
Products Trading LNG Trading

Spot Chartering
Natural Gas Trading Power Trading
Barge chartering
Shipping Environmental Products Trading
SHELL TRADING RISK MANAGEMENT LLC*
Core Business
 Markets Shell’s Energy Risk Industry Position

Management Services in US
 Registered Swap Dealer  A subsidiary of Shell Energy North America (US), L.P.,
one of the strongest balance sheets in the industry
A/A3
 Broad Commodity Capability
Customer Base  Natural Gas
 Natural Gas Liquids
 Producers  Crude Oil
 Refineries  Refined Products
 Electric utilities  Power
 Municipalities  Expansive Financial Product Offering
 Rural electric cooperatives  Swaps
 Independent power producers  Options – Costless Collars, 3-ways, index
 Natural gas and power aggregators  Basis Swaps and options
 Large commercial and industrial end-
▪ 27 basis locations for NG
users
▪ All major Crude grades
 MLP and Pipelines
 Bespoke structured products and credit structures

SHELL ENERGY NORTH AMERICA (US) L.P.
ROYAL DUTCH SHELL  DOWNSTREAM  SHELL TRADING
Core Business Industry Position
 Energy marketing and trading  Natural gas marketer in the U.S. with sales volumes of
 Gas and power asset supply and 7 billion cubic feet (Bcf) per day
management
 Markets Shell’s equity natural gas  Wholesale and retail power marketer with sales volumes
production in the U.S. topping 270million megawatt hours (MWh) annually
Customer Base  Shell Energy participates in nearly all organized power

markets, with 10,000 megawatts of generating
 Electric utilities
capacity across the U.S.
 Local natural gas distribution
companies
 Shell Energy consistently ranks within top three gas and
 Municipalities
power marketers in North America according to Platts
 Rural electric cooperatives
 Independent power producers
 Expansive physical commodity offerings
 Natural gas and power energy
 Pricing – fixed, index, basis options as well as other
retailers
structured pricing (cross-commodity, collars,
 Large commercial and industrial end-
storage, etc.)
users
 Balancing, transportation and storage management
 Producers

SHELL TRADING (US) COMPANY
Core Business
 Crude and Products Marketing and Industry Position

Trading
 Markets the Majority of Shell's (US)  The largest physical crude purchaser in North America
Equity Crude Oil Production
 Markets more than 13 million bbl/d of crude oil
Customer Base
 Markets 3.5 million bbl/d of oil products
 Producers
 Refineries  One of the world’s largest spot charterers ~700 crude
 Consumers oil tankers
 Operates/manages approximately 55 shipping vessels
 One of world’s largest spot charters, transport ~25% of

world’s LNG
 Approximately 4,000 energy professionals and 2,500

seafarers

STRENGTH IN CREDIT
Royal Dutch Shell plc

(S&P: A, Moody’s: Aa2)
Shell Oil Company

(S&P: A, Moody’s: Aa3)
100% ownership through wholly-owned subsidiaries
Shell Energy North America (US),L.P.

(S&P: A-, Moody’s: A3)
100% ownership through wholly-owned subsidiaries
Shell Trading Risk Management, LLC
(PG by SENA)

What value hedging
brings to the business?

RATIONALES FOR HEDGING
Stabilize cash flows and promote sound corporate governance

through effective risk management practices.
Maximize shareholder value by shielding revenue streams,

profitability, and balance sheets from market price risks and potential
losses.
Hedging acts an insurance against price risk.
A hedging program can aide in forecasting future budgets by locking

in continuity of cash flows.
Potentially lower tax liabilities.

DISADVANTAGES OF HEDGING
Potentially limit the upside of cash flows if you have a bullish view on
the market if you are a producer or bearish view on the market if you
are a consumer.
Dodd-Frank Financial Regulation has added multiple layers to

onboarding between swap counterparties. Therefore, it can be time
consuming to establish and maintain trading relationships between
counterparties.
If you have never hedged, your shareholders may value the upside to
commodity price risk.
If you are a Producer and the market is backwardated, you could be

locking in lower prices than current spot prices.
If you are a Consumer and the market is in contango, you could be

locking in lower prices than current spot prices.
What’s your hedging
strategy?

STANDARD PRODUCTS

FIXED PRICE SWAP EXAMPLE
Transaction Overview Customer Benefits
This product is designed for customers who want to buy or sell  Price and volume assurance
a fixed volume of an energy commodity without being
exposed to the risk of volatile prices.  Simple, flat price for entire deal term
A fixed price can be offered for the entire term.  Protection from volatile price swings driven by extreme
weather events, transport constraints and market
Variation: fixed price can be shaped (seasonally) to suit cash imbalances, etc.
flow needs. Underlying volumes can be shaped (seasonally)
to suit operational requirements. Several other variations are
also available.
Summary Terms Example: Transaction Economics

Buyer Customer Spot Market
Fixed Price Realized Savings
Seller Shell Trading Risk Mgmt Price
Product Natural gas

$3.00 /MMBtu $4.00/MMBtu +$1.00 /MMBtu
Volume 10,000 MMBtu/d
Price $3.00/MMBtu $3.00/MMBtu $3.00/MMBtu $0.00 /MMBtu
Term 12 months
$3.00/MMBtu $2.50/MMBtu ($0.50) /MMBtu

SHAPED VOLUME EXAMPLE
This product is designed to serve the needs of a producer or  Level price assures economics: For a producer can
consumer that has changing delivery volumes; for example - manage well economics through a price that covers fixed
new production that is ramping up over time. costs, helping reduce bank borrowing and/or increase
bank borrowing base
A shaped commodity swap can provide fixed pricing that
reflects the expected flow.  Level price improves short-term production value:
producer can gain the benefit of a contango forward
curve (higher prices in later periods) even for prompt
production
 Fixed price: customer achieves price certainty and stability

on the balance sheet to better predict financial
performance

Buyer Shell Trading Risk Mgmt Market Fixed
Flowing
Period Price Price
Seller Customer Volume
(Example) (Example)
Product WTI
1,000 $55.00/ $55.00/
Year 1
Volume Initial volume of 1,000 Bbls/d increasing by Bbl/d Bbl/d Bbl/d
an additional 1,500 Bbls/d each year
2,500 $56.00/ $55.00/
thereafter Year 2
Bbl/d Bbl/d Bbl/d
Price $ 55.00/ Bbl
4,000 $56.50/ $55.00/
Year 3
Term 36 months Bbl/d Bbl/d Bbl/d
2500 $56.13/ $55.00/
Averages
Bbl/d Bbl/d Bb/d

ODD LOT COMMODITY EXAMPLE
This product is designed to serve the needs of a customer  Minimizes risk: customer can increase or change load
whose loads that are smaller than standard wholesale without being severely over-hedged or under-hedged
commodity blocks of 1,000 Bbls or 10,000 nat gas or whose
volumes to not match standard lot contracts.
Odd lot commodity can provide fixed for small to medium

loads and will bear the hedging risk. This can be either a
fixed volume product, or a shaped product.
Customer can add additional loads as needed.

Buyer Customer
Volume Price
Seller Shell Trading Risk Mgmt
Product HO
Standard 42,000/gal $1.75/gal
Volume 500,000 gals per year
$1.75/gal +
Price $1.75/gal Odd Lot 41,667/gal
Odd Lot Premium
Term 12 months

OPTIONS

CALL OPTION
Consumers can protect their exposure to a rise in prices by  Price protection: provides customer with protection against
purchasing a call option. The call provides upside protection unexpected price increases
at a predetermined price level. However, unlike a regular
swap, it gives the consumer the opportunity to participate on  Easily adaptable: customer can select the level at which
any beneficial downward move in prices. protection is provided (i.e., strike price)
 Full participation for customer when market price declines

Option premiums are payable (often upfront) regardless how
below strike price
the option settles.

Buyer Customer
Volume Ceiling Price Settlement
Seller Shell Trading Risk Mgmt Market Settle
Provided (Call Strike) Price*
Product Natural gas
5,000 $3.50/ $3.00/ $3.00/
Volume 5,000 MMBtu/d MMBtu/d MMBtu MMBtu MMBtu
Option Type Call Option
5,000 $3.00/ $3.00/ $3.00/
Index Inside FERC NGPL MMBtu/d MMBtu MMBtu MMBtu
Strike Price $3.00/MMBtu 5,000 $2.75/ $3.00/ $2.75/
Option $0.20/MMBtu (paid upfront) MMBtu/d MMBtu MMBtu MMBtu
Premium *Not inclusive of option premiums

PUT OPTION
Producers can protect their exposure to a fall in prices by  Price protection: provides customer with protection against
purchasing a put option. The put provides downside unexpected price decreases
protection at a predetermined price level. However, unlike a
regular swap, it gives the producer the opportunity to  Easily adaptable: customer can select the level at which
participate on any beneficial upward move in prices. protection is provided (i.e., strike price)
 Full participation for producers when market price

Option premiums are payable (often upfront) regardless how
increase above strike price
the option settles.

Buyer Customer
Volume Price Floor Settlement
Market Settle
Seller Shell Trading Risk Mgmt Provided (Put Strike) Price*
Product WTI Crude
$50.00/ $45.00/ $50.00/
Volume 1,000 Bbl/d 1,000 Bbl/d
Bbl/d Bbl/d Bbl/d
Option Type Put option
$42.00/ $45.00/ $45.00/
1,000 Bbl/d
Index WTI CMA Bbl/d Bbl/d Bbl/d
Strike Price $45.00/Bbl $45.00/
$40.00/ $45.00/
1,000 Bbl/d Bbl/d
Option $2.68/Bbl/d (payable upfront) Bbl/d Bbl/d
Premium
*Not inclusive of option premiums

HEAT RATE CALL OPTIONS FOR POWER
This product is designed for customers who want an option to  Locked in heat-rate cap
buy heat rate power at a fixed multiple of a gas index. If the
market heat rate subsequently falls, the customer is able to  Protection against spikes in market heat rates due to
procure cheaper power in the market since it is not obliged to weather events, transmission constraints or market
take delivery from Seller. Seller can offer heat rate call options imbalances
for power where:
 Procure cheaper power when market heat rates are lower
 option premiums are paid monthly regardless if power is
delivered or not; and
 customer pays a multiple of gas index if power is

delivered.
Variation: choice of heat rate strikes (lower strikes would

entail costlier option premiums).

Buyer Customer Take Realized
Market Market Market Delivery if Price*
Seller Shell Trading Risk Mgmt Power Gas Heat Rate Mkt HR > (8.0 x
8.0 Gas)
Power Index ERCOT Houston
$50/ $5.00/ $40/
Gas Index GDD HSC 10.0 YES
MWh MMBtu MWh
Volume 100 MW (delivered into pool)
$45/ $5.00/ $40/
9.0 YES
Heat Rate Strike 8.00 MMBtu/MWh MWh MMBtu MWh
Option Premium $3.00/kw-month (or $300k per $35 / $5.00/
7.0 NO N/A
month) MWh MMBtu
Term 12 months *Not inclusive of option premiums
PRODUCER COSTLESS COLLAR
This product is suited for producers who are not wanting to  Price protection: provides customer with protection against
lock in current prices with a swap, but would like to have unexpected price increases or decreases, but allows the
inexpensive protection against unexpected market price commodity price to decrease until it reaches the floor
increases/decreases. price
The ‘width’ of the price band between the floor price (put  Easily adaptable: customer can select the level at which
strike) and the ceiling price (call strike) can be structured to fit protection is provided; ceiling price can be adjusted to
the customer’s view of the market. make the transaction “costless”
 Additional flexibility: if a customer doesn’t mind switching

No option premiums required.
from a costless to slight cost structure, Seller can add
considerable flexibility to the width of the bands (floor to
ceiling band)

Buyer Customer Ceiling Floor
Volume Current Settlement
Seller Shell Trading Risk Mgmt Price Price
Provided Market Price
(Call Strike) (Put Strike)
Product Natural gas
5,000 $5.50/ $4.50/ $3.00/ $4.50/
Volume 5,000 MMBtu/d MMBtu/d MMBtu MMBtu MMBtu MMBtu
Price Inside FERC NGPL MidContinent, subject
to: 5,000 $4.00/ $4.50/ $3.00/ $4.00/
Ceiling Price: $4.50/MMBtu MMBtu/d MMBtu MMBtu MMBtu MMBtu
Floor Price: $3.00/MMBtu
5,000 $2.50/ $4.50/ $3.00/ $3.00/
Term 24 months MMBtu/d MMBtu MMBtu MMBtu MMBtu

PRODUCER LOW-COST COLLAR
This product is designed for producers with existing costless  Maintains price protection: provides customer with
collar hedges – allowing a choice to pay a small premium to protection against unexpected price decreases afforded
raise the price ceiling. The low-cost collar is suited for by their existing costless collar
producers who are not wanting to lock in current prices with a
swap, but would like to have inexpensive protection against  Greater upside participation as compared to a costless
unexpected market price decreases. collar (up to the revised ceiling price)

Buyer Customer Volume Current Ceiling Price Floor Price Settlement
Seller Shell Trading Risk Mgmt Provided Market (Call Strike) (Put Strike) Price*
Product Natural gas

5,000 $5.50/ $5.00/ $3.00/ $5.00/
Volume 5,000 MMBtu/d MMBtu/d MMBtu MMBtu MMBtu MMBtu
Price Inside FERC NGPL MidContinent, 5,000 $4.00/ $5.00/ $3.00/ $4.00/
subject to: MMBtu/d MMBtu MMBtu MMBtu MMBtu
Ceiling Price: $5.00/MMBtu
Floor Price: $3.00/MMBtu 5,000 $2.50/ $5.00/ $3.00/ $3.00/
MMBtu/d MMBtu MMBtu MMBtu MMBtu
Option Premium $0.05/MMBtu (payable upfront)

THREE WAY COLLAR
A 3-way collar can be constructed for end users or producers  Can enhance collar price, but give up protection in
by enhancing a collar, but gives up protection in extreme extreme high price environment
high price environments. The consumer sells a cap above the
strike of purchased cap. The value obtained by cap sale is  Can buy back additional downside potential by adjusting
applied to the collar band to make it more attractive. This collar levels.
would be executed in the implied view of the market were that
 Can be structures with no upfront fee.
prices might dip somewhat (and you want to be able to
benefit from this), but not spike up above the strike of the cap  Can guarantee worst-case scenario and increase upside
that was sold. The opposite would apply for producers potential.
 Structured in a way to fit the consumer needs.

Buyer Customer Volume Current
Ceiling Interim
Floor Price Settlement
Lifted Ceiling Price
Provided Market (Put Strike) Price*
Seller Shell Trading Risk Mgmt Beyond (Call Strike)
Product Natural Gas $4.50 +

5,000 $6.00/ $5.50/ $4.50/ $3.00/
$0.50/
Volume 5,000 Mmbtu/day MMBtu/d MMBtu MMBtu MMBtu MMBtu
MMBtu
Price Inside FERC NGPL MidContinent, subject to:
5,000 $5.00/ $5.50/ $4.50/ $3.00/ $4.50/
Ceiling Price: lifted beyond $5.50/MMBtu MMBtu/d MMBtu MMBtu MMBtu MMBtu MMBtu
Interim Ceiling Price: $4.50/MMBtu
Floor Price: $3.00/MMBtu 5,000 $4.00/ $5.50/ $4.50/ $3.00/ $4.00/
MMBtu/d MMBtu MMBtu MMBtu MMBtu MMBtu
Option No upfront payment
Premium
5,000 $2.50/ $5.50/ $4.50/ $3.00/ $3.00/
MMBtu/d MMBtu MMBtu MMBtu MMBtu MMBtu

In this uncertain
environment, can you
afford not to have a
hedging program in
place?
CRUDE MARKET FUNDAMENTALS

Macroeconomics
MACRO GEO
Q4 - Prelim

Global GDP
WORLD ECONOMY EXPECTED TO GROW BY 3.3% IN 2017, UP FROM 3% IN 2016.

CHINA, INDIA & US COMBINED REPRESENT 60% OF GLOBAL ECONOMIC
GROWTH, WHICH DENOTES A KEY RISK TO THE WORLD ECONOMY.
World GDP Growth Forecasts at PPP

4.0%
3.5%
3.0% Rest of the World

Canada
2.5%
France
Annual GDP Growth, %
United Kingdom
2.0%
Brazil
Russia
1.5%
Germany
Japan
1.0%
India
United States
0.5%
China
0.0%
-0.5%
1Q2016 2Q2016 3Q2016 4Q2016 1Q2017 2Q2017 3Q2017 4Q2017 1Q2018 2Q2018 3Q2018 4Q2018
Source: IMF
Bonds, US$ & Oil Price
AS US BOND YIELDS RISE FASTER THAN ELSEWHERE, SO WILL THE US$. BUT THAT
NEED NOT IMPLY THE OIL PRICE WILL BE UNDER PRESSURE. IN FACT, OVER THE
PAST 12 MONTHS, US$ AND WTI HAVE SELDOM MOVED IN SYNC.
US Dollar Index vs. 10-Y US Government Bonds
Yields US Dollar Index vs. WTI Price
130 2.6 130 55
128 2.4 128

50
126 126
2.2
45
124 124
2
US Dollar Index
Bond yields, %
122 40
Dollar Index
122
$/bbl
1.8
120 120
35
1.6
118 118
30
1.4
116 116
25
114 1.2 114
112 1 112 20
US Dollar Index (1997=100) 10-Y Gvt Bond Yields US Dollar Index (1997=100) WTI, $/bbl
Source: Reuters
Global SUVs
GLOBALLY WE ARE SEEING A GROWING TREND TOWARDS LARGER SUVS WHILE

CAR PLANTS WHICH MAKE SMALL CARS ARE BEING IDLED DUE TO GROWING
INVENTORIES.
New Passengers Vehicles Sales Breakdown
US
Source: IEA

US Supply
WHILE 2017 AVERAGE PRODUCTION IS EXPECTED TO BE FLAT Y-O-Y BUT

ENDING HIGHER IN 2H17 THAN 2016, CREATING A PLATFORM FOR STRONGER
GROWTH IN 2018.
U.S. Total Crude/Condensate Production, Kbd
10,000
9,800 EIA STEO PIRA Wood Mac I.H.S. Genscape
9,600
9,400
9,200
9,000
8,800
8,600
8,400
8,200
8,000
Mar-14
May-14
Mar-15
May-15
Mar-16
May-16
Mar-17
May-17
Mar-18
May-18
Nov-18
Jan-14
Nov-14
Jan-15
Nov-15
Jan-16
Nov-16
Jan-17
Nov-17
Jan-18
Jul-18
Sep-18
Jul-14
Sep-14
Jul-15
Sep-15
Jul-16
Sep-16
Jul-17
Sep-17
Source: EIA, PIRA, Woodmac, IHS, Genscape

US Supply
WELL BEP’S CLOSER TO WTI PRICE IS LIKELY TO DRIVE INCREASED DRILLING

ACTIVITY IN 2017. THOUGH COST IMPROVEMENTS HAVE PLATEAUED AND ARE
LIKELY TO START ESCALATING.
Wellhead BEP Hz WTI

160
Well head BEP , WTI $/bbl
140
120
100
80
60
?
40
20
0
Sep-12
Sep-06
Sep-07
Sep-08
Sep-09
Sep-10
Sep-11
Jan-12
Sep-13
Sep-14
Sep-15
Sep-16
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-13
Jan-14
Jan-15
Jan-16
May-11
May-13
May-06
May-07
May-08
May-09
May-10
May-12
May-14
May-15
May-16
Source: Rystad Energy

Global Crude Inventory
THE MORE VISIBLE OECD STOCKS HAVE BEEN RELATIVELY FLAT WHEREAS MORE
DRAWS OF CRUDE HAVE BEEN REPORTED IN THE NON-OECD. SPR AND
FLOATING STORAGE HAVE HELPED TO CLEAR BARRELS FROM THE MARKET.
2200
CommTotal (mb) 1300 OECD (mb)
1200
1100
2000
1000
900
800
1800
700
Global Crude
inventories dip 600
back below Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
1600
2015 levels
2015 2016
780
Non-OECD (mb)
760
1400
740
720
700
1200
680
660
640
1000
620 Source : JODI
600
2015 2016 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: IEA
2015 2016

Agencies
WITH AN ALREADY LOW BASELINE IN 2016, AGENCIES BROADLY SEE NON-

OPEC SUPPLY DECLINES ARRESTING IN 2017, RELIEVING THE CALL ON OPEC.
2017 Agency Forecast (MBD)

1.8
1.6
1.4
Stock Draws?
1.2
1
0.8
0.6
0.4
0.2 YTD Growth vs
2016 50 kbd
0
EA OPEC EIA IEA
Non-OPEC Supply Call on OPEC / OPEC Growth

Demand Inventory
(incl. NGLs)
Source: IEA, EIA, OPEC, Energy Aspects

NATURAL GAS MARKET FUNDAMENTALS
U.S. EIA STEO SUMMARY – OCTOBER 2017
R&C DEMAND
HENRY HUB SPOT PRICE
 2016 averaged 20.4 Bcf/d
 2016 averaged $2.52/MMBtu
 2017 to average 20.7 Bcf/d
 2017 to average $3.03/MMBtu
 2018 to average 21.8 Bcf/d*
 2018 to average $3.19/MMBtu*
*revised up from 21.7 Bcf/d in September 2017 STEO
*revised down from $3.29/MMBtu in September 2017 STEO
ELECTRIC POWER DEMAND

MARKETED PRODUCTION
 2018 to average 26.3 Bcf/d*
 2018 to average 84.4 Bcf/d* *revised up from 25.5 Bcf/d in September 2017 STEO
COMMENTARY
PIPELINE IMPORTS The U.S. EIA stated Henry Hub prices declined in
early September largely in reaction to Hurricane
 2016 averaged 8.0 Bcf/d Irma’s impact to gas fired generation in Florida. Most
 2017 to average 8.0 Bcf/d* generation in Florida is gas-fired and production
was 41% lower on September 11 than the average
 2018 to average 8.1 Bcf/d first 7 days of September.
Source: U.S. EIA Short-Term Energy Outlook, October 11, 2017
This information comes directly from the U.S. Energy Information Administration website and is to be used for discussion purposes only. Shell makes no
representation and expresses no opinion as to the accuracy of such information and such information is not a reflection of Shell’s view of any market fundamentals.
HENRY HUB NATURAL GAS PRICE FORECAST
Note: Confidence interval derived from options market information for the 5 trading days ending Oct. 5, 2017. Intervals not calculated for the months with sparse trading in
near-the-money options contracts.
▪ The U.S. EIA stated that Henry Hub natural gas prices are expected to average $3.03/MMBtu in
2017 and $3.19 in 2018.
▪ The U.S. EIA also stated that Henry Hub natural gas spot prices averaged $2.98/MMBtu in
September, up $0.08 from its July average.
Source: U.S. EIA Short-Term Energy Outlook, April 11, 2017
U.S. NATURAL GAS PRICE COMPARISONS

Note from EIA regarding residential price peaks in the summer and troughs in the winter: Residential prices have two components: the variable cost (cost of gas) and the
utility’s fixed costs (operating/infrastructure/etc). The fixed costs are very high and they’re spread out over consumption. Since there’s more consumption in the winter, the
fixed costs are spread out much more. Winter heating bills will be higher because the increase in consumption outweighs the lower price.
Copyright of Shell Energy North America
U.S. NATURAL GAS DRY PRODUCTION
85.0
83.0 EIA Actual EIA Forecast
81.0
79.0
77.0
75.0
73.0
71.0 Actual Forecast
69.0
67.0
65.0
Nov
Nov
Nov
Sep
Sep
Sep
Jan-16
Mar
May
Jul
Jan-17
Mar
May
Jul
Jan-18
Mar
May
Jul
Source: U.S. EIA Short-Term Energy Outlook, October11, 2017
▪ According to the U.S. EIA, dry natural gas production is expected to average 73.6 Bcf/d in
2017, a 0.7 Bcf/d increase from 2016.
▪ The U.S. EIA also stated that dry gas production averaged 75 Bcf/d in September, 3.1 Bcf/d
greater than the same time last year.
U.S. NATURAL GAS PIPELINE GROSS IMPORTS
9.5 EIA Actual

EIA Forecast
9.0
Pipeline Imports in Bcf/d
8.5
8.0
7.5
7.0 Actual
Forecast
6.5
6.0
Jan…
Jan…
Jan…
Sep
Nov
Nov
Nov
Sep
Sep
May
May
May
Mar
Jul
Mar
Jul
Mar
Jul
▪ According to the U.S. EIA, pipeline gross imports will average 8.1 Bcf/d in 2018 and 8.0 Bcf/d
in 2017.
▪ The U.S. EIA expects that growth in natural gas exports and growth in consumption will
contribute to Henry Hub Natural Gas spot price increasing to an annual average of
$3.19/MMBtu in 2018 from $3.03/MMBtu in 2017
U.S. GAS DRY PRODUCTION + LNG & PIPELINE GROSS IMPORTS
90
EIA Actual EIA Forecast
85
80
Supply in Bcf/d
75the U.S. EIA, February 2017 natural gas prices were higher than February
According to
2016 prices because of higher exports and lower production, leading to lower
Pipeline inventory
Gross Imports
LNG Gross Imports
levels. 70
Dry Production
65
Nov
Nov
Nov
Sep
Sep
Sep
Jan-16
Mar
May
Jul
Jan-17
Mar
May
Jul
Jan-18
Mar
May
Jul
▪ According to the U.S EIA, LNG export capacity is expected to increase in 2018 with exports exceeding 3
Bcf/d, 66% more than the 2017 projected average.
U.S. NATURAL GAS DEMAND – RESIDENTAL & COMMERCIAL
50
45
40 Actual
Natural Gas Demand in Bcf/d
35 Forecast
30
25
20
15
10
5
0
Sep
Nov
Nov
Nov
Sep
Sep
May
Mar
May
May
Jan-16
Mar
Jul
Jan-17
Jul
Jan-18
Mar
Jul
▪ The U.S. EIA expects residential and commercial consumption to average 20.7 Bcf/d in 2017
and 21.8 Bcf/d in 2018.
U.S. NATURAL GAS DEMAND – INDUSTRIAL
25

24
23
22
21
20 C
Actual
19
Forecast
18
Sep
Apr
Aug
Sep
Nov
Dec
Apr
Aug
Nov
Dec
Apr
Aug
Sep
Nov
Jun
May
Jun
Oct
May
Jun
Oct
May
Oct
Jan-16
Feb
Mar
Jul
Jan-17
Feb
Mar
Jul
Jan-18
Feb
Mar
Jul
U.S. NATURAL GAS DEMAND – POWER GENERATION
40
35
30
25
20
15 Actual
Forecast
10
Nov
Nov
Nov
Sep
Sep
Sep
Jul
May
Jul
May
May
Jul
Jan-16
Mar
Jan-17
Mar
Jan-18
Mar
▪ According to the U.S. EIA, consumption in the electric power sector should decrease 9.1% in
2017 and increase 6.2% in 2018.
U.S. NATURAL GAS DEMAND BY SECTOR
100
90
80
70
Demand in Bcf/d
60
50
40
30 Residential &
Commercial
20 Power Generation
10
0
Nov
Nov
Nov
Sep
Sep
Sep
May
Jul
May
Jul
May
Jul
Jan-16
Mar
Jan-17
Mar
Jan-18
Mar
Source: U.S. EIA Short-Term Energy Outlook, October11, 2017
U.S. NATURAL GAS DEMAND VS. SUPPLY*
100
90
80
Natural Gas in Bcf/d
70
60
50
Demand
Demand Forecast
40
Supply
Supply Forecast
30
Nov
Nov
Nov
Sep
Sep
Sep
Jan-16
Mar
May
Jul
Jan-17
Mar
May
Jul
Jan-18
Mar
May
Jul
* Supply = Dry Production + LNG Imports + Pipeline Gross Imports
What type of credit support is
required and its impact on
execution costs?
ISDA WITH CSA
Bi-lateral credit limits are established based upon the credit

assessments of the Producer and Shell Trading
 ISDA with a CSA
Collateral (cash or LoC) required if daily mark-to-market exposures

from financial trades exceed credit thresholds in contract
Producer with external credit rating issued by a rating agency, credit

thresholds are tied to a credit grid (i.e. a credit line tied to rating)
Aggressive pricing but could fill up derivative lines.

UNSECURED NO-MARGIN PROGRAM
Used to compete with bank syndicates, where bank’s hedging affiliates

are secured and producer is not able to post collateral outside bank
facility
ISDA with no CSA. No posting of cash, LCs, or security interest in

reserves is required (thus STRM’s credit exposure is “unsecured”)
Covenants generally used for sub investment grade rated Producers to

mitigate risk of credit deterioration.
 Dynamic or static covenants pulled from existing credit agreement
Credit charge based on internal adjusted credit rating and recovery rate
60 month + balance of current year hedge tenor allows STRM to compete

for essentially all the hedges
Credit reports weekly exposure by CP and credit reserve applied to P&L

UNSECURED NO-MARGIN DUE-DILIGENCE
Producer Review
 Company assessment – typical credit underwriting review augmented by
analysis of 3rd party engineering reserve reports
 Credit determines an adjusted credit rating and recovery rate that is used to
determine credit charge
 Credit monitors and adjusts individual credit ratings on a periodic basis

SECURED NO-MARGIN PROGRAM
Used in situations where a Producer’s lender allows STRM to share in
collateral on a first lien basis to secure hedging obligation. If recovery
rate is high, pricing can be aggressive.
Credit exposure under the ISDA is secured via a mortgage on the

Producer’s reserves and other collateral and guarantees securing the
Producer’s lenders.
Bank and STRM share in the collateral and guarantees on a pari passu
(i.e. “ratable”) basis.
Producer credit review includes financial statements and review of 3rd

party engineering (potentially evaluated by STRM contract reservoir
engineer)
Contracts include 1) an ISDA with Producer and 2) An Intercreditor

Agreement with STRM, Lender and Producer
STRM legal due diligence required including reviewing all closing

documents from financing.

SECURED NO-MARGIN DUE-DILIGENCE
Secured Deals are handled with a Deal Team approach; Credit,

Structuring, Commercial, Legal & Contracts
Lender Review
 E&P portfolio and experience lending to E&P companies
 Is the Lender well capitalized?
 Credit Agreement, ICA and security docs
Producer Review
 Company assessment – management and track record
 Analyze 3rd party engineering and production reports
 Financial review – historical and pro-forma
 Hedging strategy and PFE
 Collateral coverage assessment – debt and MtM
How do you chose a
hedge counterparty?

CHOOSING A HEDGE COUNTERPARTY
Questions to consider when choosing hedge providers:
What is the credit quality of the hedge provider? Are they

financially stable enough to pay if I settle or unwind in the
money?
What is the reputation of the hedge provider? Do they plan to

price aggressively?
Can they offer the specific underlyings and financial structures I

require for my risk management program?
What type of credit support is required? Am I interested in no

margin or margining to improve pricing?

CHOOSING A HEDGE COUNTERPARTY CONTINUED
Questions to consider when choosing hedge providers:
If I am hedging with my bank group only, do they have the

capacity to fulfill all my hedging requirement?
How many hedge providers do I need? Weigh the time

constraints of adding and maintaining those hedging relationship
in the new Dodd-Frank financial regulatory world.
How do I want to handle the onboarding process with those

hedge counterparties?
Should I consider adding Shell to increase competitiveness,

spread counterparty risk, and help fulfill all my hedging needs?

OTHER USEFUL INFO
Copyright of Shell International B.V.

SAMPLE LIST OF NATURAL GAS INDEX POINTS
Gas Daily Gas Daily Inside FERC Inside FERC Natural Gas IPE
ANR ML7 NNG DEM ANRLa TENN 500 Intelligence Brent
ANROK NNG VIA ANROK TENN 800 CHICAGO
CARTHAGE HUB NW S GRN RIVER CanNig TENN Z6 MALIN Canadian Gas
CHEYENNE NW STANFIELD CIGRocky TENNTxZ0 PGE CITYGATE AECO
Chicago LDCs NW WYOMING POOL CNGAppl TETCOETx SOCAL
CIG ROCKY NWPCB Sumas ColGasAppal TETCOSTx SOCAL CG Canadian Gas
CNG NorthPoint PAN ColGfLa TETELa SOCALBRDR PGE Dollar
CNG SouthPoint PGE CITYGATE COLGULF ML TETM3 AECO
CNSPWR PGE LP DAWN TGTSL Last Day EMP
COLGAS APP QUESTAR ELPPerm TGTZ1 EHRENBERG
COLGULF MAINLINE CENTERPOINT EAST ELPSanJuan TRMissAlab GOSHEN ARG
DAWN ETx KATY TRUNKLa Formula WTI
SOCAL CG HERMISTON
TRZ2 WTS WTD
DRACUT SOCAL LP FGTZ3 LANC DA BID
TRZ3
ELP BONDAD Sonat HHC NGPL GAGE
TRZ6 NON-NY
ELP NonBondad TENN Z6 HSC
TRZ6 NY
NWPL CG NYM
ELPPerm TET ELA MICHCON LEU WILLTxOkKs PSCO CITYGATE HH
Emerson Viking TETM3 NGPLMC WTXWaha RATTLESNAKE CRK WTI
HHC TGTSL NGPLSTx REX WEST
HSC TRNSWST PERM NGPLTxOk SWGAS AZ
IROQUOIS TRZ3 NNGDe SWGasSJ
KERN DELIVERED TRZ6 NY NNGVIowa
KERN RIVER OPAL WAHA NWPCB SUMAS
MALIN NWRoc
MichCon LEU ONGOk
NGPL MDCT PAN
NGPLTxOk E CENTERPOINT EAST
NIAGARA SONATLa

DISCOVER MORE
www.shell.us
youtube.com/shell
flickr.com/photos/royaldutchshell
shell.com/inside_energy
facebook.com/shell

CONTACT DETAILS
Shell Trading Risk Management offers a wide range of Risk

Management solutions
Our experienced team welcomes the opportunity to speak to you
about how our services can help you achieve your business goals
Contact us:
Name: Kevin Hulsey
Number: 713-230-7327
E-mail: Kevin.Hulsey@shell.com
Hotline Number: 844.788.7876

APPENDIX

INDEXED PRICE – HEAT RATE POWER
This product is designed to allow customers to convert power  Locked in fixed heat-rate
exposure into gas terms by purchasing a fixed volume of
power priced on a gas index.  Protection against spikes in market heat rates due to
weather events, transmission constraints or market
Heat rate power is offered at a fixed multiple to a gas index. imbalances
Variation: choice of preferred gas index, e.g. Henry Hub or  Simple, transparent pricing based on published gas index
Houston Ship Channel.
 Low credit costs, compared to transacting fixed price
power

Buyer Customer
Fixed Heat Rate Gas Index Settle Realized Price
Seller Shell Trading Risk Mgmt
Power Index ERCOT Houston
8.0x $6.00/MMBtu $48/MWh
Gas Index GDD HSC
Volume 100 MW 8.0x $5.00/MMBtu $40/MWh
Heat Rate 8.0 MMBtu/MWh

8.0x $4.00/MMBtu $32/MWh
Term 12 months

COMMODITY PRICED AS A PERCENT OF NYMEX
This product provides commodity pricing at a preferred point  Provides customer a market based price with a
(including basis), with the price expressed as a percent of transparent way to understand and explain price changes
NYMEX Henry Hub. As an alternative to fixing the basis
differential, the product allows for transparent, market-  Delivered price (including basis) moves with NYMEX
tracking with minimum complexity.

Buyer Customer NGPL- Contract
NYMEX
Volume Midcon Billed Price -
Seller Shell Trading Risk Mgmt Settled Price
Basis % of Nymex
Product Natural gas (NGPL MidContinent Inside
5,000 $3.40/ ($0.135)/
FERC) 96%
MMBtu/d MMBtu MMBtu
5,000 $3.50/ ($0.140)/
Price 96% of NYMEX Henry Hub 96%
MMBtu/d MMBtu MMBtu
Term 12 months 5,000
$3.60/ ($0.145)/
MMBtu/d 96%
MMBtu MMBtu

GAS PRICE BASED UPON CRUDE OR POWER PRICES
This product is designed for producers with both crude and  Simplify economics: customer can understand and report
gas production, who would like to understand their changes in production value based upon a single index
production in terms of a single index price.
Option to purchase or sell gas production based upon a  Price flexibility: gas price does not necessarily need to be
percentage of a crude oil marker price (NYMEX WTI, based upon a single point, but could be a weighted
Louisiana Light Sweet, etc). average of multiple points
Variation: gas purchase or sale price can be based upon a

power price index, or a basket of oil marker prices.

Buyer Shell Trading Risk Mgmt Average Crude Gas Price as % Realized Gas
Seller Customer Price Crude Price
Product Natural gas 6.67% NYMEX

$45.00/Bbl $3.00/MMBtu
WTI
6.67% NYMEX
Price 6.67% NYMEX WTI $48.50/Bbl $3.25/MMBtu
WTI
Term 12 months
6.67% NYMEX
$52.45/Bbl $3.50/MMBtu
WTI

STORAGE LOOKALIKE COMMODITY
This product is designed for customers interested in the ability  Price advantages: enables buy-side customers to secure
to produce natural gas in one period, and for it to be better pricing when the current monthly price is expected
marketed in a different period or at a different location. Buyer to move downward as compared to later purchases
pays a premium for a fixed price and opportunity to market
fixed volumes at later dates or different locations.  Market-time flexibility: customer can market commodity at
later dates and/or at different delivery points
Seller can purchase natural gas in one period, hold or trade
 Geographic flexibility: can provide the storage equivalent
it, and later provide an equivalent volume of product at a
for commodity in difficult markets
different time period to the customer.
Helpful for associated gas production that must be marketed.

Buyer Customer Fixed Volume Summer Volume/
Premium for
Supply Winter Volume
Seller Shell Trading Risk Mgmt Storage Lookalike
From Buyer from Seller
Product Natural gas $0.12/MMBtu per
10,000/30,000
Volume Summer: 20,000/10,000 MMBtu/d 20,000 MMBtu month of total
MMBtu
Received/ Winter: 20,000/30,000 MMBtu/d capacity
Redelivered $0.08/MMBtu per
15,000/25,000
Price Demand fee: $0.12/MMBtu per month 20,000 MMBtu month of total
MMBtu
Gas price: $3.22/MMBtu* capacity
*(pre-agreed fixed price) $0.05/MMBtu per
30,000/10,000
Term 12 months (April through March) 20,000 MMBtu month of total
MMBtu
capacity

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SHELL TRADING RISK MANAGEMENT

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▪ What value hedging brings to the business?

▪ What’s your hedging strategy?

• Fixed Price Products

▪ In this uncertain environment, can you afford not to have a hedging

▪ How do you choose a hedge counterparty?

▪ Other Useful Information

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Crude Oil Trading LPG Trading

Products Trading LNG Trading

 Markets Shell’s Energy Risk Industry Position

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Customer Base  Shell Energy participates in nearly all organized power

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 Crude and Products Marketing and Industry Position

 Operates/manages approximately 55 shipping vessels

 One of world’s largest spot charters, transport ~25% of

 Approximately 4,000 energy professionals and 2,500

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Royal Dutch Shell plc

Shell Oil Company

Shell Energy North America (US),L.P.

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Stabilize cash flows and promote sound corporate governance

Maximize shareholder value by shielding revenue streams,

Hedging acts an insurance against price risk.

A hedging program can aide in forecasting future budgets by locking

Potentially lower tax liabilities.

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Dodd-Frank Financial Regulation has added multiple layers to

If you are a Producer and the market is backwardated, you could be

If you are a Consumer and the market is in contango, you could be

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Summary Terms Example: Transaction Economics

Product Natural gas

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 Fixed price: customer achieves price certainty and stability

Summary Terms Example: Transaction Economics

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Odd lot commodity can provide fixed for small to medium

Customer can add additional loads as needed.

Summary Terms Example: Transaction Economics

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 Full participation for customer when market price declines

Summary Terms Example: Transaction Economics

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 Full participation for producers when market price

Summary Terms Example: Transaction Economics

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 customer pays a multiple of gas index if power is

Variation: choice of heat rate strikes (lower strikes would

Summary Terms Example: Transaction Economics

 Additional flexibility: if a customer doesn’t mind switching

Summary Terms Example: Transaction Economics

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Summary Terms Example: Transaction Economics

Product Natural gas

Copyright of Shell Trading Risk Management, LLC