> Energy, Materials & Industrials ED Royal Dutch Shell — Lucas Herrmann, BUY, close 2561p, 2700p tgt, 5% upside • Best-in-class absolute cash generation with $25-30bn FCF guided for 2020. • This drives substantial shareholder return. Between the c6% dividend yield and c$25bn of buy-backs. Shell is set to return c$70bn to shareholders over the next three years. Moreover, the dilutive scrip dividend is gone, earlier than expected. • Strong optionality and deep resource base. In addition to conventional sources, Shell has broad portfolio optionality. - The BG acquisition is firmly embedded, giving Shell an unsurpassed position in LNG - We expect strong volume growth in US Permian shale (towards 250kboe/d by late 2020s, with breakeven at c$45/bbl) • Shell downstream FCF alone in 2017E is enough to cover almost half the dividend, at c$7bn. • Decline rates to 2025 are lowest in the sector at c2%, in part from Deepwater's growth potential — most particularly Brazil. • Further restructuring potential from divesting Shell's 'long tail' of largely mature territories in the upstream portfolio. This would simplify the business and improve RIP ratios. • Shell is attractively valued at a 5.7% 18E dividend yield versus the 2.8% of its only true global peer, Exxon. - It trades on 14.4x 18E P/E, versus Exxon's 22.5x. Related DB Research: Royal Dutch Shell: Clear direction and purpose (Herrmann) European Integrated Oils: 2018 Outlook cash laws set to open (Herrmann) Deutsche Bank Production outlook indicates substantial growth, driven by unconventional 1200 -21,000 lara Prelude mat Gorgon , e 800 2 Permian growth Y Canada growth Base decline (VVM 2.1%) • 600 .0 O 400 200 0 2016 2017 2018 2019 Source: Deutsche Bank Lapa UK US GoM Utica growth its Pre FID 2020 2021 2022 2023 2024 2025 Cash flow growth driven by more than just refining 15000 013000 f,11000 r° 9 000 u E 7000 8 5000 0) - 3000 • 1000 (I) • -1