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Royal Dutch Shell (A Shares) (RDS.A)
Q4 2020 Earnings Call
Feb 04, 2021, 9:00 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Jessica Uhl

Welcome, everyone, to our fourth-quarter 2020 and full-year results presentation. 2020 was an extraordinary year. With the COVID pandemic, the economic downturn, dislocations in commodity prices, with, at one point, for the first time in history, a negative oil price, 2020 was a very challenging year across society. For Shell, while it was tough, it was also a year of delivery.

Delivery of the decisive measures we took to preserve cash and delivery of solid and resilient operational, safety, and financial performance while we focused on care for our people, customers, and communities. Let us look at our performance in 2020 in more detail. Despite the weak macroeconomic conditions and various challenges impacting our staff and operations throughout the year, our adjusted earnings amounted to almost $5 billion, and cash flow from operations was $34 billion in 2020. Our industry-leading cash flow delivery was achieved through the resiliency of each of our businesses, with strong full-year cash generation in Integrated Gas, Upstream Oil Products, and Chemicals.

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We reported $21 billion post-tax impairments across our portfolio in 2020 given the challenging outlook for commodity prices and margin assumptions. We delivered our cost-reduction targets for the year. In fact, we exceeded those targets. Our organic free cash flow was $18 billion, close to 2019 levels.

We reduced net debt by almost $4 billion, and we delivered this performance safely. We had no work-related fatalities in Shell-operated ventures in 2020, and we reported fewer injuries than in 2019. So at the start of the COVID crisis, to protect our balance sheet and ensure financial resiliency, we took the difficult but prudent decision of rebasing our dividends. This has allowed us to reduce net debt during the year and retain a strong base to respond to changing dynamics, as well as drive our strategy.

In Q3, we said that we plan to raise the dividend per share annually, in line with our progressive dividend policy and subject to board approval. We increased our dividends per share by some 4% in Q3 2020, and we expect to grow it by a further 4% as of the first-quarter 2021. Our operational and financial performance in 2020 shows that, from our portfolio decisions to cash preservation measures, we have made Shell more resilient to deliver strong cash throughout the cycle. We proved our ability to adapt, and we see that our integrated business model has served and will serve us well.

The portfolio decisions we made in 2020 further strengthened our businesses across our three pillars: growth, transition, and upstream. Let me start with our growth pillar, marketing, power, hydrogen, biofuels, carbon capture, and storage, as well as nature-based solutions. We focused on establishing new business models in power and hydrogen. For example, in the Netherlands, our CrossWind joint venture won the tender to develop the offshore wind farm Hollandse Kust Noord.

We will supply electricity to our customers and aim to power a 200-megawatt electrolyser in Rotterdam. This takes us a step closer to building integrated renewable energy systems to meet our customers' evolving needs for power. And our marketing business had one of its best years in 2020 despite the unprecedented drop in demand. I will come back to marketing in more detail soon.

Our transition pillar, which consists of Integrated Gas, Chemicals, and Refining, made a number of key strategic and portfolio shifts in the year. Take Refining, for example. In total, we made significant moves with six of our refineries in the year, either exiting, divesting, or repurposing them to align our assets with the future of energy. We are also working on opportunities to address carbon emissions that are difficult to avoid.

A good example of this is the progress made to put in place further carbon capture and storage at our Pernis refinery in the Netherlands. In Integrated Gas, we were also disciplined in executing our strategy. We exited projects that were not competitive within our portfolio, like the brownfield LNG project Lake Charles in the U.S. And we also brought the first carbon-neutral LNG cargoes to market, taking advantage of our capability to offset carbon emissions with nature-based carbon credits.

Finally, our Upstream pillar. We are simplifying and strengthening our Upstream portfolio. In 2020, we divested more non-core assets while focusing on our nine advantaged core positions, which generate more than 80% of our cash flows, and Brazil Deep Water is one of them. For example, we took final investment decision on Mero 3 in the Santos Basin, strengthening our position in our resilient and cash-generative deep-water assets.

Across all our business pillars, you can see our strategy defining the portfolio decisions we made in 2020. Let us now look at our Marketing business in more detail. Shell has built a leading position in Marketing. We serve around 30 million customers every day in about 80 countries.

From fuels to our digital solutions, we bring value, quality, and convenience to our customers' lives. Being connected to so many customers every day gives us unique insights into their preferences. This closeness, combined with our scale, are key competitive advantages in this growing business. Early in 2020, we quickly adapted to the new reality.

We kept our sites open, running, and safe. And we selectively expanded our operations in key areas of growth, mainly in Asia. Also, we increased our convenience retail offerings and digital services. Our basket size from our convenience stores increased by 15%, which more than offset the decline in demand.

We significantly improved our opex yield to more than 60% and increased the margin share of our premium fuels and lubricants to record numbers. So Marketing reported strong financial performance in 2020 in a challenging environment. This performance in such a difficult reality reinforces our belief in the growth potential of this business. From Upstream and our Transition businesses to our growth businesses, our portfolio showed great resilience last year.

And while we focused on our customers and operations, we also remained disciplined on cost. When we saw the first clear signs of the macroeconomic challenges ahead, we acted fast and decisively to preserve cash. We announced cost-reduction targets early in 2020, and we delivered on them. In fact, we exceeded them.

Let me start with operating expenses. We said we would reduce our underlying opex by $3 billion to $4 billion compared with 2019 levels by Q1 2021. By Q4 2020, we delivered $4.5 billion in reductions, exceeding the total target and ahead of schedule. We achieved this by reducing activities and through structural improvements, from implementing remote inspections to improved digital financial tools that will serve us going forward.

We accelerated digitalization across Shell and expanded activities in our business operations centers in Krakow, Bangalore, Chennai, and Manila. In short, we made Shell simpler and more cost-effective, and we see further opportunity. We are completing the redesign of our organization that will come into effect in the second half of 2021. Beyond lowering our operating expenses, we also said we would cut our cash capital expenditure by $5 billion compared with our original plan of $25 billion for 2020.

In fact, we reduced it by more than $7 billion with rigorous capital discipline, with capital efficiency, and by stopping or rephasing projects. We also optimized our working capital by revising payment terms and inventory levels. Let me now turn to the fourth quarter. In the fourth quarter, oil and gas prices and energy demand recovered slightly compared to earlier in the year, but we're still far lower than in Q4 2019.

Refining margins, while up from Q3, remained at historic lows. And Chemicals started to see some recovery in margins. We saw relatively low volatility in the quarter, leaving fewer opportunities to generate additional value from trading and optimization in oil products. Our volumes were hit by lower demand, OPEC+ restrictions, and hurricanes in the Gulf of Mexico.

But despite these headwinds, our financial performance in the fourth quarter was good. Our adjusted earnings amounted to nearly $400 million, and we delivered $6.6 billion of cash flow from operations, excluding working capital movements. Our net debt increased by nearly $2 billion to $75.4 billion mainly due to lower free cash flow generation, including a small outflow in working capital. Reducing net debt to $65 billion remains our priority.

Once we achieve this milestone, we aim to distribute, in aggregate, 20% to 30 % of our cash flow from operations to our shareholders. Let us now go through some of the key factors behind our financial performance in the quarter. Compared with the same quarter in 2019, our earnings reflected significantly adverse macroeconomic conditions. This impacted our realized prices, margins, and volumes and hit our adjusted earnings by over $4 billion.

As you can see in the chart, we offset some of this impact by reducing our operating expenses by more than $1 billion compared with the same quarter last year. And our cash conversion was again strong in the fourth quarter, which demonstrates our capacity to deliver robust cash flows even at what might be the bottom of the cycle. Our cash flow in the fourth quarter was impacted by an outflow from commodity derivatives of almost $900 million while last year saw an inflow. Overall, the difference year on year is an impact of some $1.7 billion.

As stated before, these derivative movements are driven by the change in commodity prices and are eventually offsetting over time. We're also pleased to see higher cash generation from our Chemicals business, showing the strength of our integrated business model. Chemicals has realized better base and intermediates margins across most product lines mainly because of improved demand in Asia. And with that, let me summarize the highlights.

We delivered robust operational performance and financial results during an extraordinary year. These results reflect the swift and decisive actions we took to preserve cash. Our performance also reflects our resilient portfolio, our integrated business model, our steadfast people, and our deep capabilities to manage adversity and market dislocations. Together, these create our capacity to deliver robust cash flow through the cycle today and into the future.

So we entered 2021 proud of our delivery, eager to contribute to the recovery, and energized to accelerate our strategy to make the future of energy. I look forward to engaging further on the future of energy with members of our management team at our strategy day on the 11th of February. Thank you. And please stay safe.

Questions & Answers:


Welcome to the Royal Dutch Shell 2020 Q4 results announcement Q&A session. Today's conference is being recorded. [Operator instructions] I would like to introduce Mr. Ben Van Beurden and Ms.

Jessica Uhl.

Ben Van Beurden -- Chief Executive Officer

Well, welcome, everyone. Well, as Jessica said in the presentation of our full-year and Q4 results, 2020 was a tough year for Shell as, of course, it was for many others. And yet it was also a year of delivery. We delivered strong operational and safety performance, as well as good financial results.

And Jessica also highlighted the importance of the early and decisive actions that we took on costs as the storm of 2020 started gathering on the horizon. 2020 showed us that Shell has a resilient portfolio. It has steadfast people and a depth of capability that has seen us through in impressive style. And that is why we are confident.

To have delivered strong cash flow at what we call the lowest depth of the commodity cycle means we can produce strong cash flow quarter after quarter through 2021 and beyond. We are coming out of 2020 with a stronger balance sheet and ready to accelerate our strategy of powering progress to make the future of energy. Next week, we will provide you with more details on that, building on the strategic direction that we laid out in the third quarter. But what I can already say is that our cash priorities remain unchanged.

So, first, to maintain a progressive dividend, and that's evidenced by the 4% growth that we announced today for Q1 2021, and maintain cash capex in the range of $19 billion to $22 billion. Second, to reduce net debt to $65 billion. And third, to then distribute 20% to 30% of our CFFO to shareholders. And fourth, a moderate and disciplined increase in investments, balanced with further strengthening of our balance sheet.

And with that, let's take your questions. [Operator instructions] Orlando, can I have the first question, please?


Absolutely. And we'll take our first question from Oswald Clint with Bernstein.

Oswald Clint -- Sanford C. Bernstein -- Analyst

Thank you very much, Ben and Jessica. Thank you. So I want to ask about next week's strategy. Ben, I want to ask you something else.

I enjoyed your panel discussion last week with Senator Kerry at Davos. But I think there was one point where he wasn't quite on the same page as you as regards natural gas being a transition fuel. And I think he said, "Time to go away and scratch our heads as to what he might mean in terms of U.S. policy changes." So I wanted to get your thoughts on that discussion you had and how you might size up that potential risk, given you have so much gas exposure in the U.S.

And then perhaps a second question, more around the quarter perhaps, Jessica, the onerous contract, so $1 billion provision in 4Q. It looks like it's Convent refinery-linked. I wanted to know a little bit about when, you know, that cash outflow happens. But bigger picture, you know, as we move from 15 sites down to the, you know, the six joint parks, should we be assuming more of these rather large provisions and potential cash leakage? Thank you.

Ben Van Beurden -- Chief Executive Officer

Thanks very well -- thanks very much, Oswald. Let me take your first question. Jessica will take the second one, obviously. Yes, I think the exchange with Secretary Kerry was good.

And just very quickly, to repeat some of the points that we made at that point in time. I said firstly, we very much welcome, of course, the Biden administration reentry into the Paris agreement. We embrace also their embrace of net-zero emissions by 2050. And many of the things that the administration will do is actually quite compatible with how we see things, and we hope that we can work together with the administration to help support them in their plans.

The issue of natural gas, indeed, which came toward the end -- as a matter of fact, I don't think we are as much misaligned as it may appear. We think natural gas is an important fuel for the future. And indeed, we also agree with what I think Secretary Kerry meant to say very clearly, is that methane is a very potent greenhouse gas that needs to be contained, that needs to be minimized. And it may well be, indeed, that many players do not have the most stringent targets that we adopt.

We have been very clear. We want to and we are limiting methane emissions to 0.2% of our total gas production. And that I think is required if you want to claim that natural gas, when it is used for power generation, is up to 50% less carbon-intensive as coal and, of course, in many other applications as well. So I don't think we are as far misaligned as maybe it might have appeared from the dialogue.

But, Jessica, over to you.

Jessica Uhl

Good afternoon. Thanks, everyone, for joining the call today. And, Oswald, thanks for the first question. Indeed, the onerous contract provisions were in relation to the closing of the Convent refinery.

There is also some other onerous contract provisions in there as well that were impacting our Integrated Gas business. So there's a few different contracts in there. They have contract lives of anywhere from some two to 10 years. So that would be when the cash would actually be going out.

In terms of further potential onerous contracts, there's nothing that I'm concerned with today. But indeed, as we reshape our portfolio, these kinds of issues can emerge. I don't expect them to be material. I hope that we work through most of kind of the reset of the balance sheet in 2020 but again, I can't foresee the future.

There could be further similar issues with some of the other refineries, but I'm not aware of any today.

Ben Van Beurden -- Chief Executive Officer

Thanks very much, Jessica. Thanks, Oswald. Orlando, we're going to have the next question, please.


And we will hear next from Thomas Adolff with Credit Suisse.

Thomas Adolff -- Credit Suisse -- Analyst

Hi, Ben. Hi, Jessica. Two questions from me as well, please. Firstly, just on the credit rating, you do have a credit rating buffer compared to some of your peers.

And even if you do get a downgrade to an A, it's not the end of the world. But can you remind us of why you need at least an A to run your business effectively, whether it's trading, LNG insurance, or other things? And secondly, just looking at capex in 2020, spending fell short of expectations, some of it efficiency, some of it delayed into the next year, this year, the year after, whatever. But your reserve life continues to shrink, and I do know some of that is related to lower average prices. I mean, you do look at reserves life differently.

But is there a minimum level you would like to maintain? And how should we think about the production profile in the next few years on the back of the shrinking reserve life? Thank you.

Ben Van Beurden -- Chief Executive Officer

Yeah. Thanks very much, Thomas. Well, let me take that second question, and then Jessica will talk to the first. So, yes, indeed, we were indeed quite stringent on how we were going to deploy capex this year for obvious reasons, of course.

But maybe to also point out that it was not just our desire to really preserve cash as much as possible. Quite often, it was also, of course, helped along by the inability to spend. Think of very large onshore projects where we simply could not sustain being with 8,000 people on the construction side. So that's why we ended up with a cash capex number below $18 billion.

Now, some of it indeed will then have been punted into this year or a little bit later. But indeed also, quite a few investment decisions, we did delay or did not take, and some of them even went out of the window altogether. So I don't think this year is a representative year, but it is -- or rather last year. But there are three elements, Thomas, as you well know, that contribute to reserve replacement ratio.

It is the year-end price. That is, of course, a much lower price. And that, of course, automatically triggers an adjustment of our reserves. Secondly, the fact that indeed, we didn't sanction as many projects, certainly not large projects in 2020, which means that we couldn't book any reserve additions.

And finally, we also sold quite a few positions during the year that we did not see fitting our portfolio anymore. Therefore, indeed, we have a triple whammy on the RRR, but it doesn't necessarily mean that we are going to quickly run this portfolio down. As a matter of fact, we see our upstream portfolio as an essential cash engine, not just for this decade but well into the next decade, first of all, to support shareholder distributions, but secondly, also to help us with accelerating our strategy of the transition into new energy. Jessica, to the first question?

Jessica Uhl

Thanks, Thomas. First of all, our focus is on a strong balance sheet, ensuring that we have the financial resilience to manage dislocations and volatility like we saw last year, which I think we were able to manage very effectively, in part due to the strong credit rating and the overall strength of our balance sheet. So that is our focus. It's not necessarily on AA with one given rating agency versus another.

So the recent movement by S&P hasn't really changed our perspective. We're continuing to focus on a strong balance sheet. What that means for us is the net debt milestone of $65 billion. In terms of an A rating or AA rating, why that might be relevant for us, why it matters for us, as you said, Thomas, our trading business, it does matter.

You want to be investment grade. Also, our insurance business contributes to that as well. So there are business reasons for us to want to be investment grade. I have no concerns about retaining an overall strong credit rating, given the strength of the company and the balance sheet.

But for us, it's about ensuring we've got the right level of leverage and the right balance sheet for our company and our strategy.

Ben Van Beurden -- Chief Executive Officer

Thanks very much, Thomas. Orlando, next question, please.


And we'll hear from Christyan Malek with J.P. Morgan.

Christyan Malek -- J.P. Morgan -- Analyst

Yes. Two questions from me, please. First on the capital frame and again on reserves. Given current trading at high 50s, to what extent could a macro mark-to-market, including gas and refining, accelerate the timing on reaching the $65 billion net debt threshold magic number? And beyond which, would you consider a variable or additional cash return on that basis? The second question on reserves is -- I'm going to ask it a little differently.

Why wouldn't you run your RP ratios lower as you focus on putting incremental capex into New Energies and run your Upstream business for cash? There's no denying the trend is down. And how low would you allow it to go on that basis? I mean, I get the fact that it's a cash engine, but equally, it's not where your priorities are in the context of a broad energy complex that you're focusing on. Thank you.

Ben Van Beurden -- Chief Executive Officer

Thanks, Christyan. Jessica, would you like to take them both?

Jessica Uhl

Sure. So in terms of reaching the $65 billion milestone, a couple of things. I'd start with our starting position of the cash generation of the business today in what was a very low macro over the last 12 months. We generated some $34 billion in cash flow from operations and a price environment of some $42 a barrel, very low refining margins, and volume impact from the macroeconomic circumstance as well.

So in a very low environment, the company is generating $34 billion, and I think that's an important starting point. In addition to that, we have an active divestment program, and we signed two important deals for us in the fourth quarter totaling some $3 billion. We hope that cash will come in over first half of 2021. So you have a sense of the cash generation that's possible from the company, both from the divestment program and the underlying operations of the business.

Now, in terms of what happens with the macro, clearly, oil and gas prices help our Upstream business. Refining margin's important for our oil products. But we also have an important piece of our business, our Marketing business that's not as impacted by oil and gas prices more on the macro side. So it depends what happens on the oil and gas prices, what happens on the refining margins, and what happens on -- the macro circumstances will determine what the cash flow of the company is.

That's on the kind of the sources of cash. We've been very clear in terms of our priorities. We will not spend capex above $22 billion this year. The range is $19 billion to $22 billion.

And so depending on the macro, we've got the -- you've got, I think, a clear sense of the cash flow generation. You know how much we're going to spend on capex, and you can get a sense of what the trajectory will be for the net debt. Once we reach that milestone, we've been very clear, we're looking forward to increasing shareholder distributions to 20% to 30% of cash flow from operations after that milestone is met. And it will be based on what happens, both from a price and margin perspective, as well as macro perspective.

That's the first question. I got a bit into that one. So the second question, in terms of reserves, how low can it go? As we've said before, we haven't run the business with a reserves orientation for a number of reasons. We have a value-over-volume focus that's true across Shell.

It's been very true for the Upstream business. It's part of our strategy and focusing on our core assets. We're focusing on the assets that generate the most value. We don't have any correlation to the reserves relationship to that.

Reserves has not proven to be a great way of understanding necessarily cash flow for our Upstream business. Between our Deep Water LNG business and Shales business, there's not a great relationship to the SEC-approved reserves methodology. So those relationships aren't very strong. Upstream remains a core part of our strategy.

It's a core part of our company. It's what's generating significant cash today. About a third of our cash flow came from our Upstream business last year. That's an important source of funds to fund not only our shareholder distributions, which I just spoke about but also to fund the energy transition going forward.

So we're committed to this business. It's the business that provides the energy the world needs today. And importantly, it provides us the cash to fund our distributions and to fund the energy transition. We'll manage to that, but the reserves will be what the reserves will be.

Ben Van Beurden -- Chief Executive Officer

Thanks, Jessica. Thanks, Christyan. Orlando, who's next?


Thank you. And next, we will hear from Biraj Borkhataria with Royal Bank of Canada.

Biraj Borkhataria -- Royal Bank of Canada -- Analyst

Thanks for taking my question. I've got two, please. The first one is just going back to cash flow and debt. Ben, in one of your interviews, you mentioned that you don't expect a linear decline in net debt.

I don't know if this is just an obvious comment referring to seasonality or it's a mix of the business and the macro. But maybe could you just highlight if there's any obvious kind of negative one-off hits to cash flow you're expecting in the first half of 2021 that we should be aware of? And I'm thinking of things like the things that just pop up like the Cartagena tax settlement, etc. Anything else relevant? And then the second question is on Marketing. That business has been performing extremely strong through the whole year.

I just wanted to get some context on some of the figures you put in the slide. So opex yield, from 54% to 63%. You don't usually provide that number regularly. But could you just give some context on how that 63% compares not just last year but versus a few years ago? And then do you have targets for that over time just so I can get some context? Thank you.

Ben Van Beurden -- Chief Executive Officer

Yeah. Thank you very much, Biraj. And let me take them both. First of all, the sort of non-smooth or linear path is a – hopefully, a statement of the obvious.

Quite often, of course, certain cash components come in, in lumps rather than a nice sort of ratable streams. An example of that is, for instance, the two divestments that we did in the last quarter, but that will only close this quarter. Together, $3 billion, they will obviously help in Q1, but they won't have helped in Q4. And we will have some of that timing effect that will make the trend not exactly sort of linear precisely.

And there will be other things like you mentioned cash settlements, but also other things that will come in that are special, some one-offs. I think, though, the main trend should be pretty obvious if you just look at a relatively ratable divestment flow at a relatively ratable CFFO flow. Now, the marketing opex yield is indeed something that we use internally. We never really spoke about it very much, but I think it is important that we improve some of the disclosures on marketing as we go forward.

The yield is actually the bang for the buck you get for the opex dollar that you spend in terms of income. And I think we have one of the most attractive marketing yields, not just in our industry, but if you look at general retail-based industries as well. We'll say a little bit more about it next week when you, I'm sure, will be listening in to our strategy presentation. But just to give you an idea, over the last year, it improved by 8%.

And that, of course, is not only a function of the fact that we saw a great growth in marketing. We had 5% growth in retail earnings growth. We had 19% earnings growth in lubricants. That is actually on the back of a slightly reduced volume.

And part of it was to do with the fact that we had a 15% improvement in nonfuel retailing. So these things really contribute to improving the quality of that business. And you see as a result of that, as we said, the opex yield go up. But next week hopefully, you will get a little bit more insight on how we talk about the parameters by which you should really judge our Marketing business.

Thanks very much, Biraj. Can I have the next question? Thank you.


And next, we hear from Jon Rigby with UBS.

Jon Rigby -- UBS -- Analyst

Thank you. Hi Ben. Two questions, please. The first is on the Downstream or products.

Refining margins on your benchmarks actually rose sequentially 3Q to 4Q, but the earnings deteriorated. So two sub-questions to that. Is that all down to trading? Or were there some unusual sort of market conditions that mean that the refining performance didn't work ratably with the margin as you measure them, other than volume? Secondly, if I can just switch to Integrated Gas, sort of a similar question in a way is that if I look at your throughput, both marketed and produced, that actually sort of declined across the last 12 months, have been going down. Now, I know the market again has been problematic, but it has to clear.

And so I was just wondering whether there are issues, or you've had some temporary issues, either on the production side, that continued probably but maybe there are others and also issues with accessing trading volumes that obviously mean that you don't get leverage to the JKM price? Thanks.

Ben Van Beurden -- Chief Executive Officer

OK. Thanks very much, Jon. Good detailed questions. Jessica, would you mind taking them?

Jessica Uhl

Sure. So I'd say in both instances, in terms of concern around any underlying operational issues, there aren't any. So for the refining business, it was actually a strong quarter from an operational perspective, and utilization rates went up. So that's not what's driving it in terms of the change of outcomes.

Indeed, refining margins were up a bit in the fourth quarter relative to the third quarter, still dramatically down from a year ago, Q4 '19. And trading is a light quarter in the fourth quarter as it typically is. Volatility declined even further in the fourth quarter, so there wasn't much opportunity. And if you compare that to Q3 or you compare it to a year ago, the trading results were softer.

They weren't bad. There was no issues with them. It's just the market wasn't really giving much opportunity. And that's the main story for refining, also perhaps a little bit of a pickup in opex as well in the fourth quarter.

For Integrated Gas, similarly, there's no other story. As you know, there have been operational issues at Prelude. But across the portfolio, otherwise, it's been a strong year for Integrated Gas. So there's no insight.

I think it's just market dynamics. It's been a pretty dynamic year, and that's caused some risk and some opportunity. Overall, very pleased with IG's performance in the fourth quarter and for the full year. Full-year cash generation of some $11 billion for the group, so overall, a strong year for Integrated Gas in a difficult market.

If you don't mind, I'm going to take an opportunity just to add a couple of points to Biraj's questions around volatility because I think it's important also in the context of the fourth quarter. Another piece of volatility for us in terms of what might cause net debt to bounce around a bit is also our variation margin, which you also see happening in the fourth quarter. And that had a $1 billion impact, a negative impact on our cash flow. These all sort themselves out.

There's no issue with these numbers. And these variation margins are what help us create value from a trading perspective, but it's also how we protect value and how we hedge exposures and generate the relatively high-level and consistent performance that you've seen in 2020. And if you go from Q2 to Q3 to Q4, it's been going back and forth. And over time, it nets itself out.

But in a given quarter, it can be material like it was last quarter, impacting our cash by some billion dollars. And each quarter, I've been trying to encourage people to try and look through that. And if you look through it, then our cash flow from this quarter would be some $7.5 billion versus $6.5 billion. And the last piece on that, of course, is working capital, and that can make a difference to the cash flow quarter on quarter as well.

Back to you, guys.

Ben Van Beurden -- Chief Executive Officer

Great. Thanks, Jon. And then I'm going to have the next question, please.


Next, we'll hear from Lucas Herrmann with Exane.

Lucas Herrmann -- Exane BNP Paribas -- Analyst

Ben and Jessica, thanks very much for the opportunity. Can I just stay with LNG for a moment? One of your peers was talking earlier in the week around challenging gas marketing conditions and that that was largely being the wrong side of trades perhaps in LNG. Clearly, pricing has been exceptional. Martin and Steve have a tendency to lay mousetraps this time of the year or ahead of things.

But the question is can you just give us some idea as to, yes, how you feel the first quarter may be shaping up in light of prices. Clearly, there's optimism around Shell because of your exposure to the LNG market. That was just highlighted in the last question. One is conscious that Prelude's been out, Dorgan's been out, TNT may not necessarily be running as anticipated.

And the second question, if I might, is just to ask about progress on projects. I don't know if that's a discussion for next week or for now. But just some information of what's happening around LNG Canada? What's been happening in Pennsylvania? How is Vito moving in light of the challenging conditions we've had this year and whether we should be anticipating -- well, you tell me where we're at. Thanks, Ben.

Ben Van Beurden -- Chief Executive Officer

OK. Thanks very much, Lucas. Let me have a go at them both. And then I'm sure that Jessica may want to add 1 or 2 points as well.

So first of all, on LNG, first of all, of course, an important reminder, most of the LNG that we sell, we sell on term contracts. So, therefore, the LNG results, if you like, move with the oil price by and large. You know this, of course, Lucas. And it moves with the oil price of typically four to six months ago.

So, therefore, there is a delay effect in how you see the oil price macro also feeding into our integrated cash results. But you're absolutely right, and I quite like your expression of laying mousetraps around. We, of course, have very significant intelligence into the market where we try to take advantage of transients that may be there. And I think this year was no different.

It's no different, although there weren't as many mice around this year as perhaps in previous years or maybe not as many big mice. There has indeed been an interesting spike, and you've seen that. We could indeed take some advantage of that. But of course, you will also have seen that that was actually relatively short-lasting.

I won't make a definitive outlook statement for Q1. I think it's a bit too early for that. But indeed, we have been able to be on the right side of many of the developments that we have seen in the early part of January. On the projects, LNG Canada, I think, is going reasonable, considering the fact that, of course, it's a large, complex project.

And you may know that the government of British Columbia is declaring a state of emergency because of the pandemic. If you look at where we are, we are a bit behind the construction on site. The overall project, though, is in the sort of percentage points behind. So it is not single digits, low single-digit percentage points.

So I do believe we have been able to keep pace with that project, largely, of course, because many of the construction takes place in Chinese yards at this point in time, and they are back up and running again. The Chemicals project, of course, has been in Pennsylvania, of course, has had its challenges last year. But there, we are back to almost full complement on site. It will be probably impossible to catch up the delays that we've had, but nevertheless, I think it is going very, very well at the moment.

And the timeline, think of 2022. I think other projects, you probably have to wait for next week. I wouldn't be able to go through each and every one of them. But I'm sure next week, when we do the breakout sessions, Lucas, there will be plenty of opportunity to talk about how we are getting on in the different parts of our portfolio.

Thank you very much. And, Orlando, next?


Next, we'll hear from Martijn Rats with Morgan Stanley.

Martijn Rats -- Morgan Stanley -- Analyst

Hi. Hello. Thanks for taking my questions. I've got two.

First of all, I'd like to ask about production. I know this is not quite getting the attention that it once got, but production was very volatile last year. And there were some transitory reasons like maintenance, OPEC cuts perhaps, but also some more structural reasons like divestments. Look, I know you're somewhat hesitant to give guidance on production.

But could you give us some broad indicators of where production levels could turn out to be in 2021? Because from a financial forecasting perspective, it is still relatively important. And then secondly, I know on calls like this, we don't often talk about Chemicals. But looking at the Chemicals results, they sailed through -- was a very challenging 2020, of course -- sort of very well. Volumes were flat.

Earnings were up. And I was hoping if you could say a few words about how you see that market. If there was less decline, is there less recovery to come? Or is there still -- is this simply a very resilient business that will still participate in any cyclical upswing? What can we expect from Chemicals over the next year?

Ben Van Beurden -- Chief Executive Officer

Yeah. Thanks very much, Martijn. I'll take the Chemicals question, and Jessica will talk about production numbers for the year. But let me, first of all, say that when you suggest that production might not be important, let me quickly correct that impression because production is very important for us.

We may not want to sort of volumetrically raise it for sort of proving an investment case. But making sure that we produce as much as we can and as well as we can, of course, is a top priority for our Upstream team. But that's a different narrative. Jessica will take the full question in a moment.

Chemicals is indeed doing well this last quarter. I think Martijn, if you were to look at how Chemicals went in '19 and then '20, you will have seen a very steady decline in margins and therefore also in our results, as I think the chemicals cycle started to come off and started to come down. And I do think indeed, we sort of saw bottom-of-cycle conditions in most of the sort of second and third quarter, possibly already in the first quarter. But indeed, there is an uptick again.

We are, of course, very exposed to a number of cycles. There is no single chemical cycle because our chemical products serve a number of segments of the economy. But in aggregate, indeed, you see it significantly turning the corner. Now, that's good news.

That is also good news because quite often of course, chemical demands and chemical results, in general, are a very good telltale sign for how the economy is behaving. And indeed, many of the good results we are actually seeing also popping up not just in the East, but also in Europe. So therefore indeed, something to watch, and I'm sure we will be talking about that next week a little bit as well. But, Jessica, production in general?

Jessica Uhl

Sure. Thanks, Martijn, for the question. In terms of the production profile, let me just reflect briefly on 2020. A number of things impacted our production over the year.

Of course, there was the impact of OPEC+ restrictions. That's been a material impact for the business over 2020. There was the impact of COVID. There was two elements to that.

There could have been operational disruptions, but also the knock-on effect in terms of pricing and making economic choices to dial back some of our production, particularly when prices were quite low in the second and third quarter. So all three of those factors were at play in 2020, and you see what the production looks like against those factors. If you look forward to 2021, difficult to say what will happen with OPEC. For Q4, the number was something like a 55,000 barrel a day impact, and that's been the bulk of the impact over 2020.

Will that continue into 2021? We'll have to see. We also have one of the most active hurricane season in the Gulf of Mexico in the third quarter, again, difficult to predict whether that will be the case this year as well. So you understand what some of the variabilities were for 2020 and can get a sense of what it might be for 2021. Beyond those and kind of normal day-to-day maintenance and turnaround activity, I'm not aware of anything particularly distinct that we should be expecting from our production profile this year.

Ben Van Beurden -- Chief Executive Officer

Thanks, Jessica. Thanks, Martijn. Who's next?


And next, we hear from Irene Himona with Societe Generale.

Irene Himona -- Societe Generale -- Analyst

Thank you. Good afternoon. I had two questions, please. First of all, on debt, in your outlook statement, you guide to lower interest expenses this year.

And I was wondering aside of lowering absolute debt, can you say whether, during 2020, you may have also lowered the average interest rate on that debt, please? And then secondly, if I go back to marketing for a second, I mean, I find the 2020 performance astonishing because your product sales during the year fell about 20%. Your marketing earnings only fell 2.9%, so a very significant step-up in unit margins. You mentioned earlier on, Ben, the change in product mix. I mean, is there any guidance whatsoever you can provide for 2021? I'm thinking about how you're seeing product demand and your sales progressing at the start of the year.

And also aside of the opex yields, which is a very Shell internal data point, is there any public metric which we could perhaps refer to, to track what's happening to your marketing margins? Thank you.

Ben Van Beurden -- Chief Executive Officer

Yeah. Very good questions. Let me start with the second one, and Jessica will take the first one. So if you just look at where marketing has been, look at volumes, I think it's fair to say that we are still somewhat below, of course, last year.

I think in aggregate, we're probably 15% off if you look January to January. That is actually a little bit worse than when you look December to December, when we were probably more like 11% off. Now, that is, of course, a mixed number, and it is made up of a whole range of numbers. For instance, in The Netherlands, in Germany, in the U.K., we see much more sort of suppressed demand.

But in China, on the other hand, we don't see any suppressed demand. We actually see growth year on year. So it is a range of numbers that you have to take into account. I would imagine that in the course of 2021, you will see that some of that demand will start to come back.

A very significant part, Irene, if you want to play it back to also oil demand, will be aviation. I think aviation is about 30% to 40% of the total gap that we currently see between historical and current oil consumption in general. Now, we will give you, of course, a little bit more insight on how we see the Marketing business evolve over the next few years when you listen to us next week. And indeed, we will say a little bit more about opex yield as I mentioned earlier on.

But if you can't wait for next week, look back in our Q3 results. Because actually, as a matter of fact, we start talking about opex yields of different competitors, but also different businesses, if you like, to just show you how competitive actually and how high quality our Marketing business is. But again, sorry, more to come next week, Irene. But, Jessica, over to you for the debt and interest.

Jessica Uhl

So, Irene, what's driving the change in profile for next year, on interest specifically, we do have expectations for lower rates. Some of that has to do with the financing we put in place. It's also the composition of our debt and lease profile that comes through and total debt levels in terms of leases and commercial debt as well. So both of those factors are coming into play.

But if you'd like more detail, we could also give that to you outside of the call.

Ben Van Beurden -- Chief Executive Officer

Thanks, Irene. Orlando, next question.


And next, we'll hear from Roger Read with Wells Fargo.

Roger Read -- Wells Fargo Securities -- Analyst

Thank you. Good morning. Good afternoon to you. I guess a couple of things maybe to ask.

And if they trample a little bit, I guess, on next week, I apologize for that. But the long-term net debt goal of $65 billion, I was just curious, is that something that we should consider hard and fast going forward? Or would there, over time, be an expectation that you would lower that number? Just thinking of what the industry has been through and creating a little bit more headroom overall for the next time we get a lot of volatility. And then the second question for you, we've been seeing a lot of things that seem inflationary that may be temporary. But I was just curious, we look at feedstocks for some of the biofuels, we look at some shipping costs where the rates have jumped.

And then there's been talk within some of the other manufacturing industries of shortages of some very critical components. I mean, automotive has talked about on some of the semiconductor chips. I was just curious as you're doing some of the construction around, if you're seeing anything that might be a tripwire as we go into '21 that could affect some of the timelines.

Ben Van Beurden -- Chief Executive Officer

Thank you very much, Roger, and good morning to you. Let me take the first question. It would normally, of course, be Jessica, but just to make sure there is no misunderstanding, and then Jessica can take the second one. The $65 billion is the $65 billion.

So we have said very clearly, that is a milestone that we have, at which point in time we consider the net debt reduction and the strengthening of our balance sheet of sufficient progress to start changing our payout to 20% to 30% of CFFO. There is no reason to change that milestone. That is what we are sticking to. Does that mean that $65 billion of net debt will be our net debt number forever? No, of course not.

We will try to drive that down, further lower than $65 billion. But we will do that while we indeed pay out more to shareholders, probably do a little bit more of capex, and, at the same time, continue to reduce net debt. But the $65 billion is the $65 billion, is a fixed milestone. Jessica?

Jessica Uhl

Roger, in terms of inflationary pressures, we're not seeing anything material across the group at this moment in time. We typically have enterprise framework agreements in place for a number of the key components and to manage our supply chain that protect us for moments like this. So I don't see that as an issue. That's not to say there might not be some kind of surprise coming up over the course of the year.

But between what we're experiencing currently and the nature of our arrangements with our supply chain, I don't anticipate that being an important issue for us in 2021.

Ben Van Beurden -- Chief Executive Officer

OK. Thanks, Roger. Orlando, who's next?


And next, we'll hear from Michele Della Vigna with Goldman Sachs.

Michele Della Vigna -- Goldman Sachs -- Analyst

Ben, Jessica, thank you. It's Michele here. Two quick questions, if I may. The first one is on Appomattox.

I've seen the write-off. Could you perhaps give us a bit more detail of what drove that and what impact it will have on future production from that key project in the Gulf of Mexico? And then secondly, on capex, it looks like you're -- it's going to see a cautious recovery in spend in 2021. But more than the level, I was wondering if you could give us a bit more detail on the shift in the mix there and especially how that's moving around in the Integrated Gas and low carbon. Thank you.

Ben Van Beurden -- Chief Executive Officer

Thank you, Michele. Jessica, why don't you take the first question first? I'll take the second one.

Jessica Uhl

OK. Thank you, Michele, for the question. For Appo, a couple of things to say. First of all, it's important to note that the platform itself, the project itself was a complete success for us in terms of the total cost of construction.

We finished the project early. And the way that that asset is running, it's running very strong, very safely. And we're pleased with the asset itself. The challenge has been with the subsurface and with the reservoir.

It's the Norphlet reservoir. It's the first facility of its kind in that reservoir. It's been up and running for a year, so we're still very much in the learning phase. But nonetheless, we need to make judgments on the value of that asset over the next 10, 20 years for that reservoir, and we've had some disappointment in the last 12 months.

And so the impairment is the outcome of that experience over the last 12 months and also projecting that into the future for that reservoir and some of the satellite reservoirs that will feed into it. What I would say is it's not uncommon at the early point in a project in the Gulf of Mexico when we're learning that we can see some disappointment. What's important to note is that the team is entirely committed to clawing back any potential value loss, and we're very keen to make the original commitment. But based on what we know today, this is what we had to do in terms of the valuation of the assets.

But it's not kind of a done deal in terms of trying to claw back that value over time.

Ben Van Beurden -- Chief Executive Officer

And then on capex allocation, what we said in Q3 still holds. So what we have seen in the recent past is about an 11% allocation of capital -- or capex, rather, to what we call the growth pillar of our business. That is not just new energy, but that is also, of course, everything that is facing the customer. And we expect that to go up to 25%.

That is still unchanged. Now, the rest, Integrated Gas and Upstream, as well as Chemicals and products, that will be roughly 50-50 between Upstream on the one hand and what we call our transition enablers on the other hand. Again, I have to ask for your forbearance a little bit. Wait for next week when we give you a little bit more disclosure on the details.

Thank you. Orlando, next question, please.


Next, we'll hear from Christopher Kuplent with Bank of America.

Christopher Kuplent -- Bank of America Merrill Lynch -- Analyst

Thank you very much. Ben, Jessica, thanks for your presentation. Just quickly, and I apologize for this may sound like a detailed stickler kind of question. But I was interested to see you raise the dividend for Q1, which I suppose goes beyond the 4% indication that you gave us back in November.

So just wondered whether you can give us a little bit more insight into the board's decision to express that amount of confidence long before we are at the $65 billion. And maybe if you could put your answer into the context of S&P putting the AA- onto negative watch and whether you are particularly bothered by a split rating, A versus AA, between the agencies. And I'll leave it there. Thank you.

Ben Van Beurden -- Chief Executive Officer

Thank you very much, Chris. Let me give an answer, and then I'm sure Jessica will want to say something on credit rating and credit metrics as well. I think the 4% increase, I had almost hoped and expected. It was totally in line with your expectations.

Last year, when we had to do the painful decision of resetting the dividend, we then also said, well, but it will be a dividend that is progressive going forward. After a lot of dialogue and consultation with shareholders, also what was their preference for a payout mechanism. And a progressive dividend is a dividend that is being raised every year. And we clarified in Q3 that we could see what I call the new era of dividend per share growth of about 4% per year, subject to board approval.

And indeed, yesterday, we had our first board meeting of the year, and we have basically gone back to the old routine that we used to have. In the board meeting that precedes these results, we make a dividend determination for the first quarter, and then typically, we stick to that for the rest of the year. So in that sense, I hope it is somewhat boring and predictable because that is what we intended to do. The discussion was actually quite straightforward because it was basically confirming an intent that we had already signaled.

On the credit rating and the credit metrics, we don't run the company on credit ratings. We run the company with an intent to have a certain balance sheet strength. And for that, we have a number of metrics, of course, that we will evaluate. One important metric that we have communicated because it is a metric that is linked to our change in payout is the $65 billion.

But even that is not a credit metric, if you like. That is just a milestone that is important for the communications with the market. Jessica, anything you would like to add to it?

Jessica Uhl

Ben, I think very well said. The S&P movement, of course, was an industry movement. It wasn't specific to Shell. I think it's important to note that in an extraordinarily challenging year, across the board, we in fact improved our balance sheet.

Net debt was down by some $4 billion. That speaks to the resiliency of the company, the quality of the portfolio, the quality of the operations. And so I think Shell is in very good shape right now, very well set up to manage uncertainty and hopefully to help fuel the recovery in 2021. So it's a bit ironic because I think as a company, we're in a very good place.

And this is primarily a reflection, I believe, on S&P's view of the industry. We're making all the right moves, I think, in terms of strengthening our balance sheet.

Ben Van Beurden -- Chief Executive Officer

Thanks very much, Chris. Orlando, who's next?


And next, we'll hear from Lydia Rainforth with Barclays.

Lydia Rainforth -- Barclays -- Analyst

Hi, Jessica. Hi, Ben. Two questions, if I could. The first one, just on the opex side, and clearly you did a great job in terms of reducing opex numbers more than you expected to in terms of the cost-saving side.

What was it that led to that? And how should we think about how we move forward into 2021? Was that digital being slightly better than you thought? Or was it so that there was more limited travel and things like that? And then the second question, possibly for Ben, if I think back to last year of 2020 and for most of the things that you've learned from last year that surprised you, perhaps in the way that the customers reacted, there does seem to be more focus now on the customer proposition than perhaps there's been in the past. Thanks.

Ben Van Beurden -- Chief Executive Officer

Great questions, Lydia. Jessica, why don't you talk about opex? I'll talk about the learnings and customers.

Jessica Uhl

OK. Thanks for the question, Lydia. In terms of opex, indeed, really pleased with the performance across the company in terms of delivering the outcome of a $4.5 billion reduction essentially over a nine-month period. That was driven by a combination of factors.

One was the impact of the pandemic. That slowed down activity in certain places, and we had to change the way we did business and stop certain activities. That was one piece. The other piece was having to work from home stimulated a lot of innovation, and we had to rethink how we're working as a company.

Some of that will be durable. And going from the $4.5 billion in terms of going forward, what does that mean for us? We're going to take what we've learned from this year, which is a lot. In addition, we're restructuring the company, reorganizing the way we work with the company -- with a project called Reshape. That will come into effect in 2021.

And so we'll translate some of the learnings that we did and some of the one-offs that happened in 2020 and turn it into durable cost reductions of some $3 billion going forward. So there's things we learned. There was self-help involved in there. There was choices that were made.

There was conditions that caused the $4.5 billion. The things that we learned, we'll take forward. And we're making more interventions today to ensure that we have sustained cost reduction of some $3 billion going forward.

Ben Van Beurden -- Chief Executive Officer

And on customers, I think there was an element of vindication, I should say, in 2020. We always knew that playing things up close to the customer is important, but I do think that really played well out in last year as well. So we are in over 80 countries with a massive footprint close to end consumers. And we were able to, of course, significantly change our offerings.

And not just the offerings in the convenience retailing sense, but also offerings that really help people in their daily life, being parcel dropoff, parcel pickup, being at-home deliveries, etc., etc. So if you look at the increase in basket size, which I believe I mentioned a little bit earlier, 15% year on year. And if you look at the profitability of our retail business going up at 5% while volumes dropped is actually quite an impressive proof point, I think, as well, playing it closer to the customer. Now, there's another thing that we learned as well, of course, which is when we went through a more sort of detailed examination how are we going to get to being a net-zero emissions company, it is, of course, all about our customers decarbonizing as well.

There is no way we can get to net zero on Scope 3 as well when our customers don't decarbonize. So therefore in the year, we've made a lot of progress in figuring out how we are going to reconfigure our Marketing business to be much closer to the customer, playing it sector by sector with very specific recipes on how we are going to help out groups of customers on their journey to net-zero. And why is that important for 2020? Because you will have seen many of our customers, and this is probably a little bit more in the B2B space, have made their net-zero pledge. In that sense, the pandemic has been a tremendous catalyst for the climate.

And therefore, the next thing that happens is customers come to us to say, "I've made my pledge. Now, can you help me deliver on it?" And I think that's what you are going to see in the next years going forward. So I do believe indeed, 2020 was very much the year of the customer for us as well. Thank you very much, Lydia.

And, Orlando, can I have the next question, please?


Next, we will hear from Paul Cheng with Scotiabank.

Paul Cheng -- Scotiabank -- Analyst

Thank you. Good morning, guys. Good afternoon to you. Two questions, please.

Ben, it seems like there's a big distinction in the energy transition plan between U.S. and Europe. U.S. major -- your customer there, focusing on the carbon sequestration, carbon capture.

While in Europe, including yourself, is more on the -- maybe the solar and wind power. Just curious, I mean, that given the barrier of entry and the technical know-how is far more challenging and maybe that more fit to your strength in the carbon sequestration and carbon capture than solar and wind power, so why not focus on wind and solar and not more on the carbon sequestration and carbon capture? So just curious that what drive you taking the path that you take? That's first question. Second question on the marketing earning, can you share that what's the split between the fuel margin-related profit and the nonfuel margin, which tends to historically be more steady? Thank you.

Ben Van Beurden -- Chief Executive Officer

Thank you very much, Paul. I will talk to the first question, and Jessica can address the second one. If you look at the differences, as you refer to them, between the different sides of the ocean in terms of the climate plans, there are indeed differences. But I wouldn't say that we are just only focusing on, say, renewable power, whereas others are focusing on CCS.

As a matter of fact, we're focusing on both because we both believe that they are capabilities that we have, play to our strength. Both of them are going to be needed. Let me talk with the -- start with the renewable part first. Of course, we will be a player in renewable assets, but we believe the value in the renewable energy chains of the future are not just going to be in producing commodity power for merchant markets.

You will have to have a position, of course, in that value chain. But a lot of the value is actually going to be harvested actually downstream, if you like, of the commodity market as you make bespoke solutions for customers who need it. So our integrated value proposition and our integrated capability, yes, some generation, but particularly also playing to customer strengths and playing in the optimization game very well, that is going to be where I believe we can win and actually where we are differentiated, even compared to existing incumbents. Now, on CCS, we definitely have a strong interest and even a strong position as well.

We do have a position in North America, in Canada, and we are making a lot of progress in other parts of the world as well. So we just took a final investment decision together with two of our peers to be involved in a CCS project in Norway, where we are going to take third parties' carbon dioxide and sequester it as a service. And I believe there is a tremendous potential in that business for us going forward as well. Jessica, in her video, mentioned the progress that we are making with Project Porthos.

Porthos is a project where we are, again in a consortium, working to sequester some of the CO2 from our refinery here in Rotterdam. And we have multiple other projects that we are working on, all with the idea that we believe CCS is not only essential for decarbonizing our own assets, but increasingly, CCS will be a business model, almost like turning energy provision into a service. Jessica?

Jessica Uhl

Great. Thank you, Paul, for the question. In terms of marketing, let me make a few kind of context statements. So marketing is our retail business, as well as our lubricants business and our commercial business.

So it's comprised of very distinct businesses and with different value drivers in each of them. A theme through all of them is premium products. So that's how we distinguish how we make money in Shell and why our earnings are as strong and resilient as they've been in 2020. You see that in our retail business through V-Power, where we achieved penetration of our premium fuels of up to 20%.

And similarly, with our lubricants business, premium fuels, which has allowed us to be the No. 1 market player in terms of premium lubricants for some 14 years. So that's just a bit of scope in terms of Marketing business. If you turn to retail, specifically in nonfuel retail, that is an opportunity for us to generate pretty differentiated returns as well.

That can be a very high-margin part of our business, an important focus for us. We're looking to achieve some 50% of our margin from nonfuel retail at the sites that have the store locations. What you'll see over the next five, 10 years is we're going to grow the total number of sites. We've got 46,000 currently.

We're going to look to bring that to some 55,000 by the middle of the decade. We're refurbishing stores and locations around the world and putting new stores in existing sites as well. So there's many levers we're pulling. There's many sources of value in this business.

The nonfuel retail is one of them, but there's many other levers that we're pulling as well.


And we will hear from Dan Boyd with Mizuho Securities.

Dan Boyd -- Mizuho Securities -- Analyst

Hi. Thanks for squeezing me in. So, Jessica, if I look at the cash flow profile this year, even with the one-off in the fourth quarter, your operating cash flow is significantly sort of more resilient than most peers, yet your distributions were cut sort of on the more significant side. And prior to the pandemic, I think most investors were attracted to the attractive cash return that the company offered.

Now, I appreciate the 20% to 30% of operating cash flow payout going forward. But can you maybe provide some guideposts of how you think about whether or not it's at 20% or if it's at 30%? So in other words, if commodity prices are higher, where Brent is 60-plus, should we expect something closer to the 30% versus, in a lower commodity price environment, something closer to the 20%? Just any thoughts around that would be helpful.

Ben Van Beurden -- Chief Executive Officer

Thanks very much, Dan. I think that's an important question, of course, on many people's mind. But think of it this way. Indeed, you're absolutely right in pointing out that our cash flow from operations is industry-leading.

And I would be mightily surprised if again this quarter, we wouldn't be the number one again after, I think, now 16 to 17 quarters. And that's why we have also used our CFFO capacity as an indicator to gauge how much we will pay out. We said 20% to 30% that we think that is a reasonable range. We will, of course, decide where that will come out, probably depending a little bit on how the last four quarters of CFFO look like and how we see the profile going forward.

I don't think at this point in time I want to be too detailed or mechanical on this because it will take the judgment of the day to decide what is a wise way to pay out. We're very much minded indeed, we're very much aware also that the better the payout, the better the investment case for our company. So in that sense, don't think that we would be -- that we would not be aware on how to behave in that respect. Now, that brings me to the closing.

I think we spent an hour on this. And I would like to thank you very much for the questions that you've asked and for joining the call today. I hope that we have at least given you some good insight in the performance of 2020, how well we are positioned for this current year that we are in but also for the many years ahead. But as I said already a number of times, there is so much more to come in our strategy day on the 11th of February next week, Thursday.

We'll tell you more about how Shell is going to power progress while, as I said, our cash priorities remain exactly the same. And then of course, during the year, we plan to provide you with further insights on our strategy and our business pillars through additional events that will be planned and that you will be hearing of soon. Now, have a great rest of the week. Please stay safe and speak to you all next week.

Thank you very much.


[Operator signoff]

Duration: 0 minutes

Call participants:

Jessica Uhl

Ben Van Beurden -- Chief Executive Officer

Oswald Clint -- Sanford C. Bernstein -- Analyst

Thomas Adolff -- Credit Suisse -- Analyst

Christyan Malek -- J.P. Morgan -- Analyst

Biraj Borkhataria -- Royal Bank of Canada -- Analyst

Jon Rigby -- UBS -- Analyst

Lucas Herrmann -- Exane BNP Paribas -- Analyst

Martijn Rats -- Morgan Stanley -- Analyst

Irene Himona -- Societe Generale -- Analyst

Roger Read -- Wells Fargo Securities -- Analyst

Michele Della Vigna -- Goldman Sachs -- Analyst

Christopher Kuplent -- Bank of America Merrill Lynch -- Analyst

Lydia Rainforth -- Barclays -- Analyst

Paul Cheng -- Scotiabank -- Analyst

Dan Boyd -- Mizuho Securities -- Analyst

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