REG-Royal Dutch Shell: 2ND QUARTER UNAUDITED RESULTS - Part 3

- Part 3: For the preceeding part double click [ID:nPRrV9CF2b]

IFRS require that the derivative instruments be recognised in the financial
statements at fair value. Any change in the current period between the period
end market price and the contract settlement price is recognised in income
because hedge accounting is either not permitted or not applied to these
contracts.

The physical crude oil and related products held by the Oil Products business
as inventory is recorded at historical cost or net realisable value, whichever
is the lowest, as required under IFRS. Consequently, any increase in value of
the inventory over costs is not recognised in income until the sale of the
commodity occurs in the subsequent periods.

In the Oil Products business, the buying and selling of commodities includes
transactions conducted through the forward markets using commodity derivatives
to reduce the economic exposure. The derivatives are typically associated with
a future physical delivery of the commodities.

These differences in accounting treatment for physical inventory (cost or net
realisable value, whichever is the lowest) and derivative instruments (at fair
value) can create timing differences in the recognition of the gains or losses
between the reporting periods.

Similarly the earnings from long-term contracts held by Gas & Power are
recognised in the results upon realisation. Associated commodity derivatives
are recognised at fair value as of the end of each quarter.

These differences in accounting treatment for long-term contracts (on accrual
basis) and derivative instruments (at fair value) can create timing differences
in the recognition of the gains or losses between the reporting periods.
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Contacts:

* Investor Relations: Europe: + 31 (0)70 377 4540; USA: +1 212 218 3113

* Media: Europe: +44 (0)20 7934 3505

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