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Project Report on Shell Pakistan

HISTORY OF OIL INDUSTRY IN PAKISTAN

1947

At the time of independence there were no more than few companies, it was the case

with oil industry. There was no oil refinery in Pakistan except a very small at Rawalpindi.

At that time the total requirement of Pakistan was 0.4 million tons. There were four

foreign and one local company in Pakistan these were:

BURMAH OIL Market petroleum products.

BURMAH OIL Oil extracting company.

CALTEX Market petroleum.

ESSO Marketing.

ATTOCK OIL Oil exploration company.

1952

Burmah discovered natural gas at Sui in Baluchistan named as Sui gas. Before partition

Railways was on coal, but at the time of partition India refused to provide coal, so

railways has to convert on diesel oil.

1955

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The consumption of oil shot up by 3 million tons.

1960

Consumption in East and West Pakistan shot up by 4.2 million tons OGDC was

established. Government asked the foreign companies to set up a refinery, they agreed

with following conditions:

Refinery should in Karachi

Capability will be 1.5 million tons.

They will provide crude to refinery only.

Government also permitted a Pakistani company, Pakistan National Oil.

1962

Pakistani refinery came into being. It only produced petroleum but not lubricant. So

PNO established a plant at Korangi (Karachi) for lubricating oil with a capacity of 0.5

million tons.

1964

Dawood petroleum was established.

1965

On September 1965 India attacked Pakistan so the oil reserves came to lowest and

government asked the foreign companies to bring crude refined and provide the army



but they refused. PNO was asked to do so, it brought the oil and the need of army was

fulfilled. These companies annoyed the government and it turned against them.

1970

In 1970, when 51% of the shareholding was transferred to Pakistani invertors. The

name of the company changed to Pakistan Burmah shell (PBS) limited. The shell and

Burmah groups of retained the remaining 49% in equal proportions.

1971

Again the war broke between Pakistan and India. All crude oil was imported from other

countries and its storage was concentrated at Kemari Terminal Karachi. The enemy

blasted whole storage point. So the need to spread the storage points in the whole

country was felt. The 5 foreign companies were asked to do so but they refused

because of cost, then government decided to establish storage places itself.

1973

There were energy crises through the world. Almost all of the countries nationalized the

oil companies. Everyone realized that petroleum products were very essential.

1974

Pakistan storage Development Corporation was established.

1976

PSO was found in December 1976 as a result of merger of here oil companies:



1. Pakistan National Oil.

2. Premier Oil Company.

3. ESSO.

1993

In February of 1993, as a result of a decision by Burmah oil to divest in Pakistan and the

deregulation policy of the government, the shell petroleum company bought the shares

of Burmah Oil Company and 2% shares from the market and become the major

shareholder in the shell Pakistan limited (SPL).

INTRODUCTION OF SHELL PAKISTAN Ltd.

HISTORY

Shell is a multinational company and in Pakistan it is operating as a public limited company by

the name “Shell Pakistan Ltd.

Shell is a superior brand name with a 100 year history in this region, infect the company is still in

possession of a fuel storage tank from 1899. However, the documented history of the Royal

Dutch/shell group the Indo-Pak subcontinent dates back to 1903 when a partnership was struck

between the shell transport and trading company and the Royal Dutch petroleum company to

supply petroleum products in Asia.

In 1928 to enhance their distribution capabilities, the marketing interests of the Royal

Dutch/shell group and Burmah Oil Company by limited in India were merged and the Burmah



shell oil storage distribution and storage company of India was born. After the independence of

Pakistan in 1947, the name was changed to the Burmah shell oil distribution company of

Pakistan.

In 1970, when 51% of the shareholding was transferred to Pakistani invertors. The name of the

company changed to Pakistan Burmah shell (PBS) limited. The shell and Burmah groups of

retained the remaining 49% in equal proportions. In February of 1993, as a result of a decision

by Burmah oil to divest in Pakistan and the deregulation policy of the government, the shell

petroleum company bought the shares of Burmah Oil Company and 2% shares from the market

and become the major shareholder in the shell Pakistan limited (SPL).

Shell launched a change programme, which will transform the company by the turn of the

century, with major implications for the petroleum industry in Pakistan. More subtle, but equally uncompromising, has been the change in the company’s culture to

reflect the values which shell internationally believes will bring commercial success through a

greater focus on the customers.

COMPANY’S SLOGAN/MISSION

“You can be sure of Shell.”

COMPANY’S OBJECTIVE

Shell is focusing on retailing, providing better facilities to customers, clean petrol pumps

constructing international standard petrol filling stations, good advertising campaigns and mini

markets (select).

VISION OF SHELL

To Be The Top Performer Of First Choice.

AIM OF SHELL

Creating a secure business environment, minimizing economic losses, and business disruptions

safeguarding the group’s integrity and reputations.

GOAL OF SHELL

The goal of the company is to position itself as the preferred oil company in Pakistan, leading

the field in its commitment to safety, customer service, quality and environmental protection.

STRATEGIES OF SHELL



A strategy of corporation forms a comprehensive master plan stating how the corporation will

achieve its mission and objectives. It maximizes competitive advantage and minimizes

competitive disadvantage.

The strategy of Shell is to grow internally by expanding its operations through acquisition and

strategic alliances.

Shell focuses to differentiate its products from competitors in the area of quality and services.

POLICIES

A policy is a broad guideline for decision-making that links the formulation of strategy with its

implementation

The policy of Shell is to make sure that the employees throughout the firm make decisions andtake actions that support the corporation’s mission, objectives, and strategies.

STRATEGIC MANAGEMENT

There is a strong case of linkage “good management “to how well managers craft and execute

strategy. Some managers design shrewd strategies but fail to carry them out well. Others

design mediocre strategies but execute them competently. Both

situation performance despite unforeseeable events, potent competition, and

internal problems.

THE FIVE TASKS OF STRATEGIC MANAGEMENT

The strategy making, strategy-implementing process consists of five interrelated managerial

tasks.

1. Deciding what business the company will be in and forming a strategy vision of where the

organization needs to be headed.

2. Converting the strategic vision and mission into measurable objective and performance

targets.

3. Crafting a strategy to achieve the desire results.

4. Implementing and executing the chosen strategy efficiently and effectively.

5. Evaluating performance reviewing new developments, and initiating corrective

adjustments in long-term direction objectives.



WHY COMPANY STRATEGIES EVOLVE

Frequently fine tuning and tweaking of a company strategy. First in one department or

functional area and then in another, are quite normal. On occasion, quantum changes in

strategy are called for when a competitor makes a dramatic move, when technological

breakthroughs occur or when crises strikes and managers are forced to makes a radical

strategy alteration very quickly. Because strategy move and new action approaches are ongoing

across the business.

An organization’s strategy forms over a period of time and then reform the number of changes

begins to mount. Current strategy is typically a blend of holdover approaches fresh actions and

reactions, and potential moves in the planning stage. Except for crises situations (where many

strategy moves are often made quickly to produce a substantially new strategy almost

overnight) and new company starts - ups (where strategy exists mostly in the form of plans and

intended actions), it is common for key elements of company to emerge in bits and pieces as

the business develops.

WHAT DOES A COMPANY’S STRATEGY CONSIST OF?

Company’s strategies concern how: how to grow the business, how to satisfy customers, how to

auto compete rivals, how to response to changing market conditions, how to manage each

functional piece of business, how to achieve strategic and financial objectives.

STRATEGY AND STRATEGIC PLANS

Developing a strategic vision and mission, establishing objectives, and deciding on a strategy

are basic direction-setting tasks. They map out where the organization is headed, its short

range and long-range performance targets, and the competitive moves and internal action

approaches to be used in achieving the targeted results. Together, they constitute a strategic

plan.

Annual strategic plan seldom anticipate all the strategically relevant events that will transpire in

the next 12 months. Unforeseen events, unexpected opportunities or threats, plus the constant

bubbling up of new proposal encourages managers to modify planned actions forge “unplanned”



reactions postponing the redrafting of strategy until its time to work on next year’s strategic plan

is both foolish and unnecessary.

STRATEGY IMLEMENTATIONAL EXECUTION

The administrative is to create “fits” between the way things are done and what it takes for

effective strategy execution. The stronger the fits the better the execution strategy. The most

important fits are between strategy organizational capabilities, between strategy and reward

structure between strategy and internal support system, and between strategy and the

organization culture.

The strategic implementing task is easily the most compacted and time-consuming part of

strategic management. It cut across virtually all facts of managing and must be initiated from

many points inside the organization. The strategy implementer’s agenda for action emerges

from careful assessment of what the organization must do differently and better to carry out the

strategic plan proficiently. Each manager has to think how much internal practices deviate from

what the strategy requires and how well strategy and organizational culture already match.

As needed changes and identified, management must supervise all the details of

implementation and apply enough pressure on the organization to convert objectives into

results. Depending on the amount of internal change involved, full implementation can take

several moths to several years.

WHY STRATEGIC MANAGEMENT IS AN ONGOING PROCESS

Because each one of the five tasks of strategic management requires constant

evaluation and a decision whether to continue or change, a manager cannot afford

distraction. Nothing about the strategic management process is final all prior actions are

subject to modification as conditions in the surrounding of environment change and

ideas for improvement emerge, strategic management is a process filled with motion.

Changes in the organization situation, either from the inside or outside or both, fuel the

need for strategic adjustments.



The task of evaluating performance and initiating corrective adjustments is both the end

and the beginning of the strategic management cycle. The match of the external and

internal events, grant that revision in mission, objective, strategy and implementation

will be needed sooner or later. It is always incumbent on management to push for better

performance to find ways to improve the existing strategy and how it is being executed.

Changing external conditions add further impetus to the need for periodic revisions in a

company’s mission. Performance adjustment objective, strategy and approaches to

strategy execution.

Adjustments usually involve fine-tuning. But occasions for major strategic re-orientation

do arise some time prompted by significance external development and sometimes by

sharply sliding financial performance. Strategy managers must stay close enough to the

situation to detect when changing conditions require a strategic response and when

they don’t. It is their job to scene the winds of change, recognize changes early, and

initiate adjustments.

THE BENEFITS OF A “STRATEGY APPROACH” TO MANAGING

Today managers have to think strategically about their company’s position and impact of

changing conditions. They have to monitor the external; solution closely enough to know what

kind of strategic changes to initiate. Simply said, fundamentals of strategic management cede to

drive the whole approach to managing organizations.

The advantages of first-rate strategic thinking and conscious strategic management include:

1. Providing better guidance to the entire organization on the crucial point of “what it is

trying to do and to achieve.”

2. Making managers more alert to the winds of change, new opportunities and threatening

development.



3. Providing managers with a rationale for evaluating competing budget requests for

investment capital and new staff a rationale that argues strongly for steering resources

into strategy-supportive results producing areas.

4. Helping to unify the numerous related decisions by managers across the organization.

5. Creating a more proactive management posture and counteracting tendencies for

decisions to be reactive and defensive.

EXTERNAL ENVIRONMENT

For the analysis of external environment following are important factors (PEST):

Political –legal forces

Economic forces

Socio cultural forces

Technological forces

POLITICAL FORCES: -

In Pakistan there are rapid changes of Government since poison. Each government that came

in power condemned the planning work done by the precious government. The slow

development due to political instability but now the present government is very stable to grow

because govt. is providing incentives to different industries.

LEGAL FORCES: -

Legal component consists of legislation that has been passed. This component prescribes rules

or laws that all members of society must follow e.g. labour polic y, employees’ social security

scheme 1965 Partnership Act 1932 company 1984.

ECONOMIC FORCES: -



In Pakistan GNP is 5.41 and inflation rate is very high which is 12.7. The balance of payment

position in Pakistan is -3.5%. The employment rate is 34.94 million.

ECONOMIC OVERVIEW

Currency: Pakistani Rupee

Average Exchange Rate (20/1/02): U.S.$1 = 60.5 rupees

Gross Domestic Product (GDP, market exchange rates, 2000E): $52.1 billion

Real GDP Growth Rate (2000E): 1.8% (2001E): 2.3%

Inflation Rate (2000E): 15.6% (2000E): 11.1%

Current Account Balance (2000E): -$3.5 billionMerchandise Trade Balance (2000E): -$3.0 billion

Total External Debt (2000E): $38.5 billion

Major Trading Partners: United States, Japan, Germany, United Kingdom, and Saudi Arabia

Major Export Products: Raw cotton and textiles; rice; leather manufactures

Major Import Products: Petroleum; machinery and transport

SOCIO CULTURAL FORCES: -

In Pakistan population is increasing and social values are also changing so the demand of fuel

consumption is also increasing. People are coming from rural areas to cities and their life style

and values are also changing. They are using modern technology like care, motor cycle for

traveling.

Pakistan's attempt to raise the living standards of its citizens has meant that economic

development has largely taken precedence over environmental issues.

Unchecked use of hazardous chemicals, vehicle emissions, and industrial activity has

contributed to a number of environmental and health hazards, chief among them being water

pollution. Much of the country suffers from a lack of potable water due to industrial waste and

agricultural runoff that contaminates drinking water supplies. Poverty and high population

growth have aggravated, and to a certain extent, caused, these environmental problems.



TECHNOLOGICAL FORCES: -

Pakistan environment regarding the technology is not very advance due to the lack of

resources.Natural gas, because of its environmental qualities, efficiency, and

technological advances are going to play an increasingly important role in meeting

demand for clean energy.

TASK ENVIRONMET

Customer

Supplier

Labor component

Competitors

Government

CUSTOMER: -

Our customers are high class, low class and also middle class, because every class is used

petrol for consumption.

SUPPLIER: -

Our suppliers are Pakistan refinery, National refinery and Attock refinery and Dhodak refinery.

LABOUR COMPONENT: -

Labour is frequently available in Pakistan because of high unemployment rate. So skilled and

unskilled persons are available at lower wages rate.

COMPETITORS: -

Major competitors of Shell are PSO with petrol pumps and Caltex with petrol pumps. But Shell

Pakistan Limited operates in the Petroleum refining sector. Shell Pakistan Limited also compete

with three other petroleum refiners in Asia



Chennai Petroleum Corporation Limited

National Refinery Limited

Mangalore Ref & Petrochemicals LimitedINTERNAL ENVIRONMENT

Organization Structure

Organization Culture

ORGANIZATION STRUCTURE: -

Shell is the largest multinational organization with many product lines. Employees tend

to be functional specialists organized according to market/product distinction.

Shell Pakistan is divided into five functional areas i.e. Retail, Commercial, Operations,

Finance, and Human Resources.

Management attempts to find synergy among divisional activities through the use of

committees and horizontal linkages.

Decision of major impact result from strategic plans made by organizational

staff

ORGANIZATION CULTURE: -

Quality is the key ingredient and commitment to quality is share by executives and

workers.

The organizational Culture of the Shell is based on commitment of the top management

for quality, employees, local community, innovation, and performance.

ORGANIZATIONAL RESOURCES

Shell has established 1404 petrol filing station in different areas of Pakistan. But now the

company is trying to reduce the number of petrol filling station because they do not need that



filling station, whose monthly sales are less than 500000 liters. Up till now about 50 pumps are

renovated in deferent cities of Pakistan.

NUMBER OF DEPOTS IN PAKISTAN

Shell has got 14 depots in different areas of Pakistan.

TYPES OF RESOURCES

1) Marketing

2) Finance

3) Research and development

4) Human resources

5) Operation

6) Information System MARKETING

Shell has strong distribution channels. Their market size is very large. Therefore, marketing staff

is very efficient and their main objective is satisfying the customer and people have the brand

loyalty.

MARKET LEADERSHIP DUE TO INNOVATION

Shell is considered to be the market leader in innovation. It was the first company to get legal

approval to operate Mini-Market. It was the first among its competitors to introduce (rainbow) jet

wash and (Proserv) branded oil change facility. It provides suggestive literatures to its

customers while launching a new product such as Helix super and Helix Lubricant etc.

It was also the first company to introduce the concept of Mobile Training Unit (MTU) for the

purpose of training the workers and introducing quality and quantity control units, which check

the quality and quantity of motor gasoline at various filling stations.

INNOVATION THE KEY TO OPPORTUNITY

Innovative use of technology is the key to other possible opportunities related to

remote gas reserves that remain stranded due to the prohibitive cost of

development.

FINANCIAL: -



During the 12 months ending 6/30/01, earnings per share totaled 30.12 Pakistan Rupees per

share. Thus, the Price / Earnings ratio is 5.48. Earnings per share fell 18.7% in 2001 from 2000.

As of June 2001, the company's long-term debt was 63.90 million Pakistan Rupees and total

liabilities (i.e., all monies owed) were 6.68 billion Pakistan Rupees. The long-term debt to equity

ratio of the company is very low, at only 0.01.

As of June 2001, the accounts receivable for the company were 2.45 billion Pakistan Rupees,

which is equivalent to 14 days of sales. This is slightly higher than at the end of 2000, when

Shell Pakistan Limited had 12 days of sales in accounts receivable.

RESEARCH AND DEVELOPMENT: -

Research and development strategy deals with product and process innovation and

improvement. Shell spends on research and development more than most in the other companies to differentiate the performance of its products to its competitors.

COMOPANY’S RAPID GROWTH: -

Shell has grown rapidly since 1993 and its volume of sales has rapidly increased in all the areas

of Pakistan. Shells have 20.3% market share in 1996.

Shell has a market share of approx 21% for all petroleum products in Pakistan. Pakistan

recorded annual sales of 3.51 million tones of petroleum products from July 2000 to June 2001.

Revenue in the same period amounted to Rs.74.996 billion and profit after tax was recorded as

Rs.1056 million.

HUMAN RESOURCES: -

Shell provides the training facility to their labour and management to create the good relation to

their employees. Shell Company also motives its employees and provides different incentive on

their good performance

OPERATIONS: -

Operation of the company is based on continues improvement is the acknowledgment that

workers experiences and knowledge can help to show production problem and contribute

towards tightening variances and reducing error.

INFORMATION SYSTEM: -



Shell design and mange high-class information system that improve the productivity and

decision-making. In organization information may be collected, stored and synthesized in such

manner that answers important operational and strategic questions.

Information system is one of the strength of the organization. It provide aid in environmental

scanning and in controlling activities, it can also used as a weapon in gaining competitive

advantage.

FINANCIAL PERFORMANCE

SALES ANALYSIS

Shell Pakistan Limited reported sales of 63.63 billion Pakistan Rupees (US$1.06 billion) for the

fiscal year ending June of 2001. This represents an increase of 76.2% versus 2000, when the

company's sales were 36.12 billion Pakistan Rupees.

During 2001, the company's sales increased at a faster rate than all three comparable

companies. While Shell Pakistan Limited enjoyed a sales increase of 76.2%, the other

companies saw smaller increases: Chennai Petroleum Corporation Limited sales were up

29.1%, National Refinery Limited increased 15.9%, and Mangalore Ref & Petrochemicals

Limited experienced a sales decline of 6.3%. Shell Pakistan Limited currently has 608

employees. With sales of 63.63 billion Pakistan Rupees (US$1.06 billion), this equates to sales

of US$1,742,581 per employee.

SALES COMPARISONS (FISCAL YEAR ENDING 2001)



Company

Year Ended

Sales(US$blns)

SalesGrowth

Sales/Emp (US$) Largest Region

Shell Pakistan Limited Jun 2001 1.059 76.2% 1,742,581 Pakistan (100.0%)

Chennai Petroleum Corporation Limited Mar 2001 1.442 29.1% 817,968 India (100.0%)

National Refinery Limited Jun 2001 0.572 15.9% 553,885 Pakistan (100.0%)

Mangalore Ref & Petrochemicals Limited Mar 2001 0.577 -6.3% N/A India (100.0%)

RECENT STOCK PERFORMANCE

In recent years, this stock has performed terribly. In fiscal year 2000, the stock traded as high as

367.50 Pakistan Rupees, versus 165.15 Pakistan Rupees on 1/18/02.

For the 52 weeks ending 1/18/02, the stock of this company was down 42.5% to 165.15

Pakistan Rupees. During the past 13 weeks, the stock has fallen 8.3%.

During the 12 months ending 6/30/01, earnings per share totaled 30.12 Pakistan Rupees per

share. Thus, the Price / Earnings ratio is 5.48. Earnings per share fell 18.7% in 2001 from 2000.

This company is currently trading at 0.09 time’s sales. Shell Pakistan Limited is trading at 1.07

times book value. The company's price to book ratio is higher than that of all three comparable

companies, which are trading between 0.25 and 0.97 times book value.

SUMMARY OF COMPANY EVALUATIONS Company Date P/E

Price/Book

Price/Sales

52 WkPr Chg

Shell Pakistan Limited 1/18/02 5.5 1.07 0.09 42.50%

Chennai Petroleum Corporation Limited 1/18/02 N/A 0.25 0.04 43.31% National Refinery Limited 1/17/02 3.5 0.97 0.08 3.00%

Mangalore Ref & Petrochemicals Limited 1/18/02 N/A 0.73 0.20 21.86%

The market capitalization of this company is 5.79 billion Pakistan Rupees (US$96.42 million).

Closely held shares (i.e., those held by officers, directors, pension and benefit plans and those



shareholders who own more than 5% of the stock) amount to over 50% of the total shares

outstanding: thus, it is impossible for an outsider to acquire a majority of the shares without the

consent of management and other insiders. The capitalization of the floating stock (i.e., that

which is not closely held) is 2.33 billion Pakistan Rupees (US$38.83 million).

Dividend Analysis

During the 12 months ending 6/30/01, Shell Pakistan Limited paid dividends totaling 12.50

Pakistan Rupees per share. Since the stock is currently trading at 165.15 Pakistan Rupees, this

implies a dividend yield of 7.6%. The company has paid a dividend for 4 straight years.

During the same 12 month period ended 6/30/01, the Company reported earnings of 30.12

Pakistan Rupees per share. Thus, the company paid 41.5% of its profits as dividends.

PROFITABILITY ANALYSIS On the 63.63 billion Pakistan Rupees in sales reported by the company in 2001, the cost of

goods sold totaled 44.75 billion Pakistan Rupees, or 70.3% of sales (i.e., the gross profit was

29.7% of sales). This gross profit margin is significantly better than the company achieved in

2000, when cost of goods sold totaled 91.1% of sales.

Shell Pakistan Limited's 2001 gross profit margin of 29.7% was better than all three comparable

companies (which had gross profits in 2001 between 3.9% and 5.1% of sales).

The company's earnings before interest, taxes, depreciation and amorization (EBITDA) were

1.96 billion Pakistan Rupees, or 3.1% of sales. This EBITDA margin is worse than the company

achieved in 2000, when the EBITDA margin was equal to 5.6% of sales. The three comparable

companies had EBITDA margins that were all higher (between 3.2% and 4.8%) than that

achieved by Shell Pakistan Limited.

In 2001, earnings before extraordinary items at Shell Pakistan Limited were 1.06 billion Pakistan

Rupees, or 1.7% of sales. This profit margin is lower than the level the company achieved in

2000, when the profit margin was 3.6% of sales.

The company's return on equity in 2001 was 22.1%. This was significantly worse than the

already high 32.0% return the company achieved in 2000. (Extraordinary items have been

excluded).



PROFITABILITY COMPARISON

Company Year

GrossProfitMargin

EBITDAMargin

Earnsbef.extra

Shell Pakistan Limited 2001 29.7% 3.1% 1.7%

Shell Pakistan Limited 2000 8.9% 5.6% 3.6%

Vs. ----- ----- ----- -----

Chennai Petroleum Corporation Limited 2001 5.1% 4.8% 1.8%

National Refinery Limited 2001 3.9% 3.2% 2.3%

Mangalore Ref & Petrochemicals Limited 2001 4.7% 4.3% -9.4%

INVENTORY ANALYSIS

As of June 2001, the value of the company's inventory totaled 2.76 billion Pakistan Rupees.

Since the cost of goods sold was 44.75 billion Pakistan Rupees for the year, the company had

22 days of inventory on hand (another way to look at this is to say that the company turned over

its inventory 16.2 times per year). In terms of inventory turnover, this is an improvement over

June 2000, when the company's inventory was 2.44 billion Pakistan Rupees, equivalent to 27

days in inventory.

The 22 days in inventory is lower than the three comparable companies, which had inventories

between 39 and 99 days at the end of 2001.

FINANCIAL POSITION

The 14 days of accounts receivable at Shell Pakistan Limited are lower than all three

comparable companies: Chennai Petroleum Corporation Limited had 35 days, National Refinery

Limited had 107 days, while Mangalore Ref & Petrochemicals Limited had 51 days outstanding

at the end of the fiscal year 2001.

Company Year LT Debt/Equity

DaysAR

DaysInv.

Shell Pakistan Limited 2001 0.01 14 22

Chennai Petroleum Corporation Limited 2001 0.60 35 47

National Refinery Limited 2001 0.00 107 39

Mangalore Ref & Petrochemicals Limited 2001 5.12 51 99



COMPETITOR ANALYSIS

Shell Pakistan Limited operates in the Petroleum refining sector. This analysis compares Shell

Pakistan Limited with three other petroleum refiners in Asia:

Chennai Petroleum Corporation Limited of India (2001 sales of 69.56 billion Indian Rupees

[US$1.44 billion] of which 100% was Oil & gas exploration).

National Refinery Limited (34.33 billion Pakistan Rupees [US$571.61 million] of which 93% was

Fuel).

Mangalore Ref & Petrochemicals Limited, that is based in India (27.85 billion Indian Rupees

[US$577.35 million] of which 100% was Petroleum products).

PAKISTAN STATE OIL

A NEW VISION A NEW SPIRIT

As the largest oil marketing company of Pakistan, PSO is engaged in the storage, import,

distribution and marketing of petroleum products, petrochemicals, Aviation & Bunker fuels, LPG

and CNG dominates the country’s fuel and energy need. Since its inception in 1976 the

company has been meeting more than 70% of the country’s fuel needs.

PSO’s 3805 outlets all across the country markets more than 12 million tons of fuel products

annually. This network is supported by PSO’s 28 storage facilities with a capacity of more than

800,000 tons. PSO took a major step in improving its distribution facilities by acquiring 12%

equity in the 800km long Karachi-Mehmood kot White Oil Pipeline.

As part of PSO’s policy of providing better customer service it has embarked upon its New

Vision retail development program. Equipped with the most modern facilities like electronic



dispensing units, auto car wash, convenience stores, internet facilities and business centres

these site of the art designed stations provide greater customer confidence and a friendlier

environment. As a manifestation of PSO’s greater customer focus a PSO 24hr PSO Customer

Service has been launched where customer’s can lodge their queries and suggestions about

various PSO products and services.

Along side its retail network PSO is playing an equally important role in the industrial sector.

From the locomotives of Pakistan Railways to the giant turbines of power projects, all are fuelled

by PSO.

Being fully alive to its responsibilities towards the agricultur e sector PSO’s 700 strong agency

network helps keep the farm machinery running. Further, its kerosene sales are a major source

of energy for the rural and lacking gas facilities. PSO remains equally strong in Aviation and Bunker Sales. PSO has been constantly upgrading

its facilities to serve a wide range of commercial aircrafts.

Through a chain of eight Aviation Service Stations scattered all across the country PSO fuels

the aircrafts of many local and international airlines. Acquisition of new Lahore Terminal

Complex at the Lahore International Airport has enabled PSO to serve the busiest corridor of

East/West bound flights benefiting the airlines in shape of time saving and lesser fuel burn off.

While it’s bunkering facilities at all the major ports of country fill up the ocean liners of many

nationalities facilitating the nation’s international trade.

In its endeavor to provide quality lubricants, PSO has formed an alliance with world-renowned

company Castrol whose products are manufactured at PSO’s own ISO 9000 certified facilities

ensuring the highest quality standards for both retail and industrial sales.

More cordial relationship with its dealers is one of the important objectives of PSO’s New Vision

programme. To give them a sense of participation PSO has instituted “Top Dealer Awards” and

“Million Liter Awards” whereby efforts of the high performing dealers are recognized.

Emergence of Health Safety & Environment (HSE) as the corner stone of PSO’s corporate

governance testifies to its commitment to environmental protection. Complete HSE certification

of all its facilities and installations is one of its major goals for the coming months that are being

vigorously pursued.



SWOT ANALYSIS Shell has the quality control and quantity control team visit and inspect the quality and quantity

of motor gasoline of their petrol pump regularly.

STRENGTHS

Shell confirms its position as a leader in the gas and power business with a

deal to design the world's first large scale Gas to Liquids plant.

Shell is using effective means for the promotion of its products. It is heavily emphasizing

on advertisement and other promotional tactics.

Shell provides in time deliver to their petrol pumps.

The HRM policies of Shell are its strengths; its incentive based policies are motivating

for employees.

The shell gives the proper attention to their customers.

Shell has international standard petrol pump.

Mobile training units’ side keeping staff up to date on a whole range of topic including

most important issues of health safety and environment.

Shell has the heavy budget for the promotion activities.

All tanker is fitted with special tamper-profit seals to ensure that only the highest quality

fuel is delivered to all company operation sites.

WEAKNESS

They have no proper shades and sitting arrangements at the filling stations because

people who came for oil changing and car washing face difficulties in this regard.



There is no proper drainage system at filling station.

There is very little empowerment of employees.

Shell has eight regional retail managers who are watching the activities of petrol pumps

in all over the Pakistan that is insufficient to handle the problems.

OPPORTUNITIES

Shell has maintained a tradition of introducing new innovation as compare to its

competitors. The example being the mobile, training unit, quality and quantity unit, Mini-

market (select, Jet was (Rianbow), oil change. Lubricants (Rumila C.D.X,) Helix that is

opportunity for Shell to maintain these facilities.

People perceptions are changing and they prefer digital pumps. So they should

renovate their petrol pumps. Shell also has an opportunity to enter in the nice market.

Shell has strong financial position so it has opportunity to avail a new market share in

CNG business.

Shell is the market leader due to innovation so it can easily win the customer

confidence.

THREATS

The smuggling of petrol in Baluchistan form Iran is one of the greats threats to the

company.

The fake oil makes up a large share in the market, if such practices are not prohibited it

will create a disastrous effects on sale

PSO is also servicing in profitable areas.

Shell is charging few paisas more than their competitor. Shell is facing very stiff

competition to PSO and Caltex.

Entrant of new companies in the refinery sector.



CURRENT MARKETING STRATEGY OF SHELL PAKISTAN LTD.

The current strategy of shell is concentrate on its business and selected market areas. By using

this strategy company expands its business by upgrading petrol pumps in the country.

Especially they are concentrating in the following three areas:

1. Customer service

2. Brand image

3. Quality and quantity

CUSTOMER SERVICES: -

Shell Pakistan ltd. is working for customer satisfaction because customers play a very vital role

in the prosperity ort failure of a particular company. That is the reason that shell is operating

with the basic aim to satisfy its customers and provide better and better service to its customers.

In brief it can be said that shell gives a strong emphasis on customer services.

SEVEN STEPS FOR BETTER CUSTOMER SERVICES: -

Every shell operation site follows the seven-point formula for providing customer service to its

customer is stated below:

1. As customer drive in, guide him to a vacant filing unit by a neatly uniformed attendant of

the petrol pump.

2. Then the attendant well comes to that customer from the driver side.

3. Attendant takes the keys form the customer. After that the attendant asks to the

customer about the quantities of fuel.

4. The attendant shows meter reading before filing the fuel to the customer.



5. After filling the tank the attendant tells the customer to see the meter reading and

amount of liters, hands over the keys and takes the amount of money.

6. Attendant ask to the customer that he would like to purchase an international high

quality of Rimula x.

7. Then the attendant cleans windscreen of the vehicle and says good-bye with smile.

By this procedure a customer feels that he is being given proper attention and he will again

come to the filling station to fill the tank of his vehicle.

Rainbow Jet Wash and preserver oil change facilities are also available at filling

stations.

Majority of the filling stations are working for 24 hours for customers.

In many of the stations, shops offer a wide range of convenience goods through the

select shops and stores.

BRAND IMAGE

The second strategy of Shell is creating a strong Brand Image of the company in the customers

mind. In visual terms, the installation of Shell’s Retail Visual Identity (RVI) makes a striking and

immediate difference between shell’s gasoline stations and those of its competitors, Pakistan

State Oil (PSO) and Caltex. The RVI programme is massive, for the 1200 or so sites which shell

inherited through the take over, around two thirds are scheduled to be developed as RVI sites,

many of them being completely redesigned from the underground storage tanks up. In addition,

new sites are being acquired in strategic locations.

The new sites are being designed according to the international standards keeping in view the

cleanliness in all respects and an Excellent/Terrific out look. The purpose of this is to attract the

customer and develop a strong brand image in his mind.

QUALITY AND QUANTITY

The third strategy of the company is to set standards for reliability and honest dealing because it

is fundamental to the company’s reputation. For the improvement of quality and quantity

following points are important:



Mobile training units

Quality and quantity control units

MOBILE TRAINING UNITS: -

Mobile training units visit sites, keeping staff up to date on a whole range of topics including,

most importantly, issues of health, safety and environment. MTU train the workers on different

filling stations.

QUALITY AND QUANTITY CONTROL UNITS: -

Another mobile innovation cover fuels quality assurance, an area where cynical disregard of

standards, manifested by dilution of premium grades with low-cost gasoline has become so

common that customers have given up complaining about it. Recognizing the importance to the

company’s reputation for delivering the right quality of fuel, shell has introduced random

gasoline testing forecast. Technicians operate what are, effectively, mobile field laboratories,

testing fuels quality using an octane meter. This produces a result in just a few minutes, instead

of days using normal centralized laboratory facilities.

According to Shell, “Fuel Quality is fundamental to our reputation for honest dealing”. Quantity

control units check that whether the retailers are giving the right quantity or less quantity of fuel

to the customers. The quantity is checked through various instruments. The quantity control

units also check the digital pump.

SHELL OPERATIONAL STRATEGY

Shell operate its site with a very efficient management to improve the quality and quantity of fuel

and provides the better customer satisfaction services. For this purpose shell follows its

strategic objectives, plans, and strategy and policies.

Following important aspect of Shell’s site control by the management with efficiently and

effectively:

Site Take-over

Product receipt procedure

Bank accounts

Indenting and Payment procedures



Credit sales

Product testing

Imprested account operation

Price change operation

Wet stock management policy

SITE TAKE-OVER

PURPOSE

The purpose of this procedure is to ensure that when a site is taken over as a company

operation site (COP) the working capital taken over at the site is correctly valued. The step,

which should be taken on the “hand over day” i.e., the first day of site operations as a COS are

also outlined.

SCOPE

This procedure applies to existing dealer sites which are to be taken over as COS.

RESPONSIBILITY

The territory manager is responsible to ensure compliance with the procedure.

PROCEDURE AND STANDARDS

STOCK TAKING

At the time of site taken-over company follows the following procedure for stock taking:

The dealer agrees to a target date for handing over the site which is called that “hand over

date”. When taking-over the site, two options are available.

INITIAL WORKING CAPITAL

Working capital requirement at a site is determined keeping in view the sales of the site.

A copy of the invoice of the initial fill to be sent to RSO/2 for recording and the original is to be

retained at the site in a separate file.

OUTSTANDING BILLS



All outstanding bills for utilities etc. incurred by the site before the hand over date have to pay by

the dealer. Any outstanding amount should be mentioned in the site take-over note and

recovered form the out-going dealer.

PRODUCT RECEIPT PROCEDURE

PURPOSE

To ensure that the quantity and specifications of the received product match with that ordered.

SCOPE

This procedure applies to all company operated sites for the receipt of all products and applies

to of wet Stock as well as packed lubricants.

RESPONSIBILITY

The site manager is responsible to ensure compliance with the procedure. PROCEDURE AND STANDARDS

Fuels

The site manger should be present at the site during the decantation of the product.

Before decantation the site manager should tally the product specification with the grade

ordered. All seals should be checked for integrity and numbers matched with those on the

invoice.

Lubes

At the time of receipt of lubes, the site manager should check the quantity ands specification

mentioned on the invoice with that of the indent placed.

It should be made sure that the product received is not damaged or leaking.

BANK ACCOUNTS

In case of authorized bank signatories. The name of the Site manager may be included in

operating deposit account. However, site mangers are not authorized signatory to operate

Imprest account.

INDNTING AND PAYMENT PROCEDURES

FUEL



After the initial fill, all products will be financed by the cash proceeds from the initial fill. Payment

of fuel made under following Process:

The price for fuels is the indent price and invoices must be prepared on this basis.

All supplies are to be made as per arrangement with the depot/installation (COD/DOD

or advance DD).

All cheques/DD’s must be made out for exactly the same amount as the invoice and

drawn in favour of shell Pakistan Ltd.

Each cheques/DD must be handed over to the truck driver after noting the particulars of

the cheques/DD. All the copies of invoice site copy of the invoice to be retained on the

site and a file maintained.

Lubes

After the initial fill, all products will be financed by the cash proceeds from the initial fill. Payment

of fuel made under following Process:

Indent should be placed on telephone at the nearest supply point.

A cheque/DD for the exact value of the invoice should be drawn in favour of shell of

Pakistan Ltd.

Details of cheque/DD number and date should be noted on the invoice when precut is

delivered at the site.

Site of the company has a copy of the invoice, the site manger red band copy returned

to the truck driver on which all cheques details will have to be recorded.

CREDIT SALES PURPOSE

Credit is extended to the customers in a manner that the exposure of the company is minimized.



SCOPE

Applies to all company operational sites.

RESPONSIBILITY

It is the responsibility of the territory manager to ensure that all credit accounts are approved by

the regional manger.

Approval of the credit terms and operation lies with the regional manager of the

recommendation of the territory manager.

Maintenance of al the necessary credit customers and sales records in the responsibility of the

site manger under the supervision of the territory manager.


Account opening: - All new credit accounts can only be opened with the approval of RRMs. The customer should

apply in writhing to RRM for opening a credit account with the site. The application should

contain the following basic details:

I. Customer name

II. Customer address

III. Number and type of vehicles etc.

CREDIT LIMITS

I. In case of the default of payment by the customer the site will stop extending credit to the

customer.

II. The site will first try to recover the credit amount form the customer. In case the customer

does not pay the balance with in the month, the balance amount will be deducted from the

security deposit and the account will be closed.

III. The site will send a security deposit deduction note to specify the deduction of the

security deposit for a particular customer and send the amount to the site to balance off the

credit sales.

PRODUCT TESTING PURPOSE



Tested product is authorized and is accounted for in daily stock. Product testing is a process of

taking fuel product from the nozzles for the purpose of testing that dispensers are dispensing

the right quantity of the product. Since this product is not considered as the sold product a

proper accounting process needs to be in place.

RESPONSIBILITY

It is the responsibility of the site manger to ensure that all the product testing is conducted in his

presence and that all the testing is properly authorized by the territory manager and in case of

testing due to QCU and maintenance staff. The signatures of the concerned staff are taken.

Testing may also be conducted by the weights and measures officials.


To conduct ay testing of the product it is mandatory that the measuring cylinders kept at

the site should be vetted by the quality control unit.

The amount of the product withdrawn from each nozzle is noted and after the

completion of testing the product if decanted in the tank.

All the necessary testing should be conducted in the presence of the site manger.

It is to be ensured by the site manger that the entire tested product is decanted back

into the respective tanks.

The site is also supposed to enter the product testing amount in the SMS along with the

details o the date, amount of product from respective nozzles and testing conducting

authority.

IMPREST ACCOUNT OPERATION

PURPOSE

To ensure that all Territory Managers and aware of the imprest account operating procedures.

This is one to ensure that the company exposure is reduced by using correct banking practices.

The Imprest Account procedures have been designed to ensure implementation of standards of

imprest operation outlined in Management Policies and Procedure Guide.



SCOPE

The procedure is applicable to imprest account operation and the reimbursements.

FREQUENCY

This procedure is to be followed whenever, the imprest account is operated and claims for

reimbursements are made.

RESPONSIBILITY

It is the responsibility of the Regional Manager and the Territory Manager to ensure that the

Imprest Account is operated and claims for reimbursements are made in accordance with the

requirements given in the procedures.

PROCEDURES AND STANDARDS

a) The imprest account should only be used to meet all the expenses of business nature such

as salaries housekeeping, bank charges, etc.

b) Imprest limits for sites are set by RSO on the recommendation of the concerned RRM. All

the operating expenses of the site are detailed in the imprest approval form and the total of all

the expenses makes up the imprest limit of the sale.

PRICE CHANGE PROCEDURE

PURPOSE The purpose of this procedure is to ensure that the changes in the working capital status as a

result of the price change of the product are recorded and reported accurately.

SCOPE

This procedure applies to the change of prices for all grades of fuels and lubricants sold at the

site.

RESPONSIBILITY

It is the responsibility of the RRM to ensure that price change takes place at a COS in the

presence of a representative of shell Pakistan limited. It is the responsibility of the site manger

to ensure that he change in working capital value is reported correctly and accurately. The

territory manger is responsible for the verification of the accuracy of the above.




When the price is changed, the following procedure is t be applied at the COS:

The new prices are notified by RSO to FNC/12 supply points and regional offices to update

their record accordingly.

Only the concerned territory manger is authorized to change thee prices on COS. At the time

of the price change, the sale is temporarily stopped.

The site manager and the territory manager representative must take a dip of the storage

tank and note the meter readings of all dispensing units jointly.

WETSTOCK MNAGEMENT POLICY

Due to the very nature of petroleum, losses being one of their inherent characteristics play an

important role in the efficiency of petroleum business. The potential of cost saving by improvingthe controls and reducing the losses is considerable.

A primary responsibility in the site operation is to ensure that the physical losses are kept at

minimum so that maximum, quantity of the product received is delivered to the customer.

MONITORING OF LOSSES

Loss of performance standards are normally assessed on historical basis by comparing monthly

results. Effective monitoring of losses can be achieved by following way:

Accurate measurement and accounting for all the deliveries.

Proper calibration of the tank lorries, dispensers and storage tanks at retail site.

Good product safety with low risk of undetected theft.

Periodic physical measurement of the actual product stacks and comparison with the

corresponding book stock to access the losses for a given period.

Assessment of the loss control performance against the targets. The targets will vary

according to the type of the product and equipment used.

Random spot-checks to ensure compliance to procedures and performance of the equipment.

STRATEGIC OPTIONS



There are two separate aspects, which are needed consideration for development alternative

strategies.

1. The alternative direction in which the organization may choose to develop.

2. The alternative methods by which the direction of development might be achieved.

Decision on direction and methods are not independent of each other. Now we shall discuss the

direction in which the shell limited may choose to develop.

1. Selling out

2. Consolidation

3. Market penetration

4. Product development

5. Market Development

6. Diversification

a) Related

b) Unrelated

SELLING OUTIn selling out if the company feels any danger about the survival of company; the

company would like to dispose of its assets. Shell is the biggest company of the world. It has a

strong financial position. That is why shell does not choose such type of direction.

CONSOLIDATION

In such direction, the company will change the way of operation but concentrate on present

state of business. Shell is waving on this direction. The shell is waving by following factors!

Maintaining a share in a growing market

Competing in a declining market

Improving quality

Increasing market activity

Imposing productivity through capital investment

MARKET PENETRATION



“Opportunities often exist for gaining market shares as a deliberate strategy”

This is called market penetration. The shell is also working on this direction by providing better

services on its company operation sites. The above discussion in consolidation also relevant to

this direction.

Current New

Customers

New

Current

MARKET DEVELOPMENT

In market development, the company locates any new areas where it could start its business to

minimize the risk. Market development can include new market segment. Shell has no capital

problem that is why Shell is working on the direction of market development. The proof of this is

that Shell has expanded its business more than hundred countries. Now Shell is expanding its

business in all small and big cities of Pakistan.

PRODUCT DEVELOPMENT



Shell will feel that the consolidation in their present market does not adequate opportunities

after the search for coping with changing environment. Shell developed the product of CNG.

This shows that shell is also working on this direction.

DIVERSIFICATION

Diversification means new product and new market. The two broader concept of diversification

are:

1. Related diversification

2. Unrelated diversification

RELATED DIVERSIFICATION

Related diversification means development beyond the present product and market, but still

within the broad confines of the industry in which the company operates. Shell has introduced

CNG that is the best example of related diversification.

Unrelated Diversification

It is the development beyond the present industry into product/mkt, which have not clear

relationship with present product/mkt. Shell is interested in other business e.g., petrochemicals,

coal and metals.

Evaluation of strategic options

We have selected two strategic options for improvement of shell performance as maintain the

leader of quality in the customer services. For this purpose we evaluated them, which is better to

achieve the organizational objectives. Product development.

Market development



To evaluate the options we use the tool of SWOT analysis. There are three steps involved in

evaluation of strategy option.

Suitability

Feasibility

Acceptability

Suitability

Shell is one of biggest multinational company dealing in Pakistan. As such there is no financial

problem facing by shell. By market development shell can cope with aggressive competitors. By

product development (CNG) Shell can decrease its dependence on particular supplier (Greave

Pakistan Ltd.).

By market development the company can capture the market of CNG. Use of CNG

reduce the environmental pollution and save the consumption of fuel.

Developing market (establish new outlets and upgrade existing outlets) increase growth

rate and market share simultaneously.

Feasibility

Through feasibility we will assess how our strategy might work in practice. In product

development shell has not sufficient resources to cope with existing requirement.

In market development shell has sufficient resources to meet the current needs of the

customers. Shell also capable to performing the services in the field of new market.

Shell can achieve market position by developing the new outlets and improving the

services of existing outlets.

Shell can cope with reaction of competitors by market and product development.

Shell has sufficient technology to fulfill the current requirement of market development.



Acceptability

Through acceptability we will try to assess weather the consequences of proceeding with a

strategy are acceptable.

Shell can increase it profit market share, and growth rate by established and upgrading

outlets.

There is a great financial risk to develop a new product but there is no as such risk in

market development.

In developing a product there is high rate of risk in this way the company may losses its

goodwill. This thing badly affect on the capital structure of the company.

Shell has strong culture so this is no affect on our new strategy for developing new

market.

Selection

There are two issues which needs consideration, first a way in which an organization ’s

circumstances will dictate which methods of evaluation are most useful at the time of selecting

future strategies.

Secondly, the process by which selection of strategies occurs since how the information from

evaluation is used in strategic decision making.

After the evaluation of the strategic options we are concluded that the market development is

the best option so, our selections is market development. Because it provide a chance to earn

more profit and competitive advantage and has a low risk as compare to other options.

GLOBAL SCENARIOS TO 2020 OF SHELL

PEOPLE AND CONNECTIONS

Shell International builds a set of global scenarios every three years to explore the overarching

challenges arising from changes in the business environment that need to be faced by its



businesses. These scenarios provide a useful context for testing our strategies and plans and

help us to anticipate significant changes in the world around us. CONTACTING SHELL MEDIA

RELATIONS

The Group Press Office deals with all media enquiries relating to the Group's corporate activities

and its international businesses. The Press Office also handles all media enquiries about the

businesses of Shell in the UK. For urgent media queries out of office hours, please contact the

duty press officer on pager no 07659 129 454 and leave a message and contact details. LNG

BECOMING A TRULY GLOBAL TRADE

Today the LNG trade is growing - and rapidly becoming truly global. Currently

contracted LNG volumes are likely to reach 120 million tons per annum by 2005 -

an average annual growth rate of over 5% since 1995. The number of markets is also increasing. By the end of this decade, new LNG

markets will likely be added in China, India and the Americas.

This of course will require increased shipping capacity. If all current orders are

completed, the world's LNG fleet will expand from 127 active carriers today, to

almost 180 in the next five years.

The growth in volumes between now and 2005 will largely come from expansions of

existing projects. But several new projects around the world are likely to be under

construction by that time - and will fuel additional growth in the LNG industry in the

second half of the decade.

Within Shell alone, we have interests in five existing LNG projects all of which have

expansions under construction or under consideration. Additionally, we are involved

in the development of several new projects - four of which are shown on the chart:

Sakhalin, Timor Sea, Namibia and Venezuela.

The growth in the LNG industry is driven by overall growth in global natural gas

demand - but also by the decreasing cost of delivering LNG competitively to

market.

Shell, as technical service provider to the LNG projects in which we participate, has

played a key role in capital cost reductions. Subsequent LNG developments over the

past 30 years have demonstrated a 50% reduction in development costs.



We believe this can be improved upon even more. Our goal is for our next LNG

development to be delivered at a significant improvement over Oman - which is the

lowest cost project to date.

NIGERIA LNG A GOOD EXAMPLE

A specific example of the opportunities in LNG is in Nigeria. The first production of

LNG in Nigeria was from the first of a two-train project that came on stream in

October 1999. The two trains together now deliver some 6 million tons a year,

mainly to Atlantic Rim and Mediterranean markets.

Approval of a third train was granted in 1999. Construction is well underway with

first deliveries set for early 2003.

The possibility of a further two-train expansion is already under serious discussionamongst the partners, government and customers driven by gas availability, cost

and customer demand. Once built, Nigeria could be producing almost 15 mtpa by

as early as 2006, making it one of the world's largest LNG producers.

The technological and financial challenges of the original LNG project in Nigeria

were considerable. But the project is now well placed to help meet growing demand

in Europe and North America.

I'd like to move now to a completely different climate - to the Sakhalin project in

far eastern Russia - where we are partners with Mitsui and Mitsubishi.

The challenges involved here are much different. The project involves field

development, an onshore pipeline to deliver the gas to an ice-free port, and

construction of the liquefaction facilities - for a total estimated cost of $8.9 bln.

Sakhalin LNG will be the first from Russia. It will add a new source of energy supply

for Pacific markets and will play a significant role in guaranteeing energy security in

the north east Asian region for years to come.

INNOVATION THE KEY TO OPPORTUNITY

Innovative use of technology is the key to other possible opportunities related to

remote gas reserves that remain stranded due to the prohibitive cost of

development.



Shell has recently outlined plans to apply our Floating LNG technology to overcome

these difficulties and monetise the Kudu field offshore Namibia, and the Sunrise

field in the East Timor Sea.

In both cases, Floating LNG will enable lower construction costs, a minimal physical

footprint, and a higher degree of flexibility. Depending on the location, up-front

capital costs can be reduced by up to 40% - which is often the difference projects

like these need to make them realities.

Effective application of leading technology opens up many opportunities. Another

example is Gas to Liquids.

Shell has demonstrated that GTL technology can be commercial and that the

products are competitive on the world market. Liquid fuels produced by the Shell Middle Distillate Synthesis process at a

commercial scale plant producing 12,000 bpd at Bintulu here in Malaysia, are so

clean they are leading to the creation of new markets.

Development of the next generation plant - capable of producing 75,000 bpd - will

require investment in excess of a billion dollars each. But economies of scale and

improved designs will result in significant advantages.

They allow monetisation of gas reserves that would otherwise be uneconomic. They

provide extra revenues for resource owners from new markets for natural gas

products. The liquids produced can also substitute for expensive oil imports.

Because of these advantages, by the end of this decade, we believe Gas to Liquids

will be a significant industry.

New natural gas markets are opening up and creating new opportunities -

particularly here in Asia. Underlying economic growth - and the related surge in

demand for electricity - is the driver in China and India.

SHELL WORKING ON KEY INFRASTRUCTURE

To meet that demand, Shell and other companies are heavily involved in the

planning and development of key infrastructure projects. This infrastructure - which

includes pipelines, LNG import terminals, distribution systems, and power plants -

will cost billions of dollars.



In China alone, the total amount to be spent on projects open to foreign investors

in order to build domestic natural gas infrastructure - upstream, midstream and

downstream - could be as high as $25 bln over the next ten years.

MATURE MARKETS DIFFERENT

At the other end of the market maturity spectrum are the US and Europe. As

markets mature and liberalise, marketing and trading opportunities emerge. But

these opportunities require different capabilities for success.

Instead of billions of dollars for investment in capital-intensive infrastructure

projects, these markets require highly skilled human resources and balance sheets

capable of supporting the commercial risks and financial exposures.

Shell's most significant involvement in these areas is through Coral in the US, andShell Energy in Europe. In these markets, new technologies and business models

are allowing us to develop innovative ways of meeting our customers' needs.

As exciting and expansive as the opportunities I've outlined may seem, they are but

a few of the wide variety of opportunities I see in the world's natural gas business. I

believe they add up to a significant new path forward for the global gas industry.

Ours is an industry of the future, not of the past.

BUT THERE ARE ALSO CHALLENGES

Delivering these opportunities and growth will not happen without overcoming a

number of challenges. We will mention just four:

a) The need to do business based on principles;

b) The need to contribute to sustainable development;

c) The need to get deregulation right;

d) The need to attract the necessary human resources.

A few decades back, when companies first started producing statements of business

principles, there was considerable cynicism. People thought they were just nice

words - public relations material. We believe that, in the 21st century, they are far

more than that. We believe the Shell business principles, and the qualities we

demonstrate, will be critical business assets.

WORKING IN A DIFFERENT WORLD



Our world today is different. It is more global, transparent and fast moving. In this

world, living by a clearly articulated set of business principles is an advantage for

our employees, our customers, our suppliers, our partners and the governments

with which we interact. The principles set the boundary conditions within which we

do business.

Every commitment is important but, to me, of overriding importance is our

commitment to sustainable development. This commitment encompasses our belief

that all we do must take into account not only the economic impact, but also the

social and environmental impact.

We know we can't do this alone. That's why our commitment relies heavily on

working together with partners, governments and local communities to ensure we

strike the appropriate balance in all three areas of Sustainable Development.

Another continuing challenge will be to get deregulation right. The California

debacle has illustrated for us many of the potential pitfalls. It is now incumbent on

us all - in government and industry - to work together to design systems that

prevent energy shortages or that discourage long term investment.

We must always keep in mind the ultimate aim of producing products and services

more efficiently and reliably - and ensuring long-term security.

The final challenge is attracting the human capital required to deliver the growth

and value. As the number of natural gas markets increase, and as more and more

markets liberalise, the demand for experienced people in our industry rises.

And the demand is not limited to those in traditional natural gas fields such as

pipeline engineers and technologists - although these will remain important. We will

also need increasing numbers of experienced international business developers,

regulatory experts, traders, IT systems specialists, and financiers.

Perhaps most importantly, we need strategists, asset operators, managers and



marketers with local experience. Success calls for a diverse work force - one well

matched to the diverse markets that will be key to the future.

In summary, our industry is facing a broad range of opportunities. The Shell long-

term energy scenarios indicate that demand for clean, efficient energy is going to

grow. And, natural gas, because of its environmental qualities, efficiency, and

technological advances, is going to play an increasingly important role.

But there will also be challenges - such as the attraction of the necessary human

and financial capital. Anti globalization and supply security add to these challenges.

But, the global demand for more and cleaner energy goes on. And I believe ourindustry is well positioned to meet the challenges along the way.

Recommendations

There should be proper shades and proper sitting arrangements at the filling stations

because people who come for oil changing and car washing face difficulties in this

regard.

Lubricants should be disposed in a proper way to protect the environment form being

polluted.

Shell should provide small incentive to its customers.



Schemes like “Buy 50 liters of super and get a come free or a cola drink free”, should be

kept introducing time to time by shell.

Shell should make company operation site in every city for capture the new market.

There is only one thing that is constant that is change; shell should investment on

research development to cope with dynamic environment.

Company should established new regional office to control the activities of company

operations site.

Lubricants should provide the facility 0f free oil change on all its out lets.

Shell should develop modern retail outlet. These outlets should have all possible

facilities for customers because one of the reasons behind decrease market share is

modernization of competitors.

Shell should develop effective marketing programs that will help the company increase

sales that will lead to increase market share. In these market programs emphasis

should be given to advertising, which is most effective and efficient tool of promotion for

such type of business.

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