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HISTORY OF OIL INDUSTRY IN PAKISTAN

1947

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

The consumption of oil shot up by 3 million tons.

1960Consumption 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

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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 becauseof 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.

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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 oildistribution 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 companys culture

to reflect the values which shell internationally believes will bring commercial success

through a greater focus on the customers.

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STRATEGIC INTENTION

COMPANYS SLOGAN/MISSION

You can be sure of Shell.

COMPANYS 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 groups 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

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The policy of Shell is to make sure that the employees throughout the firm make

decisions and take actions that support the corporations 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 organizations strategy forms over a period of time and then reform the number ofchanges 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

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elements of company to emerge in bits and pieces as the business develops.

WHAT DOES ACOMPANYS STRATEGY CONSIST OF?

Companys 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 willtranspire 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 ofstrategy until

its time to work on next years 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 implementers 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

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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

companys mission. Performance adjustment objective, strategy and approaches tostrategy 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 dont. 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 companys 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 andthreatening 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

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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 policy,

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 billion

Merchandise 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

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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 toindustrial 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

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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.

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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.

FINANCE

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 andtotal 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

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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.

COMOPANYS 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 providesdifferent 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

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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 othercompanies 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)

Sales

Growth

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% to165.15Pakistan 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 times 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

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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 Wk

Pr 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 PakistanRupees, 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)

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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

Gross

Profit

Margin

EBITDA

Margin

Earns

bef.

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 thecompany 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.

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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

Days

AR

Days

Inv.

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 Limitedof 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 IndianRupees [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 countrys fuel and energy need. Since its inception in

1976 the company has been meeting more than 70% of the countrys fuel needs.

PSOs 3805 outlets all across the country markets more than 12 million tons of fuel

products annually. This network is supported by PSOs 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.

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As part of PSOs 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 PSOs greater customer

focus a PSO 24hr PSO Customer Service has been launched where customers 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 agriculture sector PSOs 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 its bunkering facilities at all the major ports of

country fill up the ocean liners of many nationalities facilitating the nations

international trade.

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

renowned company Castrol whose products are manufactured at PSOs 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 PSOs

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 PSOs

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

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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

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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.

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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 Shells Retail Visual Identity (RVI)makes a striking and immediate difference between shells 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 companys 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 topicsincluding, 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

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the importance to the companys 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 toour 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 Shells 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.

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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 BILLSAll 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 withthose 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.

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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/DDs 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 SALESPURPOSE

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

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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.

PROCEDURE AND STANDARDS

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 addressIII. 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.

RESPONSIBILITYIt 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.

PROCEDURE AND STANDARDS

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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 operatingprocedures. 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

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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 theabove.

PROCEDURE AND STANDARDS

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 improving the 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 LOSSESLoss 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

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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. Diversificationa) Related

b) Unrelated

SELLING OUT

In 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.

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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 inconsolidation also relevant to this direction.

Products

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

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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. Forthis purpose we evaluated them, which is better to achieve the

organizational objectives.

Product development.

Market development

To evaluate the options we use the tool ofSWOTanalysis. There are three stepsinvolved in evaluation of strategy option.

Suitability

Feasibility

Acceptability

Suitability

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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

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There are two issues which needs consideration, first a way in which an organizations

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 - anaverage 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.

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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 discussion

amongst 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 physicalfootprint, 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

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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 marketsmature 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, and Shell

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. Ibelieve 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;

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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 moreefficiently 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 wellmatched 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

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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 our industry

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

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

type of business.