Shell Pakistan

Acknowledgement

I owe a great many thanks to a great many people who helped and supported me during the writing of this book. My deepest thanks to my Facilitator, the guide of the project report for guiding and correcting various documents of mine with attention and care. He has taken pain to go through the report and make necessary correction as and when needed. I also extend my heartfeltthanks to my family and well wishers.

Letter of Transmittal

The Course Instructor,Project Report,Sir Adamjee Institute Management Sciences,Karachi.

Respected Sir,I just wanted to take a moment to write to you to express my thanks for the extra efforts you gave in the Project Report Course that you recently instructed. It is people like you who make our world a better place, simply by taking the extra time it takes to ensure that all are comfortable with the content and understand it well. I think I can safely say you were well received by all!

You stand head and shoulders above others in the facilitation field and I appreciate the time you took to care. Once again, thank you for an outstanding job!

Sincerely,

Affan Wassaf Siddiqui

Executive Summary

Shell’s operations and earnings are subject to risks from changing conditions in competitive, economic, political, legal, regulatory, social, industry, business and financial fields. Shell’s operating results and financial condition to fluctuating prices of crude oil, natural gas, oil products and chemicals. Shell’s future hydrocarbon production depends on the delivery of large and complex projects.

Challenges include uncertain geology, frontier conditions, the existence and availability of necessary technology and engineering resources, availability of skilled labor, project delays and potential cost overruns, as well as technical, fiscal, regulatory, political and other conditions. Shell faces significant competition in each of its businesses. While it tries to differentiate its products, many of them are competing in commodity-type markets. State-run oil and gas companies control vastly greater quantities of oil and gas resources than the major publicly held oil and gas companies.

The Shell General Business Principles and Code of Conduct govern how Shell and its individual companies conduct affairs. Rising climate change concerns could lead to additional regulatory measures that may result in project delays and higher costs. In the long term, it is expected that both the CO2 intensity of its production as well as absolute CO2 emissions might increase.

The nature of Shell’s operations exposes it to a wide range of significant health, safety, security and environment risks. Shell operates in over 90 countries, with differing degrees of political, legal and fiscal stability. Shell’s international operations expose it to social instability, terrorism and acts of war or piracy that could significantly impact its business. Shell’s investment in joint ventures and associated companies may reduce its degree of control as well as its ability to identify and manage risks. Reliable information technology (IT) systems are a critical enabler of its operations.

Shell’s future performance depends on successful development and deployment of new technologies. The Company’s Articles of Association determine the jurisdiction for stakeholder disputes. Shell has substantial pension commitments, whose funding is subject to capital market risks. Shell companies face the risk of legal action and disputes worldwide.

Introduction

Shell at a Glimpse

The second largest oil company in the country, Shell Pakistan has successfully positioned itself as the preferred oil and Gas Company inPakistan, leading the field in its commitment to customer service, quality of products, safety and environmental protection.

Shell Worldwide

Shell has been exploring for and producing oil and gas for more than a century. We employ around 101,000 people in more than 90 countries and territories. Our headquarters are in The Hague, the Netherlands, and our Chief Executive Officer is Peter Voser. The parent company of the Shell group is Royal Dutch Shell plc. Which is incorporated in England and Wales?

Our strategy and priorities for the future are “more upstream and profitable downstream”.

Read more about our strategy and major projects on our corporate website (in English) – opens in new window

Shell worldwide by numbers

2%: amount of world’s oil we produce

3%: amount of world’s gas we produce

3.1 million: barrels of gas and oil we produce every day

44,000: Shell service stations worldwide

10 million customers: buy our transport fuel

+35: refineries and chemical plants we run (figures for 2008)

1: ranking by Fortune 500 in 2009

Businesses

Upstream Americas searches for and recovers oil and natural gas across the Americas.

Upstream International searches for and recovers oil and natural gas outside the Americas.

Downstream refines, supplies, trades and ships crude worldwide, manufactures and markets a range of products, and produces petrochemicals for industrial customers.

Projects & Technology manages delivery of Shell’s major projects, as well as driving the research and innovation to create technology solutions.

2009 Financial Performance

Revenue: $278.2 billion

Income: $12.7 billion

Capital investment: $31.7 billion

Investment in research and development: over $1.2 billion (more than any other oil major)

$1.7 billion spent on CO2 and renewable energy technologies over the last 5 years.

In 2008 greenhouse gas emissions from facilities where we operate were approximately 30% below 1990 levels.

$19 billion spent in 2008 with locally owned companies in low and middle income countries.

$148 million on social investment programs in 2008.

Shell History in Pakistan

Shell has an over 100 year’s presence in the subcontinent.

The Shell brand name enjoys a 100-year history in this part of the world, dating back to 1899 when Asiatic Petroleum, the far eastern marketing arm of two companies: Shell Transport Company and Royal Dutch Petroleum Company began importing kerosene oil from Azerbaijan into the subcontinent. Even today, the legacy of the past is visible in a storage tank carrying the date – 1898.

The documented history of Royal Dutch Shell PLC. in Indo-Pakistan subcontinent dates back to 1903 when partnership was struck between The Shell Transport & Trading Company and the Royal Dutch Petroleum Company to supply petroleum to Asia.

In 1928, to enhance their distribution capabilities, the marketing interest of Royal Dutch Shell plc. and the Burma Oil Company Limited in India were merged and Burma Shell Oil Storage & Distribution company of India was born. After the independence of Pakistan in 1947, the name was changed to the Burma Shell Oil Distribution Company of Pakistan. In 1970, when 51% of the shareholding was transferred to Pakistani investors, the name of changed to Pakistan Burma Shell (PBS) Limited.

The Shell and the Burma Groups retained the remaining 49% in equal propositions. In February of 1993, as economic liberalization began to take root and the Burma divested from PBS, Shell Petroleum stepped into raise its stake to 51%. The years 2001-2 have seen the Shell Petroleum Company successively increasing its share, with the Group now having a 76% stake in Shell Pakistan Ltd (SPL) – an expression of confidence.

Shell Pakistan is divided into 8 functional areas i.e. Retail, Lubricants, Aviation, Operations, Finance, Corporate, Human Resource and Commercial Fuels. It has played a leading role in abridging the growing energy demand gap in Pakistan. We are represented in all aspects of the upstream and downstream oil business in Pakistan – in exploration both onshore and offshore, in refining, as well as a 26% share holding in the white oil pipeline.

Currently Shell in Pakistan is headed by Mr. Zaiviji Ismail bin Abdullah, Chairman and Managing Director of Shell Pakistan Limited (SPL) and Chairman of Shell Companies in Pakistan.

Shell has over 100 years of experience in developing the technology and services that make us a leading provider of innovative and new fuels today. We were the first to introduce retail visual identity on its forecourts. We strive to meet and exceed customer expectations by delivering the best fuels and service to our customers at every site, every visit, everyday. With a dynamic portfolio and a fast-growing retail network, the Shell Brand is the most preferred brand amongst motorists across Pakistan.

Shell has always placed great importance on the health, safety and environment aspect of the society it does business in. Safety is one of our top priorities, and we base our policies on the belief that all accidents are preventable.

Over the last decade, SPL has developed a robust programme of social investment, which supports organizations and initiatives in the areas of health, education, welfare, community development, heritage and environment.

In an increasingly competitive business environment, we at Shell Pakistan strive ever harder to maintain operational excellence. We strengthen standardized and simplified business processes and systems, and ensure top quality, right quantity and superior service to all customers across the country.

Brief History

Early Beginnings

The market for oil remained confined to lighting and lubricants until, in 1886, the internal combustion engine and demand for gasoline arrived with Karl Benz and the first Mercedes. By now the Samuel business had passed to Marcus Samuel junior and his brother Sam. They exported British machinery, textiles and tools to newly industrializing Japan and the Far East and on return imported rice, silk, china and copperware to the Middle East and Europe. In London, they traded in commodities such as sugar, flour and wheat worldwide.

It was during a trip to Japan that Marcus became interested in the oil exporting business then based in Baku, Russia. The Rothschild’s had invested heavily in the 1880s in rail and tunnels to overcome the transport difficulties of getting oil from this landlocked base to the Black Sea and from there to overseas markets. Shipping still posed a problem as the oil was carried in barrels, which could leak and took up much space in the ship’s hold.

Merger into the Royal Dutch Shell Group

The full merger of the two companies into the Royal Dutch Shell Group came in 1907. There were two separate holding companies with Royal Dutch taking 60% of earnings and Shell Transport taking 40%. The business was run by a variety of operating companies. The merger transformed the fortunes of both companies. Under the management of Henry Deterding they turned from struggling entities to successful enterprises within twelve months.

The Group rapidly expanded across the world. Marketing companies were formed throughout Europe and in many parts of Asia. Exploration and production began in Russia, Romania, Venezuela, Mexico and the United States.

The first twelve years also provided many exciting opportunities to demonstrate the quality of the products in the new, fast-developing market for gasoline. These included record-breaking races, flights and journeys of exploration. In 1907, Prince Borghese won the Peking to Paris motor rally on Shell motor spirit. The same fuel was used at the Brook lands racing track in the UK. In the Antarctic, Shackle ton and Captain Scott used Shell fuel, while Bleriot’s inaugural cross-Channel flight was made on Shell spirit

1960s to the 1980s

The 1960s strengthened Shell’s presence in the Middle East. The Dutch Groningen gas field and North Sea gas were discovered and Shell Chemicals entered a golden period for research. The 1973 oil crisis brought cheap energy to an end and Shell adopted a policy of diversification. In 1976 Shell produced its General Business Principles.

Shell opened the 1960s by strengthening its presence in the Middle East through involvement in Oman. Ignoring early disappointments that saw its initial partners drift away, it was rewarded by discovering oil in Yibal in Oman’s most prolific field. It helped bring an entirely new oil country into production. The Groningen gas field in the Netherlands was also discovered at the start of the decade, closely followed by the discovery of gas in the North Sea.

This was a golden period for research by Shell Chemicals and it employed a number of distinguished scientists including Lord Rothschild and Professor Sir John Cornforth. Among many inventions and discoveries in its laboratories were epoxy resins, insecticides including Vapona fly spray, herbicides and liquid detergents.

The Early 20th Century

During World War I Shell became the main fuel supplier of the British Expeditionary Force and profited from increased after-war motor car use. By the end of the 1920s Shell was the world’s leading oil company and founded Shell Chemicals. The 1930s depression forced Shell to reduce its staff and World War II led to the destruction of a lot of its properties.

The First World War inevitably brought mixed fortunes for the Group. Shell made a major contribution to the Allies’ war effort by becoming the main supplier of fuel to the British Expeditionary Force. It was also the sole supplier of aviation fuel and it provided 80% of the Army’s TNT. In addition it volunteered all its shipping to the British Admiralty.

Thus it enhanced its reputation and its profits while it continued to develop in parts of the world unaffected by the conflict such as in Venezuela, Mexico and Sarawak. The war confirmed the supremacy of oil-fired transport over the slower and less flexible railway system that the Germans relied on. Less happily, the German invasion of Romania in 1916 saw 17 % of the Group’s worldwide production destroyed in a few days, while in Russia the revolution saw all its assets seized.

SWOT Analysis of Shell Pakistan Limited

The 1930s began with the Depression, forcing Shell to reduce its workforce and impose financial cuts. Even the annual sports day at the Lansbury club in London became victim. But the decade saw many advances: great progress in fuel and chemicals research and an explosion of brilliant advertising with themes of power, purity, reliability, modernity and getting away from it all. Many designs have become classics.

As a mark of confidence, the Group also purchased a large riverside plot on the Thames in London to build ShellMex House, one of the Group’s landmark buildings round the world. The ShellMex Company handled all the marketing of Shell’s products. Part of the growing maturity of the marketing activities was the development of the global network of service stations where cars could refuel. The service stations, with their distinctive appearance, helped build the Group’s reputation for reliability and quality.

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 (Rainbow), oil change, Lubricant (Rumila) 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 greatest 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.

Questions on Challenges/Problems

Q1: Why Shell’s operations and earnings are subject to risks from changing conditions in competitive, economic, political, legal, regulatory, social, industry, business and financial fields?

Q2: What are the factors which expose Shell’s operating results and financialcondition to fluctuating prices of crude oil, natural gas, oil products and chemicals?

Q3: Why oil and gas prices can move independently from each other in Shell?

Q4: What are the numerous challenges faced by Shell in developing capital projects, especially large ones?

Q5: What is the Shell’s ability to achieve its strategic objectives depends on reaction to competitive forces?

Q6: How Shell competes with state-run oil and gas companies, particularly in seeking access to oil and gas resources?

Q7: Why does the erosion of Shell’s business reputation would have a negative impact on license to operate the brand and ability to secure new resources and financial performance? How can it be restored?

Q8: Why does Shell concern about the climatic changes due to its operations?

Q9: How Shell is going to cope with these climatic changes in the world?

Q10: Why does the nature of Shell’s operations exposes it to a wide range of significant health, safety, security and environment risks?

Q11: Why do the Shell’s operations in different countries is effected by their laws and regulations? What are the consequences of not following those laws and regulations?

Q12: What are the other challenges faced by the Shell in conducting its operations internationally?

Q13: Why does Shell’s investment in joint ventures and associated companies may reduce its degree of control as well as its ability to identify and manage risks?

Q14: Why is it important for Shell to rely on the reliable information technology in the execution of its business?

Q15: What is the major factor on which Shell’s future performance depends? How does it help in its operations?

Q16: How does the Company’s Article of Association safeguard the rights of its employees and stakeholders?

Q17: Why has Shell’s substantial pension commitments are subject to capital market risk?

Q18: Why does Shell Company face the risk of legal action and disputes worldwide? What are the factors of it?

Answers on Challenges/Problems along with Questions

Q1: Why Shell’s operations and earnings are subject to risks from changing conditions in competitive, economic, political, legal, regulatory, social, industry, business and financial fields?

Ans: Because these risks could have a material adverse effect separately or in combination on Shell’s operational performance, earnings or financial condition. Investors should carefully consider the risks and the limitation of shareholder remedies associated with Articles of Association.

Q2: What are the factors which expose Shell’s operating results and financial condition to fluctuating prices of crude oil, natural gas, oil products and chemicals?

Ans: Prices of oil, natural gas, oil products and chemicals are affected by supply and demand. Factors that influence supply and demand include operational issues, natural disasters, weather, political instability, conflicts, economic conditions and actions by major oil-exporting countries.

Price fluctuations have a material effect on earnings and financial condition. For example, in a low oil and gas price environment, Shell would generate less revenue from its upstream production, and as a result certain long-term projects might become less profitable or even incur losses. Additionally, low oil and gas prices could result in the re-booking of oil or natural gas reserves, if they become uneconomic in the type of environment.

Prolonged periods of low oil and gas prices, or rising costs, could also result in projects being delayed or cancelled, as well as in the impairment of certain assets. In a high oil and gas price environment, Shell can experience sharp increases in cost and under some production-sharing contracts entitlement to reserves would be reduced. Higher prices can also reduce demand for products. Lower demand for products might result in lower profitability, particularly in downstream business.

Q3: Why oil and gas prices can move independently from each other in Shell?

Ans: Because Shell’s future hydrocarbon production depends on the delivery of large and complex projects, as well as the ability to replace oil and gas reserves.

Q4: What are the numerous challenges faced by Shell in developing capital projects, especially large ones?

Ans: Challenges include uncertain geology, frontier conditions, the existence and availability of necessary technology and engineering resources, availability of skilled labor, project delays and potential cost overruns, as well as technical, fiscal, regulatory, political and other conditions. Such potential obstacles may impair delivery of these projects, as well as ability to fulfill related contractual commitments, and, in turn, adversely affect operational performance and financial position. Future oil and gas production will depend on access to new proved reserves through exploration, negotiations with governments and other owners of known reserves, and acquisitions. Failure to replace proved reserves could result in lower future production.

Q5: What is the Shell’s ability to achieve its strategic objectives depends on reaction to competitive forces?

Ans: Shell faces significant competition in each of its businesses. While it tries to differentiate its products, many of them are competing in commodity-type markets. If it does not manage its expenses adequately, its cost efficiency might deteriorate and its unit costs might increase. This in turn might wear down competitive position.

Q6: How Shell competes with state-run oil and gas companies, particularly in seeking access to oil and gas resources?

Ans: Today, these state-run oil and gas companies control vastly greater quantities of oil and gas resources than the major publicly held oil and gas companies. State-run entities have access to significant resources and may be motivated by political or other factors in their business decisions which may harm competitive position or access to desirable projects.

Q7: Why does the erosion of Shell’s business reputation would have a negative impact on license to operate the brand and ability to secure new resources and financial performance? How can it be restored?

Ans: Shell is one of the world’s leading energy brands, and its brand and reputation are important assets. The Shell General Business Principles and Code of Conduct govern how Shell and its individual companies conduct affairs. While it seeks to ensure compliance with these requirements by all of its 101 thousand employees, it is a significant challenge. Failure – real or perceived – to follow these principles or other real or perceived failures of governance or regulatory compliance could harm its reputation. This could impact its license to operate, damage its brand, harm its ability to secure new resources and affect its operational performance and financial condition.

Q8: Why does Shell concern about the climatic changes due to its operations?

Ans: Rising climate change concerns could lead to additional regulatory measures that may result in project delays and higher costs. Emissions of greenhouse gases and associated climate change are real risks to Shell. In the future, in order to help meet the world’s energy demand, Shell expects more of its production to come from unconventional sources than at present. Energy intensity of production of oil and gas from unconventional sources can be higher than that of production from conventional sources.

Q9: How Shell is going to cope with these climatic changes in the world?

Ans: In the long term, it is expected that both the CO2 intensity of its production as well as absolute CO2 emissions might increase, for example from the expansion of oil sands activities in Canada. Also its Pearl project in Qatar is expected to increase its CO2 emissions when production begins. Over time, it expects that a growing share of its CO2 emissions will be subject to regulation and carry a cost. If it is unable to find economically viable as well as publicly accepted solutions that reduce its CO2 emissions for new and existing projects or products, regulatory and/or political and societal pressures could lead it to project delays, additional costs as well as compliance and operational risks.

Q10: Why does the nature of Shell’s operations exposes it to a wide range of significant health, safety, security and environment risks?

Ans: The nature of Shell’s operations exposes it to a wide range of significant health, safety, security and environment risks. The environment risks, to which it is potentially exposed, cover a wide spectrum, given the geographic range, operational diversity and technical complexity of Shell’s daily operations.

Shell has significant operations in difficult geographies or climate zones, as well as environmentally sensitive regions which exposes it to the risk, amongst others, of major process safety incidents, effects of natural disasters, social unrest, personal health and safety and crime. If a major environment risk, such as an explosion or hydrocarbon spill due to a process safety incident, materializes, this could result in injuries, loss of life, environmental harm, disruption to business activities and, depending on their cause and severity, material damage to Shell’s reputation.

Q11: Why do the Shell’s operations in different countries is effected by their laws and regulations? What are the consequences of not following those laws and regulations?

Ans: Shell operates in over 90 countries, with differing degrees of political, legal and fiscal stability. This exposes it to a wide range of political developments and resulting changes to laws and regulations. Developments in politics, laws and regulations can and do affect its operations and earnings.

Potential developments include forced divestment of assets; expropriation of property; cancellation of contract rights; additional windfall taxes and other retroactive tax claims; import and export restrictions; foreign exchange controls; and changing environmental regulations. In its upstr