http://www.scribd.

com/doc/24696163/Shell
http://www.brecorder.com/news/company-news/pakistan/1154164:news.html

Recent results (3Q10):

World crude oil prices have significantly decreased from $147 per barrel in July 2009 to below $75 per barrel on
September 2010. However, the decline in world oil prices is not reflected to the decrease in the oil import bill due to
5% devaluation of Pak rupee. Recently, the crude prices touched $100 before backing off on Egypt unrest.

Industry overview:

The oil and marketing industry of Pakistan is of oligopolistic nature, with the three major players PSO, Shell and APL
dominating around 88% of the market sales volume. PSO is the market leader, with a market share of 68% followed
by Shell and APL having a market share of 14% and 6% respectively.

Financial performance:

During the period ended June 30, 2010, things were going normal in the oil and marketing sector of Pakistan. The
fuel consumption in the country has increased from 19.2 million to 20.8 million tons due to increasing Mogas and fuel
oil consumption in the country. Oil consumption has decreased significantly in the period between July and
September due to massive devastation caused by super flood in the country. Sales of the industry were affected very
badly due to slowdown of economic activities in the country. Distribution expenses have also increased significantly
due to the loss of routes of transportation and other infrastructure facilities.

During the period under review, the sales of Shell remained 157.7 billion rupees compared to 128.9 billion rupees,
signifying an increase of 22% over the period as compared to 11.5% industry increase in sales. International oil
prices have decreased to $75 per barrel in August/September 2010 from $147 per barrel in last July. Despite this, the
cost of goods sold by Shell, have increased from Rs 104.5 billion to Rs 131 billion signifying an increase of 25% over
the period due to significant devaluation of Pak rupee. Pak rupee has devalued by around 5% during the period.

The gross profit margin of the overall industry has decreased over the period during to the rising competition among
the existing market players and entry of a new MNC, Byco into the industry. Gross profit of the company still stood
higher than average industry level. The gross profit of the Shell stood 5.9% compared to 4.8% industry average.

Despite the higher sales and above industry gross profit margin, the company accumulated a loss of Rs 11 million
during the period, due to increased competition, distribution expenses and turnover tax imposed by the government.
The distribution expenses of the company have increased significantly due to loss of infrastructural facilities during
the super flood. Distribution expenses stood Rs 3.28 billion as compared to Rs 2.22 billion last year, showing an
increase of 47.6%. The turnover tax imposed on oil and marketing sector by government has doubled from 0.5% to
1% leading to an effective tax rate of 140% of the taxable income of Shell.

The debt to asset ratio of the company has remained stagnant during the period, increasing from 0.8% to 0.82%,
despite this; the company faced some of the serious liquidity problem during the period. A significant amount of cash
is trapped with GoP. Government of Pakistan still owed 5 billion rupees to Shell.

To avoid the liquidity problem, the company acquired many short terms loans from the financial institutions. The
short-term borrowings of the company have increased from 0.75 billion to 7 billion showing an increase of 833.3%
during the period. The debt to equity ratio of the company has decreased from 4.07% to 4.87% while the times
earned have decrease from 3.02 to 2.17 times. Both of these fluctuations occurred due to the loss suffered by the
company during the period.

The beta of the Shell Pakistan remained 0.84 during the period showing that the stock price of the company has
moved in the same direction as of KSE-100 index but with little smaller magnitude. Shell stock return has a significant
positive correlation with the market return means that any up or down in the market index will most probably be
reflected in the prices of the stock of the company.

Financial analysis (FY08-F09)

Shell Pakistan is currently the second largest Oil Marketing Company of Pakistan with an existing market share of
13.7 percent. During the period, the company earned a profit after tax of Rs 2.56 billion. In the same period last year,
the company had incurred a loss of Rs 1.73 billion.

Recent results (3Q10):

World crude oil prices have significantly decreased from $147 per barrel in July 2009 to below $75 per barrel on
September 2010. However, the decline in world oil prices is not reflected to the decrease in the oil import bill due to
5% devaluation of Pak rupee. Recently, the crude prices touched $100 before backing off on Egypt unrest.

Industry overview:

The oil and marketing industry of Pakistan is of oligopolistic nature, with the three major players PSO, Shell and APL
dominating around 88% of the market sales volume. PSO is the market leader, with a market share of 68% followed
by Shell and APL having a market share of 14% and 6% respectively.

Financial performance:

During the period ended June 30, 2010, things were going normal in the oil and marketing sector of Pakistan. The
fuel consumption in the country has increased from 19.2 million to 20.8 million tons due to increasing Mogas and fuel
oil consumption in the country. Oil consumption has decreased significantly in the period between July and
September due to massive devastation caused by super flood in the country. Sales of the industry were affected very
badly due to slowdown of economic activities in the country. Distribution expenses have also increased significantly
due to the loss of routes of transportation and other infrastructure facilities.

During the period under review, the sales of Shell remained 157.7 billion rupees compared to 128.9 billion rupees,
signifying an increase of 22% over the period as compared to 11.5% industry increase in sales. International oil
prices have decreased to $75 per barrel in August/September 2010 from $147 per barrel in last July. Despite this, the
cost of goods sold by Shell, have increased from Rs 104.5 billion to Rs 131 billion signifying an increase of 25% over
the period due to significant devaluation of Pak rupee. Pak rupee has devalued by around 5% during the period.

The gross profit margin of the overall industry has decreased over the period during to the rising competition among
the existing market players and entry of a new MNC, Byco into the industry. Gross profit of the company still stood
higher than average industry level. The gross profit of the Shell stood 5.9% compared to 4.8% industry average.

Despite the higher sales and above industry gross profit margin, the company accumulated a loss of Rs 11 million
during the period, due to increased competition, distribution expenses and turnover tax imposed by the government.
The distribution expenses of the company have increased significantly due to loss of infrastructural facilities during
the super flood. Distribution expenses stood Rs 3.28 billion as compared to Rs 2.22 billion last year, showing an
increase of 47.6%. The turnover tax imposed on oil and marketing sector by government has doubled from 0.5% to
1% leading to an effective tax rate of 140% of the taxable income of Shell.

The debt to asset ratio of the company has remained stagnant during the period, increasing from 0.8% to 0.82%,
despite this; the company faced some of the serious liquidity problem during the period. A significant amount of cash
is trapped with GoP. Government of Pakistan still owed 5 billion rupees to Shell.

To avoid the liquidity problem, the company acquired many short terms loans from the financial institutions. The
short-term borrowings of the company have increased from 0.75 billion to 7 billion showing an increase of 833.3%
during the period. The debt to equity ratio of the company has decreased from 4.07% to 4.87% while the times
earned have decrease from 3.02 to 2.17 times. Both of these fluctuations occurred due to the loss suffered by the
company during the period.

The beta of the Shell Pakistan remained 0.84 during the period showing that the stock price of the company has
moved in the same direction as of KSE-100 index but with little smaller magnitude. Shell stock return has a significant
positive correlation with the market return means that any up or down in the market index will most probably be
reflected in the prices of the stock of the company.

Financial analysis (FY08-F09)

Shell Pakistan is currently the second largest Oil Marketing Company of Pakistan with an existing market share of
13.7 percent. During the period, the company earned a profit after tax of Rs 2.56 billion. In the same period last year,
the company had incurred a loss of Rs 1.73 billion.
Shell Pakistan has managed to bring down its liabilities considerably. However, despite this significant achievement,
government receivables continue to be a major challenge and the company still has bills of approximately Rs 4.5
billion, comprising price differential claims and sales tax/Petroleum Development Levy (PDL) refunds. These are
being followed up vigorously with concerned government authorities.

Sales surged in the financial year 2009 with total revenues increasing from Rs 84,900,771 by the end of December
2008 to Rs 156,000,098 by the end of December 2009.

During FY09, the company posted a net profit of Rs 2.562 billion and this profitability is mainly driven by higher sales
volume and mainly supported by the positive impact of increasing international oil prices. The company's gross profit
margin increased from -9% in December 08 to 3% in December 09. Net Profit Margin increased from -6% in
December 08 to 2% in December 09. Return on assets increased from -13% in December 08 to 12% in December
09. Return on equity increased from -83% in December 08 to 31% in December 09.

All four profitability ratios are indicative of the fact that Shell Pakistan has vastly improved its earnings and is also
making efforts to cut back on its expenditures.

Shell has always concentrated on shifting its portfolio towards high margin products. This strategy, therefore, has
reaped enormous benefits in terms of better sales, gross profit and net income for the company. Higher oil prices in
the world market were the main contributory factor towards high profitability ratios that the company has been posting
since 2003.
Liquidity position of Shell is not commendable, as other players of the industry. However, with the introduction of
higher margin products, Shell has been able to enhance its performance since FY05 owing to inauguration of White
Oil Pipeline enabling it to better supply/transportation of oil across the country. As a result, the company's oil stock
increased significantly.

FY07 however, disturbed the increasing trend of Shell's liquidity position and it was the most challenging period for
the whole industry. Short-term loans and accrued liabilities increased significantly, depressing the current liabilities
and the current ratio of the company. On the other hand FY08 improved Shell's liquidity position. This is mainly due to
sharp decline witnessed in the short-term loans taken by the company.

During the FY09, the company's current assets decreased from Rs 12.725 billion in December 08 to Rs 12.290 billion
in December 09. However, the company's current liabilities decreased from Rs 30.333 billion to Rs 25.169 billion.
Hence, the company has managed to keep its current ratio steady in the FY09.

Comparison with the industry reveals that Shell has been relatively efficient as far as managing its assets is
concerned. In line with the industry trend, operating cycle is extending which can be attributed to the unsold inventory
(and low inventory turnover rate) owing to lower demand and higher prices of oil in the international market.

In the FY09, Shell experienced marked improvements on overall cash flow with tighter cost control and better credit
management. Shell's stockholdings significantly reduced and business grew on more profitable segments. Shell is
continuing to leverage their association with the wider Shell Group through the Technical Service agreements to
enhance their profitability and performance.

In FY09, inventory turnover increased from 10 days in FY08 to 12 days by the end of FY09. Similarly, the operating
cycle increased from 10 days in FY08 to 12 days by the end of FY09, following the trend of the inventory turnover.

Total asset turnover increased from 2 times in FY08 to 7 times in FY09. Sales to Equity Ratio increased from 14
times in FY08 to 19 times in FY09. The increase in both these asset management ratios can be attributed to the
surge in sales in FY09.

Up-till Jun 07, on account of large amount of short-term loans and consequently high interest expenses, debt-to-asset
ratio had been rising steadily while interest coverage strength had been diminishing. This trend changed in FY08 and
the company's debt to equity ratio declined mainly due to a 78 percent decline in short-term loans. In FY09, the debt-
to-asset ratio increased from 84% in FY08 to 114% in FY09. Interestingly, this was not due to an increase in
liabilities, which actually fell from Rs 33.016 billion in FY08 to Rs 25.283 billion in FY09. The decrease in the D/A
Ratio was primarily due to a decrease in total assets, which fell from Rs 39.272 billion in FY08 to Rs 22.262 billion in
FY09. Long-term loans and advances, long-term deposits and prepayments, long-term debtors, stores and spares
and cash and bank balances all decreased during the FY09.

As a result of long-term borrowing, Shell's long-term debt to equity ratio increased from 1.47 percent in FY06-07 to 20
percent in FY07-08. In FY09, the debt to equity ratio fell from 5 times in FY08 to 3 times by the end of FY09. TIE
Ratio increased from -8 times in the FY08 to 3 times in the FY09, which shows that the company showed a marked
improvement in its debt management capabilities. Long term debt to equity ratio shot up in the FY09, from 43% in the
FY08 to 306% in the FY09.

The company has been able to post high earnings per share than other industry players. However, it recorded a
sharp decline of 81.8% in FH06-07 mainly attributable to escalating oil prices and lower demand for POL products,
arising from a shift towards cheap substitutes. However, FY07-08 was very positive for the company. Higher sales
volume combined with very high international oil prices resulted in very high growth in EPS. In the FY09, EPS
increased from -Rs 75 in the FY08 to Rs 37 in the FY09.

By the end of FY09, the dividend per share stood at Rs 33. This increase in DPS has been due to impressive growth
witnessed in company's bottom line.

Oil Marketing Companies

Pakistan's average crude oil production during July-March 2009-10 was 65,246 barrels per day as against 66.531
barrels per day during the corresponding period of last year, showing a decrease of 1.9%.

The Ministry of Petroleum and Natural Resources has planned to make the oil refineries and oil marketing companies
richer by placing an upper cap on import price for locally produced petrol sale price while deregulating its ex-refinery
price at the cost of consumers in new oil pricing mechanism.

The ministry has accepted that ex-refinery price of petrol would increase in the range of Rs 3-4 per liter in respect of
refineries including NRL, PRL, and ARL. OMCs are already seeking price differential claims (PDCs) from the ministry
of petroleum since imports are more expensive than refinery price.

Future outlook

The economy has shown signs of improvement with reduction in inflation and stabilisation of the exchange rate. The
government has also paid Rs 80 billion to the energy sector in order to resolve the problem of circular debt and has
made a commitment to do more, which is also a positive sign for the profitability of the energy sector. The profitability
of the industry players is correlated with the international oil prices.
Since, oil prices have declined in the international market from the record high of $147/barrel in July 2008 to less than
$75 in June 2010, due to lower demand witnessed in the Asian markets. The profitability of the company will depend
on future economic conditions, GDP growth and inflation apart from the fluctuations in the international crude oil
prices.
Shell Pakistan has managed to bring down its liabilities considerably. However, despite this significant achievement,
government receivables continue to be a major challenge and the company still has bills of approximately Rs 4.5
billion, comprising price differential claims and sales tax/Petroleum Development Levy (PDL) refunds. These are
being followed up vigorously with concerned government authorities.

Sales surged in the financial year 2009 with total revenues increasing from Rs 84,900,771 by the end of December
2008 to Rs 156,000,098 by the end of December 2009.

During FY09, the company posted a net profit of Rs 2.562 billion and this profitability is mainly driven by higher sales
volume and mainly supported by the positive impact of increasing international oil prices. The company's gross profit
margin increased from -9% in December 08 to 3% in December 09. Net Profit Margin increased from -6% in
December 08 to 2% in December 09. Return on assets increased from -13% in December 08 to 12% in December
09. Return on equity increased from -83% in December 08 to 31% in December 09.

All four profitability ratios are indicative of the fact that Shell Pakistan has vastly improved its earnings and is also
making efforts to cut back on its expenditures.

Shell has always concentrated on shifting its portfolio towards high margin products. This strategy, therefore, has
reaped enormous benefits in terms of better sales, gross profit and net income for the company. Higher oil prices in
the world market were the main contributory factor towards high profitability ratios that the company has been posting
since 2003.
Liquidity position of Shell is not commendable, as other players of the industry. However, with the introduction of
higher margin products, Shell has been able to enhance its performance since FY05 owing to inauguration of White
Oil Pipeline enabling it to better supply/transportation of oil across the country. As a result, the company's oil stock
increased significantly.

FY07 however, disturbed the increasing trend of Shell's liquidity position and it was the most challenging period for
the whole industry. Short-term loans and accrued liabilities increased significantly, depressing the current liabilities
and the current ratio of the company. On the other hand FY08 improved Shell's liquidity position. This is mainly due to
sharp decline witnessed in the short-term loans taken by the company.

During the FY09, the company's current assets decreased from Rs 12.725 billion in December 08 to Rs 12.290 billion
in December 09. However, the company's current liabilities decreased from Rs 30.333 billion to Rs 25.169 billion.
Hence, the company has managed to keep its current ratio steady in the FY09.

Comparison with the industry reveals that Shell has been relatively efficient as far as managing its assets is
concerned. In line with the industry trend, operating cycle is extending which can be attributed to the unsold inventory
(and low inventory turnover rate) owing to lower demand and higher prices of oil in the international market.

In the FY09, Shell experienced marked improvements on overall cash flow with tighter cost control and better credit
management. Shell's stockholdings significantly reduced and business grew on more profitable segments. Shell is
continuing to leverage their association with the wider Shell Group through the Technical Service agreements to
enhance their profitability and performance.

In FY09, inventory turnover increased from 10 days in FY08 to 12 days by the end of FY09. Similarly, the operating
cycle increased from 10 days in FY08 to 12 days by the end of FY09, following the trend of the inventory turnover.

Total asset turnover increased from 2 times in FY08 to 7 times in FY09. Sales to Equity Ratio increased from 14
times in FY08 to 19 times in FY09. The increase in both these asset management ratios can be attributed to the
surge in sales in FY09.

Up-till Jun 07, on account of large amount of short-term loans and consequently high interest expenses, debt-to-asset
ratio had been rising steadily while interest coverage strength had been diminishing. This trend changed in FY08 and
the company's debt to equity ratio declined mainly due to a 78 percent decline in short-term loans. In FY09, the debt-
to-asset ratio increased from 84% in FY08 to 114% in FY09. Interestingly, this was not due to an increase in
liabilities, which actually fell from Rs 33.016 billion in FY08 to Rs 25.283 billion in FY09. The decrease in the D/A
Ratio was primarily due to a decrease in total assets, which fell from Rs 39.272 billion in FY08 to Rs 22.262 billion in
FY09. Long-term loans and advances, long-term deposits and prepayments, long-term debtors, stores and spares
and cash and bank balances all decreased during the FY09.

As a result of long-term borrowing, Shell's long-term debt to equity ratio increased from 1.47 percent in FY06-07 to 20
percent in FY07-08. In FY09, the debt to equity ratio fell from 5 times in FY08 to 3 times by the end of FY09. TIE
Ratio increased from -8 times in the FY08 to 3 times in the FY09, which shows that the company showed a marked
improvement in its debt management capabilities. Long term debt to equity ratio shot up in the FY09, from 43% in the
FY08 to 306% in the FY09.

The company has been able to post high earnings per share than other industry players. However, it recorded a
sharp decline of 81.8% in FH06-07 mainly attributable to escalating oil prices and lower demand for POL products,
arising from a shift towards cheap substitutes. However, FY07-08 was very positive for the company. Higher sales
volume combined with very high international oil prices resulted in very high growth in EPS. In the FY09, EPS
increased from -Rs 75 in the FY08 to Rs 37 in the FY09.

By the end of FY09, the dividend per share stood at Rs 33. This increase in DPS has been due to impressive growth
witnessed in company's bottom line.

Oil Marketing Companies

Pakistan's average crude oil production during July-March 2009-10 was 65,246 barrels per day as against 66.531
barrels per day during the corresponding period of last year, showing a decrease of 1.9%.

The Ministry of Petroleum and Natural Resources has planned to make the oil refineries and oil marketing companies
richer by placing an upper cap on import price for locally produced petrol sale price while deregulating its ex-refinery
price at the cost of consumers in new oil pricing mechanism.

The ministry has accepted that ex-refinery price of petrol would increase in the range of Rs 3-4 per liter in respect of
refineries including NRL, PRL, and ARL. OMCs are already seeking price differential claims (PDCs) from the ministry
of petroleum since imports are more expensive than refinery price.

Future outlook

The economy has shown signs of improvement with reduction in inflation and stabilisation of the exchange rate. The
government has also paid Rs 80 billion to the energy sector in order to resolve the problem of circular debt and has
made a commitment to do more, which is also a positive sign for the profitability of the energy sector. The profitability
of the industry players is correlated with the international oil prices.
Since, oil prices have declined in the international market from the record high of $147/barrel in July 2008 to less than
$75 in June 2010, due to lower demand witnessed in the Asian markets. The profitability of the company will depend
on future economic conditions, GDP growth and inflation apart from the fluctuations in the international crude oil
prices.