Final Project on Shell Pakistan

At the time of independence there were no more than few companies, it was the case with oil industry. There was no oil refinery in Pakistan except a very small at Rawalpindi. At that time the total requirement of Pakistan was 0.4 million tons. There were four foreign and one local company in Pakistan these were:

Burmah 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.

Consumption in East and West Pakistan shot up by 4.2 million tons OGDC was established. Government asked the foreign companies to set up a refinery, they agreed with following conditions:

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.

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.

Again the war broke between Pakistan and India. All crude oil was imported from other countries and its storage was concentrated at Kemari Terminal Karachi. The enemy blasted whole storage point. So the need to spread the storage points in the whole country was felt. The 5 foreign companies were asked to do so but they refused because of cost, then government decided to establish storage places itself.

There were energy crises through the world. Almost all of the countries nationalized the oil companies. Everyone realized that petroleum products were very essential.

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 is a multinational company and in Pakistan it is operating as a public limited company by the name “Shell Pakistan Ltd.

Shell is a superior brand name with a 100 year history in this region, infect the company is still in possession of a fuel storage tank from 1899. However, the documented history of the Royal Dutch/shell group the Indo-Pak subcontinent dates back to 1903 when a partnership was struck between the shell transport and trading company and the Royal Dutch petroleum company to supply petroleum products in Asia.

In 1928 to enhance their distribution capabilities, the marketing interests of the Royal Dutch/shell group and Burmah Oil Company by limited in India were merged and the Burmah shell oil storage distribution and storage company of India was born. After the independence of Pakistan in 1947, the name was changed to the Burmah shell oil distribution company of Pakistan.

In 1970, when 51% of the shareholding was transferred to Pakistani invertors. The name of the company changed to Pakistan Burmah shell (PBS) limited. The shell and Burmah groups of retained the remaining 49% in equal proportions. In February of 1993, as a result of a decision by Burmah oil to divest in Pakistan and the deregulation policy of the government, the shell petroleum company bought the shares of Burmah Oil Company and 2% shares from the market and become the major shareholder in the shell Pakistan limited (SPL).

Shell launched a change programme, which will transform the company by the turn of the century, with major implications for the petroleum industry in Pakistan.

More subtle, but equally uncompromising, has been the change in the company’s culture to reflect the values which shell internationally believes will bring commercial success through a greater focus on the customers.

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).

Creating a secure business environment, minimizing economic losses, and business disruptions safeguarding the group’s integrity and reputations.

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.

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.

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

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

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.

5. Evaluating performance reviewing new developments, and initiating corrective adjustments in long-term direction objectives.

WHY COMPANY STRATEGIES EVOLVE

Frequently fine tuning and tweaking of a company strategy. First in one department or functional area and then in another, are quite normal. On occasion, quantum changes in strategy are called for when a competitor makes a dramatic move, when technological breakthroughs occur or when crises strikes and managers are forced to makes a radical strategy alteration very quickly. Because strategy move and new action approaches are ongoing across the business.

An organization’s strategy forms over a period of time and then reform the number of changes begins to mount. Current strategy is typically a blend of holdover approaches fresh actions and reactions, and potential moves in the planning stage. Except for crises situations (where many strategy moves are often made quickly to produce a substantially new strategy almost overnight) and new company starts - ups (where strategy exists mostly in the form of plans and intended actions), it is common for key elements of company to emerge in bits and pieces as the business develops.

Company’s strategies concern how: how to grow the business, how to satisfy customers, how to auto compete rivals, how to response to changing market conditions, how to manage each functional piece of business, how to achieve strategic and financial objectives.

Developing a strategic vision and mission, establishing objectives, and deciding on a strategy are basic direction-setting tasks. They map out where the organization is headed, its short range and long-range performance targets, and the competitive moves and internal action approaches to be used in achieving the targeted results. Together, they constitute a strategic plan.

Annual strategic plan seldom anticipate all the strategically relevant events that will transpire in the next 12 months. Unforeseen events, unexpected opportunities or threats, plus the constant bubbling up of new proposal encourages managers to modify planned actions forge “unplanned” reactions postponing the redrafting of strategy until its time to work on next year’s strategic plan is both foolish and unnecessary.

The administrative is to create “fits” between the way things are done and what it takes for effective strategy execution. The stronger the fits the better the execution strategy. The most important fits are between strategy organizational capabilities, between strategy and reward structure between strategy and internal support system, and between strategy and the organization culture.

The strategic implementing task is easily the most compacted and time-consuming part of strategic management. It cut across virtually all facts of managing and must be initiated from many points inside the organization. The strategy implementer’s agenda for action emerges from careful assessment of what the organization must do differently and better to carry out the strategic plan proficiently. Each manager has to think how much internal practices deviate from what the strategy requires and how well strategy and organizational culture already match.

As needed changes and identified, management must supervise all the details of implementation and apply enough pressure on the organization to convert objectives into results. Depending on the amount of internal change involved, full implementation can take several moths to several years.

Because each one of the five tasks of strategic management requires constant evaluation and a decision whether to continue or change, a manager cannot afford distraction. Nothing about the strategic management process is final all prior actions are subject to modification as conditions in the surrounding of environment change and ideas for improvement emerge, strategic management is a process filled with motion. Changes in the organization situation, either from the inside or outside or both, fuel the need for strategic adjustments.

The task of evaluating performance and initiating corrective adjustments is both the end and the beginning of the strategic management cycle. The match of the external and internal events, grant that revision in mission, objective, strategy and implementation will be needed sooner or later. It is always incumbent on management to push for better performance to find ways to improve the existing strategy and how it is being executed. Changing external conditions add further impetus to the need for periodic revisions in a company’s mission. Performance adjustment objective, strategy and approaches to strategy execution.

Adjustments usually involve fine-tuning. But occasions for major strategic re-orientation do arise some time prompted by significance external development and sometimes by sharply sliding financial performance. Strategy managers must stay close enough to the situation to detect when changing conditions require a strategic response and when they don’t. It is their job to scene the winds of change, recognize changes early, and initiate adjustments.

Today managers have to think strategically about their company’s position and impact of changing conditions. They have to monitor the external; solution closely enough to know what kind of strategic changes to initiate. Simply said, fundamentals of strategic management cede to drive the whole approach to managing organizations.

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

EXTERNAL ENVIRONMENT

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

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 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.

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.

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
Major Import Products: Petroleum; machinery and transport

In Pakistan population is increasing and social values are also changing so the demand of fuel consumption is also increasing. People are coming from rural areas to cities and their life style and values are also changing. They are using modern technology like care, motor cycle for traveling.

Pakistan's attempt to raise the living standards of its citizens has meant that economic development has largely taken precedence over environmental issues.

Unchecked use of hazardous chemicals, vehicle emissions, and industrial activity has contributed to a number of environmental and health hazards, chief among them being water pollution. Much of the country suffers from a lack of potable water due to industrial waste and agricultural runoff that contaminates drinking water supplies. Poverty and high population growth have aggravated, and to a certain extent, caused, these environmental problems.

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.

Our customers are high class, low class and also middle class, because every class is used petrol for consumption.

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

Labour is frequently available in Pakistan because of high unemployment rate. So skilled and unskilled persons are available at lower wages rate.

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

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.

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.

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.

During the 12 months ending 6/30/01, earnings per share totaled 30.12 Pakistan Rupees per share. Thus, the Price / Earnings ratio is 5.48. Earnings per share fell 18.7% in 2001 from 2000.

As of June 2001, the company's long-term debt was 63.90 million Pakistan Rupees and total liabilities (i.e., all monies owed) were 6.68 billion Pakistan Rupees. The long-term debt to equity ratio of the company is very low, at only 0.01.

As of June 2001, the accounts receivable for the company were 2.45 billion Pakistan Rupees, which is equivalent to 14 days of sales. This is slightly higher than at the end of 2000, when Shell Pakistan Limited had 12 days of sales in accounts receivable.

Research and development 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.

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.

Shell provides the training facility to their labour and management to create the good relation to their employees. Shell Company also motives its employees and provides different incentive on their good performance

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.

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

Shell Pakistan Limited reported sales of 63.63 billion Pakistan Rupees (US$1.06 billion) for the fiscal year ending June of 2001. This represents an increase of 76.2% versus 2000, when the company's sales were 36.12 billion Pakistan Rupees.

During 2001, the company's sales increased at a faster rate than all three comparable companies. While Shell Pakistan Limited enjoyed a sales increase of 76.2%, the other companies saw smaller increases: Chennai Petroleum Corporation Limited sales were up 29.1%, National Refinery Limited increased 15.9%, and Mangalore Ref & Petrochemicals Limited experienced a sales decline of 6.3%. Shell Pakistan Limited currently has 608 employees. With sales of 63.63 billion Pakistan Rupees (US$1.06 billion), this equates to sales of US$1,742,581 per employee.

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%)

In recent years, this stock has performed terribly. In fiscal year 2000, the stock traded as high as 367.50 Pakistan Rupees, versus 165.15 Pakistan Rupees on 1/18/02.

For the 52 weeks ending 1/18/02, the stock of this company was down 42.5% to 165.15 Pakistan Rupees. During the past 13 weeks, the stock has fallen 8.3%.

During the 12 months ending 6/30/01, earnings per share totaled 30.12 Pakistan Rupees per share. Thus, the Price / Earnings ratio is 5.48. Earnings per share fell 18.7% in 2001 from 2000.

This company is currently trading at 0.09 time’s sales. Shell Pakistan Limited is trading at 1.07 times book value. The company's price to book ratio is higher than that of all three comparable companies, which are trading between 0.25 and 0.97 times book value.

SUMMARY OF COMPANY EVALUATIONS

Company	Date	P/E	Price/ Book	Price/ Sales	52 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).

During the 12 months ending 6/30/01, Shell Pakistan Limited paid dividends totaling 12.50 Pakistan Rupees per share. Since the stock is currently trading at 165.15 Pakistan Rupees, this implies a dividend yield of 7.6%. The company has paid a dividend for 4 straight years.

During the same 12 month period ended 6/30/01, the Company reported earnings of 30.12 Pakistan Rupees per share. Thus, the company paid 41.5% of its profits as dividends.

On the 63.63 billion Pakistan Rupees in sales reported by the company in 2001, the cost of goods sold totaled 44.75 billion Pakistan Rupees, or 70.3% of sales (i.e., the gross profit was 29.7% of sales). This gross profit margin is significantly better than the company achieved in 2000, when cost of goods sold totaled 91.1% of sales.

Shell Pakistan Limited's 2001 gross profit margin of 29.7% was better than all three comparable companies (which had gross profits in 2001 between 3.9% and 5.1% of sales).

The company's earnings before interest, taxes, depreciation and amorization (EBITDA) were 1.96 billion Pakistan Rupees, or 3.1% of sales. This EBITDA margin is worse than the company achieved in 2000, when the EBITDA margin was equal to 5.6% of sales. The three comparable companies had EBITDA margins that were all higher (between 3.2% and 4.8%) than that achieved by Shell Pakistan Limited.

In 2001, earnings before extraordinary items at Shell Pakistan Limited were 1.06 billion Pakistan Rupees, or 1.7% of sales. This profit margin is lower than the level the company achieved in 2000, when the profit margin was 3.6% of sales.

The company's return on equity in 2001 was 22.1%. This was significantly worse than the already high 32.0% return the company achieved in 2000. (Extraordinary items have been excluded).

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%

As of June 2001, the value of the company's inventory totaled 2.76 billion Pakistan Rupees. Since the cost of goods sold was 44.75 billion Pakistan Rupees for the year, the company had 22 days of inventory on hand (another way to look at this is to say that the company turned over its inventory 16.2 times per year). In terms of inventory turnover, this is an improvement over June 2000, when the company's inventory was 2.44 billion Pakistan Rupees, equivalent to 27 days in inventory.

The 22 days in inventory is lower than the three comparable companies, which had inventories between 39 and 99 days at the end of 2001.

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 Limited of India (2001 sales of 69.56 billion Indian Rupees [US$1.44 billion] of which 100% was Oil & gas exploration).

As the largest oil marketing company of Pakistan, PSO is engaged in the storage, import, distribution and marketing of petroleum products, petrochemicals, Aviation & Bunker fuels, LPG and CNG dominates the country’s fuel and energy need. Since its inception in 1976 the company has been meeting more than 70% of the country’s fuel needs.

PSO’s 3805 outlets all across the country markets more than 12 million tons of fuel products annually. This network is supported by PSO’s 28 storage facilities with a capacity of more than 800,000 tons. PSO took a major step in improving its distribution facilities by acquiring 12% equity in the 800km long Karachi-Mehmood kot White Oil Pipeline.

As part of PSO’s policy of providing better customer service it has embarked upon its New Vision retail development program. Equipped with the most modern facilities like electronic dispensing units, auto car wash, convenience stores, internet facilities and business centres these site of the art designed stations provide greater customer confidence and a friendlier environment. As a manifestation of PSO’s greater customer focus a PSO 24hr PSO Customer Service has been launched where customer’s can lodge their queries and suggestions about various PSO products and services.

Along side its retail network PSO is playing an equally important role in the industrial sector. From the locomotives of Pakistan Railways to the giant turbines of power projects, all are fuelled by PSO.

Being fully alive to its responsibilities towards the agriculture sector PSO’s 700 strong agency network helps keep the farm machinery running. Further, its kerosene sales are a major source of energy for the rural and lacking gas facilities.

PSO remains equally strong in Aviation and Bunker Sales. PSO has been constantly upgrading its facilities to serve a wide range of commercial aircrafts.

Through a chain of eight Aviation Service Stations scattered all across the country PSO fuels the aircrafts of many local and international airlines. Acquisition of new Lahore Terminal Complex at the Lahore International Airport has enabled PSO to serve the busiest corridor of East/West bound flights benefiting the airlines in shape of time saving and lesser fuel burn off. While it’s bunkering facilities at all the major ports of country fill up the ocean liners of many nationalities facilitating the nation’s international trade.

In its endeavor to provide quality lubricants, PSO has formed an alliance with world-renowned company Castrol whose products are manufactured at PSO’s own ISO 9000 certified facilities ensuring the highest quality standards for both retail and industrial sales.

More cordial relationship with its dealers is one of the important objectives of PSO’s New Vision programme. To give them a sense of participation PSO has instituted “Top Dealer Awards” and “Million Liter Awards” whereby efforts of the high performing dealers are recognized.

Emergence of Health Safety & Environment (HSE) as the corner stone of PSO’s corporate governance testifies to its commitment to environmental protection. Complete HSE certification of all its facilities and installations is one of its major goals for the coming months that are being vigorously pursued.

Shell has the quality control and quantity control team visit and inspect the quality and quantity of motor gasoline of their petrol pump regularly.

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.

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.

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

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.

The second strategy of Shell is creating a strong Brand Image of the company in the customers mind. In visual terms, the installation of Shell’s Retail Visual Identity (RVI) makes a striking and immediate difference between shell’s gasoline stations and those of its competitors, Pakistan State Oil (PSO) and Caltex. The RVI programme is massive, for the 1200 or so sites which shell inherited through the take over, around two thirds are scheduled to be developed as RVI sites, many of them being completely redesigned from the underground storage tanks up. In addition, new sites are being acquired in strategic locations.

The new sites are being designed according to the international standards keeping in view the cleanliness in all respects and an Excellent/Terrific out look. The purpose of this is to attract the customer and develop a strong brand image in his mind.

The third strategy of the company is to set standards for reliability and honest dealing because it is fundamental to the company’s reputation. For the improvement of quality and quantity following points are important:

Mobile training units visit sites, keeping staff up to date on a whole range of topics including, most importantly, issues of health, safety and environment. MTU train the workers on different filling stations.

Another mobile innovation cover fuels quality assurance, an area where cynical disregard of standards, manifested by dilution of premium grades with low-cost gasoline has become so common that customers have given up complaining about it. Recognizing the importance to the company’s reputation for delivering the right quality of fuel, shell has introduced random gasoline testing forecast. Technicians operate what are, effectively, mobile field laboratories, testing fuels quality using an octane meter. This produces a result in just a few minutes, instead of days using normal centralized laboratory facilities.

According to Shell, “Fuel Quality is fundamental to our reputation for honest dealing”. Quantity control units check that whether the retailers are giving the right quantity or less quantity of fuel to the customers. The quantity is checked through various instruments. The quantity control units also check the digital pump.

SHELL OPERATIONAL STRATEGY

Shell operate its site with a very efficient management to improve the quality and quantity of fuel and provides the better customer satisfaction services. For this purpose shell follows its strategic objectives, plans, and strategy and policies.

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

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.

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

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.

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.

All outstanding bills for utilities etc. incurred by the site before the hand over date have to pay by the dealer. Any outstanding amount should be mentioned in the site take-over note and recovered form the out-going dealer.

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

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.

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

Before decantation the site manager should tally the product specification with the grade ordered. All seals should be checked for integrity and numbers matched with those on the invoice.

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.

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.

After the initial fill, all products will be financed by the cash proceeds from the initial fill. Payment of fuel made under following Process:

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

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.

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. 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.

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.

It is the responsibility of the site manger to ensure that all the product testing is conducted in his presence and that all the testing is properly authorized by the territory manager and in case of testing due to QCU and maintenance staff. The signatures of the concerned staff are taken. Testing may also be conducted by the weights and measures officials.

To ensure that all Territory Managers and aware of the imprest account operating procedures. This is one to ensure that the company exposure is reduced by using correct banking practices. The Imprest Account procedures have been designed to ensure implementation of standards of imprest operation outlined in Management Policies and Procedure Guide.

SCOPE

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

FREQUENCY

This procedure is to be followed whenever, the imprest account is operated and claims for reimbursements are made.

RESPONSIBILITY

It is the responsibility of the Regional Manager and the Territory Manager to ensure that the Imprest Account is operated and claims for reimbursements are made in accordance with the requirements given in the procedures.

a) The imprest account should only be used to meet all the expenses of business nature such as salaries housekeeping, bank charges, etc.

b) Imprest limits for sites are set by RSO on the recommendation of the concerned RRM. All the operating expenses of the site are detailed in the imprest approval form and the total of all the expenses makes up the imprest limit of the sale.

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.

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

It is the responsibility of the RRM to ensure that price change takes place at a COS in the presence of a representative of shell Pakistan limited. It is the responsibility of the site manger to ensure that he change in working capital value is reported correctly and accurately. The territory manger is responsible for the verification of the accuracy of the above.

Ø The new prices are notified by RSO to FNC/12 supply points and regional offices to update their record accordingly.

Ø 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.

Ø 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.

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.

Loss of performance standards are normally assessed on historical basis by comparing monthly results. Effective monitoring of losses can be achieved by following way:

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

Ø Periodic physical measurement of the actual product stacks and comparison with the corresponding book stock to access the losses for a given period.

Ø Assessment of the loss control performance against the targets. The targets will vary according to the type of the product and equipment used.

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

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

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.

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.

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!

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

This is called market penetration. The shell is also working on this direction by providing better services on its company operation sites. The above discussion in consolidation also relevant to this direction.

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.

Shell will feel that the consolidation in their present market does not adequate opportunities after the search for coping with changing environment. Shell developed the product of CNG. This shows that shell is also working on this direction.

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

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.

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.

We have selected two strategic options for improvement of shell performance as maintain the leader of quality in the customer services. For this purpose we evaluated them, which is better to achieve the organizational objectives.

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

Suitability

Shell is one of biggest multinational company dealing in Pakistan. As such there is no financial problem facing by shell. By market development shell can cope with aggressive competitors. By product development (CNG) Shell can decrease its dependence on particular supplier (Greave Pakistan Ltd.).

By market development the company can capture the market of CNG. Use of CNG reduce the environmental pollution and save the consumption of fuel.

Developing market (establish new outlets and upgrade existing outlets) increase growth rate and market share simultaneously.

Feasibility

Through feasibility we will assess how our strategy might work in practice. In product development shell has not sufficient resources to cope with existing requirement.

In market development shell has sufficient resources to meet the current needs of the customers. Shell also capable to performing the services in the field of new market.

Acceptability

Through acceptability we will try to assess weather the consequences of proceeding with a strategy are acceptable.

Selection

There are two issues which needs consideration, first a way in which an organization’s circumstances will dictate which methods of evaluation are most useful at the time of selecting future strategies.

Secondly, the process by which selection of strategies occurs since how the information from evaluation is used in strategic decision making.

After the evaluation of the strategic options we are concluded that the market development is the best option so, our selections is market development. Because it provide a chance to earn more profit and competitive advantage and has a low risk as compare to other options.

PEOPLE AND CONNECTIONS
Shell International builds a set of global scenarios every three years to explore the overarching challenges arising from changes in the business environment that need to be faced by its businesses. These scenarios provide a useful context for testing our strategies and plans and help us to anticipate significant changes in the world around us. CONTACTING SHELL MEDIA RELATIONS

The Group Press Office deals with all media enquiries relating to the Group's corporate activities and its international businesses. The Press Office also handles all media enquiries about the businesses of Shell in the UK. For urgent media queries out of office hours, please contact the duty press officer on pager no 07659 129 454 and leave a message and contact details.
LNG BECOMING A TRULY GLOBAL TRADE
Today the LNG trade is growing - and rapidly becoming truly global. Currently contracted LNG volumes are likely to reach 120 million tons per annum by 2005 - an average annual growth rate of over 5% since 1995.
The number of markets is also increasing. By the end of this decade, new LNG markets will likely be added in China, India and the Americas.
This of course will require increased shipping capacity. If all current orders are completed, the world's LNG fleet will expand from 127 active carriers today, to almost 180 in the next five years.
The growth in volumes between now and 2005 will largely come from expansions of existing projects. But several new projects around the world are likely to be under construction by that time - and will fuel additional growth in the LNG industry in the second half of the decade.

Within Shell alone, we have interests in five existing LNG projects all of which have expansions under construction or under consideration. Additionally, we are involved in the development of several new projects - four of which are shown on the chart: Sakhalin, Timor Sea, Namibia and Venezuela.
The growth in the LNG industry is driven by overall growth in global natural gas demand - but also by the decreasing cost of delivering LNG competitively to market.
Shell, as technical service provider to the LNG projects in which we participate, has played a key role in capital cost reductions. Subsequent LNG developments over the past 30 years have demonstrated a 50% reduction in development costs.
We believe this can be improved upon even more. Our goal is for our next LNG development to be delivered at a significant improvement over Oman - which is the lowest cost project to date.
NIGERIA LNG A GOOD EXAMPLE
A specific example of the opportunities in LNG is in Nigeria. The first production of LNG in Nigeria was from the first of a two-train project that came on stream in October 1999. The two trains together now deliver some 6 million tons a year, mainly to Atlantic Rim and Mediterranean markets.
Approval of a third train was granted in 1999. Construction is well underway with first deliveries set for early 2003.
The possibility of a further two-train expansion is already under serious 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 physical footprint, and a higher degree of flexibility. Depending on the location, up-front capital costs can be reduced by up to 40% - which is often the difference projects like these need to make them realities.
Effective application of leading technology opens up many opportunities. Another example is Gas to Liquids.
Shell has demonstrated that GTL technology can be commercial and that the products are competitive on the world market.
Liquid fuels produced by the Shell Middle Distillate Synthesis process at a commercial scale plant producing 12,000 bpd at Bintulu here in Malaysia, are so clean they are leading to the creation of new markets.
Development of the next generation plant - capable of producing 75,000 bpd - will require investment in excess of a billion dollars each. But economies of scale and improved designs will result in significant advantages.
They allow monetisation of gas reserves that would otherwise be uneconomic. They provide extra revenues for resource owners from new markets for natural gas products. The liquids produced can also substitute for expensive oil imports.
Because of these advantages, by the end of this decade, we believe Gas to Liquids will be a significant industry.
New natural gas markets are opening up and creating new opportunities - particularly here in Asia. Underlying economic growth - and the related surge in demand for electricity - is the driver in China and India.

SHELL WORKING ON KEY INFRASTRUCTURE
To meet that demand, Shell and other companies are heavily involved in the planning and development of key infrastructure projects. This infrastructure - which includes pipelines, LNG import terminals, distribution systems, and power plants - will cost billions of dollars.
In China alone, the total amount to be spent on projects open to foreign investors in order to build domestic natural gas infrastructure - upstream, midstream and downstream - could be as high as $25 bln over the next ten years.
MATURE MARKETS DIFFERENT

At the other end of the market maturity spectrum are the US and Europe. As markets mature and liberalise, marketing and trading opportunities emerge. But these opportunities require different capabilities for success.

Instead of billions of dollars for investment in capital-intensive infrastructure projects, these markets require highly skilled human resources and balance sheets capable of supporting the commercial risks and financial exposures.

Shell's most significant involvement in these areas is through Coral in the US, 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. I believe they add up to a significant new path forward for the global gas industry. Ours is an industry of the future, not of the past.
BUT THERE ARE ALSO CHALLENGES
Delivering these opportunities and growth will not happen without overcoming a number of challenges. We will mention just four:
a)    The need to do business based on principles;
b)    The need to contribute to sustainable development;
c)    The need to get deregulation right;
d)    The need to attract the necessary human resources.
A few decades back, when companies first started producing statements of business principles, there was considerable cynicism. People thought they were just nice words - public relations material. We believe that, in the 21st century, they are far more than that. We believe the Shell business principles, and the qualities we demonstrate, will be critical business assets.
WORKING IN A DIFFERENT WORLD
Our world today is different. It is more global, transparent and fast moving. In this world, living by a clearly articulated set of business principles is an advantage for our employees, our customers, our suppliers, our partners and the governments with which we interact. The principles set the boundary conditions within which we do business.

Every commitment is important but, to me, of overriding importance is our commitment to sustainable development. This commitment encompasses our belief that all we do must take into account not only the economic impact, but also the social and environmental impact.

We know we can't do this alone. That's why our commitment relies heavily on working together with partners, governments and local communities to ensure we strike the appropriate balance in all three areas of Sustainable Development.

Another continuing challenge will be to get deregulation right. The California debacle has illustrated for us many of the potential pitfalls. It is now incumbent on us all - in government and industry - to work together to design systems that prevent energy shortages or that discourage long term investment.

We must always keep in mind the ultimate aim of producing products and services more efficiently and reliably - and ensuring long-term security.

The final challenge is attracting the human capital required to deliver the growth and value. As the number of natural gas markets increase, and as more and more markets liberalise, the demand for experienced people in our industry rises.

And the demand is not limited to those in traditional natural gas fields such as pipeline engineers and technologists - although these will remain important. We will also need increasing numbers of experienced international business developers, regulatory experts, traders, IT systems specialists, and financiers.

Perhaps most importantly, we need strategists, asset operators, managers and marketers with local experience. Success calls for a diverse work force - one well matched to the diverse markets that will be key to the future.

In summary, our industry is facing a broad range of opportunities. The Shell long- term energy scenarios indicate that demand for clean, efficient energy is going to grow. And, natural gas, because of its environmental qualities, efficiency, and technological advances, is going to play an increasingly important role.

But there will also be challenges - such as the attraction of the necessary human and financial capital. Anti globalization and supply security add to these challenges.
But, the global demand for more and cleaner energy goes on. And I believe our industry is well positioned to meet the challenges along the way.

HISTORY OF OIL INDUSTRY IN PAKISTAN