INDUSTRY ANALYSIS OFSHELL PAKISTAN & PSO

INTRODUCTION:

Pakistan’s Oil Sector

According to Oil and Gas Journal (OGJ), Pakistan had proven oil reserves of 300 million barrels

as of January 2009. The majority of produced oil comes from proven reserves located in the

southern half of the country, with the three largest oilproducing fields located in the Southern

Indus Basin. Additional producing fields are located in the Middle and Upper Indus Basins.

Background

Pakistan has been considered a petroleum province. First well was drilled in 1866 at Kundal in

the upper region of Indus valley. Shallow wells were drilled in the following years, and from

1886, small scale production of oil started in Khattan (Balochistan). In 1915, the first series of

commercial oil discovery was made in the Potwar basin (Punjab). In 1960’s Oil and Gas

Development Company Limited (OGDCL) was created by the Government of Pakistan, which

provided successful track in discovery of oil and gas reserves with in the country. After the oil

crisis in 1973, a number of impressive discoveries were made both by the private sector and

OGDCL.In June, 2006, initial recoverable gas reserves were estimated at 52 TCF of which 33 TCF

remain to be produced; oil reserves are much more modest with initial recoverable reserves of

844 million bbl and a remaining balance of 309 million bbl.

Current Supply and Demand Situation of Oil Sector

Since the late 1980s, Pakistan has not experienced many new oil fields coming online. As a

result, oil production has remained fairly flat, at around 60,000 barrels per day (bbl/d). During

the first eleven months of 2008, Pakistan produced an average of 58,000 bbl/d of crude oil.

However, Pakistan has ambitious plans to increase its current output to 100,000 bbl/d by 2010.

Due to Pakistan’s modest oil production, the country is dependent on oil imports to satisfy

domestic oil demand. As of November 2008, Pakistan had consumed approximately 350

thousand barrels of oil and various petroleum products, of which, more than 80 percent was

imported. The majority of oil imports come from the Middle East, with Saudi Arabia as the lead

importer.

Oil Consumption by User Sector

In Pakistan transport sector in the biggest user of the petroleum products which accounts

about 48 percent followed by power generation which uses about 36 percent, and industrial

sector which has a share of 12 percent while remaining is shared by the residential sector.

SHELL PAKISTAN

“We Shell Our Souls for Oil”

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.

Shell by Numbers

+ 90 countries where we operate

~ 101,000 number of employees

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

145 billion liters of fuel sold

35 refineries and chemical plants we run

1 ranking by Fortune 500 in 2009

Market share

Five year analysis of Price & Earning of Shell

PAKISTAN STATE OIL (PSO)

The creation of Pakistan State Oil (PSO) can be traced back

to the year 1974, when on January 1st; the government

took over and merged Pakistan National Oil (PNO) and

Dawood Petroleum Limited (DPL) as Premiere Oil Company

Limited(POCL).

Soon after that, on 3rd June 1974, Petroleum Storage Development Corporation (PSDC) came

into existence. PSDC was then renamed as State Oil Company Limited (SOCL) on August 23rd

1976. Following that, the ESSO undertakings were purchased on 15th September 1976 and

control was vested in SOCL. The end of that year (30th December 1976) saw the merger of the

Premier Oil Company Limited and State Oil Company Limited, giving way to Pakistan state Oil

(PSO).

After PSO’s inception, the corporate culture underwent a comprehensive renewal program

which was fully implemented in 2004. This program over the years included the revamping of

the organizational architecture, rationalization of staff, employee empowerment and

transparency in decision making through cross functional teams. This new corporate renewal

program has divided the company’s major operations into independent activities supported by

legal, financial, informative and other services. In order to reinforce and monitor this structural

change, related check and balances have been established by incorporating monitoring and

control systems.

PSO is currently enjoying over 73% share of Black Oil market and 59% share of White Oil

market. It is engaged in import, storage, distribution and marketing of various POL products

including mogas, high speed diesel (HSD), fuel oil, jet fuel, kerosene, liquefied petroleum gas

(LPG), compressed natural gas (CNG) and petrochemicals. PSO also enjoys around 35% market

participation in lubricants and is blending/marketing Castrol brands, in addition to a wide array

of its own.It is considered as one of the most successful mergers in the history of Pakistan. The

company has retail coverage of over 3,800 outlets, representing 80% participation in total

industry network. The company has been the winner of Karachi Stock Exchange Top

Companies Award for many years and is a member of World Economic Forum.

It is due to this effective implementation of corporate reform and consistent application of the

best industrial practices and business development strategies, that PSO has been able to

maintain its market leadership in a highly competitive business environment.

PSO OUTLETS IN PAKISTAN

Five year analysis of Price & Earning of PSO

Industry analysis of SHELL & PSO:

Industry nalysis:

The industry in which pakistan state oil is doing business is hioghly competative. Being a national oil company has its advantagesbut the company still has to face pressure from different sources. The following key factors highlighted this fact.

1. Threat of the new Entrant

The threat of the new entrant in the industry that PSO is associated with is small but it can not be eliminated. There are already foue players in the market other than PSO itself, namely SHELL PASKISTAN, Caltex, Total Parco and Attock Petroleum. New companies will not have a large market segment to capture therefore starting business in this industry will far from lucrative. This can be portrayed with the help of new entrant like Admore and ZEC which have not been able to pose a threat to the already present player.

2. Threat of substitute products

As alternative of fuel, Pakistan state oil is developing ethanol which is eventually available in market at low prices. Other than that, CNG is also avaliable in most of the PSO outlets. It is evident that world oil resources will eventually run out and alternative sources of fuel will be required hence PSO has to keep up with technology and be prepared for this eventual reprecussion to avoid being wiped.

3. Bargaining power of suppliers

It can be assumed that being an oil company, the bargaining power of suppliers would be fairly high for PSO. However after some research it has been determined that this is not the ccase. Firstly, Pakistan has to impoort oil, PSO has maintained a 30 year mutually benefical bussiness relationship with Kuait PETROLEUM corporation(KPC). This protects PSO from frequent price fluctuations in the international market. The transport fleet consists of 6000 tank lorries which are equiped with state of the art technology to keep them moinitored.

4. Baragaining power of buyers

PSO has a vide customer base which includes retail customers at national level, various industrial units, government, power projects, aviation and marine sector of pakistan including pakistan army, pakistan railway, pakistan Navy, NLC, WAPDA, KESC and many more. All these buyers combined form a formidable force which can have the power to influence PSO, however nothing like that has materliazed to date. PSO enjoys the advantage that the government regulates the prices of its various petroleum products. PSO only allows a small discount tolarge organizations on its own behalf.

5. Rivalry among competitors

The petroleum, oil and lubricants industry in pakistan is composed of to major players, PSO and Shell Pakistan. Caltex and Total Parco were the third and four entrants. Last but not least Attock petroleum has the smallest share of the market. All these companies in essence are competing for the same customers. Even though Pso has an 82.1 percent share of the black oil market and 61.2 percent share of the white oil market, it still faces fierce competition from its competitors which are vigilant in launcing their advertisement campaigns according to the prevelant condition of the market.