Jon Chadwick Chairman Shell Malaysia

30 Annual
Report
2002
“Your Company is committed to
the maximisation of shareholder
value. I want to see our
company’s Refinery as the most
admired refinery in Asia, noted for
its excellent performance. We
have formulated an aggressive
Business Plan, aimed at delivering
this objective.
Your company is on track.”
Jon Chadwick
Chairman Shell Malaysia

Chairman’s Review
On behalf of your Board of Directors, I am pleased to present
the Annual Report of Shell Refining Company (Federation of
Malaya) Berhad (“SRC”) for the year ended 31st December
2002.
Our Business Environment
While the current conflict in the Middle East could negatively
impact the world economy, it is nevertheless slowly recovering
from its previous downturn and from the September 11, 2001
tragedy.
In their recent National Budget announcement, the
Government introduced changes in fiscal and monetary
policies to mitigate the impact on Malaysia of a slowing global
economy. Additional measures have also been taken lately to
boost the capital market in Malaysia. Based on the positive
GDP growth in year 2001, your Board of Directors are confident
that the domestic economy will continue to recover steadily.
The positive GDP growth has had a positive impact on the
demand for petroleum products. Domestic demand for
petroleum products grew by 6.9% (+3.5% in 2001). The sales
of automotive Gasoil substantially increased by 21.4%
(-12.6% in 2001) and motor gasoline by 5.1% (+6.3% in 2001).
In the industrial sector, industrial Gasoil sales dropped by 8.6%
(+16.1% in 2001) and aviation fuel decreased by 5.5% (+2.9%
in 2001). LPG sales has registered an increase of 0.9% (3.1%
in 2001).
Sales of petroleum products in Malaysia
(2001 & 2002)
' 000 bbls
80.000
60.000
40.000
20.000
0
Retail Commercial LPG
Sector
2001
2002
However, refining margins which are dependent on market
forces i.e. the relative movement of crude oil and product
prices, remained under pressure as a consequence of
continued refining capacity surpluses, and the volatility of both
crude and product prices. The overhang in refining capacity
will remain for some time obliging your company to vigorously
pursue all efficiency gains.
Throughout 2002, local crude prices moved quite steadily from
approximately US$ 20 per barrel to US$ 32 per barrel. On the
other hand, the movement of product prices (MOPS) have
been more volatile, fluctuating widely between the range of
US$ 19 per barrel to US$ 34 per barrel.
USD/bbl
USD/bbl
Sales Malaysian of petroleum Crude products Prices in 2002 Malaysia
(2001 & 2002)
35.00
30.00
25.00
20.00
15.00
10.00
5.00
0.00
Sales of petroleum products in Malaysia
Product Prices (MOPS) 2002
(2001 & 2002)
40.00
35.00
30.00
25.00
20.00
15.00
10.00
5.00
0.00
Jan-02
Jan-02
Feb-02
Mar-02
Apr-02
Jan-02
Feb-02
Mar-02
Apr-02
May-02
May-02
Jun-02
Jun-02
Jun-02
Jul-02
Aug-02
Sep-02
Oct-02
Jul-02
Month
Aug-02
Our Production and Sales
In June 2002, the refinery’s long residue catalytic cracker (LRCC
Unit) successfully underwent its first major turnaround
involving a complete shutdown of the unit in June to undertake
statutory inspection as well as planned maintenance, repair
and modifications. It is pleasing to highlight that the refinery
continued to operate strongly throughout 2002 with a high
level of availability. Plant availability remained in excess of
97%, as in 2001. 39.3 million barrels of crude oil and condensate
were processed during the year, reduced by 2% compared to
2001.
Malaysian crudes and condensate continued to form 63% of
the crude diet, with the remainder coming mostly from the
Far East.
Sales volumes reduced slightly from 43.5 million barrels in
2001 to 41.4 million barrels in 2002, a reduction of some 5%.
Consequently, the sales turnover also reduced by 3% from
RM 4,601 million in 2001 to RM4,458 in 2002. The reduction in
Annual 31
Report
2002
Sep-02
Oct-02
Nov-02
Nov-02
Dec-02
Nov-02
Dec-02
Tapis
Labuan/Miri
ULG97
ULG92
Kero
Gas Oil

production and sales volumes were due to the LRCCU
turnaround in June.
Gasoil and gasoline continued to be the major products of
the refinery, forming 70% of total production. Due to the
shutdown of the bitumen production unit in late 2001, the
refinery has since then, ceased to produce bitumen.
million bbls
32 Annual
Report
2002
Sales Crude of petroleum and Feedstock products Processed in Malaysia -
Sources (2001 of Supply & 2002) (2002)
Malaysia
63%
Sales of Refinery petroleum Intake products and Sales in Malaysia
(2001 (1996 & - 2002)
46.0
44.0
42.0
40.0
38.0
36.0
Sales of petroleum Profits before products taxation in Malaysia
(2001 & 2002)
RM millions
200
150
100
50
1996 1997 1998 1999 2000 2001 2002
124
Middle East
6% Far East
31%
77 74
93
157
1996 1997 1998 1999 2000 2001 2002
4
198
Total
Intake
Sales
Our Financial Results
The Board of Directors is pleased to report that your company
achieved a turnaround in financial performance during the
year, recording a net profit after tax of RM 152.93 million
compared to a net loss after tax of RM 0.15 million in 2001.
Inventory holding gains arising from the increase in crude oil
prices at the end of the year were a key contributor to this
performance. Even with the LRCCU’s major turnaround
expenses incurred in the year, manufacturing expenses only
increased by 4% due to your company’s relentless efforts in
cost management. Declining interest rates during the year also
caused borrowing costs to reduce substantially.
Our Earnings Per Share and Dividend
Earnings per share for 2002 were 50.98 sen compared to
–0.05 sen in year 2001.
I am pleased to announce that your Board of Directors is
recommending a final dividend of 15 sen per RM 1 unit of
stock, making a total gross dividend for the year of 18 sen per
unit of stock for the reporting year. This is an increase over the
previous year’s total gross dividend of 15 sen per unit of stock
(i.e. 3 sen per unit of stock higher).
Sales of petroleum Earnings products per sharein
Malaysia
(2001 & 2002)
Sen
60
50
50.98
40
37.3
37.2
30
24.5 24.8
16.8
20
10
0
-10
(0.05)
1996 1997 1998 1999 2000 2001 2002
Our Business Improvement Initiatives
Sen per share
To further improve product yield and to increase the efficiency
of the refining process, we embarked on a Hydrocarbon
Management Review (HMR). This initiative will continue in
2003.
The Refinery participated in a benchmarking exercise
conducted by Solomon Associates (based in USA) in order to
gauge our performance against all refineries worldwide. The
key performance indicators used in this exercise were Non-
Energy Cash Cost (NECC), Maintenance Index (MI),
Operational Availability (OA), Corrected Energy and Loss (CEL)
and Shell Manpower Index (SMI).
The NECC target set for the Refinery establishes a strong
stretch for SRC (being a relatively small capacity refinery) to
drive cost performance. We have in place a cost management
process which includes monthly reviews by the Management
Team to help promote a cost focus culture across the
organisation. We had a major achievement with regard to the
OA target and this was made possible by the low unplanned
shutdown of the main units and by the successful turnaround
in June. On the other hand, a structural improvement will need
to be done to achieve our CEL target. The Company also gave
emphasis to a productivity improvement programme in order
to improve the SMI result.

After the successful conclusion of the turnaround, the first
cycle Vision, Mission and Objectives (VMO) were reviewed
for realignment with the East Zone’s VMO. The 2003 Business
Plan for the Company was finally formulated based on the six
objectives identified.
Our Commitment to Sustainable Development
Your Company’s commitment to sustainable development is
evident from the Shell General Business Principles and our
commitment to the Health, Safety, Security and Environment
(HSSE) Policy adopted by Shell companies worldwide. HSSE
has always been the Company’s utmost priority and the
refinery always approaches the management of these matters
systematically by setting yearly targets and standards, and
continuously measuring, appraising and reporting of
performance against such targets.
You will be proud to know that your Company won the “Best
Environmental Reporting 2001” award from the “National
Annual Corporate Report Award (NACRA)” organisation. Shell
Malaysia has also been awarded the “Best Environmental
Report 2001”by the Association of Certified Chartered
Accountants (ACCA).
Our People
Our people are our Company’s strength.
We provide our people with good and safe conditions at work,
competitive terms and conditions of service. We, actively
promote their development, the best use of human talent and
equal opportunity employment. Your Company also
encourages the involvement of people in the planning and
direction of their work. The refinery makes it a point to manage
diversity and inclusiveness as a critical business activity. We
respect cultural and personal differences.
To ensure continuous improvement and excellence in the
Company’s operations and to enable your Company to meet
challenges in the future, emphasis has been placed on to the
development of our people in order to upgrade their
competencies and capabilities.
Outlook for the Future
The market scenario for the oil and gas sector will remain
uncertain. Ongoing developments in the Middle East has
caused the crude prices to remain volatile.
The SRC Management
Team.
Your Company cannot rely on an improvement in refining
margins - we believe a structural over capacity will remain for
some time to come.
Apart from enhanced health, safety, security and environment
as well as people management , focus will be given to asset
integrity, maximisation of margin and structural costs
reduction. Only by aggresively pursuing further cost
efficiencies will your company thrive.
On behalf of the Shell Refining Company (Federation of
Malaya) Berhad, I would like to thank the Board, Management,
staff and contractors for their efforts during the last year. Their
continuing commitment, high performance, and loyalty inspire
our confidence in the future of your Company.
Jon Chadwick
Chairman
Some members of our diverse, talented workforce.
Annual
Report
2002
33