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TheEdgeDaily.com (Malaysia): Shell's new chairman to focus on maintaining profitability

Shell's new chairman to focus on maintaining profitability
By Alfean Hardy

Shell Refining Company (Federation of Malaya) Bhd's new chairman, Saw Choo Boon, sees the main task ahead of him is to maintain the profitability the company has enjoyed over the past three years.

“It encompasses everything. Profitability means to see the company run as efficiently and optimally as possible. That would be one major real challenge,” he said.

The company has seen 11 consecutive quarters of profits, despite lower refining margins amid high crude oil prices.

In its latest financial results, Shell saw its net profit falling 77% year-on-year to RM45.81 million in the first quarter ended March 31, 2006 due to lower realised refining margins and stockholding gains, and a higher effective tax rate.

Its outgoing chairman, Datuk Jon Chadwick, who passes the baton to Saw on May 19, said Shell expects margins to continue to be under pressure for the second quarter.

“Margins in the first quarter were under pressure, subdued, and tough. The second quarter would remain under pressure. We can’t go (predict) beyond that because it’s too volatile,” he said.

They were speaking to reporters after Shell's AGM in Kuala Lumpur on May 18.

Saw said Shell was operating in a market where crude oil prices were high and unpredictable and where, citing an International Energy Agency report, demand for refined products were predicted to dip.

“When we talk about margins, we are not only talking about product prices. If we have to pay a lot for crude and if product prices do not move by the same magnitude, margins get squeezed.

“Unfortunately, the forces that work on crude and product prices are not necessarily the same. The absolute value of crude and products don’t mean a thing, it’s the difference that makes the difference,” he added.

Chadwick said the shutdown of its Port Dickson refinery in Negeri Sembilan for 33 days last year for scheduled maintenance did have an impact on revenue. It produces between 100,000 and 125,000 barrels of refined products per day there.

“We managed to eke out what we see as a satisfactory profit. We are prudent and we are focussing on operational excellence. If refining margins remain low, its up to management to keep costs low,” he said.

Chadwick said Shell would be producing more refined products this year as production would not be hampered by any scheduled maintenance shutdowns.

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