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Shell Refining Company (Federation of Malaya) Berhad (3926-U)38

Corporate Social Responsibility 40 Our Commitment to Sustainable Development

Shell Refining Company (Federation of Malaya) Berhad (3926-U) 39

growingtogether

People matter to your Company. Our sense of economic,

social and environmental responsibility is reflected

in our commitment to meeting today’s needs

without compromising the ability of future generations

to meet their needs.


Our Commitment to Sustainable Development

Your CompanY anD SuSTaInaBLE DEVELopmEnT

Shell Malaysia subscribes to the principle of sustainable development that meets the needs of the present generation without compromising the ability of future generations to meet their own needs. Being part of Shell Malaysia, your Company subscribes to the same principle of sustainable development. Our practices are aligned with the systematic approach adopted by Royal Dutch Shell plc in their own efforts to implement good health, safety and environmental management practices. Our actions are governed by the need to make business decisions that give credence to our sense of economic, social and environmental responsibilities and by which our stakeholders and society can hold us accountable.

In this day and age, sustainable development does not just involve environmental preservation or social concern, it must also take into account economic performance. By the same token, in order to sustain a healthy bottom-line, we must exhibit strong environmental and social performance.

Through our sustainable development policy, your Company integrates the economic, environmental and societal aspects of our business in order to achieve sustained financial success, safeguard our environment and develop our reputation as a partner and provider of first choice for a wide range of audiences. Our audiences include our shareholders, customers, employees and those with whom we do business, as well as society and the future generations. All of these audiences expect us to engage with them, listen to them and evolve with them to meet their changing expectations.

We aspire to be the “Top Performing and Most Admired Refinery in Asia” by operating our businesses efficiently, responsibly and profitably. As we aim for high standards of performance, we also aspire to establish a long-term presence among the communities we operate in. As such, we are committed to helping our stakeholders improve their quality of life, whilst simultaneously contributing to Malaysia’s advancement and its Vision 2020 goals.

As we journey towards achieving our aspirations, the methods by which we bring our sustainable development practices into play will be integral to our success. Our current stance is reflected in the following practices:

• We provide our customers with solutions and a variety of energy products, materials and services, which meet their requirements economically and does not cause harm to the environment. We work to convince them that our activities and their support for us, do not lead to unsustainable social differences but create wealth, which benefits society as a whole. We also work to convince them that there is a clear path for the future development of our industry, which will benefit the next generation.

• We build and maintain a culture of learning and innovation in which employees can fulfil their potential and meet the most challenging of targets – while having fun at the same time! It is a culture where we encourage our leaders to inspire others through personal example, and where the values of honesty, integrity, respect for people, trust, openness, teamwork and professionalism, can prosper.


There was zero Total Recordable Cases (TRCs) in 2006 and hence our Total Recordable Case Frequency (TRCF) for the year was zero - our best performance ever in 15 years. Our regular hazard communication and risk assessment programmes contributed greatly to reducing the number of First Aid Case from nine cases in the 2005 to four cases in 2006.


We draw upon our companies’ strengths to meet the challenges of the new millennium with a view to helping people build a better world. We will therefore continue to invest in projects that exploit world-class technology, research and development within the highest Health, Safety, Security and Environmental (HSSE) standards.

no Harm To pEopLE

We are truly committed to pursuing the goal of no harm to people or assets as a result of our operations.

SAFETY IS OUR BUSINESS

Your Company steadfastly believes that a strong safety culture is essential to our business. As such, we continue to inculcate a culture of ownership and personal responsibility for safety and health at the workplace throughout our organisation. Throughout 2006, we continued to undertake the structured implementation of our HSSE Management Systems with definite improvements reflected via our key performance indicators (KPIs).

The overall HSSE performance in 2006 was outstanding following concerted and focused efforts to reduce all incidents of fire, First Aid Cases (FAC) and Medical Treatment Cases (MTC). Your Company successfully achieved five years without a Lost Time Incident (LTI) in May 2006 and six million Exposure Hours (employees + contractors) without a LTI in August 2006.

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Classification of Incidents (2004 - 2006)

Key Performance Indicators (KPIs) are important in that they facilitate performance monitoring and assessment against certain set targets. One of these Process Safety KPIs is the Loss Of Primary Containment (LOPC). The reporting of LOPC incidents has been fully embedded in our computerise MARSHAL incident reporting system and programmes have been put in place to provide key learnings and corrective action plans. This has resulted in noticeable improvements as far as LOPC incidents are concerned – the number of fire incidents had drastically reduced and there have been zero reportable spill incidents in 2006.

Competent staff and contractors are indispensable when it comes to ensuring tasks are carried out safely. In-house training on various HSSE critical activities, such as Permit To Work, Hazard & Effect Management Process (HEMP) & Risk Assessment Matrix (RAM) training, H2S training, Confined Space Entry, Fire Fighting and Emergency Response, continued to see full involvement by all as per plan. Compliance with the Group HSSE Competence framework and an ongoing exercise to close the various competence gaps identified have resulted in improvements in the various competencies that have contributed to good HSSE performance.

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BRINGING CONTRACTORS ON BOARD

We continuously and consciously work to instill our HSSE culture among our contractors in a variety of ways, and they in turn, assimilate our practices into their on-site activities. The year 2006 saw quite a number of project construction activities taking place involving repairs to the jetty, tank and process areas. These projects were undertaken successfully without any injuries and at zero TRC. Much effort was put into the HSSE plans of these projects to ensure that the contractors implemented them in as safe a manner as possible. These efforts included a proper risk analysis of all activities carried out and stringent monitoring of unsafe acts and conditions. These contractors, as well as others, have all been found to be working within the parameters of your Company’s HSSE management system. Any new contractors that come onboard to work in our refinery continue to be coached and mentored in line with the HSSE Management System guidelines.

PROTECTING WORKERS HEALTH

We are committed to protecting the health of the people at our workplace.

The year 2006 was a challenging one for your Company in relation to the increase number of sickness absenteeism compared to the previous year. Contributing to the higher sickness absenteeism numbers were incidences of long-term ailments such as heart problems, stiffness of shoulder and knee problems due to aging factors. Most of these cases involved the more senior workers who took longer time to recover and return back to the system.


In line with continuous improvement efforts, various HSSE campaigns were held. These included the Fire Safety Campaign, Electrical Safety Campaign, LOPC Campaign, Working at Heights Campaign and Hand Safety Campaign.

The emergency response capacity and readiness of your Company continues to be a priority and 65 fire training sessions were conducted for staff and contractors over the course of the year. Some 25 members of the local Bomba from Teluk Kemang and Port Dickson were also involved in these training sessions by virtue of their involvement in Tier 2 and 3 support as per our Emergency Response Plan (ERP).

BEHAVIOUR-BASED SAFETY & HEARTS AND MINDS PROGRAMMES

Behaviour Based Safety (BBS) was introduced to all refinery employees including the in-house contractor by an external consultant. The programme began in November 2004 and all employees were trained by 2005. A group of BBS Observers were trained to conduct observations and provide reports to the focal safety manager. A web based checklist for the BBS observers was launched and the findings are being analysed to ensure continuous improvements in safety behaviour. Overall, there are many positive indications that the BBS programme will provide additional marked improvement in our safety performance. In 2006, the observations contained in our BBS observers database are being analysed by our consultant to provide earning basis in preparing our HSSE programmes and compaigns.

2006 also saw your Company beginning to implement the Hearts and Minds module where a selected group of staff were sent for training to lead and facilitate future workshops.


SECURITYThere were no untoward cases of loss of assets resulting from theft for the year. Improved security systems and adequate controls that have matured with time have led to a decline of such incidences in the past five years. We will continue to maintain a high security presence throughout our facilities including conducting spot checks on people leaving the site.

While existing contractors are well versed with our requirements, new contractors are pre-engaged on our HSSE policy and practices before being allowed to come on site. Furthermore, our strict enforcement with a single standard for everyone has made us very transparent.

INTERNATIONAL SHIPPING AND PORT SECURITY (ISPS)

Our port facilities were found to have complied with the requirements of the code in the first annual audit carried out by the Marine Department and were given the green light. We are continuously making improvements where required in order to maintain our certification and ensure the continuous operation of this critical facility. In an earlier separate audit, the State Security Department gave our facilities the thumbs up.

proTECTInG THE EnVIronmEnT

We are committed to protecting the environment.

Your Company minimises the impact of its operations to the environment by setting highly challenging improvement targets to progressively reduce emissions and discharges. These efforts all fall in line with Malaysian legislations, Shell Group Strategic Objectives and other related international conventions and protocols.

On the upside, our panel of doctors and third parties continue to carry out health promotions to increase the awareness of the employees and contractors. These efforts aim to ensure that employees and contractors are more proactive in looking after their own health and are not burdened by unnecessary ailments in the years to come.

On a smaller scale, medical counselling is being carried out by Occupational Health Doctors with the aim of helping employees who have been exhibiting a pattern of sickness absenteeism due to short-term sickness. It is also an opportunity for these employees to voice out any occupational or non-occupational health problem to the doctors and at the same time maintains the medical confidentiality of the workers.

Your Company also continues to promote occupational illness (OI) reporting among staff and contractors, and in particular among supervisors, to ensure that all occupational illness are tracked and reported. This is being carried out in a proactive manner by engaging staff and contractors alike in dialogue sessions. The efforts to track potential occupational illness began in 2006 and to date four employees have been diagnosed as having potential OI. An incidence of Contact Dermatitis was also recorded but upon further investigation by the Downstream Medical Advisor it was diagnosed as being non-work related.


Burns10%

Chemical contact

10%

Knocked / Hit7%

Ergonomics3%

Pinching13%

Sharpobject

7%

Slip and fall17%

Stress3%

Insects10%

Foreign body3%

Flying object17%

Causes of Injuries (2004 - 2006)



FLARING

Total Flared Gas(Complex 1& 2, LRCC)

2006 2005 2004 2003 2002

42,370 MT 29,763 MT 17,247 MT 24,000 MT 20,000 MT

In 2006, the refinery registered increased flaring compared to previous years mainly due to the processing of increasingly heavy crude oils through its Long Residue Catalytic Cracking Unit (LRCCU) and plant equipment reliability issues.

Sources of air emissions at the refinery could potentially arise from:• Fuel burning or combustion in our operations;• Flaring and venting;• Evaporation from tanks and equipment during transport and

storage of oil products;• Fugitive releases which occur as a result of a leak from process

equipment.

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EMISSIONS

2006 2005 2004 2003 2002 [Note1]

CO2

kT/100kT intake

23.8 19.9 20.2 21.8 22.2

SO2

T/100T intake

0.15 0.11 0.11 0.12 0.06

Note1: CO2 emissions were understated in 2002; data has been corrected.



Carbon Dioxide (CO2) emissions in 2006 were higher compared to previous year as a direct consequence of the increased level of flaring. The Sulphur Oxide (SO2) emissions, that are related to feedstock processed, increased slightly compared to 2005.

GLoBaL WarmInG poTEnTIaL

2006 2005 2004

GWP (kT CO2 Equivalent)

1,287 1,093 1,178

As part of our Sustainable Development drive, the Shell Group has devised a method to compare the relative effect of greenhouse gasses (GHG) on the climate. The result, a factor known as Global Warming Potential (GWP) provides relative measurement of the warming influence of a gas relative to that of carbon dioxide over a 100-year time horizon.

Your Company participated in this monitoring effort and started recording our GWP contribution in kilotonnes of Carbon Dioxide Equivalent in 2004. Our GWP is from gaseous emissions of Carbon Dioxide (CO2), Methane (CH4) and Nitrous Oxide (N2O) arising from combustion, flaring, venting, storage, fugitive emissions, loading, unloading, unplanned and planned releases. While Hydrofluorocarbon (HFC), Sulphur Hexafluoride (SF6) and Perfluorocarbon (PFC) emissions also contribute to GWP, your Company does not employ such gasses. In 2006, your Company recorded GWP of 1,287 kT CO2 Equivalent or a 9% increase from 2004’s baseline performance. The significant difference between the 2006 and 2005 performances is mainly attributable to the major turnaround that the refinery underwent in the second quarter of 2005.

HALON AND CHLOROFLUOROCARBON (CFC) REMOVAL

Our refinery has been free of Halon and CFC since April 2000. However, the refinery does have Hydrochlorofluorocarbons (HCFC) in its inventory that are scheduled for elimination between 2015 and 2020 in accordance with the Montreal Protocol.

SPILLS

In 2006, your Company did not have any reportable spills incident.

WASTE MANAGEMENT

The main sources of solid waste arising from refinery operations are:• Sludge from oil storage and refining;• Spent Catalysts;• Non-hazardous waste

Quantity (MT)

2006 2005 2004 2003 2002

Sludge 2,144 1,592 2,850 2,120 4,600

Spent Catalysts

2,661 1,655 2,568 2, 430 2,740

Recovered Waste Oil

1,139 56.7 1,933 1,900 2,700

Our refinery continuously produces sludge from its operations. We apply a proven and Department of Environment (DoE) approved sludge reduction technology in order to reduce the volume of sludge disposed by recovering as much remaining hydrocarbon as possible from the sludge. A stack emissions report particular to this operation is submitted to the DoE on an annual basis.

The qualities of the treated materials meet the landfill criteria with moisture <0.1% and Total Organic Carbon (TOC) at 0.25% wt. This technology gives your Company a significant reduction in the volume of sludge that was previously incinerated.

Your Company continued to see success in recycling a large portion of the waste that originates from its refinery operations. A total of 2,661 MT of spent Fluid Catalytic Cracking (FCC) catalysts was re-used as raw feedstock at cement plants in Perlis and Negeri Sembilan.

Spent catalyst from our Hydrotreating Operations was sent to Taiwan for recovery of the semi-precious metals; cobalt and molybdenum.



EFFLUENTS

2006 2005 2004 2003 2002

Oil in Effluent Water (mg/l)

7.4 6.6 1.2 1.6 1.0

The main discharge to water from our operations is oil in the water that accompanies oil production. The refinery’s effluent water is discharged some 1km offshore via a pipeline.

In 2006, the average oil in water concentration was at 7.4 milligrams per litre (mg/l). Although higher than 2005’s figure, it is well within the legislative limit of 10 mg/l and the limit set by the Malaysian Environmental Quality Act 1974 Effluent Quality Standard B. This water is also used as means of firewater supply for your Company.

Your Company is periodically experiencing spikes in effluent water Chemical Oxygen Demand (COD) quality. Improvement plans have been developed and presented to the DoE. Sludge removal from the holding basin project will kick start in 2007. Seawater quality at the discharge point continues to be monitored and has not shown any deviation from the norm. Such a performance signifies almost zero effluent water impact to the environment.

MATERIAL AND ENERGY USE

2006 2005 2004 2003

Refinery Energy Index (Actual)

169.7 166.9 165.9 165.4

Refinery Energy Index (Target)

166.3 165.3 159.4 159.4

Your Company is committed to using materials and energy efficiently to provide products and services. By setting annual Refinery Energy Index (REI) targets that take account of the in-year operational and maintenance plans, your Company strives to deliver continuous improvement. In 2006, your Company achieved energy performance within 2% of our target.

PUBLIC COMPLAINTS

All citizens have the right to complain if and when our operations inconvenience their daily lives. We take all complaints seriously and each is documented and filed to ensure prompt action and response. Normally, all complaints will be responded immediately and closed within 48 hours. If this is not possible, the complainant will be provided a reason for the delay and will be advised as to when to expect a reply. In 2006, your company recorded seven public complaints, compared to five recorded in 2005. The complaints were mainly pertaining to smell and noise, which our duty officers promptly responded to and the appropriate corrective actions taken. Complaints are also discussed at the Community Dialogue sessions that take place regularly.

rEporT anD ConSuLT

We commit to publicly report on our performance and engage in stakeholder consultation.

REPORTING ON PERFORMANCE

Your Company communicates its openness, transparency and accountability through a variety of ways, one of which is via our annual Shell Malaysia Sustainable Development (SD) Report, which includes details of your Company’s progress across a wide and demanding range of indicators – from greenhouse gas emissions to road safety statistics. Copies of this report are distributed to government agencies, business partners, opinion leaders, academicians, NGOs, contractors and employees. The report is also posted on the Shell Malaysia website at www.shell.com.my.

Information on your Company’s performance can also be found on your Company’s Corporate website, which was launched in May 2005. The website address is as follows: www.shell.com.my/shellrefining.



NACRA AWARDS

Your Company reports its performance encompassing a wide range of subject matter in its annual report. This document complies with and adheres strictly to all the disclosure requirements for a Malaysian public-listed company and is in line with Shell’s Statement of General Business Principles.

In 2006, your Company was the recipient of two awards from the National Annual Corporate Report Awards (NACRA) body. For the second consecutive year, our annual report won the “Industry Excellence Award” for companies listed on Bursa Malaysia’s Main Board under the Industrial Products and Technology sector. Your Company’s annual report also won the Platinum Award for the “Best Annual Report in Environmental Reporting” from NACRA for the fifth consecutive year. These wins demonstrate your Company’s commitment and drive towards ensuring that a complete and informative performance report, including our environmental performance, is disclosed to our shareholders and society.

COMMUNITY DIALOGUES

As part of our Community Care programme, we conduct regular dialogues with our residential neighbours. The 2006 dialogue sessions covered topics such as: • Update on refinery operations and activities; • Corporate Social Responsibility; • HSSE issues and updates on the potential impact of our activities

on the community.

We have also enhanced the active dialogue process through letter-drops to neighbouring homes and to the local authorities during the refinery’s planned and unplanned shutdown periods. Under this unique and personalised exercise, each of our neighbours receives a letter alerting them and seeking their understanding on the HSSE aspects of the shutdown (in view of possible high noise and flaring during this period). From the feedback we have received, the letter-drops and dialogue sessions have significantly contributed to galvanising and enhancing the relationship between the neighbouring communities and your Company. This also underlines the former’s appreciation of our commitment to good neighbourliness and HSSE issues.

ENGAGEMENT WITH NGOS

Your Company recognises the need to regularly engage our stakeholders in order to obtain feedback as well as to learn from them. To this end, we conduct regular meetings and dialogues with local non-governmental organisations (NGOs) who are interested in our activities and who share common interests and societal concerns with Shell. In this manner, we are able to share our experiences and at the same time obtain their views and feedback. We also undertake to co-organise and sponsor activities with local NGOs.

promoTInG BEST praCTICES

ISO 17025 CERTIFICATION

Your Company’s laboratory in Port Dickson continued to demonstrate its professionalism and high quality management standards by successfully maintaining its ISO 17025 Certification in 2006. The Department of Standards Malaysia (SIRIM) conducted the audit of the laboratory’s Quality System and no Non-Conformities against the standard were recorded. This is due recognition of the technical competence and the professionalism of our staff, and the sound management system in place. The laboratory is accredited for a whole range of refinery product testing processes, all of which demand the highest precision techniques.

Our laboratory also won the 2006 Excellence Award from the Malaysian Institute of Chemistry for the fifth consecutive year. This award aptly recognises the high standards that this laboratory maintains with regard to safety, analytical services to its customers, quality management and the technical competency of its staff. The laboratory supports both internal and external customers such as the PETRONAS Melaka Refinery, the ESSO Port Dickson Refinery and the Shell depots operating within Shell Malaysia’s commercial and retail businesses. This latest recognition is firm acknowledgment that the laboratory’s customers are receiving internationally-certified services with the ISO 17025 edge.

The laboratory has a high customer focus, which is evident by the results of the customer satisfaction surveys conducted twice yearly. The laboratory scored 4.2 on a scale of 1 to 5, where “5”, best demonstrates that customers rate the service as being above the expected level.



The laboratory plays an important role in the quality control chain of our product components and finished products. Malaysian authorities have highlighted their intent to introduce new product specifications for both diesel and gasoline products. In 2005, the Company’s laboratory completed the installation and testing of all the new laboratory equipment required to enable them to measure either new product specifications or product parameters with higher accuracy. The laboratory is as such ready for the implementation of Euro 2-M specifications.

WORKING AND PROMOTING BEST PRACTICES WITH REGULATORY BODIES

Your Company continue to receive invitations from outside organisations and regulatory bodies to learn and share our best practices with them. In 2006, representatives of the Department of Occupational Safety and health officers from the Major Hazards Division made a familiarisation visit to our Emergency Coordination Centre. The occasion was used to highlight the best practices that SRC has in place. This sharing of knowledge and experience demonstrate our willingness to promote best practices with regulatory bodies for the good of the oil and gas industry.

SAFETY CENTRE & EMERGENCY CONTROL CENTRE (ECC)

Our safety centre and the ECC continue to impress both visitors and auditors alike. These two facilities have been recognised, by both Shell and external parties, as best practice facilities and contributed to your Company gaining several HSSE awards for the year.

The revised DVD safety induction video also received good feedback and continuous improvement efforts to enhance its contents are being planned. Additional on-line IT facilities and communication equipment were added to the ECC to further improve its overall effectiveness. We continue to maintain and improve our facilities to address the challenges and demands of the world today.

MEETING INTERNATIONAL MANAGEMENT STANDARDS

In line with our policy of being open, transparent and accountable, we subject ourselves to scrutiny by qualified independent auditors to confirm that we are managing HSSE issues according to international standards. The sustained efforts of your Company have yielded the following certifications:

• International Ship and Port Security Code (ISPS) Your Company attained International Ship and Port Security Code

(ISPS) certification on 1st July 2004, a worldwide requirement imposed by SOLAS (Saving of Life at Sea) to ensure the security of ships and port facilities. This certification was awarded by the Designated Authority for Malaysia, which is the Marine Department. This certification allows your Company’s port facilities to receive 500-tonne ships on international voyages.

• ISO 14001 Your Company attained ISO 14001 certification in September

2000 and was successfully re-certified in 2006 by certification body, SIRIM QAS. This international standard sets the guideline for environmental management.

• OHSAS 18001 Your Company achieved OHSAS 18001 certification in 2001 and

was re-certified in 2004 by certification body, SIRIM QAS.

• ISO 9001 Your Company was successfully upgraded to ISO 9001:2000 by

SIRIM in July 2003 with an expanded scope that includes Marine services.

• ISO 17025 Your Company’s main laboratory successfully migrated to the new

ISO 17025 standard in 2001.



HSSE AUDITS AND CERTIFICATION

In 2006, the Department of Occupational Safety and Health (DOSH) conducted a site Occupational Safety and Health (OSH) Management Systems audit and also a Confined Space Entry Programme audit. We passed both audits and received good feedback from DOSH auditors. Your Company also passed the Shell Group Independent HSSE Management Systems audit, which is carried out every three years. We also received re-certification by SIRIM for the ISO 14001 Standard as well as passed SIRIM’s OHSAS 18001 surveillance audit.

DIVErSITY anD InCLuSIVEnESS

As a forward-thinking organisation, we understand that the whole is always more than the sum of its parts. We also understand the importance of accepting differences and recognise our people for who they are while acknowledging the importance of their contributions.

Only by recognising and understanding the differences inherent in individuals, can we aim to tap the diverse talents of our pool of varied people. By accepting diversity in the workplace, can we optimise our human resource capability and hone the latent talents and skills of our multi-national workforce.

Diversity encompasses visible differences in terms of gender, age, nationality and physical ability; as well as subtle underlying differences in terms of education, experience, religion, work styles, way of thinking and communicating.

Inclusiveness, on the other hand, refers to a workplace where diversity, both visible and subtle, is valued and where individuals are given the opportunity to develop skills and talents consistent with organisational values and business objectives.

Our acceptance of diversity and inclusiveness means that your Company today has a diverse and multi-talented workforce comprising 300 employees of five nationalities, of which 89% are male and 11% female. Among the management team, the ratio is more balanced with the male composition at 56% and the female composition at 44%. We are also proud to report that your Company’s workforce now boasts its first female plant manager.

THE SHELL GROUP DIVERSITY VISION

“Within 5 years, the Group will be widely perceived by both internal

and external stakeholders as a company that values diversity, and as a

company of choice for men and women of ethno-cultural backgrounds.

The Shell Group will benefit from diversity through better relationships

with customers, suppliers, partners, employees, government and other

stakeholders, with positive impact on the bottom line”

(Value Creation Team and Shell Group Committee of Managing Directors, 1997)

To nurture Diversity and Inclusiveness (D&I) in the workplace, we need to build awareness, knowledge and understanding to develop the necessary skills, as well as practice behaviour that is conducive to changing attitudes and driving organisational change.

D&I WEEK

Your Company is committed to bringing about the organisational change needed to deliver our Vision. As part of our change journey, Shell Malaysia held a special employee engagement activity labelled D&I Week, which was launched on 13th November 2006. D&I Week was attended by employees from Shell House in Kuala Lumpur and about 100 employees from your Company’s refinery at Port Dickson. Our aim for 2006’s D&I week was to share Shell’s experiences with our employees and provide them a better understanding of D&I at the workplace. Employees were given the opportunity to participate in learning activities to build a more inclusive workplace, which will ultimately help everyone to deliver their best.

The successful implementation of our D&I Plan will lead to the attraction and retention of top talent, increase productivity, inculcate a stronger customer/market focus and give us the means to operate at our best and grow.



EMPLOYEE TRAINING

Your Company is a firm believer of enabling employee training that enhances performance. Our management’s task is to ensure that our workforce is equipped with the knowledge, skills and attitudes that are necessary for optimal performance. Employee training forms an integral part of our corporate and human resources strategy and is available to all employees.

Whilst your Company recognises and encourages our employees’ desire for self-development, all employee training at your Company is founded on clear, identified business needs and clear objectives based on job requirements, which are then pitched against performance criteria. Your Company’s policy ensures that all training is optimised and conducted in a manner conducive to achieving organisational goals. We deem training that develops employee potential and enhances employee performance as tools that are essential for the effective conduct of our business.

CuLTurE oF SuSTaInaBLE DEVELopmEnT

We are committed to promoting a balanced work-life culture in which all Shell employees share your Company’s commitment to sustainable development.

SOCIAL PERFORMANCE PLAN

Corporate Social Responsibility (CSR) or commonly known as Social Performance (SP) in Shell Group is the term we use to describe how we manage the impact of our business on the communities and societies in which we operate. As part of the Shell Group guidelines, your Company has developed and executed its SP Plan, which aims to increase social performance levels in a structured manner. Your Company and its stakeholders stand to gain from proactive engagement on clearly drawn-up issues.

Through a strategic and sustained SP Plan we aim to:• Contribute to the development of communities within which we

operate;• Maintain and sustain the environment for the present and future

generations;• Treat employees with dignity and respect;

• Engage in ethical and open relationships with shareholders, stakeholders employees, customers and community legislators/officials;

• Work collaboratively with external stakeholders in addressing community and societal concerns and issues.

WORK WITH STAKEHOLDERS

Your Company’s operations and presence undoubtedly impact upon, and are invariably affected by many different stakeholders. We recognise our stakeholders’ interest in our business and the need to listen and respond to them. In this respect, the Port Dickson community is fully engaged in our activities via letter-drops and engagement sessions with neighbours and residents. A communication platform is also provided to enable stakeholders to channel any concerns they may have in a timely and formal manner. The local authorities have held us in good stead with the pro-active role that we embarked on.

BENEFITS COMMUNITIES

Your Company is a key member of Port Dickson community. We are constantly looking for appropriate ways to contribute to the social well being of the community and to the wider public, which grant your Company its licence to operate and grow.

Our contributions do not always take the form of direct funding and monetary sponsorships. We also provide employment and business opportunities, as well as invest in programmes and initiatives to raise the socio-economic status of Port Dickson and improve the locality’s standard of living and quality of life. This non-quantifiable contribution has been widely acknowledged by the local Government and community leaders. We have also supported the government’s call for the increased application of the English Language in local schools by sponsoring efforts to promote the use of English in communication by students. Your Company’s annual “We Care We Share” community care programme plays an integral part in fulfilling the Company’s social investment objectives by participating in and contributing towards various charitable causes. The programmes we organised, supported or participated in 2006 are:

• Joint road safety campaign for LPG drivers • Safety day with local fence line residents • “We Care We Share” programme with the Blind Association of

Negeri Sembilan & Malacca



• National Day celebration with pre-school children• Unity Walk with PD residents• Refinery visit by various NGOs, Government bodies and students• Community dialogues with NGOs, neighbours and Government

authorities• District-level English public speaking competition• District-level English debating competition• District-level English drama competition• District-level English choral speaking competition• Health day with local residents• Beach cleaning campaign with students and National Service

trainees • Career guidance talk to secondary students with a NGO

BIODIVERSITY

As an important part of society, all businesses, including your Company, have a role to play in protecting and supporting biodiversity. As an active contributing member of society, Shell takes this responsibility very seriously.

We recognise that our operations have consequences that, if unaddressed, can result in the loss of biodiversity and can cost us our time, money and reputation. A failure to protect biodiversity could jeopardise our licence to operate, while a strong reputation built on the effective management of biodiversity will be a competitive advantage. There is a clear business case for addressing biodiversity within Shell. Our approach is set out in a Group Biodiversity Standard.

The Shell Group Biodiversity Standard dictates that:• We conduct environment assessments, including the potential

impact on biodiversity, prior to all new activities and the significant modification of existing activities;

• We bring focused attention to the management of activities in internationally recognised hotspots, including the identification of key stakeholders and early consultation with them.

In meeting the above standards, we will:• Work with others to maintain ecosystems;• Respect the basic concept of protected areas;• Seek partnerships to enable the Group to make a positive

contribution towards the conservation of global diversity.

In all that we do, we will balance our economic ambitions with a clear commitment to corporate responsibility.


Corporate Governance 54 Audit Committee Report

58 Corporate Governance Statement

66 Statement on Internal Control


resolutefocus

Our commitment to disclosure is matched by our will

to achieve the best results, and maintain our competitive

edge through aggressive cost reduction and margin

improvement.


AuditCommittee


ReportTERMSOFREFERENCE

ConstitutionThe Shell Refining Company (Federation of Malaya) Berhad Audit Committee was established by the Board of Directors on 22nd September 1993 to:

• Assist in discharging the Board’s responsibilities relating to the Company’s management of internal controls, accounting policies and financial reporting;

• Provide by way of regular meetings, a line of communication between the Board and the Company’s internal and external auditors.

MembershipThe Company’s Audit Committee is appointed by the Board and consists of four members, of whom three (i.e. a majority) are Independent Non-Executive Directors to comply fully with paragraph 15.10 of the Listing Requirements of Bursa Malaysia Securities Berhad. The Chairman of the Audit Committee is one of the appointed Independent Non-Executive Directors. One of the Directors has more than three years working experience and is a member of one of the Association of Accountants specified in Part II of the 1st Schedule of the Accountants Act, 1967.

AuthorityThe Audit Committee is authorised by the Board to investigate any activity in discharging its duties and responsibilities within its terms of reference and shall have unrestricted access to information it requires from any employee, and all employees are directed to co-operate with any request made by the Audit Committee.

The Audit Committee is authorised by the Board to obtain outside legal or other independent professional advice and to secure the attendance of outsiders with relevant experience and expertise whenever it deems necessary.

Quorum and Frequency of MeetingThe quorum for Audit Committee meetings shall be the majority of Independent Non-Executive Directors present. Meetings shall be held at least four times each calendar year, usually preceding the meetings of the Board of Directors.

The Secretary of the Audit Committee is the Company’s Internal Audit Manager. The minutes of each meeting are distributed to each member of the Committee and the Board. The Chairman of the Audit Committee reports on each meeting to the full Board at its subsequent meeting.

The Managing Director and the Finance Manager normally attend these meetings but do not have any voting rights. In addition, the External Auditors and any other appropriate persons may also be invited to attend these meetings. The Independent and Non Executive Directors meet at least once a year with the External Auditors to discuss the external audit findings without any Non-Independent Board member present.

DutiesIn discharging its duties and responsibilities, the Audit Committee shall perform, and where appropriate, report to the Board on the following:

a) RiskManagement&InternalControl • Consider the business’s principal risks and evaluate the

effectiveness of the process used to identify, assess and mitigate them

• Evaluate the design and operating effectiveness of the internal control system for managing the business’s principal risks, taking into consideration:

– The results of internal audits and other assurance activities – Business Control Incidents – Business results, key performance indicators and the degree

to which the business has achieved its objectives • Consider whether appropriate and timely actions are taken to

identify and address material failings or weaknesses in internal controls


Seated from left to right

Y.Bhg. Dato’ Jaffar Indot, Y.Bhg. Dato’ (Dr) Yahya bin Ismail

Standing from left to right

Y.Bhg. Tan Sri Saw Huat Lye, Mr. Thomas Michael Taylor


b) ExternalAudit • Recommend to the Board the appointment of the External

Auditors and the audit fee to be paid. • Make appropriate recommendations to the Board on matters

of resignation or dismissal of the External Auditors. • Review and discuss the nature and scope of the external audit

strategy and plan. • Review and discuss issues arising from External Auditors’

interim and final audit letters to Management and the Management’s responses and External Auditor’s evaluation of the system of internal control

• Discuss problems and reservations arising from the interim and final external audits, and any matter the External Auditor may wish to discuss (in the absence of Management, where necessary)

c) InternalAudit • Review the scope, function, resources and authority of the

Internal Audit function in carrying out its work. • Review the risk-based Internal Audit Plans and Programmes. • Ensure co-ordination between the Internal and External

Auditors • Review the major findings reported by Internal Audit and follow

up on Management’s implementation of the recommended actions.

• Assess performance of services provided by the Internal Audit Function.

• Recommend to the Board to adopt and declare the Director’s Statement of Internal Control and any changes to the said Statement.

d) FinancialReporting Review the quarterly, half-yearly and annual financial statements

before submission to the Board and scrutinise and evaluate: • Any changes in accounting policies and practices • Compliance with prevailing accounting standards • Compliance with statutory and regulatory disclosure

requirements • Any significant adjustments resulting from audits • Major judgmental areas (e.g. material contingent liabilities) • The ongoing key assumptions, which underpin the

Management’s business targets

e) RelatedPartyTransactions • Recommend to the Board matters regarding Related Party

Transaction including disclosures and review any conflict of interest situation that may arise within the Company including any transaction, procedure or course of conduct that raises questions on Management integrity

f) OtherMatters • Consider other issues, as proposed by the Board from time to

time

MEMBERSHIPANDMEETINGS

Four meetings were held during the year 2006. Their records of attendance are as follows:

23Feb2006

17May2006

17Aug2006

23Nov2006

Dato’ Jaffar Indot Present Present Present Present

Tan Sri Saw Huat Lye Present Present Present Present

Dato’ (Dr) Yahya bin Ismail

Present Present Present Present

Thomas Michael Taylor Present Present Present –

Dato’ Jaffar Indot is the Chairman of the Audit Committee. The Company’s Managing Director, Finance Manager, Internal Audit Manager and the External Auditors (as and when required) were in attendance at each of these meetings. The Chairman of the Audit Committee, the Independent Directors and the external auditors held a meeting on 5th February 2007 without the presence of any Non-Independent Directors, to discuss the results of the audit, independence of the external auditors and the extent of cooperation provided by your Company and its employees and any other observations thay may have during the audit process.

AuditCommitteeReport


HIGHLIGHTSOFACTIVITIES

The Company conducted sixteen (16) internal audits/reviews in 2006 on different business processes and regulatory compliance as follows:

NAMEOFAUDIT/REVIEW PERIOD

CONDUCTED

Bursa Malaysia Listing Requirement Audit Quarter 1, 2006

Major Turnaround Post Implementation Review Quarter 1, 2006

Maintenance Contract Review (Follow Up Audit) Quarter 1, 2006

Technical Safety Review – HDS & HDT Units Quarter 2, 2006

Shipping and Marine Business Review Quarter 2, 2006

Fire Safety Review Quarter 2, 2006

ISO 9001 Surveillance Audit Quarter 3, 2006


OHSAS 18001 Surveillance Audit Quarter 3, 2006


Customs & Excise Acts/ Regulations Audit Quarter 3, 2006

IT Trust Domain Audit Quarter 3, 2006

HSE-MS Audit Quarter 4, 2006

Security Review Quarter 4, 2006

Related Party Transaction Audit Quarter 4, 2006

Aviation Product Quality Audit Quarter 4, 2006

Key issues including Management responses and the closure of audit recommendations, were highlighted to the Audit Committee. Internal Audit/Assurance Plan for 2006 was reviewed and approved for execution together with the resources for the audits.

The 2006 External Auditors Report on Examination was reviewed and the issues raised and the Management’s responses were considered and endorsed. The External Auditors presented the nature, scope and their approach to future audits for the Audit Committee’s consideration and approval.

The Audit Committee reviewed the quarterly and year-end financial results before they were presented to the Board of Directors. The review was to ensure compliance with:• Provisions of the Companies Act, 1965;• Listing Requirements of Bursa Malaysia Securities Berhad;• Applicable approved accounting standards; and• Other legal and regulatory requirements.

The Audit Committee has adopted the Shell Group Risk Management Manual to safeguard shareholder’s investment and the Company’s assets. The Assurance Plan was updated and the principal risks to the Company in achieving its business objectives were used to reconfirm the Audits and Assurance Plan of the Company. The Assurance Plan is in place to manage all the significant risks identified.

INTERNALCONTROLFUNCTION

The Company outsourced the Internal Audit Function to its affiliate company, Shell Malaysia Limited, via a Service Level Agreement.

The Company’s Internal Audit Manager reports to the Audit Committee and assists in monitoring and updating risks and adequacy of the internal control system. The Internal Audit Function assists management to identify, evaluate and update significant risks and develop risk-based audit plans for approval by the Audit Committee. Its role is to provide independent assessment and reasonable assurance that the systems of internal controls are adequate and effective.

AuditCommitteeReport


Corporate Governance Statement

Your Company is dedicated to implementing the highest standards of corporate governance at all levels. Your Company’s policies and procedures are upheld by internal controls that are regularly audited and reviewed to ensure their effectiveness. These policies and procedures are based on the Shell General Business Principles (SGBP) – a governance blueprint developed by Royal Dutch Shell plc, your Company’s ultimate holding company - that is designed to support a robust corporate governance system.

Your Board of Directors supports the Principles of Corporate Governance as laid out in the Malaysian Code of Corporate Governance and is committed to ensuring that the highest standards of corporate governance are implemented and maintained throughout in enhancing shareholder’s’ value and the long term value of your Company.

These principles and practices, supported by existing internal controls processes, are regularly audited and reviewed, to ensure transparency and accountability. Royal Dutch Shell plc, as your Company’s ultimate holding company, has developed a governance guide, series of policies and management systems that are designed to support a strong system of corporate governance. The Shell General Business Principles (SGBP), as adopted by your Board, spells out clearly the key business principles that govern the way your Company conducts its business.

ShellGeneralBusinessPrinciples(SGBP)Your Board has unequivocally adopted the SGBP, which first came into being in 1976. The SGBP has remained consistent ever since, because the core values on which the Principles were originally based have endured, namely • Honesty• Integrity • Respect for people

Your Company also firmly believes in the fundamental importance of the promotion of trust, openness, teamwork and professionalism, and in pride in what it does. These underlying corporate values determine your Company’s principles. These principles apply to all transactions, large or small, and describe the behaviour expected of every employee in your Company in the conduct of its business. In turn, the application of these principles is underpinned by procedures within your Company, which are designed to ensure that its employees understand the principles and that they act in accordance with them. Your Company recognises that it is vital that its behaviour matches its intentions.

All the elements of this structure - values, principles and the accompanying procedures - are necessary. It is your Company’s firm belief that maintaining the trust and confidence of shareholders, employees, customers and other people with whom your Company does business, as well as the communities in which your refinery is situated , is crucial to its continued growth and success. Your Company intends to merit this trust by conducting itself according to the standards set out in these principles. These principles have served your Company well for many years. It is the responsibility of Management to ensure that all employees are aware of these principles, and behave in accordance with the spirit as well as the letter of the SGBP. In December 2006, the Code of Conduct was launched with the expectation that every employee can meet the SGBP guided by a single Code to support their legal and ethical compliance.

BOARDOFDIRECTORS

Your Board is committed in ensuring that the Principles of Corporate Governance set out in the Malaysian Code of Corporate Governance are effectively employed in your Company.

BoardCompositionYour Board currently consists of eight Directors, namely, a Non-Executive Non-Independent Chairman, one Executive Director, who is also the Managing Director, and six other Directors, three of whom are Independent Non-Executive Directors, which is in compliance with paragraph 15.02 of the Listing Requirements of Bursa Malaysia Securities Berhad.

The roles of the Non-Executive Chairman and the Managing Director are distinct and separate with their responsibilities clearly defined to ensure a balance of power and authority. The Non-Executive Chairman is the Country Chairman of Shell Malaysia and contributes his considerable experience to your Board. The Independent Non-Executive Directors, all of whom are distinguished, respected and experienced present or past business leaders in their own right, play important roles by exercising independent judgment and objective participation in the proceedings and decision-making processes of your Board. The presence of the Independent Non-Executive Directors is essential in order to ensure that the interests of other parties, such as the minority shareholders, are properly safeguarded. The other Directors, being senior executives within the Shell Group, also bring with them a wide range of business and financial experience relevant to your Company. The profile of each Director is given on pages 18 to 21.


CorporateGovernanceStatement

ResponsibilityYour Board has the overall responsibility for corporate governance and strategic direction of your Company and is entrusted to exercise reasonable and proper care in utilising your Company’s resources for the best interests of its shareholders and to safeguard your Company’s assets. The Managing Director, being the only executive Director of your Company, is primarily responsible for the day-to-day operations of your Company. In addition, the Managing Director has the principal responsibility of reporting, clarifying and communicating matters relating to day-to-day operations of your Company to your Board.

All the Directors in office as of 31 December 2006 have attended the Mandatory Accreditation Programme (MAP). Your Board firmly believes in the continuing education of individual Directors consistent with the requirements of paragraph 15.09 of the Listing Requirements (hereinafter referred to as “CEP requirements”). Your Board has taken on the onus in reviewing, evaluating and determining the specific and continuous training and the competency development of individual directors during its meetings resulting in-house trainings being carried out in addition to participation in public sessions. Your Directors are also kept up-to-date on changes in the regulatory/legal/commercial risks environment as and when required through various means.

Details of the Directors’ attending MAP pursuant to paragraph 15.09 of the Listing Requirements and the in-house trainings, aimed at improving the Directors’ competency are summarised as follows:

COURSES ^SawChooBoon

Dato’(Dr)Yahyabin

Ismail

TanSriSawHuatLye

Dato’JaffarIndot

RajaAhmadMurad

binRajaBahrin

Tn.Hj.MohzanibinAbdul

Wahab

ThomasMichaelTaylor

MarkOwen

Stevens

DatukJon

Chadwick

Directors’ duties to exercise skill and care – The emerging standard

N/A √ √ √ √ √ √ √ √

General Meetings of Public Listed Companies – Practical Aspects

N/A √ √ √ √ √ √ √ √

Overview of the new Financial Reporting Standards

N/A √ √ √ √ √ √ √ √

Corporate Social Responsibility (“CSR”) – Putting the Soul Back into Business

N/A √ √ √ √ √ √ √ √

Implementation and Preparation for Goods and Services Tax

N/A √ √ √ √ √ √

2004-2005 Review and Outlook for 2006

N/A √ √ √ √ √ √

Outlook for the Malaysian and Regional economies over the next 3 years

N/A √ √ √ √ √ √

Mandatory Accreditation Programme (MAP)

√ √ √ √ √ √ √ √ √

^ Saw Choo Boon was appointed as a Director with effect from 23rd February 2006 and attended his MAP on 3rd and 4th May 2006.


BoardMeetingsYour Board meets at least four times a year, with additional meetings convened when necessary, where the Managing Director, and members of the Management team, table and present comprehensive reports for your Board’s information, deliberation and direction. Your Directors have full and unrestricted access to all information pertaining to your Company’s business or affairs to enable them to discharge their duties. Written reports on health, safety, security and environment, operational performance and profitability, human resources, business plans and various financial indicators are made available in advance to members of your Board to ensure a lively and robust debate.

Your Directors are given the following documents for their perusal, in advance of each Board meeting:• Agenda;• Management report;• Financial Statements;• Board papers; and• Other relevant documents.

In addition, members of the Management are frequently invited to the Board meetings to explain and clarify the items tabled to the Board.

Minutes of each Board meeting are circulated to each Board member prior to confirmation of the minutes in the next Board meeting.

Details of the Directors’ attendance at meetings during 2006 are summarised as follows:

Directors NumberofBoardMeetings NumberofBoardAuditCommitteeMeetings

GeneralMeetings

Held # Attended Held Attended Ordinary Extraordinary

Mr. Saw Choo Boon(Appointed w.e.f 23rd February 2006)

5 4 Non-member Non-member Yes Nil

Y.Bhg. Dato’ (Dr) Yahya bin Ismail 5 4 4 4 Yes Nil

YM Raja Ahmad Murad bin Raja Bahrin 5 5 Non-member Non-member Yes Nil

Y.Bhg. Tan Sri Saw Huat Lye 5 5 4 4 Yes Nil

Y.Bhg. Dato’ Jaffar Indot 5 5 4 4 Yes Nil

Tuan Haji Mohzani bin Abdul Wahab 5 4 Non-member Non-member Yes Nil

Mr. Thomas Michael Taylor 5 5 4 3 Yes Nil

Mr. Mark Owen Stevens 5 5 Non-member Non-member Yes Nil

## Y.Bhg. Datuk Jon Chadwick 5 3 Non-member Non-member Yes Nil

# Number of Board meetings held during tenure as Director.## Resigned with effect from 18th May 2006.

Details of place, date and time of the 47th Annual General Meeting:

Place : BangunanShellMalaysia,ChangkatSemantan,DamansaraHeights,50490KualaLumpurDate : Thursday,18thMay2006.Time : 11.00a.m.

There were no Extraordinary General Meetings held in 2006.




Whenever independent professional advice is required by the Directors to carry out their duties, an outside expert may be engaged at your Company’s expense. All Directors have access to the advice and services of your Company Secretaries, whose appointments and resignations are subject to Board approval. Your Company Secretaries regularly inform the Board on the changes to statutory and regulatory requirements pertaining Directors.

Your Board takes a particular interest in your Company’s role as a responsible and caring member of the community. To this end, your Board has adopted various initiatives including:

• promoting the goal of Sustainable Development by adopting a systematic approach to health, safety and environmental management; and• supporting the implementation of the Social Performance Plan, which is aimed to increase our social performance levels and benefit the

stakeholders as well as your Company.

AppointmentandRe-ElectionofDirectorsIn accordance with your Company’s Articles of Association, the Directors may fill any casual vacancy occurring in the Board. The new appointee shall retain his office until the next Annual General Meeting of your Company, but is eligible for re-election by the shareholders at that meeting.

The Articles of Association also provide for retirement by rotation, where one-third of Directors shall retire from office at least once every three years but shall be eligible for re-election by the shareholders at the Annual General Meeting.

Section 129 of the Companies Act, 1965, provides that Directors who are over the age of seventy (70) shall retire at every Annual General Meeting but may offer themselves up for re-election.

NominationCommitteeThe nomination process is formal and transparent, and is in line with the intent of the recommendation of Malaysian Code on Corporate Governance. After taking into account the present process and circumstances particular to your Company, your Board has elected not to appoint a nomination committee. Instead, the Chairman in consultation with relevant stakeholders seeks nominations, deliberates and endorses candidates for appointment as Directors. The nomination process takes into account the skills, experience, expertise and core competencies the candidates would bring to the Board. Your Board makes the final decision on the appointment of Directors in accordance with your Company’s Articles of Association. The appointment of senior management is made in consultation with relevant stakeholders and a Non-Executive member of your Board.

Directors’RemunerationAfter taking into account the present process and circumstances particular to your Company, your Board has elected not to appoint a remuneration committee. Instead, your Board has the Shell Group’s remuneration policy to set the remuneration of the Managing Director. The remuneration level is also benchmarked internally with other Shell operating companies in Malaysia based on the level of seniority, individual performance as well as corporate performance. The Managing Director does not participate in the setting of his remuneration package. All Independent Non-Executive Directors are paid directors’ fees. The remuneration received by the Independent Non-Executive Directors is based on the competitive market situation, taking into consideration the Directors’ business and financial experience relevant to your Company. The determination of Independent Non-Executive Directors’ fees is a matter for your Company’s Board of Directors as a whole and the Independent Non-Executive Directors concerned do not participate in the deliberations and voting on decisions in respect of their remuneration. Your Board, as a whole, recommends the remuneration payable to the Independent Non-Executive Directors to the shareholders for approval at the general meeting, as and when required. The remuneration of the Independent Non-Executive Directors was increased in 2005 as approved by the shareholders in the 2005 Annual General Meeting.


An analysis of the aggregate Directors’ remuneration paid by your Company for the year ended 31 December 2006 is set out below:

NameofDirectorsBasicSalary

RM’000

Directors’&Audit

FeesRM’000

Attendanceand

otherfeesRM’000

BonusRM’000

ContributiontoProvident

FundRM’000

Benefitsin-kind

andOthersRM’000

TotalRM’000

Executive

^Raja Ahmad Murad bin Raja Bahrin 465 – – 101 88 37 691

Non-Executive

Dato’ (Dr) Yahya bin Ismail – 30 9 – – – 39

Dato’ Jaffar bin Ahmad Indot – 30 10 – – – 40

Tan Sri Saw Huat Lye – 30 10 – – – 40

^ Please note Raja Ahmad Murad’s directors’ interest under Shell’s Long Term Incentive Plan. The Non-Independent Non-Executive Directors of your Company receive their remuneration from other Shell companies and do not receive any form of remuneration from your Company.

SeniorIndependentNon-ExecutiveDirectorYour Board has appointed Dato’ (Dr) Yahya bin Ismail as the Senior Independent Non-Executive Director of your Board to whom concerns may be conveyed by the shareholders and other stakeholders. The Senior Independent Non-Executive Director provides a secure and confidential channel for concerns conveyed to him directly on matters relating to the proceedings and items discussed at the meetings of Directors. Dato’ (Dr) Yahya is authorised to seek information as required, from any employee of your Company and all employees are directed to co-operate on any request made by the Senior Independent Non-Executive Director. In carrying out his duties, the Senior Independent Non-Executive Director is authorised by your Board to obtain independent professional advice, if necessary. The Senior Independent Non-Executive Director has access to the services of your Company Secretary in carrying out his duties. In 2006, there has been no issue raised to the Senior Independent Non-Executive Director.

TheAuditCommitteeThe Audit Committee of your Board was established in 1993. The Audit Committee comprises of four Directors, three of whom are Independent Non-Executive Directors and one of the Independent Non-Executive Directors chairs the Audit Committee. One of the Directors in the Audit Committee is a qualified accountant as prescribed by the Malaysian Institute of Accountants. The Managing Director and the Finance Manager normally attend the Audit Committee meetings.

There were four meetings of the Audit Committee in the financial year 2006, during which presentations on your Company’s state of internal controls and progress of Assurance Plan were made by the Management. The Independent Non-Executive Directors of the Audit Committee meet independently, at least once a year, with the external auditors.

Your Company has also established an internal audit function to obtain sufficient assurance of regular review and appraisal of the effectiveness of your Company’s internal controls. Your Company’s Internal Audit Manager acts as Secretary to the Audit Committee. The Audit Committee has wide powers with authority to regulate its own procedures and has its own terms of reference. The Audit Committee’s role, and functions and activities are set out on pages 55 and 57 of this Annual Report.




ANNUALREPORTANDANNUALGENERALMEETING

Your Company continues to acknowledge the importance of transparency and accountability to its shareholders and investors in compliance with the Malaysian Code on Corporate Governance. Your Company uses different channels of communication to provide shareholders, investors and other stakeholders with information to fulfil these objectives. An important channel to reach shareholders and investors is the Annual Report of your Company. As such your Company does not only include comprehensive details of the business, financial performance and other activities of your Company in the Annual Report, but also continually enhances its contents to achieve and maintain the highest standards of corporate governance.

In addition, an important forum for communication and dialogue with shareholders of your Company is the Annual General Meeting. Your Company’s Annual Report contains written clarifications on each item on the agenda of the Annual General Meeting so that shareholders are suitably briefed on matters that are to be discussed to enable their effective participation. The Chairman and your Board encourage shareholders to attend and participate in the Annual General Meeting. Questions posed are, where possible, answered in detail either at the Annual General Meeting itself or thereafter. Shareholders are welcome to raise queries by contacting your Company at any time throughout the year and not just at the Annual General Meeting. Your Company’s Registrars or appropriate officers of your Company will attend to queries on a prompt and efficient manner.

FinancialReportingIt is the commitment of your Board to provide a balanced, clear and meaningful assessment of the financial position and prospect of your Company in all the reports to shareholders and investors. Your Company presents quarterly public financial announcements and they include details of your Company’s business performance and current issues and concerns. The Directors scrutinise these announcements at their Board Meetings prior to publication to ensure that they are accurate and present a balanced assessment of your Company’s affairs. Your Board is assisted by the Audit Committee to oversee the financial reporting process and the quality of financial reporting of your Company. The Statement by Directors pursuant to Section 169 of the Companies Act, 1965 is set out on page 75 of this Annual Report.

InvestorRelationsAnother key channel of communication with shareholders, investors and analysts is your Company’s Investor Briefing Session. This regular event, that commenced in the second quarter of 2004 allows your Company to have direct communication with the investment community and address issues that investors may have and to explain or clarify aspects of the business and operations of your Company. This is further testimony to your Company’s continued commitment to transparency in reporting and is one of the ways in which your Company supports Bursa Malaysia’s Best Practice in Corporate Disclosures recommendations. Your Company’s web-page is another communication tool to provide the latest information to the shareholders and investing public.

STATEMENTOFDIRECTORS’RESPONSIBILITYFORPREPARINGTHEFINANCIALSTATEMENTS

The Directors are required by the Companies Act, 1965 to prepare financial statements for each financial year which have been made in accordance with the applicable approved accounting standards and the provisions of the Companies Act, 1965, which give a true and fair view of the state of affairs of your Company at the end of the financial year and of the results and cash flows of your Company for the financial year.

In preparing the financial statements, the Directors have:

• selected suitable accounting policies and applied them consistently;• made judgments and estimates that are reasonable and prudent;• ensured that all applicable approved accounting standards and provisions of the Companies Act, 1965 have been followed; and• based such statements on a going concern basis as the Directors have a reasonable expectation, having made enquiries, that your Company

has adequate resources to continue in operational existence for the foreseeable future.


The Directors have responsibility for ensuring that your Company keeps accounting records which disclose with reasonable accuracy the financial position of your Company and which enable them to ensure that the financial statement comply with the Companies Act, 1965.

The Directors have overall responsibilities for taking such steps that are reasonably open to them to safeguard the assets of your Company to prevent and detect fraud and other irregularities.

INTERNALCONTROL

Your Board continues to maintain a sound system of internal controls that provides reasonable assurance of effective and efficient operations, and compliance with laws and regulations, as well as with internal procedures to safeguard shareholder’s investment and your Company’s asset. The Directors’ Statement of Internal Control , reviewed by the external auditors, is set out on pages 66 to 67.

RELATIONSHIPWITHEXTERNALAUDITORS

Your Board via the Audit Committee has established a formal and transparent professional relationship with the external auditors of your Company. The role of your Board and the Audit Committee in relation to the auditors is described on pages 55 to 57. The Chairman of the Audit Committee and the independent Directors, met the External Auditors on 5th February 2007 to discuss the external audit findings, without any non-independent Directors present.

OTHERINFORMATION

a) ConflictofInterest None of the Directors have any family relationship with other Directors and/or major shareholders of your Company, nor any personal interest

in any business arrangement involving your Company. None of the Directors have had convictions for any offences within the past ten (10) years.

b) MaterialContractsAwardedtoDirectorsandsubstantialShareholders None of the Directors and major stockholders had any material contract with your Company during the financial year under review.

c) Sanctionsand/orPenaltiesImposed There were no sanctions and/or penalties imposed on your Company and its Directors by the relevant regulatory bodies during the financial

year under review.

d) UtilisationofProceeds During the financial year, there were no proceeds raised by your Company from any corporate proposals.




e) ShareBuybacks Your Company did not enter into any share buyback transactions during the financial year.

f) Options,WarrantsorConvertibleSecurities No options, warrants or convertible securities were exercised during the financial year.

g) AmericanDepositoryReceipt(“ADR”)orGlobalDepositoryReceipt(“GDR”)Programme. Your Company did not sponsor any ADR or GDR programme during the financial year.

h) Non-AuditFees During the financial year, your Company engaged the External Auditors for a number of non-audit activities in the following areas: • Review of Directors’ Statement of Internal Control (RM21,000) • Validation of Financial Reporting Standard (RM7,980) • Sarbanes - Oxley Act (SOX 404) atlestation (RM66,819)

i) ProfitGuarantee During the financial year, there were no profit guarantees given by your Company.

j) RevaluationPolicyonLandedProperties The Group’s revaluation policy is stated in paragraph C of the Summary of Significant Accounting Policies.

k) RecurrentRelatedPartyTransactionsofRevenueofTradingNature. The Recurrent Related Party Transactions of Revenue or Trading Nature is stated in Note 21 to the Financial Statements. Signed on behalf of the Board of Directors, in accordance with the Board of Directors’ resolution dated 5th February 2007

Mr.SawChooBoonChairman

YMRajaAhmadMuradbinRajaBahrinManaging Director


Statement on Internal Control

INTRODUCTION

The Listing Requirements Bursa Malaysia Securities Berhad (Paragraph 15.27(b)) require the Company Directors to make a statement in the Company’s annual report about the state of its internal controls. The Malaysian Code on Corporate Governance requires that the Board of Directors ensure that a sound system of internal controls is maintained to safeguard shareholders’ investment and the Company’s assets. In pursuance thereof and in accordance with a desire to adhere to the highest standard of corporate governance, the Board of Directors of the Company is pleased to set out below its Statement of Internal Control that was prepared in accordance with Bursa Malaysia’s Statement on Internal Control - Guidance for Directors of Public Listed Companies. Your Board believes the practice of good corporate governance is an important continuous process and not just a matter to be covered as compliance in its Annual Report.

RESPONSIBILITY

Your Board of Directors recognises that good corporate governance has its roots in sound internal controls and a robust risk management programme. Your Board affirms its overall responsibility for reviewing the adequacy and the integrity of the Company’s internal control systems and management information systems, including systems for compliance with applicable laws, regulations, rules, directives and guidelines.

Your Board and the Management have ensured that your Company’s system of internal controls is able to manage the risks to which your Company is exposed. The objective is not to eliminate risk but to understand your Company’s significant risks, set boundaries for risk taking and apply fit-for-purpose risk responses that enable your Company to achieve its corporate objectives within a managed risk profile.

Fit-for-purpose risk responses are primarily intended to:• Minimise the likelihood of a risk occurring by actively managing the

sources of the risk

• Mitigate the impact of a risk, often through the application of some form of alert that the risk has materialised, followed by the initiation of a contingency or recovery plan to reduce the potential consequences

Your Board and the Audit Committee are informed of all control issues pertaining to internal controls and regulatory compliance. It is imperative to note that any system of internal control can only provide reasonable, and not absolute, assurance against material misstatement or loss.

RISKMANAGEMENT

Your Board regards risk management as an integral part of the business operations. The Company has adopted the Shell Group Risk Management Manual issued in 2006, and has in place an ongoing process for identifying, evaluating and managing significant risks that affect the achievement of your Company’s business objectives. The changes to the Company’s risk profile, the risk responses and assurances are documented in the Assurance Plan. The Assurance Plan is the basis of the risk-based Audit Plans developed for your Company.

The risk profile of the Company is established during risk management sessions undertaken by the Management, which identifies the significant risks that your Company is facing. The risk responses and internal controls that the Directors and Management have taken and or are taking are documented in the Assurance Plan.

The Assurance Plan is reviewed by the Internal Audit Function and by the Audit Committee and approved by your Board. The Internal Audit function is involved in facilitating the risk assessment process. For each of the risks identified, a risk owner is assigned to ensure appropriate risk response actions are carried out. Control issues arising from the assurance process including internal and external audits are discussed at the Audit Committee. Your Board, as part of the annual strategic review, considers and approves the Assurance Plan as in previous years, is in line with the requirements of Bursa Malaysia’s Statement on Internal Control - Guidance for Directors of Public Listed Companies and the Malaysian Code of Corporate Governance.


OTHERKEYELEMENTSOFINTERNALCONTROL

Apart from risk management and internal audit, the other key elements of your Company’s internal control systems are described below:

1. The adoption of the Shell Statement of General Business Principles and Code of Conduct, which governs the standards of conduct and prohibits improper behaviour. Breach of these Principles or the Code is actionable by disciplinary proceedings.

2. Clearly documented and auditable procedures and manuals in respect of financial controls, trading controls, contracting and procurement, engineering, operation, human resource, health, safety, security and environment.

3. Documented and auditable “Control Registers” over activities, which affect your Company’s financial results.

4. Structured review of financing proposals and business plans before adoption combined with a detailed budgeting process.

5. Regular and comprehensive information provided to the Management and on a quarterly basis to your Board, covering financial performance and key business performance indicators.

6. The monitoring by, and reporting to, your Board of every single affixation of the Company’s Common Seal was made in accordance with the Articles of Association of the Company.

7. Provision by your Company’s Management of Letter of Assurances on an annual basis affirming that appropriate internal business controls are in place and ensuring compliance with your Company’s policies.

StatementonInternalControl

8. Declaration by all employees of the Company on an annual basis on conflict of interest situation and compliance with the Statement of General Business Principles.

9. A system for confidential disclosure, “My Company My Business” is in place for staff to raise concerns where the interest of the organisation or its stakeholders is at risk, either by a breach of a process/ procedure, or where beneficial opportunities may be missed. An enchanced global system, Shell Group’s Global Helpline would replace “My Company My Business” in 2007.

10. A Shell Group facility for Accounting, Controls & Auditing Concerns Reporting is available to all Shell employees to raise, in a confidential and anonymous manner, any complaint or concern regarding accounting, internal accounting controls or auditing matters, and a general Shell Helpline for other matters. All complaints or concerns are reported to the Secretary of the Shell Group Audit Committee.

There were no material losses reported during the current financial year as a result of weaknesses in internal control. The Management of your Company continues to take measures to strengthen the internal control environment.

This statement is made in accordance with the resolution of your Board of Directors dated 5th February 2007.

This page is intentionally left blank.

Financial Statement 70 Directors’ Report

75 Statement by Directors

75 Declaration

76 Report of the Auditors

77 Income Statement

78 Balance Sheet

79 Statement of Changes in Equity

80 Cash Flow Statement

81 Summary of Significant Accounting Policies

86 Notes to the Financial Statements

100 Company Properties

106 Analysis of Shareholdings


The Directors are pleased to submit their annual report to the members together with and the audited financial statements of the Company for the year

ended 31 December 2006.

PRINCIPAL ACTIVITIES

The principal activities of the Company consist of refining and manufacturing of petroleum products. There has been no significant change in these activities

during the year.

FINANCIAL RESULTS

RM’000

Profit after taxation 258,217

DIVIDEND

The dividends paid by the Company since 31 December 2005 were as follows:

RM’000

In respect of the year ended 31 December 2005 as shown in the Directors’ report of that year:

Special Interim gross dividend of 20 sen per RM1 unit of share

less tax at 28%, paid on 26 April 2006 43,200

Final gross dividend of 38 sen per RM1 unit of share,

less tax at 28%, paid on 9 June 2006 82,080

In respect of the year ended 31 December 2006:

Special Interim gross dividend of 20 sen per RM1 unit of share,

less tax at 28%, paid on 23 June 2006 in respect of the quarter end 31 March 2006. 43,200

Special interim gross dividend of 20 sen per RM1 unit of share,

less tax at 28%, paid on 29 Sept 2006 in respect of the quarter end 30 June 2006. 43,200

Interim gross dividend of 12 sen per RM1 unit of share,

less tax at 28%, paid on 29 Sept 2006 in respect of the quarter end 30 June 2006. 25,920

The Directors now recommend the payment of a final gross dividend of 38 sen per RM1 unit of share less income tax of 27%, amounting to RM83,220,000

which, subject to the approval of the shareholders at the forthcoming Annual General Meeting of the Company, will be paid on 15 June 2007 to shareholders

registered on the Record of Depositors at the close of business on 28 May 2007.

RESERVES AND PROVISIONS

All material transfers to or from reserves and provisions during the year are shown in the financial statements.

Directors’ Report


DIRECTORS

The Directors who have held office during the period since the date of the last report are as follows:

Dato’ (Dr) Yahya bin Ismail, DPMJ, DPCM, DPMP, KMN, PPT, PJK

Dato’ Jaffar Indot, DSNS, SMS

Tan Sri Saw Huat Lye, PSM, JMN, PMP

Tn. Hj. Mohzani bin Abdul Wahab, SMP, ASDK

Raja Ahmad Murad bin Raja Bahrin

Mark Owen Stevens

Thomas Michael Taylor

Saw Choo Boon (Appointed w.e.f. 23 February 2006)

Datuk Jonathan Chadwick, PGDK (Resigned w.e.f. 18 May 2006)

The Directors retiring by rotation in accordance with Article 81(3) of the Company’s Articles of Association are Mr. Saw Choo Boon, YM Raja Ahmad Murad

bin Raja Bahrin and Mr. Mark Owen Stevens, all of whom, being eligible, offer themselves for re-election.

In 2006, Tan Sri Saw Huat Lye, Dato’ (Dr) Yahya bin Ismail and Dato’ Jaffar Indot being over seventy years of age, retired in accordance with Section 129

of the Companies Act, 1965 and offered themselves for re-appointment in accordance with Section 129 (6) of the said Act to hold office until the 48th

Annual General Meeting of the Company. For 2007, Dato’ (Dr) Yahya bin Ismail will not offer himself for re-election. Tan Sri Saw Huat Lye and Dato’ Jaffar

Indot being over seventy years of age, will retire in accordance with Section 129 of the Companies Act, 1965 and offer themselves for re-appointment in

accordance with Section 129 (6) of the said Act to hold office until the 49th Annual General Meeting of the Company.

DIRECTORS’ BENEFITS

During and at the end of the year, no arrangements subsisted to which the Company is a party, being arrangements with the object or objects of enabling

Directors of the Company to acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate except

for options over shares granted by the Shell Group to eligible senior executives including certain Directors of the Company.

Long-termincentives

The Shell Group discontinued share option grants in 2005 in favour of conditional share awards under an amended Long Term Incentive Plan (LTIP) and an

amended Deferred Bonus Plan, approved by both Shell Transport and Royal Dutch Petroleum Company shareholders at the Annual General Meetings on 28

June 2005. For a selected number of the most senior executives in the Shell Group, restricted non-conditional shares were also awarded. The purpose of the

changes was to ensure a closer link between the remuneration of Directors and executives and the performance of the Shell Group relative to its peers.

Directors’Report


DIRECTORS’ BENEFITS (CONTINUED)

LongtermIncentivePlan(LTIP)

Under the LTIP, performance shares are awarded conditionally once a year. Awards will have a face value between zero and two and a half times base

pay. Awards are subject to performance over a period of at least three years. The shares are only released if the performance condition is met and if the

participant remains in employment during the performance period (subject to certain exceptions, including retirement). For 2005 and 2006 onwards, the

number of shares that the Directors will actually receive will depend on the Total Shareholder Return (TSR) performance of the Parent Company relative to

the other major integrated oil companies as follows:

TSR Rank Performance shares received

1st 2 X award

2nd 1.5 X award

3rd 0.8 X award

4th or 5th Nil

The actual number of shares the Directors will receive in 2008 will depend on the Parent Company’s TSR performance over the period 2005 to 2007.

The face value of the conditional performance share award is the number of shares multiplied by the share price at the time of the award.

DIRECTORS’ LONG-TERM INCENTIVE INTEREST

The tables below show the LTIP and the share options interest of the Directors’ in office as at end of period. Those awards and grants listed in the tables

which were made with respect to Royal Dutch Petroleum Company and Shell Transport shares, have been converted into Royal Dutch Shell share entitlements

at the appropriate conversion rates. Other than consequential changes, the terms and conditions applicable to these awards and grants have generally not

been altered as a result of this conversion.

(a) Interest in options over shares of the Parent Company.

InterestinoptionsoversharesinRoyalDutchShellplc

Options Options

outstanding Options Options Options outstanding

at1.1.2006 granted exercised expired 31.12.2006

Raja Ahmad Murad bin Raja Bahrin 14,150 0 0 0 14,150

Saw Choo Boon 64,200 0 0 0 64,200

Thomas Michael Taylor 57,263 0 28,158 0 29,105

Mark Owen Stevens 38,816 0 0 0 38,816

Mohzani bin Abdul Wahab 40,650 0 10,800 0 29,850

Directors’Report


DIRECTORS’ LONG-TERM INCENTIVE INTEREST (CONTINUED)

(b) Direct interest in shares of the Parent Company.

The Directors’ direct interest in shares of Royal Dutch Petroleum Company and Shell Transport, have been converted into the Parent Company’s

shares entitlements at the appropriate conversion rates.

DirectinterestinsharesofRoyalDutchShellplc

Classof At At

shares 1.1.2006 Bought Sold 31.12.2006

Saw Choo Boon RDSA (LTIP) 6,250 6,375 0 12,625

Thomas Michael Taylor RDSA 1,370 0 1,370 0

RDSB (LTIP) 3,000 3,000 0 6,000

Mark Owen Stevens RDSB 1,424 30 0 1,454

RDSB (LTIP) 7,500 7,500 0 15,000

Mohzani bin Abdul Wahab RDSA (LTIP) 3,400 3,000 0 6,400

Raja Ahmad Murad bin Raja Bahrin RDSA (LTIP) 1,700 2,000 0 3,700

(c) According to the register of Directors’ shareholdings, no other Directors in office at the end of the financial year held any interest in shares in and

debentures of the Company or its related corporations.

STATUTORY INFORMATION ON THE FINANCIAL STATEMENTS

Before the income statement and balance sheet were made out, the Directors took reasonable steps:

(a) to ascertain that proper action had been taken in relation to the writing off of bad debts and the making of allowance for doubtful debts and satisfied

themselves that all known bad debts had been written off and that adequate allowance had been made for doubtful debts; and

(b) to ensure that any current assets, other than debts, which were unlikely to realise in the ordinary course of business their values as shown in the

accounting records of the Company had been written down to an amount which they might be expected so to realise.

At the date of this report, the Directors are not aware of any circumstances:

(a) which would render the amounts written off for bad debts or the amount of the allowance for doubtful debts in the financial statements of the

Company inadequate to any substantial extent; or

(b) which would render the values attributed to current assets in the financial statements of the Company misleading; or

(c) which have arisen which render adherence to the existing method of valuation of assets or liabilities of the Company misleading or inappropriate.

No contingent or other liability has become enforceable or is likely to become enforceable within the period of twelve months after the end of the year which,

in the opinion of the Directors, will or may substantially affect the ability of the Company to meet its obligations when they fall due.

Directors’Report


STATUTORY INFORMATION ON THE FINANCIAL STATEMENTS (CONTINUED)

At the date of this report, there does not exist:

(a) any charge on the assets of the Company which has arisen since the end of the year which secures the liability of any other person; or

(b) any contingent liability of the Company which has arisen since the end of the year.

At the date of this report, the Directors are not aware of any circumstances not otherwise dealt with in this report or the financial statements of the Company,

which would render any amount stated in the financial statements misleading.

In the opinion of the Directors:

(a) the results of the Company’s operations during the year were not substantially affected by any item, transaction or event of a material and unusual

nature; and

(b) there has not arisen in the interval between the end of the year and the date of this report any item, transaction or event of a material and unusual

nature likely to affect substantially the results of the operations of the Company for the year in which this report is made.

ULTIMATE HOLDING COMPANY

Pursuant to Section 169(10) of the Companies Act 1965, the Directors have regarded the Royal Dutch Shell plc, a company incorporated in England and

Wales and has its headquarters in The Hague, as the ultimate holding company.

AUDITORS

The auditors, PricewaterhouseCoopers, have expressed their willingness to continue in office.

On behalf of the Board, in accordance with a resolution of the Board of Directors dated 26 March 2007.

RAJAAHMADMURADBINRAJABAHRIN SAWCHOOBOON

MANAGING DIRECTOR CHAIRMAN

Directors’Report


We, Raja Ahmad Murad Bin Raja Bahrin and Saw Choo Boon, two of the Directors of Shell Refining Company (Federation of Malaya) Berhad,

state that, in the opinion of the Directors, the financial statements set out on pages 77 to 99 are drawn up so as to give a true and fair view of the state

of affairs of the Company as at 31 December 2006 and of the results of the Company and of its cash flows for the year ended on that date in accordance

with Financial Reporting Standards, MASB approved accounting standards in Malaysia for Entities Other than Private Entities and the provisions of

the Companies Act, 1965.

On behalf of the Board, in accordance with a resolution of the Board of Directors dated 26 March 2007.

RAJAAHMADMURADBINRAJABAHRIN SAWCHOOBOON

MANAGING DIRECTOR CHAIRMAN

I, Thomas Michael Taylor, the Director primarily responsible for the financial management of Shell Refining Company (Federation of Malaya) Berhad, do

solemnly and sincerely declare that the financial statements set out on pages 77 to 99 are, in my opinion, correct and I make this solemn declaration

conscientiously believing the same to be true, and by virtue of the provisions of the Statutory Declarations Act, 1960.

THOMASMICHAELTAYLOR

DIRECTOR

Subscribed and solemnly declared by the abovenamed Thomas Michael Taylor at Kuala Lumpur in Malaysia on 11 April 2007, before me

COMMISSIONER FOR OATHS

Statement by DirectorsPURSUANT TO SECTION 169(15) OF THE COMPANIES ACT, 1965

DeclarationPURSUANT TO SECTION 169(16) OF THE COMPANIES ACT, 1965


We have audited the financial statements set out on pages 77 to 99. These financial statements are the responsibility of the Company’s Directors. It is our

responsibility to form an independent opinion based on our audit, on these financial statements and to report our opinion to you, as a body, in accordance with

Section 174 of the Companies Act, 1965 and for no other purpose. We do not assume responsibility to any other person for the content of this report.

We conducted our audit in accordance with approved auditing standards in Malaysia. Those standards require that we plan and perform the audit to obtain

reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence

supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant

estimates made by the Directors, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis

for our opinion.

In our opinion:

(a) the financial statements have been prepared in accordance with the provisions of the Companies Act, 1965 and Financial Reporting Standards, the

MASB Approved Accounting Standards in Malaysia for Entities Other Than Private Entities so as to give a true and fair view of:

(i) the matters required by Section 169 of the Companies Act, 1965 to be dealt with in the financial statements; and

(ii) the state of affairs of the Company as at 31 December 2006 and of the results and cash flows of the Company for the year ended on that

date;

and

(b) the accounting and other records and the registers required by the Act to be kept by the Company have been properly kept in accordance with the

provisions of the Act.

PRICEWATERHOUSECOOPERS LEEYOKEKHAI

(No. AF: 1146) (No. 1589/08/07 (J))

Chartered Accountants Partner of the firm

Report of the AuditorsTO THE MEMBERS OF SHELL REFINING COMPANY (FEDERATION OF MALAYA) BERHAD (Company No. 3926 U)


Note 2006 2005

RM’000 RM’000

Revenue 3 10,886,840 9,695,133

Cost of sales (10,480,336) (8,952,566)

Gross profit 406,504 742,567

Other operating income 20,174 27,457

Administrative expenses (48,419) (41,441)

Other operating expenses (21,278) (22,784)

Finance cost 5 (31,596) (23,877)

Profit before taxation 4 325,385 681,922

Taxation 6 (67,168) (159,790)

Profit after taxation 258,217 522,132

Gross dividends per RM1 unit of share (sen) 7 90 100

Earnings per RM1 unit of share (sen) – basic 8 86.07 174.04

The accounting policies on pages 81 to 86 and the notes on pages 87 to 99 form part of these financial statements.

Income StatementFOR THE YEAR ENDED 31 DECEMBER 2006


Note 2006 2005

RM’000 RM’000

NONCURRENTASSETS

Property, plant and equipment 10 1,247,716 1,315,312

Prepaid land lease payments 2,031 2,074

1,249,747 1,317,386

CURRENTASSETS

Inventories 11 829,706 673,128

Trade receivables 12 128,685 103,631

Other receivables and prepayments 30,311 5,320

Amounts receivable from related companies 13 1,127,598 880,175

Bank balances 14 43,009 14,947

Deposit with licensed banks 14 0 647,929

2,159,309 2,325,130

LESS:CURRENTLIABILITIES

Trade and other payables 15 92,943 190,936

Amounts payable to related companies 13 569,076 732,304

Short term borrowings 18 83,880 0

745,899 923,240

NETCURRENTASSETS 1,413,410 1,401,890

LESS:NONCURRENTLIABILITIES

Deferred taxation 17 227,387 267,456

Long term borrowings 18 493,780 529,130

Provision for liabilities 16 2,183 3,500

723,350 800,086

1,939,807 1,919,190

CAPITALANDRESERVES

Share capital 20 300,000 300,000

Revaluation reserve 19 15,738 15,738

Retained earnings 1,624,069 1,603,452

TOTALCAPITALANDRESERVES 1,939,807 1,919,190


Balance SheetAS AT 31 DECEMBER 2006


Issuedandfully

paidordinary Non-

sharesofRM1each distributable Distributable

Number Nominal Revaluation Retained

Note ofshares value reserve earnings Total

‘000 RM’000 RM’000 RM’000 RM’000

At 1 January 2005 300,000 300,000 15,738 1,247,640 1,563,378

Profit after taxation for the year ended

31 December 2005 0 522,132 522,132

Dividends for the year ended:

– 31 December 2004 7 0 (75,600) (75,600)

– 31 December 2005 7 0 (90,720) (90,720)

At 31 December 2005 300,000 300,000 15,738 1,603,452 1,919,190

At 1 January 2006 300,000 300,000 15,738 1,603,452 1,919,190

Profit after taxation for the year ended

31 December 2006 0 258,217 258,217

Dividends for the year ended:

– 31 December 2005 7 0 (125,280) (125,280)

– 31 December 2006 7 0 (112,320) (112,320)

At 31 December 2006 300,000 300,000 15,738 1,624,069 1,939,807


Statement of Changes in EquityFOR THE YEAR ENDED 31 DECEMBER 2006


Note 2006 2005

RM’000 RM’000

CASHFLOWSFROMOPERATINGACTIVITIES

Profit after taxation 258,217 522,132

Adjustments for:

Taxation 67,168 159,790

Depreciation of property, plant and equipment 110,349 123,458

Loss/(gain) on disposal of property, plant and equipment 105 (64)

Property, plant and equipment written off 0 11,581

Provision for decommissioning and site restoration cost 0 3,500

Interest income (8,310) (9,841)

Interest expense 29,662 20,327

Exchanges gain on foreign currency translation (22,108) (2,995)

435,083 827,888

Changes in working capital:

Increase in inventories (156,578) (45,797)

(Increase)/decrease in trade and other debtors (25,022) 64,098

Increase/(decrease) in trade and other creditors 15,420 (51,058)

Increase in amounts receivable from related companies (247,423) (149,632)

(Decrease)/increase in amounts payable to related companies (163,228) 319,831

Cash generated from operations (141,748) 965,330

Interest paid (28,926) (20,247)

Interest received 8,310 9,841

Taxation paid (175,072) (136,224)

Net cash flow from operating activities (337,436) 818,700

CASHFLOWSFROMINVESTINGACTIVITIES

Purchase of property, plant and equipment (42,834) (105,620)

Proceeds from sales of fixed assets 0 64

Decommissioning and restoration costs (1,317) 0

Net cash flow used in investing activities (44,151) (105,556)

CASHFLOWSFROMFINANCINGACTIVITIES

Repayment of borrowings 0 (45,600)

Dividends paid (237,189) (168,484)

Net cash flow used in financing activities (237,189) (214,084)

NETINCREASEINCASHANDCASHEQUIVALENTS (618,776) 499,060

CURRENCYTRANSLATIONDIFFERENCES (1,091) 0

CASHANDCASHEQUIVALENTSATTHEBEGINNINGOFTHEYEAR 662,876 163,816

CASHANDCASHEQUIVALENTSATTHEENDOFTHEYEAR 14 43,009 662,876


Cash Flow StatementFOR THE YEAR ENDED 31 DECEMBER 2006


Unless otherwise stated, the following accounting policies have been used consistently in dealing with items which are considered material in relation to

the financial statements.

A BASIS OF PREPARATION

The financial statements of the Company have been prepared under the historical cost convention (as modified for the revaluation of land, land

improvements and buildings), unless otherwise indicated in this summary of significant accounting policies.

The financial statements comply with the Financial Reporting Standards, the MASB approved accounting standards in Malaysia for Entities other

than Private Entities and the provisions of the Companies Act, 1965.

The preparation of financial statements in conformity with the Financial Reporting Standards, the MASB Approved Accounting Standards in Malaysia

for entities other than private entities and provisions of the Companies Act, 1965 requires the use of certain critical accounting estimates and

assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial

statements and the reported amount of revenues and expenses during the reported financial year. It also requires Directors to exercise its judgement

in the process of applying the Company’s accounting policies. Although these estimates and judgement are based on the Directors’ best knowledge

of current events and actions, actual results may differ.

(a) Standards,amendmentstopublishedstandardsandinterpretationsthatareeffective

The new accounting standards, amendments to published standards and IC interpretations to existing standards effective for Company’s

financial year beginning on or after 1 January 2006 are as follows:

• FRS 2 Share-based payment

• FRS 5 Non-current assets held for sale and presentation of discontinued operations

• FRS 101 Presentations of financial statements

• FRS 102 Inventories

• FRS 108 Accounting policies, changes in accounting estimates and errors

• FRS 110 Events after balance sheet date

• FRS 116 Property, plant and equipment

• FRS 117 Leases

• FRS 132 Financial instruments: disclosure and presentation

• FRS 136 Impairment of assets

• FRS 138 Intangible assets

• IC 115 Operating leases – incentives

• IC 121 Income taxes – Recovery of revalued non-depreciable assets

• IC 125 Income taxes – Changes in the tax status of an entity of its shareholders

• IC 127 Evaluating the substance of transactions involving the legal form of a Lease

All changes in accounting policies have been made in accordance with the transition provisions in the respective standards, amendments

to published standards and interpretations. All standards, amendments and interpretations adopted by the Company require retrospective

application other than:

• FRS 2 – retrospective application for all equity instruments granted after 31 December 2004 and not vested at 1 January 2006;

• FRS 5 – prospectively for non-current asset (or disposal group) that meet the criteria to be classified as held for sale and to operations

that meet the criteria to be classified as discontinued on/after 1 January 2006;

• FRS 116 – the exchange of property, plant and equipment is accounted at fair value prospectively;

Summary of Significant Accounting PoliciesFOR THE YEAR ENDED 31 DECEMBER 2006


A BASIS OF PREPARATION (CONTINUED)

(b) StandardsearlyadoptedbytheCompany

FRS 117 Leases was early adopted in 2006. This standard requires the reclassification of leasehold land as prepaid lease payments.

Finance charges are allocated to the income statement over the period of the agreements to give constant periodic rate of charge on the

remaining lease liabilities.

(c) Standards,amendmentstopublishedstandardsandinterpretationstoexistingstandardthatarenotyeteffectiveandhavenot

beenearlyadopted

The new accounting standards, amendments to published standards and interpretations that are mandatory for the Company’s financial

periods beginning on or after 1 January 2007 or later periods, but which the Company has not early adopted, are as follows:

• FRS 124, Related party transactions (effective date 1 October 2006). This new standard defines a disclosure relating to the related party

transactions and relationship. The Company will apply this standard when effective.

• FRS 139, Financial Instruments: Recognition and measurement (effective date yet to be determined by MASB). This new standard

establishes principles for recognising and measuring financial assets, financial liabilities and some contracts to buy and sell non-financial

items. Hedge accounting is permitted only under strict circumstances. The Company will apply this standard when effective.

B REVENUE RECOGNITION

(i) Revenue

Revenue represents the invoiced value of refined and partially refined oil products and feedstocks, net of Government taxes.

Revenue is recognised upon delivery of products and acceptance by customers.

(ii) Otherincome

Other income comprises mainly of capital and operating expenditure recoveries from related companies and interest income, which are

recognised on an accrual basis.

C PROPERTY, PLANT AND EQUIPMENT

All property, plant and equipment are initially stated at cost.

Land and buildings are subsequently shown at Directors’ valuation which is based on a professional valuation in 1990 using the open market value

basis for land, and depreciated replacement cost method for land improvements and building, less accumulated depreciation. The land and buildings

of the Company have not been revalued since the last valuation exercise as the Directors have not adopted a policy of regular revaluations of such

assets.

Accordingly, the valuation of the revalued assets has not been updated and they continue to be stated at their last revalued amounts less depreciation

as allowed under the transitional provisions issued by the Malaysian Accounting Standards Board (‘MASB’).

Surpluses arising on revaluation are credited to revaluation reserve. Any deficit arising from revaluation is charged against the revaluation reserve to

the extent of a previous surplus held in the revaluation reserve for the same asset. In all other cases, a decrease in carrying amount is charged to

income statement. On disposal of revalued assets, amounts in revaluation reserve relating to those assets are transferred to retained earnings.

All other property, plant and equipment are stated at historical costs less accumulated depreciation.

(i) No depreciation is provided for freehold land and work-in-progress.

SummaryofSignificantAccountingPolicies

FOR THE YEAR ENDED 31 DECEMBER 2006


C PROPERTY, PLANT AND EQUIPMENT (CONTINUED)

(ii) Residual values and useful lives of assets are reviewed and adjusted if appropriate at each balance sheet date.

The Company conducted a review of the Useful Economic Life (UEL) of its property, plant and equipment. This revision, with effect from 1

January 2006, has resulted in changes to the annual depreciation rates of the Company’s assets as follows:

Existing Revised

Land improvements and buildings 2.5% – 10.0% 2.5% – 5.0%

Plant and machinery 4.0% – 7.0% 3.3% – 25.0%

Furniture and fittings 10.0% – 15.0% 7.0% – 20.0%

The revision was accounted for as change in accounting estimates and as a result, the depreciation charges for 31 December 2006 has been

reduced by an estimated RM17,137,618.

At each balance sheet date, the Company assesses whether there is any indication of impairment. When an indication of impairment exists, the

carrying amount of the asset is assessed and written down immediately to its recoverable amount. Please refer to accounting policy (P) on impairment

of assets.

Gains and losses on disposals are determined by comparing proceeds with carrying amounts and are included in profit from operations. On disposal

of revalued assets, amounts in revaluation reserve relating to those assets are transferred to retained earnings.

D MAINTENANCE COSTS

Asset replacement costs incurred by the Company for major scheduled maintenance of the refinery are capitalised as part of the refinery assets and

depreciated on a straight line basis over their estimated useful lives, typically the period until the next major scheduled maintenance.

E BORROWINGS

Borrowings are initially recognised based on the proceeds received, net of transaction costs incurred. In subsequent periods, borrowings are stated

at amortised cost using the effective interest method; any difference between proceeds (net of transaction costs) and the redemption value is

recognised in the income statement over the period of the borrowings.

Interest, losses and gains relating to a financial instrument, or a component part, classified as a liability is reported within finance cost in the income

statement.

Interest incurred on external borrowings related to assets under construction is capitalised until the assets are ready for their intended use.

F INVENTORIES

(i) Inventories are valued at the lower of cost and net realisable value using the first-in-first-out (FIFO) method.

(ii) Cost in the case of partially refined oil and finished products includes oil, direct materials, labour and an appropriate proportion of fixed and

variable manufacturing overheads.

(iii) Net realisable value is the estimate of selling price in the ordinary course of business, less the cost of completion and selling expenses.

During the year, the Company automated the hydrocarbon inventory valuation process. Due to refinements to the cost allocation for manufactured

products, there was a change in the cost allocation for purposes of inventory costing resulting in a change in accounting estimate. The impact was

an increase of RM8.5 million to the current year profits.




G RECEIVABLES

Receivables are carried at anticipated realisable value. Bad debts are written off during the year in which they are identified. An estimate is made for

doubtful debts based on a review of all outstanding amounts at year end.

H PROVISIONS

Provisions are recognised when the Company has a present legal or constructive obligation as a result of past events, when it is probable that an

outflow of resources will be required to settle the obligation, and when a reliable estimate of the amount can be made.

The Company has recognised the estimated liability of decommissioning and site restoration costs in relation to the company’s manufacturing units.

The estimation of the decommissioning and restoration costs is based on current technology, on the assumption that the underlying costs of the

restoration will not change dramatically in the future due to supply and demand or other economic factors.

I TAXATION

(i) Current taxation is based on chargeable profit for the year and represents income tax at current rates and real property gains taxes payable

on disposal of properties.

(ii) Deferred taxation is recognised in full, using the liability method, on temporary differences arising between the amounts attributed to assets

and liabilities for tax purposes and their carrying amounts in the financial statements.

(iii) Deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which the deductible temporary

differences or unused tax losses can be utilised.

(iv) Tax rates enacted or substantively enacted by the balance sheet date are used to determine deferred tax.

J FOREIGN CURRENCIES

The basis of accounting for foreign currency transactions is as follows:

(i) Items included in the financial statements of the Company are measured using the currency of the primary economic environment in which

the entity operates (the “functional currency”). The financial statements are presented in Ringgit Malaysia, which is the Company’s functional

and presentation currency.

(ii) Foreign currency transactions are translated into the functional currency using the prevailing exchange rates at the dates of the transactions.

Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates

of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.

(iii) Exchange differences arising from the settlement of foreign currency transactions and from the translation of foreign currency monetary assets

and liabilities are included in the income statement.

The principal closing rates used in translation of foreign currency amounts are as follows:

Foreigncurrency 2006 2005

1 USD RM3.53 RM3.78

1 EURO RM4.64 RM4.49




K EMPLOYEE BENEFITS

(i) Shorttermemployeebenefits

Wages, salaries, paid annual leave, sick leave, bonuses and non-monetary benefits are accrued in the period in which the associated services

are rendered by employees of the Company.

(ii) Post-employmentbenefits

The Company’s post-employment benefit scheme comprises only of the defined contribution plan.

Contributions to the Employees’ Provident Fund, which is a defined contribution plan, are charged to the income statement when incurred.

L OPERATING LEASE

Leases of assets under which the significant risks and benefits of ownership are retained by the lessor are classified as operating leases. Payments

made under operating leases are charged to the income statement on a straight line basis over the period of the lease.

When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is

recognised as an expense in the period in which termination takes place.

M CASH AND CASH EQUIVALENTS

Cash and cash equivalents comprise cash, bank balances, deposits with licensed banks, bank overdrafts and short term, highly liquid investments

that are readily convertible to known amounts of cash and which are subject to insignificant risk of changes in value. Bank overdrafts are included

within short term borrowings in current liabilities on the balance sheet.

N DIVIDENDS

Dividends on ordinary shares are recognised as liabilities when proposed or declared before the balance sheet date. A dividend proposed or declared

after the balance sheet date, but before the financial statements are authorised for issue, is not recognised as a liability at the balance sheet date.

Upon the dividend becoming payable, it will be accounted for as a liability.

O FINANCIAL INSTRUMENTS

(i) Financialinstrumentsrecognisedonthebalancesheet

The particular recognition method adopted for financial instruments recognised on the balance sheet is disclosed in the individual policy

statements associated with each item.

(ii) Financialinstrumentsnotrecognisedonthebalancesheet

The Company may enter into foreign exchange forward contracts to hedge foreign currency exposures as a result of confirmed receipts or

payments in foreign currency. These instruments are not recognised in the financial statements on inception. The Company enters into foreign

currency forward contracts to protect the Company from movements in exchange rates by establishing the rate at which a foreign currency

asset or liability will be settled.

Exchange gains and losses on contracts are recognised when settled at which time they are included in the measurement of the transaction

hedged.

The Company does not use interest rate swap instruments.




O FINANCIAL INSTRUMENTS (CONTINUED)

(iii) Fairvalueestimationfordisclosurepurpose

The fair values of the financial assets (less any estimated credit adjustments) and liabilities maturing within 12 months approximate the carrying

value as at the balance sheet date. For long term financial liabilities, fair value is estimated by discounting future contractual cash flows at

appropriate interest rates. The fair value of foreign exchange forward contracts is determined using forward exchange markets rates at the

balance sheet date.

P IMPAIRMENT OF ASSETS

Property, plant and equipment and other non-current assets are reviewed for impairment losses whenever events or changes in circumstances

indicate that the carrying amount may not be recoverable. Impairment loss is recognised for the amount by which the carrying amount of the asset

exceeds its recoverable amount. The recoverable amount is the higher of an asset net selling price and value in use. For the purposes of assessing

impairment, assets are grouped at the lowest level for which there is separately identifiable cash flows.

The impairment loss is charged to the income statement unless it reverses a previous revaluation in which case it is charged to the revaluation

surplus. Any subsequent increase in recoverable amount is recognised in the income statement unless it reverses an impairment loss on a revalued

asset in which case it is taken to revaluation surplus.




1 GENERAL INFORMATION

The principal activities of the Company consist of refining and manufacturing of petroleum products.

The average number of employees during the year amounted to 281 (2005: 275) employees in the Company.

The ultimate holding company of the Company is Royal Dutch Shell plc, a company incorporated in England and Wales.

The Company is a public limited liability company, incorporated and domiciled in Malaysia, and listed on the Main Board of the Malaysia Securities

Exchange Berhad.

The address of the registered office of the Company is:

Bangunan Shell Malaysia

Changkat Semantan

Damansara Heights

50490 Kuala Lumpur

The address of the principal place of business of the Company is:

Batu 1, Jalan Pantai

71000 Port Dickson

Negeri Sembilan

2 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Company is exposed to a variety of financial risks, including foreign currency exchange risk, interest rate risk, credit risk, liquidity and cash

flow risk. The Company’s overall financial risk management objective is to ensure the Company creates value for its shareholders. The Company

focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Company.

Financial risk management is carried out through risk reviews, assurance plans, internal control systems, insurance programmes and adherence to

the Company’s Treasury Policy and Procedures.

The Company may enter into foreign exchange forward contracts to manage the exposure to foreign currency risks in receivables and payables. In

addition, financial instruments such as trade receivables, trade payables, short term and long term borrowings arise directly from the Company’s

operations. The Company does not trade in financial instruments.

(i) Foreigncurrencyrisk

The Company is exposed to currency risk as a result of the foreign currency transactions entered into in currencies other than its functional

currency. The Company may enter into foreign exchange forward contracts to limit its exposure on foreign currency receivables and payables

and on cash flows generated from anticipated transactions denominated in foreign currencies.

(ii) Interestraterisk

The Company finances its operations through a mixture of retained earnings and bank borrowings. The Company aims to achieve an optimum

balance between fixed and floating interest rates.

Notes to the Financial StatementsFOR THE YEAR ENDED 31 DECEMBER 2006


2 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)

(iii) Creditrisk

Credit risk arises when sales are made on deferred credit terms. The Company controls credit risk by setting counterparty limits and ensuring

that sales of products are made only to approved customers with an appropriate credit history. It is the Company’s policy to monitor the

financial standing of the customers on an ongoing basis to ensure that the Company is exposed to minimal credit risk.

(iv) Liquidityandcashflowrisk

The Company ensures that cash is available to meet working capital expenditure and other financing requirements, and that cash flows are

managed efficiently. This is done through reliable cash forecasts to achieve optimal cash management planning. The Company sets a minimum

level of cash to be held on a daily basis and on a planned level for the next 12 months, in order to meet both firm commitments and forecast

obligations. In addition, the Company maintains an adequate amount of short-term credit facilities.

3 REVENUE

2006 2005

RM’000 RM’000

Sale of oil products

– refined 9,024,632 8,194,951

– partially refined 1,414,192 1,174,060

– feed stocks 448,016 326,122

10,886,840 9,695,133

4 PROFIT BEFORE TAX

2006 2005

RM’000 RM’000

The profit from operations is arrived at after charging/(crediting):

Auditors’ remuneration

– current year 179 180

– over accrual in prior year 0 (8)

– Others – current year 21 52

– Others – under accrual in prior year 0 30

Depreciation of property, plant and equipment 110,349 123,458

Property, plant and equipment written off 0 11,581

Loss/(gain) on disposal of property, plant and equipment 105 (64)

Exchange gains on foreign currency transactions (10,727) (1,238)

Exchange gain on foreign currency translation (22,108) (2,995)

Interest income (8,310) (9,841)

Staff cost

– Wages, salaries & bonus 38,260 31,126

– Defined contribution retirement plan – current year 3,774 6,386

– Defined contribution retirement plan – over accrual in prior year 0 (3,238)

– Other employee benefits/staff welfare 3,703 2,835

Write back of allowance for doubtful debts (93) (297)

NotestotheFinancialStatements



5 FINANCE COST

2006 2005

RM’000 RM’000

Interest expense

– short term borrowings 2,805 30

– term loans 26,857 20,297

Commitment fees 1,914 3,550

Finance charges – lease 20 0

31,596 23,877

6 TAXATION

2006 2005

RM’000 RM’000

Current tax 107,237 165,518

Deferred tax (40,069) (5,728)

67,168 159,790

Current tax

– Current year 107,237 165,791

– Over accrual in prior years 0 (273)

Deferred tax

– Origination and reversal of temporary differences (40,069) (5,728)

67,168 159,790

The numerical reconciliation between the effective tax rate and the applicable tax rate is as follows:

2006 2005

% %

Applicable tax rate 28 28

Tax effect in respect of:

Income not taxable (3) 0

Expenses not deductible for tax purpose 1 1

Utilization of reinvestment allowances 0 (6)

Effect of changes in tax rate (5) 0

Effective tax rate 21 23

Subject to the agreement by the tax authorities, the Company has a Section 108(6) Account of RM280,812,222 (2005: RM209,818,291) and an

Exempt Income Account of RM918,370,701 (2005: RM918,371,000) as at 31 December 2006. The Company is able to pay out all of its retained

earnings as at 31 December 2006 (2005: all of its retained earnings as at 31 December 2005) without incurring additional tax expense.




7 DIVIDENDS

2006 2005

RM’000 RM’000

Special Interim gross dividend of 20 sen per RM1 unit of share

less tax at 28%, paid on 26 April 2006 (2004: nil) 43,200 0

Final gross dividend of 38 sen per RM1 unit of share, less tax at 28%, paid on 9 June 2006

(2004: 35 sen per RM1 unit of share less tax at 28%) 82,080 75,600

125,280 75,600

2005: Interim gross dividend 10 sen per RM1 unit of share less tax at 28% paid on 22 June 2005 0 21,600

Special Interim gross dividend of 20 sen per RM1 unit of share less tax at 28% paid on 23 June 2006

(2005: 20 sen per RM1 unit of share less at 28%) 43,200 43,200

Special Interim gross dividend of 20 sen per RM1 unit of share less tax at 28% paid on 29 Sept 2006

(2005: nil) 43,200 0

Interim gross dividend of 12 sen per RM1 unit of share less tax 28% paid on 29 Sept 2006


112,320 90,720

2005: Proposed special interim gross dividend of 20 sen per RM1 unit of share less tax at 28% 0 43,200

Proposed final gross dividend of 38 sen per RM1 unit of share less tax at 27%


195,540 216,000

Gross dividend per RM1 unit of share 90sen 100 sen

These financial statements do not reflect the proposed final dividend which will be accounted for in the shareholders equity as an appropriation of

retained earnings in the year in which the dividends are approved by the shareholders.

8 EARNINGS PER UNIT OF SHARE

Basic earnings per share of the Company is calculated by dividing the net profit for the year by the weighted average number of ordinary shares in

issue during the year.

2006 2005

Net profit for the year (RM’000) 258,217 522,132

Weighted average number of ordinary shares in issue (‘000) 300,000 300,000

Basic earnings per share (sen) 86.07 174.04




9 DIRECTORS’ REMUNERATION

2006 2005

RM’000 RM’000

Fees 119 120

Wages, salaries & bonus 576 563

Defined contribution retirement plan 88 81

783 764

The estimated monetary value of benefits provided to Directors during the year by way of usage of the Company’s assets and the provision of

accommodation and other benefits amounted to RM27,360 (2005: RM39,628).

10 PROPERTY, PLANT AND EQUIPMENT

Plant,

machinery,

equipment

Freehold Land and Work-in-

landimprovements Buildings vehicles progress Total

2006 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Costorvaluation:

At 1 January

– Cost 14,811 10,117 111,451 2,264,615 61,141 2,462,135

– Valuation 35,443 0 4,913 0 0 40,356

50,254 10,117 116,364 2,264,615 61,141 2,502,491

Additions 0 0 0 14,279 28,579 42,858

Capitalisation 0 0 14,432 28,633 (43,065) 0

Disposal 0 0 0 (243) 0 (243)

Written off 0 0 0 (37) 0 (37)

Reclassification 0 5,176 (26,973) 21,797 0 0

At 31 December 50,254 15,293 103,823 2,329,044 46,655 2,545,069

Accumulateddepreciation:

At 1 January 0 6,840 42,801 1,137,538 0 1,187,179

Charge for the year 0 2,376 3,323 104,650 0 110,349

Disposal 0 0 0 (138) 0 (138)

Written off 0 0 0 (37) 0 (37)

Reclassification 0 3,821 (7,711) 3,890 0 0

At 31 December 0 13,037 38,413 1,245,903 0 1,297,353

Net book value at 31 December 50,254 2,256 65,410 1,083,141 46,655 1,247,716




10 PROPERTY, PLANT AND EQUIPMENT (CONTINUED)

Plant,

machinery,

equipment



2006(Cont’d) RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Costorvaluationat31December:

Cost 14,811 2,256 60,644 1,083,141 46,655 1,207,507

Valuation 35,443 0 4,766 0 0 40,209

50,254 2,256 65,410 1,083,141 46,655 1,247,716

Net book value at 31 December

had revalued assets been

carried at cost less depreciation 14,391 172 3,999 18 0 18,580

Plant,

machinery,

equipment



2005 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

At 1 January

– Cost 14,811 10,328 97,410 2,309,319 34,268 2,466,136

– Valuation 35,443 14,461 15,351 0 0 65,255

50,254 24,789 112,761 2,309,319 34,268 2,531,391

Additions 0 0 0 0 110,209 110,209

Capitalisation 0 0 7,078 72,758 (83,336) (3,500)

Disposal 0 0 0 (174) 0 (174)

Written off 0 (14,672) (3,475) (120,788) 0 (138,935)

At 31 December 50,254 10,117 116,364 2,261,115 61,141 2,498,991

Accumulated

depreciation:

At 1 January 0 17,735 39,229 1,134,306 0 1,191,270

Charge for the year 0 499 5,570 113,868 0 119,937

Disposal 0 0 0 (174) 0 (174)

Written off 0 (11,394) (1,998) (113,962) 0 (127,354)

At 31 December 0 6,840 42,801 1,134,308 0 1,183,679

Net book value

at 31 December 50,254 3,277 73,563 1,127,077 61,141 1,315,312




10 PROPERTY, PLANT AND EQUIPMENT (CONTINUED)

Plant,

machinery,

equipment



2005(Cont’d) RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Costorvaluationat31December:

Cost 14,811 3,277 68,650 1,127,077 61,141 1,274,956

Valuation 35,443 0 4,913 0 0 40,356

50,254 3,277 73,563 1,127,077 61,141 1,315,312

Net book value at 31 December

had revalued assets been

carried at cost less depreciation 14,391 2,445 4,141 0 0 20,977

The valuation of the land and buildings was carried out in 1990 by a firm of professional valuers. The bases of valuation were as follows:

(i) Freehold land – open market value

(ii) Land improvements and buildings – depreciated replacement cost

Surplus arising from the valuation has been credited to revaluation reserve (Note 19).

11 INVENTORIES

2006 2005

Atnet

realisable Atcost

Atcost value Total total

RM’000 RM’000 RM’000 RM’000

Crude oil 254,193 192,410 446,603 402,478

Partially refined oil 108,598 66,244 174,842 170,104

Finished products 179,042 7,104 186,146 76,455

541,833 265,758 807,591 649,037

Materials 22,115 0 22,115 24,091

563,948 265,758 829,706 673,128

The inventories value for the year includes the write-down to net realisable value of RM13,159,852.




12 TRADE RECCEIVABLES

Trade receivables are denominated in Ringgit Malaysia. The credit terms extended range between 15 to 30 days. The Company controls credit risk by

setting counter party limits and ensuring sales of products are made to customers with appropriate credit history. Due to these factors, management

believes that no additional credit risk beyond amounts allowed for collection losses is inherent in the Company’s trade receivables.

13 AMOUNT RECEIVABLE FROM/PAYABLE TO RELATED COMPANIES

Amounts receivable from / payable to related companies are unsecured and interest free with no fixed terms of repayment.

2006 2005

RM’000 RM’000

Amount receivable from related companies consist of:

Trade 1,125,500 879,047

Non trade 2,098 1,128

1,127,598 880,175

Amount payable to related companies consist of:

Trade 557,040 708,344

Non trade 12,036 23,960

569,076 732,304

14 CASH AND CASH EQUIVALENTS

2006 2005

RM’000 RM’000

Bank balances 43,009 14,947

Deposit with licensed banks 0 647,929

43,009 662,876

The bank balances do not bear interest.

Nil deposit with licensed banks. The average maturity period of the deposit with licensed banks is 2 days (2005: 3 days). Bank balances are deposits

held at call with banks.

The average interest rate per annum of deposits with licensed banks that was effective as at balance sheet date was 3.77% (2005: 2.62%)

15 TRADE AND OTHER PAYABLES 2006 2005

RM’000 RM’000

Trade payables and accruals 7,274 88,415

Accruals for materials and contract payments 46,297 30,274

Accruals for interest expense 736 777

Non-trade payables and accruals 38,225 27,971

Dividends payable 411 688

Tax payable 0 42,811

92,943 190,936




16 PROVISION FOR LIABILITIES

2006 2005

RM’000 RM’000

As at 1 January 3,500 0

Provided during the year 0 3,500

Utilised during the year (1,317) 0

As at 31 December 2,183 3,500

Decommissioning and site restoration costs are provided in relation to the Company’s manufacturing units.

17 DEFERRED TAXATION

2006 2005

RM’000 RM’000

Deferred tax assets 1,873 2,058

Deferred tax liabilities (229,260) (269,514)

As at 31 December (227,387) (267,456)

As at 1 January (267,456) (273,184)

Credited/(charged) to income statement:

– property, plant and equipment 36,078 7,771

– allowance for doubtful debts (26) (95)

– unrealised (gains)/losses 4,176 (839)

– other provision (159) (1,109)

40,069 5,728

As at 31 December (227,387) (267,456)

Deferred tax liabilities (before offsetting)

– property, plant and equipment (232,598) (268,676)

– unrealised gains 3,338 (838)

Offsetting 1,873 2,058

As at 31 December (after offsetting) (227,387) (267,456)

Deferred tax assets (before offsetting)

– allowance for doubtful debts 138 164

– other provision 1,735 1,894

Offsetting (1,873) (2,058)

As at 31 December (after offsetting) 0 0

As at 31 December 2006, there are no other deductible temporary differences, unused tax credit or unused tax losses of which deferred tax asset

is recognised.




18 BORROWINGS

The Company has a USD330,000,000 loan to finance a capital expenditure project. The original term loan carried interest at rates which varies according

to prevailing SIBOR+0.315%. The repayment of the loan commenced on 15 September 2000 in sixteen quarterly instalments of USD20,000,000 and

a final repayment of USD10,000,000 on 15 September 2004. Starting from 15 December 2001, the repayment of the loan was revised to nineteen

quarterly instalments of USD 6,000,000 and a final repayment of USD116,000,000 on 15 September 2006. The interest rate for the revised period

is SIBOR+0.4%. Starting from 15 June 2005, the repayment of the loan was again revised to twenty quarterly interest repayment and one final

repayment of USD140,000,000 after five years. The interest rate for the revised period is SIBOR+0.16%. The interest rate applicable to the loan

ranged from 5.19% to 5.61% per annum (2005: 3.21% to 4.66% per annum) during the year. The interest rate which was effective for the year was

5.53% per annum (2005: 4.66% per annum).

2006 2005

RM’000 RM’000

Short term – revolving credit 83,880 0

Long term – term loan 493,780 529,130

The term loans are repayable over the following period:

Within one year 0 0

Between three to four years 493,780 0

Between four to five years 0 529,130

493,780 529,130

The reduction of the long-term borrowing is due to the appreciation of RM against USD in 2006.

19 REVALUATION RESERVE

The revaluation reserve represents the surplus on revaluation of land, land improvements and buildings carried out in 1990 (Note 10) and is not

available for distribution to the shareholders by way of dividends.

20 SHARE CAPITAL

2006 2005

RM’000 RM’000

Authorised:

Ordinary shares of RM1.00 each

At start/end of financial year 300,000 300,000




21 SIGNIFICANT RELATED PARTIES TRANSACTIONS

In the normal course of business, the Company undertakes, on an arm’s length basis, a variety of transactions with certain companies each of

whom shares a common ultimate holding company (Royal Dutch Shell plc). The material related party transactions between the Company and these

entities are described below: 2006 2005 RM’000 RM’000 Income: Saleofrefinedproductsto: – Shell Malaysia Trading Sendirian Berhad 7,221,444 6,268,741 – Shell International Eastern Trading Co. 1,507,149 1,211,643 – Shell Timur Sendirian Berhad 1,317,731 1,298,828 – Shell Eastern Chemicals Singapore 447,624 321,560 – The Shell Company of Thailand Ltd 110,767 69,282

Tariffrevenueontheuseofproperties/facilities: – Shell Malaysia Trading Sendirian Berhad 14,543 14,198

Recoveriesandrebates: – Shell Global Solutions International B.V. 0 2,602 – Shell Response Limited 0 349

Expenses: Purchaseofcrudeandproductsfrom: – Shell Eastern Trading (Pte) Ltd (11,181) (7,986) – Sarawak Shell Berhad (790,159) (1,235,406) – Shell International Eastern Trading Co. (8,951,470) (6,371,050) – Sabah Shell Petroleum Company Ltd (90,192) (916,067) – Shell Malaysia Trading Sendirian Berhad (138) (535) – Shell Company of Thailand (6,090) (6,090) – Shell Eastern Petroleum Limited (0) (8) – Shell Middle Distillate Synthesis Sdn Bhd (369) (6,285) – Showa Shell Sekiyu 0 (337) – Societe Des Petroles Shell (1,606) (2,787) – Shell Lubricants Supply Company (39,778) (16,328)

Centralmanagementandadministrativeexpenses: – Shell Malaysia Trading Sendirian Berhad (11,183) (18,198) – Shell Malaysia Limited (431) (29) – Shell Global Solutions International B.V. (7,606) (25,876) – Shell Eastern Petroleum Limited 0 (357) – Shell Shared Service Centre – KL Sdn Bhd (453) (735) – Shell International Petroleum Company Limited (14,385) (11,694) AmountspaidtorelatedcompaniesforDirectors’services: – Shell Malaysia Limited (305) (147) – Sarawak Shell Berhad (113) (330)

ITsupportandadministrativeexpenses: – Shell Information Technology International Sendirian Berhad (5,353) (2,602)




22 CONTINGENT LIABILITIES

(a) In December 1996, employees were given the option of either remaining in the Shell Malaysia Retirement Benefit Fund (‘SMRBF’) or transferring to a defined contribution scheme (‘DCS’). In conjunction with this, certain assets of the SMRBF were transferred to the Shell Malaysia Provident Fund (‘SMPF’). The transfers were effective 1 May 1997. Arising from the transfer of assets from the SMRBF to the SMPF, the Company has provided guarantees to members in relation to:

(i) the capital sum transferred; (ii) a minimum return of 2.5% per annum on that capital sum; and (iii) death in service benefits.

The Company, as a Member Company of the SMPF, has supported the resolution of the Founding Company that the SMPF shall come to an end on 31 December 2003 (“Closure Date”) and that members’ balances in SMPF as at Closure Date be transferred to the Employees’ Provident Fund. With such transfer of members’ balances, the Company no longer provides guarantees to members in relation to (i) and (ii) above. Death in service benefit for the ex-SMRBF members will continue to be guaranteed the Company.

Based on the information currently available, it is not possible to estimate the likely outcome of the liabilities with regards to death in service benefits as the liabilities are dependent on individual circumstances.

(b) The Company is a member of two oil spill funds, namely the Contract Regarding a Supplement to Tanker Liability for Oil Pollution (CRISTAL) Fund and the International Oil Pollution Compensation (IOPC) 1971 Fund. The purpose of the Funds is to help compensate parties that have suffered financial losses as a result of oil spill from tankers. The members make contributions to the Funds depending on specific oil spill incidents globally which give rise to payments of compensation by the Funds. As of the date of this report, there are no material claims outstanding.

23 CAPITAL COMMITMENTS

Approved capital expenditure for property, plant and equipment not provided for in the financial statements are as follows:

2006 2005 RM’000 RM’000

Approved and contracted for 3,665 3,068 Approved but not contracted for 3,052 12,460

6,717 15,528

24 SEGMENTAL INFORMATION

The Company is principally engaged in the oil and gas industry namely refining and manufacturing of petroleum products in Malaysia. Accordingly, no segmental information is considered necessary for analysis by industry segments or by geographical segment.

25 FINANCIAL INSTRUMENTS

(i) Creditrisk

As at 31 December 2006, approximately RM627,080,211 (2005: RM591,022,000) and RM157,609,444 (2005: RM153,549,000) of the Company’s total receivables were from Shell Malaysia Trading Sendirian Berhad and Shell Timur Sendirian Berhad respectively.

These receivables represent approximately 62% (2005: 75%) of the Company’s total receivables. These receivables are denominated in Ringgit Malaysia and are current balances as at the date of this report. There is no significant concentration of credit risk from amounts receivable outside the Shell group of companies.

The credit terms of trade receivables ranged from payment in advance to 30 days.

The Company’s trade payables are unsecured. The credit terms for trade payables ranged from no credit to 45 days.




25 FINANCIAL INSTRUMENTS (CONTINUED)

(ii) Fairvalues

The carrying amounts of financial assets and liabilities of the Company at the balance sheet date approximated their fair values.

As at 31 December 2006, RM2,523,733 of total other receivables and prepayments were from car loan extended to staff and valued at

RM1,664,675.

(iii) Balancesdenominatedinforeigncurrencies

The Company’s financial assets and liabilities denominated in foreign currencies are set out below:

Balancesasat31.12.2006

USD EURO Others

(RM’000equivalent)

Other receivables & prepayments 348 0 0

Amounts receivable from related companies 327,578 0 5

Bank balances 25,138 0 0

Deposit with licensed banks 0 0 0

Amounts payable to related companies (497,618) 1,112 (19,101)

Trade and other payables (25,992) (146) (11,672)

Long term borrowings (493,780) 0 0

(664,326) (966) (30,768)

Balancesasat31.12.2005

USD EURO Others

(RM’000equivalent)

Amounts receivable from related companies 134,719 0 0

Bank balances 85 0 0

Deposit with licensed banks 81,738 0 0

Amounts payable to related companies (452,819) (11,624) (7,168)

Trade and other payables (77,149) (1,143) (2,532)

Long term borrowings (529,130) 0 0

(842,556) (12,767) (9,700)

26 APPROVAL OF FINANCIAL STATEMENTS

The financial statements have been approved for issue in accordance with a resolution of the Board of Directors on 26 March 2007.




Company Propertiesas at 31 December 2006

No Tenure Address Landarea Description Ageof Dateof Land Land Building Netbook (square properties/last NBV- Improvement NBV- value feet) buildings evaluation RM’000 NBV-RM’000 RM’000 RM’000

1 Freehold 1236-1238 76,964 Aclubhouse 42years 01.01.1991 1,077 2,009 3,086 CT2159-216187 andtraining JlnResthouse,PortDickson centre

2 Freehold Lot3HS(D)1310,JlnPantai, 6,284,183 Refinery 43years 01.01.1991 22,194 2,257 52,720 77,171 PortDickson

3 Freehold Lot138,GN893,P.Dickson 39,116 Oilspill 42years 01.01.1991 262 500 762 response centre

4 Freehold Lot798EMR238,KgArab, 49,959 Refinery 18years 01.01.1991 140 140 P.Dickson

5 Freehold Lot196EMR621,KgGelam, 242,847 Refinery 19years 01.01.1991 687 687 P.Dickson

6 Freehold Lot195EMR620,KgGelam, 247,072 Refinery 19years 01.01.1991 694 694 P.Dickson

7 Freehold Lot765EMR287, 98,010 Refinery 20years 01.01.1991 314 314 P.Dickson

8 Freehold Lot598EMR319, 112,490 Refinery 20years 01.01.1991 360 360 KgArang-arang,P.Dickson

9 Freehold Lot194GM1397,P.Dickson 130,685 Refinery 11years 31.08.2000 480 480

10 Freehold Lot596GM1247,P.Dickson 100,729 Crudetankfarm 11years 31.08.2000 593 593

11 Freehold Lot703EMR340,P.Dickson 132,030 Crudetankfarm 19years 01.01.1991 423 423

12 Freehold Lot3984Grant17001, 212,590 Crudetankfarm 19years 01.01.1991 681 681 P.Dickson

13 Freehold Lot595EMR316, 118,439 Crudetankfarm 20years 01.01.1991 379 379 KgArang-arang,P.Dickson

14 Freehold Lot599EMR320, 141,570 Crudetankfarm 20years 01.01.1991 454 454 KgArang-arang,P.Dickson


CompanyProperties

as at 31 December 2006


15 Freehold Lot600EMR321, 124,146 Crudetank 20years 01.01.1991 398 398 KgArang-arang,P.Dickson farm



18 Freehold Lot594EMR315,P.Dickson 123,884 Crudetank 20years 01.01.1991 397 397 farm

19 Freehold Lot704EMR341,P.Dickson 188,799 Crudetank 9years 31.08.2000 1,259 1,259 farm

20 Freehold Lot950GM1325,P.Dickson 104,819 Crudetank 10years 31.08.2000 727 727 farm

21 Freehold Lot3985G17002,P.Dickson 212,544 Crudetank 10years 31.08.2000 1,216 1,216 farm

22 Freehold Lot834G8652,P.Dickson 348,481 Crudetank 11years 31.08.2000 1,705 1,705 farm

23 Freehold Lot888EMR640,P.Dickson 115,173 Forpipelineto 17years 01.01.1991 585 585 jetty

24 Freehold Lot1323EMR641, 178,596 Forpipelineto 17years 01.01.1991 907 907 P.Dickson jetty

25 Freehold Lot2254EMR771, 91,737 Forpipelineto 17years 01.01.1991 466 466 P.Dickson jetty

26 Freehold Lot6672HS(M)868, 59,383 Forpipelineto 17years 01.01.1991 359 359 KgGelam,P.Dickson jetty

27 Freehold Lots3042-3EMR73, 148,104 Forpipelineto 18years 01.01.1991 443 443 KgGelam,P.Dickson jetty

28 Freehold Lots3040-1EMR742, 120,334 Forpipelineto 18years 01.01.1991 332 332 P.Dickson jetty


CompanyProperties



29 Freehold Lot191EMR553, 134,491 Forpipelineto 19years 01.01.1991 620 620 KgGelam,P.Dickson jetty


31 Freehold Lot909Grant10047, 86,766 Forpipelineto 15years 01.01.1991 431 431 P.Dickson jetty

32 Freehold Lots178-180Grant1087- 448,668 Forpipelineto 16years 01.01.1991 2,172 2,172 1089,P.Dickson jetty


34 Freehold Lot651EMR196, 153,810 LPGVessel 20years 01.01.1991 492 492 KgArang-arang,P.Dickson

35 Freehold Lot2193/23HSM281, 1,259 RefineryBuffer 10years 30.04.2001 86 86 P.Dickson Zone





40 Freehold Lot4961GM475,P.Dickson 5,769 RefineryBuffer 10years 30.04.2001 210 210 Zone




CompanyProperties



43 Freehold Lot4964GM478,P.Dickson 463 RefineryBuffer 10years 30.04.2001 181 181 Zone

44 Freehold Lot4965GM479 4,736 RefineryBuffer 10years 30.04.2001 173 173 PortDickson Zone




48 Freehold Lot4968GM482,P.Dickson 151 RefineryBuffer 10years 30.04.2001 5 5 Zone










CompanyProperties



57 Freehold PT3541,KgGelam, 2,002 RefineryBuffer 13years 31.08.2000 20 20 P.Dickson Zone

58 Freehold PT4521-4540,KgGelam, 40,236 RefineryBuffer 13years 31.08.2000 398 398 P.Dickson Zone

59 Freehold PT4543,KgGelam, 6,135 RefineryBuffer 13years 31.08.2000 61 61 P.Dickson Zone

60 Freehold Lot1126Grant10097, 97,738 Reservedland 18years 01.01.1991 313 313 P.Dickson

61 Freehold Lot2314GM203, 86,858 Reservedland 19years 01.01.1991 278 278 KgArang-arang,P.Dickson

62 Freehold Lot643EMR330, 78,952 Reservedland 19years 01.01.1991 253 253 KgArang-arang,P.Dickson

63 Freehold Lot652EMR197, 148,626 Reservedland 20years 01.01.1991 475 475 KgArang-arang,P.Dickson

64 Freehold Lot774EMR629, 99,360 Reservedland 20years 01.01.1991 318 318 KgPaya,P.Dickson

65 Freehold Lot1553EMR671, 216,449 Reservedland 20years 01.01.1991 688 688 KgPaya,P.Dickson

66 Freehold Lot775CT1769,P.Dickson 104,805 Reservedland 20years 01.01.1991 336 336

67 Freehold Lot580EMR225,P.Dickson 107,539 Reservedland 14years 03.09.1991 311 311

68 Freehold Lot581EMR226,P.Dickson 98,010 Reservedland 14years 03.09.1991 283 283

69 Freehold Lot1312PT4372, 47,866 Reservedland 42years 01.01.1991 397 397 Lot1313PT4373, Lot1314PT4374, Lot1317PT4377, Lot1318PT4388, Lot764P.Dickson


CompanyProperties



70 Freehold Lot9055PT4382/9056 13,629 Reservedland 43years 01.01.1991 256 256 PT4383P.Dickson (partiallotsoflot701)

71 Freehold Lot9060PT4387/9061 17,739 Reservedland 43years 01.01.1991 1 1 PT4388P.Dickson (partiallotsoflot701)

TOTAL 12,319,276 50,254 2,257 55,228 107,739


As at 31 March 2007

Analysis of Shareholdings

SizeofHoldings No.ofHolders No.ofShares %

Malaysia Foreign Malaysia Foreign Malaysia Foreign

1–99 155 2 1,507 26 0.00 0.00

100–1,000 3,314 179 2,613,504 156,400 0.87 0.05

1,001–10,000 3,441 740 12,972,968 3,287,678 4.32 1.10

10,001–100,000 493 231 13,605,178 6,504,916 4.54 2.17

100,001–14,999,999(*) 55 46 41,933,500 22,066,073 13.98 7.36

15,000,000andabove(**) 1 1 43,858,250 153,000,000 14.62 51.00

TOTAL 7,459 1,199 114,984,907 185,015,093 38.33 61.67

No.ofHolders No.ofShares %

GRANDTOTAL 8,658 300,000,000 100.00

REMARK:*Lessthan5%ofIssuedShares**5%andaboveofIssuedShares

AuthorisedCapital : RM300,000,000.00

IssuedandPaid-upCapital : RM300,000,000.00

ClassofShares : OrdinaryshareofRM1.00each

Votingright : Onevoteperordinaryshareheld

LISTOFTOP30SHAREHOLDERS

Totalno.ofshareholders 30

Totalshareholdings 245,789,918

Totalpercentage 81.93

LISTOFTOP30SHAREHOLDERS

No. AccountNo. Name InvestorID Shareholdings %

1. 207-001-024831513 CitigroupNominees(Asing)SdnBhdforShellOverseasHoldingsLimited

263875D 153,000,000 51.00

2. 226-001-004488797 EmployeesProvidentFundBoard EPFACT1991 43,858,250 14.62

3. 245-001-019638741 AmanahRayaNominees(Tempatan)SdnBhdforSkimAmanahSahamBumiputra

434217U 8,576,100 2.86


As at 31 March 2007

AnalysisofShareholdings


4. 257-001-037151271 ValuecapSdnBhd 595989V 7,001,800 2.33

5. 215-001-000917468 PermodalanNasionalBerhad 038218X 5,000,400 1.67

6. 209-001-021330287 CartabanNominees(Asing)Sdn.Bhd.-GovernmentofSingaporeInvestmentCorporationPteLtdforGovernmentofSingapore(C)

263367W 4,045,500 1.35

7. 205-001-025845835 MalaysiaNominees(Tempatan)SendirianBerhadforGreatEasternLifeAssurance(Malaysia)Berhad(Par1)

6193K 3,200,000 1.07

8. 206-001-022024434 HSBCNominees(Tempatan)SdnBhd-NomuraAssetMgmtSGforEmployeesProvidentFund

258854D 2,473,200 0.82

9. 209-001-026473371 CartabanNominees(Asing)Sdn.Bhd.-GovernmentofSingaporeInvestmentCorporationPteLtdforMonetaryAuthorityofSingapore(H)

263367W 2,285,400 0.76

10. 245-001-033601618 AmanahRayaNominees(Tempatan)SdnBhdforAmanahSahamDidik

434217U 1,826,700 0.61

11. 209-001-035427459 CartabanNominees(Asing)Sdn.Bhd.,InvestorsBankandTrustCompanyforIshares,Inc.

263367W 1,767,200 0.59

12. 206-001-026754374 HSBCNominees(Asing)SdnBhd-BBHandCo.BostonforVanguardEmergingMarketsStockIndexfund

4381U 1,203,300 0.40

13. 206-001-043591155 HSBCNominees(Asing)SdnBhd-ExemptanforJPMorganChaseBank,NationalAssociation(Netherlands)

4381U 1,146,518 0.38

14. 245-001-031302672 AmanahRayaNominees(Tempatan)SdnBhdforAmanahSahamMalaysia

434217U 1,120,000 0.37

15. 057-002-010766673 UniversitiMalaya UOMACTNO441961 995,000 0.33

16. 209-001-040811747 CartabanNominees(Asing)Sdn.Bhd-SSBTFundSJ25forCaliforniaPublicEmployeesRetirementSystem

263367W 798,100 0.27

17 205-001-024068207 MalaysiaNominees(Tempatan)SendirianBerhadforLeeFoundation,StatesofMalaya(00-00197-000)

6193K 790,000 0.26

18. 207-001-044600708 CitigroupNominees(Asing)Sdn.Bhd.forExemptanforMellonBank(Mellon)

263875D 757,400 0.25

LISTOFTOP30SHAREHOLDERS(Cont’d)


As at 31 March 2007



19. 209-001-036509826 CartabanNominees(Asing)Sdn.Bhd-InvestorsBankandTrustCompanyforMSCIEquityIndexFundBMalaysia(BarclaysGInv)

263367W 625,100 0.21

20 056-004-024805566 Ke-ZanNominees(Asing)SdnBhd,KimEngSecurities(Private)LimitedforChowChoPoonPteLtd

257871M 530,000 0.18

21 073-007-034742809 ThamTattYow@ThamAhChye 420411-10-5271(0487773)

530,000 0.18

22 065-001-043565290 CIMSECNominees(Asing)SdnBhd-ExemptforCIMB-GKSecuritiesPteLtd(RetailClients)

265422M 508,250 0.17

23. 219-001-003317161 LembagaTabungAngkatanTentera ACT1011973 500,000 0.17

24. 205-001-034087676 MalaysiaNominees(Tempatan)SendirianBerhadforGreatEasternLifeAssurance(Malaysia)Berhad(Par2)

6193K 500,000 0.17

25. 087-001-021742614 RHBNominees(Tempatan)SdnBhd-RHBAssetManagementSdn.Bhd.forKumpulanWangSimpananPekerja

259064V 499,200 0.17

26. 206-001-042047472 HSBCNominees(Asing)SdnBhd-TNTCforLGGemSmallCompaniesFund(RBSasDEP)

4381U 473,800 0.16

27. 222-001-011423019 AlliancegroupNominees(Tempatan)Sdn.Bhd.-PheimAssetManagementSdn.Bhd.forEmployeesProvidentFund

42234H 458,700 0.15

28. 065-003-044224251 HengLeeandCompanySdn.Berhad 750W 450,000 0.15

29. 086-001-011634565 CIMBTrusteeBerhadforAmanahSahamDarulIman 167913M 445,000 0.15

30. 206-001-024008484 HSBCNominees(Asing)SdnBhd,HSBCSGforSingaporeInvestmentsPteLtd

4381U 425,000 0.14

TOTAL 245,789,918 81.93

LISTOFTOP30SHAREHOLDERS(Cont’d)


As at 31 March 2007


SuBSTANTIALSHAREHOLDERSHOLDINgS(5%ANDABOVE)


1. 207-001-017710963 ^CitigroupNominees(Asing)SdnBhd 263875D 156,680,578 52.23

2. 226-001-004488797 EmployeesProvidentFundBoard EPFACT1991 43,858,250 14.62

Total 200,538,828 66.85

^CitigroupNominees(Asing)SdnBhdforShellOverseasHoldingsLimited:

AccountNo. InvestorID Shareholdings %

207-001-024831513 263875D 153,000,000 51.00

This page is intentionally left blank.

To:BoardofDirectors

I/We____________________________________________________________NRICNo./Co.No.:_____________________________________of

___________________________________________________________________________________________________________________________

beingMember/MembersofShellRefiningCompany(FederationofMalaya)Berhad,herebyappoint______________________________________

____________________________________________________________________NRICNo.____________________________________________OR

failinghim/them_________________________________________NRICNo.:_____________________________ORfailinghim/them,theChairman

oftheMeetingasmy/ourproxytovoteforme/usonmy/ourbehalfattheForty-EightAnnualGeneralMeetingoftheCompanytobeheldatSimeDarbyConventionCentre,1AJalanBukitKiara1,60000KualaLumpuronTuesday,8thMay2007at11.00amandatanyadjournmentthereof.

SignatureofMemberorCommonSeal_______________________________________SignatureofWitness_________________________________

NameinFull__________________________________________________________________________________________________________________

Address ____________________________________________________________________________________________________________________

Date___________________________dayof__________________________2007.

AgENDA1

1. ToreceivetheAuditedFinancialStatementsoftheCompanyfortheyearended31stDecember2006togetherwiththeReportsoftheDirectorsandAuditorsthereon.

My/ourproxyistovoteontheResolutionsasindicatedbyan“X”intheappropriatespacesbelow.Ifthisformisreturnedwithoutanyindicationastohowtheproxyshallvote,theproxyshallvoteandabstainashe/shethinksfit.

AgENDA2-8

Resolution For Against

2. ToapprovethedeclarationofafinaldividendofThirty-EightSen(RM0.38)lessMalaysianIncomeTaxat27%perunitofordinaryshareofRM1.00eachfortheyearended31stDecember2006asrecommendedbytheDirectors.Resolution1

3. ToapprovetheincreaseoftheIndependentNon-ExecutiveDirectors’feescommencingthefinancialyear2007.Resolution2

4. Tore-electthefollowingdirectorswhoareretiringinaccordancewithArticle81(3)oftheCompany’sArticlesofAssociationandbeingeligible,offerthemselvesforre-election:

a) Mr.SawChooBoon Resolution3

b) YMRajaAhmadMuradbinRajaBahrin Resolution4

c) Mr.MarkOwenStevens Resolution5

5. Toconsiderandifthoughtfit,passthefollowingresolutionpursuanttoSection129oftheCompaniesAct1965:

a) “ThatDato’JaffarIndot,aDirectorwhoretiresinaccordancewithsection129oftheCompaniesAct,1965,beandisherebyre-appointedasaDirectoroftheCompanytoholdofficeuntiltheconclusionofthenextAnnualGeneralMeeting.”

Resolution6

SHELLREFININgCOMPANY(Federation of Malaya) Berhad (3926-U)

(Incorporated in Malaysia)

No of shares held: CDS account no.: Serial number:

ProxyFormOriginalonly(Please see notes below)

Resolution For Against

b) “ThatTanSriSawHuatLye,aDirectorwhoretiresinaccordancewithsection129of theCompaniesAct,1965,beand ishereby re-appointedasaDirectorof theCompanytoholdofficeuntiltheconclusionofthenextAnnualGeneralMeeting.”

Resolution7

6. ToappointMessrsPricewaterhouseCoopersasauditorsandtoauthorisetheDirectorstofixtheauditors’remuneration.Resolution8

7. As SPECIAL BUSINESS, to consider and, if thought fit, pass the following ordinaryresolution:-ProposedRenewaloftheExistingShareholders’MandateandProposedNewShareholders’MandateforRecurrentRelatedPartyTransactionsofaRevenueorTradingNature.

Resolution9

“THATsubjecttotheCompaniesAct,1965,theMemorandumandArticlesofAssociationoftheCompanyandtheListingRequirementsofBursaMalaysiaSecuritiesBerhad,

a) approvalbeandisherebygivenfortheRenewaloftheExistingShareholders’MandatefortheCompanytoenterintoandgiveeffecttothecategoryoftherecurrentarrangementsortransactionsofarevenueortradingnaturefromtimetotimewiththeRelatedParties,asspecified

inSection2.2oftheCirculartoShareholdersdated12thApril2007;and

b) aNewShareholders’MandatebeandisherebygrantedfortheCompanytoenterintoadditionalrecurrentrelatedpartytransactionsofarevenueortradingnaturefromtimetotimewiththeRelatedParty,namelyasspecifiedinSection2.2oftheCirculartoShareholdersdated12thApril2007,providedthatsuchtransactionsare:-

(i) recurrenttransactionsofarevenueortradingnature;necessaryfortheShellGroup’sday-to-dayoperations;carriedoutintheordinarycourseofbusinessonnormalcommercialtermswhicharenotmorefavourabletotheRelatedPartiesthanthosegenerallyavailabletothepublic;andarenottothedetrimentofminorityshareholders;(the“Mandate”);

(ii)(iii)

(iv)

THATsuchauthorityshallcommenceuponthepassingofthisresolutionandshallcontinuetobeinforceuntil:-

(i) theconclusionofthenextAnnualGeneralMeetingoftheCompanyfollowingtheAnnualGeneralMeetingatwhichsuchmandatewaspassed,atwhichtimeitwilllapse,unless,theauthorityisrenewedbyaresolutionpassedatthemeeting;theexpirationoftheperiodwithinwhichthenextAnnualGeneralMeetingafterthedateitisrequiredtobeheldpursuanttoSection143(1)oftheCompaniesAct,1965butshallnotextendtosuchextensionasmaybeallowedpursuanttoSection143(2)oftheCompaniesAct,1965;orrevokedorvariedbyresolutionpassedbytheshareholdersinageneralmeeting;

(ii)

(iii)

whicheveristheearlier;

And further that theDirectorsof theCompanybeauthorised tocompleteanddoall suchactsand things (includingexecutingall suchdocumentsasmayberequired)astheymayconsiderexpedientornecessarytogiveeffecttotheMandate.”

NOTES:1. AmemberoftheCompanywhoisentitledtoattendandvoteatthemeetingmayappointamaximumoftwo(2)proxiestoattendand,onapoll,voteonthemember’sbehalf.

2. AproxyneednotbeamemberoftheCompany.

3. Theinstrumentappointingaproxyshallbeinwritingandsignedbytheappointororbyhisattorneywhoisauthorizedinwriting.Inthecaseofacorporation,theinstrument

appointingaproxyorproxiesmustbemadeundersealorsignedbyanofficeroranattorneydulyauthorised.

4. ThesignaturetotheinstrumentappointingaproxyorproxiesexecutedoutsideMalaysiamustbeattestedbyasolicitor,notarypublic,consulormagistrate.

5. Theinstrumentappointingaproxyandthepowerofattorneyorotherauthority(ifany)underwhichitissignedornotarizedmustbedepositedattheregisteredofficeofthe

Company,CompanySecretary’sOffice,BangunanShellMalaysia,ChangkatSemantan,DamansaraHeights,50490KualaLumpur,notlessthanforty-eight(48)hoursbefore

thetimeforholdingthemeetingoradjournedmeeting.

6. OnlyanoriginalproxyformdepositedattheregisteredofficeoftheCompany,willentitletheproxyholdertoattendandvoteatthemeeting.Photocopiesofproxyformwillnot

beacceptedforthepurposesofthemeeting.AdditionaloriginalproxyformsareavailabletomembersuponrequestinwritingtotheCompany.

7. Whereamemberappointstwo(2)proxies,theappointmentshallbeinvalidunlesssuchmemberspecifiesthepercentageofhis/herholdingtoberepresentedbyeachproxy.

8. AnyNominationofaDirectormustbemadeinaccordancewiththeArticlesofAssociationoftheCompany.

AgENDA1

1. UntukmenerimaPenyataKewanganSyarikatyangtelahDiauditbagitahunberakhir31Disember2006bersertadenganLaporanPengarahdanJuruaudit.

Proksi saya / kami mengundi berhubung Resolusi seperti yang ditunjukkan dengan tanda “X” di dalam ruangan yang sesuai di bawah. Jikaboranginidikembalikantanpasebarangtandatentangbagaimanaproksiperlumengundi,proksibolehmengundiataumengecualikandirimenurutpertimbanganbeliau.

AgENDA2-8

Resolusi Menyokong Menentang

2. UntukmeluluskanpengisytiharandividenakhirsebanyakTigaPuluhLapanSen(RM0.38)tolakCukaiPendapatanMalaysiapada27%seunitsahambiasaberhargaRM1.00setiapsatubagitahunkewanganberakhir31Disember2006sepertiyangdisyorkanolehparaPengarah.

Resolusi1

3. UntukmelulusdanmenaikkanyuranparaPengarahBebasdanBukanEksekutifuntuktahunkewangan2007.

4. UntukmemilihsemulaparaPengarahberikutyangakanbersaramenurutArtikel81(3)TataurusanPertubuhanSyarikat,yangmanamerekalayakdanmenawarkandiriuntukpemilihansemula:

a) En.SawChooBoon Resolusi3

b) YMRajaAhmadMuradbinRajaBahrin Resolusi4

c) En.MarkOwenStevens Resolusi5

5. Untukmempertimbangkandanjikadifikirkansesuai,meluluskanresolusiberikutmenurutSeksyen129AktaSyarikat,1965:

a) “Bahawa Dato’ Jaffar Indot, Pengarah yang bersara menurut Seksyen 129 AktaSyarikat1965adalahdandenganinidilantiksemulasebagaiPengarahSyarikatuntukmemegangjawatansehinggaselesaiMesyuaratAgungTahunanberikut.

Kepada:LembagaPengarah

Saya/Kami ___________________________________________________ No. K/P Baru/No. Syarikat: ______________________________________

beralamat_di_______________________________________________________________________________________________________________

adalah Ahli/Ahli-ahli Shell Refining Company (Federation of Malaya) Berhad, dengan ini melantik________________________________________

_________________________________________________________________No. K/P Baru_______________________________________ATAU jika

beliau/mereka gagal hadir, ________________________________________No. K/P Baru________________________________ATAU jika beliau/

merekagagalhadir,PengerusiMesyuaratinisebagaiproksisaya/kamiuntukmengundibagipihaksaya/kamidiMesyuaratAgungTahunanKeempat

PuluhLapan yangakandiadakandiSimeDarbyConventionCentre, 1A JalanBukitKiara1, 60000Kuala LumpurpadahariSelasa,

8Mei2007jam11.00pagidanpadasebarangpenangguhannya.

TandatanganatauCopMohorRasmi-Ahli___________________________________TandatanganSaksi_____________________________________

Nama Penuh_________________________________________________________________________________________________________________

Alamat____________________________________________________________________________________________________________________

Tarikh___________________________haribulan__________________________2007.

SHELLREFININgCOMPANY(Federation of Malaya) Berhad (3926-U)

(Diperbadankan Di Malaysia)

Bil.saham dipegang: CDS akaun no.: Nombor Siri:

BorangProksi(Sila lihat nota di bawah)

Resolusi6

Asalsahaja

Resolusi2

Resolusi Menyokong Menentang

b) “BahawaY.Bhg.TanSriSawHuatLye,PengarahyangbersaramenurutSeksyen129AktaSyarikat,1965adalahdandenganinidilantiksemulasebagaiPengarahSyarikat untuk memegang jawatan sehingga selesai Mesyuarat Agung Tahunanberikut.”Resolusi7

6. UntukmelantikTetuanPricewaterhouseCooperssebagai juruauditdanuntukmemberikuasakepadaparaPengarahmenetapkanbayarankhidmatmereka.

7. SebagaiURUSANKHAS,untukmempertimbangkandanjikadifikirkansesuai,meluluskanresolusibiasaberikut:-Cadangan Pembaharuan Mandat para Pemegang Saham Sedia Ada dan CadanganMandatPemegangSahamyangBarubagiUrusniagaBerulangPihakBerkaitanyangBerbentukHasilatauPerdagangan.

Resolusi9

BAHAWA tertaklukkepadaAktaSyarikat,1965,MemorandumdanTataurusanPertubuhanSyarikatdanKeperluanPenyenaraianBursaMalaysiaSecuritiesBerhad,

a) kelulusanadalahdandenganinidiberibagiPembaharuanMandatparaPemegangSahamyangSediaAdauntukSyarikatmelaksanakandanmemeteraikategoripengaturanatauurusniagaberulangberbentukhasilatauperdagangandarisemasakesemasadenganPihak-pihakBerkaitan,sepertiyangdinyatakandalamSeksyen2.2PekelilingkepadaparaPemegangSahambertarikh12April2007;dan

b) kelulusanadalahdandengan inidiberibagiPembaharuanMandatparaPemegangSahamyangbaruuntukSyarikatmemeteraiurusniagatambahanberulangpihak-pihakberkaitanberbentukhasilatauperdagangandarisemasakesemasadenganPihak-pihakBerkaitan,sepertiyangdinyatakandalamSeksyen2.2PekelilingkepadaparaPemegangSahambertarikh12April2007,dengansyaraturusniagatersebutadalah:-

(i)(ii)(iii)

(iv)

urusniagaberulangberbentukhasilatauperdagangan;perluuntukoperasiharianKumpulanShell;dilaksanakan dalam urusan biasa perniagaan menurut terma komersial yang normal dan tidak memihak kepada Pihak Berkaitanberbandingdenganyangdigunakanuntukorangawam;dantidakmenjejaskankepentinganpemegangsahamminoriti;(“Mandat”);

BAHAWAkuasayangdiberiolehresolusiiniakanbermulasebaiksahajaiadiluluskandanterusberkuatkuasasehingga:-

(i) selesaiMesyuaratAgungTahunanSyarikatberikutnyaselepasMesyuaratAgungTahunandimanamandattersebutdiluluskan,yangmanapadamasaituiaakanluput,kecualidengansaturesolusiyangdiluluskandimesyuaratitu,kuasatersebutdiperbaharui;tamatlingkungantempohyangmanaMesyuaratAgungTahunanberikutnyaperludiadakansepertiyangditetapkanmenurutSeksyen143(1) Akta Syarikat 1965 tetapi tidak akan dilanjutkan sehingga lanjutan yang mungkin dibenarkan menurut Seksyen 143(2) AktaSyarikat,1965;dibatalkanataudiubahmelaluiresolusiyangdiluluskanolehparapemegangsahamdalammesyuaratagung;

(ii)

(iii)

yangmanalebihawal;

DanseterusnyabahawaparaPengarahSyarikatadalahdandenganinidiberikuasauntukmenyelesaikandanmelakukansemuatindakandanperkara(termasukmelaksanakansemuadokumensebagaimanayangdiperlukan)sebagaimanamungkinmerekafikirkansesuaiatauperluuntukmemberikesankepadaMandat”.

NOTA:1. SeorangahliSyarikatyangberhakmenghadiridanmengundidimesyuaratinibolehmelantikmaksimumdua(2)proksiuntukhadirdanuntukpungutansuara,mengundibagi

pihakahlitersebut.

2. SeorangproksitidaksemestinyaseorangahliSyarikat.

3. Suratcarapelantikanseorangproksihendaklahbertulisdanditandatanganiolehahliyangmelantikatauolehpeguamyangdiberikuasasecarabertulis.Dalamhalsebuah

perbadanan,suratcarapelantikanproksiatauproksi-proksihendaklahdimeteraiatauditandatanganiolehseorangpegawaiatauwakilyangdiberikuasa.

4. Tandatanganpadasuratcarayangmelantikproksiatauproksi-proksiyangdibuatdiluarMalaysiahendaklahdisahkanolehpeguam,notariawam,konsulataumajistret.

5. Suratcarapelantikanseorangproksidankuasawakilataukuasalain(jikaada)yangditandatanganiatausalinanyangdisahkanhendaklahdiserahkankealamatberdaftar

Syarikat,PejabatSetiausahaSyarikat,BangunanShellMalaysia,ChangkatSemantan,DamansaraHeights,50490KualaLumpur,tidakkurangdaripadaempatpuluhlapan(48)

jamsebelummasamesyuaratditetapkanakanberlangsungataumesyuaratyangditangguhkan.

6. Hanyaborangproksiasli yangdiserahkandialamatberdaftarSyarikatakanmembolehkanpemegangproksimenghadiridanmengundisemasamesyuarat.Salinanfoto

borangproksitidakakanditerimauntuktujuanmesyuarat.BorangproksiaslitambahanakandiberikankepadaahliyangmemohonsecarabertuliskepadaSyarikat.

7. Jikaseorangahlimelantikdua(2)orangproksi,pelantikanitutidaksahkecualibeliaumenyatakanperatusanpegangansahamnyayangakandiwakiliolehsetiapproksi.

8. SebarangpencalonanseseorangPengarahhendaklahdibuatmenurutTataurusanPertubuhanSyarikat.

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