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On the pressing issue of road safety in Oman, His Majesty

Sultan Qaboos bin Said recently said, “While we believe that life and death are destined by Allah,

we know that the Almighty has ordained that people should not cast themselves on perils. While some may die in these

accidents, others who survive may be disabled and a burden for themselves, their families and their society. Therefore, we should join

hands and beware of this issue.”

In keeping with His Majesty’s vision, safety is our first priority at Shell Oman Marketing Company SAOG. Shell Oman is fueling the roads of Oman and we consider it our social responsibility to

keep the Sultanate’s roads safe. We undertake engagement and awareness programmes, incentive schemes and

compliance checks to build a stronger road safety culture and make our nation’s roads

safer.

T H I N K S A F E

STAY SAFE

áeÓ°ùdÉHôqµakÉª`dÉ°S ≈≤Ñàd

Glimpses of various

Road Safety initiatives undertaken by Shell Oman over

the years.

5

CONTENTS

Board of Directors ...................................................................... 8

Management Team ................................................................................ 9

Directors’ Report ........................................................................................... 10

Auditors’ Report on Corporate Governance ........................................................... 14

Corporate Governance Report ................................................................................... 15

Management Discussion and Analysis ........................................................................... 24

Auditor’s Report 2009 ................................................................................................... 35

Financial Statement ...................................................................................................... 36

SHELL OMAN MARKETING COMPANY SAOGPO Box 38, PC 116, Mina Al Fahal,

Sultanate of OmanPhone: +968 24 570100

Fax: +968 24 570121www.shelloman.com.om

8

BOARDOF DIRECTORS

From Left to Right:

Adil SidahmedBoard Secretary

Atif Abdulhameed Al RaisiDirector

Zaiviji Ismail bin AbdullahDirector

Shabib Mohammed Al DarmakiDirector

Faisal Khamis Al HasharDirector

John BlascosChairman

8 * succeeded by Hong Zhou Wong from 20 January 2010

Ghalib Fawzy Al BusaidiDeputy Chairman

Saleh Nasser Al AraimiDirector

Achillefs Sklivaniotis*Director

Irshad Moosa Al LawatiDirector

Abdulsalam Mohammed Al MurshidiDirector

9

MANAGEMENT TEAM

From Left to Right (Standing): From Left to Right (Sitting):

Salim Saud Al BusaidiEngineering Manager

Achillefs Sklivaniotis*Finance Director

Mohammed Ali Al FarsiGM-External Affairs & Business Development

Ahmed HilalLubricants Supply Chain Manager

Redha Jumma Al LawatiAviation Manager

Kit Arvin BermudezRetail Sales & Operations Manager

Frank RichtersDistribution & Operations Manager

Faisal Khamis Al HasharManaging Director

Waqar SiddiqiGM-Lubricants and Commercial Fuel

Asma Al GhabshiHuman Resources & Administration Manager

* succeeded by Hong Zhou Wong from 20 January 2010

10

Your Company

achieved unprecedented

financial results recording a historically

highest ever net profit after tax of RO 13.02

million, compared to the previous year’s net profit

after tax of RO 12.50 million.

DIRECTORS’ REPORT

Dear Shareholders,On behalf of your Board of Directors, I am pleased to present the Directors’ Annual Report of Shell Oman Marketing Company SAOG for the year ended 31 December 2009.

Business EnvironmentDuring 2009, oil prices traded from around 50 USD per barrel levels to 70 USD per barrel, ending the year at78 USD per barrel. Major global economies continued to fight the recession during the year. At the end of 2009, major economic indicators show that economies were beginning to recover and that this recovery is going faster and stronger than expected, according to the International Monetary Fund (IMF).

In Oman, oil production has increased in 2009 by 7.7% to 810,000 barrels per day. Under His Majesty Sultan Qaboos bin Said’s leadership, the government continued to emphasize the importance of diversification in the economy. Non-oil exports grew by a further 2.9% in 2009 on a real basis compared to 2008.

During the year, your Company continued to take physical supplies directly from both Mina Al Fahal and Sohar. A new

price mechanism for volumes lifted out of Sohar Refinery was introduced as of 1 August 2009, which in turn has an impact on margins of fuel sold through service stations that are supplied products from Sohar.

As of January 2009, your Company’s license to operate has been renewed for the next 10 years till 2018. The Government also revised the license tariff structure to4 baiza per one Rial revenue. We therefore acknowledge the Government’s new fee structure, which has introduced equality amongst oil products marketing companies and therefore creating a fair and competitive environment.

Business ResultsAmidst a still unsettled global economic environment your Company continued to deliver outstanding results in 2009.

During the year, your Company focused on cost cutting initiatives that included areas such as distribution, lubricants blending as well as administrative and other operating

11

GCC Traffic Week 2003 - Free vehicle

safety check

expenses. The credit position has been monitored with more stringent policies in place to manage any credit exposure; this has further improved your Company’s cash flow position while minimising any credit issues.

The Retail Business remains an important portfolio segment for your Company. Total retail volumes sold was in line with 2008, fuelled by volume from new sites opened last year and those opened since January this year. Also, the investments that your Company has undertaken last year in the development of existing sites has contributed to the enhancement of fuel sales at these locations. During the year, your Company opened 6 new retail sites and rebuilt 4 sites.

Your Company made major efforts to further upgrade customer service in all of our retail stations. In 2009 we continued to focus on delivering quality fuels to customers, every time, every visit, every fill. This has greatly contributed to maintaining our market share and our average throughput per site, despite competitors’ activities in adding more sites.

Retail introduced Improved Shell Super Petrol during the Third Quarter of 2009. Improved Shell Super has a new additive designed to give more mileage through enhanced engine cleaning and reduction of friction. The introduction of the product helped boost sales during the year.

Increased Government spending in the development of infrastructure, construction and tourism-related projects has helped to support the Commercial Fuel Business of the Company during 2009. Commercial Fuel Business continued to deliver good results and has managed to acquire new businesses and re-secure current contracts for fuel supplies. The Aviation sector continues to be highly competitive in nature and is characterised by almost yearly tender-based business. Your company continued to retain its presence at both of the major airports in the country in addition to other customers owned airfields.

The reputation for high quality lubricants has enabled your company to achieve higher penetration in both the local and export markets despite the volatile economic condition. A project to repackage lubricants to attract both existing and new customers was completed by the end of Q3 09. In addition, the inland lubricants team has managed to renew key contracts as well as gain new contracts that have greatly contributed to business growth.

Your Company continues to focus on safety and operational excellence, and its customers. The Customer Service Centre has been launched with communication both to the customers and through the media.

Financial PerformanceFor the year under review, your Company achieved unprecedented financial results recording a historically highest ever net profit after tax of RO 13.02 million, compared to the previous year’s net profit after tax of RO 12.5 million. Despite the uncertainty surrounding major global economies, your Company’s proactive management, as well as sound operational performance, were the principal drivers of Shell Oman Marketing’s commendable financial performance in 2009.

EPS and DividendAs a result of the higher net income, our earnings per share for 2009 moved upwards to 130 baiza, compared to 125 baisa in 2008. I am pleased to announce that your Board of Directors is recommending a final dividend of RO 12 million i.e. 120 baisa per share. This represents an increase of 4.4 % over the previous year’s total final dividend of RO 11.5 million.

12 DIRECTORS’ REPORT

Our actions are

guided by the aim to make business

decisions that give credence to our sense

of economic, social and environmental

responsibility.

Our Commitment to Sustainable DevelopmentIn line with our Statement of General Business Principles, your Company subscribes to the principle of sustainable development - that is, meeting the needs of the present generation without compromising the ability of future generations to meet their own needs. Our actions are guided by the aim to make business decisions that give credence to our sense of economic, social and environmental responsibility, and to which our stakeholders and society can hold us accountable. These stakeholders range from our shareholders, customers, employees and those with whom we do business, to society and future generations. Over the years we have endeavoured to engage with the stakeholders, listen to them and evolve with them to meet their changing expectations.

Business OutlookAlthough the global economic outlook is not robust for the short term, there are signs of improvement, which could

accelerate growth in the region. The various projects that the Government had initiated or continued this year are expected to stimulate the economy further as we move into 2010.

The Sultanate’s economy is expected to continue on its stable growth path with GDP

expected to register a real growth of nearly 3.7% in 2009,

with inflation stable at around 3.6% as disclosed in the State

Budget for 2010.

The fuels market will normally follow the economic trend of the country

and thus is expected to be stable, growing in tandem

with the economic activities.

Newly developed in road networks and residential areas will open up opportunities for addition of new retail sites

where it is needed and viable. Major infrastructure

projects announced by the Government previously will

see some activities starting out during 2010, and the Company will

ensure that it is ready to handle the stiff competition to get its share of the new business

by investing in new systems and business redesigns.

Risks and ConcernsCompetition is expected to remain intense. Your Company will continue to execute its Retail Network development plan, by investing in quality sites to ensure long-term sustainability for all its stakeholders.

Other parts of Shell Oman Marketing, like the supply of international aviation fuels and export lubricants, will be subject to external factors in terms of pricing competitiveness available at other international locations.

13

GCC Traffic Week 2003 - Road Safety

Messages

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

In AppreciationI take this opportunity to applaud the Government of His Majesty Sultan Qaboos bin Said for the excellent achievements during 2009 through his wise direction and leadership. This has enabled the country to flourish and for our Company to secure its share of the opportunity that has prevailed over all the economic sectors in Oman.

On behalf of the Company, my sincere appreciation goes to our shareholders, the Board of Directors, the Management, our employees, contractors and all other stakeholders for their loyalty, perseverance, dedication and effort in the face of an ever evolving and challenging business environment. For our part, rest assured that as a Board of Directors we remain committed to pursuing all opportunities with a view to maintaining your Company’s growth and profitability as well as enhancing shareholders’ value. We look forward to your continuing support as we endeavour to take your Company to new heights of success.

John BlascosChairman of the BoardMuscat, 26 January 2010

14

AUDITORS’ REPORT ON CORPORATE GOVERNANCE

15

CORPORATEGOVERNANCE

REPORT

In accordance with the Capital Market Authority (CMA) guidelines, we are pleased to present the Corporate Governance Report of Shell Oman Marketing Company SAOG

(“the Company”) for the year ended 31 December 2009. The Company’s auditors, PricewaterhouseCoopers has issued a separate Factual Findings Report on the Company’s Corporate Governance Report for the year ended 31 December 2009.

Company’s PhilosophyCorporate Governance at Shell Oman Marketing Company SAOG envisages commitment of the Company towards the attainment of high levels of transparency, accountability and business propriety with the ultimate objective of increasing long term shareholders value, keeping in view the needs and interests of all other stakeholders.

Shell Oman Marketing Company SAOG is committed to adopting the best global practices of Corporate Governance and fully supports the guidelines on Corporate Governance issued in June 2002 by the CMA.

Board of DirectorsThe Board comprises Executive and

Non-Executive Directors. The present strength of the Board is ten Directors,

comprising two Executive Directors, five Non-Executive and Independent Directors and three

Non-Executive directors. The Non-Executive Chairman, the Executive and Non-Executive Directors are accomplished professionals and experts in their respective corporate fields, ensuring proper direction and control of the Company’s activities.

At present all Directors are considered to be Shareholder Directors in that they or the juristic person they represent own

Shell Oman Marketing

Company SAOG envisages commitment

of the Company towards the attainment of high levels of transparency,

accountability and business propriety

16 CORPORATE GOVERNANCE REPORT

at least 1,000 shares in the Company. As per the Articles of Association, the general meeting has the power to increase the size of the Board by up to two Non-Shareholder Directors.

Functions of the BoardThe Company in general complies with the functions of the Board as per the CMA Code of Corporate Governance. With respect to the selection of the key executives, a selection process applied within the Shell Group is used. The same applies for evaluation of staff where a comprehensive performance and appraisal system of the Shell Group is implemented.

Process of Nomination of the DirectorsAt the ordinary general meeting in March 2009 all the ten Directors were elected for a period of three years. Juristic persons have nominated seven directors. There are arrangements for the filling of vacancies by the Board itself on a temporary basis, and for the appointment of substitutes. The Company has an induction programme for Directors, which covers the business environment and the Company businesses as well as specific Corporate Governance elements (e.g. Code of Conduct and confidentiality).

Entities Represented byNon-Independent Directors

Non-Independent Director

Entity Represented

Dr. Andrew Wood(up to 14 October 2009)

BV Nederlandse Internationale Industrie en Handel Maatschappij

Mr. John Blascos(from 15 October to29 October 2009)

BV Nederlandse Internationale Industrie en Handel Maatschappij

Mr. Faisal Al Hashar(up to 29 October 2009)

BV Maatschappij tot Exploratie van Delfstoffen (M.E.D.)

Mr. Irshad MoosaAl Lawati

BV Petroleum Assurantie Maatschappij

Mr. Achillefs Sklivaniotis (up to 29 October 2009)

BV Licht en Kracht Maatschappij

Mr. Zaiviji Ismail bin Abdullah

Shell Overseas Investment BV

During the year 2009, the Company held six Board meetings. The dates are 24 January, 25 April, 18 July, 14 October, 24 October, and 5 December 2009. The intervals between the meetings are in line with the CMA required interval of a maximum of four months.

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GCC Traffic Week 2004 - ‘Paint & Win’

Competition

Directors’ Attendance Record and Directorships Held During the Financial Year 2009

Name of Director PositionBoard

meetings attended

Whether attended last AGM

Directorship in other SAOG Companies

Dr. Andrew Wood Non-Executive Chairman(up to October 2009)

4 Yes None

Mr. John Blascos Non-Executive Chairman(from October 2009)

2 Not Applicable

None

Mr. Faisal Al Hashar Executive Whole-time Managing Director

6 Yes None

Mr. Irshad MoosaAl Lawati

Non-Executive Director 5 Yes None

Mr. Achillefs Sklivaniotis Executive Whole-time Director (Finance)

6 Yes None

Mr. Zaiviji Ismail bin Abdullah

Non-Executive Director 5 Yes None

Mr. Salaam SaidAl Shaksy

Non-Executive and Independent Deputy Chairman(up to March 2009)

Nil No Oman National Investment Corporation Holding SAOG (Chairman);

Mr. Ghalib Fawzy SalimAl Busaidi

Non-Executive and Independent Director (Deputy Chairman from March 2009)

4 Yes None

Mr. Husam M Al Zubair Non-Executive and Independent Director (up to March 2009)

1 Yes None

Mr. Atif Abdulhamid Ahmed Al Raisy

Non-Executive and Independent Director

6 Yes Raysut Cement Company SAOG (Director)

Mr. Shabib Mohammed Saif Al Darmaki

Non-Executive and Independent Director

5 Yes

Mr. Abdul Salam Al Murshidi

Non-Executive and Independent Director (from March 2009)

5 Not Applicable

BankMuscat SAOGCement & Gypsum Products SAOG

Mr. Saleh Nasser Juma Al Araimi

Non-Executive and Independent Director (from March 2009)

3 Not Applicable

Oman Cement Co SAOG(Vice Chairman)Bank Dhofar SAOGOman Fisheries Co SAOG(Vice Chairman)Al Sharqia University SAOG(Vice Chairman)

The Board of Directors manages and supervises the business and affairs of the Company in a stewardship role. The day-to-day management is delegated to the officers of the Company. Any responsibilities that have not been delegated to the officers or to a committee of the Board remain with the Board.

In order to facilitate proper governance, the following information amongst others is provided to the Board:

•Review of operating plans of business, capital budgets and updates;

•Quarterly/annual results of the Company and its business segments;

•Quarterly performance on Health, Safety, Security and Environment;

•Reports of fatal, serious accidents or dangerous occurrences;

18

As part of

this Shell Group Statement of General Business Principles,

Health Safety Security and Environment

Policies are in place.

CORPORATE GOVERNANCE REPORT

•Directors’ fees and remuneration;

•Minutes of the audit committee;

•Issues involving possible public or product liability claims of substantial nature;

•Any significant industrial relations problems;

•Senior Management changes;•Policies/Procedures as are deemed important to place

before the board; and•Related party transactions.

As required by Corporate Governance Guidelines, the Board of Directors has adopted Internal Regulations - these include adoption of principles, policies, procedures and practices for doing business and conducting affairs that are commonly used in the Shell Group. As part of the Shell Group Statement of General Business Principles, Health, Safety, Security, and Environment Policies are in place. The Board in general is informed of any changes advised by the Shell Group.

There have been no materially significant related party transactions, pecuniary transactions or relationships

between the Company and its Directors that may have potential

conflict of interest with the Company at large during the period in question. The Board has adopted a specific Related Party Transaction procedure to ensure compliance with the Corporate Governance

Guidelines.

Company SecretaryMr. Adil Sidahmed succeeded

Mr. Hilal Al Mawali as the Company Secretary with effect from 25 April 2009. The

Company Secretary records minutes of every Board meeting whereby decisions are recorded and action items are identified. Mr. Sidahmed is the Legal Advisor of the Company.

Remuneration MattersEach Non-Executive director is awarded RO 800 as a sitting fee for every Board meeting and Annual General Meeting attended, and RO 400 for every audit committee meeting attended. Annual remuneration is awarded as long as the sum of sitting fees does not exceed RO 10,000 and the total remuneration does not exceed RO 15,000 per Director. The total remuneration paid to Non-Executive Directors for the year ended 31 December 2009 was RO 92,200. Executive Directors are compensated in their salary for service as a Board member; they do not receive any separate remuneration or sitting fees.

19

Children’s Traffic School in Muscat,

partnered by ROP & Shell Oman

Details of Directors’ RemunerationThe details of Directors’ remuneration for the year 2009 is as follows:

Sl. No

Name/ Position

Annual Remuneration

(RO)

Sitting Fees (RO)

1 Dr. Andrew Wood Non-Executive Director(up to October 2009)

5,200 4,000

2 Mr. John BlascosNon-Executive Director (from October 2009)

2,600 1,600

3 Mr. Salaam Said Al ShaksyNon-Executive Director(up to March 2009)

1,300 Nil

4 Mr. Irshad Moosa Al LawatiNon-Executive Director; Member Audit Committee (from May 2009)

Nil Nil

5 Mr. Faisal Al HasharExecutive Whole-time Managing Director

Nil* Nil*

6 Mr. Achillefs Sklivaniotis Executive Whole-time Finance Director

Nil* Nil*

7 Mr. Zaiviji Ismail bin AbdullahNon-Executive Director; Member Audit Committee (up to March 2009)

7,800 5,200

8 Mr. Husam M Al Zubair Non-Executive Director(up to March 2009)

1,300 1,600

9 Mr. Atif Abdulhamid Ahmed Al RaisyNon-Executive Director; Member Audit Committee

7,800 7,200

10 Mr. Shabib Mohammed Saif Al DarmakiNon-Executive Director; Member Audit Committee

7,800 6,400

11 Mr. Ghalib Fawzy SalimAl BusaidiNon-Executive Director; Member Audit Committee

7,800 5,200

12 Mr. Abdul SalamAl MurshidiNon-Executive Director (from March 2009)

6,500 4,000

13 Mr. Saleh Nasser JumaAl AraimiNon-Executive Director (from March 2009)

6,500 2,400

* Total 54,600 37,600

(* A salaried key employee of the Company, covered under the top-five executives remuneration below)

The total benefits such as salaries, bonuses, allowances, share benefits, pension contributions and perquisites paid to the top-five members of the Management Team wasRO 618,000 in 2009. The details are:

RO ‘000Salaries 349Bonus 28Allowances/Perquisites 174Employees’ end of service benefits 67 618

Audit Committee of the BoardThe Audit Committee was reconstituted by the Board in April 2009 in which they appointed four Non-Executive Directors of which three are Independent. The Audit Committee Chairman is Mr. Ghalib Fawzy Salim Al Busaidi, who is a Non-Executive, Independent Director. The committee held four meetings during 2009, which have been minuted.


The Company

presents quarterly public financial

announcements that include details of the Company’s business

performance and current issues and

concerns.

The audit charter approved by the Board includes the main responsibilities of the Audit Committee as follows:

• Reviewing the annual audited financial statements and the Auditors’ Report on the statements prior to submission to the Board for approval;

• Reviewing and approving the interim financial statements prior to public release and filing;

• Reviewing the scope of external and internal audits;• Reviewing and discussing accounting and reporting

policies and changes in accounting principles;• Assessing the effectiveness of the Company’s internal

control systems and procedures, and the process for identifying principal business risks;

• Reviewing compliance with the Code of Conduct;• Reviewing legal matters with counsel;• Reviewing Directors’ and officers’ expense and related

party transactions; and• Meeting with the internal and external auditors

independently of Management of the Company.

Attendance Record of the Audit Committee Members

Name of DirectorNo. of

meetingsMeetings attended

Mr. Ghalib Fawzy SalimAl Busaidi

4 3

Mr. Atif Abdulhamid AhmedAl Raisy

4 4

Mr. Shabib Mohammed SaifAl Darmaki

4 4

Mr. Zaiviji Ismail bin Abdullah (up to March 2009)

1 1

Mr. Irshad Moosa Al Lawati(from May 2009)

3 2

In consultation with the CMA, the Audit Committee continued with the arrangement of using Shell Global Internal Audit as the Company’s internal auditor. These auditors are part of the Shell Global Audit Network and share the global best practices of the Shell Group, and reports to the Audit Committee of the Board.

Audit and Internal ControlIn consultation with the Audit Committee, the Board of Directors recommended the appointment of external auditors to the Annual General Meeting. The shareholders have, therefore, appointed PricewaterhouseCoopers as auditors for the financial year 2009.

In accordance with the Corporate Governance Code, the services of PricewaterhouseCoopers are not used where a conflict of interest might occur.

The Audit Committee has reviewed, on behalf of the Board, the effectiveness of internal controls by meeting the internal auditor, reviewing the internal audit reports and recommendations and meeting the external auditor, reviewing the audit findings report and the management letter. The Audit Committee and the Board are pleased to inform the shareholders that, in their opinion, an adequate and effective internal control system is in place.

Annual General MeetingThe 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 thereat. The Directors encourage shareholders to attend and participate in the Annual General Meeting. Questions posed are, where possible, answered in detail either at

21

Jan

Mar

Jun

Sep

Dec Jan

Mar

Jun

Sep

Dec Jan

Mar

Jun

Sep

Dec Jan

Mar

Jun

Sep

Dec

2006 2007 2008 2009

250

200

150

100

50

0

Share Price Relative Performance

SOM Index

MSM Index

the General Meeting itself or thereafter. Shareholders are welcomed to raise queries by contacting the Company at any time throughout the year and not just at the General Meetings.

Means of Communication with Shareholders and InvestorsThe Company has its own website and all vital information relating to the Company and its performance, including quarterly results, official press releases, annual report and governance related policies and procedures are posted on the website for all interested parties. The Company’s website is www.shelloman.com.om

During November 2009, the Company engaged its shareholders in an Investor Meeting, which was attended by pension funds (who are large shareholders of the Company), institutional investors, bankers and stock brokers. The investors were given a slide presentation following which a question & answer session was held by the Management.

Financial ReportingThe Company presents quarterly public financial announcements that include details of the Company’s business performance and current issues and concerns. As per legal requirements and policy, quarterly and annual results of Company’s performance are published in the leading newspapers in both Arabic and English. The Directors scrutinise these announcements at their Board Meetings prior to publication to ensure that they are accurate and present a clear assessment of the Company’s affairs.

Further, the Company entertains specific meetings with analysts and shareholders, upon requests, as appropriate.

Dividend PolicyThe Company’s dividend policy is to remit the optimum amount of profit, in any operating year, to shareholders. If, in accordance with the business plans, funds and profits are likely to be available, the Company would like to pay an interim dividend. In line with this policy, the Company is expected to pay a dividend for the year 2009, in March 2010 .

The target payout is 100% of previous year profit. However the target will be adjusted in case of major investment plans, and in line with working capital requirements or other constraints.

Market Price DataMonthly high/low share price data for financial year 2009

Month 2009 High Low VolumeJanuary 1.872 1.695 320,060February 1.980 1.801 344,106 March 1.900 1.769 286,480 April 1.769 1.600 372,944 May 1.600 1.503 286,592 June 1.879 1.580 594,564 July 1.801 1.800 256,371 August 1.988 1.801 197,388 September 2.100 1.995 589,209 October 2.100 2.050 29,572,612 November 2.088 2.012 856,336 December 2.045 2.000 203,798

Performance in Comparison to Broad Based Index of MSM


Distribution of ShareholdingThe Shell Group holds, through 5 wholly-owned Shell subsidiaries, 49 % of the shares, whereas 51% of the shares are held by other investors and traded on the Muscat Security Market. In line with the Commercial Companies Law and the Company’s Articles of Association, 5,000,000 shares of the Company have a preferential characteristic, in that they are multi-vote shares. The Shell Group, owning those multi-vote shares, thereby is able to cast 54,000,000 votes at the ordinary general meeting. This will not itself enable them to control an Extraordinary General Meeting of the Company.

Major Shareholders(as on 31 December 2009)

Shareholder Name No of shares held

Shareholding %

B.V. Dordtsche Petroleum Maatschappij

20,000,000 20.0

Shell Overseas Investment BV

20,000,000 20.0

Shell Petroleum NV 8,800,000 8.8MOD Pension Fund 8,115,990 8.1Civil Service Employees Pension Fund

7,734,159 7.7

On 29 October 2009, as part of an internal restructuring, the Shell Group transferred its shares in SOM, owned via

three Shell Group subsidiaries, to three new Shell Group subsidiaries, as per the table below.

SOM share transfers

Sl. No.

Outgoing shareholder

New shareholder

No. (%) of SOM shares transferred

1 BV Licht en Kracht Maatschappij

BV Dordtsche Petroleum Maatschappij

20,000,000 (20%)

2 BV Nederlandse Internationale Industrie-en Handel Maatschappij

Shell Petroleum NV

8,800,000 (8.8%)

3 BV Maatschappij tot Exploratie van Delfstoffen

Shell Gas BV 100,000 (0.1%)

Prior to the transactions, the outgoing shareholders referred to above (1, 2 and 3) each had one representative on SOM’s board. Following the share transfers, the affected board members have resigned from their posts and have been re-appointed temporarily by SOM’s board until the next general meeting as set out in the table below:

Board member Date of resignation

Date of temporary

reappointment

John Blascos 29 October 2009 30 October 2009

Faisal Al Hashar 29 October 2009 30 October 2009

Achillefs Sklivaniotis 29 October 2009 30 October 2009

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GCC Traffic Week 2005 - Road Safety campaign

Specific Areas of Non-compliance with the Provisions of Corporate Governance The Company is pleased to inform the shareholders that it is in full compliance with the Corporate Governance Code.

Details of Non-compliance by the CompanyThere are no penalties or strictures imposed on the Company by CMA/MSM or any statutory authority during the period of this report.

Professional Profile of the Statutory AuditorPricewaterhouseCoopers is one of the world’s largest professional service organizations, providing industry-focused assurance, tax and advisory services for public and private clients. Within the firm, more than 163,000 people in 151 countries connect their thinking, experience and solutions to build public trust and enhance the value for clients and their stakeholders.

PricewaterhouseCoopers has been in the Sultanate of Oman since 1971. PricewaterhouseCoopers LLP is one of the leading accredited accounting firms in Oman and has 5 partners and over 100 employees. PricewaterhouseCoopers has many years of experience in the Middle East, and its network entities employ almost 2,500 people in 12 countries in the region. They have a reputation for providing quality professional services to a well-diversified client portfolio, both in public and private sectors. The total fee paid or due to PricewaterhouseCoopers for audit services in 2009 isRO 9,000.

Acknowledgement by Board of DirectorsThe Directors are required by the Commercial Companies Law 1974, as amended, and the Capital Market Authority Administrative Decision 5/2007 to prepare financial statements for each financial year which have been made out in accordance with the International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS) to fairly reflect the financial position of the company and its performance during the relevant financial period.

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 accounting standards have

been followed; and

prepared financial statements on the going concern basis as the Directors have a reasonable expectation, having made enquiries, that the Company has adequate resources to continue in operational existence for the foreseeable future.

The Directors have responsibility for ensuring that the Company keeps accounting records which disclose with reasonable accuracy the financial position of the Company and which enable them to ensure that the financial statements comply with the Commercial Companies Law 1974.

The Board affirms its overall responsibility for the Company’s systems of internal controls and risk management, and for reviewing the adequacy and integrity of those systems. It should be noted, however, that such systems are designed to manage rather than eliminate the risk of failure to achieve business objectives. In addition, it should be noted that any system can provide only reasonable, and not absolute, assurance against material misstatement or loss.

John Blascos Faisal Al HasharChairman Managing Director

24

MANAGEMENT DISCUSSION AND

ANALYSIS

The Company’s

robust performance of 2009 was the outcome of

teamwork, dedication, backed by prudent

planning and processes.Retail

Business EnvironmentDelivering operational excellence at all our retail sites has been the focus for our Retail business during the year. Retail results have yet again displayed good profitability, increased volumes and expansion of the network, with all key performance indicator figures having been met or exceeded.

In August 2009, the relevant authorities introduced a new pricing mechanism for products uplifted from the Sohar Refinery for the retail sites located in North Batinah, this has reduced the company’s margin for these sites. PerformanceDuring 2009, the Retail focus in three business areas – Network Development, Operational Excellence and Marketing - produced successful results. Investment in New-To-Industry sites (NTI) and re-building of old sites, focus on consistently delivering excellence in site operations and sustained marketing efforts were the key growth initiatives during the year.

As a result of these initiatives, the Company’s retail sales grew

by 1% year-on-year. August 2009 saw the highest-ever Shell

Oman monthly sale of 122 million litres. The Retail market share

remains the highest and is fairly stable in the face of an ever-growing number

of new sites introduced in the market. The average throughput per site

(ATP) stands at 9.72 million litres in 2009. This is still the highest in the industry with an average of 7.50 million litres.

Prudent investment in new sites continued to be one of the focus

areas in 2009. Six (NTI) sites were commissioned taking the

network number to 138. Four old sites were also rebuilt to the latest

Shell Retail site standards. During the year the runaway cost of constructing new

sites stabilised and projects became more viable.

In Operations Support, the path-breaking performance of earlier years was again repeated with the PMTDR (People Make The Difference Real) project, and Shell Oman consistently achieved scores above 90% and above the global average with all sites in the Dhofar region scoring 100% during the 4th Quarter. Scoring perfect score in all of the sites in one region has seldom been achieved worldwide. The Global Mystery Motorist programme is an independent quarterly operations audit that checks each Shell site for certain established retail criteria including levels of customer service, housekeeping and safety.

The Shell Global Customer Tracker Survey, done by an independent research agency, showed that the Customer Satisfaction Index has risen from 76% in 2008 to 80% in 2009, which can be attributed to the sustained all round efforts particularly of the Operations team. The research also

25

GCC Traffic Week 2007 - Road Safety Award

Onesmall

mistake...can lead to a

major accident.

shows that Shell Oman continues to be the preferred brand in the country and is also far ahead in other brand indicators like Brand Share of Preference, Loyalty and Trial.

In July, we introduced the “Improved” Shell Super petrol, which has a changed additive with more cleaning power and friction reducing capability, which helps customers get added mileage. The new Shell global Retail theme of “Get the Most Out Of Every Drop” was also launched in Oman. During the year, two major promotions were conducted as part of a Marketing Activity Calendar – Fill & Win for the GCC Traffic Safety Week during February-March, and Keep Filling Keep Winning during July – August featuring a 4-wheel drive and 4 years worth free fuel. These promotions brought in record numbers of customer coupon redemptions and also helped in improving the retail volumes as well as earning further goodwill in the market.

Shell Fleet Card products registered a growth of 13% over 2008 and contributed 15% of the retail volumes. With sustained customer relations programmes, introduction of managed personal selling tools for sales staff and sustained marketing activity throughout the year, fleet cards have created significant growth in 2009. Credit management showed major improvement with significant reduction in sales outstanding.

Shell Select stores showed a commendable 4.6% increase in sales year-on-year. During the year, 5 new stores were opened taking the total to 57. Many of the Shell Select stores further recorded their highest-ever sales since inception. Shell Select also brought to Oman a new coffee brand – Coffee Planet, at 6 locations. OutlookOman’s economy is well placed to combat global effects and is poised to grow rapidly with a recovery of demand for oil products. The outlook for Retail business is therefore positive and there should be further growth in all key indicators.

The main focus areas for 2010 will be Network Rollout, Shell Fleet Cards, Operations Excellence and Marketing. This will see further investment in viable new sites, increased marketing activities throughout the year and more co-ordinated efforts to improve the site operating standards a step further.

Commercial Business EnvironmentDuring 2009, the market remained very competitive, and our commercial fuel market dynamics changed. However, in the middle of the second Quarter of 2009 the government released some projects ranging between medium and mega, which gave confidence to the market.

In 2009, Oman’s market size for lubricants is estimated at approximately 36 million litres (excluding marine). The market is fragmented with over 20 big and many smaller players including many brands of UAE origin. During 2009, the total lubricants market dropped by almost around 15%. However, Shell Oman has gained market share for the fifth consecutive year.

During 2009, the Lubricants business for the first two quarters went through a stable position on base oils availability and prices. It was a tough challenge to retain our key customers, as Shell Oman faced price decrease challenges from small competitors.

PerformanceIn lubricants underpinning reasons for impressive performance was the effective price management where we not only managed to hold the cost pressure but also at the same time retained market share. Qualitative aspects of the business especially the right selection of product portfolio mix helped the returns and costs. New initiatives and packaging changes where very effective in communicating the right marketing message to our customers. Our sales team registered big wins in the oil & gas, construction and Franchised Workshop sectors through the year.

Commercial fuels market conditions were very challenging due to decline in consumption and very tight competition. We on the onset of the year remained focused to our core customer segments and worked with them to deliver effective value prepositions that enhanced customer efficiency and lowered operating costs. We succeeded in getting tenders from industry leaders and government that helped to maintain leadership position in market share and value share,

26 MANAGEMENT DISCUSSION AND ANALYSIS

The Company will

continue to deliver on its promise

with reliability and enhanced Customer Value Proposition.The robust performance

of 2009 was the outcome of teamwork and dedication, backed by prudent planning and processes. Throughout the year, the key focus was to deliver on basics such as spending more time with customers, delivering the product on time and in full, collecting money, ensuring responsive after-sales and controlling our costs. These measures not only helped deliver results but have also strengthened the business relationship with customers. Additionally, the fit-for-purpose distributor network delivered growth across all channels.

OutlookFor 2010, we believe that the investment plan recently unveiled by the Omani Government will aid to restore investor confidence and spur economic activities in the Sultanate. Overall, the outlook for 2010 looks encouraging in comparison to the global economic outlook and does hold good opportunities for the commercial fuels business to increase its profitability by actively participating in the prevalent economic upsurge.

The Government investments in critical infrastructure for Muscat, Sohar, Duqum, Salalah, etc. will stimulate industrial activity, and is likely to fuel growth in all associated segments.

Commercial fuels enter 2010 with a reinvigorated strategy to maintain its number one position in terms of market and value share in the priority market segments of oil and gas, construction, commercial road transport, industry, and manufacturing. Our focus will remain on sustenance and differentiation of product and services through Customer

Value Proposition, People and Portfolio. As always, customer

service shall remain the centrepiece of our execution strategy.

The Lubricants business enters 2010

with new and unprecedented business challenges owing to volatile global oil prices and recessionary trends. The cost of lubricant raw material is expected to increase in 2010. However, growth is forecasted to be limited. Increased costs might have a negative impact on

the margins compared to 2009, while competition is expected to

be more aggressive to recover 2009 negative growth in market share. Credit

policy will remain in our radar screen and will remain a daily challenge forcing us to be

more prudent in our dealings with customers.

Aviation BusinessBusiness EnvironmentDuring 2009, Jet fuel prices were fluctuating, reaching higher values in the 3rd quarter and thus affecting airline profitability globally. Competition was severe, with each marketing company aiming to improve their market share particularly at Muscat International Airport.

There was not any significant increase in new international customers. However, a few new cargo flights started from August at Muscat International Airport and required different services including fuel, where SOM got additional business by supplying them.

PerformanceMany business factors changed in the Aviation market in the Sultanate of Oman during 2009. The increasing growth

27

GCC Traffic Week 2008 - Road Safety

Award

of Oman Air that took place in early September with the introduction of long haul flights has increased the fuel demand at Muscat International Airport.

The Company continues its supply of fuel and services to the Royal Air Force of Oman (RAFO) for their four bases at Massirah, Thumrait, Musandam and Salalah. The company values its relation with RAFO and the trust it has given to Shell Oman to be their supplier of fuel. The Company will continue to deliver on its promise with reliability and enhanced Customer Value Proposition.

In May 2009 Shell Oman gained 100% of Indian airline’s fuelling business at Muscat International Airport. All the efforts were successful and Shell Oman was able to sign a contract with Air India, Indian Express and Indian Airlines to provide fuel for 3 years till April 2012.

In Salalah, the fuel business remained stable during 2009. However, during the Khareef Season the fuel demand increased by 15% due to additional flights by some Gulf airline customers. With effect from October, Oman Air has increased the number of flights due to the increase in tourists visiting Salalah.

OutlookThe jet fuel market is expected to grow at Muscat International Airport due to the increase in tourist projects and due to new entries and the development that has taken place at Muscat International Airport. However, competitive pressures are likely to increase as each marketer will target an increase in market share. Moderate growth is anticipated in the aviation business during 2010.

Lubricants Supply Chain Business Environment The global economic recession at the end of 2008 and at the beginning of 2009 contributed to the Lubricants business environment changing at the local, regional and global levels.

The main consequences of the global recession on the Lubricants Blending Plant were a decline in demand on lubricants from regional markets and a significant reduction in raw material prices especially for base oils and additives. On the other hand, the reduction in the cost of raw materials led to a substantial reduction in the cost of the finished products, which helped improved our margins during the year. Performance In 2009, the Blending Plant produced 75 million litres, which was almost a quarter down from record high 2008 production levels. Despite the volume reduction, the Lubricant Blending

Plant (LOBP) was able to achieve all its other financial and operational targets for the year including exceeding the On Time In Full delivery target of 97%.

The financial targets were mainly achieved due to the increase in the export price in parallel with increased controls over the operating costs and losses, and improved overall plant capacity utilisation.

During 2009, LSC successfully completed a number of projects including the PEARL product re-image project, ISO 9001–2008 certification upgrade, the Profit Impact of Market Strategy (PIMS) benchmarking exercise and the LOBP comprehensive capacity study. OutlookAs export demand improved towards the later part of 2009, volumes in 2010 are expected to improve year on year. This year the emphasis is expected to be on the small packs and less in bulk volume and in line with our longer term plans, a new small packs filling line will be installed to cater for the expected growth.

Distribution Operations Business Environment2009 was a year of consolidation for Distribution, with delivered volumes in line with last year. This required Distribution to slow down on the fleet build-up plans as transportation needs for commercial and base oil volumes were reduced in 2009.

The challenge of the tight supply of qualified Omani drivers continued in 2009. Distribution continued its efforts in supporting the Government’s Omanisation programme for


Distribution’s vision is safely

delivering to our customers the right product, at the right

time, at the right place in time and in full

every time.Heavy Goods Vehicle drivers. More than 50 Omani drivers were recruited and trained in 2009, thereby increasing the Omanisation percentage in line with the aspirations of the Government.

PerformanceIn 2009, the overall distribution costs were on target. The unit-cost target was met in the area of road transport operations but the unit-cost target set for storage and handling was slightly exceeded due to somewhat lower than planned volumes.

Distribution delivered all the volume to the retail network with customer delivery performance statistics of 99.9%. Furthermore, the number of distribution related stock-outs continued to decline.

As a part of the Distribution Process Improvement programme (DPI), Distribution and its business partners worked closely together to identify potential savings in road transport and order fulfilment. The DPI team presented their recommendations to Senior Management in August 2009, and following the approval, started implementing the various DPI initiatives in order to deliver sustainable savings and cost reductions.

Distribution introduced changes in the order-to-cash process, which led to process improvements and to a significant reduction in customer complaints related to missing tickets and delayed invoicing. The team’s excellent contribution was recognised by the whole organisation and they received “MD-award” in 2009.

A new planning module was introduced for the retail sites.

This new module will contribute to a further improved planning

process, thereby further reducing costs and stock-outs. The stock-out trend has already significantly

improved, having no stock-outs during many consecutive months or during public holidays.

OutlookGiven the continued challenging economic outlook, it is imperative that Distribution meets its key

financial and operational targets and sustains its Operational

Excellence. Distribution’s strategy will be aligned around its four key leverages

in order to achieve its vision of safely delivering to our customers the right product, at

the right time, at the right place in time and in full every time. The four key levers for realisation of the 2010 targets are: Excellence in Health, Safety, Security & Environment (HSSE); operational excellence through improved standards and processes; excellence in our terminal and road transport operations; and through competence excellence to inspire and grow our people.

Health, Safety, Security& Environment (HSSE)HSSE continued to be a tablestake of all our operations in Shell Oman. While we define and develop a thorough management system to manage HSSE in the Company, by way of clear policies, practices, plans, and monitoring and measuring aspects, we expect all employees and contractor to embody the same values of protection for themselves and the people surrounding them – and not merely at the work place.

29

GCC Traffic Week 2008 - Wrong

Overtaking Kills Campaign

Wrong Overtaking Kills

Total Recordable Cases Frequency (TRCF)

0

1

2

3

4

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Nu

mb

er

of

Fata

liti

es

Year

Fatatlities Record

Fatality (staff & Contractors)

Fatality (Third Pary)

0

0.5

1

1.5

2

2.5

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

TRC

F

Year

TRCF

0

1

2

3

4

5

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Nu

mb

er

of

LTI

Year

Number of LTI

Lost Time Injuries (LTI) Record

HSSE in Retail Following a double Lost Time Injury (LTI) incident on a construction site in 2008, Retail strategy in 2009 was to focus on contractor safety and of course continue improving forecourt safety and environmental compliance. 2009 was an excellent year in HSSE performance for Retail business with no (LTI).

Retail HSSE made great strides during the year with major initiatives being undertaken. A strategic review of 19 sites with a history of environmental issues was done and an action plan was developed to eventually eliminate these issues. Throughout the year, HSSE programmes were actively rolled out with intensive training for concerned staff and these included - the Talk-Not-Tick programme which aims at improving communications and identifying hazards at sites, the 12 Life Saving Rules, Zero Climbing On Tanker Tops, and


All finished

packed products transportation

operations were consolidated under a

single road transportation contractor to enable more

focused and simplified HSSE management of road transportation

activities.

Elimination of Work at Heights. The Permit-To-Work system was successfully introduced throughout the network and only accredited contractors are now allowed to work at our retail sites. At site level, major security and safety measures like the introduction of advanced CCTV, anti-theft grills, safe drop boxes etc were introduced, as well as the compulsory usage of personal protective equipment by contractors.

During the year different initiatives were undertaken with an intensive focus on contractors. Site safety compliance at construction projects were improved through visible leadership, intensive site visits and close monitoring of Work Permits by Retail Engineering.

HSSE in Distribution It has been a mixed year for Distribution in terms of its HSSE performance. The operations team at the Raysut depot completed 2000 LTI free days of working. Furthermore, at the beginning of the year, the Road Transport operations had completed 1 million man-hours of LTI free operations, over a period of 4 years.

Unfortunately this good trend was broken with a rollover in April 2009, resulting in an LTI. The crossover performance worsened with 6 crossovers in 2009 compared to 2 in 2008. Also the spill performance continued to be an area of

concern, mainly the result of two rollover

accidents contributing to a total of 25 KL spills of

lubes and gas oil.

To address this deteriorating trend and reverse it, Distribution took

many steps, including the “Adopt a Haulier Programme” by the Distribution

Management Team. After a review of the actions taken and initiatives implemented, it

was decided that no new initiatives needed to be undertaken but rather the focus should be more on existing ones like: Winning Hearts of Drivers, Compliance to Procedures and Controls, and Recognition and Coaching.

HSSE in LSCBuilding on the focused efforts started

in 2008 to improve HSSE performance especially in the road transport area, Oman

LSC achieved “Goal Zero” in 2009 by not having any significant incident. All finished packed

products transportation operations were consolidated under a single road transportation contractor to enable more focused and simplified HSSE management of road transportation activities. Furthermore, all due action items resulting from the 2008 independent internal lubricants HSSE audit were successfully completed as per the agreed remedial action plan.

In addition, LSC was reviewed by an independent environmental consultant at the beginning of 2009 as part of its environmental permit renewal process. The outcome of the review was submitted to the Ministry of Environment and Climate Affairs for their review approval. This was approved and work was started in 2009 as per the approved action plan in preparation for obtaining the final environmental permit. Work is expected to continue through out 2010 and may spill into 2011 to complete all action items stipulated in the plan.

31

GCC Traffic Week 2009 - DO NOT use

your mobile phone while driving or

refueling campaign

DO NOT use your mobile phone while driving or

refueling

Moreover, a comprehensive plan was executed in 2009 that enabled senior management staff in LSC to conduct regular structured safety walkabouts around LSC main operational areas throughout the year. The outcomes of these walkabouts enhanced the visible management commitment of senior LSC management staff and helped in sustaining our relentless pursue for continues HSSE performance improvements.

HSSE in Commercial HSSE performance across all commercial sales and marketing operations continued to be an exemplary with no significant incidents recorded in 2009. This positive performance is the outcome of concentrated efforts to improve HSSE performance as well as the outcome of many HSSE initiatives that were rolled out over the last few years with the same aim. This was highlighted in the 2009 Hearts and Minds (H&M) HSSE cultural assessment where the commercial team stood at the proactive stage in Shell H&M HSSE cultural ladder. This positive result is an indication of the maturity and effectiveness of existing HSSE management system implemented across the commercial sales and marketing areas of operations. Sustaining this excellent HSSE performance record remains at the top of the commercial business management agenda. This is especially of focus due to the inherent high road risk exposure to our Key Account Managers as they commute across the country to meet the expectations of our customers. A single Loss of Primary Containment incident was recorded in one of our customer site in 2009 for which root cause analysis was conducted to prevent the repeat of similar incident.

HSSE in AviationAll operations were conducted at an excellent level of safety despite the fact that the number of operations increased from 29 operations a day to 50 operations a day at Muscat International Airport with no Lost Time Injury (LTIs) or any other major incident in any of the airports where we operate

HealthIn line with the outbreak of H1N1 Flu globally, Shell Oman developed a Business Continuity and Contingency Plan to help the management team to manage the local business, health and social implications of an influenza pandemic. A series of awareness messages and posters were communicated to all staff and a set of precautionary measures were taken to ensure the appropriate hygiene level at Shell Oman offices. A crisis exercise was conducted to test the contingency plan and confirm the readiness of the management team to handle a local H1N1 pandemic case.

‘The Fitness To Work’ monitoring programme was continued. Advanced first aid and CPR training were provided for the different First Aid responders in Shell Oman. Also, a medical evacuation drill was conducted jointly with the PDO clinic at the Shell Oman Depot area.

SafetyIn 2009 the following initiatives and programmes were carried out to improve safety and continue our ‘Goal Zero‘ journey:

• Rolled-out the Life Saving Rules (LSR) which focus on the 12 most critical activities in our operations where non-compliance has the highest likelihood to result in death or serious injury. A series of communication sessions were conducted with all staff and contractors. A Life Saving Rules Committee was established to monitor compliance across the organization to the 12 LSRs and investigate any non-compliance case.

• The Retail team participated in the annual GCC Traffic Week and worked jointly with ROP’s Traffic Department to improve our costumers awareness of safety on the road and at filling stations through awareness flyers and air space on radio programmes.

• Rolled-out the Zero Climbing on Tanker Top (ZCOTT) project that aimed to stop the practice of retail site staff going on to the top of fuel delivery tankers to check the product ullages and to eliminate the exposures of falling from a height and other risks.

32

The outstanding efforts of teams as well as

individuals do not stay unnoticed. Shell Oman continues to invest in Special Recognition

Awards.

MANAGEMENT DISCUSSION AND ANALYSIS

• Established the Local Contractors Safety Council (LCSC) to improve contractors’ ownership on safety. Quarterly meetings were conducted where various subjects related to contractors’ safety were discussed and contractors’ involvement was visible.

• Conducted several training and engagement sessions for contractors in Working at Height, Permit to work system and other safety aspects.

• Rolled-out Talk not Tick programme for Retail Service stations and contractors. The programme aimed to improve communication at site level and to have a more effective conversation with frontline staff on HSSE risks. Several engagement sessions were conduced for Territory Managers and Site Managers at different regions.

• Conducted a Safety Day with variety of activities and engagement sessions for all staff and contractors.

• Defensive Driving Courses were carried out throughout the year for all Shell Oman staff.

• Conducted a number of fire drills at Shell Oman’s main office.

• Shell Oman participated in the inception of the first Road Safety NGO in the Sultanate of Oman

• The HSSE Learning portfolio has significantly improved and allows us to plan and cover all the needs in our journey towards Goal-Zero results.

Security• Rolled-out a project to improve security measures for

Retail service stations and close the gaps in retail security standard requirements. Work included the provision of security signs, improvement in the quality of the CCTV system; and the provision of anti-theft grills and safe drop boxes.

• Conducted Security Risk Assessments for high-risk retail sites. • Launched Electronic Card Gate Access at Shell Oman’s

Main Gate to Mina Al Fahal.

EnvironmentContinued the Environmental Site Assessment and monitoring works for the underground water contaminated retail sites. Results showed excellent progress in cleaning the pollution at the BBH site. • Started detailed on-site investigations for 5 sites out of 17

legacy retail sites with old leaks and contamination. • Participated in, and sponsored, several environmental

events in 2009. Among others, the Company played a role in the Oman Environment Day, the Coral Reef Cleaning Initiative, etc.

33

GCC Traffic Week 2009 - Don’t Fool

with Fuel Campaign

• Enrolled onto the Ambient Air Emission Monitoring Programme for Mina Al-Fahal Area supervised by PDO.

• Improved waste management at LSC by assigning an authorised contractor for waste oil collection.

People Activities Attraction & Recruitment 2009 witnessed a combination of talent-driven recruitment activities and a focus on internal resourcing for the businesses. Some of those activities were for new jobs coinciding with the company’s drive towards strengthening the leadership talent pipeline and Omanisation. The total headcount at the end of the year reached 279 in comparison to 266 in 2008.

We continued our participation in the Sultan Qaboos University Career & Training Opportunities Fair in an attempt to promote Shell Oman as a potential recruiter and a solid training ground for graduates. We had three interns joining Distribution and another three joining the Retail departments. The interns benefited from their exposure to the different business activities, they acquired new knowledge and experience, which will help them to choose the right path in finding their place in the Oman labour market. This year, Shell Oman also participated in the Majan College Career Fair where the interactive sessions provided guidance and techniques for candidates on how to develop and professionally present themselves to prospective employers. The added value and return to the business of this investment is both in the quality of submitted CV’s and interviews, with improved identification of talent and a closer alignment to the business needs,

Learning & Development We live in challenging times, and to continue to meet the changing demands of Shell Oman’s business, and complete our own transformation journey, we need to maintain our knowledge and develop skills. E-learning becomes a more and more important component of the diverse learning packages offered by Shell Oman to employees. We rolled out the usage of Skill-Soft (an e-learning facility) to help staff bridge gaps particularly in relation to their personal business skills and also functional competencies relating to their roles.

We continue to develop leadership potential in Shell Oman. A good number of our leaders participated in the Frontline Leadership and Global Business Leadership programmes. Coaching and Mentoring culture became one of the engines that drive our employees towards better results by ensuring transfer of knowledge and best practices.

Our learning agenda was also strengthened by close cooperation with the regional Middle East learning plan. This alignment gave us an opportunity to participate and organise training activities for Shell employees from the Middle East, which benefited diversity in Shell Oman.

Omanisation People resources constitute to be one of the primary pillars for achievement of comprehensive and sustainable development. The vision for human resources in the country involves the creation of well-developed Omani human resources with capacities and skills that conform to the technical and technological development and characterized by high efficiency for management skills. The SOM Omanization score reached 86% at the end of 2009. In May 2009, the Ministry of Manpower awarded the company for the efforts in recruiting Omani nationals. This is a great achievement for the whole Company. Omanization in SOM has been focused on identifying talented personnel, matching skill sets and appointing at different levels within the organisation, specifically, at senior levels.

Recognition & Reward The outstanding efforts of teams as well as individuals do not stay unnoticed. Shell Oman continues to invest in Special Recognition Awards. In 2009, the Managing Director’s Award for Employee Excellence recognised exceptional performance in several categories: HSSE Contribution, Team Player, Exceptional Customer Service, and Specific Project Accomplishment.


Sustainable DevelopmentDelivering its commitment to sustainable development and making a lasting difference in the society, Shell Oman embarked upon several initiatives that serve different segments of the community. Those initiatives focused on different areas varying from road safety, environment, tourism and education.

Shell Oman continues its commitment to developing tourism in Oman through supporting major Government festivities such as the Muscat Festival and Salalah Tourism Festival in which Shell Oman finds a great opportunity to participate in developing the tourism sector in the Sultanate.

Shell Oman organised a fun event for kids from the home for orphans, which comes as part of the annual and continuous activities organised by the Company aiming to draw a smile on the faces of the orphaned kids. The event included several activities and exciting prizes for the kids. Road Safety As part of its Corporate Social Responsibility programme, Shell Oman has joined with the Royal Oman Police to promote traffic safety awareness from Shell Service Station sites during the GCC Traffic Safety Week from March 14th to 2lst.

The joint “Live and Let Live” campaign aimed at drawing the attention of the general public to serious accidents that can be prevented by not

using mobile phones while driving or at service stations;

turning off engines while refuelling; and not putting fuel in

unapproved containers.

In addition to this road safety campaign Shell Oman partners with the ROP in

running the Children’s Traffic School, which plays an important role in raising awareness in the younger generation on road safety and the importance of complying with traffic rules.

Biosphere ExpeditionShell Oman continued its support for the

Biosphere Expeditions’ ongoing Arabian Leopard Research Project in Oman, which is

monitored and facilitated by the Office for Conservation of the Environment at the Diwan of Royal Court. This year’s expedition continued its campaign in Dhofar in the vicinity of Wadi Uyun and Wadi Mudday. A number of Shell Oman’s staff participated in the expedition and assisted in the work with the local communities. The expedition helps Oman achieve its plans in developing eco-tourism in the Sultanate since it brings local benefits and raises awareness of conservation issues at a national level

Delivering its commitment to sustainable

development and making a lasting

difference in the society, Shell Oman embarked

upon several initiatives

35

AUDITORS’REPORT 2009

36

STATEMENT OF COMPREHENSIVE INCOMEFor the year ended 31 December 2009

2009 2008

Notes RO’000 RO’000

Revenue 298,351 326,367

Cost of sales (265,622) (296,083)

Gross profit 32,729 30,284

Selling and distribution expenses (9,717) (8,748)

Administrative expenses (4,781) (4,393)

Depreciation 8 (3,392) (2,837)

Amortisation 9 (6) (23)

Operating profit 14,833 14,283

Interest expense (241) (171)

Interest income 201 100

Profit before income tax 14,793 14,212

Income tax expense 7 (1,772) (1,708)

Profit and comprehensive income for the year 13,021 12,504

Basic and diluted earnings per share 20 RO 0.130 RO 0.125

Dividend per share 21 RO 0.120 RO 0.115

The notes on pages 40 to 58 form an integral part of these financial statements.

Report of the Auditors - page 35.

37

BALANCE SHEETAt 31 December 2009

2009 2008Notes RO’000 RO’000

ASSETSNon-current assetsProperty, plant and equipment 8 17,278 15,980Intangible assets 9 5 11Deferred tax asset 10 98 79

17,381 16,070Current assetsInventories 11 12,764 12,000Receivables and prepayments 12 22,421 20,341Cash at bank and in hand 13 7,688 9,992

42,873 42,333

Total assets 60,254 58,403

EQUITYShare capital 14 10,000 10,000Legal reserve 16 3,587 3,587Retained earnings 14,753 13,232Total equity 28,340 26,819

LIABILITIESNon-current liabilitiesEmployee terminal benefits 17 518 483

Current liabilitiesPayable and accruals 18 29,068 28,908Income tax payable 1,791 1,680Provisions 19 537 513

31,396 31,101

Total liabilities 31,914 31,584

Total equity and liabilities 60,254 58,403

Net assets per share 23 RO 0.283 RO 0.268

The financial statements on pages 36 to 58 were authorised for issue in accordance with a resolution of the board of directors on 26 January 2010 and signed on their behalf by:

_______________________________ ____________________________ John Blascos Hong Zhou Wong Chairman Director


38

STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2009

Sharecapital

Legalreserve

Retainedearnings Total

Note RO’000 RO’000 RO’000 RO’000

At 1 January 2008 10,000 3,587 11,728 25,315

Profit and comprehensive income for the year - - 12,504 12,504Dividend paid - 2007 21 - - (11,000) (11,000)

At 31 December 2008 10,000 3,587 13,232 26,819

At 1 January 2009 10,000 3,587 13,232 26,819

Profit and comprehensive income for the year - - 13,021 13,021Dividend paid - 2008 21 - - (11,500) (11,500)

At 31 December 2009 10,000 3,587 14,753 28,340

The notes on pages 40 to 58 form an integral part of these financial statements.Report of the Auditors - page 35.

39

STATEMENT OF CASH FLOWS For the year ended 31 December 2009

2009 2008

Notes RO’000 RO’000OPERATING ACTIVITIES

Pro fit before income tax 14,793 14,212

Adjustments for:

Depreciation 8 3, 392 2,837

Amortisation 9 6 23

Provision for employee retention scheme – net 19 30 97

Provision provided/(reversed) for environmental liability 19 63 (55)

Loss/(profit) on disposal of property, plant and equipment 36 (99)

Interest income (201) (100)

Inte rest expense 241 171

Operating profit before working capital changes: 18,360 17,086

Inventories (764) 1,710

Receivables and prepayments (2,080) 2,397

Payables, accruals and employee terminal benefits 195 1,849

Cash from operations 15,711 23,042

Environmental liability paid (69) (63)

Income taxes paid (1,680) (1,165)

Net cash generated from operating activities 13,962 21,814

INVESTING ACTIVITIESPurchase of property, plant and equipment and intangible assets 8 (4,729) (5,626)

Proceeds from disposal of property, plant and equipment 3 131

Interest received 201 100

Net cash used in investing activities (4,525) (5,395)

FINANCING ACTIVITIES

Dividends paid 21 (11,500) (11,000)

Interest paid (241) (171)

Short term loan repaid - (4,000)

Net cash used in financing activities (11,741) (15,171)

Net change in cash and cash equivalents (2,304) 1,248

Cash and cash equivalents at beginning of the year 9,992 8,744

Cash and cash equivalents at end of the year 7,688 9,992

The notes on pages 40 to 58 form an integral part of these financial statements.Report of the Auditors - page 35.

40

NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 December 2009

1 Legal status and principal activities

Shell Oman Marketing Company SAOG (the company) is registered in the Sultanate of Oman as a public joint stock company and is primarily engaged in the marketing and distribution of petroleum products and blending of lubricants. The company has its primary listing on the Muscat Securities Market.

The accounts of the company are consolidated in the financial statements of Royal Dutch Shell plc (the ultimate parent company), a company incorporated in the United Kingdom.

2 Summary of significant accounting policies

The principal accounting policies are summarised below. These policies have been consistently applied to all the years presented, unless otherwise stated.

2.1 Basis of preparation

(a) The financial statements are prepared on the historical cost basis and in accordance with International Financial Reporting Standards (IFRS). They also comply with the Rules and Guidelines on Disclosure by Issuer of Securities and Inside Trading, with the Rules for Disclosure and Proforma issued by the Capital Market Authority and with Commercial Companies Law of 1974 as amended.

(b) The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the company’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 4.

(c) New and amended standards effective in 2009 and adopted by the company(i) IFRS 7 ‘Financial instruments – Disclosures’ (amendment) - effective 1 January 2009;(ii) IAS 1 (revised). ‘Presentation of financial statements’ - effective 1 January 2009;(iii) IFRS 8 ‘Operating segments’ – effective 1 January 2009.

(d) Standards, amendments and interpretations effective in 2009 and not relevant to the company(i) IFRS 2 (amendment), ‘Share-based payment’ - effective 1 January 2009.

(e) Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the company

(i) IFRIC 17, ‘Distribution of non-cash assets to owners’ (effective on or after 1 July 2009); (ii) IAS 27 (revised), ‘Consolidated and separate financial statements’, (effective from 1 July 2009);(iii) IFRS 3 (revised), ‘Business combinations’ (effective from 1 July 2009);(iv) IAS 38 (amendment), ‘Intangible Assets’;(v) IFRS 5 (amendment), ‘Measurement of non-current assets (or disposal groups) classified as held-for-sale’;(vi) IAS 1 (amendment), ‘Presentation of financial statements’;(vii) IFRS 2 (amendments), ‘Company cash-settled and share-based payment transactions’.

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2 Summary of significant accounting policies (continued)

2.2 RevenueRevenue from the sale of goods is measured at the fair value of the consideration received or receivable and is recognised when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, and there is no continuing management involvement with the goods. The amount of revenue is not considered to be reliably measurable until all contingencies relating to the sale have been resolved.

2.3 Directors’ remunerationThe Directors’ remuneration is governed as set out in the Memorandum of Association of the company, the Commercial Companies Law, regulations issued by the Capital Market Authority.

The Annual General Meeting shall determine and approve the remuneration and the sitting fees for the Board of Directors and its sub-committees provided that such fees shall not exceed 5% of the annual net profit after deduction of the legal reserve and the optional reserve and the distribution of dividends to the shareholders and provided that such fees shall not exceed RO 200,000. The sitting fees for each director shall not exceed RO 10,000 in one year. 2.4 End of service benefits and leave entitlementsEnd of service benefits are accrued in accordance with the terms of employment of the company’s employees at the balance sheet date, having regard to the requirements of the Oman Labour Law 2003, as amended. Employee entitlements to annual leave and leave passage are recognised when they accrue to employees and an accrual is made for the estimated liability arising as a result of services rendered by employees up to the balance sheet date. These accruals are included in current liabilities, while that relating to end of service benefits is disclosed as a non-current liability.

Contributions to a defined contribution retirement plan and occupational hazard insurance for Omani employees in accordance with the Omani Social Insurances Law of 1991 are recognised as an expense in the statement of comprehensive income as incurred.

2.5 Foreign currency Items included in the company’s financial statements are measured using Rial Omani which is the currency of the Sultanate of Oman, being the economic environment in which the company operates (the functional currency). The financial statements are prepared in Rial Omani, rounded to the nearest thousand.

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing 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 statement of comprehensive income.

2.6 Finance costs and income Finance costs comprise interest cost on borrowings. Finance income comprises interest received or receivable on funds invested. Interest income is recognised in the statement of comprehensive income as it accrues taking into account the effective yield on the asset. Interest expense is recognised in the statement of comprehensive income as it accrues using the effective interest rate method.

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2.7 Income taxesIncome tax on the profit for the year comprises current tax and deferred tax. Income tax is recognised in the statement of comprehensive income except to the extent that it relates to items recognised directly to equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using the tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to income taxes payable in respect of previous years.

Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the unused tax losses and credits can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

2.8 Property, plant and equipmentItems of property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Expenditure incurred to replace a component of an item of property, plant and equipment that is accounted for separately, including major inspection and overhaul expenditure, is capitalised. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the company and the costs of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the statement of comprehensive income during the financial year in which they are incurred.

The cost or valuation of property, plant and equipment is written down to residual value in equal instalments over the estimated useful lives of the assets. The estimated useful lives are: YearsBuildings 6 - 25Plant and equipment 3 - 7Motor vehicles 3

Capital work-in-progress is not depreciated until the asset is put to use.

The assets residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

Where the carrying amount of an item of property, plant and equipment is greater than the estimated recoverable amount it is written down immediately to its recoverable amount.

Gains and losses on disposals of property, plant and equipment are determined by reference to their carrying amounts and are taken into account in determining operating profits.

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2.9 Segment reportingOperating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Managing Director who manages the company on a day-to-day basis, as per the directives given by the board of directors that makes strategic decisions.

2.10 Intangible assetsIntangible assets are stated at cost, net of amortisation and impairment losses. Subsequent expenditure on intangible assets is capitalised only when it is probable that the associated future economic benefits will flow to the company and the cost can be measured reliably. All other expenditure is expensed as incurred.

Intangible assets with finite lives are amortised from the date they are available for use. Amortisation is charged to the statement of comprehensive income on a straight-line basis over the useful life of the intangible asset.

2.11 InventoriesInventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated cost of completion and selling expenses.

The cost of lubricants is determined using the weighted average method. The cost of lubricants includes cost of direct materials, labour and an appropriate share of fixed overheads based on normal operating capacity.

The costs of raw materials and stores and spares is based on weighted average method and consists of direct costs of materials and related overheads.

The cost of inventories of hydrocarbons is determined using the first-in-first-out method and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition.

Provision is made where necessary for obsolete, slow moving and defective items.

2.12 Trade and other receivablesTrade and other receivables are stated at their fair value. Trade debtors are initially recognised at fair value and subsequently are stated at amortised cost using the effective interest method less impairment losses. A provision for impairment of trade receivables is established when there is objective evidence that the company will not be able collect all amounts due according to the original terms of receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recognised in the statement of comprehensive income within ‘selling and distribution expenses’.

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2.13 Cash and cash equivalentsCash and cash equivalents comprise cash in hand, bank balances and short-term deposits with an original maturity of three months or less.

Bank borrowings that are repayable on demand and form an integral part of the company’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.

2.14 ImpairmentThe carrying amounts of the company’s assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the assets’ recoverable amount is estimated. An impairment loss is recognised in the statement of comprehensive income whenever the carrying amount of an asset exceeds its recoverable amount.

The recoverable amount of the company’s receivables is calculated as the present value of expected future cash flows discounted at the original effective interest rate inherent in the asset. Receivables with short duration are not discounted. The recoverable amount of other assets is the greater of their net selling price and value in use. In assessing the value in use the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

An impairment loss in respect of receivables is reversed if the subsequent increase in recoverable amount can be related objectively to an event occurring after the impairment loss was recognised. In respect of other assets, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

2.15 Financial assetsThe company classifies its financial assets into loans and receivables. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. a) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the end of reporting period. These are classified as non-current assets. The company’s loans and receivables comprise trade and other receivables and cash and cash equivalents in the balance sheet.

2.16 ProvisionsA provision is recognised in the balance sheet when the company has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provision for environment remediation, resulting from past operations or events, is recognised in the period in which an obligation to a third party arises and the amount can be reasonably estimated. Measurement of liabilities is based on current legal requirements and existing technology.

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2.17 DividendsDividends are recognised as a liability in the period in which they are approved by the company’s shareholders.

Dividends for the year that are approved after the balance sheet date are dealt with as an event after the balance sheet date.

2.18 Trade and other payablesLiabilities are recognised for amounts to be paid in the future for goods or services received, whether billed by the supplier or not.

2.19 LeasesLeases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognised as an expense in the statement of comprehensive income on a straight line basis over the lease term.

2.20 Fair valuesThe fair value of interest-bearing items is estimated based on discounted cash flows using interest rates for items with similar terms and risk characteristics.

The fair value of forward foreign exchange contracts is calculated by reference to current forward exchange rates with the same maturity.

3 Financial risk management

3.1 Financial risk factorsThe company’s activities expose it to a variety of financial risks including the effects of changes in market risk (including foreign currency exchange rates and interest rates), credit risk and liquidity risk. The company’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the company. Risk management is carried out by the management under policies approved by the Board of Directors.

(a) Marke t risk

(i) Foreign exchange risk Currency risk arises where the value of a financial instrument changes due to changes in foreign exchange rates. The

company is exposed to foreign currency risk on sales, purchases and bank deposits that are denominated in foreign currencies. The company’s net exposure to the United States Dollar (USD) resulting from USD denominated sales is offset by USD denominated purchases of base oils, additives, sea freight and miscellaneous items. The Rial Omani is currently pegged to the USD. The company’s practice is to utilise USD forward exchange contracts to hedge its exposure in respect of any significant USD denominated bank deposits.

The company has no foreign exchange contracts outstanding at 31 December 2009 (2008 - nil).

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3 Financial risk management (continued)

3.1 Financial risk factors (continued)

(a) Marke t risk (continued) (ii) Interest rate risk The company manages its exposure to interest rate risk by utilising only short-term financing at the rates fixed at the

time of taking the loan.

The company only has interest bearing assets with floating interest rates. The management has estimated the effect on profit for the year due to increases or decreases in interest rates to be insignificant. There is no impact on the company’s equity due to changes in interest rates.

(b) Credit risk Credit risk is the risk of financial loss if a customer or counterparty to a financial instrument fails to meet its contractual

obligations and arises principally from cash and cash equivalents, as well as credit exposures to customers. The company has a credit policy in place and exposure to credit risk is monitored on an on-going basis. Credit evaluations are performed on all customers requiring credit over a certain amount. The company requires bank guarantees on higher credit risk customers. The company does not require collateral in respect of all other financial assets.

Investments are made in liquid securities and only with commercial banks in Oman. The management does not expect any counter party to fail to meet its obligations.

Concentration of credit risk arises when a number of counter-parties are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentrations of credit risk indicate the relative sensitivity of the company’s performance to developments affecting a particular industry or geographical location.

The company has significant concentrations of credit risk with the Government sector. At 31 December 2009, Government organisations in Oman accounted for 22% (2008 - 12%) of the outstanding trade accounts receivable. At 31 December 2009, there were no other significant concentrations of credit risk.

Credit risk on other financial assets, including cash and cash equivalents arises from the risk of default of the

counterparty, with a maximum exposure equal to the carrying amount of these balances.

Cash and bank balances are placed on deposit with financial institutions in the Sultanate of Oman. Details of credit ratings of these financial institutions are given in note 13.

(c) Liquidity risk The company limits its liquidity risk by ensuring bank facilities are available. The company’s terms of sales require

amounts to be paid on an average of 30 days from the date of sale. Trade payables are normally settled within 45 days of the date of purchase.

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3 Financial risk management (continued)

3.1 Financial risk factors (continued)(c) Liquidity risk (continued) The table below summarises the maturities of the company’s undiscounted financial liabilities at 31 December 2009,

based on contractual payment dates and current market interest rates.

Year ended 31 December 2009 Up to one Year

1 to 5years

More than 5 years Total

RO’000 RO’000 RO’000 RO’000

Payables and accruals 29,068 - - 29,068Provisions 537 - - 537Employee terminal benefits - - 518 518Total 29,605 - 518 30,123

Year ended 31 December 2008 Up toone year

1 to 5years

More than 5 years Total

RO’000 RO’000 RO’000 RO’000

Payables and accruals 28,908 - - 28,908Provisions 513 - - 513Employee terminal benefits - - 483 483Total 29,421 - 483 29,904

3.2 Capital risk managementThe company’s objectives when managing capital are to safeguard the company’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain a commercially defensible capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

3.3 Fair value estimationThe face value less any estimated credit adjustments for financial assets and liabilities with a maturity of less than one year are assumed to approximate to their fair values. Financial assets consist of cash and bank balances and receivables. Financial liabilities consist of payables.

4 Critical accounting estimates and judgements

Estimates and judgements are regularly evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The company makes estimates and assumptions concerning the future. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

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4 Critical accounting estimates and judgements (continued)

Impairment of accounts receivable

An estimate of the collectible amount of trade accounts receivable is made when collection of the full amount is no longer probable. For individually significant amounts, this estimation is performed on an individual basis. Amounts which are not individually significant, but which are past due, are assessed collectively and a provision applied according to the length of time past due, based on historical recovery rates.

At the balance sheet date, gross trade accounts receivable were RO 16,760,708 (2008 - RO 13,779,866) and the provision for doubtful debts was RO 151,735 (2008 - RO 212,757). Any difference between the amounts actually collected in future periods and the amounts expected will be recognised in the statement of comprehensive income.

5 Segmental information

Business segment

Management has determined the operating segments based on the reports reviewed by the board that are used to make strategic decisions.

The board identifies operating segments based on business perspective. The reportable operating segments derive their revenue primarily from the sale of refined petroleum products.

The segment information provided to the board for the reportable segments for the year ended 31 December 2009 is as follows:

2009 2008RO’000 RO’000

Retail sales 158,265 157,185Commercial sales 62,354 65,593Lubricants sales 42,412 60,317Aviation sales 34,762 43,272Bitumen sales 558 -

298,351 326,367

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6 Employee costs

Employee costs included in selling, distribution and administrative expenses comprise:

2009 2008RO’000 RO’000

Wages and salaries 2,656 2,292Contributions to a defined contribution retirement plan 148 150Increase in liability for unfunded defined benefit retirement plan 99 79

2,903 2,521

7 Income tax

2009 2008RO’000 RO’000

Income tax expense comprises

Current tax 1,791 1,680Deferred tax (reversal)/charge (19) 28

1,772 1,708

Reconciliation of income tax expense

The company is liable to income tax in accordance with the income tax law of the Sultanate of Oman at the enacted tax rate of 12% on taxable income in excess of RO 30,000. The following is a reconciliation of income taxes calculated on accounting profits at the applicable tax rate with the income tax expense for the year:

2009 2008RO’000 RO’000

Tax on accounting profit before tax of RO 14.793 million (2008 – RO 14.212 million) 1,772 1,702

Add tax effect of: Other charges - 6Tax charge as per statement of comprehensive income 1,772 1,708

Current status of tax assessments

The company’s tax assessments for years 2004 to 2009 have not been finalised by the Secretariat General of Taxation at the Ministry of Finance. The Board of Directors consider that the amount of additional taxes, if any, that may become payable on finalisation of assessment of the open tax years would not be significant to the company’s financial position at 31 December 2009.

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8 Property, plant and equipment

BuildingsPlant andequipment

Motorvehicles

Capitalwork-in-progress Total

RO’000 RO’000 RO’000 RO’000 RO’000Cost1 January 2009 1,177 37,551 988 2,237 41,953Acquisitions - 712 23 3,994 4,729Disposals - (1,632) (38) - (1,670)Transfers 10 1,612 15 (1,637) -31 December 2009 1,187 38,243 988 4,594 45,012

Depreciation1 January 2009 712 24,485 776 - 25,973Charge for the year 33 3,281 78 - 3,392On disposals - (1,593) (38) - (1,631)31 December 2009 745 26,173 816 - 27,734

Net book value31 December 2009 442 12,070 172 4,594 17,278

BuildingsPlant andequipment

Motorvehicles

Capitalwork-in-progress Total

RO’000 RO’000 RO’000 RO’000 RO’000Cost1 January 2008 1,172 32,420 1,091 1,930 36,613Acquisitions - 3,541 - 2,085 5,626Transfers 5 1,729 44 (1,778) -Disposals - (139) (147) - (286)31 December 2008 1,177 37,551 988 2,237 41,953

Depreciation1 January 2008 679 21,846 865 - 23,390Charge for the year 33 2,746 58 - 2,837On disposals - (107) (147) - (254)31 December 2008 712 24,485 776 - 25,973

Net carrying amount 31 December 2008 465 13,066 212 2,237 15,980

The company’s buildings are constructed on land leased from the Ministry of Oil and Gas based on a lease agreement dated 29 December 1997. The company pays rent in the amount of RO 46,800 per annum. The company’s lubricants plant is constructed on land leased from the Ministry of Oil and Gas. The company pays rent in the amount of RO 13,450 per annum. The lease subsists throughout the duration of the company.

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8 Property, plant and equipment (continued)

At 31 December, future minimum lease commitments under non-cancellable operating leases are as follows:

2009 2008RO’000 RO’000

Not later than one year 60 60Later than one year and not later than five years 241 241

301 301

9 Intangible assets

2009 2008RO’000 RO’000

CostAt 1 January and at 31 December 745 745

AmortisationAt 1 January 734 711Charge for the year 6 23At 31 December 740 734Carrying amountAt 31 December 5 11

Intangible assets represent costs incurred in connection with the acquisition, development and implementation of an Enterprise Resources Planning and other computer software and is amortised over a period of five years.

10 Deferred tax

Deferred tax asset recognised in the balance sheet is attributable to the following:

At1 January 2009

Recognised in the income statement

At 31 December 2009

RO’000 RO’000 RO’000Provisions 79 19 98Deferred tax asset 79 19 98

At1 January 2008

Recognised in the income statement

At 31 December 2008

RO’000 RO’000 RO’000Provisions 107 (28) 79Deferred tax assets 107 (28) 79

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11 Inventories

2009 2008RO’000 RO’000

Finished goods- Petroleum products 7,652 5,888- Lubricants 1,243 1,894

8,895 7,782Raw materials 3,620 2,862Other material 249 1,356

12,764 12,000

12 Receivables and prepayments

2009 2008RO’000 RO’000

Trade receivables 16,761 13,780Less: impairment losses (152) (213)

16,609 13,567Receivables from related parties (note 22) 3,706 4,826Trade receivables and related party receivables, net of impairment losses 20,315 18,393Prepayments 1,588 1,486Other receivables 518 462

22,421 20,341

As at 31 December 2009, trade receivables at nominal value of RO 151,735 (2008 - RO 212,757) were impaired and provided against. Movements in the allowance for impairment of receivables were as follows:

2009 2008RO’000 RO’000

At 1 January 213 370Reversal for the year (61) (157)At 31 December 152 213

As at 31 December, the ageing of unimpaired trade receivables is as follows:

TotalNeitherpast due

nor impaired

Past due but not impaired

< 30 days 30 – 60 days

60 – 90 days >90 days

RO’000 RO’000 RO’000 RO’000 RO’000 RO’0002009 16,609 14,486 326 1,340 201 2562008 13,567 11,326 177 963 594 507

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12 Receivables and prepayments (continued)

The amounts are considered to be due within 3 to 45 days from the date of invoice for all customers. Unimpaired receivables are expected, on the basis of past experience, to be fully recoverable. It is not the practice of the company to obtain collateral over receivables and the vast majority of receivables are, therefore, unsecured.

The other classes within receivables and prepayments do not contain impaired assets. The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable mentioned above.

13 Cash at bank and in hand

2009 2008RO’000 RO’000

Bank balances 6,542 6,926Deposit accounts 1,134 3,054Cash balances 12 12

7,688 9,992

(i) Included in deposit accounts are call deposits of RO 1,059,904 (2008 - RO 2,004,788) with commercial banks in Oman. These are denominated in Rial Omani, are short term in nature. The account balances carry interest at commercial rates (2008 - same terms and conditions).

(ii) Also included in deposit accounts is a call deposit of RO 74,250 (2008 - RO 1,049,260) with a commercial bank in Oman. This is denominated in US Dollars, is short term in nature. The account balances carry interest at commercial rates (2008 - same terms and conditions).

Credit quality of cash at bank and short-term deposits:

Bank Rating 2009 2008 RO’000 RO’000

P1 6,050 6,891P2 1,626 3,089

7,676 9,980

The ratings are based on Moody’s ratings for short-term deposits and balances with banks. The rest of the balance sheet item ‘cash at bank and in hand’ is cash on hand.

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14 Share capital

The company’s authorised, issued and fully paid-up share capital consists of 100,000,000 shares of 100 baizas each (2008 - 100,000,000 shares of 100 baizas each) as follows:

2009 2008RO’000 RO’000

5,000,000 Multi-vote shares of 100 baizas each 500 500

95,000,000 Ordinary shares of 100 baizas each 9,500 9,50010,000 10,000

In accordance with Article 6 of the company’s Articles of Association, the holder of each Multi-vote share is entitled to two votes at the annual general meetings of the company. A company controlled by the ultimate parent holds all the Multi-vote shares.

15 Significant shareholders

On 29 October 2009, as part of an internal restructuring, the Shell Group transferred its shares in Shell Oman Marketing Company SAOG, owned via three Shell group subsidiaries, to three new Shell Group subsidiaries. At 31 December, shareholders owning more than 5% of the company’s share capital are as follows:

2009 2008 2009 2008Number Number % of % ofof shares of shares holding holding

Multi-vote sharesShell Overseas Investments BV 5,000,000 5,000,000 5% 5%

Ordinary sharesBV Licht en Kracht Maatschappij - 20,000,000 - 20%BV Dordtsche Petroleum Maatschappij 20,000,000 - 20% -Shell Overseas Investments BV 15,000,000 15,000,000 15% 15%BV Nederlandse InternationaleIndustrie-en Handel Maatschappij - 8,800,000 - 8.8%Shell Petroleum NV 8,800,000 - 8.8% -MOD Pension Fund 8,115,990 7,546,970 8.1% 7.6%Civil Service Employees Pension Fund 7,734,159 7,734,159 7.7% 7.7%

16 Legal reserve

Article 106 of the Commercial Companies Law of 1974 requires that 10% of a company’s net profit be transferred to a non-distributable legal reserve until the amount of legal reserve becomes equal to at least one-third of the company’s issued share capital. Since the amount of legal reserve exceeded one-third of the company’s share capital, no further transfers have been made during the year. This reserve is not available for distribution.

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17 Employee terminal benefits

2009 2008RO’000 RO’000

At 1 January 483 432Increase for the year 76 111Paid during the year (41) (60)At 31 December 518 483

18 Payables and accruals

2009 2008RO’000 RO’000

Trade payable 23,872 23,633Accrued expenses 3,734 2,689Payable to related parties (note 22) 469 1,414Other payables 993 1,172

29,068 28,908

19 Provisions

2009 2008RO’000 RO’000

Environmental provision 280 286Provision for employee retention scheme 257 227

537 513

Environmental provision

2009 2008RO’000 RO’000

At 1 January 286 404Provided/(reversed) during the year 63 (55)Utilised during the year (69) (63)At 31 December 280 286

The company provides for environmental costs based on environmental contamination assessments made on its delivery and storage sites. The entire provision of RO 280,000 is expected to be used during the next two financial years.

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19 Provisions (Continued)

Provision for employee retention scheme

2009 2008RO’000 RO’000

At 1 January 227 130 Provided during the year 102 112 Reversed during the year (72) (15)At 31 December 257 227

The company has an employee retention scheme designed to enhance benefits to certain employees. The associated provision has been created by charging the statement of comprehensive income and is expected to be utilised after three years of employment in accordance with the scheme.

20 Earnings per share

The calculation of basic earnings per share at 31 December 2009 is based on net profit for the year in the amount ofRO 13,021,000 (2008 - RO 12,504,000) and 100,000,000 shares (2008 - 100,000,000 shares).

21 Dividends paid and proposed

Dividends paid

During the year, dividends of RO 0.115 (2008 - RO 0.110) per share totalling to RO 11,500,000 relating to 2008 were declared and paid (2008 - RO 11,000,000 relating to 2007 were declared and paid).

Proposed dividend

The Board of Directors at their meeting dated 26 January 2010, have proposed a dividend of RO 12,000,000 for the year ended 31 December 2009 (2008 - RO 11,500,000).

Dividend per share

The calculation of dividend per share is based on proposed final dividend totalling RO 12,000,000 (2008 - RO 11,500,000) and 100,000,000 shares (2008 - 100,000,000 shares).

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22 Related party transactions

The company has entered into transactions with subsidiaries of the ultimate parent and entities over which certain directors are able to exercise significant influence. Terms of these transactions are approved by the Board of Directors and Shareholders.

(i) The transactions with related parties included in the statement of comprehensive income were as follows:

2009 2008RO’000 RO’000

Sale of goods 41,049 58,856Purchase of goods and services 18,380 21,536Service and trademark licence fees 1,261 1,195Bank interest expense 122 48

Revenue from related party sales in the amount of approximately RO 40 million (2008 - RO 58 million) were to companies controlled by the Shell Group and relate to sales of lubricants and aviation fuel. Other related party sales relate to sales to entities that are controlled by the directors of the company. Related party purchases were from companies controlled by the Shell Group and were primarily for supply of base oils and additives used for lubricant blending.

During the year, two (2008 - three) of the company’s directors were also employees of the company for the full year. In their capacity as employees of the company, they earned an aggregate of RO 291,941 (2008 - RO 254,795) in salaries and benefits. These two (2008 - Three) directors earned no additional remuneration in their separate capacity as directors.

During the year eight (2008 - eight) non-executive directors earned an aggregate amount of RO 92,200 (2008 - RO 91,000) in respect of meeting fees and director’s remuneration.

(ii) Compensation of key management personnel

The remuneration of executive directors and other members of key management during the year were as follows:

2009 2008RO’000 RO’000

Short-term benefits 551 447Employees’ end of service benefits 67 34

618 481

(iii) Amounts due from and due to related parties are disclosed in notes 12 and 18 respectively.

(iv) Outstanding balances at the year-end arise in the normal course of business. No provision for impairment has been made for 2009 and 2008 in respect of amounts due from related parties.

58


23 Net assets per share

The calculation of net assets per share is based on net assets at 31 December 2009 in the amount of RO 28.340 million (2008 - RO 26.819 million) and 100,000,000 shares (2008 - 100,000,000 shares).

24 Financial instruments

The accounting policies for financial instruments have been applied to the line items below:

Loans and receivables 2009 2008Assets as per balance sheet RO’000 RO’000Trade receivables (excluding prepayments) 20,833 18,855Cash at bank and in hand 7,688 9,992

28,521 28,847

Other financial liabilities2009 2008

Liabilities as per balance sheet RO’000 RO’000

Payables and accruals 29,068 28,908

25 Contingent liabilities

a) Guarantees

At 31 December 2009, the company has issued guarantees arising in the ordinary course of business from which it is anticipated that no material liabilities will arise, amounting to approximately RO 4,965,923(2008 - RO 1,195,187) in respect of contract performance.

a) Litigation

In 2009, a claim has been filed by an ex-employee, in a Primary Court against the company for illegal termination and for compensation relating to work-related personal injury. Based on a legal advice, the company considers that it is unlikely at any material liability will arise in respect of this matter. Accordingly, no provision has been made in these financial statements relating to this claim.

26 Capital commitments

At 31 December 2009, the Board of Directors have authorised future capital expenditure commitments amounting to approximately RO 2,918,770 (2008 - RO 2,676,888).


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