1. Shell Trading Energy Commodity Trading/ OTC Derivatives
Jim Harren
April 20, 2006

2. Agenda
Overview of Shell Trading
Energy Commodity Trading
Hedging vs. Speculation
Options
OTC Swaps
Shell Trading Rotational Program
Ideal candidate profile
Questions

3. Shell Trading is…
The world’s largest energy trader
A global business in Shell’s portfolio
A professional group of people who are dedicated to the fast-paced and exciting business of marketing and trading
Experiencing continued success and growth with ambitious plans for the future

4. The Shell Trading Network
STUSCO
Shell WEST Barbados
STASCO London
Shell Japan Trading Tokyo
STGP
SIETCo
Singapore
SITME
Dubai
SETL London
STR Rotterdam
SGTAP Philippines
Houston
Calgary
Shell Trading Russia
Moscow
Crude Oil Trading
LPG Trading
Spot Chartering
Products Trading
Power Trading
Shipping
Natural Gas Trading
Environmental Products Trading

5. Energy Commodity Trading
Energy Basics
Commodity Market Terms
Physical (cash) vs. Financial (paper)
Futures/Options
Market Players (participants)
“Over the Counter” Derivatives vs. Exchange Traded
Hedging vs. Speculation
Fundamental Trading/Analysis
Technical Trading/Analysis

6. Energy Basics Crude Oil Get it out of ground - Producers
Ship it – Transportation Companies
Heat it up (Refinery)
Propane – Agriculture, Home Heating, Vehicles
Butane – Blend into Gasoline/Commercial Uses
Jet - Airlines
Gasoline
Heating Oil- Huge Northeast market
Asphalt -Commerical

7. Commodity Market Terms
Backwardation/Contango
Bid Ask……Hit Bids/Lift Offers
Spreads (Front to Back)
Cross Commodity (Cracks /Heat vs Gas)
Outrights
Arbitrage
Fundamental vs. Technical Trading
Pricing Agencies (Platt’s, Argus, OPIS)

8. Futures vs. Options Futures (ICE and NYMEX) Crude Oil 36 months
Heating Oil 18 months
Gasoline 12 months
Options (Review)
Puts
buy gives you the “right to sell”
Sell gives you the “obligation to buy”
Calls
buy gives you the “right to buy”
Sell gives you the “obligation to sell”

12. Hedging
Hedging – Provides matching exposure to price fluctuations
Why?
Stake holders (banks) prefer companies that perform as planned.
Hedging stabilizes cash flows Reduces cost of capital
Secures company objectives
Enables management to measure performance
In Energy
Price moves of 3 cents per gallon on a 250mb cargo can cost over $315,000

13. Speculation Speculation
Educated Decision to Buy/Sell given Technical and/or Fundamental information
$5,000 per day 20 days per month 12 months =$1.2mm
Speculation always involves a gamble as to where one thinks prices will be in the future.

14. Physical vs. Financial
Physical Commodities Crude Oil
Heating Oil
Jet fuel
Truck Diesel
Gasoline (grades)
LPG’s
Feedstocks
Financials (We trade Derivatives and OTC instruments on all of the above)
Futures
Options
Over the Counter Derivatives

15. Option Pricing Pricing Black Scholes Greeks Delta/Gamma/Vega/Theta/Rho
Other Models
Calendar Spread Options

16. Option Strategies Strategies Strangles – Market view?
Collars (typically a hedge for)
Producers
End users
Straddles – Market View?
Fences
Butterflies
Exotics

17. OTC SWAPS and STRATEGIES
Fixed Price Swap – example follows
Collars – Example follows
Swap options
Knock out Options
Cross Commodity Index Swaps – Very Common in Energy - Refiner Margins

18. Swap Applications
FIXED PRICE SWAP:
An Oil Producer of 300,000 bbl/month sells crude oil to its customers at an agreed-upon index price. The firm wants more predictable cash flows in order to determine its ability to capitalize on exploration and production opportunities next year.

19. Swap Applications (cont’d)
To help accomplish this objective, the Producer enters into a one-year swap with Shell to hedge 1/3 of its production at a fixed price of $60.00/bbl. This swap hedge is financially equivalent to a forward sale of 100,000 barrels of crude oil per month for 12 months.

20. Swap Applications (cont’d)
If the price of Crude averages over for the next 12 months. The producer will pay Shell the difference between the 12 month average price and $60.00.
If the price of Crude averages under for the next 12 months. Shell will pay the producer the difference between the 12 month average price and $60.00.

21. Swap Applications - Collars
A Collar Contract allows a customer to keep its costs within an agreed range, effectively putting a "Collar" around purchase or selling prices

22. Collars (continued) Producer – Concerned about falling crude prices
Would sell call buy put
Sell Call if he is happy with “maximum” price
Buy put if he is concerned about a drop in prices
Zero cost collar allows him to finance his downside protection (purchase of put) with his sale of the upside call

23. Collars (continued) Airline - Concerned about rising Jet prices
Would sell put buy call
Sell put if he is willing to lock in a floor price for his jet fuel
Buy call to protect the company from rising jet prices
Zero cost collar allows him to finance his upside protection (purchase of call) with his sale of the downside (floor) put

24. Exchange vs. Over the Counter
No/limited credit risk
Delivery of product
Rules
Over the Counter
Unlimited Credit Risk
Not limited to exchange products
ISDA’s International Swaps and Derivatives Association ( in place

25. The Successful Shell Trader
Commercial – interested in making money
Self-motivated
High level of personal accountability
Makes decisions
Focused
Analytical
Comfortable with risk
Action oriented
Numerate
Strong interpersonal / communications skills
Operates with Honesty, Integrity and Respect for People

26. Shell Quality in Trading
Unparalleled global reach and coverage of energy trading markets (physical locations & variety in product offerings)
Leverages the Shell brand and asset base to create unique opportunities
Brings integrity to the marketplace by offering competitive pricing, consistency in performance and delivery of energy products

27. Typical Paths into Shell Trading
Hiring goals are met by experienced external recruiting, internal resourcing & development, and intern placement into formal rotational programs
The intern program is coordinated on behalf of both STUSCo and STGP
Limited but exciting opportunities are available for select students
Typically, we have not hired graduates as some general awareness and orientation to the complexities of the business has resulted in greater success for the individual in trading roles. The rotational program is designed to rapidly expose the participants to the industry as well as the supporting processes around the trading activity to increase the likelihood of success once placed in a trading role.

28. Shell Trading Commercial Internship
Examples of Trading Intern projects include:
Trading deal entry to gain familiarity with deal structures and understand system requirements
Analysis of pricing relationships and markets
Analysis of historical pricing information and relationships
Product demand analysis
Creation of charts and graphics for the benefit of a trading team
Reconciliation of actual trades to trade book financial statements
Assist with data mining & collection, data conversion and data integrity issues
Assist traders in creating value from data

29. Employment Opportunities for Interns
At the conclusion of a successful summer internship, the most likely opportunities that students may be offered upon graduation:
A slot in the Trader Development or Commercial Operations Development program
Traders & Commercial Operators at Shell participate in a market competitive compensation program with opportunity to earn larger incentive bonuses than other similar level roles in Shell
A position as a Trading / Marketing analyst
A Finance position for another Shell business
If the student has a successful internship and either 1) they are not interested in pursuing a career in trading, or 2) the program is highly successful and there are more acceptable candidates that slots then they may be offered a general Finance position with another Shell Business
We will make selections to match individual skills and abilities with the competence framework ideals for various roles
Commercial Operations encompasses the areas of contracts administration and scheduling / operating roles

30. Rotational Development Programs
Oil Trader Development for Jr. Traders
Rotations in Pipeline or Marine Scheduling, Contracts, Risk Control and Demurrage
Possible rotation as Trading Analyst
Gas & Power Trader Development for Jr. Traders
Rotations in Scheduling, Contracts, Risk Control and Marketing / Trading Analyst
Commercial Operations Development for Operators and Commercial / Contract Administration
Rotations in Pipeline or Marine Scheduling, Contracts, Financial Services and Financial Advice - Credit

31. Development Program Structure
Four rotations of six-months each, to build foundation of knowledge
Participants report directly to a single commercial manager to provide consistency
Daily supervision is provided by a rotational leader
Assigned coach provides mentoring and participates in assessment
Individual Learning and Development plans are created to address gaps vs. the competence framework ideal
Additional training events are planned throughout the rotations
Camaraderie, teamwork & networking are necessary for success
The rotational programs can start either January 1 or July 1, depending on graduation date. The rotational program consists of four, six-month assignments in commercial operations roles to prepare the new graduate for placement in either a Jr. Trading or Commercial Operations specialty role. The assignments can be in either the crude and refined product or gas and power side of the business.
We only accept into the rotational program the volume of participants that we can guarantee placement in to commercial roles upon successful completion of the development program.

32. Questions?
THANKS for your help to keep Shell Trading the #1 Energy Trading Company in the world!