III. Description of the Proposed Change in Control

A. Current Structure

Shell California is one of numerous companies, referred to as the Royal Dutch/Shell Group of Companies, in which Royal Dutch and Shell Transport, either directly or indirectly, own investments. Shell California is a wholly-owned subsidiary of Shell Pipeline Company, LP. Shell Pipeline Company LP, through various entities, is ultimately a wholly-owned subsidiary of Equilon Enterprises LLC doing business as Shell Oil Products US. Equilon Enterprises LLC, through various entities, is ultimately a wholly-owned subsidiary of Shell Oil Company. Shell Oil Company is among the Operating Companies wholly-owned by Shell Petroleum N.V. and The Shell Petroleum Company Limited which are, in turn, owned by Royal Dutch and Shell Transport.

The Royal Dutch/Shell Group of Companies grew out of a scheme of amalgamation between Royal Dutch and Shell Transport in 1906 and agreements from 1907 by which the scheme of amalgamation was implemented and pursuant to which the two companies agreed to merge their interests in the oil industry while remaining separate and distinct entities. Arrangements between Royal Dutch and Shell Transport provide, inter alia, that, notwithstanding variations in shareholdings, Royal Dutch and Shell Transport shall share in the aggregate net assets and in the aggregate dividends and interest received from the Royal Dutch/Shell Group of Companies in the proportion of 60% for Royal Dutch and 40% for Shell Transport. All of the Royal Dutch/Shell Group of Companies, including Shell California, engaged in various branches of oil, natural gas, chemicals, power generation and renewable energy as well as in other businesses (the Operating Companies) are, directly or indirectly, wholly-owned by Shell Petroleum N. V. incorporated in The Netherlands and The Shell Petroleum Company Limited incorporated in England and Wales (collectively, the Group Holding Companies).² The Group Holding Companies are wholly-owned by Royal Dutch and Shell Transport. The arrangements between Royal Dutch and Shell Transport provide that Royal Dutch is entitled to have its nominees elected as a majority of the Board of Directors of the two Group Holding Companies, and Shell Transport is entitled to have its nominees elected to the balance of the boards. Through this arrangement, Royal Dutch and Shell Transport currently indirectly own and control Shell California.

B. Restructuring

On October 28 2004, the Royal Dutch Boards of Directors and the Shell Transport Board of Directors announced their agreement, in principle, to propose to their respective shareholders the unification of the Royal Dutch/Shell Group of Companies under a single parent company, Royal Dutch Shell. Pursuant to the final proposals for the recommended unification of Royal Dutch and Shell Transport announced on May 19 2005, the proposed restructuring is expected to be implemented through a public exchange offer by Royal Dutch Shell for the ordinary shares of Royal Dutch (the Tender Offer) and through the acquisition of Shell Transport by Royal Dutch Shell pursuant to a Scheme of Arrangement of Shell Transport under Section 425 of the Companies Act of England and Wales of 1985, as amended, (the Scheme of Arrangement). The terms of the transaction contemplate that Royal Dutch shareholders will be offered 60%, and Shell Transport shareholders offered 40%, of the ordinary share capital in Royal Dutch Shell. Upon completion of the transaction, Royal Dutch Shell will become the ultimate owner, and have control over, the Royal Dutch/Shell Group of Companies, including, indirectly, Shell California.

The announced restructuring is subject to numerous conditions and the review and approval of government agencies, including a review for potential anticompetitive effects under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act). Under the HSR Act, the Federal Trade Commission (FTC) and the Department of Justice (DOJ) have the authority to prevent or delay proposed mergers or acquisitions based on the potential anticompetitive effects.³ Prior to consummating a potential merger or acquisition, parties are required to file a "Pre-Merger Notification" containing certain information, including information on subsidiaries, products, revenues, and geographic markets, that relate to the proposed merger and the impacts the merger may have on competition. Where the information presented indicates that a proposed merger has the potential to have any anticompetitive effects, the FTC may elect to commence a comprehensive analysis of the proposed transaction and perform an in-depth review of the potential anti-competitive effects.⁴ In the present case, the FTC and DOJ have reviewed the Pre-Merger Notification filed in connection with the proposed restructuring, and on December 27, 2004, issued a notice of early termination of the HSR Act's waiting period, indicating that the FTC and DOJ do not believe that there is any potential for the restructuring to have any anticompetitive effects that would warrant performing the more comprehensive review.

In addition, the Scheme of Arrangement must be approved at a meeting to be convened by the High Court of England and Wales by a majority in number representing not less than 75% in value of those Shell Transport shareholders present and voting either in person or in proxy as well as being approved by the High Court of England and Wales. The shareholders of Shell Transport must pass resolutions to implement the Scheme of Arrangement, the shareholders of Royal Dutch must pass resolutions approving an implementation agreement, and at least 95% of the outstanding Royal Dutch ordinary shares (or a lesser percentage as Royal Dutch Shell, Royal Dutch, and Shell Transport may decide in accordance with applicable law) must be irrevocably tendered for acceptances in the Tender Offer.

C. Impact of Restructuring on Shell California

While there is a technical change in control of Shell California because Royal Dutch Shell will become the ultimate parent company of Shell California rather than both Royal Dutch and Shell Transport being the ultimate parent companies, there is no change in the ownership interest of Shell California's direct owners or the other intermediate parent companies. If all Royal Dutch shareholders accept the tender offer, Royal Dutch Shell will be owned by public shareholders in Royal Dutch and Shell Transport in the same proportions that those shareholders currently own the Royal Dutch/Shell Group of Companies.⁵ The proposed restructuring will not affect the relative ownership of the Royal Dutch/Shell Group of Companies in Shell California.

Applicants state that the restructuring does not require any change in Shell California's tariffs, nor will it affect its day-to-day management or operations. Shell California will continue to be operated by experienced and competent personnel, and continue to offer service pursuant to Commission-approved tariffs. There is no direct impact on Shell California except to the extent that it benefits from the expected benefits that provide the basis for the restructuring as referred to in IV below.