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Royal Dutch Shell
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Royal Dutch Shell plc, commonly known simply as Shell, is a multinational oil company of Dutch and British origins. It is the second largest private sector energy corporation in the world, and one of the six "supermajors" (vertically integrated private sector oil exploration, natural gas, and petroleum product marketing companies). The company's headquarters are in The Hague, Netherlands, with its registered office in London (Shell Centre).
The company's main business is the exploration for and the production, processing, transportation, and marketing of hydrocarbons (oil and gas).
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Encyclopedia
Royal Dutch Shell plc, commonly known simply as Shell, is a multinational oil company of Dutch and British origins. It is the second largest private sector energy corporation in the world, and one of the six "supermajors" (vertically integrated private sector oil exploration, natural gas, and petroleum product marketing companies). The company's headquarters are in The Hague, Netherlands, with its registered office in London (Shell Centre).
The company's main business is the exploration for and the production, processing, transportation, and marketing of hydrocarbons (oil and gas). Shell also has a significant petrochemicals business (Shell Chemicals), and an embryonic renewable energy sector developing wind, hydrogen and solar power opportunities. Shell is incorporated in the UK with its corporate headquarters in The Hague, its tax residence is in Netherlands, and its primary listings on the London Stock Exchange and Euronext Amsterdam (only "A" shares are part of the AEX index).
Forbes Global 2000 in 2007 ranked Shell the eighth largest company in the world. Also in 2007, Fortune magazine ranked Shell as the third-largest corporation in the world, behind Wal-Mart and ExxonMobil.
Shell operates in over 140 countries. In the United States, its Shell Oil Company subsidiary, headquartered in Houston, Texas, United States, is one of Shell's largest businesses.
History
The Royal Dutch Shell Group was created in February 1907 when the Royal Dutch Petroleum Company (legal name in Dutch, N.V. Koninklijke Nederlandsche Petroleum Maatschappij) and the "Shell" Transport and Trading Company Ltd of the United Kingdom merged their operations – a move largely driven by the need to compete globally with the then predominant American oil company, John D. Rockefeller's Standard Oil. The terms of the merger gave 60% of the new Group to the Dutch arm and 40% to the British and is now mostly seen as a Dutch company in line with the original ownership. To celebrate its centenary in 2007 Shell launched a scholarship fund.
Royal Dutch Petroleum Company was a Dutch company founded in 1890 by Jean Baptiste August Kessler, along with Henri Deterding and Texaco, when a Royal charter was granted by King William III of the Netherlands to a small oil exploration and production company known as "Royal Dutch Company for the Working of Petroleum Wells in the Dutch Indies" (now Indonesia).
The "Shell" Transport and Trading Company (the quotation marks were part of the legal name) was a British company, founded in 1897 by Marcus Samuel and his brother Samuel Samuel. Initially the Company commissioned eight oil tankers for the purposes of transporting oil.
In 1919, Shell took control of the Mexican Eagle Petroleum Company and in 1921 formed Shell-Mex Limited which marketed products under the "Shell" and "Eagle" brands in the United Kingdom. In 1932, partly in response to the difficult economic conditions of the times, Shell-Mex merged its UK marketing operations with those of British Petroleum to create Shell-Mex and BP Ltd, a company that traded until the brands separated in 1975.
In November 2004, following a period of turmoil caused by the revelation that Shell had been overstating its oil reserves, it was announced that the Shell Group would move to a single capital structure, creating a new parent company to be named Royal Dutch Shell plc, with its principal listing on the London Stock Exchange and the Amsterdam Stock Exchange and its headquarters and tax residency in The Hague in the Netherlands. The unification was completed on 20 July 2005. Shares were issued at a 60/40 advantage for the shareholders of Royal Dutch in line with the original ownership of the Shell Group.
In November 2007 Shell acquired a majority stake in some gas fields owned by Regal Petroleum in Ukraine.
Name and brand
The origin of the brand name Shell is linked to the origins of The Shell Transport and Trading Company. In 1833, the founder's father, also Marcus Samuel, founded an import business to sell seashells to London collectors. When collecting seashell specimens in the Caspian Sea area in 1892, the younger Samuel realized there was potential in exporting lamp oil from the region and commissioned the world's first purpose-built oil tanker, the Murex (Latin for a type of snail shell), to enter this market; by 1907 the company had a fleet. Although for several decades the company had a refinery at Shell Haven on the Thames, there is no evidence of this having provided the name.
The Shell brand is one of the most familiar commercial symbols in the world. Known as the "pecten" after the sea shell Pecten maximus (the giant scallop), on which its design is based, the current version of the brand was designed by Raymond Loewy and introduced in 1971. The yellow and red colours used are thought to relate to the colours of the flag of Spain as Shell built early service stations in the state of California which had strong connections with Spain.
The slash was removed from the name "Royal Dutch/Shell" in 2004.
Businesses
provides two thirds of Shell's revenues]]
One of the original Seven Sisters, Royal Dutch Shell is the world's second-largest private sector oil company by revenue, Europe's largest energy group and a major player in the petrochemical industry.
Core businesses
Shell has five core businesses: Exploration and Production (the "upstream"), Gas and Power, Refining and Marketing, Chemicals (the "downstream"), and Trading/Shipping, and operates in more than 140 countries.
Shell's primary business is the management of a vertically integrated oil company. The development of technical and commercial expertise in all the stages of this vertical integration from the initial search for oil (exploration) through its harvesting (production), transportation, refining and finally trading and marketing established the core competencies on which the Group was founded. Similar competencies were required for natural gas, which has become one of the most important businesses in which Shell is involved, and which contributes a significant proportion of the company's profits.
While in the past the vertically integrated business model gave significant economies of scale and provided Shell with the opportunity to establish barriers to entry both geographically and on a more global scale, this has been less a possibility in more recent times. As a result although the vertical integration remains there is much less interdependence between the businesses and each is now charged with being a self-supporting independent business without cross subsidies from other parts of the business chain.
Shell's oil and gas business is increasingly an assembly of independent and globally managed business segments each of which must be profitable in its own right. This can be a source of criticism, as some consumers see huge profits accruing from upstream income whilst price rises instituted by the independent downstream business anger motorists and other consumers.
The downstream, which now also includes the Chemicals business, generates a third of Shell's profits worldwide and is most recognised by its global networks of more than 40,000 petrol stations and its 47 oil refineries.
Diversification
Over the years Shell has occasionally sought to diversify away from its core oil, gas and chemicals businesses. These diversifications have included nuclear power (a short-lived and costly joint venture with Gulf Oil in the USA); coal (Shell Coal was for a time a significant player in mining and marketing); metals (Shell acquired the Dutch metals-mining company Billiton in 1970) and electricity generation (a joint venture with Bechtel called Intergen). None of these ventures were seen as successful and all have now been divested.
In the early 2000s Shell moved into alternative energy and there is now an embryonic "Renewables" business that has made investments in solar power, wind power, hydrogen, and forestry. The forestry business went the way of nuclear, coal, metals and electricity generation, and was disposed of in 2003. In 2006 Shell sold its entire solar business and in 2008, the company withdrew from the London Array which is expected to become the world's largest offshore wind farm.
Shell also is involved in large-scale hydrogen projects. HydrogenForecast.com describes Shell's approach thus far as consisting of "baby steps", but with an underlying message of "extreme optimism".
Management
Executive committee
Shell's executive committee consists of:
In March 2007 it was announced that Mr. van der Veer's contract as CEO would be extended to June 2009, some twenty months beyond his normal Shell retirement date of October 2007.
On 29 October 2008, it was announced that Voser would succeed to the position of Chief Executive Officer effective 1 July 2009.
Non-executive Directors
On 4 August 2005, the board of directors announced the appointment of Jorma Ollila, then Chairman and CEO of Nokia, to succeed Aad Jacobs as the company’s non-executive Chairman from 1 June 2006. Ollila is the first Shell Chairman to be neither Dutch nor British.
Other non-executive directors include Maarten van den Bergh, Wim Kok, Nina Henderson, Lord Kerr, Adelbert van Roxe, and Christine Morin-Postel.
Financial data
Financial data in millions of US$| Year | 2002 | 2003 | 2004 | 2005 | 2006 | Sales | 179 315 | 201 728 | 265 190 | 306 731 | 318 845 | EBITDA | 26 941 | 33 211 | 44 866 | 55 590 | 59 820 | Net Results | 9 656 | 12 313 | 18 183 | 25 311 | 26 311 | Net Debt | 19 691 | 20 127 | 14 422 | 12 900 | 6 800 |
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Corporate responsibility and reputation
Shell's compliance to corporate social responsibility also includes its LiveWIRE programme. This initiative has over 21 years experience of encouraging young people to start and develop their own businesses in the UK and elsewhere in the world (26 countries).
Shell has been criticised for its businesses in South Africa and Nigeria, notably in relation to protests of the Ogoni and Nigeria's execution of journalist Ken Saro-Wiwa, who spoke out against what he viewed as Shell's destruction of his tribe's homeland. Militants in the delta enjoy widespread support as 20 million people remain rooted in poverty despite the enormous wealth generated in the oil-rich area, putting Nigeria among the leading Opec nations. Shell is the largest oil producer in Nigeria.
In the 1990s protesters criticized the company's attitude to the environment e.g. in relation to the disposal of the Brent Spar production platform in Britain.
Shell's response to the problems of Brent Spar and Nigeria was to launch an internal review of processes and an external communications campaign to persuade stakeholders of their commitment to corporate social responsibility. In response to criticism of its track record on environmental matters Shell published an unequivocal commitment to sustainable development, supported by executive speeches reinforcing this commitment. At the same time Shell Oil (the US subsidiary) was one of the first companies to leave the Global Climate Coalition, a lobby group which had opposed restrictions on greenhouse gases, and the Royal Dutch/Shell Group itself was never a member. Shell Chairman Philip Watts gave a 2003 speech in Houston calling for skeptics to get off the fence and take action "before it is too late". Shell is also a founding member of the World Business Council for Sustainable Development, which Watts led as Chairman in 2002/2003.
Indeed, an oil spill was caused by a Shell tank ship in Magdalena, Argentina, on January 15, 1999, polluting the environment, drinkable water, plants and animals. Details about that oil spill can be found in http://www.petroleomagdalena.com.
Delivering the annual business lecture hosted by Greenpeace in 2005, Shell chairman Lord Oxburgh said that we must act now on global warming or face a "disaster", and encouraged governments to provide a regulatory framework to encourage the reduction of greenhouse gas emissions.
Shell whistleblowers
Official website for whistleblowers
Shell has set up a global Internet-based facility for whistleblowers to report alleged violations of the law or of Shell General Business Principles, a voluntary code of ethics pledging transparency, integrity and honesty in all of Shell's business dealings.
The introduction on the Global Helpline website says "Reporting and addressing suspected violations of the law or the Shell General Business Principles (SGBP) is of critical importance in protecting our reputation and the value of the Shell brand." Whistleblowers are asked to provide identity details but anonymous reports are also accepted. The Global Helpline operated by Global Compliance, Inc. is available to "customers, suppliers, partners, advisers and employees of Shell".
Unofficial website for whistleblowers
A number of newspapers have commented on an unofficial website used by Shell whistle blowers. On 18 March 2008, The Wall Street Journal described it as a Web site regularly used by Shell whistle blowers". Reuters has described the website as "an unofficial company Web site" which "acts as a conduit for whistleblowers at the company..."
Corporate communications
Much of Shell's reputation-building advertising concentrated on the embryonic renewable energy business whilst this remains a relatively small business compared to the core hydrocarbon extraction, processing and marketing operations. The corporate advertising campaign was (like a similar campaign by BP) described as "greenwash" by some non-governmental organization critics, but praised by other commentators. In response to questions which focused on the small percentage of its capital investment programme that was directed towards alternative energy Shell said that it would be "pointless" to say exactly how much of capital expenditure was going into renewable energy schemes. Chief Executive Officer Jeroen van der Veer indicated that the investment in renewables was small, saying it would be "throwing money away" to invest in alternative energy projects that were noncommercial and people could not afford to buy.
In August 2008, the British Advertising Standards Authority (ASA) ruled that Shell had misled the public in an advertisement which claimed that a $10bn oil sands project in Alberta, northern Canada, was a "sustainable energy source". The ASA upheld a complaint by the World Wide Fund for Nature about Shell's advert in the Financial Times. Explaining the ruling the ASA stated that "We considered that the Department for Environment, Food and Rural Affairs (Defra) best practice guidance on environmental claims stated that green claims should not 'be vague or ambiguous, for instance by simply trying to give a good impression about general concern for the environment. Claims should always avoid the vague use of terms such as 'sustainable', 'green', 'non-polluting' and so on." Furthermore the ASA ruling stated "Defra had made that recommendation because, although 'sustainable' was a widely used term, the lack of a universally agreed definition meant that it was likely to be ambiguous and unclear to consumers. Because we had not seen data that showed how Shell was effectively managing carbon emissions from its oil sands projects in order to limit climate change, we concluded that the ad was misleading"
Oil reserves
In 2004, a disclosure about the overstatement of oil reserves was seen as the most serious crisis encountered in the Group’s nearly 100 years of history. The Economist asked in an article dated 11 March 2004 whether Shell could be seen as "another Enron", but answered its own question with "importantly, Shell's shifting of reserves (from “proven” to “probable”) simply cannot be compared with the phantom profits and bogus assets booked by Enron. That is because the oil and gas actually still exists, and Shell still owns them as real, usable assets". The crisis led to the dismissal of the chairman of the Committee of Managing Directors Philip Watts, and prompted a major reorganisation of the Group.
Other recent problems
Royal Dutch Shell's image suffered another blow when problems arose with the massive Sakhalin-II project in Russia and the controversial Corrib Gas Field development in Ireland. Shell's social investment initiative the Shell Foundation has also run into some controversy. In 2007 Friends of the Earth alleged that the damage caused by Shell's oil activities to local communities and the wider environment could be assessed at $20 billion. Accusations have also flown about the conduct of Shell in Nigeria
Health and safety
A number of incidents over the years led to criticism of Shell's health and safety record, including repeated warnings by the UK Health and Safety Executive about the poor state of the company's North Sea platforms.
Corporate governance
Traditionally, Shell was a heavily decentralised business worldwide (especially in the downstream) with operating companies in over 100 countries each of which operated with a high degree of independence. The upstream tended to be far more centralised with much of the detailed technical and financial direction coming from the central offices in The Hague. Nevertheless there were very large "Exploration and Production" companies in a small number of major oil and gas production centres such as the United Kingdom (Shell Expro, a Joint Venture with Exxon), Nigeria, Brunei, Oman etc.
The downstream business, which in some countries also included oil refining, generally included a retail petrol station network, lubricants manufacture and marketing, industrial fuel and lubricants sales and a host of other product/market sectors such as LPG, bitumen etc. The custom and practice in Shell was that these businesses were essentially local in character and that they were best managed by local "operating companies" – often with middle and senior management reinforced by expatriates. In the 1990s this paradigm began to change and the independence of operating companies around the world was gradually reduced and today virtually all of Shell’s operations in all of its various businesses are much more directly managed from London and The Hague. The autonomy of “operating companies” has been largely removed as more "global businesses" have been created in all sectors.
United States and Canada
Through most of Shell's history, its business in the United States, Shell Oil Company was substantially independent with its stock ("Shell Oil") being traded on the NYSE and with little direct involvement from the Group’s central offices in the running of the American business. This also changed in the 1990s when Shell firstly bought out the shares in Shell Oil that they did not own and then took a more hands on approach in the running of the business. In Canada, also previously very independent, Shell has completed its purchase of the shares in Shell Canada that it did not own in order to apply the new global business model to its Canadian operations.
Australia
In Australia, retailer Coles Group (now part of Wesfarmers), purchased the rights to the retail business from the existing Shell Australia multi-site franchisees in 2003 for an amount less than A$100 million. This was in response to a popular discount fuel offer by rival Woolworths Limited launched some years earlier.
Coles Express' only affiliation with Shell is that Shell is the exclusive supplier of fuel and lubricant products, leases the service station property to Coles, and maintains the presence of the "pecten" and other Shell branding on the price board and other signage. Coles Express sets fuel and shop prices and runs the business, provides convenience and grocery merchandise through its supply chain and distribution network, and directly employs the service station staff.
Norway, Sweden and Denmark
On 27 August 2007, Royal Dutch Shell and Reitan Group, the owner of the 7-Eleven brand in Scandinavia, announced an agreement to rebrand some 269 service stations across Norway, Sweden and Denmark, subject to obtaining regulatory approvals under the different competition laws in each country.
See also
External links
Bibliography
- "A Century in Oil" by Stephen Howarth [1997] ISBN 0 297 82247 0. A History of The "Shell" Transport and Trading Company.
- "A History of Royal Dutch Shell" by Stephen Howarth and others [2007]. ISBN 978 0199298778
- "Seven Sisters" by Anthony Sampson (1981) ISBN 978 0553234695
- "Shell Shock: The secrets and spin of an Oil Giant" by Ian Cummins and John Beasant [2005]. ISBN 1 84018 941 X
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