Royal Dutch Shell

2008/9 Schools Wikipedia Selection. Related subjects: Companies

Royal Dutch Shell

Type	Public (LSE: RDSA / RDSB) ( NYSE: RDS.A / RDS.B)
Founded	1907
Headquarters	The Hague, Netherlands
Key people	Jeroen van der Veer, CEO Jorma Ollila, Chairman
Industry	Oil and gas
Products	Oil, natural gas, petrochemicals
Revenue	▲ US$318.845 billion (2006)
Operating income	▲ US$44.628 billion (2006)
Profit	▲ US$26.311 billion (2006)
Employees	112,000
Website	www.shell.com

Royal Dutch Shell plc is a multinational oil company of British and Dutch origins. It is one of the largest private sector energy corporations 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, United Kingdom ( 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).

Shell's revenues of $318.8 billion in 2006 made it the third-largest corporation in the world by revenues behind only ExxonMobil and Wal-Mart. Its 2006 gross profits of $26 billion made it the world's second most profitable company, after ExxonMobil and before BP. Forbes Global 2000 in 2007 ranked Shell the eighth largest company in the world.

It operates in over 140 countries. In the United States, its Shell Oil Company subsidiary, headquartered in Houston, Texas, is one of Shell's largest businesses. In 2007, Fortune magazine ranked Shell as the third-largest corporation in the world, behind Wal-Mart and ExxonMobil.

History

Shell Centre building next to the London Eye in London, UK

The Royal Dutch/Shell Group of companies 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 monopolistic American oil company, Standard Oil. The terms of the merger gave 60% of the new Group to the Dutch arm and 40% to the British. 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 Hugo Loudon, when a Royal charter was granted by Dutch king Willem III to a small oil exploration company known as "Royal Dutch Company for the Exploration of Petroleum Wells in the Dutch Indies".

The "Shell" Transport and Trading Company (the quotation marks are official) was a British company, founded in 1897 by Marcus Samuel and his brother Samuel Samuel. The company was engaged in the trading of opium and other commodities with oriental countries. 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 1931, 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 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.

Under the old capital structure, Shell's ADRs were traded on the New York Stock Exchange under RD (Royal Dutch) and SC (Shell).

Origin of the Shell name and branding

A Shell service station's price board with the pecten 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, to enter this market; by 1907 the company had a fleet.

The Shell brand is one of the most familiar commercial symbols in the world. Known as the "pecten" after the sea shell, the giant scallop, pecten maximus, on which its design is based, the current version of the brand was designed by Raymond Loewy and introduced in 1971.

Businesses

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 oil depot in Kowloon, Hong Kong

The upstream provides two thirds of Shell's revenues

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.

A Shell oil refinery in Martinez, California

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.

Chemicals

The chemicals business, involving the production and marketing of a range of hydrocarbon-derived chemical products, was a logical step downstream from the processing of crude oil in the refinery. Some of the chemicals diversifications, e.g. agrichemicals, have been disposed of following major restructuring in Shell Chemicals over the past ten years, but there is still a large core chemicals business within the company. Shell is currently building the world's largest gas to liquids plant, converting natural gas to diesel and other products, in Qatar.

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 recent years Shell has moved tentatively into alternative energy and there is now an embryonic "Renewables" business which 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. Shell is, however, one of the world's largest investors in several renewables fields, such as solar and wind. In 2004, Shell ranked fourth worldwide in terms of sales of solar products.

Shell is also one of the world's largest investors in wind energy - Shell WindEnergy is to have a major share in the world's largest wind farm, the London Array (1GW). The company's partnership in the USA with Nedpower Mt Storm wind power project has proceeded less well, however, with delays, cost overruns and legal challenges.

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".

Business priorities

Shell's principal focus remains on its core business activities. The strategy is described as "more upstream and profitable downstream". Capital investments in 2006 totalled $24.896 billion of which just $418 million (less than 2%) was in businesses (including Renewables) other than the core Oil, Gas and Chemicals sectors.

Ownership

Prior to unification on 20 July 2005, the group was a dual listed company. The two holding companies were the Royal Dutch Petroleum Company of the Netherlands and the Shell Transport and Trading Company plc of the United Kingdom. These two companies jointly owned all the operating companies in the group, although some also have local shareholders and are traded on local stock markets. The Shell interest in subsidiaries was always divided 60/40 in favour of Royal Dutch. In many cases, subsidiary companies are held in partnership with other companies or governments.

The company's shares are divided into two classes, A and B, representing the former Royal Dutch and Shell shares respectively. This arrangement is probably for tax reasons.

Although to meet company law in all countries, there were executive and non-executive nominated directors of both Royal Dutch and Shell Transport and Trading, the Group had in fact been run by an executive body called the "Committee of Managing Directors" (CMD), whose members were the (executive) Managing Directors of the two parent companies.

There has been speculation that merger/takeover opportunities with BP would create the world's largest company. .

Management

Executive committee

Shell's executive committee consists of:

Jeroen van der Veer, Chief Executive
Linda Cook, Executive Director Gas and Power
Malcolm Brinded, Executive Director Exploration and Production
Peter Voser, Chief Financial Officer
Rob Routs, Executive Director Downstream Oil Products and Chemicals

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. He will be the first modern executive director of Shell to stay in office beyond the age of 60.

There has been speculation in the news media about candidates to be Chief Executive of Royal Dutch Shell Plc when Mr van der Veer retires, with the frontrunners seen as Malcolm Brinded, head of exploration, Linda Cook at gas and power, and finance director Peter Voser

Non Executive Directors

On 4 August 2005, the board of directors of Royal Dutch Shell plc 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 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

Source :' OpesC'

Corporate responsibility and reputation

Shell's operations have been subject to particular scrutiny by stakeholders – especially environmental and human rights groups and local communities. Over the years, Shell has been criticised in respect of a number of its operations. These have included 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--as well as its attitude to the environment, e.g. 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, and the 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.

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.

“	Our job is to respond in a positive way to a regulatory environment that has to be determined by government ... given the urgency, we have to start now.	„
— Lord Oxburgh, Shell Chairman

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).

See also Controversies surrounding Royal Dutch Shell

Shell whistleblowers

Official website for whistleblowers: Shell has said that it is committed to listening to stakeholders This included the setting up of 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" .

Information from a document downloadable from the Helpline website via the link "Notice about the Shell Global Helpline", indicates that the Global Helpline was introduced as a way for "employees and others to raise concerns or dilemmas, or to seek advice on a matter related to compliance with the law and our ethical standards, in full confidence and without fear of retaliation."

Allegations which can be reported include infringement of antitrust or competition law; acts of bribery and corruption; conflict of interest; money laundering; health, safety, security and environment issues; equal opportunity, harassment, substance abuse; sanctions breaking; improper use of intellectual property or IT resources; infringement of data privacy and "theft, fraud, forgery and the abuse of assets".

The same document warns that "misuse of the system to make a false allegation maliciously will not be tolerated and may result in disciplinary action. Attempts to trace an anonymous reporter may be made in these circumstances."

A regional case manager assesses the information reported by a whistleblower and determines the appropriate action to be taken. At the conclusion of an investigation, the local Shell operating company "will decide on what action or actions should result in the event that an allegation has been found to be true."

Unofficial website for whistleblowers: royaldutchshellplc.com can be used as a conduit for whistleblowers at the company, where "...unhappy Shell insiders frequently post on the site’s live chat facility." article.

Corporate communications

Much of Shell's reputation-building advertising concentrated on the embryonic renewable energy business despite the fact that this remains a very 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.

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.

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.

Combination of Royal Dutch and Shell

Shell Research and Technology Centre, Amsterdam

On 28 October 2004, the company announced its proposal to merge Royal Dutch and "Shell" Transport and Trading into one entity, Royal Dutch Shell plc, to be "incorporated in the UK but headquartered and tax resident in the Netherlands". On 28 June 2005 investors in both Shell Transport and Trading and Royal Dutch approved, at their Annual General Meetings, plans to merge the Group's dual-ownership structure and create a single company worth £120bn ($219bn). The new company's primary listing is on the London Stock Exchange and it employs around 122,000 people in 140 countries.

This type of business structure was not legally possible in 1907 when the Group was established, and the unique form of organisation that was then adopted by Shell, although durable, had come under criticism in recent years. Some critics thought that as the two parent companies had separate boards, with separate memberships, this meant that there was a certain amount of (undesirable) independence of each of the companies from the other. Others felt that the real power in Shell lay not with the two parent company boards at all but with the Committee of Managing Directors, which had no legal status but nevertheless took all the key operational decisions. The new organisation structure follows a more conventional business model in line with most other private sector oil companies and most commentators have commented favourably on the change, which they believe will establish a more transparent and accountable corporation. The Committee of Managing Directors is abolished under this new structure; board meetings will be more executive in character, and there will only be one Shell Annual General Meeting each year.

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. London is the headquarters of the downstream and other businesses and services whilst the management of the upstream business is the primary activity in the offices in The Hague.

United States and Canada

Shell service station near Lost Hills, California

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 hitherto 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

Coles Express service station in Clontarf, Queensland

In Australia, retailer Coles Group (then Coles Myer) purchased the rights to the 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.

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