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The Royal Dutch Shell is a worldwide group of energy and petrochemical company which helps meet need of the world's growing demand for energy in environmentally, economically and socially responsible ways. Shell is engaged in the principal activities of oil and natural gas industry. The "Shell Brand" name has enjoyed a 100 year history in this part of the world till date. It is committed to dedicate all its energies, resources and time to bring about higher value and satisfaction to its customers, employees and shareholders.
The assessment of needs and wants of customers is an ongoing process which has helped in the continual development of new products and services. The Royal Dutch Shell is serving the people at high standard by going according to customers wishes. This paper discusses the Royal Dutch Shell Plc looking into its operations, the company background, and history. It aims at identifying the SWOT analysis of the company, the competitors, their products and services looking into their marketing and expansion strategy and the financial analysis of the company.
2.0 History of Royal Dutch Shell
Royal Dutch Shell PHYPERLINK "http://en.wikipedia.org/wiki/Public_limited_company"lc which is commonly known as Shell, is a multinational petroleum company created in February 1907 when Shell Transport and Trading Company Ltd of the United Kingdom merged their operation with the Royal Dutch Petroleum Company. The term of the merger gave sixty percent of the group to the Dutch arms and Forty percent to the British. The reasons of the merger then were stimulated by the need to compete globally with other competitors. Shell is registered in the United Kingdom 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). Royal Dutch Shell Plc is a parent company which owns directly or indirectly investments in numerous companies which constitutes a group.
Royal Dutch Shell plc is a group of energy and petrochemical companies with about 102,000 employees in more than 100 region of a country. It is involved in marketing and shipping of oil products and chemicals, natural gas and electricity, gas and oil exploration and production. Royal Dutch Shell revenue increased by $15 Billion than Exxon Mobil which resulted, Shell to be listed as the world's largest corporation for 2009 by Fortune and world's second largest corporation by Forbes. The company also has interests in renewable sources of energy such as wind and solar and hydrogen. Shell has helped improved the world's growing demand for energy in economically, environmentally and socially responsible ways. Their strategy and priorities for the future are "profitable downstream and more upstream while their core values of integrity, respect for people and honesty form the basis of the Shell General Business Principles.
The company operates on a five business segments which are namely:
The Exploration and production business searches for and recovers oil and natural gas globally.
The gas and power business liquefies natural gas and transports it to customers. Its gas to liquids (GTL) process turns natural gas into cleaner- burning synthetic fuel and other various products.
The oil sands business extracts bitumen and converts it to synthetic crude oils which can be turned into a wide range of other products.
The oil products business makes moves and sells a range of different petroleum- based products globally for domestic, transport and industrial use.
The chemical business produces petrochemicals for the industries and customers.
3.0 Board of Directors in the Royal Dutch Shell plc
Shell has an Executive Committee that operates under the leadership of the Chief Executive Officer who is responsible for Royal Dutch Shell's overall business and affairs. The Executive Committee comprises of Peter Voser who is the Chief Executive Officer (CEO) of Royal Dutch Shell plc (RDS), before his appointment as CEO with effect from July 1, 2009, he was the Chief Financial Officer (CFO) and Executive Director of RDS since 2004 and from October 2004 up to July 2005 was CFO of the Royal Dutch/Shell Group of Companies; others include Simon Henry who became Chief Financial Officer on May 1, 2009, and was appointed an Executive Director with effect from May 20, 2009; Malcolm Brinded became Executive Director of the Upstream International business with effect from July 1, 2009; Marvin E. Odum became Director of the Upstream Americas business with effect from July 1, 2009. He continues as President of Shell Oil Company (SOC); Matthias Bichsel became Director of the Projects & Technology business with effect from July 1, 2009; Mark Williams became Downstream Director with effect from January 1, 2009; Hugh Mitchell became head of the Human Resources & Corporate function with effect from July 1, 2009 and Beat Hess who was appointed Legal Director of Royal Dutch Shell plc in 2003. The Chief Executive Officer has final authority in all matters of management that are not within the duties and authorities of the Board or of the AGM. The Executive Committee assists the Chief Executive Officer and implements all Board resolutions and supervises all management levels in Royal Dutch Shell. Royal Dutch Shell has a single-tier Board of Directors chaired by Jorma Ollila. The executive management is led by the Chief Executive Officer, Peter Voser. The members of the Board of Royal Dutch Shell plc meet regularly to discuss reviews and reports on the business and plans of Royal Dutch Shell (Shell Annual report, 2008).
The Main Competitors of Royal Dutch Shell Plc.
The BP which is also Beyond Petroleum. This is the world's third-largest integrated oil concern, behind Exxon Mobil and Royal Dutch Shell. BP explores for gas and oil in 29 countries and has total reserves of 18.2 billion barrels of oil. BP is the largest oil and gas producer in the US and also a top refiner, processing more than 3.8 million barrels of crude oil per day. BP markets its products in more than 100 countries and operates more than 24,000 gas stations worldwide.
Exxon Mobil is the world's largest integrated oil company ahead of Royal Dutch Shell and BP. It engages in oil and gas exploration, production, supply, transportation, and marketing worldwide and has proved reserves of 12.8 billion barrels of oil equivalent, as well as major holdings in oil sands through Imperial Oil. Exxon Mobil's 37 refineries in 20 countries have a throughput capacity of 6.2 million barrels per day. The company supplies refined products to more than 28,600 gas stations in 100 countries. It is also a major petrochemical producer.
Lastly, the third major competitor is TOTAL which does it all. It is one of the world's largest integrated oil companies, it explores for, develops, and produces crude oil and natural gas; refines and markets oil; and trades and transports both crude and finished products. Operating in more than 130 countries, the company has reserves of 10.5 billion barrels of oil equivalent. It has interests in 25 refineries (and directly operates 12) and about 16,500 gas stations, primarily under the TOTAL and Elf brands, mostly in Europe and Africa. TOTAL's chemical units produce polymers, monomers, petrochemicals, and specialty chemicals such as adhesives, inks, paints, resins, and rubbers. It also has interests in coal mining, power generation and LNG production.
Marketing and Expansion Strategy
Shell is a worldwide company with operations in over 140 countries. Since the organisation is reliant on any single market for its revenues, it is not influenced by fluctuations in any one of the markets, thus resulting in stable revenues and good margins. Royal Dutch Shell centres on expansion of its marketing and refining operations, especially in the growing markets of Asia Pacific with the inclusion of China and Singapore and also expanding the refining capacity of LNG Plants. The Royal Dutch Shell has come to be the principal lubricant manufacturing company in China through the acquisition of one of the largest lubricant manufacturers in the country. The organisation is also spreading out its refining operations in the U.S. through the expansion of the refining capacity of its centre in Port Arthur. Royal Dutch Shell's recent expansion strategy is to remove low-potential-growth segments and concentrate on high-potential sectors and investments. Examples, in 3Q07 were a profitable one; the organisation sold various facilities in France, Austria, and Australia, and increased their joint operations in the Pluto LNG fields in Australia and Port Arthur, also concentrating on expansion in Russia. Shell is increasing its capacity to manufacture natural gas by putting up more LNG plants in Nigeria, Malaysia, Australia, Oman and Brunei and making use of the increasing demand. With world's energy demand rising faster than the world's oil and gas production, Royal Dutch Shell is looking out for alternative methods of production. For example, the investment of $739 million in an Australian coal seam gas project belonging to the Arrow Energy Ltd. Shell will also buy ten percent of Arrow as part of the deal. Shell has made a group of acquisitions in become greater in size and also expanding its operations across various parts of the region. The organisation announced on the 21st of September, 2007 that its Motiva Enterprises subdivision would invest $7 billion together with Saudi Arabia to expand a Port Arthur refinery and by 2010, have an output of six hundred thousand barrels per day (600,000 b/d). The company spent $2.1 billion in the first quarter of 2008 whilst bidding on over 270 blocks of reserves in the Chukchi Field off the Alaskan coast (Shell Annual report, 2008).
Shell announced in July, 2008 that it would get the Canadian Duvernay Oil Corp for $5.85 billion; this is a 42% premium on the organisation's share price (Shell Annual report, 2008). The transaction will give Shell right to Alberta's tar sands though Devernay's primary production thus far has been natural gas. Shell is able to control the entire supply chain as a vertically integrated company which improves the operational efficiency of the company. Owing to its direct access to customers through its retail gas stations, it does not need to pay any commissions to intermediaries that in turn increase the profitability of the company, hence leading to higher revenues and profit margins (Shell Annual report, 2008).
Royal Dutch Shell SWOT Analysis
The Research into biofuels, wind power, solar power and energy from hydrogen helps the organisation diversify in a market where ecological issues are of increasing concern, and also help address the issues of longevity of fossil fuel reserves.
Shell has made used of opportunities to produce strategic partnerships, e.g. supplying CO2, which is a by-product of its refinery process, to Dutch tomato farmers who previously used heaters which is a higher CO2 concentration in greenhouses accelerates tomato growth.
Shell originated the use of scenarios, a planning tool where various possible future situations are explored and strategy are adapted to make sure future demands can be met. The organisation has worked hard to improve its overall reputation and believes it is now seen more positively than before
Shell has maintained a wider portfolio of products and spreading risk by diversifying into products such as fuel cards and credit cards has helped. Also its recent investments in exploration will help ensure continued activity over coming decades.
Shell up to date uses the technique of flaring and burning gas from oil extracting sites as a method of dealing with unwanted by-products of its operations which is regarded as environmentally unacceptable by many.
The organisation's strong focus on oil and gas needs it to search continually for replacement supplies and exploration is a high-cost element of its operations. Shell is said to be reviewing involvement with a wind power development near Blackpool, bringing up questions as regards its commitment to alternative energy sources.
The organisation has a strong presence in Nigeria, but this area is politically volatile and operations are filled with security problems for staff and attacks on production. Shell may be forced to withdraw, compromising its network of resources and threatening its competence to satisfy production obligations.
The company has been able to move into parts rich in reserves that were formerly too risky to operate in e.g. Iraq. Also new oil and gas reserves are still being found, and there is the potential to find more.
The emerging economies have a great and growing demand for fossil fuels. And the diversification into new products and alternative fuels can bring up new markets.
Shell's active response to criticisms of environmentally unfriendly activities can result into less antagonistic relationships with environmental groups.
Political issues in some areas like Nigeria can threaten operations. A court order has requested that Shell hand over a site on the Niger Delta to local ownership
The weather can have significant effects on the production, with refineries particularly hit recently by Hurricane Ike while prices of fuel in recent months have been particularly volatile, at first rising quickly and then falling sharply, bringing down potential profit
The 2008 summer experienced strikes by tanker drivers working for Hoyer, suppliers of Shell, bringing about negative publicity, criticism of Shell's high profits and a supply problem for Shell forecourts.
The economic downturn resulted to a decrease in demand for fossil fuels, possibly caused by changes in driving habits in response to high fuel prices earlier in 2008.
The company recorded revenues of $458,361 million in the financial year ended December 2008 (FY2008), an increase of 28.8% over the financial year ended December 2007 (FY2007). The operating profit of the company was $50,989 million in the FY2008, an increase of 1.1% over FY2007. The net profit was $26,277 million in the FY2008, a decrease of 16.1% compared with FY2007 (Shell Annual report, 2008). It's revenue for the third quarter of 2009 increased by 15% to $75 billion in comparison to the last quarter. Earnings were $3.3 billion, down 62% in comparison to the third quarter of 2008. Earnings were strongly affected by lower refinery margins, lower gas and oil prices. Oil and gas production were almost unchanged as compared to this same period in 2008 at 2,926 thousand boe/d, new field start-ups offset declines in developed fields. The LNG sales volumes were 13% in comparison to the same period to 3.49 million tonnes (Shell Annual report, 2008).
The revenue was up by 9% in the second quarter 2009 as compared to the previous quarter to $63.9 billion while gross profit was down 5.6% to $8.5 billion and total production fell by 13% in comparison to the first quarter of 2009, to 2,882 thousand boe/day (Shell.com, 2009). The fall in production was caused by the security situations in Nigeria. Earnings were down due to high industry costs, excess capacity in the market and weak demand. In the first quarter of 2009, Shell Plc revenues were $58.2 billion down which is 28% in comparisons to the fourth quarter of 2008. However, gross profit has risen to $9 billion which is due to a decrease in the cost of sales of 36% in comparisons to the fourth quarter of 2008. The fall in revenue arose as a result of increased exploration costs, lower oil and gas prices and lower production volume. Revenue was $458.4 at the end of 2008 billion which is an increase of 22% as compared to 2007. However, earnings have been down by 17% which is as a result of a fall in oil prices on inventory in the second half of the year, lower production volume, a fall in refining margins and higher operating costs, (Shell Annual report, 2008).
Products and Services
These are designed to meet the needs of businesses from industry to aviation and chemicals to shipping. They are listed in three categories which are On the Road, Solutions for Businesses and In your House.
a.) On the Road
Card services: e.g. Shell Loyalty; you can save money on shell's fuel with the Shell's Drivers club Loyalty reward.
Fuels: e.g. Shell V- Power which helps enhance driving power delivering superior performance.
Oil and Lubricants: e.g. Shell Helix Ultra motor oils active cleansing which is designed to clean and protect as it protects.
Service Station Locator: you can search for the nearest station near to you.
Shops and services: you can choose to pay from pumps and also grab soft drinks at shops to and fro your journey.
Shell Gas (LPG) for motorist: this gives you access to your own safe mini- filling station for LPG. This is good for companies that run a fleet of vehicles. They can save money with "back to base" solution from Shell Gas (LPG).
b.) Solutions for Businesses
Shell Gas (LPG) for businesses: Shell's people, expertise and advanced technology deliver energy solutions to meet our needs. LPG from shell can be used for so many innovative applications.
Shell Gas Direct: has been supplying natural gas to various businesses across the UK since 1989.
Chemicals: different products that are used everyday in various areas are from raw materials that Shell chemical companies provide.
Shell Automotive: this delivers exceptional service to customers.
Shell Distributors U.K: several distributors provide bulk fuels and lubricants to domestic farming and commercial customers around the U.K.
c.) Shell Gas (LPG) for the Home
They make available a reliable and cleaner burning fuel for our homes.
The oil and gas industry and market is quite complex. Shell engages efficiently, responsible and profitably in gas, oil, chemicals and other businesses. They are actively looking for and development of various sources of alternative energy to meet the needs of the customers and the world's growing demand for energy. In this modern time, competition has hardened with Royal Dutch Shell having several competitors such as the BP, Exxon Mobil and Total Fina Elf. Royal Dutch Shell has continued to maintain a strong distribution channel and a very large market size. Royal Dutch Shell aims at satisfying customers and the people have their brand loyalty. It is seen as a market leader in terms of innovation. For example among there various competitors, Shell was the first company to get the legal right to operate mini-market and also the first to introduce the concept of Mobile Training Unit (MTU) for the purpose of training workers etc. Royal Dutch Shell were also the first to introduce (rainbow) jet wash and (prosper) branded oil change facility.
Shell designs and manages high class information system which helps improves the productivity and decision making of the organisation ahead of its competitors. Overall based on my findings, I think Royal Dutch has made an overall impact in the Oil and gas industry. Lastly, in order to remain competitive in the market they need to introduce some new measures such as developing effective marketing programs which would help increase sales in the organisation thereby increasing market shares and provision of various incentives in the retail outlets to the customers e.g. free oil change on all its outlets. In order to cope with the dynamic environment, Royal Dutch Shell needs to invest more in research and development.