Multinational Petroleum Company

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Introduction :-

Royal Dutch Shell plc, commonly known simply as Shell, is a multinational petroleum company of Dutch and British origins. One of the six "supermajors" (vertically integrated private sector oil exploration, natural gas, and petroleum product marketing companies), Shell was listed as the world's largest corporation for 2009 by Fortune and world's second largest corporation by Forbes.The company's headquarters are inThe Hague with its registered office in London

History: -

The Royal Dutch/Shell Group is unique among the world's oil majors. It was formed from the 1907 merger of the assets and operations of the Netherlands-based Royal Dutch Petroleum Company and the British-based Shell Transport and Trading Company. It is the world's biggest and oldest joint venture. Both parent companies trace their origins to the Far East in the 1890s.

Marcus Samuel inherited a half share in his father's seashell trading business. His business visits to the Far East made him aware of the potential for supplying kerosene from the newly developing Russian oilfields around Baku to the large markets in China and the Far East for oil suitable for lighting and cooking. Seeing the opportunity for exporting kerosene from the Black Sea coast through the recently opened Suez Canal to the Far East, Samuel invested in a new tanker, the Murex. In 1892, the Murex delivered 4,000 tons of Russian kerosene to Bangkok and Singapore. In 1897, Samuel formed the Shell Transport and Trading Company, with a pecten shell as its trademark, to take over his growing oil business.

At the same time, August Kessler was leading a Dutch company to develop an oilfield in Sumatra in the Dutch East Indies. In 1896 Henri Deterding joined Kessler and the two began building storage and transportation facilities and a distribution network in order to bring their oil to market.

The expansion of both companies was supported by the growing demand for oil resulting from the introduction of the automobile and oil-fuelled ships. In 1901 Shell began purchasing Texas crude, and soon both companies were engaged in fierce competition with John D.Rockefeller's Standard Oil. Faced with the might of Standard Oil, Samuel and Deterding (who had succeeded Kessler as chairman of Royal Dutch) began cooperating, and in 1907 the business interests of the two companies were combined into a single group, with Royal Dutch owning a 60 percent share and Shell a 40 percent share (a ratio that has remained constant to this day).

Organisational Structure of Royal Dutch Shell Plc: -

Shell's uniqueness stems from its structure as a joint venture and from its internationality - it has been described as one of the world's three most international organizations, the other two being the Roman Catholic Church and the United Nations. However, its organizational structure is more complex than either of the other two organizations. The structure of the Group may be looked at in terms of the different companies which comprise Royal Dutch/Shell and their links of ownership and control, which Shell refers to as governance responsibilities. The Group's structure may also be viewed from a management perspective - how is Royal Dutch/Shell actually managed? The day-to-day management activities of the Group, which Shell refers to as executive responsibilities, are complex, and the structure through which the Group is actually managed does not correspond very closely to the formal structure.

From an ownership and legal perspective, the Royal Dutch/Shell Group of Companies comprised four types of company:

  • The parent companies. Royal Dutch Petroleum Company N.V. of the Netherlands and the Shell Transport and Trading Company plc of the UK owned the shares of the group holding companies (from which they received dividends) in the proportions 60 percent and 40 percent. Each company had its shares separately listed on the stock exchanges of Europe and the US, and each had a separate Board of Directors.
  • The group holding companies. Shell Petroleum N.V. of the Netherlands and The Shell Petroleum Company Ltd of the UK held shares in both the service companies and the operating companies of the Group. In addition, Shell Petroleum N.V. also owned the shares of Shell Petroleum Inc. of the US - the parent of the US operating company, Shell Oil Company.
  • The service companies. During the early 1990s, there were nine service companies located either in London or The Hague. They were:
    • Shell Internationale Petroleum Maatschappij B.V.
    • Shell Internationale Chemie Maatschappij B.V.
    • Shell International Petroleum Company Limited
    • Shell International Chemical Company Limited
    • Billiton International Metals B.V.
    • Shell International Marine Limited
    • Shell Internationale Research Maatschappij B.V.
    • Shell International Gas Limited
    • Shell Coal International Limited

The service companies provided advice and services to the operating companies but were not responsible for operations.

• The operating companies (or "opcos") comprised more than 200 companies in over 100 countries (the 1993 annual report listed 244 companies in which Shell held 50 percent or more ownership). They varied in size from Shell Oil Company, one of the largest petroleum companies in the US in its own right, to small marketing companies such as Shell Bahamas and Shell Cambodia. Almost all of the operating companies operated within a single country. Some had activities within a single sector (exploration and production (E&P), refining, marketing, coal, or gas); others (such as Shell UK, Shell Canada, and Norske Shell) operated across multiple sectors.

Leadership And Management Structure :-

Managerial control of the Group was vested in the Committee of Managing Directors (CMD), which forms the Group's top management team. The Committee comprised five Managing Directors. These were the three-member Management Board of Royal Dutch Petroleum and the Chairman and Vice Chairman of Shell Transport and Trading. The chairmanship of CMD rotated between the President of Royal Dutch Petroleum and the Managing Director of Shell Transport and Trading. Thus, in 1993, Cor Herkstroter (President of Royal Dutch) took over from J. S. Jennings (Managing Director of Shell Transport and Trading) as Chairman of CMD, and Jennings became Vice Chairman of CMD. Because executive power was vested in a committee rather than a single chief executive, Shell lacked the strong individual leadership that characterized other majors (e.g., Lee Raymond at Exxon and John Browne at BP). The CMD provided the primary linkage between the formal (or governance) structure and the management (or executive) structure of the Group. The CMD also linked together the two parent companies and the group holding companies.

The combination of diffused executive power at the top together with operating authority and financial responsibility dispersed through nearly 250 operating companies meant that, compared with every other oil major, Shell was highly decentralized. However, the technical and economic realities of the oil business limited the autonomy of each operating company - interdependence resulted from linkages between upstream and downstream, between refining and chemicals, and from common financial and technological needs. It was the job of the service companies to provide the necessary coordination. During the early 1960s, Shell created, with the help of McKinsey & Company, a matrix structure within its service companies to manage its operating companies. This structure was viewed as a critical ingredient of Shell's ability to reconcile the independence of its operating companies with effective coordination of business, regional, and functional commonalties.

The three dimensions of this matrix were represented by the principal executives of the service companies, who were designated "coordinators." Thus, the senior management team at the beginning of 1995 included the following:

Committee of Managing Directors

  • Chairman
  • Vice Chairman
  • Three other Managing Directors

Principal executives of the service companies

  • Regional coordinators:
    • Europe
    • Western Hemisphere and Africa
    • Middle East, Francophone Africa, and South Asia
    • East and Australasia
  • Sector coordinators:
    • Chemicals Coordinator
    • Coal/Natural Gas Coordinator
    • Metals Coordinator
    • President - Shell International Trading
    • Marine Coordinator
    • Supply and Marketing Coordinator
  • Functional coordinators:
    • Director of Finance
    • Group Treasurer
    • Group Planning Coordinator
    • Manufacturing Coordinator
    • Group HR and Organization Coordinator
    • Legal Coordinator
    • Group Public Affairs Coordinator
    • Group Research Coordinator
    • Director of the Hague Office
    • Director of the London Office

Corporate And Social Responsibility:-

Shell companies recognise five areas of responsibility. It is the duty of management continuously to assess the priorities and discharge these inseparable responsibilities on the basis of that assessment.

a. To shareholders

To protect shareholders' investment, and provide a long-term return competitive with those of other leading companies in the industry.

b. To customers

To win and maintain customers by developing and providing products and services which offer value in terms of price, quality, safety and environmental impact, which are supported by the requisite technological, environmental and commercial expertise.

c. To employees

To respect the human rights of our employees and to provide them with good and safe working conditions, and competitive terms and conditions of employment.

To promote the development and best use of the talents of the employees and create an inclusive work environment where every employee has an equal opportunity to develop his or her skills and talents.

To encourage the involvement of employees in the planning and direction of their work and provide them with channels to report concerns.

d. To Partner:-

To seek mutually beneficial relationships with contractors, suppliers and in joint ventures and to promote the application of these Shell General Business Principles or equivalent principles in such relationships. The ability to promote these principles effectively will be an important factor in the decision to enter into or remain in such relationships.

e. To society

To conduct business as responsible corporate members of society, to comply with applicable laws and regulations and support fundamental human rights in line with the legitimate role of business and also give proper regard to health, safety, security and the environment.

New Strategy For Changing Times :-

Shell is taking a discreet and sensible approach. Long-term oil and gas fundamentals remain positive, but the industry is facing a sharp downturn in energy prices at a time when costs are high by historical standards.

Jeroen van der Veer, Royal Dutch Shell's Chief Executive, commented:

"These are testing times in the oil and gas industry. Whilst short-term measures are important, we keep our long-term perspective, and continue to believe that energy needs over the long term provide a positive context for Shell's investment programmes today."

Shell launched very few new projects in 2007-08, to avoid the peak in the cost cycle.

This pause, combined with Shell's global scale, gives new opportunities to reduce supply chain costs ahead of launching new projects.

Shell has balance sheet flexibility to maintain investment and grow dividends in the downturn, and to fund future growth projects. Shell makes long-term investments to create long-term shareholder value.

Fossil fuels will likely remain the world's main energy source for many decades to come, but at the same time, sustainable, clean and convenient energy sources will increasingly be needed to meet growing demand. It is estimated that 7% of all fuel will be from sustainable sources by 2030 - a volume equivalent to about two million barrels of oil a day. Shell is helping create suitable and sustainable alternatives for both fuel and power through scientific and technological research and developments in such areas as wind, biomass, hydrogen and solar - often by partnering with companies whose specialised know-how can be added to its own to accelerate the process. Shell aims to drive down the cost of alternative energy sources and help overcome other practical hurdles to them and making them more widely available.

Shell is a pioneer in developing hydrogen, the simplest element in the universe (it has only one proton) and the most plentiful gas on earth. But hydrogen doesn't occur naturally in its pure form. It is mostly present in combination with oxygen (H2O - water), nitrogen (NH3 - ammonia) or carbon (CH4 - natural gas), and special processes are required to extract hydrogen out of these materials.

The most common way of producing hydrogen is from natural gas via a steam reforming process. This uses steam to convert methane (and other hydrocarbons in natural gas) into hydrogen and carbon. Around half of the world's hydrogen is produced in this way. Hydrogen can also be produced from water, where it's extracted through electrolysis. This process uses electricity and a catalyst to separate the hydrogen from the oxygen in water. It can then be captured and stored as a fuel, for example compressed and stored as a gas, or cooled and stored as a liquid. There are also lots of other options being explored by industry for producing hydrogen.

Stored hydrogen can then be converted to energy via hydrogen fuel cells. It's not yet practical to have fuel cells for home energy conversion, but it can be for cars. In hydrogen fuel cell vehicles, an electric motor powers the wheels. A chemical reaction inside the fuel cell - usually between hydrogen and oxygen - creates electricity for the motor, and the only resulting tailpipe emission from the vehicle is water vapour.

The technology focus at Shell is on learning as much as possible about hydrogen refuelling and how to meet future customer needs. This means hydrogen will initially be obtained mainly from natural gas, but ultimately it is expected to produce hydrogen from renewable sources, such as wind and solar and ultimately by biomass. The wide introduction of hydrogen technology based on natural gas will already substantially reduce greenhouse gas emissions. Where hydrogen is produced from renewable sources it will truly lead to zero emissions power, and that remains the ultimate goal