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Royal Dutch Shell plc/Koninklijke Nederlandse Shell NV is a multinational oil company , of Anglo Dutch origins, which is amongst the largest energy corporations in the world, and one of the six "supermajors" (vertically integrated private-sector oil, natural gas, and petrol companies), along with BP, ExxonMobil, Chevron, ConocoPhillips and Total. The company primarily explores, produces, transports, refines, stores, markets, distributes, and retails petroleum products. 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 and London, its tax residence is in the Netherlands, and its primary listings on the London Stock Exchange and Euronext Amsterdam.

Shell's revenues of $306.73 billion (2005) made it the third-largest corporation in the world by turnover in 2005 and its profits of $25 billion made it the world's second most profitable business in terms of gross profits, the Forbes Global 2000 ranks it as the seventh-largest company in the world. Shell operates in over 140 countries worldwide, and its largest revenues come from the United States. Its subsidiary in the U.S., Shell Oil Company, has its head office in Houston, Texas.

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 merged their operations to compete against the then-giant American oil company, Standard Oil. Prior to unification, the group operated under a number of operating and shareholder agreements.

Royal Dutch Petroleum Company was a Dutch company founded in 1890 by Jean Kessler, along with Henri Deterding and Hugo Loudon, when a Royal charter was granted by Dutch queen Wilhelmina to a small oil exploration company known as "Royal Dutch".

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.

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 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.

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

Shell is the world's third-largest publicly traded oil company based on revenues (after BP and ExxonMobil) and the second most profitable (after ExxonMobil).Fortune Global 500 2004.

Origin of the name and logo

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 realised 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 of oil tankers.

The Shell emblem 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 logo was designed by Raymond Loewy and introduced in 1971.

Businesses

One of the original Seven Sisters, Royal Dutch/Shell is the world's third-largest oil company by revenue, and a major player in the petrochemical industry and the solar energy business. Shell has six core businesses: Exploration and Production, Gas and Power, Downstream, Chemicals, Renewables, and Trading/Shipping, and operates in more than 140 countries. Around the world, Shell has a high customer loyalty rate due to its high quality of fuels. (Only Chevron and BP have such high rates in the US.) In fact, after its introduction of its reformulated premium unleaded gasoline known as V-Power (called Optimax in the UK and Australia) in 2004, it quickly surpassed BP Ultimate (known as Amoco Ultimate in the US, but still sold at BP stations) as the best-selling premium unleaded fuel in the world.

Shell’s primary business was, and 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. 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.

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 disposed of. In recent years Shell has moved tentatively into alternative Energy with 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.

Texaco

In 2001, the Federal Trade Commission (FTC) demanded that Texaco, in order to merge with Chevron Corporation, sell 13,000 Texaco service stations and several refineries, including its stakes in Equilon (to Shell) and Motiva (three refineries; to Shell and Saudi Aramco, 50/50 joint venture).

Shell used Texaco brand exclusively in the U.S. through 2004, and non-exclusively through June 2006. Chevron now owns full U.S. rights to the Texaco moniker.

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 (e.g. Shell Canada) 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.

Even now, likely for tax reasons, the company's shares are divided into two classes, A and B, representing the former Royal Dutch and Shell shares respectively.

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.

An original investor, and the largest single shareholder in Royal Dutch Shell, is the holding company owned by the Dutch Royal Family, which was set up by Queen Wilhelmina of the Netherlands.

Management

On 4 August 2005, the board of directors of Royal Dutch Shell plc announced the appointment of Jorma Ollila, currently Chairman and CEO of Nokia, to succeed Aad Jacobs as the company’s non-executive Chairman from 1 June 2006. Ollila will be the first Shell Chairman to be neither Dutch nor British.

Environmental and reputational issues

Over the years Shell has been criticized by environmental and human rights groups for a number of its operations, especially in South Africa and Nigeria.

South Africa

During the 1980s Shell was accused by anti-apartheid activists of supporting and sustaining the apartheid regime while pursuing business opportunities in the Republic of South Africa. Annual General Meetings of the two Group holding companies were disrupted by protesters and Shell was also accused of sanctions breaking. Shell always argued that unlike other multinationals who withdrew (e.g. Mobil), it could be more of a force for good by staying in the country than by leaving.

Nigeria

Shell operates a joint venture with the government in Nigeria under the name Shell Petroleum Development Company (SPDC). In the early 1990s, Ken Saro-Wiwa, president of the Movement for the Survival of the Ogoni People (MOSOP), led a non-violent campaign against environmental damage associated with the operations of multinational oil companies, including Shell and British Petroleum, in the Ogoni homelands of the Niger delta. In January 1993, MOSOP organised peaceful marches of around 300,000 Ogoni people – more than half of the Ogoni population – through four Ogoni centres, drawing international attention to his people's plight. That same year, Shell ceased operations in the Ogoni region. Shell's involvement in Nigeria came to the fore again in October 1990 when a peaceful protest in Unchem escalated. Eighty people were killed by the police and 495 homes were destroyed. Shell states that it merely asked for police protection. In 1995 Ken Saro-Wiwa and eight others were executed. Ken Saro-Wiwa had implicated Shell during his “treason” trial by saying “…the ecological war that * has waged … will be called to question sooner than later and the …crime of the Company's dirty wars against the Ogoni people will also be punished.” Shell was also found to be providing money and supplies to the Nigerian military.Sierra Club, "Defending Those Who Give The Earth A Voice", 2000. When Saro-Wiwa was executed on trumped-up charges, some of the world-wide condemnation of the act was aimed at Shell, which was implicated by association.

Shell has continued to be condemned by bodies such as Christian Aid, who reported that despite Shell claims of "honesty integrity and respect for people" it had "failed to use its considerable interest in Nigeria to bring about change in the Niger delta".Christian Aid, Behind the Maskhttp://www.christian-aid.org.uk/indepth/0401csr/csr_casestudy1nigeria.pdf The report also found evidence of failures to clean up oil spills, pollution of rivers and water courses, and non-completion of promised projects for community improvement. In 2001 a study into the community projects was leaked to The Economist. It reported that of 81 projects visited by the reviewers of the scheme, 20 did not exist, 36 were partially successful and 25 were working.

Brent Spar

Shell was also challenged by Greenpeace for plans for subsea disposal of the Brent Spar, an old oil transport and hub station located in the North Sea, into the North Atlantic. Shell eventually agreed to disassemble it onshore in Norway, although it has always maintained that its original plan to sink the platform was safer and better for the environment.

On disposal, it was proved that the Greenpeace claims for toxic content were wrong.

Canada

In Canada, Shell Canada settled a lawsuit in which an additive in their gasolines created problems on fuel gauges, especially in automobiles produced by DaimlerChrysler.

Ireland

In Ireland, Shell has drawn criticism by attempting to pipe unrefined gas from the Corrib Gas Field onshore and to refine it at a plant in north County Mayo, through private property. This was in line with the plans agreed by Enterpise Oil, whom Shell took over. In the summer of 2005, five people were sent to prison for three months on the basis of an injunction obtained by the company. They became known as the "Rossport Five".

There has been opposition to the Irish government's decision to allow the consortium of companies led by Shell to keep profits from the enormous Corrib Gas Field, although as usual for such fields, the vast majority of proceeds will be taken as tax.

Oil and gas reserves recategorisation

The announcement on 9 January 2004 by the Royal Dutch Shell Group of the downgrading of its hydrocarbon reserves drew fire from shareholders, financial analysts, the media (e.g. news report 20 April 2004) and the U.S. Securities and Exchange Commission (SEC) after announcing the recategorization of its hydrocarbon reserves, admitting that a significant share of reserves previously booked as proven did not fulfill the requirements for proof under the US regulatory provisions. According to the SEC Cease and Desist Orderof 24 August 2004, Shell overstated proved reserves reported in its 2002 Form 20-F by 4.47 billion barrels of oil equivalent (boe), or approximately 23%. The order further concludes that Shell also overstated the standardized measure of future cash flows reported in this filing by approximately $6.6 billion. Shell corrected these overstatements in an amended filing on 2 July 2004, which reflected the degree of Shell's overstatements for the years 1997 to 2002. At the time of announcing the order against Shell, the SEC simultaneously made known its intention to "pin the reserves scandal on individuals" reportedly stating that it intended to take action against people inside and outside the company.

Shell's Annual Report and Accounts 2003 restated proven reserves reduced by 6.648 mn USD in 2001 and reduced by 6.469 mn USD in 2002. This corresponds to roughly 13% of the previous proven reserves base. In addition, it was identified that in previous years leading management's bonus payments were linked to the proven reserves base. This practice has since been discontinued. The controversy over the exaggeration of the oil and gas reserves of Shell resulted in the resignation of the then chairman Sir Philip Watts, and the departure of the head of the Exploration and Production business Walter van der Vijver and the CFO Judy Boynton.

As a further consequence of the reserves recategorisation, on 19 April 2004, Bloomberg reported that the Royal Dutch/Shell Group had lost its AAA credit rating with Standard & Poor's which it had previously maintained for 14 years.

On 24 August 2004, the UK financial regulator, the Financial Services Authority (the FSA) announced that it had imposed a penalty of £17 million pounds (UK) on The “Shell” Transport and Trading Company P.l.c. and The Royal Dutch Petroleum Company NV.

In January 2006, Shell was also sued by a group of Dutch pension funds allegedly holding about 5% of Shell's shares*.

Sustainable development

On 17 June 2004, Shell chairman Lord Oxburgh made a statement to The Guardianhttp://www.guardian.co.uk/climatechange/story/0,12374,1240566,00.html that in the face of the threat of global warming he was "really very worried for the planet”. As a remedy he proposed the practise of carbon sequestration, which involves removing carbon dioxide from the atmosphere and burying it underground (putting it back where it came from). "Sequestration is difficult, but if we don't have sequestration then I see very little hope for the world", he said. Lord Oxburgh's comments were consistent with Shell's stated commitment to sustainable development, which was a key part of the reputation building efforts that the group undertook after Brent Spar.

Sakhalin

Sakhalin-II is an oil and gas project led by Shell on Sakhalin Island in Russia that involves the piping of oil and gas to an oil terminal and the construction of Russia's first liquefied natural gas LNG plant. The project has been controversial from the start for cost, environmental and community relations reasons. In the summer of 2005 “Sakhalin Energy”, the project operator, doubled its estimated capital costs to around $20 billion and LNG production was delayed until 2008. Shell expressed “surprise” at this huge increase. Environmental reasons accounted for part of the budgetary errors. Pipeline routes from the platforms to the island had to be changed to avoid the feeding grounds of an endangered species of whale and redesign was needed to prevent the onshore pipelines from damaging the environment. The local community on the island has protested about damage to fishing and to reindeer herding, their most important economic activities.

The environmental and social concerns came to a head at the end of November 2005 when the Chief Executive of WWF, Robert Napier, said that it would have a "negative impact on Sakhalin's people and environment". The timing of this attack was difficult for Shell and the other consortium partners as they were seeking financing for the project from the European Bank for Reconstruction and Development (EBRD) at that time. WWF has asserted that Sakhalin-2 threatens marine life as well as potentially damaging the local communities in the region. The EBRD is required to adhere to the "Equator Principles" that require all lendings it makes to meet ethical guidelines. Shell has commented on WWF's assertion by saying that the project meets lenders' policies and that environmental and social issues have been met.http://www.wwf.org.uk/filelibrary/pdf/bu_riskybusiness.pdf

Combination of Royal Dutch and Shell

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". The new parent company's primary listing will be on the London Stock Exchange. 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 now operates in 140 countries and employs around 122,000 people.

The type of business structure now to be created 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" (CMD), which had no legal status but nevertheless took all the key operational decisions. The new organisation structure follows a more conventional business model (e.g. 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 CMD is abolished under this new structure, board meetings will be more executive in character, and there will (now) only be one "Shell" AGM each year.

Royal Dutch Shell plc domain name oversight

Due to an oversight, Shell failed to register the top level internet domain name for the new company, royaldutchshellplc.com. In May 2005 it launched proceedings via the World Intellectual Property Organization to request the transfer of the domain name, along with two other domain names relating to Shell including royaldutchshellgroup.com, from their holder, Alfred Donovan, a former marketing consultant to Shell. However, Shell lost the casehttp://arbiter.wipo.int/domains/decisions/html/2005/d2005-0538.html and Donovan retains the domain name registrations, which he uses on two websites, the first to publish extracts from and personal views on news articles relating to Shell in the international media, and the second expressing his critical views on a number of aspects of Shell's operations.Critic Alfred Donovan's personal "Shell" websiteshttp://royaldutchshellplc.com and http://shellnews.net/

Pioneering use of the Internet: The "Tell Shell Forum"

The Royal Dutch Shell Group was the first multinational to set up an online discussion facility for its stakeholders and the public to engage in open debate about its activities: the "Tell Shell Forum". This was a farsighted innovation years before the advent of the blog sites which now proliferate on the Internet. On June 07, 1999, Mr. John Hofmeister, Shell’s then Director of Human Resources, confirmed in a posting on the Forum that “We genuinely do welcome all comments, positive and negative. We also believe that employees must be able to speak out without fear of rebuke or retribution. This website is in itself evidence that we are interested in seeking your views and willing to listen and respond.” (Mr. Hofmeister is now President of Shell Oil Company in the USA). The intention to provide a censorship free forum was confirmed in a posting made on the Tell Shell Forum by Claire Harris of Shell International Petroleum Company on 16 November 1999, under the subject heading of “Uncensored forums”. Extracts from these postings can be read in a prophetic article by Shell critic Alfred Donovan posted on his website, "the Tell Shell Forum" on 25 October 2005 shortly before the Forum in its “blog” form was suspended. At some point the censorship free policy changed. Shell now admits a policy of censorship of the Forum. The Donovan article goes further by alleging that secret censorship has taken place on the Forum. The Tell Shell Forum in its "Blog" form remains suspended. In May 2006, it was reported that Shell intends to appoint a digital agency with "experience in turning around corporate reputations" (Campaign Magazine: "Shell seeks agency for online makeover").

Profit announcement

On 2 February 2006 the company released details of its profits. It broke the record for the greatest annual profit for a British or Dutch company, with a total of £13.12bn (approximately 24.5 billion USD or 27.14 billion CAD), up by a third from the previous year. This met with controversy throughout Europe with high petrol prices being blamed, though most of their profits actually come from the sale of oil that they have found and extracted.http://news.bbc.co.uk/1/hi/business/4672716.stm

See also

Further reading

References

External links

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