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.
Forbes Global 2000 in 2009 ranked Shell the second largest company in the world, behind General Electric. 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.
The Royal Dutch Shell Group was created in February 1907 when the Royal Dutch Petroleum Company 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.”
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. 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.
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.
Over the years Shell has occasionally sought to diversify away from its core oil, gas and chemicals businesses. These diversifications have included nuclear power; metals and electricity generation. 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.
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