Royal Dutch Shell: Risks in Transnational Markets

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Excerpts...

Shell’s international ventures began early. It entered Malaysia in 1910 to drill an oil well and in 1914, it built Malaysia’s first oil refinery. In 1919, it took control of oil fields in Mexico controlled by Mexican Eagle Petroleum Company. It entered Africa in the 1950s, and started production in Nigeria in 1958. It also had a presence in other African countries such as Algeria, Cameroon, Egypt, Ghana, Libya, Morocco, South Africa, and Tunisia. (Refer to Exhibit IV for countries where Shell’s oil and gas exploration activities are located). .....

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As of 2013, Nigeria was the 13th largest oil producer in the world. All the major oil companies had their operations in the country. Shell had had operations in Nigeria since 1930s through Shell D'Arcy. In the 1950s, Shell started its operations in the Oloibiri oilfield. Till the 1970s, 75% of the oil production was onshore. During the next two decades, Shell ventured into shallow onshore production. Later on, it ventured into deepwater hydrocarbon production. ......

In the U.S., Shell produced oil and gas in the Gulf of Mexico; heavy oil in California; and tight gas and liquids in Louisiana, Pennsylvania, Texas, and Wyoming. The downstream projects included a distribution complex in Southern California, a refinery and petrochemicals facility in Texas, chemicals facility in Louisiana, refinery in California, refinery in the Gulf of Mexico – which was a joint venture – and a refinery in New Orleans. .....

From the turn of the century, oil companies across the world had viewed the Arctic as one of the largest sources of untapped energy. Experts also said that the huge reserves in the Arctic would help ease the global oil supply situation. In 2008, the US Geological Survey released a report stating that oil and gas reserves of 412 billion barrels of oil equivalent were available in the Arctic. This was equal to 13% of the world’s gas reserves and 30% of the undiscovered oil reserves.......

Analysts pointed out that Shell had not gauged the risks and returns related to several projects properly before venturing into those projects. They pointed out that while transnational companies usually found it difficult to operate in emerging markets, Shell was facing problems even in developed countries, which were said to have lower risk compared to emerging markets. They said that these ventures were proving to be a burden on the company and its return on capital was constantly going down. ......

Exhibit I: Shell – Businesses
Exhibit II: Shell – Consolidated Statement of Income
Exhibit III: Royal Dutch Shell – Balance Sheet
Exhibit IV: Shell – Exploration and Production Activities
Exhibit V: Shell in Nigeria
Exhibit VI: Royal Dutch Shell – Capital Investment
Exhibit VII: Shell - Fixed Assets*