Company Analysis

ShellExpedition to Unlocking the Black Gold…!

Submitted to: Prof. Sanjay Gupta

Submitted by:

Dilip Kumar (20091011)Gaurav Kaushik (20091012)Harshavardhan (20091013)Hetal Patel (20091014)

Executive Summary..............................................................................................................................................3

The Industrial Profile.......................................................................................................................................... 4

Standardization in O&G industry...................................................................................................................5

Reserves/ Numeric status............................................................................................................................ 5

Trends and performance in industry.......................................................................................................6

Company Profile (ROYAL DUTCH SHELL).................................................................................................7

Introduction........................................................................................................................................................ 7

Significant deals in recent past...................................................................................................................9

Profile of competitor (ExxonMobil)...........................................................................................................10

Introduction..................................................................................................................................................... 10

Significant deals in recent past................................................................................................................10

Performance dimensions of Shell and ExxonMobil.............................................................................12

Financial performance.................................................................................................................................12

Cash flow comparison of Shell and ExxonMobil...............................................................................15

Critical analysis on the basis of cash flows.........................................................................................16

Physical Indicators........................................................................................................................................ 16

Technical Expertise....................................................................................................................................... 17

Market presence............................................................................................................................................. 18

Competitive advantage................................................................................................................................19

Distribution...................................................................................................................................................... 20

R&D comparisons.......................................................................................................................................... 20

People Management.......................................................................................................................................... 20

Conclusion............................................................................................................................................................. 23

References:............................................................................................................................................................ 24

Appendix- A........................................................................................................................................................... 25

A1.1 Financial Indicators of the Shell and Exxon.............................................................................25

A1.2: Financial ratios compared in chart for all the financial aspects....................................26

A2. Weighted comparison in context with critical financial factors........................................27

Appendix B............................................................................................................................................................ 28

Locating Shell on the industrial map viz-a-viz Exxon Mobil Page 1

Contents

B1. Shell’s global value chain....................................................................................................................28

B2. Countries with shell retail presence..............................................................................................28

Appendix C............................................................................................................................................................. 29

C1: Cash flow statement of the Shell.....................................................................................................29

C2: Cash flow statement of the Exxon Mobil......................................................................................30

Appendix D............................................................................................................................................................ 32

D1: Global Oil Industry Value Chain......................................................................................................32

D2: Oil Industry Strategic Groups...........................................................................................................32

D3: Appendix for the top50 O&G companies financial performance......................................33

List of Exhibits

Exhibit 1: World energy consumption.............................................................................................................4

Exhibit 2: The past decade prominent discoveries of world..................................................................6

Exhibit 3: The leverage measurement of Shell.............................................................................................8

Exhibit 4: SWOT Analysis of Royal Dutch Shell............................................................................................9

Exhibit 5: SWOT Analysis of ExxonMobil.....................................................................................................11

Exhibit 6: Growth rates in %age.......................................................................................................................12

Exhibit 7: Price ratios of both Shell and Exxon..........................................................................................12

Exhibit 8: Profit margin ratios in %................................................................................................................13

Exhibit 9: Leverage ratios of Shell and Exxon............................................................................................14

Exhibit 10: Investment returns in % for Shell and Exxon.....................................................................14

Exhibit 11: Management efficiency of Shell and Exxon..........................................................................16

Exhibit 12: Total assets and revenue in sales volume of Shell............................................................18

Exhibit 13: Mapping of assets and revenue on same perceptual map............................................18

Exhibit 14: Exports of Shell (2005-09)..........................................................................................................19

Exhibit 15: R&D expenses as a percentage of revenue..........................................................................20

Exhibit 16: revenue/employee, net income/employee.........................................................................21

Exhibit 17: The major 10 professional areas are as follow..................................................................21

Exhibit 18: HR framework employed in Shell............................................................................................22


Executive Summary

This report is focused on the strategic analysis of the Royal Dutch Shell with comparison to

another oil major Exxon Mobil. The consumption of the oil is growing and is never going to

be quenched as examined from the industry analysis. The available reserves, capacity and

demand in the oil and gas industry are studied and the global production value chain is

analyzed.

The profile of Shell and ExxonMobil is studied in terms of financial, physical and other

indicators. Analysis shows that Shell has a formidable internal structure but have some

incompetency in the external strategies. In the financial analysis indicates, Shell is found

strong in some areas like leverage ratios but lost to Exxon in profitability and the

management efficiency. The other factors analyzed are market presence, distribution

networks, R&D and technological expertise. The HR strategies of both the companies are

analyzed and frameworks for HR are studied revealing that Shell has a strong HR

management with strong training and development methods.

The strategic positions of the Shell and Exxon are found to be the same but the opinion is

that Shell should consider is to diversify in to the other strategic groups to yield a fruitful

result. The grey areas of Shell strategy like political lapses need to be considered to grow

faster, efficiently and effectively to compete with the majors like BP and Exxon Mobil.

Word Count (228)


The Industrial ProfileThis is the legendary industry and is serving the fuel cravings of the globe since a century.

This is none other than the giant Oil and Gas industry. The population of the world

continues to grow, as does the average standard of living, increasing demand for food,

water and energy and placing increasing pressure on the environment. The population of

the world doubled from 3.2 billion in 1962 to 6.4 billion in 2005 and is forecast to grow to

9.2 billion in 2050. Supplies of oil, gas, coal and uranium are forecast to peak as reserves

are depleted. At the same time, fear of climate change is putting pressure on the energy

sector to move away from carbon burning to nuclear, solar and other environmentally

friendly energy sources. Oil accounts for between 34% and 37% of the world's primary

energy. Components of crude oil are feedstock to the chemicals, plastics and fertilizer

industries. The petroleum and natural gas sector which includes transportation, refining

and marketing of petroleum products and gas constitutes over 15 per cent of the GDP.

The following exhibit1 clearly shows that the demand for the energy is expected to grow

linearly in the future and the dependence would be more and more on the oil, thus there is

a dire need to cater to the energy demand and explore and encourage the alternative

sources of energy.

Exhibit 1: World energy consumption


Standardization in O&G industry

The oil and gas industry is working worldwide on the API (American Petroleum institute)

standards, these standardization are helpful in increasing the revenue and efficiency. The

German National Standards Body, or DIN, recently studied the direct economic benefits of

standardization, in this study, published in 2000, the direct economic benefit of

standardization was found to be 1% of Gross Domestic Product, or GDP.1

These standards have led to many benefits to the major oil companies, a few instances are:-

in the North Sea, the Norwegian oil industry has developed some 80 harmonized

specifications, called NORSOK standards which led to the cost reductions including savings

from shortened project schedules and refined engineering, along with capital and operating

cost savings; A petrochemical manufacturer reduced plant turnaround costs by $2.5 million

in one year by implementing an industry-developed risk-based inspection methodology for

process equipment based on 125API550 standard.

Reserves/ Numeric status

According to the 2009 BP Statistical Energy Survey, the world had proved oil reserves of

1237.875 billion barrels at the end of 2008, while consuming an average of 85219.7

thousand barrels a day of oil in 2008. OPEC members hold around 75% of world crude oil

reserves. The countries with the largest oil reserves are, in order, Saudi Arabia, Iran, Iraq,

Kuwait, United Arab Emirates (UAE), Venezuela, Russia, Libya, Kazakhstan and Nigeria. 2

According to the 2009 BP Statistical Energy Survey, the world had proven natural gas

reserves of 177.35 trillion cubic meters and natural gas production of 2939.99 billion cubic

meters in 2008.

Although the world has 3,600 billion barrels of unconventional oil reserves, these require

significant energy and water to extract. Wood Mackenzie estimated the world’s

unconventional oil reserves as comprising heavy oil (107 billion barrels), extra heavy oil

1 Cygnus, Business consulting and Research. (Janhuary- December,2008.). Cygnus Industry Monitor, Oil & Gas.2 BP Statistical Review of World Energy 2009


(457) and shale oil (2,800). The main sources are Canada, Venezuela, Madagascar and

Texas. According to the 2009 BP Statistical Energy Survey, the world had a refinery

capacity of 87913.34 thousand barrels a day. A study by Harrison Lovegrove has shown

that that the world consumes 29 billion barrels of oil per year.

Field Country Date Reserves (boe billion) Carioca Brazil 2007 33 Kashagan Kazakhstan 2000 14.6 Tupi Brazil 2006 4.0 Niban Saudi Arabia 1999 4.0 Azadegan Iran 1998 3.5 Yadavaran China 2000 3.0 Shah Deniz Azerbaijan 1999 2.1 Dolginskoye Russia 1999 1.9 North Samburgskoye Russia 1998 1.8 Nanpu China 2005 1.3 Dalia Angola 1997 0.9

Exhibit 2: The past decade prominent discoveries of world

Trends and performance in industry

The exhibit2 of the recent discoveries shows how the reserves are explored in the recent

past. According to Chevron, oil production is declining in 33 of the 48 largest oil producing

countries. The CEOs of Total and Conoco Philips both predict it will be difficult to ever

reach production of 100 mbpd3 even though the IEA is predicting production of 116 mbpd

by 2030 and the US government 118 mbdp. At the beginning of 2007 Wood Mackenzie

forecast conventional peak oil taking place by 2020. The Association for the Study of Peak

Oil (ASPO) predicts that peak oil will take place before 2010. The IEA reports that world

crude oil production fell from 73.8 mbpd in 2005 to 73.2 mbpd in the first 10 months of

2009. Some of the fall can be attributed to geological conditions and part to political

instability, particularly in Iraq and Nigeria.

On average, 52 mbpd of oil were moved internationally in 2006. The USA, Europe and

Japan were responsible for more than 60% of world oil imports, while the Middle East,

3 mbpd is Million Barrels Per Day


Africa and former Soviet Union accounted for more than 65% of world oil exports. The

crude oil spot price averaged $US 77.7 per barrel in 2010, more than triple the average

price in 2002. The IEA forecasts that oil demand will increase by 10 mbpd to 94.8 mbpd in

2015. Demand for OPEC oil is forecast to increase from current 31 mbpd to 38.8 mbpd in

2015. It is not clear that the additional demand is going to be met through a combination of

new sources of conventional oil, gas to liquids, unconventional oil and biofuels.4

The appendix D shows the global value chain (D1) and the strategic positioning of big oil

players (D2) which are the clear indicators of the global value chin and the strategic

positions of the big players in the industry. This strategic perceptual map shows the

dimensions of integration and geographical group. Here the interesting thing is that both

the Shell and Exxon are in the same strategic group and works under the similar

characteristics and trends, thus there is the intra group competition more prominent than

the intergroup tussle. Thus both the companies should check and review their strategies on

the continuous basis in order to tackle the intra and inter strategic group pressure.

Company Profile (ROYAL DUTCH SHELL)

Introduction

Shell, global group of energy and petrochemicals companies work with 101,000 employees

in more than 90 countries and territories. Royal Dutch Shell is one of the world's largest

companies, currently ranked number 6 in the Forbes Global 2000 list of top public

corporations (Forbes, 2008). It can be classified as one of the so called "super majors", the

largest companies in this sector, along with BP, Chevron, ExxonMobil, ConocoPhillips, Eni

and Total S.A. According to Forbes, with revenues of over 355 billion dollars in 2007, Shell

is the second largest energy company in the world, after ExxonMobil and before BP. In

2008, Shell's profit was down to 26.3 billion dollars from 31.3 billion dollars in 2007 and

had a Market Value of over 220 billion dollars (Forbes, 2008). Shell is also Europe's largest

4 We consider the fact that Renewable energy grew strongly albeit from a low base, with wind and solar generating-capacity growing 29.9 per cent and 69 per cent respectively, both above their 10-year average rate. The USA's wind power generating capacity grew by 49.5 per cent, UK wind generating capacity grew 36.3 per cent to 3.3 GW; still, however, accounting for less than 3 per cent of global installed capacity.


energy group and a major player in the petrochemical industry. It has worldwide proved of

reserves of 11.9 billion barrels of oil and oil equivalent, most of which produced in Nigeria,

Oman, UK and US. Shell also produces refined products and chemicals, transports natural

gas, trades electricity and develops renewable energy sources. With 46,000 gas stations

Shell is operating the world's largest fuel retail network5

Apart from huge human resources it has

47,000 filling stations and $128 billion in

annual revenue, but the challenges of a mega-

corporation as well. By using grassroots

employees, to design and implement change,

Shell has successfully made the changes

needed to stay competitive in a tough economy.

“(Hellriegel et al., 2002, p. 340)"

The financial soundness is clearly visible from

the following exhibit3 which shows that the

Shell is using high leverage since 1996 and has

managed to pay off the debt in time and with

interest, lending the credibility in oil and gas markets.

The gearing ratio (Long term debt/ Capitalization ratio or D/E ratio) is the measure of the

risk (leverage) of the firm. The gearing ratio has fallen year after year 42.86% (from 700 to

400 yen bn) and hence showing the indication of risk management in Shell.

Significant deals in recent past

1. Shell has divested its Nigerian production assets due to unfavorable business

environment forces and this was the strategy to use the funds from these

unproductive assets to develop the other asset fields in Russia and Venezuela.

2. Recently Shell is planning to buy the Arrow Energy for $3.1 bn. If the deal of this

3. Australian firm would be successful then the Shell would be able to gain much due

to Coal Seam Gas available from Arrow Energy. But the problem is the competitive

5 Shell Annual Report, 2009


Exhibit 3: The leverage measurement of Shell

bidding by Petro china and regulatory hurdle by the Foreign Investment Review

board.

These deals would be the masterstroke for the Shell if everything goes in the Shells way; it

may fetch Shell the additional 15% in Australia and can increase the share value of each

share of Shell by $4.45.

The financial and physical indicators, the internal and external strategies incorporated in

the organization and the various mergers and buyouts have led us to develop a simple

SWOT of the Shell as shown below:

Strength Weaknesses

Investments in exploration

Research into biofuels to help

organization diversification

Wider portfolio of products

Developing strategic partnerships

High cost operations

Presence in politically volatile area like

Nigeria

Some environmentally unacceptable

process

Opportunities Threats

New oil and gas reserves found

Move into areas with rich reserves

Emerging economies

Active response to criticisms of

environmental activities

New oil players

Political Issues, Government legislation

Refineries risk, recently by Hurricane

Exhibit 4: SWOT Analysis of Royal Dutch Shell


Profile of competitor (ExxonMobil)

Introduction

Exxon Mobil Corporation is engaged in exploration and production of crude oil and natural

gas, manufacture of petroleum products, and transportation and sale of crude oil, natural

gas, and petroleum products. The company also manufactures and markets commodity

petrochemicals and specialty products. Exxon Mobil is also engaged in electric power

generation. The company operates across the globe.

Exxon Mobil operates through three segments: upstream, downstream, and chemicals.

The upstream segment explores for and produces crude oil and natural gas. The company's

upstream business has operations in 36 countries and includes five global companies. The

company's upstream operations are run in the US, Canada, South America, Europe, the

Asia-Pacific, Australia, the Middle East, Russia, the Caspian, and Africa. The company's

downstream activities include refining, supply, and fuels marketing. The chemicals division

manufactures and sells petrochemicals.

Significant deals in recent past

1. Exxon Mobil divested its 3.7% stake in China Petroleum and Chemical Corporation

in 2005.

2. In 2006, Exxon Mobil acquired 28% undivided interest out of Abu Dhabi National Oil

Company's exploration and production activities in the Upper Zakum oil field in Abu

Dhabi.

3. Further in 2007, Sinopec, Exxon Mobil, and Saudi Aramco received the government

approval for the Fujian Refining and Ethylene Joint Venture Project.

4. With a total investment of about $5 billion, was Exxon Mobil's first fully integrated

refining, petrochemicals, and fuels marketing project with foreign participation in

China.


5. Exxon Mobil announced an investment of about $100 million in offshore oil

exploration in Philippines, in June 2008.

6. In March 2009, announced an investment between $25 billion and $30 billion

annually over the next five years to meet expected long-term growth in world

energy demand.

The various strategies, M&A and the financial features helped in developing the following

SWOT for the company as shown in the following exhibit.

Strength Weaknesses

Leading market position

Diversified revenue stream

Steady financial performance

Strong R&D capabilities

Legal proceedings

Employee unrest

Declining production in the US

Opportunities Threats

Increasing demand for refined products in

Asia

Increasing demand for liquefied natural

gas

(LNG)

Capital investments

Economic slowdown in the US and the

European Union

Risks associated with conducting business

outside the US

Environmental regulations

Exhibit 5: SWOT Analysis of ExxonMobil


Performance dimensions of Shell and ExxonMobil

Financial performance

Growth Rates %Shell ExxonMobil Industry Comment

Sales (Qtr vs year ago qtr) 0.00 6.10 -1.30 EM shows higher sales

Net Income (YTD vs YTD) -52.40 -67.40 -40.70 Shell better than EM

Net Income (Qtr vs year ago qtr) 169.80 -22.60 87.00 Shell outstands EM

Sales (5-Year Annual Avg.) 0.87 0.83 6.87 Almost equal, though

Shell better than EMNet Income (5-Year Annual

Avg.)-7.43 -5.31 -1.46 EM better than Shell

Dividends (5-Year Annual Avg.) 13.55 9.39 12.15 Shell paying good

dividends

Exhibit 6: Growth rates in %age

The growth rate factors shown in the above Exhibit 6 signifies that Net Income (Qtr vs. year

ago qtr) for the Shell is well above the industry average and substantially higher than

Exxon i.e. 192.4% (169.8+22.6) more than Exxon. Dividend paid by the Shell is also higher

the industry average and is also higher than Exxon, which means that Shell has more

proclivities towards attracting the stakeholders.

Price Ratios Shell ExxonMobi

l

Industry Comment

Current P/E Ratio 14.3 16.8 14.6 EM excelling over Industry

average

P/E Ratio 5-Year High 30.1 17.5 18.6 Shell touched the highest point,

much above Industry

P/E Ratio 5-Year Low 9.0 7.4 5.3 Both performing well, yet Shell

better than EM

Price/Sales Ratio 0.64 1.02 1.15 Shell having very low compared

to EM

Price/Book Value 1.31 2.87 1.83 EM has very high P/B value

Price/Cash Flow Ratio 6.60 10.00 7.30 EM has excellent cash flow

Exhibit 7: Price ratios of both Shell and Exxon


Source: www.msn.moneycentral.com

The P/E ratio (price-to-earnings ratio) of a stock (also called its "P/E", "PER", "earnings

multiple", or simply "multiple") is a measure of the price paid for a share relative to the

annual net income or profit earned by the firm per share.[2] It is a financial ratio used for

valuation: a higher P/E ratio means that investors are paying more for each unit of net

income, so the stock is more expensive compared to one with lower P/E ratio.

The P/E ratio of the Shell (Exhibit 7) has a higher value than the industry average and same

is the case with Exxon but the P/E ratio for the Shell is higher than Exxon, which indicates

that stakeholders are eager to pay more for each share of Shell. But in case of price to sales,

price to book value and price to cash flow ratio the Exxon is way ahead of Shell and even

the industry average as seen from the exhibit for Shell and Exxon. For instance the price to

cash flow for Exxon is 51.5% ((10-6.6)/6.6*100) higher than Shell and 36.98% above the

industry average.

Profit Margins % Shell Exxo

n

Industr

y

Comment

Gross Margin 27.0 29.8 30.0 Both are underperforming

Pre-Tax Margin 7.6 11.2 11.7 Margins are low compared to industry

Net Profit Margin 4.6 6.3 7.3 EM have good profit margins

compared to shell

5 Yr Gross Margins (5-Year Avg.) 23.8 31.7 32.6 Shell having very low compared to EM

5Yr PreTax Margin (5-Year Avg.) 12.3 16.3 11.8 Both performing well, yet EM better

than Shell

5 Yr Net Profit Margins (5-Year

Avg.)

7.2 9.5 5.6 Both performing well, yet EM better

than Shell

Exhibit 8: Profit margin ratios in %


The profitability ratios are also the key financial indicator. The gross profit margin which is

calculated as: - (Sales-COGS)/Sales is nearly same in both the company. But the Exxon

(Exhibit 8) has near to the industry average i.e. the total margin available to cover

operating expenses and yield a profit is higher for Exxon. Operating profit margin for Exxon

is near to the industry average and is 44.73% above the Shell’s operating profit ratio. The


http://en.wikipedia.org/wiki/Financial_ratio

http://en.wikipedia.org/wiki/Profit_(accounting)

http://en.wikipedia.org/wiki/Net_income

http://en.wikipedia.org/wiki/Share_(finance)

http://en.wikipedia.org/wiki/Stock

five year net profit margin for the cumulative 5 year is also better for Exxon i.e. 32% more

than of Shell which indicates the profitability considering the tax deductions.

Financial

Condition

Shel

l

Exxo

n

Industr

y

Comment

Debt/Equity

Ratio

0.26 0.09 0.28 EM having very low compared to

Shell

Current Ratio 1.1 1.1 1.1 Shell & EM are in the line of Industry

Quick Ratio 0.8 0.8 0.8 Shell & EM are in the line of Industry

Interest

Coverage

NA 64.5 99.7 EM having very low compared to

Industry

Leverage Ratio 2.1 2.1 2.0 Shell & EM are in the line of Industry

Book

Value/Share

44.5

7

23.39 36.84 Shell has Good Book value

Exhibit 9: Leverage ratios of Shell and Exxon


If we look at the leverage ratio of the companies (Exhibit 9) with respect to each other and

industry we find that Shell is using more financial leverage as the debt to equity is higher

than Exxon and even near to the industry average. Around 26% of fund is provided by the

creditors for Shell where it is only 9% for Exxon. Both the firms have liquidity ratios (quick

and current ratios) near to the industry average which is a clear indicator of the capability

of firms to meet their short-term obligations. The interest coverage of the Exxon is quite ok

which indicates that the company can pay interest expenses on outstanding debt.

Investment Returns % Shell Exxo

n

Industr

y

Comment

Return On Equity 9.5 17.3 12.8 EM shows higher return

Return On Assets 4.4 8.5 6.2 EM better than Shell

Return On Capital 6.7 11.2 8.5 EM outstands Shell

Return On Equity (5-Year

Avg.)

21.7 31.9 21.7 EM excels industry

average

Return On Assets (5-Year

Avg.)

9.9 16.5 11.0 EM better than Shell


Return On Capital (5-Year

Avg.)

15.7 21.8 14.9 EM has good returns

Exhibit 10: Investment returns in % for Shell and Exxon


The investment returns are also the indicator of the profitability, ROE for the Exxon

(Exhibit 10) is very high i.e. 35.16% ((17.3-12.8)/12.8*100) above the industry average

and 82.11% above the Shell, this clearly shows the after tax profits per dollar of

stockholders’ investment in the firm. Return on Assets or ROI and ROC (Return on Capital)

are also better for the Exxon both the ratios are above the industry average and more than

the Shell’s ratio.

The cumulative average return on investment for 5years are also well above the Shell i.e.

around 66% above the average of cumulative 5years of Shell.

Cash flow comparison of Shell and ExxonMobil

Cash flow is truly the lifeblood of any business. So when tight credit starts choking the cash

flow, it's important that the firm act right away to remove the blockage and get the

business' cash flow flowing again. Because companies are required to highlight cash flows

from operating, investing and financing activities; Shell’s operating cash flows and

investing and financing policies can be compared to those of ExxonMobil. We can learn

much about a company by examining patterns that appear among the three cash flow

categories in the statement of cash flows.

As seen clearly from the cash flows (given in the appendix C, C1) of the Shell we can say

that the Company is using cash flows generated from operations to buy fixed assets and to

pay down debt or pay owners.6 The cash flow for Exxon shows that Exxon is also using cash

flows generated from operations to buy fixed assets and to pay down debt or pay owners.7

Critical analysis on the basis of cash flows

6 The cash flow pattern is “+ - -“this means that Shell has the positive cash flows from operating activities and negative from the investing and financing activities, consistently from 2005 to 2009.

7 The cash flow for Exxon (shown in appendix C, C2) is also in the pattern “+ - -“.


Positive cash flows from operations are necessary in a company is to succeed over the long

term. The cash flow from the operating activities is good for both the companies but the

ExxonMobil have somewhat upper hand in the absolute operating cash flow i.e. the amount

in reserves of Exxon are large enough to provide for necessary replacements of plant assets

and maturing liabilities. And there is enough left for the current dividend to look secure.

The trend of cash flows over a period of years is even more important than net cash flows

from operating activities in any one year and the consistency of that trend from year to

year. From everyone’s perspective, the best results are net cash flows from operating

activities that increase each year by a substantial- but also predictable- percentage as in

case of Exxon the cash flow increased by 24.07% from 2005 to 2008, while for Shell it was

45.84%. This shows that the growth for Shell is more though the absolute reserves and

capacity is less than Exxon. The cash flow from the investing activities of Shell are

signifying huge outflow i.e. Shell is continuously investing to grow and reach at the helm of

oil and gas industry.

Physical Indicators

Shell, global group of energy and petrochemicals companies work with 101,000 employees

in more than 90 countries and territories. They grew from a small shop in London nearly

200 years ago to one of the world’s major energy companies.

Management

Efficiency

Shell Exxon Industr

y

Comment

Income/Employee 125,921 243,594 125,231 EM having very high compared to Shell

Revenue/Employee 3 Mil 4 Mil 2 Mil Shell & EM have high

revenue/employees

Receivable

Turnover

3.9 11.9 12.0 Shell is underperforming

Inventory Turnover 8.7 18.3 11.1 EM excels in this aspect

Asset Turnover 1.0 1.3 0.9 Shell & EM both are good, in fact EM

better

Exhibit 11: Management efficiency of Shell and Exxon



ExxonMobil work with 80,000 employees, which shows that the human resource is more

with the Shell but as seen from the exhibit11, the Exxon has high management efficiency

with smaller human capacity and even the assets are more nicely managed by Exxon. Exxon

has management efficiency, human satisfaction level and asset management well above or

equal to industry average. The income per employee for Exxon is 93.4% more than Shell

though the difference in employee power is only around 20000, which clearly justifies the

efficiency of Exxon.

Technical Expertise

Shell

People & organization

They employ around 30,000 technical staff in centers across the world. From scientists to

business experts, their employees and contractors work to deliver their research and

development program – finding innovative solutions to the world’s energy challenge.

Meeting demand

Smart technology thinking is helping meet that demand by finding ways to get more from

what they’ve got, to developing new and alternative energy sources to power our future.

The Shell is providing the down-hole monitoring, enhanced oil recovery facilities to

develop the high yielding smart fields. It also has huge shale shakers which purifies the

contaminated sand and mud.

Alternative fuel

The Shell has implemented the methodology to use the enzymes eating straw, oil squeezed

from algae, and wood chips turned to liquid. Shell is pursuing all of these in the

development of better biofuels that could see CO2 reductions and a sustainable alternative

fuel source that does not compete with food crops.

Managing Emissions


They are committed to preventing spills from happening and to containing and properly

cleaning up any spills that do occur. They have been working hard to reduce the emissions

of local pollutants – like NOx, SO2 and VOCs – from their operations.

ExxonMobil

The technology at the ExxonMobil is much better than the Shell’s bottom hole and drilling

tool techniques. The logging tools are also better for the Exxon.

But the mud separator engineering in Shell is at par with the ExxonMobil and the refining

in the lubricants is much superior to the Exxon refineries.

Market presence

Huge revenue and assets as shown in the Exhibit 12 consolidates the huge market of Shell.

The assets have substantially increased from 2005 to 2009 i.e. around 33.1% rise and the

revenue sales volume raised by around 49% from 2005-08 but in 2009 it fell little due to

some deals and recession.

Totals assets: in $ million

2009 2008 2007 2006 2005

292,181 282,401 269,470 235,276 219,516

Revenues (Sales Volume): in $ million

2009 2008 2007 2006 2005

278,188 458,361 355,782 318,845 306,731

Exhibit 12: Total assets and revenue in sales volume of Shell



2005 2006 2007 2008 2009$0

$100$200$300$400$500$600$700$800

Revenues(billion)Assets(billion)

Exhibit 13: Mapping of assets and revenue on same perceptual map

By the above Exhibit 13 we can interpret that assets and revenues increase proportionally, this indicates that Shell is not focused only on the revenue from sales but is also equally focuses on the asset management and market penetration.

Their share of exports is towards the upward trend which constitutes 20% of its total sales.

The exports are shown in the Exhibit 14. The export shows that around 20.69% of the Shell

products are exported. This is a good indicator of profitability and growth.

Export sales 1,359 1,297 1,157 1,011 908

Total oil products 6,568 6,625 6,485 7,057 7,600

Exhibit 14: Exports of Shell (2005-09)

Their branded fuel retail network is the world’s largest, with around 45,000 service

stations in more than 90 countries. Every day, they sell 350 million liters of fuel to around

10 million customers. The 2008 global customer tracker survey ranked Shell number one

as the preferred brand of service station.

Competitive advantage

Shell operating capacity is decreasing consistently over the past three years and the

utilization rate came to 80% which was 90% in 2007, where the capacity utilization of

Exxon Mobil is 85% i.e. the Shell has managed to work at higher capacity utilization rates

and is planning to achieve a utilization rate of 110% by 2015. Exxon has maximum

production capacity of 190,000 barrels of oil a day which is only from the 9 major operated

countries by Mobil Nigeria, which is more than Shell’s 115000 barrels per day.


Distribution

Shell has some 300 distribution facilities and more than 3,000 storage tanks in around 70

countries. They move products through Europe and the USA through 9,000 km of pipeline.

Their global fleet of around 7,000 Shell-owned or contracted trucks travels over 1.7 million

km every day and makes a delivery somewhere in the world every seven seconds.

The distribution network of Exxon is still stronger than Shell, it has 11000 fleet as

compared to Shell’s 7000 travelling around 3.9 million Km every day. Exxon has around

650 outlet distribution facilities more than double of Exxon.

The global supply chain and the worldwide presence of Shell are exhibited in appendix B,

which shows the rampantly growing market of Shell around the globe.

R&D comparisons

Shell-For the last three years shell has spent $3.5 billion to reduce the energy

requirements, environmental impacts and running costs of current operations. It also

develops technologies that help us capitalize on business-growth opportunities, both in

Upstream and in Downstream. And it can create entirely new technologies, such as those

needed for alternative fuels or carbon capture and sequestration, which may become part

of the world’s energy system in the longer term.

ExxonMobil -Their ability to develop, apply and deploy innovative technology will remain

a key competitive advantage. Our investments in research and development, totaling more

than $3.7 billion over past five years are fueled by talent of nearly 15000 scientists and

engineers. They are on the cutting edge of advancing new energy technologies – both in

their core business and in new, energy-saving innovations.

R&D as % of Revenue

R&D as % of Revenue-5 year average

Royal Dutch Shell

0.2 0.2

ExxonMobil 0.0 0.0


http://www.faoi.shell.com/2008/downstream/supplyanddistribution.html

Exhibit 15: R&D expenses as a percentage of revenue.

Source: http://in.advfn.com/

People ManagementThe Exhibit16 below shows the comparison between the Royal Dutch Shell and ExxonMobil

productivity in terms of revenue/employee, net income/employee.

Company No of Employees Revenue/Employee Net Income/Employee

Royal Dutch Shell 112000 3 Mil 125,921ExxonMobil 807000 4 Mil 243,594

Exhibit 16: revenue/employee, net income/employee


Shell HR Practice

Rick Brown, the vice-president for HR functional excellence-Shell, says about Shell’s HR

practices like this, “About five years ago, we began to look for a framework that would enable

us to take a more holistic view of the HR profession in Shell, It’s a challenge Shell has met in its

own HR professional framework by defining three levels of responsibility – which cover all of

its 1,800 graduate HR practitioners worldwide, from entry-level to global vice-president – and

then providing appropriate skills training.”8

The new map charts the profession from three main perspectives: functional specialism, levels of competence, and key behaviors.

8 Building sustainale capability. (2009, April 23). People Management magazine , p. 18


Exhibit 17: The major 10 professional areas are as follow.

ExxonMobil HR Practice

ExxonMobil is committed to being the employer of choice for diverse group of highly

qualified employees and recruits while achieving and maintaining the highest levels of

workplace productivity. Workplace flexibility programs are an essential part of

commitment as they help the organization in achieving the following goals.

Framework of HR practices is conceptualized in the following Exhibit 18.

Exhibit 18: HR framework employed in Shell

ExxonMobil provide its employees flexible work programs. This program depends on the

country; each country’s set of workplace flexible program is unique in terms of legal


1 Strategy, insights and solutions

2 Leading and managing the function

3 Organisation design

4 Resourcing and talent planning

5 Organisation development

6 Learning and talent development

7 Performance and reward

8 Employee relations

9 Employee engagement

10 Information and service delivery

Attract and retain the most

talented and qualified people.

Address the diverse

individual needs and

expectations of employees and

recruits.

Maximize employee productivity

.

requirements, infrastructure and culture, These programs help in providing flexibility to its

employees, with supervisor’s approval and business needs, like,

Conclusion

After the critical analysis of the Shell and Exxon on the industry map, we have tried to

measure both the firms as shown in the appendix A (A2). The ExxonMobil is still a bigger

company than the Shell in various financial measures and asset management. The

cumulative 10 year average financial performance indicates that Exxon has an upper edge

except in few ratios. Exxon has higher profitability ratios in the past years continuously

though Shell is growing fast.

Shell and Exxon are both in the same strategic groups hence have the same dimensions to

compete, the Exxon is financially ahead of Shell but Shell has most recent technology for

lubricating, thus the proper strategy should be to focus on the other strategic group.

One point of concern is that the Shell is focused on the operating and the financial leverage

and is ignoring the grey areas like entry of new player or the political default by Iran, thus

the Shell should take care of these things also, and the deal like currently with Arrow

Energy is to be exercised in order to gain political clout in different countries to compete

more strongly and become the crème de crème in oil and gas industry.


Adaptable Work Place

Modified Work Week

Part-Time Regular

Extended Part-Time

Adjustable Work Hours

Word Count (4029)

References:

[1]

Building sustainale capability. (2009, April 23). People Management magazine , p. 18.

[2] CIA. (2008). Indutry Report on Oil and Gas Sector.

[3] Cygnus, Business consulting and Research. (Janhuary- December,2008.). Cygnus Industry Monitor, Oil & Gas.

[4] Energy Watch Group. (oct, 2007). Crude oil: The supply outlook.

[5] Flexible Work Program. (n.d.). Retrieved March 17, 2010, from ExxonMobil: Taking the world's toughest energy challenges: http://www.exxonmobil.com/Corporate/careers_dev_flex.aspx

[6] Hendrix, P. (2002). Sir Henri Deterding and Royal Dutch Shell: Changing Control of World Oil. Bristol Academic Press.

[7] Jan Luiten van Zanden, J. J. (2007). A History of Royal Dutch Shell. Oxford University Press.

[8] McKinsey Global Institute Study. (2009). Averting the next energy crisis.

[9] Oil & Gas. (2010, January). Retrieved March 15, 2010, from India Brand Equity Foundation: http://www.ibef.org/industry/oilandgas.aspx

[10] (2006). Oil and Gas Sector Report Card. London: IPIECA and OGP.

[11] OPEC. Annual Statistical Bulletin.

[12] OPEC. (2008). World Oil Outlook.

[13] Royal Dutch Shell Plc Updates on Strategy to Improve Performance and to Grow. (n.d.). BERA: Business and Economic Research Advisor .


[14] Standards & Poor's. RatingsDirect, Industry Report Card: Top 50 Global Oil and Gas Companies Ride Demand Growth Toward $90 oil.

[15] The unflappable oil giant changes tack. (2009, Dec 17). The Economist .

[16] Veer, J. v. (2009, June). McKinsey conversations with global leaders. (McKinsey, Interviewer)

[17] Voser, C. F. (2009, April 29). Royal Dutch Shell Plc First Quarter 2009 Results.

Appendix- A

A1.1 Financial Indicators of the Shell and Exxon

Year

Avg P/E Price/ Sales

Price/ Book

Net Profit

Margin (%)

Book Value/ Share

Debt/ Equity

Return on Equity

(%)

Return on Assets (%)

2009 25.9 17.8 1.32

1.1 1.35 2.9 4.5 6.2 44.57 $23.39

0.26 0.26

9.2 17.4 4.3 8.3

2008 15.9 9.5 0.71

0.9 1.3 3.5 5.7 9.5 40.79 $22.70

0.18 0.18

20.6 40 9.3 19.8

2007 15.2 11.5 1.49

1.3 2.15 4.1 8.8 10 39.09 $22.62

0.15 0.15

25.3 33.4 11.6

16.8

2006 16.9 9.9 1.43

1.2 2.16 3.9 8 10.5

32.76 $19.87

0.15 0.15

24.1 34.7 10.8

18

2005 16.1 10.2 1.34

1 2.26 3.1 8.4 9.7 27.16 $18.21

0.14 0.14

28.2 32.5 11.7

17.3

2004 18.8 11.7 1.46

1.1 2.3 3.2 6.9 8.5 24.9 $15.90

0.17 0.17

21.4 24.9 9.8 13

Values in shaded color are Exxon Mobil, uncolored values are of Shell.


A1.2: Financial ratios compared in chart for all the financial aspects


A2. Weighted comparison in context with critical financial factors


Royal Dutch Shell ExxonMobil

Appendix B

B1. Shell’s global value chain

B2. Countries with shell retail presence

***


Appendix C

C1: Cash flow statement of the Shell

2009 2008 2007 2006 2005

Period End Date 12/31/200

9

12/31/200

8

12/31/200

7

12/31/200

6

12/31/200

5

Period Length 12

Months

12

Months

12

Months

12

Months

12

Months

Stmt Source 20-F 20-F 20-F 20-F 20-F

Stmt Source Date 03/16/201

0

03/17/200

9

03/17/200

8

03/13/200

7

03/13/200

6

Stmt Update Type Updated Updated Updated Updated Updated

Net Income/Starting Line 12,718.0 26,476.0 31,926.0 26,311.0 26,261.0

Depreciation/Depletion 14,458.0 13,656.0 13,180.0 12,615.0 11,981.0

Amortization 0.0 0.0 0.0 0.0 0.0

Deferred Taxes -1,925.0 -1,030.0 -773.0 1,833.0 -1,515.0Non-Cash Items 4,787.0 13,974.0 9,043.0 10,812.0 11,631.0

Unusual Items

Equity in Net Earnings (Loss)

Other Non-Cash Items

Changes in Working Capital -8,550.0 -9,158.0 -18,915.0 -19,875.0 -18,245.0

Accounts Receivable

Inventories

Accounts Payable

Other Assets & Liabilities, Net

Other Operating Cash Flow

Cash from Operating Activities

21,488.0 43,918.0 34,461.0 31,696.0 30,113.0

Capital Expenditures -26,516.0 -35,065.0 -24,576.0 -22,922.0 -15,904.0

Purchase of Fixed Assets

Other Investing Cash Flow Items, Total 282.0 6,150.0 10,006.0 2,061.0 7,143.0

Sale of Fixed Assets

Sale/Maturity of Investment

Purchase of Investments

Other Investing Cash Flow

Cash from Investing Activities

-

26,234.0

-

28,915.0

-

14,570.0

-

20,861.0

-8,761.0


Financing Cash Flow Items -1,031.0 -1,656.0 -8,195.0 -151.0 -1,925.0

Other Financing Cash Flow

Total Cash Dividends Paid -10,526.0 -9,516.0 -9,001.0 -8,142.0 -10,556.0

Issuance (Retirement) of Stock, Net 27.0 -3,048.0 -3,511.0 -7,554.0 -4,537.0

Issuance (Retirement) of Debt, Net 10,701.0 4,826.0 1,314.0 2,106.0 -1,555.0

Cash from Financing Activities

-829.0 -9,394.0 -

19,393.0

-

13,741.0

-

18,573.0

Foreign Exchange Effects 106.0 -77.0 156.0 178.0 -250.0

Net Change in Cash -5,469.0 5,532.0 654.0 -2,728.0 2,529.0

Net Cash - Beginning Balance 15,188.0 9,656.0 9,002.0 11,730.0 9,201.0

Net Cash - Ending Balance 9,719.0 15,188.0 9,656.0 9,002.0 11,730.0

C2: Cash flow statement of the Exxon Mobil

Net Income/Starting Line 19,658.0 46,867.0 41,615.0 39,500.0 36,130.0

Depreciation/Depletion 11,917.0 12,379.0 12,250.0 11,416.0 10,253.0

Amortization 0.0 0.0 0.0 0.0 0.0

Deferred Taxes 0.0 1,399.0 124.0 1,717.0 -429.0Non-Cash Items -1,962.0 -2,842.0 -3,180.0 -3,512.0 -1,263.0

Unusual Items

Other Non-Cash Items

Changes in Working Capital -1,175.0 1,922.0 1,193.0 165.0 3,447.0

Accounts Receivable

Inventories

Prepaid Expenses

Accounts Payable

Other Operating Cash Flow

Cash from Operating Activities

28,438.0 59,725.0 52,002.0 49,286.0 48,138.0

Capital Expenditures -22,491.0 -19,318.0 -15,387.0 -15,462.0 -13,839.0

Purchase of Fixed Assets

Other Investing Cash Flow Items, Total 72.0 3,819.0 5,659.0 1,232.0 3,569.0

Sale of Business

Sale/Maturity of Investment

Purchase of Investments

Other Investing Cash Flow

Cash from Investing Activities -

22,419.0

-

15,499.0

-9,728.0 -

14,230.0

-

10,270.0


Financing Cash Flow Items -156.0 -461.0 -579.0 -270.0 -974.0

Other Financing Cash Flow

Total Cash Dividends Paid -8,023.0 -8,058.0 -7,621.0 -7,628.0 -7,185.0

Issuance (Retirement) of Stock, Net -18,951.0 -34,981.0 -30,743.0 -28,385.0 -17,280.0

Issuance (Retirement) of Debt, Net -153.0 -527.0 598.0 73.0 -1,502.0

Cash from Financing Activities

-

27,283.0

-

44,027.0

-

38,345.0

-

36,210.0

-

26,941.0

Foreign Exchange Effects 520.0 -2,743.0 1,808.0 727.0 -787.0

Net Change in Cash -

20,744.0

-2,544.0 5,737.0 -427.0 10,140.0

Net Cash - Beginning Balance 31,437.0 33,981.0 28,244.0 28,671.0 18,531.0

Net Cash - Ending Balance 10,693.0 31,437.0 33,981.0 28,244.0 28,671.0


Appendix D

D1: Global Oil Industry Value Chain

D2: Oil Industry Strategic Groups


ExplorationDevelopment

&Production

CrudeTransport

RefiningMarketing & Distribution

D3: Appendix for the top50 O&G companies financial performance


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