One Shell Plaza
Shell Oil follows the Royal Dutch/Shell Group's 'Blueprint for Success' and strives to be passionate in taking care of customers; to become the model of diversity for corporate America; to be an organization where people can achieve their full potential; to achieve the leading-edge in financial performance, health, safety, and environmental performance; and strives to have a strong national profile and identity.
One of North America's leading producers of oil, gas, and petrochemicals, Shell Oil Company has distinguished itself through its commitment to industry innovation. It operates as the leading oil and gas producer in the deep-water Gulf of Mexico and its four major operating segments include Oil and Gas Exploration and Production, Downstream Gas, Oil Products, and Chemical Products. Shell Oil operates as a subsidiary of Royal Dutch/Shell Group, the second largest oil company in the world. In 1999, Shell Oil and its U.S.-based counterparts secured 22 percent of the Group's income.
Company Beginnings in the Early 20th Century
The Royal Dutch/Shell Group began selling gasoline imported from Sumatra in the United States in 1912, to capitalize on the growth of the country's automobile industry and to compete with the Standard Oil Company. Starting with the formation of the Seattle-based American Gasoline Company, Royal Dutch/Shell Group also founded Roxana Petroleum Company in 1912 in Oklahoma to locate and produce crude oil. This was followed by the opening of refineries in New Orleans, Louisiana in 1916 and in Wood River, Illinois, in 1918.
It soon became clear to Royal Dutch/Shell Group that with so much gasoline already available in nearby California, it was impractical to continue importing the product for sale in the Pacific Northwest. Therefore, it acquired California Oilfields, Ltd. in 1913, which, when coupled with a new refinery built two years later in Martinez, California, gave the company the ability to fully integrate its operations. To reflect this new capability, the name of American Gasoline was changed to Shell Company of California in 1915. At this time, the company designed and built its first gasoline service station. Dubbed 'the crackerbox,' the station was originally constructed of wood. This structure was later replaced by a model made of prefabricated steel that required only a few days to erect.
Rapid Expansion During the 1920s
The oil boom of the early 1920s, particularly at Shell's Signal Hill, California site, provided the company with an opportunity to penetrate the Los Angeles area with sales of Shell gasoline and petroleum products manufactured in its new refineries nearby. In 1922, Shell Company of California and Roxana Petroleum merged with Union Oil Company of Delaware to form a holding company called Shell Union Oil Corporation. Approximately 65 percent of the holding company's shares was held by Royal Dutch/Shell Group.
By the late 1920s, the company was actively laying pipeline across the country to transport oil from its Texas fields to the Wood River refinery. Shell Pipe Line Corporation, established in 1927 upon the acquisition of Ozark Pipe Line Corporation, also connected these fields to a new refinery built in Houston in 1929. This refinery was dedicated to manufacturing products destined for sale on the east coast of the United States and overseas. In 1929, Shell Petroleum Corporation, a forerunner of Shell Oil Company, purchased the New Orleans Refining Company, which later became one of Shell's largest manufacturing facilities.
Shell Development Company was formed in 1928 to conduct petrochemical research. The following year, after the discovery of chemicals that could be made from refinery by-products, the Shell Chemical Company began its manufacturing operation. By 1929, Shell gasoline was being sold throughout the United States. Although the economic problems of the early 1930s forced the company, along with the entire oil industry, to reassess and curtail its operations to some degree, Shell continued its chemical research. This resulted in the opening of two plants for manufacturing synthetic ammonia in 1931 and for making synthetic glycerin in 1937.
Continued Growth: 1930s--70s
Upon developing the ability to synthesize 100-octane gasoline, Shell began supplying this fuel to the U.S. Air Corps in 1934, and gradually became one of the largest producers of aviation fuel. Because of the increased demands of the military during World War II, Shell shared this technology with the rest of the industry. It also helped the country overcome its wartime loss of natural rubber supplied by Java and Singapore by providing butadiene, a chemical required for the production of synthetic rubber products.
In 1939, Shell Oil Company of California merged with Shell Petroleum Corporation, whose name was subsequently changed to Shell Oil Company, Inc. Ten years later, the name was changed again to Shell Oil Company.
Until 1939, the company had offices in San Francisco, California; St. Louis, Missouri; and New York City. The St. Louis office was closed in 1939, and San Francisco operations continued until 1949, when New York became the sole headquarters. Shell increased its oil exploration activities and expanded production to satisfy the growing fuel needs created by U.S. drivers' passion for big cars. New chemical plants were built that enabled Shell to become a leading producer of epoxy resins, ethylene, synthetic rubber, detergent alcohols, and other chemicals. Shell also pioneered the development of new fuel products during the 1950s, including jet fuel and high-octane, unleaded gasoline for automobiles.
In 1958, the company redesigned its service stations in an attempt to make them more compatible with surrounding areas. The ranch-style station was introduced at this time and continued as the company's primary retail outlet until the introduction of the self-service station in 1971. Shell provided additional retail support by launching several payment alternatives, including an offer to honor all other oil company credit cards and a travel-and-entertainment card bearing the Shell name. These developments helped Shell gain a significant share of the U.S. market for automobile gasoline.
By the 1960s, growing environmental concerns led Shell to invest heavily in systems intended to reduce pollution and to conserve energy in its plants. In the following decade, the company began publishing a series of consumer-oriented booklets on such topics as car maintenance and energy conservation.
At the same time, the company turned its attention offshore and began drilling for oil and natural gas deposits in Alaska and the Gulf of Mexico. It soon became expert in using enhanced techniques to find and recover oil from U.S. fields. One of its biggest successes was the 1983 strike at the Bullwinkle prospect in the Gulf of Mexico. This recovery operation was expected to produce 100 million barrels of oil.
In 1970, Shell moved its headquarters to Houston. The company expanded into coal production in 1974 with the formation of Shell Mining Company. This business unit eventually operated mines in Wyoming, Illinois, Ohio, Kentucky, and West Virginia.
John F. Bookout assumed the presidency of the company in 1976, after the mandatory retirement of his predecessor, Harry Bridges. Bookout, a 25-year Shell veteran, had risen through the ranks of the company's oil and gas exploration and production division. Bookout took over during a period when high oil prices and flattening demand led other petroleum producers into ill-fated diversification attempts outside the oil industry. Rather than follow this path, Bookout elected to penetrate the oil industry more deeply and to emphasize increased efficiency in the company's ongoing operations. Beginning in 1978, for example, the company upgraded a number of its refineries and closed many of its less profitable service stations to concentrate on those in metropolitan areas with higher sales volume.
In 1979, Shell outbid several competitors to purchase California's Belridge Oil Company. The firm, which was subsequently renamed Kernridge Oil Company, gave Shell badly needed crude oil reserves at a time when opportunities for successful drilling ventures were declining. The company's technological expertise in steam-injected oil recovery enabled Shell to boost Kernridge's domestic production and reduce its reliance on more expensive foreign sources.
Beginning in January 1984, Royal Dutch/Shell Group launched a bid to acquire the remaining shares of Shell Oil Company. Attracted by Shell's U.S. oil reserves, the country's stable political situation, and a low corporate tax structure, cash-rich Royal Dutch/Shell viewed Shell as an increasingly worthy investment. The attempted buyout soon developed into a hostile battle over the amount that Royal Dutch/Shell had offered Shell shareholders. Its original offer of $55 a share was perceived as inadequate by Shell's directors and financial advisers, who placed the company's worth at closer to $75 a share, even though the offer represented a 25 percent premium over the stock's current selling price. By May, however, John Bookout and four other Shell executives agreed to tender their shares in exchange for Royal Dutch's sweetened offer of $60 a share. This agreement paved the way for the eventual completion of the takeover in June 1985.
Problems in the Mid-1980s to Early 1990s
In the following year, Shell came under the attack of an anti-apartheid coalition in the United States consisting of union representatives, activists, and members of various church groups that protested against Royal Dutch/Shell's involvement in South Africa. Through picketing in 13 cities, the coalition hoped to exert a negative impact on Shell's gasoline sales while also making the U.S. public aware of the parent company's coal, oil, and chemical operations in South Africa. A boycott launched by the AFL-CIO, United Mineworkers, and National Education Association in cooperation with the Free South Africa Movement was initiated to protest both alleged mistreatment of South African workers by Royal Dutch/Shell and the company's inaction against apartheid. Although Royal Dutch/Shell officials contended that the company was a strong anti-apartheid voice, by the end of 1988, Berkeley, California and Boston, Massachusetts had joined the fray trying to ban purchases of Shell products within city limits.
Shell encountered additional problems in 1989, over the cleanup of the Rocky Mountain Arsenal in Colorado. It was there that Shell had manufactured pesticides between the early 1950s and 1982, allegedly dumping carcinogens on the grounds. Also under scrutiny was the U.S. Army, which had used the Rocky Mountain plant to make nerve gas during World War II. Sued in 1983 by the state of Colorado under the federal superfund law, both the Army and Shell offered a plan to pay for cleaning up the site. The state subsequently deemed the proposal unsatisfactory. A California superior court ruled that insurance companies covering the company were not liable. Shell appealed that decision, but eventually reached an agreement with the U.S. government whereby Shell would pay 50 percent of the cleanup costs up to $500 million, 35 percent of costs between $500 million and $700 million, and 20 percent of costs in excess of $700 million. Through 1994, Shell had incurred $240 million in expenditures on the cleanup effort.
Led by President and Chief Executive Officer Frank H. Richardson, who succeeded John Bookout upon his retirement in 1988, Shell boasted strong cash flow and a decreasing level of long-term debt in the late 1980s. Underlying this rosy situation, however, were problems for Shell on the production side. In 1988, Shell was able to produce 531,000 barrels of oil a day, but by 1994, that figure had fallen to 398,000 a day. Shell had settled on the Gulf of Mexico as its prime area of exploration and development, an area that was disappointing during the period. The recession of the early 1990s compounded Shell's difficulties by causing a decline in demand for petroleum products and pushing prices down. Like other U.S. oil companies, Shell saw its revenues steadily decline throughout the early 1990s--from $24.79 billion in 1990 to $21.09 billion in 1993.
In 1991, Shell decided that it had to cut operating costs to generate enough money to boost its production. The company announced that it would cut ten to 15 percent of its workforce as part of a corporate restructuring. Over the next two years more than 7,000 jobs were eliminated, reducing Shell's workforce from 29,437 in 1991 to 22,212 in 1993.
Meanwhile, Shell engineers and workers were hard at work designing and constructing a $1.2 billion Auger platform in the deep waters of the Gulf of Mexico. With ten to 15 billion barrels of oil and gas lying under these waters, the question was not whether there was oil and gas to be found, but whether it could be extracted profitably. Located 135 miles offshore and in water of record depth of 2,860 feet, production began at the Auger platform in April 1994 and quickly reached 55,000 barrels a day, more than the anticipated peak of 46,000 barrels. Shell was the acknowledged leader in deep-sea drilling and its commitment to the Gulf had begun to pay off. Shell already had two more platforms in the works, which were scheduled to begin production by 1997. The three projects were expected to generate 150,000 barrels a day, creating oil and gas worth $1 billion annually.
On the retail side, by 1994, Shell had 8,600 stations operating in 40 states and the District of Columbia and had strengthened its position as the top gasoline marketer in the United States. Shell's refinery activities in the early 1990s were highlighted by the beginning of construction of a $1 billion clean fuels project in Martinez, California, to be completed by 1997. Meanwhile, Richardson had retired in 1993 and was succeeded by Philip J. Carroll.
Focus on Exploration and Production: Mid-1990s
Shell's position in the mid-1990s was much healthier than earlier in the decade, due in large part to the success of its deep-water operations in the Gulf of Mexico. In July 1996, the company launched its Mars Platform, a $2.1 billion oil and gas project in the Gulf of Mexico. Standing 3,250 feet high from the seafloor, Shell expected Mars to recover more than 700 million barrels of oil and gas equivalent.
The company also formed Shell Midstream Enterprises (SME), a business unit designed to market the firm's expertise and pipeline infrastructure in the Gulf of Mexico to oil companies with no pipelines of their own. By now, Shell was operating as the largest producer in the Gulf of Mexico and had three major pipeline projects under way in that region. The Mississippi Canyon Gathering System was being developed to transport natural gas from Shell-owned Mars, Ursa, and Mensa fields. The Garden Banks Gathering System project included new construction on another pipeline platform in the Gulf, and the Nautilus/Manta Ray project included development of a natural gas pipeline system in the Green Canyon area of the Central Gulf. Shell's net income reached $2 billion in 1996, an increase of 33 percent over the previous year.
Amidst Shell's successes that year, the company did come under fire when Ken Saro-Wiwa, a Nobel Peace Prize nominee, was put to death after leading a campaign against Shell's operations in Nigeria. In 1994, the activist had been arrested as part of a military program designed to protect Shell operations in that region--Shell operations accounted for 40 percent of Nigerian government revenue. His plight to end pollution in the area ultimately led to his death, which created an outpouring of protest and a worldwide boycott against Royal Dutch/Shell and its affiliates from human rights groups and activists.
In 1997, the company acquired Tejas Gas, a large southwestern pipeline company, and obtained full ownership of Coral Energy, a partnership developed between the two to market natural gas output in North America. Shell also teamed up with Texaco Inc. to combine both companies' Western and Midwestern U.S. downstream operations, including refining, transportation, marketing, and lubricants, in an effort to cut costs. The formation of Equilon Enterprises LLC was completed in early 1998 and secured a 13 percent share of the domestic refining market, and 14.6 percent of the U.S. gasoline market. Shell owned 56 percent of the venture, and Texaco retained 44 percent.
Motiva Enterprises LLC was created shortly after Equilon and included the East and Gulf Coast downstream operations of Shell, Texaco, and Saudi Aramco. The formation of the two new ventures was anticipated to save $800 million and secure $45 billion in revenues.
The firm also made some key partnerships in 1997 relating to production and exploration. Shell and BP Amoco announced the formation of Altura Energy Ltd., which combined production assets of both firms in the Permain basin of West Texas and Southeast New Mexico. Aera Energy LLC also was formed and included the California-based production and exploration assets of Shell and Mobil Corp.
Restructuring During the Late 1990s
In June 1998, Jack E. Little took over as president and CEO of Shell after Carroll retired. By that time, the firm had restructured its business operations into four new segments, including Oil and Gas Exploration and Production, Downstream Gas, Oil Products, and Chemical Products.
In 1999, the financial strains related to the firm's expansion and low oil prices forced Shell to rethink its current strategies. Operating profits had sunk to such low levels that the company announced plans to sell its interest in the Altura venture as well as the majority of the Tejas Gas Co.'s downstream gas assets. It also planned to divest a number of its chemicals businesses and restructure the Aera Energy venture.
As oil and gas prices remained low in 1999, Shell continued to cut jobs. By March, more than 1,000 jobs had been cut in its exploration and production business segment. In April, Little retired and Steven L. Miller, managing director of Royal Dutch Petroleum Company, was named president and CEO. At the same time, Shell's parent took over full control of the subsidiary--which in the past had acted completely autonomously and filed separate quarterly financial results--in an attempt to centralize and control operations.
Although Shell entered the new millennium under the tighter reins of Royal Dutch/Shell, it continued to focus on exploration and production. The firm began development of its Na Kika project in the Gulf of Mexico, which was projected to recover more than 300 million barrels. Shell also announced plans to develop two other deep-water projects, entitled Serrano and Oregano. In October 2000, through its affiliate Coral Energy, Shell also opened a pipeline linking natural gas between the United States and Mexico. That same month, Texaco and Chevron announced plans to merge. As part of the deal, Texaco eventually would have to divest its portions of Equilon and Motiva, leaving Shell with an option to purchase a greater interest in the venture.
To boost production levels, Shell launched a hostile $1.8 billion bid in 2001 for Barrett Resources Corp., a natural gas producer. Its holdings in the Rocky Mountains, the second largest natural gas basin in the United States, made it extremely attractive to Shell, whose gas output would increase by 20 percent with the purchase. Shell was unsuccessful in its attempts, however, and in May, withdrew its offer after Barrett accepted a deal from Williams Cos. Inc. Nevertheless, Shell's focus on increasing exploration and production efforts left no doubt in the industry that the firm would remain a key player among oil companies.
Principal Subsidiaries: Coral Energy; Equilon Enterprises LLC; Motiva Enterprises LLC; Pecten Arabian Company; Shell Finance Co.; Shell Leasing Co.; Shell Pipe Line Corp.
Principal Competitors: BP plc; Chevron Corporation; Exxon Mobil Corporation.
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