Shell Oil Company
Address:
One Shell Plaza
Post Office Box 2463
Houston, Texas 77252
U.S.A.
Telephone: (713) 241-6161
Fax: (713) 241-7217
Statistics:
Wholly Owned Subsidiary of Royal Dutch/Shell Petroleum Inc.
Incorporated: 1922 as Shell Union Oil Corporation
Employees: 21,496
Sales: $21.58 billion
SICs: 1311 Crude Petroleum & Natural Gas; 2911 Petroleum Refining
Company History:
One of North America's leading producers of oil, gas, and petrochemicals, Shell Oil Company has distinguished itself through its commitment to industry innovation. Its marketing expertise has enabled the company to compensate for its relatively low volume of crude oil production, as compared to its strongest competitors, by selling an equivalent amount of gasoline nationwide. Although the company conducts business primarily in the United States, Shell also explores for and produces crude oil and natural gas outside the country, both independently and through joint ventures with other subsidiaries of its parent organization, Royal Dutch/Shell Group. Shell Petroleum Inc. is a holding company that is 60 percent owned by Royal Dutch Petroleum Company and 40 percent owned by The Shell Transport and Trading Company.
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. It therefore 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.
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 were 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 glycerine in 1937.
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. Due to 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 in order 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.
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 the company was a strong antiapartheid 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 it had to cut operating costs in order to generate enough money to boost its production. The company announced it would cut 10 to 15 percent of its work force as part of a corporate restructuring. Over the next two years more than 7,000 jobs were eliminated, reducing Shell's work force 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.
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.
Principal Subsidiaries: Pecten Arabian Company; Shell Finance Co.; Shell Leasing Co.; Shell Pipe Line Corp.
Further Reading:
Beaton, Kendall, Enterprise in Oil: A History of Shell in the United States, New York: Appleton-Century-Crofts, 1957, 815 p.
Bridges, Harry, The Americanization of Shell: The Beginnings and Early Years of Shell Oil Company in the United States, New York: Newcomen Society in North America, 1972, 26 p.
McWilliams, Gary, "The Undersea World of Shell Oil," Business Week, May 15, 1995, pp. 74--78.
Miller, William H., "Last of a Breed," Industry Week, July 18, 1988.
Sampson, Anthony, The Seven Sisters: The Great Oil Companies and the World They Shaped, 4th ed., New York: Bantam Books, 1991, 414 p.
Shell: 75 Years Serving America, Houston: Shell Oil Company, 1987.
Shell Oil Company: A Story of Achievement, Houston: Shell Oil Company, 1984, 16 p.
Smith, Gene, "Even First-Class Shell Must Change to Stay Competitive," Oil Daily, July 15, 1991, p. 2.
Wells, Barbara, Shell at Deer Park: The Story of the First Fifty Years, Houston: Shell Oil Company, 1979, 139 p.
Source: International Directory of Company Histories, Vol. 14. St. James Press, 1996.
