Joint Venture

International Expansion Strategy of By:Sanket Dave (16)Rashi Garg (21)Kritika Nigam (38)Parin Shah (46)Goral Shroff (49)Nishant Singla (50)Vaibhav Wadhwa (55)

Flow of presentationIntroduction to Royal Dutch Shell history

Swot analysis & Competitors

Shell's growth in the international market

Market Entry and expansion strategies adopted by Shella)Joint Ventures b) Wholly Owned Subsidiaries c) Licensing Factors influencing the Internationalization of Shell and challenges

Controversies in International Expansion

Recommendations

Shell at a GlanceA global group of energy and petrochemical companies, Shell is headquartered in The Hague, the Netherlands

The parent company of the Shell group is Royal Dutch Shell plc, which is incorporated in England and Wales

Created by the merger of Royal Dutch Petroleum and UK-based Shell Transport & Trading

largest company in the world,in terms of revenue, and one of the six oil and gas "super majors"

Raison d etre:

The objectives of the Shell group are to engage efficiently, responsibly and profitably in oil, oil products, gas, chemicals and other selected businesses and to participate in the search for and development of other sources of energy to meet evolving customer needs and the worlds growing demand for energy.

Core Values:

-Integrity-Honesty-Respect for peoplePeople:

Shell employs around 87,000 people in more than 70 countries and territories

Businesses of Shell

SWOT

Royal Dutch competitors are1. Exxon Mobil

2. Chevron Corp.

3. British Petroleum

Exxon MobilIrving, Texas40, 000 gas and service stations Reserves of 13.6 billion barrels of OEDaily production is 6.4 million barrelsMajor producer of petrochemicals

BP (British Petroleum) Founded as Anglo Persian Oil CompanyLondon, UK80 countries, 20,700 sites , 86000 employees2.8 million barrels of oil a day18.3 billion barrels of OE- reservesRefining availability : 94.8%, reflecting strong operations around global refining portfolio

Chevron CorporationMerger of Texaco Inc. and ChevronSan Ramon, California11.6 billion barrels of OE in reserves2.6 million barrel of oil each day26, 000 gas stationsGlobal refining capacity of 1.95 million barrels of oil per day

Shells presence in the International Market

Growth of Shell in the International MarketInitial yearsFast expansion all over the world, including European, North American and Asian areasOil exploration and production were developed in Romania (1906), Russia (1910), United States (1912) and many other partsBy 1938, its crude oil production per day accounted for more than 10 percent of the world total productionIn 1980s offshore exploration technology and projects were developed, such as the Troll in Norway and the Gulf of Mexico

Contd.Expansion into Eastern EuropeWith the collapse of Communist regimes in Eastern Europe in 1989, Shell gained access to markets in these regionsThe first operation was started in Hungary though the joint venture structureSoon the business expanded at a quick speed to many other Eastern European countries, including Russia

Contd.21st centuryShell expanded its business into China and RussiaIn China, Shell has built a massive joint venture company with China National Petroleum Corp. (CNPA)-CNOOC and Shell Petrochemicals Company LimitedInternational agreements to benefit companies from various countries like between Shell Energy Holdings Australia Ltd. and its partner Petro China with Australia-based Arrow Energy LimitedIn the Gulf of Mexico, Shell has started his oil and natural gas production in the Perdido Development Project characterized by the operation of the deepest offshore oil platformObtains permission for exploration activities in Pakistan, Egypt, Tunisia and French Guiana

Sakhalin-2 ProjectSakhalin-2 is one of the worlds largest integrated, export-oriented oil and gas projects, as well as Russias first offshore gas projectSakhalin Energy Investment Company Ltd., the project operator, is owned by Gazprom, Shell, Mitsui and MitsubishiThe project infrastructure includes three offshore platforms, an onshore processing facility, 300 kilometers of offshore pipelines and 1,600 kilometers of onshore pipelines, an oil export facility and a liquefied natural gas (LNG) plantVirtually all the gas from Sakhalin-2 is sold under long-term contracts to customers in the Asia-Pacific region and North America

Market Entry and Expansion StrategiesJoint Ventures

Wholly Owned Subsidiaries

Licensing

Joint VentureIts establishment, based on the merger of the British-based Shell Transport and Netherlands-based Royal Dutch

Joint venture plays an important role in Shells international expansion & development strategy

Shells Joint VenturesBrazil-> Cosan, for Ethanol based fuelsChina-> Nanhai Petrochemicals Complex, for Oil and GasUSA-> Gulf Oil, for Nuclear EnergyGlobal-> ExxonMobil Infineum: For lubricants and fuel additivesAera: For Natural gas, oil exploration and production

Joint ventureOwnershipActivitiesLocationsInfineum International Ltd50% Shell; 50% ExxonMobilManufacture and marketing of fuel, lubricant and speciality additivesGlobalSaudi Petrochemical Company (Sadaf)50% Shell; 50% Saudi Basic Industries CorporationManufacture of ethylene, styrene monomer, MTBE, ethylene dichloride, caustic soda and ethanolAl Jubail, Saudi ArabiaELLBA BV and ELLBA Eastern (Pte) Ltd50% Shell; 50% BASFManufacture of styrene monomer/propylene oxideMoerdijk, The Netherlands; Jurong Island, SingaporePetrochemical Corporation of Singapore (PCS)50% Qatar Petroleum International and Shell; 50% consortium of Japanese companies led by SumitomoManufacture of lower olefins, aromatics, MTBEJurong Island, SingaporeThe Polyolefin Company Pte Ltd (TPC)30% Qatar Petroleum International and Shell; 70% Japanese interests, led by SumitomoManufacture of polypropylene and polyethyleneJurong Island, SingaporeCNOOC and Shell Petrochemicals Company Limited (CSPCL)50% Shell; 50% CNOOC Petrochemicals Investment LimitedManufacture and sale of wide range of base chemicals and derivativesHuizhou Municipality, Guangdong Province, ChinaWholly Owned SubsidiariesSeveral subsidiaries in Nigeria starting from 1958, thus contributing to Nigerias local economy.

Operation include, oil and gas production from local lands and swaps, as well as the oil detection and exploration in deep water far off the cost.

Shell Nigeria Exploration and Production Company Ltd (SNEPCO) and Shell Nigeria Gas Ltd (SNG), which were established respectively in 1993 and 1998.

SNEPCO - Detection and production of hydrocarbons from Nigerias frontier areas, with the vision of becoming the leader in African market in terms of deep water oil and gas operations.

SNG Promote the position of gas in energy industries of Nigeria, which is more reliable and cleaner than the traditional liquid fuel. Also, it has operated a pipeline construction with a length of 80 km, providing reliable guarantee for the gas supply.

Shell Petroleum Development Company of Nigeria Ltd (SPDC) - This is a wholly-owned Shell company that operates oil and gas production in the Niger Delta on behalf of the partners of an unincorporated joint venture between the government-owned Nigerian National Petroleum Corporation NNPC (55%), Shell (30%), Elf Petroleum Nigeria Ltd a subsidiary of Total (10%) and Agip (5%).

LicensingProvides support to its customers through licensing advanced technologies.

With a license issued by Shell Global Solutions, the client could get a particular technical assistance or operational consultancy to upgrade its own business performance.

A wide range of lead-edge technologies for other refineries, such as hydrocracking, fluidized catalytic cracking, thermal conversion, distillation and so on.

Factors that Influence InternationalizationWhich is the most appropriate mode for our development in the foreign market?ExportingWholly owned SubsidiariesCollaborative / Joint VenturesTurnkey ProjectsFranchisingLicensing

Factors that Influence InternationalizationChoice depends upon multiple factors

Internationalization Path of SHELLGreatly influenced by a factor Unique Company Structure ( 4 types of companies)

Internationalization Path of SHELLDifferent companies employ different method of expansion.Example:Operating Company: Joint Venture Gain detailed knowledge about local market; Shared risks and costsService Company: Licensing e.g. Shell Global Solutions; Reduction in Costs and Risks; No major investment in peripheral activities; Immunity against restrictive investment barrierEnvironmental factors in that country also matter.

Environmental Challenges Faced by Shell

Oil Spills in Nigeria: Old and corroded pipelines, dying cultivating power of landBrazilian Pesticide Disease: Pesticide plant creating severe health problems, spreading across farmlandsCanadian Tar Sands: Extracting oil by conventional medium leads to less pollution than unconventional ways. But conventional sources are limited and thus companies are investing heavily in unconventional sources and Canada is Shells biggest source of unconventional source. Here the company digs the tar, extracts oil using lots of energy and water & leaves a huge lake of toxic waste.Fracking unconventional Gas: Huge investment by Shell in not just unconventional oil but gas also in Qatar, Australia, Russia, USA, Canada. This needs high volume fracking which includes injecting rocks with water and other components in very high volume and it causes great damage to the environment.Sakhalin: Its a small island in East Russia. The waters of this island are feeding grounds of gray whale. This region has only 130 whales left which come under critically endangered species. Shell has invested there to extract both oil and gas which will disturb habitat of these whales and push them into extinction.Philippines: Shell has an oil depot in Pandacan a city In Philippines with population of 84,000 people which leads to massive health issues for the residents.28Political Challenges Faced (Interference) by Shell

Political Challenges Faced (Interference) by Shell : Examples

Shell signed an agreement to start a joint venture with the Libyan National Oil Corporation.30Muddling through inNigeriaIn 2010, Nigeria accounted for 19% of Shells worldwide productionAbout Nigeria:More than 30 million inhabitantsRanks 142 out of 169 in HDI by UNRanks 134 out of 168 in CPI54.4% official poverty prevalenceOver-reliance on crude oil & gas

1) Oil Spills

37,000169,000299,00028%72%63%37%72%28%National Oil Spill Detection & Response Agency (NOSDRA) ReportViolation of several internationally recognized Human RightsRight to food, work, adequate standard of living, health & healthy env.Pending court case in Netherlands

2) Primitive Gas FlaringThe natural gas is primitively flared in open airNigeria represents 111% of Global gas flaresNigerian Gas Association estimates loss of USD 72 Billion to NigeriaEnvironmental consequences: Heat stress & acid rainsConsequences to the local communities: Eyes turn red, quick corrosion of roofs, crack in walls due to ground vibrations etc.

Sakhalin-2 Project (Russia)Worlds largest integrated oil & gas project, capital expenditure amounts USD 22 BillionRussias first LNG plant, offshore Sakhalin islandCase: Western gray whales are on the brink of extinctionOnly 130 left, with 30 mature femalesInternational Union of Conservation of Nature created a panel of independent scientists: Western Gray Whale Advisory Panel (WGWAP)Currently 1 platform operational

Oil Spill in Gulf of Mexico

RecommendationsParadigm Shift: CSR to CSVShared Value for:Environment: Bio-fuel developmentPeople: Hiring & training, Educational & Health facilitiesThe Company: New profit models, Six Sigma, Pension benefits for employees

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