Shell’s history stretches back to the opening of the Suez Canal. From the start it was convoluted and byzantine and has only been finally ‘normalized’ this year…….
Rigzone News recently reported the restructuring of the Shell Oil Company incorporation. Normally a discrete internal affair, for this byzantine company the correction of a unique and extra-ordinary management structure, dating back more than 150 years, is indeed interesting news. Until now, Board-level management has been largely duplicated with separate corporate offices in London and Amsterdam – a ridiculous situation dating back to the Company’s very inception. As a pause-for-thought, we will not go into the boring detail of how the end to this duplication has been realised, but instead, we will give you the brief, but fascinating chronicle of how it came to be in the first place, essentially as sourced from a history of the OGP Industry as related in a book, “The Prize”.
Marcus Samuel (Shell’s founder) was born into a Iraqi-Jewish family in Whitechapel, London in the mid-19th Century. The family business was based on the import of shells, jewellery and brick-a-brack from Asia, which were made into pretty boxes and sold at top range stores in town such as Harrods. They owned a single ship which, typically, went out empty and came back full. When Marcus took over from Dad some 150 years ago he, of course, sought to change that. The challenge was to find something that would sell widely in Asia. The solution for the outbound leg was barrels of kerosene with the associated new fangled lamps to replace the less effective whale-oil lights which had been in use for several preceding centuries. The lamps sold like hot cakes in Asia, so much so that Marcus decided, sod the brick-a-brack, let’s focus on the Kerosene and the lamps. That coincided with the opening of the Suez Canal (1876) – so, he sold the ship and built the world’s first tanker for easier loading (a 5000-tonner – eventually 10 in all). In order not to hurt Dad’s feelings, the ships were all named after shells, as was the company – Shell Transport Co.
Meanwhile in the USA, Standard Oil was dominating the Kerosene market, which monopoly was ultimately trust-busted in 1905 into 5 separate companies now known as Unocal, Chevron, Exxon, Mobile and Amoco. (The family firm of Conoco, as the original developer of the Kerosene product, had managed to keep Standard Oil at bay). Anyway Marcus was pissed-off at the price, so proactively sought out other sources, to which end, he was awarded an Oil concession in East Kalimantan.
During this time, he was put in touch with a driller called August Kessler of the Royal Dutch company developing the first kerosene field in Northern Sumatera. He went to see him and they formed a JV with Kessler responsible for upstream and Marcus downstream (a simple enough event now, but one which at the turn of the Century that must have taken the best part of a year……!!). But it was Marcus who funded the drilling in Kalimantan over a number of years and without success. Eventually, his company (Shell Transport) was becoming financially stressed so he directed a final hole somewhere to the north of the village of Balikpapan after which, if no gusher, he would withdraw. It gushed and is still producing to this day……..
The rest is this sorry history. The two men were totally incompatible. Marcus, an urbanised introvert whose main ambition was to be Mayor of London (which he eventually did) and Kessler an energetic hard-nosed, direct-speaking, extrovert egoist, swatting aside all who got in his way… So it is no surprise that, once the JV investment turned into a financial gusher, the two could not agree on anything. .
So, in 1907, Marcus set up the downstream in London and Royal Dutch the upstream in Amsterdam and Royal Dutch Shell has since duplicated all senior management until now. The wonder is that shareholders didn’t do something sooner……..
Post Script: some 35 years later, the Shell facility in Balikpapan was the main reason for the Japanese invasion of Malaysia and Indonesia – due to US sanctions, Imperial Japan needed Shell’s oil to support their war effort in China – but that is another history……….