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HomeMy WebLinkAboutMITIGATION (6)The History of Shell This book tells the remarkable story of Shell Oil Company a story of talented people working together to build one of America's great companies. Founded in 1912, Shell has succeeded and grown by remaining focused on the needs of customers and being a good neighbor in the communities where it operates. In the process, Shell men and women have created innovative products, found and developed new energy reserves to meet America's needs in times of peace and war, and kept the company on the leading edge of technology in the petroleum industry. Shell has consistently ranked as one of the nation's most respected companies. As the next chapter is written, Shell has set its sights even higher. By drawing on its heritage of excellence and innovation, and unleashing the incredible potential of its people, Shell's vision is to become the premier company in the United States. ~r sto~ begins in 1912, when the U.S. petroleum m~ket was sti~ dominated American Gaseline Company's bulk '((~--))~y John D. Rockefeller's Standard,,Oil Compry. di~ribution depot on Lake Union near '~~ ~et~o]eum was a boo~ i~dust~, ~]~ck gold ~sh~d ~rom wc~s j~st ]~ ~t Searle, shortly after it opened in ~912 ~o~s i~ the ~o.i~s, a~d m~jo~ ~ew d~scoued~s w~e bd~ ~d~ ~most by th~ mo~th, as one of Shell's fir~ facilities in the C~i~om~a ~o~e ~cco~t~d ~o~ mo~ t~ 20 ~rc~t o~wofld oi~ ~oducdo~, ~d United States. Many cu~omers relied O~hom~ a~ ~e~s were ~ot too ~ be~. on horse-drawn tank wagons for Not only had the United States established itself as the leading oil-producing deliveries of Shell Motor Spirit gasoline nation in the world, but domestic consumption of oil products was sharply on the rise. and other produ~s. Henry Ford's Model T had made its debut in 190~, creating large-sc~e demand for automobiles ~ and, ~th it, for gaso~ne. Aviation was still in its infancy, expanding rapidly since the Wright Brothers' first flight in 1903, with a corresponding increase in the consumption of aviation ~el. The Roy~ DutcWShe~ Group of Companies, established in Europe in 1907 through a merger, produced and marketed oil products in many countries outside the United States. However, no company, including Shell, had as yet taken on Standard Oil in the burgeoning U.S. market with much success. That was about to change. She~ started in the United States in an unusu~ way. It began with a contract to supply gasoline from Sumatra for sale by Standard Oil on the U.S. West Coast. When Standard canceled that contract, She~ found itself with excess capaci~. Seeing new customers, it formed a subsidia~, American Gasoline Company, m market gasoline in the Pacific Northwest and San Francisco Bay areas, competing with Standard Oil in the very same regions where it had pre~ously been a Standard supplier. On September 16, 1912, the tanker S.S. Romany arrived at Richmond Beach, Washington, with a cargo of one mil- lion gallons of gasoline from Shell's Sumatran refinery. This cargo was transferred to a brand-new Shell terminal near Seattle. A few days later, a railroad tank car delivered 8,000 gal- lons of the shipment to Chehalis, Washington, in the southwestern corner of the state. Thus began the sale of Shell Motor Spirit gasoline in the United States. An early advertisement proclaimed the product as being "clean and powerful" and noted it was "on sale at garages and delivered to your home." From that modest beginning, Shell is today a leading brand of gasoline in the nation. Oklahoma was then in the midst of an oil rush, spurred by the 1905 discovery of the Glenn Pool field just south of Tulsa, and in 1912 another Shell Company was born. The Roxana Petroleum Company was organized on October 1, 1912, to find and produce crude oil for outside buyers. Within a year, Roxana was acquiring oil fields from smaller companies, and its geologists were spreading across the state in search of new discoveries. In 1918, Roxana extended "downstream" by opening a refinery in Wood River, Illinois, and completing a 428-mile pipeline (no small project then, or now) to trans- port crude oil from Oklahoma to the new plant. To this day, Wood River is Shell's major source of gasoline and other refined products for the Midwest. Meanwhile, back on the West Coast, American Gasoline Company could not stay in business long bringing products from halfway around the world when plenty of oil was available in California. To secure a domestic supply, in 1913 the company acquired California Oilfields Ltd., one of the state's largest oil producers and located at Coalinga, for $13 million of cash and stock. American then built a refinery at Martinez, in the San Francisco Bay region, to process this crude, and the 170-mile Valley Pipeline to link Coalinga with Martinez. Completed in 1915, the Martinez plant was the nation's first modern refinery, combining the latest technological devel- opments from the European laboratories of the Royal Dutch/Shell Group with up-to- date American know-how. Its basic methods are still used throughout the industry today, and Martinez continues as a major Shell location. On opening the refinery, American Gasoline Company changed its name to Shell Company of California. The Martinez Refinery under construction in 1915. Crude oil flowed from tanks (upper left) down to processing units (lower right), Martinez was America's first "continuous process" refinery, meaning the whole plant did not have to be shut down for maintenance on one unit. The Wood River Refinery in illinois has been Shell's maior source of products in the Midwest since Roxana opened it in 1918. Continuing its rapid growth in the United States, in 1916 the Group founded yet another company, this one in Louisiana. The first act of the New Orleans Refining Company was to purchase 366 acres of cane fields on the banks of the Mississippi River, establishing a petroleum terminal on the site. Three years later, it began build- ing a refinery to process imported Mexican crude. The first unit of the new refinery came on stream in 1920. As the refinery grew, so did the community, eventually becoming the town of Norco, an abbreviation of the initials of New Orleans Refining Company. Now one of Shell's largest manufacturing complexes, the Norco facility processes most of the company's onshore and offshore Louisiana production. By 1920, just eight years after it had gotten its start in Washington State and Oklahoma, many building blocks of today's Shell Oil Company were in place. Ra_pid Expandon in the 1920s America's love affair with the automobile blossomed in the Roaring Twenties, with the number of cars on the road tripling during the decade. For Shell, seeking new sources of oil to satisfy consumer demand, the decade opened literally with a roar. Crude oil shot more than 100 feet into the air at Los Alamitos 1, Shell's famous discovery well at Signal Hill, California, near Los Angeles. The hill was in the process of being subdivided into small residential lots when oil was found. Oil companies and promoters rushed to the scene to acquire leases, and soon the hill was covered with a forest of wooden oil derricks. Even the next-of-kin of persons buried in the Sunnyside Cemetery eventually received royalty checks for oil drawn from beneath family grave plots. Signal Hill proved to be one of the most prolific oil fields in U.S. history. Capitalizing on this major resource, Shell built a refinery at nearby Wilmington and began selling gasoline and other oil products in the Los Angeles area. In 1927, four years after completing the Wilmington facility, the company built a refinery at Dominguez, adjacent to lNilmington, operating the two as a unit. A key change occurred in 1922, when Shell Company of California and Roxana Petroleum "went public" by merging with Union Oil Company of Delaware, forming a holding company called Shell Union Oil Corporation (today's Shell Oil Company). The new company was owned 65 percent by the Royal Dutch/Shell Group and 35 owned for percent by others, including public shareholders. Shell remained publicly the next 63 years (until 1985, when the Group purchased all minority interests 55:~' ......... and Shell became a wholly owned subsidiary of the Group, as it is today).--'c~ ,~'5~',,,° During the 1920s, Shell extended its marketing operations from coast ~J~ ~'~ to coast. By decade's end, Shell gasoline was being sold in all 48 states, as well as in the District of Columbia and the Territory of Hawaii To support this expansion, Shell Pipe Line Corporation moved to gather crude oil from new sources. Initially, it built a pipeline to connect oil-rich Westx ~ Texas to the Shell refiner[ in Wood River, Illinois. One year later, it built a of the pipeline from West Texas to a new refinery under construction on the banks ~ Houston Ship Channel. This refinery began operation in 1929, manufacturing prod- ucts for sale in the Eastern United States as well as for sale to Group companies abroad. Today, it is known as the Deer Park Manufacturing Complex, one of the largest refinery/chemical facilities in the nation. The Signal Hill Field. discovered by Following nearly two decades of nonstop expansion, Shell was now firmly estab- Shell in 192 I, became the nation's most lished as one of the premier petroleum companies in the United States, a position it productive oil field in terms of barrels has never relinquished, per acre. Roxana used trucks like these to deliver products to Midwest service stations in the 1920s. Additionally, in 1928 Shell Union took its first diversification step, forming a research subsidiary, Shell Development Company, at Emeryville, California. Its assignment: develop chemical products that could be made from waste gas at Shell's refineries. This effort was successful, and the following year another sub- sidiary, Shell Chemical Company, was formed to manufacture these products. Today, Shell Chemical makes an array of petrochemicals for sale worldwide. The "crackerbox" service station typified Shell's beginnings in California. First made of wood, these stations were converted to prefabricated steel, enabling assembly in a few days. The 1915 design remained almost unchanged for 15 years. The Depression: Regrouping and Moving dhead On Tuesday, October 29, 1929, the stock market crashed, ushering in the Great Depression. For Shell, and indeed for nearly every company worldwide, the 1930s were a period of cost-cutting and retrenchment. But all was not gloom. Some areas of Shell's business actually grew rapidly due to research breakthroughs. In the early '30s, cumbersome methods of applying granular ammonium sulfate as fertilizer were supplanted by "nitrogation," developed by Shell. This technique permitted the injection of gaseous ammonia fertilizer into irrigation water or directly into dry soil. In 1931, Shell opened the world's first plant to make ammonia from natural gas. Shell scientists also invented a way to synthesize 100-octane aviation gasoline, with lasting implications for the aviation industry. This product was developed at the urg- ing of James H. "Jimmy" Doolittle, a career Shell executive and world-famous aviator who became a World War II hero. In 1934, he persuaded the company to invest sev- eral million dollars in research and facilities to manufacture a product for which there was, as yet, no market. Some called the idea "Doolittle's Folly." However, just as he had predicted, once the product was 'available, aircraft manufacturers developed pow- erful new engines to utilize it. By the eve of World War II, Shell was supplying one- fourth of all the 100-octane gasoline used by the U.S. military. l0 ~,, h_ell(pedple have a long trad~non ofvolunteensm and gemng ~nvolved. Th~s lS ~, true in peacetime. It was also true in the Second World War, when so many of \~__~.=_~ them joined the armed forces to fight for their country. To assure the well- being of their loved ones at home, Shell paid monthly cash stipends throughout the war to employees in the military who had wives or dependent children. The company also shifted production. Following the attack on Pearl Harbor in December 1941, President Franklin Roosevelt announced emergency plans to build 50,000 war planes, challenging the oil industry to provide the 8 million gallons of avi- ation gasoline needed daily to fuel them. To meet this challenge, Shell shared its 100- octane technology with the rest of the industry. Within two years, production had increased to 8.4 million gallons daily, more than achieving the President's goal. By war's end, the industry had tripled that capacity. Shell's refineries at Deer Park, Wood River, Martinez and Norco played a big part in this effort. Shell produced other war materials also, including butadiene for synthetic rubber and toluene for the explosive TNT, used in artillery shells. The company's wartime production extended, as well, into unexpected byways such as agricultural products and medicine, including a research breakthrough that significantly increased America's output of penicillin. The company even devised a portable pipeline for use by the military in transport- ing gasoline from tankers to advance battle lines. This innovation was invaluable in several theaters of war, particularly for the fast-moving Allied forces in Europe who might otherwise have outrun their fuel supplies. The Art Deco style was popular for service stations in the 1930s, particularly in California and the Midwest. 13 Completed in 1968, the Capline crude oil pipeline runs 662 miles from St. James, Louisiana, to Patoka, Illinois. Constructed by Shell Pipe Line Corporation, the 40-inch line was notable in the 1960s for several technical advances, including a fully auto- mated computer system to operate valves and a new cleaning system employing spherical scrapers that traverse the entire line. The Swiss watch (inset) was a late- '30s sales tool. Station attendants explained to customers that Golden Shell Motor Oil would keep their engines as smoothly as it did the delicate timepiece. Opposite Page Shell played a major role in the develop- ment and production of butadiene - a key ingredient in synthetic rubber- and built this plant at Torrance, California, in 1944 when the U.S. government asked industry to mount a full-scale effort to help win World War II. Seeking better ways to find oil and gas, Shell began investing in the exploration and production sciences. In 1937, the company had estab- lished a geophysical research lab in Houston, a facility later called the Bellaire Research Center. In the early 1940s, Shell geophysicists and engineers pioneered the way to interpret electric well logs to determine the porosity and degree of oil and gas saturation of underground rock formations. The result: locating oil and gas became more scientific and less a matter of chance. Post- War Boom Following the war, Americans favored big cars with convertible tops and flashy fins. To keep those engines running, Shell stepped up its exploration activities. In the late 1940s, it brought the Louisiana Weeks Island Field into production with the deepest producing well in the world at that time. The company also established itself, early-on, as an industry leader in an important new oil and gas province -- the. Gulf of Mexico. To process its growing oil production, Shell expanded its refineries from five at the end of World War II to eight by the mid-1960s. And to supply these refineries with crude oil, it crisscrossed the nation with pipelines. Capline, opened in the late '60s, was a landmark. It was one of the longest crude oil pipelines ever built, spanning 662 miles from the Gulf of Mexico to Patoka, Illinois. Moreover, Shell's research programs began to pay offwith a bumper crop of new products. The company built the world's first plants to make synthetic glycerine and isoprene rubber. Shell Chemical became the largest manufacturer of epoxy resins, used as coatings and adhesives and in structural materials. New agricultural products were introduced to help farmers increase their yields. "Sneakers" with soles of Shell KRATON® thermoplastic rubber began to sell by the millions, even if few consumers had ever heard of ICRATON and fewer still understood the complex chemistry of the 14 This late 1930s pilot plant at the Emeryville, California, Laboratory was part of Shell's development of synthetic glycer- ine, not introduced commercially until 1948 because of delays and World War II. Shell opened this chemical plant in 194 I adioining the Houston Refinery to manufacture acetone and isopropyl alcohol, two very successful Shell products. Later, however, it became the first plant to produce butadiene for synthetic rubber on a commercial scale. material under their feet. Similarly, the improved cleaning performance and environ- mental sensitivity of laundry detergents was based in large measure on Shell NEODOL® detergent ethoxylates, which put the "cleaning power" in many of the most popular laundry brands of the time -- and still do today. In each of these cases, Shell supplied chemicals in bulk to other companies that made consumer products. To increase the sales of Shell brand products, including gasoline, motor oil and lubricants, the company introduced a steady stream of product improvements, such as mileage-increasing additives like TCP, and Platformate and -- later -- cleaner-burn- ing unleaded gasolines to meet environmental requirements. It also stepped up its marketing programs. Competition in the oil products industry was fierce. No compa- ny could afford to stand still. The ranch-style Shell service station, designed to blend with the environment, was introduced in 1958. In 1971, Shell built its first self-service stations, popular with consumers from the start. The company aggressively grew its credit card program; Shell cards were soon held by 8.5 million Americans. These and other efforts paid offwith a sharp increase in Shell's share of the U.S. gaso- line market during the 1960s, reaching a new high of nearly 9 percent by decade's end. Sustaining its competitive momentum, in the late 1970s Shell inaugurated the "Come to Shell for Answers" booklets, providing useful information on car mainte- nance, energy conservation and other topics of interest to motorists. More than one billion booklets were distributed free of charge. In 1977, the company introduced AUTO CARE®, one of the nation's first guaranteed car repair programs. Beginning in the 1960s, all manufacturing companies in the United States faced sharply increased public expectations as to environmental performance. Just as impor- tant, improvements in manufacturing and environmental technologies provided com- panies with the tools to meet these expectations. Shell began investing heavily in energy conservation and pollution-control facilities at all operating locations, includ- ing means to control air emissions, clean the water, and reduce and safely dispose of wastes. There has been no letup in the public's expectations nor in Shell's commit- ment to environmental stewardship since that time. Shell's ranch-style service station set an industry design trend in the 1950s and '60s. ~.~,// In the nineteenth century, and into the early years of the twentieth century, large reservoirs of oil could still be found relatively close to the earth's surface in places, such as California's Signal Hill and the Oklahoma plains, that were readily accessible. However, this easy-to-find, easy-to-produce oil is today little more than a distant memory. Of necessity, the search for oil has taken the petroleum industry deeper beneath the earth's surface and to more remote and hostile locations· Finding and producing oil and gas in the earth beneath lakes, gulfs and oceans can be especially complex, requiring tremendous engineering skill and state-of-the-art technology. Shell began producing in shallow waters of the Gulf of Mexico after World War II. Since then, it has helped lead the industry into ever-deeper waters, pioneering many technological innovations and engineering breakthroughs· In 1961, the company launched Eureka, the world's first self-positioning drilling ship, able to maintain a fixed position in seas as high as 20 feet and winds of 40 miles per hour. That same year, Shell developed the first generation of remote-controlled underwater robots to install hydraulic lines, turn valves and attach guide lines on the sea floor. In 1962, the company introduced Bluewater I, the world's first semi-sub- mersible drilling rig. And in 1964, it built the industry's first ice-resistant production platform, to develop a discovery in Cook Inlet, offshore Alaska. In 1962, Shell revolutionized offshore drilling with the invention of Bluewater I, the first semi-submersible floating rig. It opened vast new opportunities by enabling the industry to drill in waters more than several hundred feet deep. 19 0 20 In the late 1960s, Shell geophysicists developed "Bright Spot" technology, a sophis- ticated new way to interpret seismic signals (shock waves from surface that are bounced off underground mineral formations, similar to the use of radar or sonar, to identify geological "traps" that might hold oil or gas). Shell installed this technology on three brand-new exploration ships and employed it to competitive advantage in the Gulf of Mexico. In 1975, Shell made the first of several spectacular discoveries in the Gulf-- Cognac Field in 1,025 feet of water, the deepest commercial discovery in the American offshore to that date. Cognac was like a lightening rod for the petroleum industry, suggesting (correctly, as it turned out) that vast amounts of oil and gas were waiting to be found beneath the Gulf's deep waters. To develop this field, Shell built the world's tallest and heaviest drilling and production platform. Cognac was a prelude to exploration and production in even deeper Gulf waters. As we shall see shortly, the best was yet to come. Onshore, the '60s and '70s were a time of dramatic advances in "enhanced" recovery techniques, including waterflood and steam and carbon dioxide injection. Typically, only a portion of the oil in a reservoir flows to the surface on its own. Large amounts are left behind (a potentially vast resource waiting to be tapped with enhanced methods). In 1960, Shell pioneered the first commercial steam-enhanced recovery well at the Yorba Linda Field in California. Steam is injected into the oil-containing formation, warming the oil so it becomes less viscous and can be pumped to the surface. A decade later, Shell became the first operator to inject carbon dioxide gas in a West Texas oil field. The CO2 dislodges oil from rock pores and helps move it toward a pump. To obtain CO2, Shell built a 500-mile pipeline to transport the gas from natural underground deposits the company developed near Cortez, Colorado. Shell's leadership in seismic exploration was embodied in the Shell America -- long as a football field, staffed by a crew of 50 and featuring the most advanced equipment. Opposite Page Shell's Cognac platform in the Gulf of Mexico was the world's tallest and heaviest offshore drilling and production facility until Shell installed the Bullwinkle platform in the Gulf in 1988. Shell injects carbon dioxide into the tight rock formations of the Wasson Field in WestTexas, where it literally mixes with the oil, improving the flow and increasing the amount of oil recovered. 21 22 Advanced steam injection techniques enabled Shell to more than double production of heaW oil from the Belridge properties in California after they were purchased in 1979. The 1973 OPEC embargo on oil shipments to the United States created tremen- dous disruptions in U.S. energy supplies, pointing up the need to secure new domestic sources ofoil and natural gas. In response, Shell pushed ahead not only offshore and with enhanced recovery operations, but also with new production in Utah and north- ern Michigan. In the '70s, Shell became the largest oil producer in Michigan by deci- phering the region's unusual "pinnacle" reef geology. In Mississippi and South Texas, known for their deep, high-pressure reservoirs of natural gas containing large amounts of corrosive hydrogen sulfide, Shell led the way in developing the technology and equipment to produce this previously elusive energy resource. Shell researchers also invented the process for removing the hydrogen sul- fide, which is converted to sulfur for sale. Success and Struggle Shell accelerated its growth in 1979, making headlines when it completed the largest acquisition in American corporate history to that time -- the purchase of Belridge Oil Company for $3.6 billion. Having acquired Belridge and its California oil fields, Shell set out to increase their production. A new Shell subsidiary, Kernridge Oil Company, was created to operate the fields. By applying steam recovery technology, and with an additional investment of more than $1 billion, Kernridge boosted the average daily production of crude oil and con- densate at the Belridge properties from 40,000 barrels per day at the time of purchase to more than 100,000 just five years later. Much of the oil produced in California is "heavy" (that is, low gravity, high in sulfur content and more difficult to refine than light crude oil). Shell spent $875 million to modernize its West Coast refineries so they could efficiently convert heavy California crude to high-quality products, such as gasoline and jet fuel, that meet the needs of customers. Shell's share of U.S. crude oil production increased steadily from the late 1940s to the mid-1980s, reflecting the impact of new discoveries, property acquisitions, and technology development. In 1984, the New York Times called Shell "this country's most successful oil explorer and one of its best managed energy companies." However, as in any field of endeavor, there were misses as well as hits. In 1983, the company drilled exploratory wells at world-record water depths ranging to nearly 7,000 feet offthe mid-Atlantic coast. This program did not find oil or gas, although the leading-edge drilling technology it spawned was later used to advantage at other deep-water locations. The company also ventured north of the Arctic circle into Alaska's Beaufort Sea, where enormous sheets of floating ice can demolish conven- tional drilling and production structures. Shell built four gravel islands, capable of withstanding the harsh environment, to serve as drilling platforms. As in the case of the program off the mid-Adantic coast, oil was not found in commercial volumes. But that is the nature of the petroleum exploration business: not every well is a winner. In the 1970s, broadening its horizons, Shell took its quest for oil and natural gas to other nations, eventually including Cameroon, Malaysia, Brazil and the People's Republic of China, among many others. Shell's overseas exploration and production activities were successful for more than two decades, at their peak accounting for more than 15 percent of the company's annual oil and condensate production and a smaller percentage of natural gas production. In 1997, Shell's international oil and gas explo- ration and development operations were merged with those of other Royal Dutch/Shell Group companies. Shell's exploration efforts are concentrated today in the United States. Shell's seismic technology and an extraordinarily high percentage of successful exploration wells made Northern Michigan one of the company's biggest onshore successes. 23 The flexicoker at the modernized Martinez Refinery converts lower-value residual oils into gasoline and other high- er-value products. Seeking entirely new energy sources, Shell entered the coal mining business in 1974. The company built a significant presence before selling this operation in 1992. New chemical plants were built, as well, most notably a joint-venture petrochemical complex in Saudi Arabia, which began operations in 1985 and continues today as a key facility of Shell Chemical Company. Looking back, the period from 1967 through 1984 was one of extraordinary growth for Shell. In 1967, revenues were $3 billion, earnings were $285 million and assets totaled $3.6 billion. By 1984, all three had increased more than sixfold. During those years, Shell reinforced its leadership in many areas, chiefly in the exploration sciences, offshore drilling and production technology, enhanced oil recov- ery, fuels development, marketing networks and proprietary chemical products. But 1984 turned out to be an earnings peak. Having reached a record $1.8 billion that year, profits stagnated for the next six years, then plunged in the early 1990s. From an operational viewpoint, Shell continued to perform well, building new facili- ties, finding and developing new oil and gas reserves, introducing innovative products, and improving its environmental and safety performance. However, like all oil compa- nies, its financial results were swamped by a worldwide oil glut and a resulting sharp decline in energy prices. That is the nature of the oil business: prices are unpre- dictable, and companies must sometimes cope with erratic swings in market condi- tions. To counter the industry-wide downturn of the late '80s and early '90s, Shell reduced costs aggressively and concentrated on investment projects likely to produce a relatively quick payoff. The SADAF petrochemical plant at Al Jubail, Saudi Arabia, jointly owned by Shell and the Saudi Arabian government, opened in 1985 and is the largest in the Middle East in terms of investment and yearly product tonnage. It produces such primary raw materials as ethylene, caustic soda and ethylene dichloride, and also MTBE, a gasoline component. 24 ~ack on a Winning Track. And, indeed, results did improve. By 1993, ;(~ Shell's earnings were once again on the rise, advancing to a record $2.1 f.~,~/billion in 1997. To some degree, this turnaround reflected improved market conditions. But even more importantly, it derived from a lot of hard work by Shell people at all levels to reignite the company's financial returns. In its exploration and production programs, Shell restructured operations, sold underperforming assets, relentlessly reduced costs and forged ahead with new produc- tion in the Gulf of Mexico at record depths. Cognac in 1977 was just the first in a series of water-depth record-setting Shell projects in the Gulf. Cognac was followed by Bullwinkle in 1988 at a water depth of 1,353 feet, Auger in 1994 at 2,860 feet, Mars in 1996 at 2,940 feet, Ram/Powell in 1997 at 3,220 feet and Mensa in 1997 at 5,300 feet, with more to come. All told, Shell had by 1997 developed or announced plans to develop approximately a dozen fields in the deep-water Gulf of Mexico, by far the most in the petroleum industry. Due mainly to its actMties in the Gulf, Shell has steadily increased its total domestic production since 1993, bucking the industry trend of domestic production declines. Shell Oil Products Company's marketing efforts are being driven by innovation in products, services and the execution of retail activities. Mars- one of the series of water-depth record-setting Shell platforms in the Gulf of Mexico - was installed in 1996 and began posting Gulf oil production records almost immediately. In its oil products business, including gasoline and aviation fuel, Shell has improved its performance despite a recent industry environment of excess refining capacity and low margins. It's tough for any company to keep ahead of the competition in todaT's fast-paced and challenging refined products marketplace. By emphasizing customer service and product innovation, and by reducing costs and improving the efficiency of its refining and marketing networks, Shell Oil Products Company continues to rank among the premier companies in the industry. A major objective is to differentiate Shell from competing oil products retailers. This is being accomplished by providing the services and products customers want and need most. In chemical products, Shell embarked on an ambitious growth plan, seeking to double its chemical revenues in seven years. Its strategy emphasizes operational excel- lence, global growth and the vital importance of people in driving change. In support of this strategy, Shell Chemical Company is developing new, profitable core businesses. In 1992, it entered the PET resin business through acquisition. PET resin is the plastic used to make recyclable bottles, such as soft drink and water bottles, and other food service products. Shell Chemical has been expanding aggressively in PET resins since that acquisition, building new domestic production capacity and constructing a major new plant in Mexico. Developing another core business, Shell Chemical intro- duced CORTERRA® polymer, a high-performance product for the carpet and textile industries. This unique polymer combines the chemical resistance characteristics of polyester and the elastic recovery of nylon. 28 In addition, Shell Chemical introduced CARILON® polymers, recognized in 1994 by the National Association for Science, Technology and Society as being among the 12 most significant real advances in materials research in the prior decade. CAR- ILON polymers combine toughness and high-temperature performance with chemi- cal resistance and wear properties, and are used for industrial pipe and liners, automotive components, electrical connectors, industrial fibers, and food and industrial packaging. Community Service Community involvement is a Shell hallmark, and that too has been an area of recent focus and growth. Shell people, including employees, retirees, dealers and jobbers, participate in numerous volunteer activities, reflecting their exceptional commitment to the commu- nity and to helping those in need. Shell supports their efforts with financial contribu- tions and by sponsoring SERVE, a clearinghouse which helps match Shell volunteers with community needs. Since 1992, Shell has sponsored the Shell Houston Open® golf tournament, turn- ing it into one of the top two charity events nationwide on the PGA Tour. Shell Today Shell is today engaged in the most exciting journey in its history. Since the early 1990s, the company has been implementing fundamental change to become more entrepreneurial, customer-focused, agile and competitive. Skilled, dedicated people have always been Shell's greatest resource. A basic goal, therefore, is to mobilize the men and women of Shell by developing a strong culture of teamwork, pushing responsibility deeper into the organization, encouraging innova- tion and individual initiative, rewarding performance, and achieving alignment between personal expectations and the company's direction. Part of the company's transformation is a recognition of the need to improve the diversity of ideas in all areas of its business. Shell believes that bringing capable people together from diverse backgrounds will increase its ability to create new and exciting business opportunities. WesthollowTechnology Center in Houston in 1996 pioneered commercial production of CARILON® Polymers, a revolutionary new class of performance polymers that add value to the user by virtue of strength, rigidity, toughness and ability to withstand high temperatures. Children's charities emerge as big winners in Shell's continuing sponsorship of the Shell Houston Open. Now the second largest money-raising event on the PGA tour, more than $2 million was donated in 1997, a seven-fold increase since Shell became the title sponsor in 1992. 29 Shell's modern Geismar, Louisiana, chemical plant exemplifies how Shell Chemical Company has continued to reduce costs, improve productivity and take advantage of growth opportunities, both in the United States and globally. A new governance structure took life in 1995. Governance is about who has respon- sibility to make decisions and who is held accountable for business results. People who can positively affect business results need to be empowered to act. As part of this new governance structure, Shell vested business responsibility and accountability in four separate operating companies and four new professional firms. The four operating' companies are Shell Exploration & Production Company, Shell Oil Products Company, Shell Chemical Company, and Shell Services International. The leaders of each of the operating companies are responsible for results and are charged with searching for ways to add value. The four professional firms (Legal, Tax, Human Resources, and Planning, Finance and Investment Services) provide services exclusively to customers within Shell, but now apply market pricing and use benchmarks, as appropriate, to confirm that their services are fully competitive with those of quality outside providers. As a result of the firm structure, there is now an ownership and accountability for personal and firm performance to a degree that did not exist before. At the same time, restructurings have taken place within Shell that once would have been unthinkable. One of the first was the 1993 reorganization of the Deer Park Refinery as a joint venture between Shell and Pemex, the Mexican national oil com- pany. As part of the arrangement, Pemex supplies a long-term supply of crude oil to the refinery, which was modernized, and Shell supplies Pemex with unleaded gasoline to help Mexico satisfy growing domestic demand. 30 This is one of many new Shell partnerships which draw upon the complementary resources of the two parties. In 1995, natural gas marketing operations were restruc- tured by forming a limited partnership, Coral Energy Resources, L.P., with a leading pipeline company, Tejas Gas Corporation. Coral Energy combines the supply reliabili- ty of Shell's gas reserves with the capacity and flexible delivery operations provided by Tejas Gas' pipelines and storage capacity. In 1997, Shell's producing assets in the Permian Basin of West Texas/Southeast New Mexico were merged with those of Amoco Corporation in a limited partnership, Altura Energy Ltd., owned by the two companies. Also in 1997, Shell's CalResources subsidiary merged with Mobil's upstream operations in California to form a new company called Aera, Inc. In a far-reaching change, in 1998 Shell and Texaco Inc. combined the major ele- ments of their Midwestern and Western U.S. refining and marketing activities and their total U.S. transportation, trading and lubricants businesses into a new company called Equilon Enterprises, LLC. Shell owns 56 percent of the new company and Texaco 44 percent. In addition, Shell, Texaco and Saudi Aramco expect to combine their Eastern and Gulf Coast U.S. refining and marketing businesses. The new ven- tures will market gasoline under both the Shell and Texaco brands through thousands of independent wholesalers and retailers nationwide. This combining of operations represents a fundamental change in the way petroleum refining and marketing compa- nies operate in the intensely competitive U.S. market. It allows Shell and its partners to be stronger, more flexible and responsive suppliers, benefiting customers, employ- ees, shareholders and the public. Another major change is Shell's acquisition of Tejas Gas Corporation for approxi- mately $1.45 billion. Tejas is one of the nation's largest owners and operators of intrastate natural gas pipeline processing and storage facilities. Many Shell products have resulted from the company's own research, including the polymers CORTERRA® for carpet and textiles, and CARILON® for auto components, electrical connectors, industrial pipe and liners, industrial fibers and packaging. 31 The Shell Learning Center plays a key role in supporting personal and organizational growth and transformation Just as Shell Exploration & Production Company and Shell Oil Products Company are implementing significant restructurings to meet customer needs and improve per- formance, so are Shell's two other operating companies -- Shell Chemical Company and Shell Services International. In conjunction with the Royal Dutch/Shell Group, Shell Chemical has adopted a cohesive global strategy to capitalize on opportunities in the worldwide petrochemi- cals business. A newly formed Group company provides strategic guidance and other business advice and services to each of the Group's chemical companies, including Shell Chemical. The objective is to strengthen the Group's position as the world leader in the petrochemicals business. Shell Services International is thinking globally, as well. Tremendous opportunities exist today to provide services to corporations worldwide. Shell Services has grown rapidly, especially in its information technology lines of business, since its creation as a market-driven enterprise in 1995. In 1998, it merged with four other Group service companies to leverage its skills and achieve the volume to be a low-cost provider of high-quality services, and to become a truly world-class competitor. Looking Back, Looking ~lhead The rich heritage Shell enjoys did not come easily. It was created by men and women who turned ideas and dreams into reality. The only constant of today's global business environment is change. But as we have seen in these pages, change is not anything new for Shell and its people. Going back to that first shipment of Sumatran gasoline in 1912, Shell has always shown the abili- ty to anticipate and capitalize on change. By building on a heritage of excellence, and continuously adapting and creating, and by being attuned to the needs of customers, Shell and its people will succeed in the future, as they have in the past. 32