Growth Despite Shortage

"Oil is seldom found where it is most needed, and seldom most needed where it is found," says L.E.J. Brouwer, senior managing director of Royal Dutch/Shell. Brouwer speaks from sometimes painful experience. Though the Shell group is second in the world oil industry (after Jersey Standard) and the largest industrial enterprise of any kind outside the U.S., it has never been as skillful--or as lucky--at finding oil as some of its rivals. It must buy a high 19% of its crude from other companies. Once a serious weakness, that need is also a source of strength since it forces Shell to rely for growth on marketing instead of production.

Each day Shell moves well over 5,000,000 bbl. of oil from wells to refineries and chemical plants, turning the crude into a bewildering range of products that are marketed in more than 100 countries. Last week Shell had bracing news for stockholders at annual meetings held concurrently in London and The Hague. In 1969, when many another oil company was scissored by rising costs and falling profits, Shell's earnings rose 7.9%, to $1 billion, while sales climbed only 5.7%, to $9.7 billion. This success resulted from Shell's determined attention to market research and from some top-management decisions taken long ago, reports TIME European Economic Correspondent Robert Ball. As a result of those decisions,

Shell can move its oil from well to customer at remarkably low cost.

One reason for the payoff is the managing directors' decision seven years ago that the most economical tankers would be 210,000-tonners. They were big enough to be highly efficient, but small enough to operate in ports then being planned. Shell ordered 22 of the behemoths in the mid-1960s, when prices were 40% lower than now. Shell transports oil for significantly less than it would have to pay with smaller tankers. It is also one of the few oil majors with a fleet big enough to compensate for the closing of the Suez Canal.

Shell has also pruned costs by spending heavily on oil processing. Of some 75 refineries, a dozen have been built and 40 expanded since 1960, and they are controlled partly by computers, which match production schedules with the varying demands of worldwide markets. Automation has increased productivity. Since 1959, Shell has shed 23% of its workers and almost doubled sales.

Up From Sea Shells. Most important, the company has drastically modernized its management. Royal Dutch/Shell has been one of the world's most complex organizations ever since 1907, when Marcus Samuel, the Briton who started out trading in sea shells and was one of the pioneers in the use of oil tankers, joined his "Shell" Transport & Trading Co. with the Royal Dutch Petroleum Co. Even today, Shell consists of those two parent companies, which through two holding companies own or control hundreds of firms round the world, including the U.S.'s Shell Oil Co.* For years Royal Dutch/Shell had two separate headquarters in Britain and The Netherlands. A decade ago, with help from the management consulting firm of McKinsey & Co., it started to prune and unify management. Now it has what one senior officer calls "a single head office with a wide, watery corridor between the wings."

Chemical Reaction. The empire is run by a committee of eight managing directors, who have offices in both London and The Hague. They boast that they have never had to vote on a decision. Jan Brouwer, the chairman, is a tall, heavily built Dutchman with a taste for modern art, and the vice chairman is David Barran, whose monocle and Savile Row tailoring make him seem the archetypal upper-class Englishman. Most of the managing directors are bilingual, and some speak three or four languages. The only American, Monroe ("Monty") Spaght, who is also chairman of the U.S.'s Shell Oil Co., notes: "When some companies call themselves multinational, I say the hell with it. They haven't finished the first chapter of this book. We are clearly the most multinational of them all."

Royal Dutch/Shell managers calculate that global oil demand will grow at 7% to 8% a year at least until 1975. They figure that they are well placed to take more than their current share of the market, which ranges from one-sixth to one-third of all the gasoline, fuel oil, lubricants and aviation fuel sold outside North America. For the longer-term future, Shell's strategy is to seize a bigger proportion of the fastest-growing markets, which are in Japan and Continental Europe. Shell also intends to increase its stake in chemicals, in which it has already become the world's tenth largest producer. By the end of this century, Shell planners believe, oil may be almost as important a source of chemicals as of energy.

* Last week Shell Oil Co. reported first-quarter earnings down 23% from a year before. Unlike its parent, the U.S. company was squeezed by costs that rose faster than sales.

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