The Anglo-Dutch Royal Dutch Shell is the largest oil and gas company. The organization, with the headquarter in the Netherlands, is registered as a corporation in the United Kingdom. Analyzing the work of such companies and considering the problems that firms in the oil and energy industry have recently faced will help to come up with solutions that can improve the work of organizations and make them more efficient and successful.
The rapid increase in the number of cars in the world has led to an explosive increase in the demand for oil and gasoline. The company began to build a global network of gas stations actively. Shell fuel and engine oil were used in automobile racing and air travel, and research expeditions. Shell was one of the first companies to create travel guides for motorists at the beginning of the development of road transport. Shell is currently engaged in the exploration and production of oil and natural gas in many countries and transportation and sales (What we do, n.d.). The company produces liquefied gas, gasoline, kerosene, diesel fuel, lubricants, and biofuels.
Corporations are one of the most important institutions of the modern economy. To date, there is no single concept of corporate governance in world practice. According to one definition, it is a system of interaction between the company’s management bodies and stakeholders, which reflects the balance of their interests (Bhagat and Bolton, 2019). It aims to obtain maximum profit from the company’s activities according to the current legislation and take into account international standards.
Among the organizational and managerial problems of the oil and gas complex enterprises are:
- the irrational organizational structure of vertically integrated oil and gas companies,
- the inefficiency of existing business processes, and
- the low speed of response to external economic signals.
Most companies in the oil and gas sector have strict centralized management and represent immense branched structures characterized by irrational use of financial, labor and time resources, which leads to a lack of consumer orientation and changing environmental conditions, overloading business processes with unnecessary functions and positions.
Large mining corporations have recently faced pressure from shareholders and the courts to accelerate their plans to reduce harmful emissions. These claims go as far as refusing to explore new fields and forcibly investing in eco-projects and technologies. In addition to Shell, such giants as ExxonMobil and Chevron were also under attack from inside and outside. Strict regulation and an interest in the adequate performance of individual functions, rather than processes as a whole, and the weakness of horizontal links between organizational units represent the weaknesses of the management of oil giants. In addition, focusing on tactical rather than strategic goals leads to deterioration in the manageability of the oil and gas company and a decrease in the speed of its response to environmental challenges.
One of the main challenges facing companies in this industry is the production of oil and petroleum at lower prices to maintain competitiveness in the market. Optimization of production systems and environmental links at existing facilities is a priority goal for such organizations (Correa et al., 2019). These actions allow maximizing the efficiency of raw materials, reducing the cost of production and processing, and thereby compensating for the cost of exploration.
The next challenge facing organizations is to improve efficiency to ensure asset valorization. In order to maintain their oil or gas supplies, oil companies seek to extend the life of mature sites and have to look for new sources of oil or gas, the production, transportation, and processing of which is much more complex and expensive. To do this, the company must strive to achieve maximum reliability of its plants. Avoiding unexpected work stoppages, increasing throughput, and securing industrial assets should also be excluded when doing business.
Improving the environmental condition is the most essential task for companies, and they must meet the stricter standards. The oil and gas industry is a significant consumer of water and energy resources and is therefore subject to increasingly stringent environmental standards (Chernyaev, 2017). Companies are forced to review the methods of extraction and production of raw materials in order to obtain or maintain a license for their activities. They must also provide guarantees and ensure transparency in the environmental management of their activities.
Among the management challenges are increasing the transparency of complex operations to control costs and optimize the work of employees, facilities, and assets. Oil and gas companies are currently operating in the most physically and politically challenging environments. They operate in the areas of volatile market prices, fluctuating demand, and a labor force that has widely varying levels of education and skills.
In order to manage risks, control costs, and optimize the work of employees and assets of an oil and gas company, it is necessary to increase the transparency of its activities. Transparency can be found in the exchange of information about values and rules, internal business processes, regulations and procedures, prices, and suppliers (Schnackenberg et al., 2020). Royal Dutch Shell notes that they were one of the first global companies to share their core beliefs which were published in General Business Principles in 1976 (Our values, n.d.). However, since transparency is about integrity, employees also need to understand the company’s financial performance and see how it can affect them and how it affects them in bonuses and bonuses.
Major oil companies such as Royal Dutch Shell, ExxonMobil, and Chevron have faced the challenge of finding new oil and natural gas sources to replicate existing reserves. Since the governments of the Middle East countries, which hold half of the world’s proven hydrocarbon reserves, nationalized the assets of multinational oil companies, it has been complicated for oil companies to gain access to the region’s resources (Boon, 2019). Many promising oil and natural gas fields are located in countries with relatively unstable political situations or regions with challenging climatic conditions. High-tech refineries with a considerable refining depth are needed for the cost-effective processing of the world’s vast reserves of heavy sulfur oil, and this requires significant risky investments.
In addition, competition from small and medium-sized oil companies has increased as if recently. Over the past several years, small American oil and gas companies have grown stronger and today produce a significant portion of oil and gas outside the United States (Lu et al., 2019). These mid-sized players have broken into the big leagues and are ready to compete with bigger rivals in a number of regions.
In many large oil-producing countries, energy policy is constantly changing. The uncertainty of energy policy reduces the effectiveness of activities for planning activities, forming an investment strategy, and ensuring resilience to changes in supply and demand. This, in turn, increases the likelihood of an imbalance in supply and demand due to a slowdown in investment activity. To solve this problem, a structured approach can be applied to informing political leaders and the general public about the need for a coherent energy policy, as well as to lobbying this issue in political circles and society. This is a long-term goal that will require significant resources to achieve.
The second way to solve the problem is to understand and predict the direction of further development of the energy policy of the country in which the company operates (Kumar, 2017). This may require the involvement of local policy consultants, which is relevant even for small businesses.
Ensuring effective cost control allows optimizing cash flows. This strategy helps to maintain the level of profitability of the company (Akeem, 2017). However, regardless of the strategy used, the implementation of cost containment measures always involves a certain degree of risk associated with a negative impact on the return on invested capital. In addition, the implementation of such measures may lead to disruptions in operating activities, negatively affect the company’s revenue, relationships with customers, and the quality of performance of obligations under supply contracts.
In the course of their activities, oil and gas companies are exposed to various risks that can have a negative impact on production and financial results. Companies strive to reduce the risks that are within their control and to take into account the possible negative consequences of risks that they are not able to control. This paper examined the challenges that Shell may face in the course of its activities, which include maintaining competitiveness in the market, creating transparency, and supporting energy policy.
References
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Our values. (n.d.). Shell Global. Web.
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What we do. (n.d.). Shell Global. Web.