Shell International Petroleum Co. Ltd. has finished much of the groundwork to build a substantial operation in the former Soviet Union (FSU) and central and eastern Europe.
The company has set up operating companies or representative offices. It is building sales and trades for a wide range of products and is in the early stages of a number of exploration and development projects.
Shell was operating in the FSU and eastern Europe long before the Iron Curtain fell. Shell Transport & Trading Co. was formed in 1897 after Marcus Samuel won an exclusive deal to export Azerbaijani kerosine to the Far East via the newly opened Suez Canal.
Now Shell is building its activities again in the FSU and central and eastern Europe in the wake of enforced restrictions spanning more than 70 years.
"Shell had a wide reputation in the former Communist world," said Adrian Loader, Shell's division head for the region.
"Shell's business in the Communist era was carried out with the help of representative offices. Our business was all in trading of lubricants, chemicals, and additives. We operated via central planning organizations."
STRATEGY
Shell prepared its strategy as former Communist countries began to heed western ideas. Since the fall of the region's Communist governments, Shell sees countries falling into three groups:
- One determined to merge back into Europe. This includes Hungary, Czech republic, Poland, and Slovenia, where Shell says fledgling democracies have managed difficult changes and shown political maturity.
- Another that wants liberalization and privatization but cannot agree on how to proceed and pay for the change. Russia is the archetype, with lack of a decisive break from the old regime hindering progress.
- A collection of countries in which latent divisions have caused bitter power struggles that stifle progress. Among these are Bosnia, Moldova, Tadzhikistan, and trans-Caucasian republics.
"Since 1989," Loader said, "Shell's prime thrust has been to establish operating companies where we feel we can do business. This is in line with our business worldwide, which relies on the operating company being an autonomous business center for the group."
Loader said Shell's approach is to get operating companies up and running, then decide what opportunities are open to each unit.
"We wanted to see what opportunities were on the ground," Loader said. "We were broad minded, with no preferences over what sector of the business to pursue."
In June 1990, Shell had established only one operating company in the region, a Hungarian joint venture running a network of 48 retail service stations. It had set up eight representative offices.
By June 1994, Shell had set up 21 operating companies in 12 countries and retained five representative offices. Now it operates retail chains in four countries, with a total of more than 100 service stations.
A common entry point to markets for Shell has been lubricants, which Loader explained require low levels of capital investment and provide good margins. "While the market is contracting, the part which is open to western lubricants is tending to increase with growing ownership of more modern cars and equipment."
OPERATING COMPANIES
In Albania, Shell appointed a consultant in Tirana in 1992. Hs role is to promote the sale of Shell products in the country.
The company also is seeking onshore exploration concessions from the Albanian government. Loader said it is close to an agreement for two onshore blocks.
In Azerbaijan, Shell set up a representative office in Baku in April 1993. This office's main target is upstream opportunities, although it has begun marketing Shell lubricants and speciality products.
The Baku operation also is charged with investigating opportunities in Georgia, Armenia, Uzbekistan, and Turkmenistan.
Shell set up operating companies in Estonia, Latvia, and Lithuania late last year. They will open Shell service stations this year and have begun selling lubricants and chemicals and trading products.
In Belarus, Shell opened a representative office in Minsk in March 1993. The office will support sales of Shell products in the country.
Shell Bulgaria AD was the first oil company to enter Bulgaria's retail market. An operating company was formed in 1991, which opened its first service station in August 1993.
By last June, Shell Bulgaria was operating five service stations while marketing lubricants and chemicals and trading marine and aviation lubricants.
Shell Gas Bulgaria AD was set up to enter the country's liquefied petroleum gas market.
In Croatia, Shell Zagreb was formed in 1992 to market lubricants and trade other products.
Shell Czech Republic AS opened its first service station in late 1992 and had built a network of 14 outlets by last June. Shell said it has established a strong position in lubricants, besides marketing and trading other products.
Earlier this year, Shell and a group of other companies bid for an interest in the Kralupy and Litvinov refineries, which the Czech government was considering opening up 49% to foreign investment (OGJ, May 16, Newsletter).
Shell products have been traded in Hungary since 1960, and the company formed the joint venture Shell & Interag in 1989. Acquisition of minority interest led to formation of Shell Hungary in May 1993 to handle distribution and marketing.
Shell had 88 service stations in Hungary as of last June and said it has secured more than 20% of the competitive retail market, making it second only to state oil company MOL.
Shell also claims a strong position in marketing lubricants and industrial chemicals in Hungary and recently set up Shell Gas Hungary to enter Hungary's LPG market.
Shell Kazakhstan Development BV is part of a six company combine that will conduct seismic surveys leading to preferential rights for exploration acreage in the Caspian Sea. The combine, in the organization phase at present, expects to acquire seismic data during the next 2 years.
Establishment of the exploration group enabled Shell's operating company to focus on marketing and trading of lubricants and chemicals.
In Macedonia, once part of Yugoslavia, Shell established an agency last May to promote trading and marketing of Shell products. Two Shell distributors sell lubricants in the country.
In Mongolia, Shell also operates through a lubricants distributorship. An agent was appointed in Ulan Bator this year.
Shell Polska opened in early 1993 to operate gasoline stations in Poland and market lubricants, chemicals, and other products.
Also last year, Shell set up Butagaz Polska, which bought LPG bottling and distribution plants in Lodz and Przytoczna that supply a little less than 10% of the market.
Meanwhile, Shell and Exxon Corp. are continuing negotiations with Polish authorities for exploration and production rights on four onshore blocks awarded under Poland's first licensing round.
Shell Romania Srl. was established in Bucharest in March 1992 to market lubricants and chemicals and support trading of other products.
Shell Romania Exploration BV continues exploration in northern Transylvania under a partnership begun in 1992 with state concern Nimir. Loader said the venture recently completed seismic acquisition.
Russian opportunities are carried out by Shell Neft AO. Most recently, the company begun producing lubricants at a new plant located at Russia's Perm refinery under a toll blending agreement with refinery operator Permneftorgsintez.
The plant can produce 80,000 metric tons/year of lubricants, while Russia imports about 300,000 metric tons/year. Shell intends to negotiate future installations at the site.
Two upstream projects are said by Shell to be well advanced. The MMMMS group, which includes Shell, secured a production sharing contract for two fields off Sakhalin Island (OGJ, July 4, p. 32). Now the group is awaiting government legislation for production sharing contracts, which is hoped for later this year.
Shell Salym Development BV is pursuing a joint venture in western Siberia. This aims to bring 600 million bbl oil reserves into production late this year.
Shell Slovakia was set up in 1993 after the republic became independent. Shell opened its first Slovak service stations in June 1994 and is marketing lubricants and chemicals and trading other products.
Shell Slovenia was set up last January to market lubricants and chemicals and trade products from the Croatian operation. The company also aims to operate service stations and is studying LPG markets.
To cover Turkmenistan, Shell opened a representative office last year in Ashkabad. Its assignment is to provide local support for upstream and downstream opportunities.
A representative office was set up in Kiev, Ukraine, in August 1992, to help sell Shell products in the country.
And in Uzbekistan, Shell appointed a consultant to promote its business.
