Saudi Aramco vs.

Shell
Global
A comparative analysis

By: Hussain Hakim Ali Khan

Date of Completion: 27th November 2015

INTRODUCTION TO SAUDI
ARAMCO COMPANY
State-owned
Location:

company

Kingdom of Saudi Arabia

Fully

integrated petroleum enterprise

involved in exploration, production,
refining, marketing, distributing and
petrochemical exploration.

Fourth

largest natural gas reserves

INTRODUCTION TO SHELL
GLOBAL COMPANY
Business

(industry): Energy and

Petrochemical company

Products:

Exploring crude oil and natural gas,

manufacturing petrochemical products
Presence: 80 countries
Employees:
Product

> 90,000

category: on the road and solutions

for businesses.

HISTORY OF SAUDI ARAMCO

COMPANY
Oil

discoveries and explorations lead

the transformation of Saudi Arabia
from desert nation into a modern
economy

The

government drastically
increased its shareholding from 25%
in 1973 to fully owned in 1980.

HISTORY OF SHELL OIL

COMPANY
Marcus,

along with his brother Samuel

embarked upon to found a company named
Shell Transport and Trading Company.

Facilitated

exporting British merchandise to

Japan and import of commodities from the
Middle Eastern nations

Turned

wheat.

largest producer of sugar, flour and

BEGINNINGS OF OIL
TRANSPORTATION (SHELL)
Invention

of Internal Combustion

Engine
augmented the demand of gasoline
Idea

of oil export

Merger

and expansion of Shell Oil

Company

Tank

Syndicate

DIFFERENTIAL ANALYSIS
BETWEEN THE TWO COMPANY
Operations

of Shell Oil Company not involved in oil in

contrast to Saudi Aramco Company.

Initial

Business of :-

I.

Saudi Aramco oil exploration

II.

Shell Oil gasoline trading company

Commencement of companies:

I.

Shell ninteenth century

II.

Saudi Aramco twentieth century

PRODUCT LINES SAUDI

ARAMCO COMPANY
Gasoline
Natural

Gas

Petrochemical
Fourth

gas.

products

largest producer of natural

PRODUCT LINE SHELL OIL

COMPANY
Subdivided

into two categories:

1. On the road
2. Solutions for business

3.

Solutions

PRODUCT LINE - ON THE

ROAD
1.

Card services

2.

Fuels

3.

Oil Lubricants

4.

Shell Station Locator

5.

Loyalty

6.

Shell motorsport

PRODUCT LINE SOLUTIONS

FOR BUSINESS
1.

Shell LPG

2.

Shell aviation

3.

Shell chemicals

4.

Shell commercial fuels

5.

Shell sulphur solutions

6.

Shell marine products

7.

Shell trading and shipping

8.

Shell lubricants for suppliers

9.

Shell lubricants for business

DIFFERENTIAL POINTS
BETWEEN TWO COMPANIES
Greater

product range of shell

Shell

has more diversified and

variegated product line than Saudi
Aramco

Shell

global presence

Saudi

Aramco restricted to 10-15

developed countries

FINANCIAL ANALYSIS SHELL

GLOBAL COMPANY
Improving
Gross

ratio metrics

Profit Margin From 22% in 2013 to 25% in

2014
Low
1.
2.
.
1.
2.

Operating Profit Margin same in 2014 and 2013

Net profit margin 3% (2014), 4% (2014)
Reason:
Economic downturn due to falling oil prices
Expanding operations in underdeveloped nations

FINANCIAL ANALYSIS SHELL

GLOBAL COMPANY
ROE

9%

ROCE

7% and ROA 4%

Current

Ratios, Quick Ratios and Cash cover ratios

116%, 93% and 52% in 2014 as compared to 111%, 79%
and 43% in 2013

Debt

to total asset ratio 18% in 2014 and 17% in 2013

Cheaper

debt cost than that of common or preferred

share
Tax

savings

FINANCIAL ANALYSIS SHELL

GLOBAL COMPANY
Loss

of profits due to interest

expense.

Interest

coverage ratio = x15 in

2014, x20 in 2013

Net

profit interest cover ratio in 2013

(10x) in 2014 (8x)

NON FINANCIAL ANALYSIS

SAUDI ARAMCO COMPANY
1.

Organization structure

2.

Subsidiaries and joint ventures

3.

Market

4.

People in Aramco

ORGANIZATION
STRUCTURE
100%

government stake

Not

listed in stock market and no

share issued

No

external auditing and no financial

statement issuance

SUBSIDIARIES AND JOINT

VENTURES
Global

partnerships, joint ventures

and subsidiaries agreements

Unmatched

reliability is its hallmark

MARKET
Operational

infrastructure Saudi

Arabia
No

competition due to regulations by

Saudi government

PEOPLE
Diversity

of 90,000 employees

Optimizes

the potential of its people

and the organization per se.

NON FINANCIAL ANALYSIS OF

SHELL OIL
Organization
Subsidiaries
Upward

Structure

and joint ventures

and downward operations

Market
Health

and Safety

ORGANIZATION
STRUCTURE
Listed

in different stock markets in

different countries

Public

Limited Company

SUBSIDIARIES AND JOINT

VENTURES
Augmented

growth level by
acquisitions, partnerships and joint
ventures

Global

presence and high reputation

UPWARD AND DOWNWARD

OPERATIONS
Vertical

Integration had played an

instrumental role in the success of
the company

MARKET
80

nations global presence

High

level of competition and

expansion has enabled hiring of
competitive and highly skilled
manpower and high quality
intellectual capital

HEALTH AND SAFETY

Fewer

regulations in health and

safety and low investment

Nigeria

human rights violation

charges and uproar over this
infringement.

High

reputation risk in this domain.

SWOT ANALYSIS OF SAUDI

ARAMCO
Strengths:
1.

Exploration: Positive NPV projects of

oil drills and exploration and
increasing rigs due to low cost.

2.

Relations with Saudi Government:

Strong relations and receives strong
patronage.

SWOT ANALYSIS OF SAUDI

ARAMCO
Weaknesses:
1.

Not diversified single commodity

2.

Increased financial risk

SWOT ANALYSIS OF SAUDI

ARAMCO
Opportunities:
Demand:
1.
2.
.
1.
2.

Burgeoning oil demand

Low price elasticity
Petrochemicals:
Cost competitiveness arising from low
prices
Diversification of commodities to include
non-oil products

SWOT ANALYSIS OF SAUDI

ARAMCO
Threats:
Prices
1.

Volatility has enhanced risk and low

prices are worsening the condition

.
.

Terrorism:
Conflicts in Syria and Iraq major
oil producing nations as well as
deteriorating law and order
situation in Saudi Arabia

SWOT ANALYSIS OF SHELL

OIL
Strengths:
Strong

market position:
1. 80 countries and 94,000 employees
2. Decrease financial risk
.Latest Technology:
.Helped exploration of
.Increment in supplies

new sites
worldwide

SWOT ANALYSIS OF
SHELL OIL
Strengths

(contd.)
Brand Recognition:
1. Presence and quality of service
2. Brand Equity
Vertical Integration:
1. Upstream and downstream
integration has reduced
dependence on suppliers and the
onus of suppliers bargaining power.
.

SWOT ANALYSIS OF
SHELL OIL
Weaknesses:
Safety
1.
2.

.
1.

Records:
Fewer rules and regulations related to
health and well being of the employees
Accidents and financial losses related to
lawsuits
Size and scale of global operations:
Increased size is double edged sword - has
increased performance (pro) and had
resulted in decision making fiascos

SWOT ANALYSIS OF
SHELL OIL
Opportunities:
Increased

demand in CNG and LNG:

1. Environmental friendly and cheap
fuel had turned attention toward
CNG and LNG
Shale Energy:
1. Rapidly growing
2. Substitute for crude oil resulting in
cannibalization of crude oil sales
.

SWOT ANALYSIS OF
SHELL OIL
Opportunities:

Diversification to non-oil
commodities
2. Low natural gas prices
1.

SWOT ANALYSIS OF
SHELL OIL
Threats:
Prices:
1.
2.

Price volatility
Low prices

Political issues:
1. Threatens Operations
2. E.g. Nigeria case and Hoyer case
.

SWOT ANALYSIS OF
SHELL OIL
Threats:

Economic Downturns:
1. Led to decreased demand of fossil
fuels

Weather
1. May lead to economic shocks e.g
Hurricane Hike
.

CONCLUSION
Shell

Oil is a larger company than

Saudi Aramco with its diversified
product lines conducive for its
profitability and portfolio risk
Financial Risk for Shell Oil is higher
due to its privateness and lack of
any backing unlike in Saudi Aramco