The Prize, Chapter 6 Overview
One tried and true rule of business success, and which is clearly demonstrated in what we see in Chapter 6, is that if you invest in one part of the business, you must invest in other parts to maintain a balance. A supply with no market or way to get the product to market is not very valuable. Similarly, a market with no product quickly collapses. This “supply chain” concept became a household term recently during the COVID and immediate post-COVID period.
The birth of Royal Dutch-Shell, one of today’s largest and most iconic oil giants, illustrates this concept well. As you will read in the chapter, the evolution of Royal Dutch-Shell was a series of mergers, deals, market manipulations, and conflicts. The goal to integrate all aspects of the business as a way to make it most resilient meant pulling together oil supply, transportation options, and outlets to markets. As you read about the journey from separate Royal Dutch and Shell, through iterations of British Dutch and Asiatic, you will see how things had to adapt in order to bring in the necessary pieces. Shell is a great example of a company at death’s door being reborn as a success story by adapting to new business models and accepting reality. But the Royal Dutch-Shell story also taught us another frustrating reality in that companies continued to be undisciplined in developing fields, and as quickly as areas grew, the reservoirs lost pressure and reserves, and prices crashed due to overproduction.
In Lesson 1, we focused on the US market in the story of Standard Oil. But covering approximately at the same time period, Lesson 2 tells the story of Royal Dutch-Shell and describes the story of the Russian, European, and Far East oil markets. We must remember that we not only have huge oil reserves in the US, but also in many other parts of the world. Those regions had to go through the evolutionary process, but unlike the US markets, those markets had the added challenge of social unrest, regional wars, and extremely difficult conditions. Russia best exemplifies how social and political unrest and chaos can affect the private sector, global industry. Just because you are not government-run does not mean you are insulated from government conditions.
One final additional element we learn in Lesson 2, and something we will see continue throughout the rest of the history of the oil industry, is that multinationals were moving more widely among markets. Until now, the US market was dominated by Standard Oil and the Europe/Far East markets was by Royal Dutch-Shell. Standard Oil was known for intruding into other parts of the world, but in Lesson 2 we see Royal Dutch-Shell coming to the US, especially in California and Oklahoma.
The Prize, Chapter 6 - The Oil Wars: The Rise of Royal Dutch, the Fall of Imperial Russia
Sections to Read
- The First Step Toward Combination
- The "British Dutch" - the Asiatic
- "The Group" - Samuel Surrenders
- "To America!"
- Return to Russia
Questions to Guide Your Reading:
- What does a vertically integrated company do for the oil business?
- What is required for investment in a new field?
- How can you avoid strategic mistakes?
- What is something that can cause major oil supply disruptions?
Chapter 2 - Caspian Derby
Sections to Read
- The Oil Kingdom
- History on Display
Chapter 4 - "Supermajors"
Sections to Read
- Were He Alive Today
Major Themes to Ponder as You Read:
- What are some similarities and differences between the 1860s oil industry and today?