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Risk Management @ Royal Dutch Shell Plc.


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Risk Management @ Royal Dutch Shell Plc.

  1. 1. Individuelle Kennzeichnung / Datum Risk Management @ Royal Dutch Shell Plc. Jenny Yu-Chun Liu Judy Tsai-Yeh Wu Hajer Ben Mariem
  2. 2. Individuelle Kennzeichnung / Datum Agenda ● Introduction to Royal Dutch Shell Plc. ● Risk categories and sources ● Risk management of Royal Dutch Shell Plc. ● Evaluation
  3. 3. Individuelle Kennzeichnung / Datum Royal Dutch Shell Plc  an Anglo–Dutch multinational oil and gas company headquartered in the Netherlands and incorporated in the United Kingdom. • Created by the merger of Royal Dutch Petroleum and UK-based Shell Transport & Trading • as of 2014 it is the fourth largest company in the world, in terms of revenue • one of the six oil and gas "supermajors".
  4. 4. Individuelle Kennzeichnung / Datum Risk Management - Principles
  5. 5. Individuelle Kennzeichnung / Datum 4 committees Audit Remuneration Corporate &Social Responsibility Nomination & Succession
  6. 6. Individuelle Kennzeichnung / Datum Compliance to treasury standards Foreign exchange, Interest Credit Financial insurance Derivatives Valuation model of derivatives excludes special cases, e.g. subsidies to energy
  7. 7. Individuelle Kennzeichnung / Datum Risks classification Financial risks • Capital market risk • Credit risk • Market risk • Interest rate risk • Foreign exchange risk • Price risk • Liquidity risk Other risks • Country risk • Health , safety,security and environmental risk • Political risk • Property and liability risk
  8. 8. Individuelle Kennzeichnung / Datum Source of risk Risk management Credit risk When the counter party fails to repay on the due date Guideline: quickly react to worsening credit Well-defined easing measures shorten payment period→ shorten exposure period post collaterals←→take collaterals • vigorous collections & monitoring partners • Volume limits on counterparty tradings • Commodity counterparty: individual credit limits with netting method adopted (reduce transaction risks)
  9. 9. Individuelle Kennzeichnung / Datum Interest rate Foreign exchange rate Price fluctuationMarket Risk Market risk Risk exposure → Daily VaR (Monte Carlo) & Trading limits
  10. 10. Individuelle Kennzeichnung / Datum Foreign exchange risk : Shell is mostly dependant on the US dollar currency which is its major functionnal curreny. The fact of being global arises Shell’s exposure to this risk • Regional treasury centers: daily coordination of net postition of each currency for the WHOLE ENTITY • Exposure reduction • Swaps: for debts due to flows of money; into USD denominated • Forward contracts: ONE certain amount at once Interest rate risk : dependant on dollar LIBOR interest rate movments • Swap: for LT debts (>1 yr); receive floating and pay fixed Price risk : highly exposed to the fluctuations of commodities prices : crude oil ,natural gas , electrical power…. • Risk exposure → Daily VaR (Monte Carlo) & Trading limits
  11. 11. Individuelle Kennzeichnung / Datum Liquidity risk : the inability to get suitable sources to fund the company’s operations. • Liquidity sources: operations or external debt issuance • External debts: Commercial papers, Euro Medium-Term Note (5-10 yrs), US universal shelf registration (easier shares, debt securities, warrant and preference shares issuance) • Maintain good credit rating for lower rate • Managing repayment: special commercial papers for internal funds → credit line for Shell • Financial crisis→ stock price → value of pension asset → extra cash contribution → liquidity
  12. 12. Individuelle Kennzeichnung / Datum Health, Safety, Security and Environmental (HSSE) risk : this risk threatens shell’s emloyees and covers also the natural and environmental hazards • Systematically handling → CSR committee: standards and assessment • Road accidents → standard road safety program • Fuel-saving driving habit • More operational expences for safely disposing wastes • Low CO2 bio fuels production
  13. 13. Individuelle Kennzeichnung / Datum Total 2.28 1.69 2.72 3.31 0.0455 0.188 0.6544 1.8096 0 0.3164 0.2292 0.1094 0 1 2 3 4 5 6 Exxon BP TOTAL SA SHELL Comparison of some risk parameters between Shell and its competitors Value at risk Market sensitivity risk adjusted performance Source :