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Solomon’s Worldwide Energy Industry Benchmarking

Anniversary. Solomon’s Worldwide Energy Industry Benchmarking. IAPG CONFERENCE 2006 Mendoza, Argentina. Benchmarking Topics. Introduction. Solomon’s Key Metrics. Performance and Gap Analysis. Cat. Cracking Performance Analysis. Use of Benchmarks. What We Do.

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Solomon’s Worldwide Energy Industry Benchmarking

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  1. Anniversary Solomon’s Worldwide Energy Industry Benchmarking IAPG CONFERENCE 2006 Mendoza, Argentina

  2. Benchmarking Topics Introduction Solomon’s Key Metrics Performance and Gap Analysis Cat. Cracking Performance Analysis Use of Benchmarks

  3. What We Do • Provide comparative performance analysisfor the global energy industry • Fuels/lubes refining • Petrochemicals • Pipelines and Terminals • Electric Power generation • Provide consulting services worldwide tofacilitate performance improvement

  4. Knowing Where You Stand Competitively Is Imperative!

  5. NSA Participation and Trend Groups USA CAN LTA Total Population 88 13 39 140 Trend Group 76 11 33 120 Trend Group – participation in each of last three studies

  6. Benchmarking Topics Introduction Solomon’s Key Metrics

  7. Refineries Seeking Answers To Two Key Questions To Strengthen Positioning CompetitivenessLooking outside the fence EfficiencyLooking inside the fence “How competitiveis my refineryin the marketplace?” “How well is my refinery operating the facilities that ithas today?”

  8. How Competitive Is A Refinery In The Marketplace? • Strategic perspective – economic viability • Comparison of total cost and resources required to manufacture petroleum products • Without regard for number or size of process units or other structural aspects contributing to higher costs • As a result, competitive positioning may be limited by structural or configuration constraints • Customers unwilling to cover differences in cost per barrel of product by refineries supplying the market Customers at the pump don’t care if a refinery hashigher costs – they only want the lowest price

  9. How Well Is A Refinery OperatingThe Facilities That It Has Today? • Operational perspective – focus on efficiency • Comparison of total costs and resources • Taking into account actual configuration aspects –number and size of individual process units and other structural aspects Focus is on the effectiveness of cost control and resource management typically within a refinery manager’s control

  10. Competitive Metrics OverviewKey Metrics (Same As Previous) • EDC is the normalization factor for competitive metrics • Refinery EDC (UEDC) based metrics • Cash Operating Cost, US Cents/UEDC • Non-Energy Cost, US $/EDC • Maintenance Index, US $/EDC • Personnel Index, Work Hours/100 EDC • Personnel Cost Index, US $/EDC • Capital Investment Index, US $/EDC

  11. Efficiency Metrics OverviewKey Metrics • Energy Efficiency (no change in methodology) • Energy Intensity Index – EII™ • Non-Energy Efficiencies (new) • Maintenance Cost Efficiency Index – MEI™ • Personnel Efficiency Index – PEI™ • Non-Energy Cost Efficiency Index – NEI™

  12. Efficiency Metric MEI™ 86.3 138.0 18.6 48 76 184.7 21.0 38.4 88.9 155.1 20.3 35.6 87.6 157.5 16.7 37.9 77.7 158.9 94.5 149.9 26.6 US Study Average Using New EDC Factors 118.1 US Study Average 2004 Competitive vs Efficiency MetricsMaintenance Competitive Metric US EDC Group US $/EDC 1 23.8 43.7 2 3 4 5 6 20.1 32.9

  13. Benchmarking Topics Introduction Solomon’s Key Metrics Performance and Gap Analysis

  14. 15.3 49.3 66.3 184.7 Impact on 2004 Company ResultsMaintenance – US Quartiles Competitive Metric, US $/EDC Efficiency Metric, MEI™

  15. US Average US Average US Participants Two-Dimensional AnalysisExample – Maintenance Cost Refinery Competitive Gap Target Peer Group Efficiency Gap

  16. Gap AnalysisRefinery Vs Peers – Maintenance Cost Key Gap Components Efficiency (15) Size/Complexity* (8) Total Competitive Gap (23) Refinery vs Peers US $M * Size/Complexity = Competitive Gap – Efficiency Gap

  17. US Average US Average Closing The GapEfficiency Vs Size/Complexity Gap – Maint. Cost Closing 100% of Efficiency Gap Refinery Competitive Gap Size/Complexity Gap Target Peer Group Efficiency Gap

  18. 15.3 49.3 66.3 184.7 Impact on 2004 Company ResultsMaintenance – US Quartiles Competitive Metric, US $/EDC Efficiency Metric, MEI™

  19. US Average US Average Closing The GapEfficiency Vs Size/Complexity Gap – Maint. Cost Closing 100% of Competitive Gap Via Efficiency Improvements Refinery Competitive Gap Target Peer Group Efficiency Gap

  20. 15.3 49.3 66.3 184.7 Impact on 2004 Company ResultsMaintenance – US Quartiles Competitive Metric, US $/EDC Efficiency Metric, MEI™

  21. Benchmarking Topics Introduction Solomon’s Key Metrics Performance and Gap Analysis Cat. Cracking Performance Analysis

  22. Study Focus • Raw material selection • Product yields • Plant utilization • Operating cost analysis • Energy efficiency • Maintenance and reliability effectiveness • Labor productivity

  23. Operating Expense Breakdown All Other Fixed Costs,1% Energy,59% T/A Maintenance, 7% Non-T/A Maintenance, 7% Non- MaintenancePersonnel,8% Other Volume-Related,4% Chemicals, 3% Catalysts & Catalyst Additives,11%

  24. Yields and MarginsRaw Material Breakdown 1% 36% 4% Unhydrotreated Feedstock 2% 4% 21% 2% Hydrotreated Feedstock 20% 4% 6% Vacuum Gas Oil Heavy Gas Oil Atmospheric Reduced Crude All Other Light Gas Oil

  25. Yields and MarginsRaw Material Pricing Adjustments • Various gas oils – sulfur and aniline point • Heavier feeds – sulfur and Concarbon residue

  26. Yields and MarginsProduct Pricing • Catalytic naphtha based on gasoline blending value • Light-cycle oils valued as distillate feed or blending stock; dependent on local market • Heavy-cycle oils and slurry valued as fuel oil blending stocks • Butylenes and i–butane valued as alkylation feeds • Propane and n–butane valued as finished products • Propylene valued as chemical feed

  27. Net Cash Margin DistributionBy Region Non-US Countries 1Q/2Q Break 2Q/3Q Break United States 3Q/4Q Break

  28. Average Value Gross Product Value 47.19 60.27 Raw Materials Cost 29.25 49.21 Gross Margin 5.95 24.56 Operating Cost 1.67 4.43 Net Cash Margin 3.68 21.10 Lower Values Higher Values US $/bbl Range of Study PerformanceUS $/bbl

  29. Net Cash Margin MRCC or RCC 19 16 13 Net Cash Margin, US $/bbl FCC 10 7 4 0 25 50 75 100 Percent of Participation

  30. Return On Investment 70 60 MRCC or RCC 50 Return on Investment, % 40 FCC 30 20 10 0 25 50 75 100 Percent of Participation

  31. Benchmarking Topics Introduction Solomon’s Key Metrics Performance and Gap Analysis Cat Cracking Performance Analysis Use of Benchmarks

  32. Use of Benchmarks • Establishing a plant’s performance level • Quantification of improvement opportunities by expense type and maintenance category • Confirming causal plant characteristics • Discovery of practices responsible for performance gaps with “Peer Group” • Provide “business case” for change programs • Convince personnel of need for new targets

  33. Anniversary

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