Elements of the Downstream

1. Final Distribution Retailing Terminals & Wholesalers Elements of the Downstream Crude Acquisition and Transportation Bulk Distribution Refining MARKETING RISK MANAGEMENT

2. Supply, Market & Transport Products Market & Distribute Wholesale Products Sell Retail Products “Embrace volatility” - Financial markets - XML standards “Win & keep customers” - Dealer/jobber sophistication - Push pricing & availability “Lights out refinery” - Web process control - Collaboration across plants “Individual merchandizing” - Grocery nets & standards - Scan based trading Downstream Vision Drill down is 5 Forces Facing the Downstream page from overview section Supply, Market & Transport Crude Refine & Process Feedstocks “Global optimization” - Oil Monitor.com - Global Marine.com

3. Five Forces Facing the Downstream • Global market liberalization • Continued margin pressure across the chain • Disengagement of refining-marketing by majors • Growing importance of trading competency • Size no guarantee of competitiveness • Logo From “CERA week 2000” • Link to CERA • 2000 Website • Paul Skinner • Tom O’Malley • Ken Lay • Link to other • Websites

4. CERA “The New Prize: from Commodity to Customer” • The energy industry is facing a transformation in which the personal connection to the customer will play an increasingly greater role. The shift in focus from commodity to customer will require that energy companies create new service- and technology-oriented organizations. New entrants that are more customer oriented and more comfortable with new technologies will pose an ever-present threat. Traditional energy companies risk finding themselves relegated to lower-valued commodity markets. • Three forces drive the latest stage of development: globality, technological innovation, and sustainable development. Globality empowers customers, who will become more demanding and face a greater choice of suppliers, and offers opportunities to the energy industry to source worldwide. Technological innovation enables both customers and suppliers to capture value all along the value chain. Even sustainable development can be viewed as a problem or an opportunity, but the skills involved in working with a broader constituency will require a new form of leadership. This page is a drill down item for Five Forces Facing the Downstream

5. Trade Crude Outline • Process and CSFs • Theme and Issues • Problem Definition (potential demo) • Web site catalog (industry and non-industry) • Web Value Added

6. Top Industry Issues Same as Five Forces Facing the Downstream see overview section

7. Trade Crude Process • Forecast Demand & Supply • Make & Document Deals • Arrange Transportation • Manage Risk/Exposure/Position • Settle and Analyze Deals • CSFs • Strong relationships with producers • Instantaneous global access to price and changing market conditions • Accurate assays especially for swing purchases • Powerful price and market analytics capability • Accurate position systemwide - paper and physical

8. Trade Crude Key Issues • Key Theme = Global Optimization • Key Issues • Large cargo market, few transactions, few sellers • Power shifted to producers • Transportation costs very important, controllable component • Many refinery configurations mandate specific crudes • Important to trade off refinery operating costs vs. incremental crude yield and price

9. Trade Crude Problem Definition • Problem Definition: • Trading is global - practically 24/7 • Need more data/better quality data • Want to integrate on-line historical data • Want information about non-crude markets • Need more consistent Feedstock quality information • Solution: • Web-enabled information, customized to each trader’s requirements • Ability to “hand off” trades in progress from Singapore to London to Houston, for example • Web-based 24/7 trading systems • Solution Benefits/Value: • Rapid on-line analysis and answers to common inquiries • Increased transparency in the crude markets • Increased productivity of workforce

10. Trade Crude Web-Site Catalogue • OilMonitor.com • Enron.com • GlobalMarineHub.com • Altra.com (not currently web-enabled) • BPUK:E-energyTrade • GoCargo.com

11. Trade Crude Web Value Added • Integrate-optimize selection & • oil movement • Rapid response to global conditions • Selective quality premiums

12. Refine Outline • Process and CSFs • Theme and Issues • Problem Definition (potential demo) • Web site catalog (industry and non-industry) • Web Value Added

13. Refine Process • Plan and Select Feedstocks, Production Forecasting • Schedule Feedstocks, Products, Units • Operate to Plan/Schedule • Operate Safely • Blend, Store and Ship on-spec Products • Adjust for Variations and Measure Performance • CSFs • Maximize Variable Margin • Optimal Economic Utilization • Minimize Give-away and Energy Usage • Maximize Controller Utilization and Improve Unit Reliability • Meet or Exceed SHE Requirements

14. Refine Key Issues • Key Theme = Interactive Refining • Key Issues • Pressure on refining margins • Collaborative Planning • Feedstock/Product quality • Deviations from plan/schedule • Data consistency/visibility over hydrocarbon supply chain • Delay in decision process • Real-time Performance Management

15. Refine Problem Definition - option 1 • Problem Definition for Feedstock Quality Selection: • Lack of transparency in true crude oil quality • Transport quality degradation not tracked or sufficiently analyzed • Outdated crude oil quality representation results in non-optimal crude slate • Undetected crude oil quality variation decreases refinery performance • Most feedstock quality processes are still very manual and time-consuming • Solution: • One centralized internet hub for oil quality information • Automated data gathering/retrieval/model loading • Shared costs/resources for crude oil quality tracking • Solution Benefits/Value: • Improved crude slate optimization • Improved quality of domestic common streams (LLS, WTI, WTS) • Reduced crude testing costs; reduced time cycles for quality updates • Profit Improvement of $0.04 - $0.15/bbl of crude

16. Refine Problem Definition - option 2 • Problem Definition for Performance Mgt. • Company strategy and operating goals are unclear • Disparate performance measures (KPIs), across departments • Measures are not integrated with follow-up action plans • Above factors lead to incidences of micro-management, and answering the same question multiple times • Drive economics for functional silos rather than across functions • Solution: • Web-enabled performance management tool • Aligned measures and clear articulation of business objectives • Solution Benefits/Value: • Aligned and empowered workforce • An evergreen process for continuous improvement, action plans incorporated into system • Rapid on-line analysis and answers to common inquiries • Increased productivity of workforce • “What gets measured gets managed”

17. Refine Problem Definition - option 3 • Problem Definition for Supply Chain Planning: • Delayed communication and decisions regarding high $ impact events • No mechanism to quickly “re-publish” operating plan once “copies are made and the meeting is over” • No common view of economic drivers across supply chain, “what’s ‘my’ optimal vs. what’s ‘your’ optimal” • Disparate planning decision support tools with no visibility outside of functional “walls” • Accuracy of planning model constraints • Solution: • Packaged intranet platform for collaborative planning -- “Virtual Plan” • Common standards for planning documents; defined processes, workflow • Solution Benefits/Value: • Better decisions and faster decision cycles • Rapid deployment of IT platform; low cost roll-out • Managed work processes; knowledge organization and capture • Profit Improvement of $010 - $0.30/bbl of crude

18. Refine Web-Site Catalogue • Myplant.com Honeywell • Refiningonline.com • Processcity.com AspenTech • SHE?

19. Refine Web Value Added • Collaboration across plants or functional departments • Consistent performance management with accountability • K/management & best practices • Data consistency and rapid decision process

20. Trade Product Outline • Process and CSFs • Theme and Issues • Problem Definition (potential demo) • Web site catalog (industry and non-industry) • Web Value Added

21. Trade Product Process • Forecast Supply & Demand • Make & Document Deals • Arrange Transportation and Exchanges • Manage Risk/Exposure/Position • Manage Inventory & Position • Settle & Analyze Deals • CSFs • Accurate demand forecast daily • Instantaneous global access to price and changing market conditions • Understand transportation and exchange options by network • Powerful SCM optimization analytics capability • Accurate position systemwide - paper and physical

22. Trade Product Key Issues • Key Theme = Exploit Volatility • Key Issues • Many transactions, many sellers • Power shifted to large consumers • Network optimization important • Daily matching of supply and demand by network • Grade complexity: seasonality, blend components, pipeline grades

23. Trade Product Problem Definition • Problem Definition: • Trading is global - practically 24/7 • Need more data/better quality data • Want more specific information about relating to cargoes • Want more specific information relating to products inventories • Need access to changes in supply and demand plans in real time • Solution: • Web-Based 24/7 products trading systems • Web-enabled information, customized to each trader’s requirements • Ability to “hand off” trades in progress from Singapore to London to Houston, for example • Solution Benefits/Value: • Rapid on-line analysis and answers to common inquiries • Increased transparency in the market • Increased productivity of workforce • End to information overload

24. Trade Product Web-Site Catalogue • NRGline.com etc. Products brokerage site • Houston Street.com - announcement of JV with Equiva • RedMeteor.com announced commodities trading site • Cygnifi-JPMorgan - Derivatives on Web

25. Trade Products Web Value Added • Enables 24/7 global, electronic trading • Integrate external deal with internal work • Hedged pricing alternatives

26. Market Wholesale Outline • Process and CSFs • Theme and Issues • Problem Definition (potential demo) • Web site catalog (industry and non-industry) • Web Value Added

27. Market Wholesale Process • Forecast & Arrange Supplies • Negotiate Contracts • Set Price & Terms • Manage Customers & Orders • Settle and Analyze Performance • CSFs • Responsive and clear business strategy with this channel of trade • Competitive and defensible pricing • Mix of nationwide and regional customers • Mix of branded and unbranded customers • Dealing with a mixed population of large, sophisticated and small, unsophisticated customers

28. Market Wholesale Data Dump Discussion • Key Theme = Win and Keep Customers • Key Issues • Supply chain -ATP • Large and Small Jobbers Are Different • Small need virtual site - be their internet for accounting, procurement, payment - virtual P&L • Every thing a large oil company has internally, should transfer into jobbers for them to operate efficiently. Too small to make large investments in IT, want retail pools for better deals. Acct systems online. SHE • Immediate availability of product at a reasonable price may not be an issue anymore • Large Unbranded Jobbers (mass merchandisers) Hypermarkets • National Accts. Aviation, Bunker, etc ?? • Large jobbers ExxonMobil for example don’t mind station divestiture. Will need low cost money, investment banker support as they grow with opportunities. • Branded jobbers don’t have infrastructure to support their growth. Trucks, terminals, etc. • Image and Brand Support. Jobbers are charged for that. Credit card will stay part of it. Aren’t charged for processing own cards (do for VISA, etc.) • Want hedged contracts (avgas,heating oil, etc.) • Branded online accounts for customer to see • Majors sell more premium brand than non-major

29. Wholesale Marketing Issues First Pass • Jobber Issues • Open and responsive access to major’s capabilities: acct., SHE, contracts, etc. • Improved infrastructure to support growth • Image, brand and credit card support • Competitive (and hedged) pricing • Network wide reliable and ratable supply

30. Market Wholesale Problem Definition • To Be Determined • Possible presentation of Compaq dealer website channel.connect

31. Market Wholesale Web-Site Catalogue • OceanConnect.com Bunker Site • BP Amoco Chemical Site for National Acct. Customers • Chevron's CRA For Dealers and Agents • Connect.com Compaq Dealers • Trademarkets w/I2 • HAVE YOU SEEN ANY OTHERS?

32. Market Wholesale Lessons Learned • Push pricing and product availability • Major account (VMI) auto stock replenishment

33. Sell Retail Outline • Process and CSFs • Theme and Issues • Problem Definition (potential demo) • Web site catalog (industry and non-industry) • Web Value Added

34. Sell Retail Process • Operate Site • Promote & Merchandise Products • Optimize Merchandise Inventory • Set Retail Prices • Process Sales Transactions • CSFs

35. Sell Retail Key Issues • Key Theme = Individual Merchandising • Key Issues • Data detail on customer info

36. Sell Retail Problem Definition

37. Sell Retail Web-Site Catalogue • CRM Live • Scan Based Trading • CPRF Initiatives • Tommy, can you take Terry’s list and track down some retail (and wholesale) websites -

38. Sell Retail Web Value Added • Individual merchandising • Tie to credit card data • Scan based trading

39. Other Industry Initiatives

40. Other Industry Initiatives • - Industry Web initiatives - Bob Crowley/Hydrocarbon Processing

41. Other Industry Initiatives • - Full Value Procurement • Sparesfinder.com • e.conomy.com • NetworkOil.com • Chevron - Ariba • Shell - Commerce One Drill down to Zeus speeches Thu. Keynote “Capturing the Value of “E”merging Technologies in Supply Management” PwC Thu. Track A “Upstream Case Study: Establishing an E-Procurement Service in the Oil & Gas Industry” Wellbid Inc. Thu. Track B “E-Procurement Case Study” T. Stephens, The Procurement Centre Thu. Track B “Wilson Supply: An Online System for Oil & Gas Supply Chain Management” Wilson Supply Thu..Track B “Leveraging ERP Systems with an E-Procurement Solution” E&Y Fri. “Network Oil: Creating an E-Commerce Marketplace for Oil & Gas” Network Oil Fri. “Transforming MRO Catalogues: A Case Study” WorldOil.com Drill down to Links Chevron.com, Ariba.com, NetworkOil.com, Sparesfinder.com, commerce1.com e.conomy.com others?

42. Contract Mgmt MRP Purchasing Company X Planning Extranet, ERP Order Mgmt Approval ERP E-Procurement Application ERP Production Goods Receipt Inventory Mgmt Invoicing Billing Strategic Supplier Operations Payment A/R Project Execution Reporting Extranet, Catalog On-line Auction Trading Community Internet Internet e-Distributor e-MRO Value Chain Integration in Procurement • Electronic relationships where information is shared with suppliers and service providers in accordance with their strategic value.

43. Other Industry Initiatives • - Property data at your desktop • Indigo.com

44. Other Industry Initiatives • EDI vs. XML - PIDX (Lucerne Team) Charles is looking at the Lucerne docs - path to spreadsheets is share\zeus\standards\edi standards current and edi standards future Drill down to Zeus Speeches Fri. “The BizTalk Project: How XML Will Revolutionize E-Commerce in the Energy Industry” API,BizTalk, MicroSoft

45. B2B Environment and Options

46. B2B Environment and Options What is going on out there (from Lucerne Master v5) • Dis- intermediation • Aggregators • Networks • Etc. File is share\zeus\tools_technology_trends\lucerne_tool documentation put more information behind the next slide

47. Forrester: Dissecting E-Business Alternatives Market Description model A market for commoditylike products. It fulfills last-minute buy-and-sell needs for industry players with preexisting Exchanges business relationships. Example TradeMatrix.com A mechanism for lowering the acquisition price for Bid products typically purchased via RFPs or RFQs. It enables a systems wide range of suppliers to bid competitively in real time. A one-stop shopping venue. It streamlines purchasing by Aggregators concentrating many product catalogs for buyer groups. Examples Commerce1 and Ariba A mechanism for liquidating surplus at best possible prices. It enables a wide range of potential buyers to bid Auctions competitively for products at below-market prices. Order should be: Bid Systems Auctions/Reverse Auctions Aggregators Exchanges Extranets A secure, invitation-only site over the public Web where Extranets end users buy directly from sellers.

48. B2B Environment and Options • First Mover Principles - Chemical Examples Marty will get info. From D. Dickinson

49. Traditional Producer:Eastman Chemical - The Most Advanced • E-Business Program • E-commerce allows buyers to browse and purchase chemicals, get help, check orders and billing on-line • E-procurement initiative with CommerceOne • Supplemented the procurement process with a corporate procurement card for purchases under $2000 • Internet enabled VMI offering • Owns stake in Chemconnect.com • Procurement Benefits • 5% reduction in prices paid for office supplies by bringing more purchases into contract • Reduced order cycles from one week to 24hours on critical commodities and 48hours on others • Lowered administration costs- made an annual saving of $100 000 • Total ROI (% within first 10 months) was 126%

50. New Entrants: E-Chemicals • Business Model • Industrial chemical e-distributor • 20 major chemical suppliers, 1000 products, over 500 registered customers • Agreements with chemical suppliers (including DuPont, Elf Atochem North America) • After an order is placed, E-Chemicals picks up the product, delivers it, and does the billing • Sell and deliver industrial chemicals online in small-quantity orders through strategic agreements with suppliers and service companies • Select a product, get a price,order and track shipments on line • Provide e-commerce based procurement solutions • Offers a free on line registration • Order from multiple suppliers on a single purchase order