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Oil & Gas Training

Oil & Gas Training. Section 5: Planning Process Midstream/LNG/Downstream Why you need to know it. Importance of Investments – Beyond E&P. The current oil company planning process The problem of the decade The opportunity New planning considerations. Global Upstream. Region.

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Oil & Gas Training

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  1. Oil & Gas Training Section 5: Planning Process Midstream/LNG/Downstream Why you need to know it

  2. Importance of Investments – Beyond E&P • The current oil company planning process • The problem of the decade • The opportunity • New planning considerations

  3. Global Upstream Region Business Unit Asset Team Field or Play Operations Upstream Planning Model CorporateStrategy • Scenario Planning & Testing • Portfolio Management & Optimization • Capital Allocation • Strategic Scorecards External Investment Opportunities • Primary Owner(s) • Upstream Leadership • Regional Leadership • Business Unit Leadership • Asset Team Leadership • Operations Management Capital and Scorecards Internal Investment Opportunities Asset / Operation Management

  4. Long Range Planning Timetable 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Corporate Strategic Outlook ExCom Message Strategic Outlook Reviews Cross-Functional Business Reviews Financial Plan Annual Performance Review Annual Performance Commitments (Scorecards) Ongoing Review of Performance / Internal & External Reporting

  5. Planning Process Steps

  6. Planning Process Roles

  7. Strategic Planning Group: Key Functions • Manage the strategic planning process • Long-Range Financial Model Roll-up. • Scenario Planning / Peer Reviews • Asset Characterization • Corporate Assumptions and Budget Bases • Business Assessments • Key Issues Champion/Advisor • Executive Committee Presentations • Strategic Business Intelligence / Competitive Analysis • Shareholder / Government Relations • Business Unit Contact • Performance Analysis • Knowledge Management: Capital Project Efficiency / Decision Management / EHS / Economic Consistency Network / Reserves and Resources • Asset Enhancement • Portfolio Management • Global Acquisitions and Divestments Portfolio Evaluation

  8. Upstream Value Chain & Asset Lifecycle The Strategic Planning Process must focus on the Upstream value chain and asset lifecycle Asset Acquisition Asset Life-cycle Value Vs.Time Exploration Drill & Complete Production Asset Divestment

  9. Set Strategy and Vision Mandatory Current Decision Process Four key processes drive successful integrated oil companies… Capital Allocation Process Business Planning Process Asset Management Process Objective: “Help management figure out the right mix of projects and investments to help the company consistently meet its financial and performance goals, year after year.” Steve Martin - Anadarko

  10. 9 Increased Demand – 1.5%/yr 30 Decline in Production – 4.8%/yr 47 High risk investments and multiple options across the complete supply chain The Problem of the Decade Integrated industry facing very large capital commitments… World Oil Supply – Demand: A.G. Edwards (MMBOPD) 77 86 2010 2000

  11. Implications for Integrated Companies Capital planning will take on new dimensions... 86 MMBOPD • More Refineries • GTL 9 Increased Demand 30 Importance of LNG Decline in Production 47 Capital Discipline 2010

  12. More Refineries Significant demand growth – first time in 2 decades… • 60-70 more refineries could be needed with average refinery addition of 125 MBD • Economics favor local refineries • Government policy also drives decision: • Security of supply • Industrial development • Job growth 86 MMBOPD 9 30 47 2010

  13. More Refineries Multiple and complex options… • Where? • 2/3 of demand increase in Asia Pac • Configuration? • Growing share of middle distillates • Higher quality products • Decline in fuel oil outlet • Feedstocks? • New crudes increasingly sour • Upgrading premium? • Who? • Majors abandoning downstream • Local company advantages • All markets not liberalized

  14. Need GTL Stuff

  15. Hypermarkets Market Share France 60% UK 25% USA Exploding A Quick Word about Marketing Another complex portfolio… Though USA industry site count is reducing, site numbers are large and complex for each company 2002 Rank No. of 2001 Company Outlets Ranking Shell 20,715 6 ExxonMobil 16,000 1 BP,Plc. 15,000 2 ConocoPhillips 14,000 NR CITGO Petroleum Corp. 13,540 3 Chevron Texaco 7,967 5 Sunoco Inc. 4,328 8 Marathon Ashland 3,847 9 Sinclair Oil Corp. 2,600 10 Speedway,LLC 2,006 11 Getty Petroleum Corp. 1,279 13 Valero 1,265 12 Amerada Hess 1,200 14 NPN Market Facts 2003

  16. Production Decline New global energy business emerging – LNG… • Replacing reserves difficult: • Arrest decline in mature fields • Working in remote areas • Current solution – Gas & LNG: • Developing full LNG potential could cost industry as much as $200B • Integrated companies must choose across E&P, LNG, downstream and chemicals 86 MMBOPD 9 30 47 2010

  17. Everett Cove Point Elba Island Lake Charles Just One Example: LNG Receipt Existing and Potential (Fall 2003)…. • Where? • USA has the demand increase • Facilities? • Terminals politically sensitive • Rapid expansion of fleet • USA supply source? • Global shift from Atlantic basin • Very capital intensive • Contracting? • Price volatility • Terms & conditions

  18. Capital Discipline More important than ever... • First mover advantage • Externalities most important component • New processes and rules needed • Integrated companies must routinely choose between LNG and other upstream and downstream investments 86 MMBOPD 9 30 47 2010

  19. “Overarching task is to reduce decline in mature fields and add new supplies – many in remote, high risk areas” Source: CERA Week 2004 - Houston Majors and Independents E&P targeting exceptional but risky prospects… Upstream Profitability by Region Source: Merrill Lynch estimates

  20. XTO OXY APA 2003 Total Return DVN BR PXD UCL NBL EOG KMG APC ’03E Capex as a % of Cash Flow Capital Discipline Rewarded More important than ever... 2003 Data USA Independents – Mature province analogy 86 MMBOPD 9 30 47 2010

  21. Set Strategy and Vision The New Process Integrated – with new level of sophistication… Capital Allocation Process Business Planning Process Asset Management Process Feedback Loop Essential Objective: Very long term improvement in shareholder value as measured by a Continuous Improvement in Portfolio Quality

  22. The New Process “Design Basis” Other considerations, as… • In the next decade: • Projects will become more complex • Global efforts are the norm not the exception • JV’s are the standard operating model • Competition for capital exists across the integrated asset chain The planner’s ability to routinely anticipate and model the key business drivers,especially those external to your company, will determine your effectiveness

  23. S P O T The New Process More considerations to make planners successful… • Strategy: • What are we trying to do and who owns it? • Process: • All inputs-outputs must make sense to the decision maker(s) • Organization: • Skills needed to “anticipate, anticipate, anticipate” • Tools or technology: • Always match the tool to the job

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