Essential Skills for Oil & Gas Professionals Nov 2014 Day 1a

8/10/2019 Essential Skills for Oil & Gas Professionals Nov 2014 Day 1a

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Essential Skillsfor Oil & Gas Professionals

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Dr. George Georgiadis PhD

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Dr. George Georgiadis

Born 1957Married and has 3 children.

Brunel University PhD Graduate 1988

Lived and worked in UK 19691992

Imperial CollegeScientist / Junior Lecturer 1988 - 1992

Cyprus Petroleum Refining Technologist 1992 - 2000 Hijet International Technical ManagerHouston Texas

AZTech Senior Consultant

Chartered Member of RSC and AIChE

Approved Safety Inspector

LecturerEuropean University

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The Course Content Joint ventures

Product sharing agreements

Implications and challenges

Joint operating agreement review

Day Four-Capital project planning and execution

Importance of project planning

Front end loading

Hot spots and challenges

Creating and protecting value

Implementing effective project controlframework

Day Five-Risk management application

What is risk management and why it is

important?

Risk management as applied to capital

projects.

Specifying objectives and identifying project

uncertainties

Technical and non-technical risks

Risk register review and analysis

Stakeholder identification and mapping

Day One-The Oil and Gas industry overview

The nature of the Oil and Gas industry

Who are the key players?

Strategic challenges and opportunities facingthe industry

Structures and business models

Case study review

Day Two-Commercial drivers

Upstream, midstream and downstream

operations

Exploration, evaluation and production

Lifting and production costs

Reserve estimates

Case study review

Day Three-Oil and Gas exploration and

production arrangements

Framing agreements


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Q.1 - What is peak oil and is this a new

subject?

A.1 - The term Peak Oil refers the maximumrate of the production of oil in any area under

consideration, recognizing that it is a finite

natural resource, subject to depletion.True/False

Q.2 - What is a sour crude and how does this

effect its price? A.2 - A crude that contains sulphur

compounds. It usually is cheaper than a sweet

crude.True/False 5


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Q.3What are the consequences of vapor lossduring ship loading and unloading operations?

A.3 - If allowed to escape to the atmosphere,hydrocarbon vapors will cause a loss of incomedue to loss of hydrocarbon volume and change inthe API of the oil but will also lead to pollution

and fire hazards. - True/False Q.4The decision tree analysis gets its name

from the shape it creates.

A.4 - True/False

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Introduction

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What did we do before the Oil

Revolution?

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Fire

For us fire is as easy as strikinga match.

But for not for our ancestors

The ability to create a spark

and build a fire must have beenastonishing.

The energy that it broughtchanged our lives.

Creating fire was just thebeginning of our ongoing questto use Earths energy resources

to make our lives better. 9

Prometheus Gave man fire!
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OUR FIRST ENERGY SOURCES For most of the history of humankind wood was used

for shelter,

for transportation on land and water,

and as a source of energy to burn for heat and light.

Besides using wood and their own muscles, peopletook advantage of the energy that the sun, wind,running water, hot springs and even animals couldprovide;

to do work,

to travel, and

for recreation.

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Around about 5,500 years ago Egyptians made

the earliest known sailboats, harnessing the

power of the wind to travel faster and further

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2500 years ago the Greeks were building what

we now call passive solar homes to takebetter advantage of the suns light and

warmth.

Around the same time, they also developedwaterwheels to grind grain, a task previously

done by hand or with animal power.

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2000 years ago the Romans

were enjoying baths heated

with water from geothermalhot springs.

1500 years ago in Iran, the

Persians had also found a new

way to grind grain, using millswith large wooden blades to

capture wind power.

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Europeans adopted the idea and used modified

versions of these windmills throughout medieval times.

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However the most

fundamental energy flow is

sunlight.

200 years ago and before that,

the only source of energy

came from the sun and a solar

collector! In simple terms a solar

collector is a piece of land with

trees vegetables and some

animals.

People worked on the land and

could feed their families.

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Merchant ships total estimated horsepower

was 725,000

325,000 used wood and in some cases coal,

400,000 from sailing vessels powered by wind.

Factories used about 1.150 million

horsepower, and windmills generated roughly

14,000 horsepower that year.

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Thomas Savery

By the late 1600s coalhad become more

popular than wood in

England.

The British had lots of

coal but they had

flooding problems in

the coal mines.

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By 1885 coal share made up 50.3 percent ofestimated energy consumption followed

Wood at 47.5 percent,

Natural gas and petroleum at 1.5 percent and0.75 percent respectively.

Thirty years later in 1915, coal was king with 75.0percent market share followed by wood at 9.5percent, petroleum at 8.0 percent, and naturalgas at 3.3 percent.

The developing hydroelectric industry attained3.3 percent of the market.

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The Oil and Gas industry overview

Small amounts of petroleum have been used

throughout history.

The Egyptianscoated mummiesand sealed

their mighty Pyramidswith pitch.

The Babylonians, Assyrians, and Persians

used it to pave their streetsand hold their

wallsand buildingstogether.

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Origin of Petroleum

3000 BC: Baku Seeps in Azerbaijan (Persias

name = land of fire)

Ancient Persians and Sumatransalso

believed petroleum had medicinal value.

Boatsalong the Euphrates were constructed

with woven reeds and sealed with pitch.

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Origin of Petroleum

The Chinese600 BC also came across it while

digging holes for brine they used the

petroleum for heating and they burned the

gas to evaporate brine for salt.

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American Indiansused petroleum for paint,

fuel, and medicine.

Desert nomadsused it to treat camels for

mange, and the Holy Roman Emperor, Charles

V, used petroleum it to treat his gout.

Origin of Petroleum

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1291 AD: Marco Polos Journey

Caspian oil produced for medicine, lamps

Brought back sample of oil from Sumatra

This seemed a popular idea, and upthrough the 19thCentury jars ofpetroleum were sold as miracle tonicable to cure whatever ailed you.

People who drank this "snake oil"discovered that petroleum doesn'ttaste very good!

Origin of Petroleum

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Origin of Distillation

1000 A.D. Arab scientists discovered

distillation and were able to make kerosene.

This was lost after the 12thcentury!

Rediscovered by a Canadiangeologist called

Abraham Gesner in 1852

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The Search for Oil

Yet despite its usefulness, for thousands of

yearspetroleum was very scarce.

People collected it when it bubbled to the

surface or seeped into wells.

For those digging wells to get drinking water

the petroleum was seen as a nuisance.

However, some thought the oil might have

large scale economic value.

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George Bissell

George Bissell is often consideredthe father of the American oilindustry

Bissell had the innovative idea ofusing this oil to produce kerosene,then in high demand.

he and his partner, JonathanEveleth, formed the Pennsylvania

Rock Oil Company for thispurpose.

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After getting confirmation of the usefulness of

the product from Yale chemist Benjamin Silliman

Jr., in 1854Bissell and a friend formed the

unsuccessful Pennsylvania Rock Oil Company. In 1858Bissell and a group of business men

formed the Seneca Oil Company.

They hired an ex-railroad conductor namedEdwin Draketo drill for oil along a secluded creek

inTitusville Pennsylvania.

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Colonel Drake

In 1856, after seeing pictures ofderrick drilling for salt, Bissellconceived of the idea of drilling for oil,rather than mining it.

This was widely considered ludicrous

at the time but on August 27, 1859,the company first succeeded in strikingoil, on a farm in Titusville,Pennsylvania just 69 feet deep.

Bissell invested heavily in the

surrounding region and ended upbecoming a wealthy business man.

The company's agent, Edwin Drake, issometimes credited with the"discovery" of oil.

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Pennsylvania's "Black Gold"

Drake's well produced only thirty-five barrels

a day, however he could sell it for $20 a

barrel.

News of the well quickly spread and soon the

hills were covered with prospectors trying to

decide where to dig their wells.

Some used Y-shaped divining rodsto guidethem.

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Pennsylvania's "Black Gold"

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To dig the wells six-inch wide cast iron pipes

were sunk down to the bedrock.

A screw like drillwas then used to scoop out dirt

and rock from the middle.

Many discovered to their dismay that once they

hit oil they had no way to contain all of it.

Until caps were added to the wells vast quantitiesof oil flowed into the appropriately namedOil

Creek.

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The First Pipeline

Transporting the oil was also a problem.

In 1865 Samuel Van Syckel, an oil buyer,began construction on a two-inch wide

pipelinedesigned to span the distance to therailroad depot five miles away.

Theteamsters, who had previously

transported the oil, didn't take to kindly toSyckel's plan, and they used pickaxes to breakapart the line.

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Eventually Van Syckel brought in armed

guards, finished the pipeline, and made a ton-

o-money.

By 1865wooden derricks extracted 3.5 million

barrels a yearout of the ground.

Such large scale production caused the price

of crude oil to plummet to ten cents a barrel.

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How Much Oil?

Andrew Carnegiewas a large stockholder in

the Columbia Oil Company.

Carnegie believedthat the oil fields would

quickly run drybecause of all the drilling.

He persuaded Columbia Oil to dig a huge hole

to store100,000 barrels of oilso that they

could make a killing when the country's wellswent dry.

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Luckily there was more oil than they thought!

But don't feel too sorry for Carnegie, he didn't

let the setback slow him down very much, and

went on to make his millions in the steel

industry.

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In contrast, "Colonel" Drakewas committedto the oil business.

He scoured the country looking for customers

willing to buy his crude oil. However, the bad smell, muddy black color,

and highly volatile component, callednaphtha, caused few sales.

It became obvious that one would have torefinethe oil to find a market.

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Early Refining

By 1860there were 15 refineriesin operation.

Known as "tea kettle" stills, they consisted ofa large iron drumand a long tubewhich acted

as a condenser. Capacity of these stills ranged from 1 to 100

barrels a day.

A coal fireheated the drum, and threefractions were obtained during the distillationprocess.

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The first component to boil off was the highly

volatile naphtha.

Next came the kerosene, or "lamp oil", and

lastly came the heavy oils and tar which were

simply left in the bottom of the drum.

These early refineries produced about 75%

kerosene, which could be sold for high profits.

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Kerosene was so valuablebecause of a whale shortagethat had began in 1845dueto heavy hunting.

Sperm oilhad been the main

product of the whalingindustry and was used inlamps.

Candleswere made withanother whale product called"spermaceti".

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This shortage of natural sources meant that

kerosene was in great demand.

Almost all the families across the country

started using kerosene to light their homes.

However, the naphtha and tar fractionswere

seen as valueless and were simply dumped

into Oil Creek.

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Laterthese waste streams were converted

into valuable products.

In 1869 Robert Chesebrough discovered how

to make petroleum jellyand called his new

product Vaseline.

The heavy componentsbegan being used as

lubricants, or as waxesin candlesandchewing gum.

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Tarwas used as a roofing material. But the more

volatile componentswere still without much

value.

Limited success came in using gasolineas a localanestheticand liquid petroleum gas(LPG) in a

compression cycle to make ice.

The success in refined petroleum products greatlyspread the technique.

By 1865there were 194 refineriesin operation.

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Who are the key players?

International Oil Companies vs

National Oil Companies StrategicInterests and competitive advantage


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John D. Rockefeller

In 1862John D. Rockefeller financed hisfirstrefineryas a side investment.

He soon discovered that he liked the

petroleum industry, and devoted himself to itfull time.

As a young bookkeeperRockefeller had cometo love the order of a well organized ledger.However, he was appalled by the disorder andinstabilityof the oil industry.

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Anyone could drill a well, and overproduction

plagued the early industry. At times this

overproduction meant that the crude oilwas

cheaper than water. Rockefeller saw early on,that refining and transportation, as opposed

to production, were the keys to taking control

of the industry. And control the industry he did!

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This cheap transportation allowed Standard to

undercut its competitorsand Rockefeller

expanded aggressively, buying out

competitors left and right. Soon Standard built a network of "iron

arteries" which delivered oil across the

Eastern U.S.

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This pipeline systemrelieved Standard'sdependence upon the railroads and reduced itstransportation costs even more.

By 1880Standard controlled 90% of the country'srefining capacity.

Because of its massive size, it brought securityand stabilityto the oil business, guaranteeing

continuous profits. With Standard Oil, John D. Rockefellerbecame

the richest person in the World

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Th S Si t


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The Seven Sisters

From the end of World War II into the late 1970s, seven of the

larger international oil companiesthe so-called Seven

Sisterscollectively controlled 85 percent of known world oil

reserves.

1. Standard Oil of California (SoCal)

2. Standard Oil Company of New York (Socony) (now

ExxonMobil)

3. Standard Oil of New Jersey (Esso)

4. Gulf Oil

5. Texaco (now Chevron)6. Anglo-Persian Oil Company (now BP)

7. Royal Dutch Shell

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Big Five

Today, nationally owned oil companies (NOCs)control over 90 percent of world oil reserves.

Excluding production of the OPEC nations, thecountries formerly constituting the Soviet Union

account for 25 percent of the balance The Big Five produce 20 percent,

The next 20 largest U.S. firms accounting for only4 percent of non-OPEC production.

Chinese firms contribute 8 percent, and

Mexicos Pemex 7 percent.

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Exhibit 2.6Major Oil Companies of the World

BP United Kingdom / USA

ChevronTexaco United States

Conoco Phillips United States

ExxonMobil United States

Royal Dutch Shell Netherlands and United Kingdom

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Abu Dhabi Abu Dhabi National Oil Company


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Key National Oil

Companies (NOCs)

(includes nationally

owned firms focused

mainly on natural gas)

p y

Algeria Sonatrach

Brazil Petrobras

China China National Offshore Oil Company (CNOOC)

China China National Petroleum Corporation (CNPC)

China Sinopec

Iran National Iranian Oil Company (NIOC)

Iraq Oil Ministry

India ONGC

Indonesia Pertamina

Kazakhstan KazmunaigazKuwait Kuwait Petroleum Company

Libya Libya National Oil Company

Malaysia Petronas

Mexico Pemex

Nigeria Nigerian National Petroleum Corporation (NNPC)

Norway Statoil

Qatar Qatar General Petroleum Corporation

Russia Gasprom

Russia Rosneft

Saudi Arabia Saudi Aramco

Venezuela Petroleos de Venezuela, S. A. (PDVSA) 54

O ti i d i


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Operating companies and service

companies

The global oil and gas industry is made up of

thousands of firms with an abundance of

terminology.

The following will classify clarify the namesand identities.


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Independent Oil and gas producers

Integrated Oil CompanyIOC Profit orieneted organisations:

BP, Chevron, ConocoPhillips, ExxonMobil, Shell and Total

Also ENI and Marathon

International Oil CompanyIOC Competes across borders, i.e. the large companies

above

Junior Small producers of 50010,000 bblsd

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National Oil Companies NOC

Controlled by national governments

Four decades ago, our attention would, most

likely, be focused on multinational oil companies,

notably the so-called Seven Sisters. However, the early 70s witnessed the birth of a

stronger, high performance NOCs we know today.

The fact that this occurred about a decade after

the birth of OPEC is no coincidence.

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NOC


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NOC

Many NOCs such as Gazprom, Petrobras and

Sinopec are majority owned by the state andpartially by private investors

They are usually formed by the governments such asthe ministry of petroleum or ministry of oil and gas.

Some operate nationally (Pemex).

Others, internationally (Gazprom, Petrobras andStatoil, CNOOC)

NOCs control90% of the worlds oil

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Oil Majors

Often interchangeable with IOCs

Supermajors

BP, Chevron, ConocoPhillips, ExxonMobil, Shell

and Total

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Largest Energy Firms

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Strategic goals of IOCs and NOCs


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Strategic goals of IOC s and NOC s

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TheMajors

ENI

TOTAL

Petrobras

Statoil

Gazprom

Sinopec

PetroChina

Rosneft

Aramco

Petronas

NigeriaIranian

Pemex

PDVSAPublic Policy Goal

ShareholderValue

Goal

Largest Upstream O & G


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Largest Upstream O & G

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Midstream Companies

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Strategic challenges and opportunities


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Strategic challenges and opportunities

facing the industry

The Oil and Gas industry is going through

massive disruption and since all other

industries are extremely dependent on fossil

fuels, its necessary to look at the trendsaffecting this global industry.


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The Oil and Gas industry investments in

energy will continue to be strong.

As a result, new innovative trends will flow

from the upstream sector to midstreaminfrastructure, refinery operations, and

petrochemical facilities.


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The challenges for this industry come at the

same time with some opportunities emerging

for the sector.


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Risks for oil and gas companies

The top 10 risks for oil and gas companies,highlight Challenges rather than view currentissues as Opportunities.

Market volatility,

pricing pressure,

variations in market performance,

demanding stakeholders

all have contributed to a global economy thatencourages competitive drive.

And with that drive comes opportunity.

Top 10 Challenges in Oil &Gas Industry:


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Financial

Price Volatility

Worsening

Fiscal Terms


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Compliance

Climate Change

Uncertain Energy

Policy


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Operations

Cost Containment

HSE

Human Capital Deficit

New Operational

Challenges


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1. Frontier acreage and access to reserves

Frontier acreage challenge representsexploration and development of new fields thatpreviously regarded as too difficult, too expensiveor too politically unstable to justify operations.

Also remote locations, with newly discoveredreserves, like Arctic, far North Sea, pre-salt basinsin deep water of Brazil etc.

Access to reserves involves competition for

access to proven reserves that became moredifficult in comparison to decades ago due toexpansion of the governments role.


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2. Unconventional resources.

These resources werenot commerciallyviable until recently.

Only due totechnologyadvancement,unconventionals

became so popularnowadays resolvingpartially the issue ofglobal demand.


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The unconventional resources are shale gas, oilsands and coal bed methane (CBM).

Although it is a convenient solution for ourenergy needs, the technology it involves, i.e.hydraulic fracturing, raises debates amongcommunities and professionals about harm itmakes to nature conservation and water

resources. This in turn might impede its development

through government unfavourable legislation.


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3. Conventional reserves in challenging areas.

This represents mostly unstable politicalregime, what in turn leads to lack of securityfor investments.

There are countries with varied politicalsituations (Nigeria, Lybia, Iran) or areas withnew discoveries in unfamiliar environmentswhere environmental legislation is

represented by soft law. (Arctic Environmental Protection Treaty).

k d d


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4. Rising emerging market demand.

The Energy Institute, 51% of oil and gasreported making significant investments toachieve growth in emerging markets, i.e.

China and other Asian economies. Since performance in emerging markets is

mostly dependent on government pricingpolicies, a significant risk is involved for any

foreign direct investments and creates theissue of bargaining power of the state.

OC OC hi


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5. NOC-IOC partnership.

National Oil Companies (NOC) are thegatekeepers of their national reserves, while

International Oil Companies (IOC) are the

gatekeepers of their advanced technology. The growth of NOCs not only in their states but

also outside their home markets, will lead to

increase in power and possibility to acquire the

necessary technological knowledge and may be

very alarming for IOCs future concerns.

7. Alternative fuels, including second


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7. Alternative fuels, including second

generation biofuels.

The environmental pressure and marketdemand that oil companies experience todayforce them to explore new industries, i.e.renewables.

According to Petroleum Review, 47% ofrespondents had already invested incleantech.

This urge requires additional resources,company policy and revised strategy.


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Brasil might be another example of concerns withoil and gas industry fiscal regimes, (Deloitte), as

current tax policy is extremely complex and

impedes the growth of the industry. Innovation in tax regimes is another headache

for Operating companies.

China recently introduced experimental resourcetax on crude oil and natural gas products with

5%-10% on sales.

10 C i l ibili CSR


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10. Corporate social responsibility CSR.

This challenge includes relations with variousstakeholder groups, health and safety concerns,

i.e. human rights, employee rights, stakeholder

rights, environmental protection, communityrelations, transparency and corruption issues.

CSR requires oil companies to succeed in each

criteria in order to build a reputation as a reliable

potential partner for public-private strategic

partnerships: cross-sector and government.


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The above challenges represent only tiny partof concerns of this extremely complex

industry.

However, it provides a brief overview oftrends the interested party, whether it is an oil

company or investment institution, needs to

take into consideration while building itsstrategy.

St t d b i d l


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Structures and business models

Ultimately, customers are the only relevantjudges of your business model!

In order to assess your business model you

should sketch it out on the Business Model

Canvasoutlined in the next video.

A i th b i
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Assessing the basics

Every business model has a product and/orservice at its center that focuses on acustomers job-to-be-done.

This the Value Proposition. So before even turning to your business model

as a whole, you need to ask yourself somebasic questions related to your Value

Proposition and the Customer Segments thatyou are targeting.


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First, ask yourself how well your ValueProposition is getting your target customers

job done.

For example, if a user of a search engine istrying to find and purchase the latest Nike

running shoe, the measure of success will be

how well the search engine helps the user getthis job done.


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Secondly, ask yourself how many people orcompanies there are with a similar job-to-be-

done.

This will give you the market size.

Thirdly, ask yourself how important this job

really is for the customer and if she actually

has a budget to spend on it. Thats it as to the basics.


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However, even the greatest products arehaving an increasingly hard time to achieve a

long-term competitive advantage.

That is the reason why you need to shift yourfocus away from a pure product/market

segment oriented approach towards a more

holistic business model approach.


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Below are eight questions to assess yourbusiness model design.

Rank your business models performance on a

scale of 0 (bad) to 10 (excellent) for eachquestion.

1. How much do switching costs prevent your


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customers from churning?

The time, effort, or budget a customer has tospend to switch from one product or service

provider to another is called switching costs.

The higher the switching costs, the likelier acustomer is to stick to one provider rather

than to leave for the products or services of a

competitor.


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A great example of designing switching costsinto a business model is Apples introduction

of the iPod in 2001.

Do you remember how Steve Jobs heraldedhis new product with the catchphrase

thousand songs in a pocket?


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In a time when little more than brandpreferences were preventing people from

switching from one player to another this was

a smart move and laid the foundation forApples subsequent stronghold on music and

later innovations.

2 How scalable is your business model?


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2. How scalable is your business model?

Scalability describes how easy it is to expand abusiness model without equally increasing its

cost base.

Of course software- and Web-based businessmodels are naturally more scalable than those

based on bricks and mortar, but even among

digital business models there are largedifferences.


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An impressive example of scalability is Facebook. With only a couple of thousand of engineers they

create value for hundreds of millions of users.

Only few other companies in the world have such a

ratio of users per employee. A company that has pushed the limits even further is

the social gaming company Zynga.

By building games like Farmville or Cityville on the back

Facebook, the worlds largest social network, theycould benefit from Facebooksreach (and scale)without having to build it themselves.


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A company that quickly learned its lessonsregarding scalability was peer-to-peercommunication company Skype in its earlydays.

Their customer relationship collapsed underthe weight of large numbers, when they weresigning up ten thousands of users per day.

They quickly had to adapt their businessmodel to become more scalable.

3. Does your business model produce


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recurring revenues?

Recurring revenues are best explained through asimple example.

When a newspaper earns revenues from thesales at a newsstand they are transactional, whilerevenues from a subscription are recurring.

Recurring revenues have two major advantages.

Firstly, the costs of sales incur only once for repetitive

revenues. Secondly, with recurring revenues you have a better

idea of how much you will earn in the future.


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A nice example of recurring revenues is Redhat,which provides open source software andsupport to enterprises based on a continuoussubscription basis.

In this model clients dont pay for new softwareversions because it is continuously updated.

In the world of Software as a Service (Saas) thesetypes of subscriptions are now the norm.

This contrasts with Microsoft, which sells most ofits software in the form of licenses for everymajor release.


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4 Do you earn before you spend?


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4. Do you earn before you spend?

This one goes without saying.

The more you can earn before spending, the

better.


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Dell pioneered this model in the computerhardware manufacturing industry.

By assembling on order after selling directly

they managed to escape the terrible inventorydepreciation costs of the hardware industry.

Results showed how powerful it is to earn

before spending.

5. How much do you get others to do


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the work?

This is probably one of the least publicizedweapons of mass destruction in business

model design.

What could be more powerful than gettingothers to do the work while you earn the

money?


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In the bricks and mortar world IKEA gets us toassemble the furniture we buy from them.

We do the work.

They save money.

On the web Facebook gets us to post photos, createand participate in conversations, and like stuff.

Thats the real value of Facebook, entirely created byusers, while they simply provide the platform.

We do the work.

They earn the sky-high valuations of their shares.


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Previously mentioned Redhat crafted anothersmart business model based on other peopleswork.

Their entire business model is built on top ofsoftware developed by the open sourcesoftware development community.

This allowed them to substantially reduce

their development costs and compete head-on with larger companies like Microsoft.


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A more malicious business model in whichothers do the work is the one practiced by so-

called patent trolls.

In this model patents are purchased with thesole intention of suing successful companies

to extract payments from them.

6. Does your business model provide


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built-in protection from competition?

A great business model can provide you with alonger-term protection from competition than

just a great product.


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Apples main competitive advantage arisesmore from its powerful business model than

purely from its innovative products.

Its easier for Samsung, for instance, to copythe iPhone than to build an ecosystem like

Apples appstore, which caters to developers

and users alike and hosts hundred thousandsof applications.

7. Is your business model based on a


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game changing cost structure?

Cutting costs is a long practiced sport inbusiness.

Some business models, however, go beyond

cost cutting by creating value based on atotally different cost structure.

Case Study China / Chinese NOCs


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Case Study China / Chinese NOCs

The three Chinese NOCs1. China National Petroleum Corporation (CNPC),

largest oil producer

2. Chemical Corporation (Sinopec), is the largestrefiner and

3. China National Offshore Oil Corporation

(CNOOC), owns the most service stations
http://www.google.com.cy/url?sa=i&source=images&cd=&cad=rja&docid=rj_PWlK8U5dhTM&tbnid=sEeGmw8dYxRb1M:&ved=0CAgQjRw&url=http://en.wikipedia.org/wiki/File:CNOOC_Logo.svg&ei=sCerUvT0LoeJywPdyYHICw&psig=AFQjCNEyFhdT-JWVvW0i3yZRwNAaaLj9PQ&ust=1387034928998523


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As a result, Chinas NOCs have been extremelyactive in securing resources not only in China

but in a variety of other countries.

For example, CNPC has acquired oil and gasassets in at least 23 countries, including

Sudan, Algeria, Ecuador, Nigeria, Chad, and

Kazakhstan.


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For its part, Sinopec acquired a stake in IransYadavaran oil field.

CNOOC purchased a significant stake in the

Akpo field in the Niger Delta. All in all, the Middle East yields about 50

percent of Chinas imports, and Africa

contributes 25 percent.


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Taking Chinas three NOCs together, theyoperate in at least 31 countries, with equity oil

holdings concentrated in Kazakhstan, Sudan,

Venezuela, and Angola. Also, these NOCs are participating in

transnational pipeline projects to bring oil and

gas from North, Central, and Southeast Asia toChina.

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To sustain their thrust into Africa, ChinasNOCs have broadened their relationship with

host countries to extend far beyond narrow oil

interests by investing in oil infrastructure andnon-energy development projects.

For instance, in the Sudan, China invested

more than $8 billion in Sudans oil industry.


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Included in this investment was theconstruction of a 900-mile pipeline from

Sudans oil field to the Red Sea.

Beyond Sudan, China has participated ininfrastructure projects in Angola, Nigeria,

Congo, and Gabon, in tandem with advancing

its oil interests.

12/9/2014 117


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The thrust of Chinas NOCs into Africa hasraised both fears and criticisms.

First, there is the concern that the NOCs

acquisition of equity oil in Africa will sew upsupplies and make the oil of these nations

unavailable to the wider market.


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A second major concern is Chinas apparentlyhappy acquiescence in bonding with some

regimes that the West regards as the most

oppressive and illegitimate, giving rise to theview that Chinas friendship with these

regimes undermines efforts to make them

comply with Western ideals.


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Chinas repeated contention that it does notget involved in domestic politics and that itsrelationships with African governments [are]strictly commercial is perceived by many ashollow.

Critics argue that without Chinas investmentsand tacit support, African governments, such

as the Sudans, would be forced to amendtheir behavior.


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Sudan provides China with the second-greatest supply of oil of any foreign country,

and CNPC holds a 40 percent stake in the

Greater Nile Petroleum Operating Companythere.


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While most observers deny that Chinas NOCsare directly controlled by the Chinese

government, their business strategies are

more coordinated with Chinese foreign policy This is not the case for other IOCs and their

respective host nations.


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The fear that Chinas efforts to secure oil at theexpense of the world oil market is unfounded.

China has come to the African continent in searchof oil long after IOCs secured the best tracts, and

the proportion of African oil that is undercontract with China is actually quite small.

Further, some of the oil that China acquires in

Africa under these equity and bilateralarrangements actually winds up in the worldmarket through Chinese sales.


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Further, oil that China helps to develop inAfrica under equity or bilateral agreement

actually expands the worlds supply of oil,

thereby strengthening the present oil marketstructure.

Chinas development of African oil actually

increases world supply.


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Case Study


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y

China

4) China V.s. US The Battle for Oil

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Essential Skills for Oil & Gas Professionals Nov 2014 Day 1a