OIL and GAS Industry

( UPSTREAM )

1

Sectors

2

Porter’s 5 forces model

3

Threat of New Entrants

• High capital requirements• Risk and uncertainties• Price volatility• Access to reserves• Political interference

4

Rivalry among competitors

• Dominated by 3‐4 players• Midstream and downstream also have

moderate competition as there is no any product differentiation

• India is a growing economy, which can lead to increase in market share for all firms

• High exit barriers makes difficult for firm to leave the industry

5

Threat of Substitutes

• Substitutes are alternate form of energy

• Stricter emission norms and climate challenges is the reason for shift

• Uncertainties in the demand and supply due to political reasons

6

Bargaining power of Buyers

• Bargaining power of buyers is low in the upstream sector

• In downstream sector, it lies with few players

• No bargaining power in midstream sector due to no differentiation

7

Bargaining power of Suppliers

• In the Upstream sector, the main suppliers are the oil field equipment providers, and as there are few players in this sector and concentrated, so low bargaining power.

• Bargaining power of suppliers is low in Midstream sector

• Downstream is fully dependent on the import of the crude oil and natural gas, so the bargaining power of suppliers is high.

8

Industry Life Cycle

9

Market Overview

10

Crude oil production (Region wise)

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Market Overview• India imports around 84% of total oil needs. • The Indian Oil industry consumption was

around 3.57 mn barrels per day (b/d) in 2012 compared to around 3.27 mn b/d in 2011 and is expected to reach 4.20 mn b/d by 2017.

• Indian Natural Gas consumption was approx 69.1 billion cubic meter (BCM) during 2011. It is expected to grow to 160 BCM by 2022.

• India imports 23% of total gas

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Value Chain

13

Value Chain

14

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Opportunity Realization Process*

Shell uses the Opportunity Realization Process (ORP) for any project worth USD 100 Milllion or more. The ORP is split into six phases punctuated by decision gates

* Courtesy Shell Global Solutions International B.V.

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Identify

Acquiring New Acreage

• Gather data available in public domain, Buy data from govt.

• Analyze all data to make a first estimate of Value of the opportunity

• Decision Gate (DG) 1 • How much to Bid for? • Do we understand what we are starting?• What is the Success/Failure rate in

Bidding Round ?

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Assess

• Acquire Seismic Data (2D, 3D, 4D ) and Analog Data

– Seismic Survey and mapping– Interpretation of Wave attributes – Seismic Qualitative Analysis:

Subsurface structure map– Seismic Quantitative Analysis:

Subsurface Rock Properties– Porosity(fractional %),

Permeability(flow) and Fluid Saturation

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Assess

• Exploratory Drilling

– Fluid fill (Oil/Water/Gas) and Reservoir properties

– Extensive logging• (Porosity/Density/Resistivity Log, Gamma

Ray Log,NMR Log)– Formation Dynamics Tester – Fluid Sampling

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Assess

• Appraisal Drilling

– delineation wells might be drilled to determine the size of the oil or gas field and how to develop it most efficiently.

– Static and Dynamic Reservoir Modeling– Dynamic Reservoir Modeling

• Decision Gate (DG) 2 • Have we looked wide enough?

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Select

• Evaluation of all the options

– TECOP (Technically, Economically, Commercially, Operationally and Politically viable)

• Decision Gate (DG) 3•Have we selected the optimal

solution?

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Execute and Operate

• Execute• Decision Gate (DG) 4

•Is everything in place to ensure success?

• Operate– Production operations , surface

facilities development etc. • Decision Gate (DG) 5

•Are we ready to operate

Analysis of constraints• Linear Regression Technique• Dependent variable: Industry

Sales• Independent Variables:

– Foreign Direct Investment– Exchange rate– Gross Domestic Product– Crude Oil Price (USD/Barrel)

22

Upstream Industry

23

Midstream Industry

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Downstream Industry

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Model Summary

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AnalysisFACTORS/SEGMENT

GDP Crude Oil

Price

FDI Exchange Rate

UPSTREAM

- - ++ ++ ++

MIDSTREAM

- + + +

DOWNSTREAM

- - - +++ +++ +++27

Anova Table

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Regulatory

Framework– New Exploration License Policy

(NELP) – Coal Bed Methane Policy – Underground Coal Gasification – Gas Hydrate – Shale gas

29

Profit Pool Analysis

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Expense Analysis

31

Expense Analysis

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Expense Analysis

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Du-pont AnalysisFactor Upstrea

mMidstre

amDownstr

eamFinancial Leverage 2.12 2.53 2.78

Asset turnover 0.4 0.365 0.44

Operating margin 0.396 0.299 0.286

Interest burden

0.99 0.50 0.589

Tax Burden

0.66 0.628 0.590

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I.FinancialsII.ComplianceIII.StrategicIV.Operations

Predicted Risk and Concerns

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Financials

Price volatility (High) Worsening fiscal conditions

(Low) Cost of fund raising (High)

36

Compliance

Climate change concerns (Low)

Uncertain energy policy (Low)

Environmental risk (High)

37

Strategic

Access to reserves (Medium)

Political constraints (High) Competition for proven

reserves (High) Competition for new

technologies (High)38

Operations

Cost containment (same) Health/Safety/Environmental

risks (same) Human capital deficit (High) Uncertainty in production (High) Operation challenges in E&P

and refining (High)

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BCG Matrix

Relative Market share

Mar

ket

gro

wth

Hig

hL

ow

Upstream

Downstream Midstream

40

Demand – Supply Gap

• Marginal increase in crude oil production

• Refining capacity increase at CAGR of 7%

• Increase in imports

41

Growth Drivers

• Growing Demand• Huge Investments• Skilled labor• Natural gas discoveries

42

India’s Market Dynamics

43

India’s Market Dynamics

44

Recommendations

• Alternative energy sources• Developing midstream

infrastructure • Partnership and joint

ventures with foreign players• Development of Storage

facilities45

References

• http://www.ibef.org• https://www.crisilresearch.com• www.prowess.com• www.ril.com • www.api.org• www.ongcindia.com • www.petroleum.nic.in • www.planningcommission.nic.in

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Thank You !

Presented by:- Akhil Goyal- Ankur Bhargava- Rajesh Kumar- Shivangi Chaudhary- Sweta Kumari

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