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Transcript of 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!
http://www.google.com.cy/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&docid=G9QdO5QOk70AXM&tbnid=2M9ph1FXcFaRSM:&ved=0CAUQjRw&url=http://www.rjgeib.com/thoughts/prometheus/prometheus.html&ei=rjHYU5vwG6jQ0QX1kYGgAg&bvm=bv.71778758,d.ZGU&psig=AFQjCNFHqilTo1RzXujzkrI-r8S8kAQdEg&ust=1406763811940079http://www.google.com.cy/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&docid=G9QdO5QOk70AXM&tbnid=2M9ph1FXcFaRSM:&ved=0CAUQjRw&url=http://www.rjgeib.com/thoughts/prometheus/prometheus.html&ei=rjHYU5vwG6jQ0QX1kYGgAg&bvm=bv.71778758,d.ZGU&psig=AFQjCNFHqilTo1RzXujzkrI-r8S8kAQdEg&ust=1406763811940079 -
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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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p g y
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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
http://www.businessmodelgeneration.com/canvashttp://www.businessmodelgeneration.com/canvashttp://www.businessmodelgeneration.com/canvashttp://www.businessmodelgeneration.com/canvas -
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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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g p y
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.
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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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http://www.youtube.com/watch?v=qInrNVZhBvwhttp://www.youtube.com/watch?v=qInrNVZhBvwhttp://www.youtube.com/watch?v=qInrNVZhBvwhttp://www.youtube.com/watch?v=qInrNVZhBvw