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Petroleum industry overview: Welcome

The petroleum industry is one of the world's largest and most importantindustries. In fact, oil and natural gas provide two-thirds of the world'senergy. Not only are most industrialized nations' energy needs supplied bypetroleum-based products, but about 30,000 different chemicals arepetroleum-based. This learning offering is for any IBM® employee whoneeds up-to-date information about the petroleum industry, whether insales, marketing, delivery, or support. No prior knowledge of the industry

is required. Click any of the topics in the table of contents to learn more.Did you know?Some interesting facts about the petroleum industry include:

• The great majority of oil reserves are located in a relatively smallnumber of large oil fields. The 300 largest oil fields contain aboutthree-quarters of the world's discovered oil.

• The national oil companies (NOCs), which are owned or controlledby the governments of oil-rich countries, manage over 90% of theworlds oil; five countries in the Middle East contain two-thirds of the current, known oil reserves.

• Of the 20 biggest oil firms, in terms of reserves of oil and gas, 16are NOCs. Saudi Aramco, the largest, has more then ten times thereserves that Exxon does.

• Current (2006) worldwide oil production is approximately 84 millionbarrels of oil per day; current U.S. crude oil production isapproximately 5 million barrels of oil per day.

Table of

contents

Welcome page

Players page

• Integrated

companies

• National

companies

•

Specializedupstream

companies

IBM competition pageSegmentation page

• Value chain

Basics page

• What is

petroleum?

• What is

refining?

• Oil and gas

reserves

Organization page

• Company

structure

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Petroleum industry overview is one in a suite of five QuickViews thatintroduces the petroleum industry. The other QuickViews in this seriesare:

• Petroleum upstream industry trends and dynamics

•

Petroleum upstream industry processes and key performanceindicators

• Petroleum downstream industry trends and dynamics

• Petroleum downstream industry processes and key performanceindicators

• Business

model

examples

Petroleum industry overview: Players

The major international oil and gas companies (IOCs) listed below are integrated companies, meaning they have both upstream and downstream operations and achemicals business as well.

International integrated oil companies

• BP• ChevronTexaco

• ExxonMobil

• Royal Dutch Shell/Shell Group

U.S. integrated oil companies

• Amerada Hess

• ConocoPhillips

• Marathon

• Murphy

Canadian integrated oil companies

• Husky Energy

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• Imperial Oil

• PetroCanada

• Shell Canada

• Suncor

European integrated oil companies

• Eni

• Hydro

• Total

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National oil companiesNational oil companies (NOCs) are owned or controlled by governments and arebecoming more dominant in the marketplace. Some are acquiring assets andexploring and developing outside of their home countries.

Country Company name

Abu Dhabi ADNOC

Algeria Sonatrach

Angola Sonagol

Brazil Petrobras

China CNPCChina PetroChina

China Sinopec

Colombia Ecopetrol

India ONGC

Indonesia Pertamina

Iran NIOC

Italy ENI

Kuwait KPC

Malaysia PetronasMexico Pemex

Nigeria NNPC

Norway Stratoil

Russia Gaxprom

Russia Lukoil

Russia Rosneft

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Saudi Arabia Saudi Aramco

Spain Respol

United Kingdom BG

Venezuela PDVSA

Vietnam PetroVietnam

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Specialized upstream oil companies

Companies that specialize in upstream only are called pure play oil companies.Examples of this type of company include the following:

U.S. oil companies

• Anadarko

• Apache• Devon

• Kerr McGee

• Occidental (Oxy)

Canadian oil companies

• Canadian Natural Resources

• EnCana

• Canadian Oil Sands Trust

Smaller U.S. companies

• Cabot

• Chesapeake

• Forrest

• Berry

•

Plains• Noble

• Koch

• Vintage

International oil companies

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• BHP Billiton

• China National Offshore Oil Corporation

• Premier

• Woodside Petroleum Limited

• Oil Search Limited

• Santos Limited

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Petroleum industry overview: IBM

competition

IBM competitors in the petroleum industry compete with IBM primarily to provideconsulting services. These companies also compete for software, hardware, andother technology-based business. Competitors include:

• Accenture

• Bearing Point

• Delloite

• Science Applications InternationalCorporation (SAIC)

• Schlumberger

• Halliburton/Landmark

Note: Niche players are an increasingpresence in the marketplace. They aretrying to capture market share in the

current “high oil-price” environment. Most of these niche players are regionallylocated.

Specific industry concerns that IBM and its competitors address include:

• Service-oriented architecture (SOA)

• Component business modeling (CBM)

• Supply chain

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• Change management

• Enterprise resource planning (ERP)

IBM also has a strategy and change management organization that competes withsome of the major strategy consulting firms, such as:

• McKinsey

• Bain

• CRA International

• The Boston Consulting Group

• Mercer

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Petroleum industry overview:Segmentation

The oil industry is divided into three businesses:• The upstream business comprises exploration and production.

• The midstream business includes the tankers and pipelines that carry crudeoil to refineries.

• The downstream business includes refining, marketing, and distribution, downto the corner gasoline station or convenience store.

A company that includes significant upstream and downstream activities is said to beintegrated. These large, integrated companies usually have a chemicals business thatuses hydrocarbons and byproducts for fertilizers, plastics, and so on. Many smallercompanies specialize in one or perhaps only a few of the upstream, midstream, ordownstream elements of the industry. The following is a pictorial representation of how the petroleum industry is segmented; this is often called the value chain.

Upstream elements include

Exploration, Field development, Production,

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and appraisal including project planningand initial construction

including maintenance anddisposition

Midstream elements include

Field pipeline gathering,

including theinfrastructure to

transport the crude oilfrom the wells to major

distribution points

Long distance

transportation,

by a combination of pipelines and large

ships

Distribution and power,

including thetransportation and sale

of natural gas

Storage

of crude oil prior torefining

Downstream elements include

Refining,

breaking down the crudeoil into various major

elements, such asgasoline and kerosene

Manufacturing,

creating end productsfrom the output of theinitial refining process

Wholesale and retailmarketing,

including customerrelationship management

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Transportation between manufacturing and retail distribution

Business customers,

such as airlines or vehicle fleets

and Consumers,

such as gas station customers

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Petroleum industry overview: Basics

What is petroleum?

Oil and natural gas are called hydrocarbons: molecules combining hydrogen andcarbon. These molecules collect in porous rock or sand reservoirs, trapped betweenimpermeable rock above and water or brine below. The lightest molecules of naturalgas rise to the top of the reservoir.

When initially tapped by drilling operations, the high pressure within a reservoirforces the gas and oil out in what was originally called a gusher. Later, when enoughoil and gas have been removed to relieve the pressure, the oil must be pumped out

of the reservoir. This sometimes involves pumping salt water or mud back down intothe reservoir to replace the oil and gas.

From the mid to late 1800s when oil was first drilled for, collected, and refined forcommercial purposes to modern times, the standard of measure has been a 42-gallon barrel.

Transportation

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Processing facilities are not always located near where the oil and gas are beingremoved from the ground. The raw materials, natural gas and crude oil, must betransported from the oil fields to a refinery. This is accomplished by a series of pipesfrom each individual well to a central distribution point, a process called field pipelinegathering. From the central distribution location, a combination of pipelines, tanker

ships, and other transportation methods deliver the raw materials to processingfacilities for refining.

What is refining?

The process of simple refining involves "cooking" the crude oil and distilling out thevarious hydrocarbon compounds at different temperatures. For example, gasolinedistills at a different temperature than lubricating oil. Other compounds produced bya refinery include liquid propane (LP), asphalt, aviation fuel, kerosene, and mineraloil. Some of the more refined products require additional complex chemicalprocessing known as cracking or conversion.

Distribution

After the refining of the crude oil, processing of the natural gas, and any otherconversions, the end-products (oils, gasoline, other fuels, chemicals, natural gas,and so on) must be transported again to customers. This is accomplished by acombination of pipelines, ships, rail cars, and tanker trucks.Back to top

Oil and gas reserves

The amount of oil and gas reserves varies from continent to continent. This chartillustrates the approximate distribution of global crude oil reserves.

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Here is a similar chart illustrating the approximate distribution of global natural gasreserves.

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Additional sources of information

A great deal of petroleum industry information is available on the Internet. If youwant to know more, start with the following links. These pages will open in a newbrowser window.

• Society of Petroleum Engineers (SPE)

• American Petroleum Institute (API)

• U.S. Department of Energy

• International Energy Agency

You can also see a glossary of industry terms on the Chemicals and petroleumIndustry Wiki. This page also opens in a new window.

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There are many divisions and departments within a major, integrated petroleumcompany. Major divisions include corporate, upstream, midstream, downstream,chemical, and other support functions. Note that all companies, including integrated,major, second-tier, independents, or national oil companies, either have health,environment, and safety as separate departments or they have them fully embedded

within each of the businesses.

Corporate-wide functions

• Corporate management

• Support services

Upstream functions

• Exploration and appraisal

• Field development

• Production

• Disposal, divestiture, and acquisition

Midstream functions

• Trading

• Transportation

• Storage

• Gas marketing

• Power

Downstream functions

• Fuels marketing

• Refining

• Manufacturing

• Station retailing

Chemical and other functions

• Global business lines

• Power

• Coal and minerals

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Business model examples

Examples of business models in the petroleum industry include the following.

BP Amoco business model

BP Amoco had 8 management layers 10 years ago. Today, the company has 130business units (BUs) that operate as separate businesses, but the BUs are separatedfrom the company's executive management by only one layer, according to thecompany's Web site at www.bpamoco.com.

BUs must follow group policies and complete performance contracts, which theynegotiate with the executive committees of their "business stream." Performancecontracts contain key financial and operational data and safety and environmentalperformance information. A network of related BUs in a specific business stream or

peer group makes up another key element in the BP Amoco business model. Thepeer groups face similar technological, operational, or relationship issues. They arestructured like a federation and are a means for sharing knowledge.

This management structure's greatest asset is the ability to facilitate fast, innovativesolutions without unnecessary bureaucracy, and without having to constantly go toupper management for referrals.

ExxonMobil business model

ExxonMobil also has separate companies for different areas of the upstream anddownstream business. The upstream companies include:

•

Exploration• Development

• Production

• Gas marketing

• Research

The downstream companies (according to the ExxonMobil Web site atwww.exxonmobil.com) are:

• Refining and supply

• Fuels marketing• Lubricants

• Petroleum specialties

• Research and engineering

Independent oil company business model

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Independent oil companies are producers that explore, drill, and produce petroleum,but do not engage in transportation, refining, or end-customer marketing of petroleum.

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