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8/8/2019 Gazettes Quarter 03
1/2
Quarter3he HydrocarbCourierThe Society of Hydrocarb Engineers
MarketOverview
The new price bands for petroleum productswere announced. It appears that theWAI
continues to firm up and forecasts of demand supply of crude seem to indicate that
sustainedgrowthinemergingmarketsissteadilypushingpricesnorthwards.
Crude CNG MS HSD ATF FO Bitumen
Max 37 50 58 47 36 37 35APAC
Min 27 37 42 37 30 30 28
Max 58 44 39 39 39EMEA
Min 45 37 34 34 28
Max 61 47 44 44 44Americas
Min 48 40 40 34 28
NewsfromtheAmericas
The
current
wave
of
sustained
publicity
in
the
Americas
about
the
need
for
each
citizen
to
contribute
toenvironmentalprotectionislikelytoimpactshorttermdemandforpetroleumproducts.Several
stateshavemandatedhigherproportionsofmethanolblending(ingasoline),providingincentivesto
hybrids,investmentsinalternativeenergysourceslikesolarandwind,andmostimportantlyhigher
taxesonmachinesusingpetroleumproducts. There isalsotalkofafewstatesandgovernments
imposingacessonpetroleumproductstocreateaninvestmentpooltodealwithaccidents. While
theoil industry lobby inWashingtonhasworkedtowardsfilingofseveralclassactionsuitsagainst
suchdiscriminatoryregulation,analystsexpectadip indemand forpetroleumproducts in theUS.
Themoodamongstpolitical leaders,socialgroupsandevengovernmentregulatorsvitiatedbythe
GulfofMexicoDisaster,iscurrentlyweightedagainsttheinterestoftheoilindustry. Analystsfrom
CarlyleGroupathinktankonpetroleumindustryexpecta1020%dropindemand.However,the
impactofthisdemandreductiononUSdomesticandforeignsuppliersisstillunclear.
Canpetroleumproductsbebranded?
Oildistribution firmsacross theworldhavealways invested inbuildingabrandof theirproducts.
Thus,largeoilcompanieshavesignificantpresenceonnationalandinternationalmedia,sponsoring
events and emerged as high spenders for the Advertisement industry. Is all of this useful and
relevant to their business? Does this expenditure lead to higher sales, market share etc are
questions thathavebeen the focusof severalmarketingjournals. According toProfMcCleodof
UniversityofTexas,whohasseveralpapers inthisareatohiscredit,saysthatmarketingspendsin
thisbusinessshouldimpactsalesandmarketshares. "Todaybasicmarketingisahygienefactorfor
thisindustry.
Successful
firms
use
this
to
position
themselves
appropriately.
The
content
of
the
copy,themessageandthecurrencyofthemessageadduptowhetherornotthemarketingspendis
Page1of2
8/8/2019 Gazettes Quarter 03
2/2
Quarter3effective". A key proposal doing the rounds in the industry today is the position of firms as a
responsible corporate citizen affirmatively acting todealwith environmental issues. The recent
GulfofMexicofiascoandothersuchincidentshavegivenanimpetustothisproposal. Raatchiand
Raatchi,anoiladvertisingspecialty firm,hasproposedaCu500,000 Investment inbrandbuilding
whichtheyclaimwouldenhancesalesbyaround515%ateachoutlet. Thisisanestimatedsaleand
canvary
substantially.
This
Investment
must
be
made
for
each
market
(APAC,
EMEA,
Americas)
individually. Thisinitiativefirmlypositionsyourcompanyasanenvironmentallysensitivecompany
thattakesitresponsibilitytoMotherEarthseriouslyandensuresthatcustomerscancontinuetouse
petroleumproductswithoutfeelingguiltyaboutcontributingtoenvironmentaldegradation.Enter
Yesifyouoptforthischoice.
ProductionRateChangeforReserveInthisquarteryoucanincreaseordecreaseProductionRate,i.e.youcanincrease/decreaseby15%
thecrudeoilgushingoutfromyourReserves.Thereisonlyonereservetochoosefromanditwillbe
effectivefromthecurrentQuarter.Costofthischangeis50,000Cu.
Investments
Bankershave started looking afresh atOilCompanies tonotonly give loans, but alsopark their
surplusmoneyatinterestofPLR2%perannum.Lookatyourcashflowsofyourcompanyandtake
opportunitytoearninterestinmakingShortTermInvestment.Ifyoumakeashortterminvestment
youwillgetthe interestonthedepositinthesamequarter.Also,youmaywithdrawthemoneyin
anyquarterand thatwillbe forwardedtoyou inthebeginningofthequarter.However,dontgo
overboardandattractsharkloans(seemanualtoknowmoreaboutSharkLoans)
RefinersCornerTeams taking theprojectof enhancement inRefiningCapacity got around 90%of their refineryfrom
Q3
onwards.
You
will
not
see
any
change
in
Refinery
Capacity
mentioned
in
MR,
as
there
is
no
physical addition. However, you can see the actual Refinery Capacity on top of Decision Form.
Illustration Yourrefineryoutputwouldhaveincreasedfrom20000MT(25,000MTx80%)toaround
22,500MT(25,000MTx90%).Anycapacityadditionsinthepastorinsubsequentquarterswillget
same increasedefficiency.CashoutflowofCu.400,000canbeviewed inCashStatementandper
quarterOverheadsofCu.50,000willbefromQuarter3onwards.
TheDevelopmentDrillingDiaryDevelopmentDrillingwitheitheroneoftheapproach(AorB) isrequiredtostartutilizingyouroil
reserves and several firms commissioned development drilling in Q2. Reports from various
companiesseemtosuggestthatallofthemhavecommencedsomeproductionbytheendofthe
quarter.Typically it isduring thedevelopmentdrillingphase,thatcompaniesareabletoestablishthetruesizeoftheoilreservoirwhichhascometobecalledasprovenreserves. Also,thedrilling
processestablishes the rateatwhichoiland gas gushoutof thewells. The vagariesofoilwell
developmentengineeringarewellknown. Thelongtermstatisticsintheindustryseemstosuggest
that2030%ofthedevelopmentwellsturndryandtheworkinvolvedinthemhavetobewrittenoff.
However, the results of last quarter are encouraging to the extent that scientific approaches to
drillinghave resulted inhigher success rates. Theproven reservesdividedby theoil ratewould
approximately indicate the life of the well. While teams have used different approaches on
developmentdrilling,thejury isstilloutonthebenefitsoftheAdaptivedrillingapproach.Youwill
get 50% of Oil Rate and Gas Rate (1.5 x Oil Rate) in current quarter and 100% subsequently.
Ofcourse, you cannot forget to give government share. Drilling expenses can be seen in Cash
Statementunder
Capital
Expenditure
and
as
Fixed
Assets
in
Balance
Sheet.
Page2of2