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Market Analysis of Oil and Gas sector based on data of the year 2013 from NYSE listings and also from annual reports of the companies.
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MARKET ANALYSIS OF
OIL AND GAS SECTOR
ROYAL DUTCH SHELL CORPORATION -
LOGISTICS
Pramod Philip John 14MBA1039
Abstract The national oil companies hold over 80% of the worlds reserves while the major private firms like Royal Dutch Shell, Exxon Mobil, BP etc hold very few reserves. There is a difficulty to analyse the market share of the state owned firms because they are not listed publicly in stock exchanges. Market Share is done on the top companies which are publicly listed and have annual reports. SINOPEC from China has the highest revenue return in the year 2013. Capital/Labour Ratio is highest for Total SA from France. Special study is done on the logistics division of Royal Dutch Shell Corporation. Also a Weka forecast is done for 10 days for the same company based on its closing price.
CONTENTS
VIT BUSINESS SCHOOL ........................................................................................................................... 2
INTRODUCTION TO OIL AND GAS SECTOR........................................................................................ 3
UPSTREAM ............................................................................................................................................. 3
MIDDLESTREAM ................................................................................................................................... 3
DOWNSTREAM ...................................................................................................................................... 3
OIL COMPANIES ALL OVER THE WORLD ........................................................................................... 5
MARKET SHARE ANALYSIS ................................................................................................................... 6
CAPITAL LABOUR RATIO ....................................................................................................................... 9
COMPANY ANALYSIS – ROYAL DUTCH SHELL PLC. ..................................................................... 10
PRODUCT MIX AT SHELL ................................................................................................................. 11
WEKA FORECAST FOR SHELL ......................................................................................................... 11
SHELL OPERATIONS IN INDIA ......................................................................................................... 12
LOGISTICS PLANNING IN SHELL .................................................................................................... 13
CONCLUSION ........................................................................................................................................... 15
VIT BUSINESS SCHOOL
VIT University was established in 1984 by well-known educationalist and former
parliamentarian, Dr. G. Viswanathan, Founder and Chancellor. Dr. V. Raju, Former
Professor of State University of New York, USA, currently the Vice Chancellor, Dr. Anand
A. Samuel, Pro-Vice Chancellor. Chennai Campus is in Vandalur-Kelambakkam Road.VIT
University has more than 17 Bachelor’s and 32 Masters’ programmes, 29000 (including 1000
foreign students from 44 countries) and 4000 faculty members
Accreditation:
The National Assessment and Accreditation Council (NAAC) of the University Grants
Commission (UGC) has accredited the university with a 'A'.
The Institution of Engineering and Technology (IET), and the Energy Institute, UK have audited
the teaching-learning processes at VIT and accredited the programmes in 2004, with the highest
validity of five years
Programmes at VIT are accredited by the Institution of Engineers, India (IEI).
The Accreditation Board for Engineering and Technology (ABET) of the USA accredited the
Civil, Mech, CSE, biomedical, ECE, EEE programmes.
VIT Business School, under the aegis VIT University has created a niche for itself as an
institution promoting excellence in management education and research with Dr. M J Xavier as its
Executive Director.
INTRODUCTION TO OIL AND GAS SECTOR
The Oil and Gas sector or in other words the petroleum industry is responsible for the exploration,
extracting, transportation and refining of petroleum products. The largest volume products of the
industry are fuel oil and gasoline (petrol). Petroleum (oil) is also the raw material for
many chemical products, including pharmaceuticals, solvents, fertilizers, pesticides, and plastics.
Petroleum is vital to many industries, and is of importance to the maintenance of
industrial civilization in its current configuration, and thus is a critical concern for many nations.
Oil accounts for a large percentage of the world’s energy consumption, ranging from a low of 32%
for Europe and Asia, to a high of 53% for the Middle East.
Other geographic regions’ consumption patterns are as follows: South and Central
America (44%), Africa (41%), and North America (40%). The world consumes 30
billion barrels (4.8 km³) of oil per year, with developed nations being the largest consumers.
The industry is divided into three major categories :- upstream, midstream and downstream.
Midstream operations are usually included in the downstream category.
UPSTREAM :- Upstream is the part of the oil production process that focuses on locating and
recovering crude oil and natural gas. Those in the upstream sector are focused on locating
underground and underwater oil fields.
MIDDLESTREAM: - When oil is drilled from a location where it is originally discovered, the
oil must be stored, marketed and transported. This aspect of petroleum production is known as
midstream. Petroleum is marketed as a commodity at this point.
The point where upstream ends and midstream begins is at the gathering system. This system
collects wet natural gas and petroleum and begins the transportation process to the gas processing
plant. While some gas processing occurs near the point where the gasoline is extracted, in other
cases, the midstream process involves the transportation of wet gasoline through pipelines. In
many cases, midstream is considered a part of the downstream process.
In some of the largest distribution networks, enormous cargo ships are responsible for transporting
oil across multiple oceans.
DOWNSTREAM :- The downstream sector focuses on the process of refining crude oil to create
different products, including gasoline, petroleum gas, jet fuel and diesel fuel. Additionally, there
are numerous products that are not fuels at all, including pesticides, antifreeze, synthetic rubber,
plastics and pharmaceuticals. All of these products are created and distributed through the
downstream sector.
The following table shows the supply done by various countries in terms of millions of barrels of
oil.
Saudi Arabia produces the largest quantity with 9.75 million barrels of per day followed by Iraq,
Iran and then UAE. Among the OECD USA produces the largest with 11.48 and among the Non
–OECD’s Russia produces the largest with 10.76 million barrels per day.
OIL COMPANIES ALL OVER THE WORLD
There are generally two types of companies based on the ownership.
Private owned
State owned
Privately held companies have the goal of maximizing shareholder value. The management of the
company may accomplish that goal through organizing production so that a profit is made in the
current time frame as well as in the future.They also might make investment decisions to take
advantage of opportunities to raise the company’s rate of return. They also have the motivation to
achieve productive efficiency to hold down costs to enhance the profitability of any given revenue
level. This activity is thought to benefit consumers by assuring that physical shortages are avoided
and that the good is available at the lowest price consistent with demand and supply factors.
In the oil industry, maximization of shareholder value is taken to mean that the value of oil
resources should be maximized through managing production, exploration, and development
activities to assure a functioning market.
National oil companies do not necessarily follow the shareholder value maximization model alone.
Since these companies are totally, or majority, owned by their national governments, maximizing
the value of the company might have to compete with other, governmentally mandated objectives.
Although all national oil companies respond to their national governments to one degree or
another, the amount of influence varies widely. The national oil companies of more developed
nations, Statoil in Norway, and Petronas in Malaysia, for example, tend to follow a more
commercially oriented strategy than the Nigerian National Petroleum Co. And Petroleos de
Venezuela, where government objectives largely supplant commercial objectives, and the
companies are under pressure to maximize the flow of funds to the national treasuries.
The national oil companies use the revenue from the oil industry for the following :-
Wealth Distribution
Job Opportunities
Economic Development
Foreign Policy
Energy Security
The oil produced by the "supermajor" companies accounts for less than 15% of the total world
supply.
Over 80% of the world's reserves of oil and natural gas are controlled by national oil companies.
Of the world's 20 largest companies, 15 are state-owned companies.
This figure shows the world reserves of oil held by different countries. It is understood that the
national owned companies hold more than 80% of the worlds reserves. Saudi Aramco tops the list.
The private sector which includes companies like BP, Royal Dutch Shell Corporation , Total SA
etc hold just the remaining % of the reserves.
For this study only information of the private owned and few state owned companies were taken
because the state owned firms usually do not list on any of the stock exchanges.
MARKET SHARE ANALYSIS
Market Share values are taken from the Annual Reports and also from NYSE listings of the firms.
The national oil companies especially from the Middle East do not feature in this list because they
are not listed in any stock exchanges. Few private oil firms and also national oil firms and their
data are tabulated below
Name of Companies Country Turnover
or revenue
in millions
of dollars
Number of
Employees
in
Thousands
Capital
Expenditure
in Millions
of Dollars
Capital/Labour
Ratio
SINOPEC CHINA 469052 368 23608 64152.17391
ROYAL DUTCH SHELL NETHERLANDS 451235 92 40145 436358.6957
EXXON MOBIL USA 420836 75 33699 449320
BP UK 379136 85 24520 288470.5882
PETROCHINA CHINA 373003 544 50232 92338.23529
Total FRANCE 236534 99 126991 1282737.374
Chevron USA 220156 65 37985 584384.6154
Conoco Phillips USA 171596 14 1779 127071.4286
GAZPROM RUSSIA 157529 417 20580 49352.51799
KUWAIT PETROLEUM
CORPORATION
KUWAIT 139761 19 6795 357631.5789
ENI ITALY 114722 83 12750 153614.4578
The table shows that Sinopec from China has the largest revenue for the year ending 2013 with
469,052 millions of dollars followed by Royal Dutch Shell with 451,235 millions of dollars and
Exxon Mobil with 420,836.Number of employees is notably highest for Petrochina with 544,000
followed by Gazprom and Sinopec. All three have the number of employees much higher than the
others because they are state owned and they tend to provide more job opportunities and increase
employment. Total SA from France has the highest Capital/ Labour Ratio i.e the firm invests a lot
in building new infrastructure. It has high capital expenditure with comparatively less employee
intake.
The market share of these 11 companies is plotted based on their revenues.
Sinopec comes on top with 15% closely followed by Royal Dutch Shell with 14% and Exxon
Mobil with 13%.
The chart below is a comparitive chat of total turnover and the number of employees in the firms
tabulated
PetroChina, Gazprom and Sinopec have the highest number of employees in descending order and
this is because the cost of labour is cheap in the countries where they operate i.e China and Russia
and also these companies look to create more employment for the citizens of their respective
countries.
CAPITAL LABOUR RATIO
It measures the ratio of cpital employed to the number of employees in a firm. So a company with
higher capital/labour ratio recruits less employees and are focussed more in improving productivity
through using better equipment and machinery to replace human work. This is why most
international oil companies like Total SA, Chevron, Exxon Mobil all have high capital/ labour
ratios. On the other hand the state owned firms like PetroChina, Gazpromand Sinopec have very
low values of the same because they employee more workers even though they maintain similar
capital expenditure when compared to the international oil companies.
The graph below shows the capital labour ratio of the 11 companies.
Total SA from France holds the highest capital/labour ratio. Chevron from USA comes second
followed by Exxon Mobil and Royal Dutch Shell.
COMPANY ANALYSIS – ROYAL DUTCH SHELL PLC.
Royal Dutch Shell is an Anglo –Dutch Multinational oil company that has its headquarters in
Hague, Netherlands. It came into being through the amalgamation of Royal Dutch Petroleum and
Shell Transport in the year 1907. It is the second largest in the world in terms of revenue after
SINOPEC and its revenue stands at 451,235 million US dollars. It had an income of $16.5 million
and Net Capital Investment stood at $44 billion while the company invested $1.3 billion in research
and development in the year 2013.
In the Forbes List , in 2011 it came in 5th place, in 2012 4th place and after which its position has
declined to 7th position in 2013 and 11th position 2014. It employees 92,000 workers as per the
annual report 2013.
Name of Companies Country Turnover
or
revenue
in
millions
of dollars
Number of
Employees
in
Thousands
Capital
Expenditure
in Millions of
Dollars
Capital/
Labour
Ratio
ROYAL DUTCH SHELL NETHERLANDS 451235 92 40145 436358.
6957
This is an infographic obtained from the annual report 2013 of Shell.
PRODUCT MIX AT SHELL
Shell produces both fuels and lubricants
FUELS LUBRICANTS
Hi-Octane Rimula C
Super Unleaded Rimula D
Super Rimula X
Hi-speed Diesel Helix Plus
CNG Helix Super
Helix Standard
Shell Helix (CNG)
WEKA FORECAST FOR SHELL
A 10 day forecast from 22nd Sept 2014 is shown below. The weka forecast is plotted based on the
Closing price of the stock. According to the forecast the stock prices do not appear to vary much.
SHELL OPERATIONS IN INDIA
Lubricants :- A state-of-the-art lube-oil blending plant at Taloja (outside Mumbai in
western India) – considered to be among the finest lube-oil blending plants in Asia,
manufacturing a range of branded lubricants focused on the automotive and industrial
sector
Bitumen :- A High Capacity Plant of 70,000 MTPA at Uluberia, West Bengal producing
a range of Bitumen Specialty products such as Bitumen Emulsions, Crumb Rubber
Modified Bitumen (CRMB) and Polymer Modified Bitumen (PMB)
Retail :- Only international company to be granted and actualize Government of India
approval to retail fuel in India till date
License for 2000 fuel retail stations
R&D – Centre in Bangalore. Third Shell Global Center for Technology, the other two being
in Houston and Amsterdam
Figure shows a Shell petrol
station outside Bangalore.
Shell India also has a strong tradition of providing opportunities to benefit the local community
through employment. Additionally Shell is committed to understanding the needs of the
marginalized and looks to their integration in the local community. To encourage increased
participation of this segment of the society in the economic opportunities generated by our retail
fuel business, Shell India has adopted the following measures and has integrated into the business
plan:
Design handicap-friendly outlets.
Diversity at work place especially by creating favourable conditions for disabled persons
and women to work at the outlets.
Encourage economically marginalized youth to take up entrepreneurship opportunities of
managing and running the Shell outlets.
Shell Retail now has a presence across 6 states- Gujarat, Andhra Pradesh, Maharashtra, Karnataka,
Tamil Nadu and Assam in the country and remains keen to expand its presence in the country to
offer customers everywhere our international quality fuels.
Shell has a business service centre in Chennai. The main focus in Chennai is on Finance Operations
which supports delivery of the global Finance functional plan. There is also a ‘Downstream India’
- Customer Services Team that handles lubricant depot ordering within the country. The Business
Service Centre (BSC Team) manages the centre facilities and supports business partners’
operations on site. There is a strong focus at SBSC on safety & well being of staff and on its three
core values: Compliance, Intervention & Respect.
LOGISTICS PLANNING IN SHELL
ADGENT TOOL is used to model producer and receiving terminals, shipping logistics
and shipping delivery programs for both liquid natural gas (LNG) and crude oil.
It helps in decision making using upto date simulation technology.
Benefits :-
keep the volume of existing LNG storage tanks to a minimum
optimise the LNG ship capacity and speed requirements
optimise the level of storage capacity needed to guarantee reliable delivery
of LNG and eliminate bottlenecks in existing LNG plants.
The Shell Shipping organisation is based in London, with specialist centres in Houston,
The Hague, Singapore, Perth and Tokyo - networked to maritime professionals across the
globe.
Shell has 300 terminals and 9000 kilometres of pipeline all over the world.
The figure above shows how small scale transportation of LNG takes place in SHELL. Mtpa stands
for million tons per annum. For quantity from 0.5 – 2 mpta LNG carriers are used while large ships
are used for transportation of LNG via sea for 2-5 mpta .
The figure below shows the different vessels and their capacity that is used for transport of LNG.
Oceanic LNG Carriers have the largest capacity of 140,000 m3and carry weight of upto 62,500 tons.
CONCLUSION
It is understood that the national owned companies hold more than 80% of the worlds
reserves. Saudi Aramco tops the list.
The private sector which includes companies like BP, Royal Dutch Shell Corporation ,
Total SA etc hold just the remaining % of the reserves.
Sinopec from China has the largest revenue for the year ending 2013with 469,052 millions
of dollars followed by Royal Dutch Shell with 451,235 millions of dollars and Exxon Mobil
with 420,836.
Number of employees is notably highest for Petrochina with 544,000 followed by Gazprom
and Sinopec. All three have the number of employees much higher than the others because
they are state owned and they tend to provide more job opportunities and increase
employment.
When revenue is shown on pie chart Sinopec comes on top with 15% closely followed by
Royal Dutch Shell with 14% and Exxon Mobil with 13%.
PetroChina, Gazprom and Sinopec have the highest number of employees in descending
order and this is because the cost of labour is cheap in the countries where they operate i.e
China and Russia and also these companies look to create more employment for the citizens
of their respective countries.
Total SA from France holds the highest capital/labour ratio. Chevron from USA comes
second followed by Exxon Mobil and Royal Dutch Shell.
Royal Dutch Shell has a very effective transportation system that ensures safety in its
method of transportation of fuels across countries or within a country.
For Further details
Contact:
Dr P James Daniel Paul, Professor, VIT- BS, Chennai,
Tel: +91 44 3993 1040
HP: +91 98402 94590
Pramod Philip John
VIT University, Chennai
Tel : +918943768874
