Technological Education Institute (T.E.I) of EMaTh, Department of Oil and Gas Technology, MSc in Oil and Gas Technology
Case Study: Chevron Strategic Management Analysis Stelios Veisakis, Athanasios Pitatzis, Evangelia Aikaterini Souvatzoglou, Nikolaos D. Ntintas
Course Leader: Georgios Theriou Course: Strategic Management Kavala 2014
Margoni,
Introduction
Source: Chevron Annual Report 2013
Chevron is one of the first O&G Companies it was establishes in San Francisco, California, and named Pacific Coast Oil Company, they were incorporated by a group of explorers and merchants in 1879. Since, their brand name has changed seventeen times. In 1900 they were acquired by the West Coast operations, John D. Rockefeller’s original Standard Oil Company. Eleven year later, U.S. Supreme Court the decided to divide Standard Oil in thirty four autonomous entities. In 1926 Pacific Oil Company was acquired to become Socal Standard Oil Company of California. From that time on, a chain reaction of mergers,
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acquisitions and joint ventures began. The majority of thoughts led the company to fully integrate in the Oil & Gas Industry. They eventually vertically integrated in the Upstream, Downstream, but also the Midstream sector. In 1936 Texas Company and Socal Company formed Caltex Group of Companies to explore and produce in Middle East and Indonesia, the crude oil produced was introduced in the African and Asian markets via future Texaco’s marketing networks. Acquiring Sigma Oil Company they dominated midstream sector in Western U.S. adding 2,000 retail stations. Until 1961 the company was a major producer in the U.S. Gulf of Mexico and Louisiana, due to the fact, they needed new markets for the crude oil produced. Therefore a major acquisition of Standard Oil Company (Kentucky) took place and they entered five major markets in the southeastern states to distribute petroleum products. About twenty year later from 1984 until today, major mergers, acquisitions and joint ventures took place in an average of four years. Acquiring Gulf Corporation they involved with activities concerning industrial chemicals, natural gas and coal. Their new products were branded as Chevron. Further purchasing Petroleum properties in the Gulf of Mexico U.S. from Tenneco Inc.’s, made them the largest Natural Gas producers U.S. In 1993 they are the first entering independent Kazakhstan, forming Tengizchevroil in joint venture with the Republic of Kazakhstan in order to exploit the major Tengiz Field. Six years later they entered the Asian Natural Gas markets by acquiring Rutherford-Moran Oil Corporation. Until 2005 they relocated the cooperate headquarters to San Ramon California. They were established as second largest energy company, based in the U.S. after merging with Texaco Inc. and acquired Unocal Corporation an independent strong upstream O&G, E&P Company. Initially the brand name change to Chevron Texaco but then to ensure international brand name integrity they switched and are known until today as Chevron Corporation. The last acquisition in 2011 was Atlas Energy Inc, focusing in the future by investing to develop and produce shale gas resource primary Marcellus shale gas development. In our days Chevron has also a partnering with Weyerhaeuser, the forest products company, on developing technology to commercialize biofuels from wood fiber and other waste prod
Vision of Chevron
At the heart of The Chevron Way is our vision…to be the global energy company most admired for its people, partnership and performance. Our Suggestion: At the heart of The Chevron Way is our vision….to expand the technological capabilities and knowledge through innovation of oil and gas industry
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worldwide and we imagine our company impact could be beneficially for global society and local communities. Mission of Chevron:
Our company’s foundation is built on our values, which distinguish us and guide our actions. We conduct our business in a socially responsible and ethical manner. We respect the law, support universal human rights, protect the environment and benefit the communities where we work. Our Suggestion: It’s general accepted by oil and gas industry and proven by chevrons history that they had a satisfy tool faced the challenges.
Generally, we believe that chevron mission includes all the aspects of a company mission statement. Strategies:
Our major business strategies will develop leading integrated positions in growth areas of the world: Global Upstream Grow profitably in core areas and build new legacy positions Global Gas Commercialize our equity gas resource base while growing a high-impact global gas business Global Downstream Improve base business returns and selectively grow with a focus on integrated value value creation Renewable Energy Invest in renewable energy technologies and capture profitable positions in important renewable sources of energy. Objectives:
Invest in people to achieve our strategies
Leverage technology to deliver superior performance and growth
Build organizational capability (“4+1”) to deliver world -class world -class performance in operational excellence, cost reduction, capital stewardship and profitable growth[1]
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Oil Sands OIL SANDS
Oil sands are a natural mixture of sand, water, clay, and bitumen. BITUMEN
Bitumen is heavy, high viscous crude oil. Oil sands could be found 70 meters (200 ft) from the surface but the majority is deeper underground. At the temperature of 10°C bitumen have reached to solid phase. To extract when the depth exceeds 70 m the underground should be heated and additional upgrading should be applied. LOCATION
Near Fort McMurray the Oil Sands are ar e at the surface and easy e asy to retrieve. Al other deposits d eposits in Athabasca, Peace River and Cold Lake deposits in Alberta and Saskatchewan, are deeper underground.
Source: Upstream Dialogue – The facts on oil Sands, CANADA’S OIL SANDS PRODUCERS , OILSANDSTODAY.CA
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Environmental Impact Impact of the Oil Sands
GHG EMISSIONS AIR
The most harmful GHG emissions are CO2, CH4, N2O, which are responsible for climate changes and F-Gases that are responsible for high global warning. All thoughts gasses among others are emitted into the air by burning fossil fuels for electricity generation, industrial uses, and transportation also for heat in our case underground heating.
Source: http://oilsandsfactcheck.org/learn/environment-health/
Water supply and waste water disposal are among the most serious concerns because of heavy use of water to extract bitumen from the sands. For an oil sands mining operation, as stated by M Humphries - 2008 [21] about 2-3 barrels of water are used from the Athabasca river for each barrel of bitumen produced; but when recycled produced water is included, 0.5 barrels of “make -up” water is required, according to the Alberta Department of Energy. The freshwater used for in-situ operations is needed to generate steam, separate bitumen from the sand, hydro transport the bitumen slurry, and upgrade the bitumen to a light crude. For SAGD operations. To minimize the use of new freshwater supplies, SAGD operators use saline
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water from deeper underground aquifers. Serious disposal problems have occurred due to the large amount of solid waste that is produced by using saline water.[2] Wastewater tailings (a bitumen, sand, silt, and fine clay particles slurry) also known as “fluid fine tailings” are disposed in large ponds until the residue is used to fill mined -out pits. From the disposal ponds can result erosion, breaching, and foundation creep.[2]
Another major issue is the rehabilitation of the natural environment by the Oil Sand Industry after exploitation is completed to avoid Surface disturbance.
Chevron in Canada- Oil sand industry position of the company Western Canada
Athabasca Oil Sands Project (AOSP) The Company holds a 20 percent non operated working interest in the AOSP near Fort Mc-Murray, Alberta. Oil sands are mined from both the Muskeg River and the Jack-pine mines. After extracting the bitumen from the Oil Sands, they are transported via pipeline Near Edmonton, Alberta. There they are upgraded to synthetic oil by the th e use of hydro h ydro processing. pro cessing. In 2013, 2013 , average ave rage total daily production increased to 236,000 2 36,000 barrels (43,000 net) of synthetic oil. During 2013, there was progress in the constructions work concerning the Quest Project, a carbon capture and sequestration project that is designed to capture and store more than 1 million tons of carbon dioxide produced annually by bitumen processing at the AOSP. By 2015. May 2014, by Chevron. [22]
Source: Chevron Supplement Report 2013
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The Athabasca Oil Sands that was completed in 2003 is the latest fully integrated Project, that was developed in 25 years. In our days it supplies over 10% of Canada's needs in Oil. The project consists of two main components: c omponents: •
The Muskeg River Mine, located 75km north of Fort Mc Murray in Alberta.
The Scot-ford Up-grader, next to Shell's Scot-ford Refinery north of Fort • Saskatchewan in Alberta The development of Athabasca is a joint venture between Shell Canada Limited (60%), Chevron Canada Limited (20%) and Western Oil Sands L.P. (20%). Shell is the majority owner; therefore they are the operators of the Scot-ford Up-grader and the overall project administrators. A new company was created by the joint venture named Albian Sands Energy; they operate the Muskeg River Mine. Shell has a goal to obtain 15% of its production from sources such as oil sands by 2015. The Athabasca oil sands development controls leases over 1.7 million acres in the region. [3] SWOT Analysis of Oil Sands Industry
SWOT Opportunities Analysis
Strengths
Weaknesses
Threats
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Increase of Oil prices
167 BILLION BARRELS Canada has 173 billion barrels of oil that can be recovered economically with today’s technology. Of Canada’s 173 billion barrels of oil, 167 billion barrels are located in the oil sands. SOURCE: AER 2014 AND OIL AND GAS JOURNAL 2013. [5]
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Global demand for energy is expected to increase 33%* by 2035 as economies in both developed and emerging countries continue to grow and standards of living improve. SOURCE: IEA 2013 *GROWTH FROM 2011 TO 2035, NEW POLICIES SCENARIO.[5]
All sources of energy, developed responsibly, will be needed to meet growth in global demand. With conventional oil supply declining, the need for unconventional resources, resources, like oil sands, is increasing.[5]
Environmental The Government impact of Alberta implemented GHG regulations in 2007 requiring a mandatory 12% reduction in GHG emissions intensity for all large industrial sectors including existing oil sands facilities, or a payment in lieu[5] Oil sands Cost of account for production per 8.7% of barrel. Some Canada’s organization GHG estimate that the emissions and profitable price of about 0.13% oil for oil sands of global GHG must be between emissions.*[5] 110$ and 150$.[4]Low prices of oil
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South East Asia oil and gas demand will increase until 2040 (BP Energy statistics 2013)
Canada independence from oil Imports
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USA market of oil and Gas
USA independence from Oil imports of Middle East. Canada is the largest supplier of crude oil and petroleum products to the U.S. [5]
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The majority (81%) of The oil sands has world oil reserves are significant economic owned or impact outside controlled by national Alberta — in the rest of governments. Only Canada, the U.S. and 19% of total world oil around the reserves are accessible world. Almost every region for private sector in Canada has been investment, 53% of stimulated which are found in by oil sands development through job creation and Canada’s oil sands. [5] sands. [5] economic activity.[5]
Cost of production per barrel. Some organization estimate that the profitable price of oil for oil sands must be between 110$ and 150$.[4] Northern Alberta, where oil sands operations occur, has more than 86% of Alberta’s water supply[5] 182 KM2 The total area of existing tailings ponds is 182 km2 including associated structures such as ditches and dykes. The total surface area of all fluid tailings is 77 km2. SOURCE: AESRD 2013[5]
USA production boom from shale oil can reduce the imports of Oil from Canada to USA.
The Athabasca River is the main source of water for oil sands mining projects. Strict regulations restrict water withdrawal when river flow is low [5] Canadian government regulations and environmental legislation [5]
Proposed Strategies to Chevron for oil Sands Industry:
Invest in new technologies which reduce the cost of production and eliminate the environmental impact Provide services to the other operators of oil sands like Shell which involve decline in the production cost, reduce the environmental impact and increase
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energy efficiency (reduce waste of water and fuels generally). All of that of course required the necessary costs in R&D development and innovation. Key Words for Chevron: eliminate the environmental threats, differentiation strategy, specialization inside the specialize sector (oil sands) of oil and gas global industry.
Shale Gas Shale gas is an unconventional natural gas trapped within shale rock formations. Shale rocks are fine-grained sedimentary rocks that have a tendency to trap within they thin cracks oil and gas. Horizontal Drilling and Hydraulic Fracturing
A combination of horizontal drilling and hydraulic fracturing is applied over the last years, and has allowed access to large volumes of shale gas that were previously not cost effective to exploit. Natural gas production from shale formations has rejuvenated the natural gas industry in the United States. [6]
Source: http://www.wdde.org/19762-fracki http://www.wdde.org/19762-fracking-critics-urge-offici ng-critics-urge-officials-block-delaware-basin als-block-delaware-basin-gas-development -gas-development
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Source: http://www.horizontaldrilling.org/
Environmental Impact of Shale Gas
Source: http://wws.princeton.edu http://wws.princeton.edu/news-and-events/news/ite /news-and-events/news/item/fracking-dark-biological-fal m/fracking-dark-biological-fallout-shale-gas-productionlout-shale-gas-productionstill-largely
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It was concluded by biologists of Princeton University and seven other biologists from various organization and institutions after conversations. The industrial impact to the environmental by the Shale-Gas extraction; cannot be yet fully understood by today's science. Individually and eventually collectively gas wells can act as a source and can pollute by air, water, noise and light pollution. In such case it is possible to negatively affect, wild animal health, habitats and reproduction. By hydraulic fracturing, a technique that releases natural gas from shale by breaking the rock up with a high-pressure blend of water, sand and other chemicals; by this procedure a huge amount of fluids and waste water are produced that can that can lead to major environmental issues. [7] Is fracking safe? •
Shale gas exploitation seams to lead to pollution of clean water horizons
•
It is stated that risks as water pollution could be solved
•
Earth tremors and explosions are also a concerning issue [8]
Is shale gas beneficial for climate change prevention? •
The CO2 emission of burning gas is less of when burning oil or coal
•
It is believed by the industry that shale gas could reduce CO2 emissions.
•
Environmentalist believe that Shale Gas may be as bad as coal [8]
The estimations of shale gas reserves are roughly calculated. An assessed by the US government assessment of 32 countries claimed they had 169 trillion cubic meters of technically recoverable shale gas – around around the same as the world's economically recoverable reserves of conventional natural gas. The largest reserves were located in China, as the survey reported, followed by US, Argentina and Mexico. The estimates keep constantly changing. The official figure for the US was almost halved in early 2012, while Cuadrilla claims that its Blackpool site alone has 5 trillion cubic meters – ten ten times more than the US estimate for the whole UK. Similarly, China's own survey put its reserves nearly twice as high as the figure given in the US survey. [8] However when comparing to economical, political as well as technological factors of each region, the extraction rate of the reserves, concludes not to be dependent on the reserve size. The US government expects shale gas to account for 46% of its natural gas extraction by 2035 and according to BP shale gas – along along with tar sands and other unconventional fuels – America is expected to become largely self-sufficient in energy by 2030. An opposition was claimed by the Deutsche Bank. They reported that due to factors, such as higher population density and stronger environmental regulation there would be no 'shale gas revolution' [8]
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Source: www.chevron.com
Source: http://www.theguardian.c http://www.theguardian.com/environment/inte om/environment/interactive/2011/apr/26/shale-gas-hydraulic ractive/2011/apr/26/shale-gas-hydraulic-fracking-frackinggraphic?guni=Article:in%20body%20link
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SWOT Analysis of Shale Gas Industry
SWOT Analysis 1
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3
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Strength
Weaknesses
Threats
Environmental impact during drilling operations such us Horizontal Drilling and Hydraulic Fracturing (see environmental impact above)
Government environmental and taxation legislation
Cost of production per barrel , ‘If ‘If crude oil prices fall below $80 a barrel, production of oil from shale gas formation in the US will become uneconomical, warn analysts’[9] analysts’[9] Geopolitical More friendly Groundwater Impact (for energy Contaminationinstance control national mix, Affect the life of the production of see USA many peoplenatural gas, example (BP may affect control the prices Statistics 2013- economic growth globally etc..) 4) Reduction of Increasing in Gas Flaring in national CO2 the percentage some cases emissions of of energy country unconventional producer due to fossil fuels in decreasing coal the global
Decreasing of oil prices globally
Low prices of natural gas locally increasing economic growth and increase economic competitiveness for the national industry (BP Statistics 2013-4)
Opportunities
Increasing demand for natural gas due to increasing electricity demand worldwide and especially from South East Asia, Africa and Middle East . (Many of these countries use natural gas to produce electricity) (BP Statistics 20134) Energy security Friendly for the countries environmental producer, production for especially the drilling USA (BP operations on Statistics 2013-4) shale gas and oilTechnology innovationSpecialization
Rise of LNG on global market[10]
Technological Risks Poor well performance Lack of infrastructure
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consumption energy mix which replaced (BP Statistics by natural gas 2013-4) (BP Statistics 2013-4)
Reserves uncertainty Reserves accessibility Equipment shortages[10] Increase national Energy Brand/reputation Energy and GPD (see USA Security of damage of the climate change example since European operator policies [10] shale gas boom) Union( EU company such us independence Chevron in a on Russian case of an natural gas) accident.
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Chevron position in the Shale Gas Industry
Chevron is involved in every phase of natural gas development. We are leasing land and exploring for natural gas. We are conducting pilot projects to test technologies and evaluate gas shales for future projects. We are drilling and completing new wells. And we are producing, processing and distributing natural gas from shale, which, like other dense or “tight” rock formations, can also produce oil and natural gas liquids. Chevron produces natural gas from the Marcellus Shale, which underlies a large area of the eastern United States, and the company is drilling to substantially increase production there. The company has significant shale and tight resources with 7 million net acres (28,300 sq km) in countries around the world, including the United States, Canada, Poland, Romania, Ukraine and Argentina.[11] For more information see the map above Natural gas from Shale: a word of opportunity. Proposed Strategies to Chevron for Shale Gas Industry:
Invest in new technologies which reduce the cost of production and eliminate the environmental impact Provide services to the other operators of shale gas such us Shell and Exxon Mobil which involve decline in the production cost, reduce the environmental impact and increase energy efficiency (reduce waste of water and fuels generally). All of that of course required the necessary costs in R&D development and innovation.
Key Words for Chevron: eliminate the environmental threats, differentiation strategy, specialization inside the specialize sector (shale gas) of oil and gas global industry. Also Chevron must be the first producer from shale gas globally. Focus on development of shale gas wells in China, USA, Mexico and Argentina the first four countries which have the biggest shale gas reserves.
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Methane Hydrate: The fuel of the future? Methane hydrate or fire-ice is water crystals formations that have trapped methane gas within then and have a sherbet-like substance. They are buried beneath continental shelves around the world; energy experts estimate that it could be the next major energy resource. It was previously believed to exist only in the outer reaches of the solar system – in in our days scientists begin to believe that it could be 'the new shale gas'.[12]
Fire ice: Balls of methane hydrate are set alight as part of a demonstration. Japanese scientists have become the first to work out how to extract pure gas from the substance found under the continental shelves Source: http://www.dailymail.co.uk/sciencetech/article-2292555/Japanese-breakthrough-country-extract-fuel-icereserves-locked-beneath-coast.html#ixzz3JBy7C2kQ
State-run Japan Oil, Gas and Metals National Corp (JOGMEC) said the gas was tapped from deposits of methane hydrate near the country's central coast. Since 2001 Japan due to the fact of importing the majority of its energy needs, has invested millions of pounds to develop efficient technology capable to retrieve the methane hydrate
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reserves that have been discovered on its coast. Japan experienced an energy crisis after Fukushima nuclear accident. This led Japan to become the largest global LNG importer in order to fulfill the domestic needs in energy consumption. Japan's trade ministry after production tests that was followed by analysis concerning the amount of gas that was produced; they believe believ e that they can achieve commercial production within wit hin six years. [12]
'The new shale gas': An aerial view shows deep-sea drilling vessel "Chikyu" in the Pacific, off Aichi Prefecture, central Japan, as it hunts for methane hydrate reserves to exploit Source: http://www.dailymail.co.uk http://www.dailymail.co.uk/sciencetech/articl /sciencetech/article-2292555/Japanese-brea e-2292555/Japanese-breakthrough-country-extract-fue kthrough-country-extract-fuel-icel-icereserves-lo reserv es-locked cked-ben -beneath eath-coa -coast.htm st.html#ixz l#ixzz3JB z3JB vbMT
Methane is a major component of natural gas and governments including Canada, the U.S., Norway and China are also al so looking lo oking at exploiting hydrate deposits as an alternative source of energy.[12]
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Source: http://www.jogmec.go.jp/english/oil/technology_015.html
Methane Hydrates Reserves, Source: http://www.dailymail http://www.dailymail.co.uk/sciencetech/a .co.uk/sciencetech/article-2292555/Japanese-b rticle-2292555/Japanese-breakthroughreakthroughcountry-extract-fuel-ice-reserves-locked-b country-extract-fuel -ice-reserves-locked-beneath-coast.html#ixzz2NSgeQf eneath-coast.html#ixzz2NSgeQfQe Qe
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Methane hydrate is formed within marine sediments or beneath permafrost where chemical reactions or microbes break down organic matter to produce gas which then freezes under high pressure Source: http://www.dailymail.co.uk/scie http://www.dailymail.co.uk/sciencetech/articl ncetech/article-2292555/Japanese-breakt e-2292555/Japanese-breakthrough-country-extract-fuel hrough-country-extract-fuel-ice-icereserves-locked-beneath-coast.html#ixzz3JC3JLvXr
“HOUSTON, TEXAS (April 19, 2013) – Baker – Baker Hughes announced that it participated in the first successful marine methane hydrate production test well offshore Japan on March 12, 2013. The test was conducted from a drill ship for the Japan Oil, Gas and Metals National Corporation (JOGMEC) in the Nankai Trough, approximately 60 km off the southeast coast of Japan, as one of the research activities in Japan’s M ethane ethane Hydrate R&D Program. Baker Hughes provided the completion system for the test well, which was drilled in approximately 1000 m of water into a hydrate formation approximately 300 m below the mud line.” [13] “Gas hydrates one of the emerging clean energies of the 21th century. The prospective methane contained in global gas hydrate reserves is 21,000 trillion cubic meters which are about 100 times the total natural gas reserves in the current world. Assuming 10% of the total reserves were exploited ,It can be used for about 600years,as shown in Tables9and10.” Tables9and10.”[14]
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Source: A global survey of gas hydrate development and reserves :Specifically in the marine field Shyi -MinLu, Energy and Environment Research Laboratories ,Industrial Technology ResearchInstitute , Chutung ,Hsinchu310 ,Taiwan
Mining methane hydrates from the land semi-permafrost and the sediments of offshore coastedge The bottom right figure shows the formation of methane hydrate under appropriate conditions of temperature and pressure. Source: A global survey of gas hydrate development and reserves :Specifically in the marine field Shyi -MinLu, Energy and Environment Research Laboratories ,Industrial Technology ResearchInstitute , Chutung ,Hsinchu310 ,Taiwan
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Various methods for the detection of gas hydrates undersea,including the reflection seismic,submarine detection seismograph,submarine seismograph,submarin e detectio nresistor,ground heat measurement, sampling and analysis of marine sediments, submarine camera or unmanned underwater vehicle sobservation, deep-seadrilling and well testing and so on. Source: A global survey of gas hydrate development and reserves :Specifically in the marine field Shyi-MinLu, Energy and Environment Research Laboratories ,Industrial Technology ResearchInstitute , Chutung ,Hsinchu310 ,Taiwan
Proposed Strategies for Chevron for Methane Hydrate Industry
Buy or emerge with Baker H ughes, ughes, because they probably have the technology of the extraction methane hydrates. (see above statement about Baker Hughes) Invest a lot of money to create of expand the knowledge and technological capabilities for methane hydrates exploration and refinery process. Become the first operator in methane hydrate industry Strategic alliance with JOGMEC (Japan Oil, Gas and Metals National Corporation), propose to japan government new invests in japan exclusive economic zone for exploration of methane hydrates with major target the energy security of Japan. Due to the global estimated methane hydrate reserves if Chevron enters the industry first may become the biggest oil and gas operator globally.
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SWOT Analysis of Chevron Upstream Section Highlights
Thru its long experience in the upstream sector of the Industry, Chevron has formed a wide portfolio of upstream operations located around the globe. They have gained experience and competences by operating and managing projects in varied environments, using innovative technologies and successfully collaborate with multiple partners. With Chevron’s upstream business magnitude, its strengths and capabilities they could help meet the world’s energy demands. The company’s upstream has operations in most of the world’s key hydrocarbon basins and a portfolio that t hat provides a foundation foundati on for future growth. [15] [15 ] Business Strategies
Grow profitably in core areas and build new legacy positions by:
Achieving world-class operational performance. Maximizing and growing the base business. Leading the industry in selection and execution of major capital projects. Achieving superior exploration success. Commercializing the equity gas resource base. Identifying, capturing and effectively incorporating new core businesses.[15]
upstream
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Strengths
Financial stability
Financial Analysis of Chevron Corporation Corporation Πηγή: Chevron Annual Report 2013 Supplement
Particulars
2013
2012
2011
2010
2009
2008
Current ratio
1.50
1.60
1.60
1.70
1.40
1.10
Interest coverage Debt ratio
126.20 12.1%
191.30 8.20%
165.40 7.70%
101.70 9.80%
62.30 10.30%
166.90 9.30%
Return on stockholders’ equity Return on capital employed Return on Investment DPS (Dividend Per Share)
15.00%
20.30%
23.80%
19.30%
11.70%
29.20%
13.50%
18.70%
21.60%
17.40%
10.60%
26.60%
8.44%
11.80%
13.60%
10.90%
6.40%
15.40%
3.90
3.51
3.09
2.84
2.66
2.53
EPS (Earning Share)
11.09
13.32
13.44
9.48
5.24
11.67
Per
Total stockholder 15.51% 5.00% 20.30% 22.30% 8.10% return Source: Annual Report of Chevron 2008, 2009, 2010,2011,2012,2013, 2010,2011,2012,2013,
-18.40%
Brand Reputation World’s largest holder of deep water(area of continued growth) acreage in Gulf of Mexico and Nigeria [15] Technology Innovation in upstream technologies
More specific:
For instance: Chevron is among leaders in the application of ocean bottom node sensing technology in deep water fields. Also Chevron executed its first airborne full-tensor gravity gradiometry (FTG) survey over the Partitioned Zone between Saudi Arabia and Kuwait. [15]
Diverse and highly skilled global workforce consists of approximately 64,500 employees, including more than 3,200 service station employees (Chevron facts Sheet May 2014) Production – Produced Produced 2.597 million net oil-equivalent barrels per day, with about 75 percent of the volume outside the United States in more than 20 different countries. (Chevron facts Sheet May 2014) massive oil reserves (11 billion barrels) [15] Continuous investment in high profile projects to increase oil production [15] Second largest integrated energy company in the world [15] (Platts 2013 Global Energy Outlook 2013) Big political influence due to lobbing and sponsoring the two big parts of USA, Democrats and Republicans.
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For example, In 2009, Chevron turned on its most aggressive “outside track” campaign to date, creating a veritable lobbying tsunami. Chevron increased its federal lobbying expenditures by more than 60% over 2008 — itself itself Chevron’s previous record breaking year. By comparison, ExxonMobil actually decreased its lobbying expenditures from 2008 to 2009. With more than $21 million spent on federal lobbying, Chevron earned a spot on the top ten list of highest spenders on all federal lobbying in 2009. The only other oil company in the top ten was ExxonMobil (number two). [16] (the numbers are ok, we have checked them).
Access to instability areas to produce oil and gas such us Kurdistan on Iraq through political influence globally glo bally Geopolitical player, more specific geoenergy player through political influence, cash flow and big international size of the company Differentiated Portfolio Management
Make strategic alliances to expand and develop technology through R&D innovation
For instance, Chevron Energy Technology Company and GE Oil & Gas announced the creation of the Chevron GE Technology Alliance, which will and commercialize valuable technologies to solve critical needs for the oil and gas industry. The Alliance builds upon a current collaboration on flow analysis technology for oil and gas wells. It will leverage research and development from GE’s newest Global Research Center, the first dedicated to oil and gas technology. (More information about that coalition in this link: https://www.lanl.gov/discover/newsrelease-archive/2014/February/02.03-chevron-ge-tech-alliance.pdf )) release-archive/2014/February/02.03-chevron-ge-tech-alliance.pdf
In 2013 they ranked No. 2 in earnings per barrel relative to their peer group [Annual Report 2013 Chevron] Beneficially company environment- High level of Satisfaction among the employees of Chevron- Acceptable company policies and performance from the employees
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(Source: 2013 Global Employee Survey Favorability Percentage in Chevron 2013 Corporate Responsibility Report)
Source: Chevron 2013 Corporate Responsibility Report
Increase energy efficiency across all the operations, the company used Chevron Energy Index (CEI) to track energy use performance across the value chain and measured a 34 percent improvement during that time from 1992 until 2012.[18] Increase job opportunities locally, according to the Chevron the 92% of their employees work near their home.[18] The past 8 years Chevron has invest 1,5 billion dollars in social programs with partnerships in health, health , education and economic economi c development [18] 90% of the segment earnings of the company coming from upstream activities
Weaknesses
Legal Issues
Cost of environmental hazards
For Instance: Chevron engages in gas flaring, the burning of associated gas that comes out of the ground when oil is extracted, Chevron is among the worst offenders in Nigeria, flaring over 64% of its gas in 2008. Flare emissions in Nigeria are the highest or perhaps secondhighest in the world..[16]
Brand reputation decline the previous years due to many reasons such us gas flaring in Nigeria or use/rent of national army of Nigeria to protect the infrastructure of the company in Nigeria. Influence by the low prices of oil in the production of the company which leads to decreasing revenues (Source: Chevron Annual Report 2013)
For instance:
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Chevron’s potential future project portfolio (2014 -2050 production) is generally low cost, with 46% requiring a market price of at least $75/bbl for sanction and 26% (6.1bn barrels) at least $95/bbl.
pri ces In the medium term, over the next decade, 14% of Chevron’s production will need oil prices over $95/bbl for sanction. But by the end of 2025, projects requiring $95/bbl or more will have risen to 36% of the oduction. This is at the upper end of the range for the majors, company’s potential future pr oduction. leaving Chevron at greater risk to its competitive position from price or cost volatility, especially in a low carbon scenario.[17]
Source: http://www.carbontracker.org/
Catastrophic decisions from the management team and the company we believe doesn’t has any brand reputation marketing strategy
For instance, In January 2012 a Chevron rig exploded off coast of Nigeria and killed Chevron workers including the manager who told the company the rig was unsafe and begged them to fly people off the North Apoi platform before it exploded. Chevron ignored his request and then allowed the fire to burn for FOUR weeks before it even attempted to drill a relief well to stop the fire. Meanwhile the onshore host communities were becoming ill, the fish in the nearby waters that were their livelihood died. Nine local communities ultimately had to abandon their villages, lives and livelihoods. [16]
Focus of the company on a domain sector of oil and gas industry, especially upstream.
25
Source: Chevron Annual Supplement Report 2013
Stable levels of GHG Emissions the last 5 years, this situation can increase the cost production for Chevron due to the penalties from the national authorities of each country which operates, especially the last trend globally is “zero emissions”.
Source: Chevron 2013 Corporate Responsibility Report: Performance Data
26
Threats
Government environmental and taxation legislation High competition Cost of production and exploration of oil and gas wells
See information above in the section of the ‘weaknesses’ in the bullet point for the oil prices.
Low global economic growth-> Decreasing the demand for oil mainly and natural gas secondly (we mention that because we think that in mid-term perspective we will have many geopolitical changes in global scale and for that reason we don’t think that the global economy will increasing all the years until to 2040 according to Exxon Mobil and Word Bank Forecasts for global GPD until 2040. Also we must be aware that in many countries we have economic bubbles according to many economic articles and reports due to the central banks of west economies (USA, Japan and EU) increase credit or we call it ‘cut’ more money to the economy nationally. These actions can increase the possibility of an economic bubble like the technology bubbles in 2000.) Geopolitically instability (Libya, Iraq, Iraq, Syria, Israel- Gaza and Ukraine) Technological Risks in some specific upstream sectors such as shale gas and oil sands( Poor well performance , Lack of infrastructure , Reserves uncertainty, Reserves accessibility, Equipment shortages) Fuel Cell and Electric Automobiles Risks associated with conducting business outside the US (geopolitical, political, economic, environmental risks) Unmanageable Chevron Environmental impact, such as gas from shale depends on drilling methods and chemicals that may put in danger groundwater supply. (see above environmental impact of shale gas exploration) Expand or creation of a new market inside the oil and gas industry such as methane hydrates industry-market from a major competitor like Exxon or Shell or more worse Statoil, Saudi Aramco etc.. The use of oil prices as a diplomatic weapon from the major players globally like USA to put pressure to country oil producers like Iran and Russia. (Low prices of oil) Currency war, For example we all know that the last century after WW II dollar is the main reserve currency until today, but the last decade we have and other coins to compete dollar in global scale such as Euro, Chinese Yuan and Russian ruble. All of that can influence some activities of the company in USA, South East Asia or in Middle East. Over Debt countries globally, this situation can damage global economic growth and the outcome of this situation will decrease the demand for oil and gas.(observe the statistics below) Energy and climate change policies implemented by international organization such as United Nations or Word Bank
27
Source: http://en.wikipedia http://en.wikipedia.org/wiki/List_of_countries_b .org/wiki/List_of_countries_by_external_debt y_external_debt
Unexpected and unpredictable problems, such as dangerous weather conditions like hurricanes NOC- National Oil Companies influence and ownership of the global reserves. It is known that the majority (above 80%) of world oil reserves are owned or controlled by national governments.
Opportunities
Increasing fuel/oil prices Increasing natural gas market & increasing demand for LNG Discovered enormous oil field all around the world. Aggressive Market penetration in the markets of shale gas and oil sands through merges and acquisitions Focus of the company in gas sector, due to the big investments that will happened the next years until 2035 according to IEA (International Energy Agency)
28
World Energy Investment Outlook, Special Report, IEA 2014
Increasing global energy demand due to the rapidly growth of the global population until 2040 Provide services which eliminate the environmental impact of the extraction of shale gas and oil sands in the other major competitors like Shell and Exxon through R&D Innovation Technology R&D innovation in the field of exploration of methane hydrates which can lead the company to become the major oil and gas player globally. Focus on development of shale gas wells in China, USA, Mexico and Argentina the first four countries which have the biggest shale gas reserves. Strategic alliance with JOGMEC (Japan Oil, Gas and Metals National Corporation) and Baker Hughes which succeed the first drilling operation in methane hydrates. Access to know-how of this technology- Competitive advantage. Increase energy efficiency among all the operations of the company, minimize waste and low the cost of production (eco-friendly approach) Continued field discoveries in areas like North Duri and Bangladesh Merge and acquisitions with National Oil Companies Decrease GHG Emissions Propose a new strategic marketing plan to increase brand reputation in global scale European Union and Japan energy security for the future
29
SWOT ANALYSIS OF CHEVRON UPSTREAM SECTOR
Strengths
Weaknesses
Opportunities
Threats
1
Financial stability
Legal Issues
Government environmental and taxation legislation
2
Brand Reputation
Cost of environmental hazards
3
World’s largest holder of deep water(area of continued growth) acreage in Gulf of Mexico and Nigeria
Influence by the low prices of oil in the production of the company which can be decrease/decline
Technology R&D innovation in the field of exploration of methane hydrates Strategic alliance with JOGMEC (Japan Oil, Gas and Metals National Corporation) and Baker Hughes Discovered enormous oil field all around the world.
4
Technology Innovation upstream technologies
Brand reputation decline the previous years
in
5
Global workforce consists of approximately 64,500 employees
Catastrophic decisions from the management team
6
Produced 2.597 million net oilequivalent barrels per day, with about 75 percent of the volume outside the United States in more than 20 different countries. massive oil reserves
Focus of the company on a domain sector of oil and gas industry, especially upstream
7
Stable levels of
Aggressive Market penetration in the markets of shale gas and oil sands through merges and acquisitions Increasing global energy demand due to the rapidly growth of the global population until 2040 Focus of the company in gas sector, due to the big investments that will happened the next years until 2035 according to IEA European Union
Cost of production and exploration of oil and gas wells
Low global economic growth-> Decreasing the demand for oil mainly and natural gas secondly Geopolitically instability
Technological Risks in some specific upstream sectors such as shale gas and oil sands Risks associated with conducting business outside the US
High competition
30
GHG Emissions the last 5 years
and Japan energy security for the future Provide services which eliminate the environmental impact of the extraction of shale gas and oil sands in the other major competitors like Shell and Exxon through R&D Innovation Merge and acquisitions with National Oil Companies
8
Second largest integrated energy company in the world
9
Access to unstable areas to produce oil and gas such us Kurdistan of Iraq
10
Geopolitical player, more specific geoenergy player
Propose a new strategic marketing plan to increase brand reputation in global scale
11
Increase energy efficiency across all the operations
12
Beneficially company environment- High level of Satisfaction among the employees of Chevron
Increasing natural gas market & increasing demand for LNG Increasing fuel/oil prices
13
Focus on development of shale gas wells in China, USA, Mexico and Argentina the first four countries which have the biggest shale gas reserves.
Unmanageable Chevron Environmental impact
The use of oil prices as a diplomatic weapon from the major players globally like USA The creation of a new market from a major competitor like Shell (For instance hydrate methane) Over Debt countries globally
Currency war
NOC- National Oil Companies influence and ownership of the global reserves
31
EFE Matrix for Chevron Upstream Sector Key External Factors Opportunities Weight 1. Technology 0.08
Rating 3
Weighted Score 0.24
R&D innovation in the field of exploration
2.
European Union and Japan energy security for the future
0.1
4
0.40
3.
Increasing natural gas market & increasing demand for LNG
0.08
2
0.16
4.
Increasing fuel/oil prices
0.05
2
0.1
5.
Increasing global energy demand
0.05
2
0.1
6
Aggressive Market penetration in the markets of shale gas and oil sands
0.06
3
0.18
7.
Strategic alliance with JOGMEC (Japan Oil, Gas and Metals National Corporation) and Baker Hughes
0.1
4
0.4
8.
0.08
2
0.16
0.04
3
0.12
0.1
4
0.4
Merge and acquisitions with National Oil Companies
Threats 1. Over
Debt
countries globally/Low Global economic growth
2.
NOC- National Oil Companies influence and ownership of the global reserves
32
3.
Cost of production and exploration of oil and gas wells
0.06
2
0.12
4. The
0.05
3
0.15
5. The creation of 0.05
2
0.1
use of oil prices as a diplomatic weapon a new market from a major competitor
6.
Geopolitically instability
0.05
4
0.2
7.
Cost of production and exploration of oil and gas wells
0.05
3
0.15
Total
1.00
2.64
33
IFE Matrix for Chevron Upstream Sector Key Internal Factors Weight Strengths 1. Financial 0.08
Rating 3
Weighted Score 0.24
4
0.4
4
0.24
stability
2.
Brand
0.1
Reputation World’s ’s largest 0.06 3 World holder of deep water acreage in Gulf of Mexico and Nigeria
4.
Technology Innovation in upstream technologies
0.05
4
0.2
5
0.05
3
0.15
oil
0.06
3
0.18
7.
Second largest integrated energy company in the world
0.08
3
0.24
8.
0.12
4
0.48
Legal Issues
0.04
2
0.08
Cost of environmental hazards Influence by the low prices of oil in the production of the company which can be decrease/decline Brand reputation decline the previous years Catastrophic decisions from the management team
0.1
2
0.2
0.06
2
0.12
0.05
2
0.1
0.05
2
0.1
Global
workforce consists of approximately 64,500 employees
6
massive reserves
Geopolitical player, more specific geoenergy player
Weaknesses
34
Focus of the company on a domain sector of oil and gas industry, especially upstream Stable levels of GHG Emissions the last 5 years
0.05
1
0.05
0.05
1
0.05
Total
1.00
2.83
35
SWOT Analysis of Chevron Downstream Section Highlights
The company has a strong presence in all aspects of the downstream industry — refining, marketing, trading and transporting of hydrocarbon products and petrochemicals. As such, downstream is an important element of Chevron’s integrated val ue chain to obtain higher value for equity production. Business Strategies
Deliver competitive returns and grow earnings across the value chain by:
Achieving world-class operational excellence. Continually improving execution of base business. Driving earnings across the crude-to-customer value chain. Pursuing targeted growth opportunities. Adding value to the upstream business.
Source: Chevron Annual Report Supplement 2013
36
Chevron Cooperate Structure, www.chevron.com
Strengths
88% of the operating revenues of Chevron for 2013 obtained from the downstream section-observe the graphs in the next page. 34% of the Investments and Advances of Chevron for 2013 invested in downstream sector Well placed in Asia- Pacific area because Chevron owns 12 refineries and 1 chemical factory in this area Marketing network supports retail outlet on 6 continents [19] Excellent use of the capacity of the refineries in big percentages- The company ranked 1th in 2012 on the Refinery Utilization among all of the competitors
Source: Presentation from from Mike Wirth Executive Vice President President from Chevron, Downstream and and Chemicals www.chevron.com
37
Segment Earnings- Chevron Annual Report 2013
Investments and Advances- Chevron Annual Report 2013
Segment Sales and Other Operating Revenues- Chevron Annual Report 2013
38
Chevron downstream margin are 2-3$ per barrel the last 5 years since 2009
Chevron's average downstream margin during the five years since 2009 has been just under $2 per barrel, while competitors have reported an average margin of approximately $1.50. There is a reason for this outperformance, though: the crowning jewel of Chevron's downstream empire, Chevron Phillips.(Source: http://www.fool.com/investing/general/2014/06/17/heres-how-chevron-is-outperformingdownstream-peer.aspx )
Source: Presentation from from Mike Wirth Executive Vice President from Chevron, Downstream Downstream and Chemicals www.chevron.com
Chevron is 2th in Return on capital employed with a 18,1% for 2012 according to the graph above. (A higher ROCE indicates more efficient use of capital. ROCE should be higher than the company’s capital cost; otherwise it indicates that the company is not employing its capital effectively and is not generating shareholder value.) Competitive Asia Portfolio in downstream sector among to the competitors like Shell, BP and Exxon Mobil, observe the graphs below (Refinery Capacity and High Valued Products) Chevron Phillips, Chevron most valuable asset in downstream section, see graph below, It is one of the world’s leading producers of olefins, polyolefin and alpha olefins and is a leading supplier of aromatics and polyethylene pipe. Chevron Oronite, Oronite is a world-leading developer, manufacturer and marketer of quality additives that improve the performance of lubricants and fuels. ( increase in earnings after taxes the last 3 years, see the graph below)
39
Chevron Phillips Performance, efficiency use of the assets of the company Source: Presentation from Mike Wirth Executive Vice President from Chevron, Downstream and Chemicals www.chevron.com
Information’s for Chevron Asia -Pacific Area
Source: Presentation from Mike Wirth Executive Vice President from Chevron, Downstream and Chemicals www.chevron.com
Chevron Oronite Performance, efficiency efficiency use of the assets of the company Source: Presentation from Mike Wirth Executive Vice President from Chevron, Downstream and Chemicals www.chevron.com
40
Chevron Lubricants, Chevron is among the leading global developers and marketers of lubricants and is a top supplier of premium base oil worldwide.( Decrease in operational expenses and doubled earnings after taxes the last 3 years until 2012)
Εικόνα 1 Lubricants Performance, efficiency Chevron efficiency use of the assets of the company
Source: Presentation from from Mike Wirth Executive Vice President from Chevron, Downstream Downstream and Chemicals www.chevron.com
Chevron cooperated with Microsoft because wanted to improve refinery performance and reliability, chevron uses Windows Mobile® devices which runs Microsoft® software, “Using IntelaTrac IntelaTrac (software program) to accelerate and sustain process process improvements, Chevron has reduced maintenance costs, improved availability, and achieved cost-effective regulatory compliance, said by Mike Brooks, Global Refining IT Adviser, Chevron’’ (Microsoft Customer Solution Manufacturing Industry Case Study) Global well positioned in all continents with 14 refineries and 5 chemical factories worldwide Chevron and its affiliates has serve 7,700 Caltex branded retail outlets in Africa and Asia-Pacific regions Second-largest integrated energy company globally Decreasing in petroleum spill [18], observe the graph below Safety in all the refining process and low percentage of injuries, observe the chart below Financial Stability
41
Source: Chevron Cooperate Responsibility Report 2013
Source: Chevron Cooperate Responsibility Report 2013 Performance Data
42
Weaknesses
Cost of environmental hazards, due to gas flaring from refinery activities and dangerous accidents in Chevron refineries such as explosions, observe the photos below.
Chevron El Segunto Refinery- Gas Flaring, Source: Reference [16]
Fire burning at the Chevron refinery in Pascagoula, Mississippi, Source: Reference [16]
Chevron Richmond refinery near Sun Francisco, Source: http://phys.org/news/2012-08-refinery-highlights-pollution.html
Legal issues, due to the major accidents above but and for many other things Decreasing in US and International Refined Product Sales, see the facts below,
Source for the 2 gr aphs: Reference [15]
43
Decreasing in Marketing Retail Outlets, observe the chart below
Source: Chevron Annual Report 2013
Source: Reference [15]
Decreasing in Worldwide Downstream Earnings, observe the graph above. Decreasing in operational revenues the last 3 years since 2011, operational revenues dropped from 244,371$ the 2011 to 220,156 $ the 2013. (Millions of dollars)
300.000
250.000 Chevron Operational Revenues in million dollars
200.000
Chevron Upstream Operational Revenues in million dollars
150.000
100.000
Chevron Downstream Operational Revenues in million dollars
50.000
0 2011
2012
2013
Chevron operational revenues depend on downstream operational revenues
44
Opportunities
Decreasing oil prices, reduce the cost per barrel for the refineries Expand our refinery portfolio near to unconventional resources, such as shale gas and methane hydrates. Reduce costs and waste from the refinery of Chevron through R&D Innovation, such as step-out ICR 1000 hydro treating catalyst which extending catalyst life and allowing processing of more difficult feedstock. Focus on development of the refineries in Asia-Pacific, due to expected increase in energy demand in this region, observe the chart below.
Source: OPEC oil downstream outlook for 2040, OPEC Oil Outlook 2014
Market penetration in downstream sector of the company on alternative regions such as Middle East, Africa and South America. Expand our portfolio of refineries through merge and acquisitions, especially in Europe, because there the refinery business is downsized and the company can acquire a lot of refinery assets in very beneficially prices. Strategic alliance with major National Oil Companies in Asia-Pacific area which owns a lot of refinery assets in the area, observe the graph below. US refinery can increase their operating revenues due to they have low energy costs. (see KPMG oil and gas outlook 2014)
45
Focus on the further development of lubricants and petrochemicals
Source: Presentation from Mike Wirth Executive Vice President from Chevron, Downstream and Chemicals www.chevron.com
Production of petroleum products from biofuels- New refinery processes- Technology Innovation- Expand or enter to new markets Customer trends for more friendly and clean fuels
Source: Global refining Survey, Fueling profitability in the turbulent times ahead By José de Sá,, BAIN & COMPANY
46
Threats
Security issues. Such as terrorist attacks or asymmetric threats ( for example cyber terrorism) Geopolitical instability Government Environmental and Taxation Legislation Legislation Increase of natural gas share in global energy mix (International Energy AgenctEnergy Outlook 2013) ‘Up and down’ crude slate quality [20]
Tight crude and unconventional NGLs (National Gas Liquids) supply growth [20] Low global economic growth Low global energy demand for refinery products Supply and demand Curve, the oil and gas downstream industry is linked with consumption of refinery products through price and quality of those products. It is obvious that this complex situation is affected from many factors like the examples we mention above, thus through a PEST Analysis and based on the curve of supply and demand refinery managers can identify many threats and opportunities. Increasing oil prices National Oil Companies, political influence i nfluence and ownership of the global oil reserves
Source: http://www.investopedia.co http://www.investopedia.com/university/economics/eco m/university/economics/economics3.asp nomics3.asp
47
SWOT ANALYSIS OF CHEVRON DOWNSTREAM SECTOR
Strengths
Weaknesses
Opportunities
Threats
1
88% of the operating revenues of Chevron for 2013 obtained from the downstream Section 34% of the Investments and Advances of Chevron for 2013 invested in downstream sector
Cost of environmental hazards
Decreasing oil prices, reduce the cost per barrel for the refineries
Security issues. Such as terrorist attacks or asymmetric threats
Legal issues, due to the major accidents in their infrastructures
Expand our refinery portfolio near to unconventional resources, such as shale gas and methane hydrates. Reduce costs and waste from the refinery processes of Chevron through R&D Innovation,
Geopolitical instability
2
Well placed in AsiaPacific area because Chevron owns 12 refineries and 1 chemical factory in this area Marketing network supports retail outlet on 6 continents
Decreasing in US and International Refined Product Sales,
5
The company ranked 1th in 2012 on the Refinery Utilization among all of the competitors
Decreasing Worldwide Downstream Earnings,
6
Chevron downstream margin are 2-3$ per barrel the
Decreasing in operational revenues the last 3 years since
3
4
Decreasing in Marketing Retail Outlets,
in
Government Environmental and Taxation Legislation
Focus on development of the refineries in Asia-Pacific, due to expected increase in energy demand in this region, Market penetration in downstream sector of the company on alternative regions such as Middle East, Africa and South America.
Increase of natural gas share in global energy mix
Expand our portfolio of refineries through merge
Tight crude and unconventional NGLs (National Gas Liquids)
‘Up and down’ crude slate quality
48
last 5 years since 2009
2011, operational revenues dropped from 244,371$ the 2011 to 220,156 $ the 2013
7
Chevron is 2th in Return on capital employed with a 18,1% for 2012 ,they had 13% for 2013
Chevron operational revenues depend on downstream operational revenues
8
Competitive Asia Portfolio in downstream sector among to the competitors
9
Chevron chemistry sector, such as Chevron Phillips and Chevron Oronite Global well positioned in all continents with 14 refineries and 5 chemical factories worldwide
10
11
12
Chevron and its affiliates has serve 7,700 Caltex branded retail outlets in Africa and Asia-Pacific regions Second-largest
and acquisitions, especially in Europe, because there the refinery business is downsized and the company can acquire a lot of refinery assets in very beneficially prices. Strategic alliance with major National Oil Companies in Asia-Pacific area which owns a lot of refinery assets in the area. US refinery can increase their operating revenues due to they have low energy costs. (shale gas boomlow prices of natural gas) Focus on the further development of lubricants and petrochemicals
Production of petroleum products from biofuelsNew refinery processesTechnology InnovationExpand or enter to new markets Customer trends for more friendly and clean fuels
supply growth
Low global economic growth
Low global energy demand for refinery products
Supply and demand Curve
Increasing prices
oil
National Oil Companies, political influence and ownership of the global oil reserves
49
13
integrated energy company globally Chevron cooperation with technologies companies like Microsoft aiming to reduce refinery costs or to improve refinery processes
50
IFE Matrix for Chevron Downstream Sector Key External Factors Weight Strengths 1. 88% of the operating revenues of Chevron for 2013 obtained from the downstream Section 2. 34% of the Investments and Advances of Chevron for 2013 invested in downstream sector 3.Chevron downstream margin are 2-3$ per barrel the last 5 years since 2009 4.Chevron cooperation with technologies companies 5. Global well positioned in all continents with 14 refineries and chemical factories worldwide 6 Chevron and its affiliates has serve 7,700 Caltex branded retail outlets in Africa and AsiaPacific regions 7. Chevron chemistry sector, such as Chevron Phillips and Chevron Oronite 8. The company ranked 1th in 2012 on the Refinery Utilization among all of the competitors
0.1
Rating 4
Weighted Score 0.4
0.05
3
0.15
0.08
4
0.32
0.05
4
0.2
0.12
4
0.48
0.05
3
0.15
0.04
3
0.12
0.06
4
0.24
51
Weaknesses 1.Cost of environmental hazards 2.Legal issues, due to the major accidents in their infrastructures 3. Decreasing in US and International Refined Product Sales, 4. Decreasing in Marketing Retail Outlets,
0.1
2
0.2
0.05
2
0.1
0.05
2
0.1
0.05
1
0.05
5.
Decreasing in Worldwide Downstream Earnings,
0.1
2
0.2
6.
Decreasing in operational revenues the last 3 years since 2011
0.1
2
0.2
7.Chevron
0.1
2
0.2
operational revenues depend on downstream operational revenues
Total
1.00
3.11
52
EFE Matrix for Chevron Downstream Sector Key External Factors Opportunities Weight 1. Decreasing oil prices, reduce the cost per barrel for the refineries 2. Expand our refinery portfolio near to unconventional resources, such as shale gas and methane hydrates. 3. Focus on the further development of lubricants and petrochemicals 4. US refinery can increase their operating revenues due to they have low energy costs. (shale gas boomlow prices of natural gas) 5. Strategic alliance with major National Oil Companies in Asia-Pacific area which owns a lot of refinery assets in the area. 6 Expand our portfolio of refineries through merge and acquisitions, especially in Europe 7. Focus on development of the refineries in Asia-Pacific, due to expected increase in energy demand in this region,
0.1
Rating 4
Weighted Score 0.4
0.05
2
0.1
0.05
3
0.15
0.05
3
0.15
0.1
3
0.3
0.05
3
0.15
0.1
4
0.4
53
8. Production of petroleum products from biofuelsNew refinery processesTechnology InnovationExpand or enter to new markets Customer trends for more friendly and clean fuels Threats 1. Security issues. Such as terrorist attacks or asymmetric threats 2. Geopolitical instability 3. National Oil Companies, political influence and ownership of the global oil reserves 4. Increasing oil prices
0.05
2
0.1
0.05
3
0.15
0.1
4
0.4
0.05
3
0.15
0.05
3
0.15
5.
Government Environmental and Taxation Legislation
0.06
3
0.18
6.
Increase of natural gas share in global energy mix
0.04
2
0.08
7.
Low global economic growth
0.07
3
0.21
8.
‘Up and down’ crude slate quality
0.03
2
0.06
Total
1.00
3.03
54
Chevron Competitive Profile Matrix Critical success factors
Chevron
Exxon
Shell
Mobil
weight
Rating
Score
Rating
Score
rating
score
Advertising
0.20
3
0.60
3
0.60
3
0.60
Product quality
0.10
3
0.30
4
0.40
2
0.20
Management
0.07
4
0.28
3
0.21
3
0.21
Financial position
0.10
3
0.30
2
0.20
3
0.30
Customer loyalty
0.05
2
0.10
3
0.15
3
0.15
Global expansion
0.20
3
0.60
4
0.80
4
0.80
Market share
0.09
3
0.27
3
0.27
4
0.36
Geopolitical Influence
0.15
3
0.45
3
0.45
3
0.45
Production capacity
0.04
3
0.12
3
0.12
4
0.16
Total
1.00
3.02
3.20
3.23
55
Grand Strategy Matrix for Chevron
Source: http://mba-lectures.com http://mba-lectures.com/management/strategic-man /management/strategic-management/1129/grand-strategy-m agement/1129/grand-strategy-matrix.html atrix.html
Chevron has 8% annual growth the last 4 years since 2009 and chevron CPM evaluation score is 3.02. According to these statistics chevron is located in Quadrant 1.
56
The Internal-External Matrix for Downstream and Upstream Chevron Sector
IFE Score of downstream is 3.11 and the EFE Score is 3.03. The downstream earnings represent represent the 9% of total segment earnings.
57
IFE Score of of upstream is 2.83 and the EFE Score is 2.64. The upstream earnings earnings represent represent the 90% of total segment earnings
SWOT Matrix of Upstream and Downstream Chevron Sector
58
59
The decision stage: Simplified methodology Proposed Strategic Options for Downstream
Internal – Internal – External External (IE)Matrix Hold and Maintain
Market Penetration
x
x x
x x
x
x
x
Market development Product development Horizontal integration Related diversification Unrelated diversification
SWOT Matrix
Grant Strategy Matrix
x x
According to the following methodology we will follow to the downstream sector these strategies:
Market Penetration
Product development
Proposed Strategic Options for Upstream
Internal – Internal – External External (IE)Matrix Grow and Build
Market Penetration
x x
SWOT Matrix
x x
Grant Strategy Matrix
x x
Market development Product x x x development Horizontal x x x integration Related x diversification Unrelated diversification According to the following methodology we will follow to the downstream sector these strategies:
Market Penetration
Product development
60
Market development
Horizontal integration
61
Conclusion Proposed Strategies:
An offshoot of the unconventional Management is that sometimes follow offer strategies which may have positive or negative effects that nobody can explain. Our proposal is a scientific collaboration with institutes as NASA investing in environmental studies of the Earth. This practice has no direct relation with their business activities but b ut will offer both; the opportunity opport unity to unlock secrets sec rets and solve major environmental obstacles, serving future evolution.
China Fact Sheet May 2014 Mentioned that Chevron has expanded operations in China through our subsidiaries. The range of businesses includes petroleum exploration and production and fuels and lubricants marketing. In addition, we contribute to the development of people and technology. Richard Pullin says that Chevron has co investor in a $6.4 billion gas project being built by Chevron CVN.X in China, now facing further delays due to disagreements with partner PetroChina (0857.HK) over how to develop the technically tricky fields, three industry sources said. The Chuandongbei project, the U.S. firm's largest investment in China, is now not expected to deliver first gas until the second half of 2014, nearly 7 years after the firms clinched a 30-year deal to produce 7.6 billion cubic meters of gas a year. Although this project has significantly delayed; thus we proposed that they should find ways to pursuit partners to accelerate the project completion, it is a great opportunity to penetrate in the Chinese Gas upstream industry before major competitors appear in the region. [23]
As we mentioned the Proposed Strategies for Chevron for Methane Hydrate Industry: 1. Buy or emerge with Baker Hughes, because they probably have the technology of the extraction methane hydrates. (see above statement about Baker Hughes) 2. Invest a lot of money to create of expand the knowledge and technological capabilities for methane hydrates exploration and refinery process. 3. Become the first operator in methane hydrate industry 4. Strategic alliance with JOGMEC (Japan Oil, Gas and Metals National Corporation), propose to japan government gove rnment new invests in japan japa n exclusive economic zone zo ne for exploration of methane hydrates with major target the energy security of Japan. 5. Due to the global estimated methane hydrate reserves if Chevron enters the industry first may become the biggest oil and gas operator globally. By this strategies Chevron is expected to be the pioneer in the next generation of the energy map; there isn’t any other company of the same magnitude to compare with.
The company has reached a high level of profitability and technological advantage in the upstream sector. We suggest for them to follow this tactic in the downstream
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sector by supporting and advertising the brand name in the E.U. countries. Europe is attracted by high quality specialized and environmental friendly products. For them to approach those markets they must minimize the environmental hazard beginning with decreasing GHG Emissions.
The Company’s global upstream operations are often locates in countries, known for the political instability. Being innovative and using techniques of which, the environmental impact can’t be fully assessed; increases the risk of uncertain legal, environm ental and social impact. Furthermore the low bargaining power of the national entities; resolving from geoeconomic instability and pour regulation, could be beneficially used from the company and wider from the industry to apply change .It is a fact that leaders in regions as Africa, Argentina and other Counties, owners of huge hydrocarbon reserves, are driven by corruption. Consequentially leading nations; into high political instability as also social misguidance, while decreasing the power of local communities. Chevron has experienced several legal issues concerning operations abroad. The strategy proposed is Chevron to be innovative. To generate this time a innovative legal framework or best operation practices. To apply transparency of all entities involved, in every phase of upstream exploitation and exploration. By applying strict rules if the national entities are not complying with the practices required from the company. Pre-requirements concerning facilitation and operations abroad, prohibiting any agreements or operations, predefining serious penalties or even cancellation of contracts; concerning the following issues: transparency, environment, community care. If all major Oil & Gas Companies agreed to common Best Practices regarding the matter, then they could use thus practices as a pressure point. National Entities depend on extracting the hydrocarbon reserves as they are sometimes the only countable revenue. According to international regulation major O&G companies are obliged to take all legal responsibility, for any illegal act performed by third parties even if they were not aware about though actions. Furthermore, the technologies applied for unconventional oil and gas have a great risk involved. They require a high level of environmental and social foundations to avoid hazard environmental impact, terrorist attacks and other undesired outcome. The same stands in our days for conventional reserves; their becoming more and more demanding concerning the extraction phase, they are technologically advanced but involve unknown risks. Creating a western operating platform will be beneficial in several ways. It will increase the brand name integrity by operating in a more environmental friendly manner. Being environmentally friendly will lead to fewer GHG emissions and other polluting consequences. Best operation op eration practices abroad will secure the integrity of tangible assets. Those are many times targets of terrorist or revels. Due to unstable political situation, the communities have no gain from the industries activities. Furthermore they suffer experiencing the decrease of clean water air and food. Chevron can gain high future sustainability by being a part in the evolution of local societies linked to the O&G Industry by creating a fair play environment. en vironment.
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References [1] History, Vision, Mission, Strategies and Objectives of Chevron is from Annual Report of Chevron 2013 and from the official website of Chevron: http://www.chevron.com/ [2] North American Oil Sands: History of Development, Prospects for the Future, Updated December 11, 2007 Marc Humphries, Analyst in Energy Policy, Resources, Science, and Industry Division, CRS Report for Congress [3] Information from technology.com/projects/athabasca/
the
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http://www.hydrocarbons-
[4] Information from the website: http://gulfnews.com/business/oil-gas/canada-s-oilsands-feel-heat-of-price-drops-1.1400762 [5] Information from this report: Upstream Dialogue – The facts on oil Sands, CANADA’S OIL SANDS PRODUCERS, PRODUCERS, OILSANDSTODAY.CA [6] Information from the website: http://geology.com/energy/shale-gas/
(Frontiers in Ecology and the Environment) See more at: [7] http://wws.princeton.edu/news-and-events/news/item/fracking-dark-biological-fallout-shalegas-production-still-largely#sthash.RQ8lcYpJ.dpuf [8] Information from the website: http://www.theguardian.com/environme http://www.theguardian.c om/environment/2012/apr/17/shale-gas-fra nt/2012/apr/17/shale-gas-fracking-uk cking-uk [9] Information from the website: http://www.businessstandard.com/article/companies/c standard.com /article/companies/crude-oil-fall-to-nix-ril-s-returns-from-us-s rude-oil-fall-to-nix-ril-s-returns-from-us-shale-gashale-gasassets-114101300036_1.html [10] Information from the report: Risk Assessment for the Shale Gas industry in Europe,Lucie Roux*, Jim Seaton, Dr Patrick Gougeon, Dr Kostas Andriosopoulos, Andriosopoulos, Research Centre for Energy Management, ESCP Europe Business School, London, United Kingdom, http://www.rcem.eu/media/188904/risk_as http://www.rcem.eu/m edia/188904/risk_assessment_for sessment_for_the_shale_gas _the_shale_gas_industry_in_e _industry_in_eur ur ope.pdf [11] Information from the http://www.chevron.com/deliveringe http://www.chevron.c om/deliveringenergy/naturalgas nergy/naturalgas/shalegas/ /shalegas/
website:
[12] Information from the website:
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http://www.dailymail.co.uk/sciencetech/article-2292555/Japanes http://www.dailymail.co.uk/sciencetech/art icle-2292555/Japanese-breakthroughe-breakthroughcountry-extract-fuel-ice-reserves-loc country-extrac t-fuel-ice-reserves-locked-beneath-coast.h ked-beneath-coast.html#ixzz2NSgeQfQe tml#ixzz2NSgeQfQe [13] Information from the website: http://www.bakerhughes.com/news-andmedia/press-center/product-announc media/press-ce nter/product-announcements/houston-te ements/houston-texas-april-19-2013 xas-april-19-2013 [14] Information from the scientific article: A global survey of gas hydrate development and reserves :Specifically in the marine field Shyi-MinLu, Energy and Environment Research Laboratories ,Industrial Technology ResearchInstitute , Chutung ,Hsinchu310 ,Taiwan [15] Chevron Annual Report 2013 Supplement [16] Chevron Alternative Annual Report 2010 , http://truecostofchevron.com/ [17] Carbon Tracker Initiative Report, Oil & Gas Majors: Fact Sheets Chevron Corporation August 2014, http://www.carbontracker.org/ [18] Chevron 2013 Corporate Responsibility Report [19] Chevron Annual Report 2013 [20] OPEC oil downstream outlook for 2040, OPEC Oil Outlook 2014 [21] By M Humphries - 2008 www.dtic.mil/cgi-bin/GetTRDoc?AD=ADA477532 [22] Chevron, May 2014 http://www.chevron.c http://www.chevron.com/countries/ca om/countries/canada/businesspor nada/businessportfolio/ tfolio/ [23] [23]http://in.reuters.com/a http://in.reuters.com/article/2013/12/06/us-che rticle/2013/12/06/us-chevron-cnpc-gas vron-cnpc-gas idINBRE9B507520131206
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