Analysis of the Oil and Gas Industries
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EY's O&G Business Today
As at 2008, global O&G revenues are approximately $850m per annum and are forecast to remain relatively static over the next few years. Within that our OCA and GP account revenues which are predominately IOC driven are declining significantly whilst our core and SGM revenues are growing healthily. However, our revenue from NOCs is less than 10%.
Our global client portfolio of OCAs and GPs reflects the industry dynamics of five years ago and needs to be significantly realigned to reflect the dynamics of today.
Our service portfolio provides a solid foundation but considerable scope exists to provide more industry content-rich specific services to our clients and to develop new services and extend others to support new trends in the global oil industry.
Currently our main people capability to support the oil industry lies in Western Europe and North America with smaller pockets in areas such as the Middle East, Russia and Australia. It is clear that our capability to develop new business and deliver the resulting O&G services needs to be significantly enhanced in the newly emerged economies.
Worryingly this lack of strength and depth in our oil industry service capability in the newly emerged economies is leaving the firm exposed to potentially significant service failures, subsequent client loss and litigation.
Fundamental change in the Oil and Gas industry
The Oil and Gas industry came into being in the late 1800's and over the last century has seen several structural changes and important transformations. One of most important of these changes took place in the early part of the 20th century and was the breakup of Standard Oil in the U.S. which led to the growth of large, globalized “oil majors” which had headquarters all over the world. The ever changing and evolving business environment has led to increasing amount of consolidation and merger activity in recent decades giving rise to a handful of supermajors. There has been widespread nationalization of oil assets, primarily in Arab nations, former communist countries and also developing economies. This process of nationalization has led to the creation of a new breed of National Oil Companies (NOC's) that in many cases have grown to become far larger than the largest of their private sector counterparts.
Modern economies are driven by oil and gas and issues relating to the industry have become of increasing importance for all nations. The Oil & Gas Industry is undergoing its most fundamental change since its formation in the first half of the 20th century, with a major shift in power from the International Oil Companies (IOCs) such as Exxon Mobil, Shell and BP to the National Oil Companies (NOCs) such as Saudi Aramco, Petro China and Gazprom.
Only a decade ago the IOCs had access to and led the development of the vast majority of the world's Oil & Gas resources. Today the market landscape has seen dramatic changes and it is the NOCs which now own over 85% of the world's remaining reserves and are becoming increasingly determined to lead the exploitation themselves. Five years ago it would have been unthinkable that one of the top three IOCs could be taken over by a NOC or a Sovereign Wealth Fund but that has all changed now as anything is possible in the current market.
Mature and developed NOC's like Petronas have built up significant capabilities and other NOC's like Sinopec and Petrochina are following in their footsteps. IOC's are now redrawing their old strategies and are looking to partner with NOC's for large projects. There is ever increasing competition for the limited resources available and the uncertain and unstable nature of crude oil prices coupled with the global credit crunch have put immense pressure on companies in the industry to control project costs and operating risks.
There is a rapid increase in energy demand from China, India and non-OECD Asia Pacific region. With maturing oil reserves, exploration and production activities have increased in Middle East, Brazil, Australia, Russia, West Africa and Canada. Major players scouting for reserves for ensuring sustainable future supply. Downstream margins are declining because of high competition.
There has been renewed focus on Green Energy and increased efforts in exploring alternative energy sources. Increasing pressure on oil and gas companies to use better technologies and invest in cleaner technologies. Major private equity players taking bets on companies operating in clean energy area.
Major risks in Oil and Gas Industry
- Access to reserves: political constraints and competition for proven reserves
- Price volatility
- Uncertain energy policy
- Cost containment
- Human Capital Deficit
- Aging oil and gas infrastructure
- Supply shocks
- Overlapping service offerings for international oil companies and oil field service companies
- Climate and environmental concerns
Immense Opportunity for EY
This fundamental change presents our global firm with an immense opportunity to present new global and regional service campaigns to attract new clients and also strengthen and solidify relationships with existing clients. The IOCs will continue to restructure and consolidate operations to reduce costs to increase their profitability, in an era when it will be increasingly difficult to increase their top line growth, other than by market driven oil price rises. The NOCs will be growing rapidly both organically and by acquisition, internationalising their businesses and establishing new global operating models, as indeed will the larger oil field service companies.
Undoubtedly the individual IOCs, NOCs and Service Companies will need significant advisory and assurance support. This will play to the full range of our traditional EY services as well as creating opportunities to develop new EY services to support their drive into emerging areas such as clean technologies, carbon capture and trading, LNG and climate change.
However, these EY services will need to be sold and delivered in the recently emerged and increasingly important economies in the CIS, Middle East, Africa, India, Far East and Latin America as well as EY's traditional O&G geographies of Europe and North America.
Asia- Pacific Oil and Gas Sector
The oil & gas market consists of the activities of exploration, development, production, refining, storage, transportation and marketing of oil & gas. It is being projected that oil and gas will be the primary source of energy to meet demands for economic growth in the foreseeable future. Even though there has been significant progress in the renewable energy space their role will be limited for next 25-30 years.
The Asia-Pacific oil & gas market generated total revenues of $922.9 billion in 2008, representing a compound annual growth rate (CAGR) of 26.8% for the period spanning 2004-2008. In comparison, the Chinese and Japanese markets grew with CAGRs of 36.8% and 26.7%, respectively, over the same period, to reach respective values of $314.7 billion and $270 billion in 2008.The performance of the market is forecast to decelerate, with an anticipated CAGR of 1.6% for the five-year period 2008-2013, which is expected to drive the market to a value of $998.5 billion by the end of 2013.
Crude oil sales proved the most lucrative for the Asia-Pacific oil and gas market, generating 88.1% of the total revenues. In comparison, sales of natural gas account for the remaining 11.9% of the market's revenue.
China accounts for 34.1% of the Asia-Pacific oil and gas market's value. In comparison, Japan accounts for a further 29.3% of the market's revenue.
The Chinese oil and gas industry has displayed dramatic growth in recent years and even though a slight decline is anticipated due to the global recession the market is expected to bounce back quickly and return to solid growth s. Latest forecasts from BMI suggest that china will account 32.3% of Asia/Pacific regional oil demand by 2010, while also providing 46% of total supply. Regional oil demand in the region is expected to grow from 25.36 million barrels per day in 2007 to 27.34 million barrels per day in 2010. The oil and gas industry in China remains primarily under state control and is only privatised to a small extent. CNOOC, PetroChina and Sinopec are the main players in the industry and are responsible for most of the domestic production. The oil and gas sector in China generated total revenues USD$ 314.7 billion in 2008 representing a CAGR of 36.8% for the period 2004-2008.
Crude oil sales have been the biggest revenue generator for the Chinese oil and gas market in 2008 generating total revenues of USD$ 299.9 billion and representing 95.3% of the overall market value. Natural gas sales generated USD$ 14.8 billion in revenues for the same period accounting for 4.7% of the market. The market is expected to be at a value of about USD$ 352.7 billion by 2013 at a CAGR of 2.3% due to the deceleration expected in the industry and overall economy.
Chinese oil consumption is expected to grow by 28% from 2006 to 2011 which will equal around 9.39 million barrels per day by 2011. This increase in demand will be driven by economic growth of about 10% per year which will result in China becoming the largest single driver of growth in oil consumption during the next decade. The domestic production of around 3.54 million barrels per day will leave a gap of 5.85 million barrels per day which will have to be filled by domestic companies expanding production or through increasing imports. This provides significant opportunities for oil and gas players to make investments to expand production through organic or inorganic growth routes. China's dependency on oil imports currently stands at around 50% making it the world's second largest importer of oil after the US and followed by Japan.
The market for processing is controlled by a few state owned enterprises with Sinopec holding a 60% share of total crude distillation capacity and PetroChina holding about 38%. Even though the natural gas market constitutes only 3% of the total energy mix, it is seeing rapid development due to increases in demand from the chemicals industry and household needs for heating and cooking fuel. In June 2006 China took steps to develop its natural gas sector by becoming a natural gas importer for the first time with the opening of the Guangdong liquefied natural gas (LNG) import terminal, which is supplied mainly from Australia. Natural gas imports are expected to grow in the future with other LNG import terminals and pipelines being planned that would connect major demand areas in China to suppliers in Russia and Central Asia.
The oil and gas industry in South Korea grew by 26.8% in 2008 to reach a value of USD$ 115.8 billion. The market is expected to grow at a CAGR of 5.6% to reach a value of USD$ 112.3 billion by 2013. Crude oil sales generated the maximum revenues for the industry with about 85.3% of total revenues. Natural gas sales accounted for 14.5% of total market revenues generating total revenues of USD$ 16.8 billion. The South Korean market accounts for about 12.6% of the Asia-Pacific oil and gas industry. The global slowdown is expected to slow down the growth of the sector to an anticipated CAGR of 1.1% for the period 2008-2013 to value of USD$ 122.3 billion.
Market consumption in the region increased with a CAGR of 1.8% for the period 2004-2008 to reach 1 billion barrels of oil equivalent (BOE) in 2008. This volume is expected to grow at a CAGR of 1.2% for the period 2008-2013 to reach 1.1 billion BOE.
South Korea has no oil reserves and its entire oil requirement must be fulfilled through imports. Oil makes up most of the total energy consumption and though this proportion has been declining in recent years. South Korea consumes about 2.72% of the world's oil and is the fifth largest net importer of oil in the world. South Korea has a refinery capacity of about 2667.6 thousand barrels per day which constitutes 3.03% of the world total. South Korea is also the world's second largest importer of natural gas after Japan. The consumption of natural gas in 2008 was 36.97 billion cubic meters which is about 1.26% of the world total.
The Korean Gas Corporation (KOGAS) is the only importer and distributor of natural gas in the country and also the largest purchaser of LNG in the world. Some of the largest oil companies in South Korea are the Hyundai Oil Bank, SK Corporation and S-Oil Refinery.
The S-Oil Corporation is planning to spend $1.2 billion on the expansion of its Onsan Refinery. Most Korean refineries have problems of over capacity and low operating rates. The expansion will be completed by 2011.
The Korean National Oil Corporation is planning to acquire five to ten midsized foreign oil companies. The targets have already been identified and the due diligence process is set to begin soon. South Korea is targeting energy self sufficiency of 30% by 2016 which stood at 5.7% in 2008 and 7.4% in 2009.
The government also plans to spend $5.4 billion over the next 14 years to expand the gas distribution network and storage capabilities of the country.
There is very limited domestic oil production in the country and the existing production began in the 70's. The period from 1996 to 2000 saw absolutely no oil production in the country. It is one of the few oil producing countries of the world that has seen a decrease in oil consumption over the last decade.
Philippines oil demand will constitute 1.12% of total oil demand in the Asia-Pacific region and also contribute 0.77% of total supply. It is expected that oil production in the country will reach its peak at around 70000 barrels per day in 2013 and will then see a decline of 14.24% to reach 51000 barrels per day in 2019.
Consumption of oil is expected to grow by 31.78% from 2009 to 2019 with the first 5 years seeing a 3% per annum growth, taking the demand at the end of 2014 to around 325000 barrels per day. This would leave an import requirement of around 258000 barrels per day in 2014. The second five years from 2014 to 2019 will see a decrease in consumption growth to 2% per annum taking the demand at the end of 2019 to 369000 barrels per day. The gas production capabilities will also increase from 3.4 billion cubic metres in 2009 to 8 billion cubic metres and gas demand is being forecast to grow by 164.71% during the same period making the import requirement around 1 billion cubic metres.
The recent development of offshore oil deposits has led to an increase in production to 23,000 barrels per day. The country has about 3.48 trillion cubic feet of natural gas reserves which are mostly found at the Malaympaya gas field. There are two oil refining facilities at Petron Corp.'s plants in Limay and Bataan and also at Shell's Tabango refinery with a capacity of about 282,000 barrels per day.
The country is planning a major divestment in the upstream arm of Philippine National Oil Company in order to finance the country's budget deficit. The government of Philippines is planning to raise around $300-$320 million from the sale of 60% stake in the PNOC Exploration Corporation. Exxon Mobil is also planning an investment of around $100 million for exploration in south western Philippines in the Sandakan Basin of the Sulu Sea.
Major companies of the region include:
* Philippine National Oil Company
* Petron Corp.
* Shell Philippines
The island of Taiwan is densely populated and not abundant in natural resources. Taiwan is heavily dependent on imports and about 97% of its total energy requirements are fulfilled through imports. Oil and gas therefore play an important role in economic development and have been a major source of modernization and development of the country. The country will make up 3.93% of total oil demand from the Asia-Pacific region and will not have any significant contribution to supply. Taiwan has oil reserves of only about 2.5 million barrels and consumed an average of 1123.08 thousand barrels of oil per day in 2008 which constituted 1.32% of the world's consumption.
Taiwan has compensated for its lack of reserves by building huge refining capacity of 1197 thousand barrels per day which make up 90% of total oil production through refinery gain. The prevalent trends of globalization have had a great impact on Taiwanese energy policy and the government now actively promotes privatisation in the oil and gas sector to develop new refineries and power plants. The industry is dominated by the national oil company of Taiwan, the Chinese Petroleum Corporation and even though oil exploration activity has been ongoing for the last 50 years there has never been any significant discovery of oil production.
The Taiwanese oil and gas industry experienced a vibrant 48% growth rate in 2008 to reach total revenues of USD$ 39.7 billion which represented a CAGR of 28.9% for the period from 2004-2008. The effects of the global recession will be felt in the Taiwanese oil and gas market which will experience a slowdown in the growth rate till 2013. Market growth rate for the period 2008 to 2013 is expected at a CAGR of 2.2% which will take total revenues from the sector to USD$ 44.2 billion by 2013. Consumption of oil in Taiwan has seen an increase with a CAGR of 1.6% from 2004 to 2008 and stands at 434.9 million BOE. Future consumption growth is being projected at a CAGR of 0.9% for the period 2008 to 2013 and is expected to reach 455.1 million BOE by 2013.
A majority of total revenues in the sector were generated from crude oil sales at USD$ 34.4 billion or 86.7% of the total market value. The remaining 13.3% came from natural gas sales which generated USD$ 5.3 billion in 2008. Taiwan is 5th largest importer of natural gas in the world and has a natural gas consumption of 11.77 billion cubic metres. The gas consumption in Taiwan made up 2.64% of total consumption in the region and is expected to decrease to 2.49% by 2014.
Vietnam had 0.27 % of the world's reserves at the end of 2007 according to the 2008 BP Statistical Energy Survey. Bach Ho is the largest offshore oil reserve among 9 offshore reserves of Vietnam. It produced an average of 340 thousand barrels of crude oil per day in 2007 according to the 2008 BP Statistical Energy Survey.
Top Asia-Pacific Oil Producers in 2006
Vietnam Oil & Gas Corporation (PetroVietnam) dominates oil and gas sector in Vietnam. It is under the control of the Ministry of Industry. It has formed partnerships with other international oil companies such as BP, ConocoPhillips, (KNOC), Nippon Oil (Japan), Malaysia's Petronas, Korea National Oil Corporation and Talisman.
Vietnam's Natural Gas Production and Consumption from 1995 to 2005
As of January 2007, Vietnam had 6.8 Tcf of proven gas reserves according to Oil and Gas Journal.
According to Business Monitor International forecasts Vietnam will account for 1.59% of Asia Pacific regional oil demand by 2014 and provide 4.33% of supply. Regional oil use of 21.40mn barrels per day (b/d) in 2001 for Asia Pacific reached an estimated 25.44mn b/d in 2009. The usage should average 25.93mn b/d in 2010 before rising to around 28.99mn b/d by 2014. Regional oil production is set to increase to 8.59mn b/d by 2014. Regional imports have increased on an average from 12.99mn b/d of oil in 2001 to estimated 16.94mn b/d in 2009. It is forecasted to reach 20.41mn b/d by 2014. China, Japan, India and South Korea will be principal importers. In terms of natural gas, only Malaysia will be net exporter in 2014.
In 2009, region consumption was estimated to be 459bn cubic metres (bcm) and it is expected to increase to 582bcm by 2014. Net imports will ease from current 83bcm to 72bcm by 2013. In 2009, Vietnam's share of gas consumption was expected to be 2.40 but its share of production is approximated at 2.91%. It is expected to account 4.72% to regional production and 4.12% consumption.
For 2009, with an average OPEC basket price of US$59.00 per barrel (bbl), a decline of 37.3% year-on-year (y-o-y). For 2010, it is expected that there will be a significant OPEC basket price recovery to US$83.00/bbl for the OPEC basket price. It is expected to gain further ground to US$85.00/bbl in 2011 and increasing to US$90.00/bbl in 2012 and beyond.
According to BMI forecast, there will be 7.3% average annual growth in 2010-2014. Growing number of international oil companies are partnering with Petro Vietnam in finding and developing hydrocarbon resources mainly gas. This will lead to rise in exploration success in Vietnam. As per BMI assumption, oil and gas production will peak at 400,000b/d in 2010 and will ease back to 372,000b/d by 2014. Beyond 2009, an increase of around 5-7% per annum is forecasted till 2014 thereby implying demand of 460,000b/d by 2014. Estimated 2009 of 11bcm for gas supply and demand is forecasted to increase to 24bcm by 2014.
From 2009 to 2019, a decrease of 7.14% in oil production in Vietnam is forecasted by BMI. Crude volumes will peak in 2010 with 400,000 b/d and will decrease to 325,000 b/d later by 2019. With Vietnamese growth projections ranging from 5% to 7% per annum between 2009 and 2019, oil consumption is expected to rise by 78.22% and gas production is expected to rise from 11bcm to 27bcm.
Amendments to Vietnam's Petroleum Law have paved the way for a more open and transparent licensing round scheme for international investors. Vietnam held its first licensing round during 2004-2005. A second bidding round, which included 7 blocks in the Song Hong Basin, was launched in April 2007. Petrovietnam has claimed that these blocks hold in the region of 5 billion barrels of oil equivalent.
Vietnam amended its Petroleum Law which paved the way for more open and transparent licensing round for international investors. Vietnam had 2 licensing rounds till 2007.
KEY OIL AND GAS PLAYERS
1. Petro Vietnam
3. BP Vietnam
Thailand is second largest oil importer in South East Asia. It has limited domestic oil production. It has only 290 million barrels of proven oil reverses according to Oil and Gas Journal in January 2007. In 2008, according to BP Statistical Energy Survey, it consumed 910.73 thousand barrels of oil per day compared to production of only 309.1 thousand barrels of oil per day.
Majority of natural gas reserves are located offshore in the Gulf of Thailand. Though domestic gas production has risen significantly but still it is not sufficient to cater to local demand. In 2007, Thailand had proven natural gas reserves on 0.33 trillion cubic meters according to BP Statistical Energy Survey.
PTT is the biggest player in oil sector in Thailand. It was earlier known as The Petroleum Authority of Thailand. Thailand's Ministry of Energy through Energy Policy and Planning Office (EPPO) oversees all aspects of the country's energy policies such as natural gas, oil and power sectors.
PTTEP has stake in country's natural gas producing fields such as Bongkot, the largest field. Chevron, being the largest foreign operator, currently accounts for estimated 70 percent of country's gas production.
According to Business Monitor International forecasts Thailand will account for 3.62% of Asia/Pacific regional oil demand by 2010 simultaneously providing 3.27% of supply. Regional Oil demand is expected to reach 27.64 mn b/d by 2010 from 24.74 mn b/d in 2009. Gas consumption is expected to reach 602bcm for 2010. By the end of the decade, gas production should reach 490bcm from last year's 342bcm. In 2006, Thailand's share of consumption was approximately 7.64%, and its share of production was at 6.64%. Its share of demand is forecasted to be 6.64% by 2010 and will still contribute approximately 6.7% of share in supply.
For 2009, with an average OPEC basket price of US$59.00 per barrel (bbl), a decline of 37.3% year-on-year (y-o-y). For 2010, it is expected that there will be a significant OPEC basket price recovery to US$83.00/bbl for the OPEC basket price. It is expected to gain further ground to US$85.00/bbl in 2011 and increasing to US$90.00/bbl in 2012 and beyond. PTTEP and international partners are working hard to explore oil and gas fields.
Thailand has an acceptable licensing framework and has made reasonable progress in terms of deregulation. Privatisation and consolidation would lead to improvement in the competitive landscape. With leading International Oil Companies such as Shell quitting (both the upstream and refining segments), it is apparent that Thailand is not an attractive destination for IOC's.
Key Oil and Gas Players:
2. Esso Thailand
3. Thai Shell Co
Malaysia is the eighth largest holder of natural gas reserves in the world. It was the second largest exporter of LNG after Qatar in 2007
As of January 2009, Malaysia held 83 trillion cubic feet of proven natural gas reserves according to Oil and Gas Journal. While majority of domestic oil reserves are found off Peninsular Malaysia, much of the Malaysia's natural gas production comes from Eastern Malaysia, offshore Sabah and Sarawak.
Top World LNG Exporters, 2007
State-owned Petronas dominates both in oil sector and natural gas sector. It has a monopoly on all upstream natural gas developments. It also plays a leading role in LNG trade and downstream activities.
Natural gas production has risen steadily and it reached 2.3 Tcf in 200. Simultaneously domestic natural gas consumption has also increased and has reached 1.2 Tcf in 2007. Many important ongoing projects are expected to expand natural gas production over the near term in Malaysia. Oil and Gas Companies are continuously focussing on offshore areas, especially deepwater blocks for exploration and production.
Malaysian Natural Gas Production and Consumption, 1987-2007
Malaysia-Thailand Joint Development Area
It is one of the important and active natural gas E&P areas and is located in lower part of Gulf of Thailand. The joint development area is divided into three blocks: Block A18, Block B17, and Block C19. Malaysia-Thailand Joint Authority jointly administers this area.
The blocks reportedly hold 9.5 TCF of proved and probable natural gas reserves. Block A-18 is operated by a joint venture (the Carigali-Triton Operating Company (CTOC)) between Petronas Carigali and Hess. Blocks B-17 and C-19 are operated by a joint venture (the Carigali-PTTEP Operating Company (CPOC) of Thailand and Malaysia's national oil company,
In Asia, Malaysia has the most extensive gas pipeline networks. With completion of the Peninsular Gas Utilization (PGU) project in 1998 the gas transmission network extended to Peninsular Malaysia. It spans more than 880 miles. It has a capacity to transport 2 billion cubic feet per day of natural gas. Malaysia, Thailand and Singapore are connected through pipelines. The Trans-Thailand-Malaysia Gas Pipeline System enables Malaysia to transport/pipe natural gas from the Malaysia-Thailand Joint Development Area to its domestic pipeline system. This regional pipeline network marks a significant step towards a transnational pipeline network “Trans-ASEAN Gas Pipeline” (TAGP) system linking the regional natural gas producers and consumers. Malaysia has the natural advantage of its location and is the best candidate to serve as hub for this ambitious project.
Japan, South Korea, and Taiwan were the 3 primary purchasers of natural gas exported by Malaysia. Malaysia International Shipping Corporation (MISC) transports LNG through own 27 LNG tankers,. PETRONAS is the majority holder in MISC with 62% stake. MISC also has significant contribution in oil shipping activities.
Malaysia has 3 LNG processing plants and PETRONAS has majority interests in all. They are located in a complex at Bintulu, Sarawak (East Malaysia) and receive supplies by the Sarawak offshore natural gas fields. It is the largest LNG complex in the world and has 8 production trains. It has a total liquefaction capacity of 1.1 TCF per year. Japan being one of the major importers of LNG, it has played a critical role in financing Malaysia's LNG facilities.
Malaysia has third highest oil reserves in the Asia-Pacific region
Top 5 asia pacific oil reserve holders, 2009
As of January 2009, Malaysia has proven oil reserves of 4 billion barrels according to Oil and Gas Journal. Major proportion of country's oil comes from offshore fields which can be divided into three: Malay, Sabah and Sarawak basins. Malay basin contains majority of reserves which are of high quality. Tapis field contributes to more than 50% of country's oil production.
Malaysia's Oil Production and Conumptionl 1988-2008
Malaysia is domestically able to meet country's demand for petroleum products. It has heavily invested in downstream activities such as refining in last 20 years. As of January 2009, Malaysia has about 515,000 bbl/d of refining capacity at 6 facilities according to OSJ.
Three refineries operated by PETRONAS (259,000 bbl/d total capacity), two by Shell (170,000 bbl/d total capacity), and remaining one by ExxonMobil (86,000 bbl/d).
Key Oil and Gas Players:
5. Murphy Oil
Singapore has strengthened its position in global oil and gas industry over the years. It has become a major oil trading centre both in terms of physical delivery and in term of financial instruments.
CAGR growth in O&G market in Singapore from 2004-08 has been 33.2%.
It has encouraged energy majors by marketing its strategic location for production and exportation to South East Asian emerging countries. It is among world's top bunkering ports.
Singapore doesn't have domestic oil reserves. It has consumed on an average 0.92 million barrels of oil per day and 6610 million cubic meters of natural gas in 2007.
Singapore has many domestic oil companies which actively are engaged in exploration and production in foreign countries. Singapore Petroleum Company Ltd being the major one holding twenty percent participating interest in Vietnam Blocks 102 and 106.
In South East Asia, Singapore is a major refining centre and had 1.3 million barrels refining capacity per day in 2007.
Oil consumption has increased in recent years but it has not been as significant as natural gas consumption growth in last few years.
Singapore Government has encouraged natural gas consumption in recent years and it led to increase in natural gas consumption.
Key Oil and Gas Players in Singapore are Singapore Petroleum, Esso, Royal Dutch Shell, Ezar holdings (OFS) and many medium and small players.
We conducted primary research with Account Coordinators of our priority accounts, which are expected to contribute more than 50% of future E&Y's revenues. Due to busy period and traveling of the account coordinators, we were able to get qualitative responses from only 5 accounts. For the rest of the accounts, we conducted secondary research. The key notings from primary research are as follows:
* Revenue growth and sustainability is essentially a factor of business that can be drawn from clients in current market conditions. Oil stability, political situation and environment and health concerns are few of the key factors required for revenue stability. Moreover, the volume of business is not essentially proportional to the growth of client's business.
* The positive and close relationship with right people on the client side is key to generating new business. However, other Big 4 firms are focusing on the same strategy.
* There is insignificant difference in the services offered by Big 4 firms in O&G sector in FEA region. However, under the client's perspective, each firm has a strength in different aspects. Example, PwC and KPMG are strong in advisory services. Moreover, PwC is a leading firm with comprehensive global network. Whilst, EY is flexible and easy-going. Insignificant differentiation also increases pressure on fees.
* It is imperative to increase the headcount, skill-set and training of employees in Oil & Gas domain of FEA region. Currently, E&Y does not have many Oil & Gas specialists and this is an inhibitor highlighted invariably by almost all account coordinators. Further, retention of client service staff and O&G specialists is a key threat.
* There are opportunities in M&A, risk, PL, Advisory and Carbon & Sustainability space. “Green Growth” is new focus area in Korea.
* Information sharing structure within E&Y will promote communication channels and help to solve similar problems/situations much more easily. Strong network of O&G business development and account coordinators is one of the key highlights. Example, regular priority account meetings
* Marketing and branding initiatives are important for increasing revenues. Example, road shows, workshops
* Global industry initiatives can be leveraged to create sustainable and growth-oriented client relationship. Example, sharing of Thought Leadership materials, annual industry update
* No potential targets have been identified by current Account coordinators.
* Rationale behind rise or fall in revenues - There was a decrease in FY09 revenues due to merger of SK Incheon Oil Co. Ltd, E&Y's CG1 client in FY08. However, there was a simultaneous increase in FY10 revenue because UK won a TS project from SK Energy Europe Ltd.
* Expected growth - Account coordinator expects an annual growth of 10% for next 5 years. Group-wide Audit would be a key growth driver.
* Headcount, skill set and employee training - There is a need to increase knowledge in E&P sector
* Revenue Sustainability - It is difficult to achieve revenue sustainability. Distributor-oriented Korean Oil & Gas market is saturated, which makes it difficult for players to sustain revenues.
* Opportunities in M&A - Opportunities to grow E&Y business exist in M&A and due diligence due to Korean Oil & Gas companies' penetration in overseas E&P market. More growth opportunities exist in risk, PL advisory and carbon and sustainability space.
* Global Industry Sector Initiatives - More specific and timely Though Leadership materials can be leveraged to create sustainable and growth-oriented client relationships.
Petroliam Nasional Berhad
• Rationale behind rise or fall in revenues - There was an ncrease in FY09 Assurance revenue due to overall increase in audit fees by 5% and a special job of implementing a new system by Petronas PT Niaga. Moreover, there was an increase in FY09 Tax revenue due to tax restructuring, transfer pricing and tax advisory on international operation.
• Expected Growth - Account coordinator expects an annual growth of 5% across services lines through continuous improvement in risk management, corporate governance, international operation and business processes.
• Headcount, skill set and employee training - A lack of headcount, skilled personnel and training of employees may be a hindrance to achieving desired growth. There is a requirement of experts in oil and gas sector and knowledge retention. Initiatives can include secondment to companies and training by other EY offices.
• Growth opportunities through cross selling and better communication - Initiating regular internal meetings across service lines at least once a month can improve cross selling.
• Opportunities and Threats - The opportunities and threats include:
• Strong relationships with new key management personnel (future leaders) of the company
• Creation of inroads through tax advisory
• Continuous improvement process mode provides potential to be business partner for efforts to improve business practices
• Petronas expansion presents opportunities to provide value added services
• KPMG as principal auditor offering more competitive fee for their services. This impacts potential business for E&Y adversely.
• Retention of key client service staff to ensure continuity and quality service delivery is a key challenge.
• Rationale behind expected revenue growth - In FY2010, the focus will be on Advisory, Tax and TAS pursuits and preparation to convert PVN into an audit client for the long run. In FY2011 and FY2012, PVN is expected to be an audit client and continued pursuit of Advisory, Tax and TAS business.
• Revenue sustainability - The revenue sustainability will be dependent on industry landscape over the next 3-5 years. The global economic downturn caused PVN to adjust their overseas acquisition plan to be less aggressive.
• Headcount, skill set and employee training - There is a need for a strong oil and gas team locally with respect to all service lines. Certain credentials and experience does exist with respect to providing audit service to smaller companies but not of the scale of Petrovietnam. It is important that there is a stronger support required from Area oil and gas team in terms of sharing knowledge, skills and experience via training and engagement implementation.
• Growth opportunities through marketing and brand building initiatives - There is scope of increasing revenue through Thought Leadership delivery and presentations to key clients like PVN.
• Opportunities in M&A - The growth opportunities for E&Y with respect to PVN exist in M&A, Risk, PL and Advisory.
• Services offered by competitors - Deloitte Vietnam has provided Assurance service to PVN at a low annual fee and maintained long-term relationship with PVN's top executives, which makes it difficult for E&Y to raise fee and win Assurance opportunity with PVN next year.
GS Holdings Korea
• Rationale behind rise or fall in revenues - There is an increase in FY09 Assurance revenue due to account cleaning. Further, there is an increase in FY09 Advisory revenue due to winning IT security governance services contract for GS Caltex.
• Expected Growth- Account coordinator expects an annual growth to be increased from 10% to 20% due to increase in audit fee from adoption of IFRS for GS Caltex in 2010 and for GS E&C in 2011. Moreover, there is an increase in Advisory service revenues from ERM and IT security services.
• Growth opportunities through cross selling and better communication - Regular priority account meetings should be organized to promote better communication and exploit any existing opportunities.
• Opportunities in M&A -According to the account coordinator, the opportunities exist in Risk (ERM), PI Advisory and new business for ‘Green Growth' in Korea.
• Global Industry Sector Initiatives - There is an need for more current and timely sector related materials provided by EY.
China National Petroleum Corporation (CNPC)
• Rationale behind rise or fall in revenues - There is a continuing outbound resource investment by the company. This has led to increase in revenues .
• Expected Growth - According to Account Coordinator, the areas with outbound connections, such as TAS and TAX will continue to show growth, while revenues from China per se may be limited given the government's strong push to use Non-Big-4 firms.
• Revenue Sustainability - It is expected that revenues would increase at a stable and sustained growth unless Chinese government changes its resource seeking policy.
• Threats - Two threats identified are the further restrictions by the government on using Big 4 and severe competitions from other Big 4 companies.
Mitsui & Co. Ltd.
Mitsui & Co. Ltd. (“Mitsui”) is a publicly listed general trading company. The company was established in 1947. It is headquartered in Tokyo, Japan and has 4 business areas, namely Mineral resources and energy, logistics networks, consumer business and infrastructure projects across 5 functions of marketing, financing, logistics, risk management and IT and Process development capabilities. It has approximately 39, 864 employees across 151 offices in 65 countries. Mitsui is active in iron and steel products, motor vehicles, transportation logistics, marine & aerospace, information, infrastructure products, food & retail, chemicals, mineral and metal resources, energy, consumer services, electronics and telecommunications and financial markets. The company is listed in Tokyo Stock Exchange.
Mitsui has 4 business areas:
* Mineral Resources and Energy
* Logistics Networks
* Consumer Business
* Infrastructure projects
Mineral Resources and Energy: This business segment ensures that there is a stable supply of resources, including oil, natural gas, coal and iron ore.
Logistics: This segment ensures that the company has expertise and logistics capabilities. Mitsui is currently engaged in expanding fast and cost-effective networks in a couple of businesses , including iron and steel products, chemicals and automobiles.
Consumer Business: This segment ensures that the company is meeting consumer needs related to residential housing, media, medical and healthcare, fashion and senior related areas.
Infrastructure Projects: This segment is engaged in providing infrastructure in fields, such as water, power generation, railway and other forms of transportation.
Under these 4 business segments, Mitsui has 14 business units:
* Basic Chemicals
* Consumer Service
* Energy I (related to E&P, refining, trading and marketing of energy resources)
* Energy II (related to LNG business and environment-related issues)
* Financial markets
* Food & Retail
* Infrastructure Projects
* Iron & Steel Products
* Marine & Aerospace
* Mineral & Metal Resources
* Motor Vehicles
* Performance Chemicals
* Transportation & Logistics
In FY 2009, Mitsui reported net revenues of Yen 5,535 Billions, a decrease of Yen 204 Billions from FY 2008. Despite decrease in revenues, Gross profit increased from Yen 988 Billion in FY 2008 to Yen 1,016 Billion in FY 2009. In FY 2009, the company had net profit of Yen 178 Billion, almost half of FY 2008 net profit which stood at Yen 339 Billion.
Energy business segments, both I and II, have long lead times for development and implementation of the projects. Currently, Mitsui is involved in following projects and activities under energy segment:
• 15% interest in Abu Dhabi Gas Liquefaction Limited, which has approximately 5.6 million tons per year of LNG production capacity.
• 8.3% interest in Northwest Shelf JV in Australia
• 7.5% interest in Qatar Liquefied Gas Company Ltd.
• 2.8% interest in OMAN LNG LLC
• 8.5% interest in Equatorial Guinea LNG Company
• 12.5% stake in Sakhalin Energy Investment Company Ltd.
• 2.3% interest in Tangguh LNG project in Indonesia
In Oceania region, development and production projects of Enfield and the Vincent offshore oil fields are identified as core projects with respect to capital expenditures. Through its subsidiaries in Singapore, London and West Coast in the US, Mitsui is aggressively expanding its global oil and petroleum product trading activities. Mitsui is also involved in environmental-related initiatives such as biomass ethanol production in Brazil, reduction of emissions and other energy-related business.
Mitsubishi Corporation is a publicly listed general trading company. It was re-established in 1954, when 100 plus companies that were part of trading house merged together to form one trading company. It is headquartered in Tokyo, Japan. Mitsubishi operates in wide-array of businesses, including consumer, healthcare, finance, communications, logistics and information technology. It has approximately 60,664 employees and has more than 200 operation bases across 80 countries across the globe. The company is listed in Tokyo Stock Exchange.
Mitsubishi has following industry segments:
* Banking and Securities
* Consulting and Research
* Elderly Care
* Electrical Machinery
* Incorporated Foundations
* Information, Communication & IT
* Metal Products
* Non-ferrous Metals
* Precision Machinery
* Pulp & Paper
* Real Estate
* Resources & Energy
* Rubber Products, Ceramics and Glass
* Steel Products
* Temporary work services
* Transport Equipment
* Travel and recreation
* Warehousing and Transport
With respect to Resources and Energy, Mitsubishi has a couple of companies in Resources and Energy Business: Astomos Energy, Marunouchi Heat Supply, Mitsubishi Corporation Exploration, Mitsubishi Heavy Industries, Nippon Oil, Nuclear Development, CHORYO DESIGNING, MHI Nuclear Engineering, Mitsubishi Gas Chemical, Mitsubishi Materials and Nippon Petroleum Refining.
Mitsubishi reported net sales of Yen 6,031 Billion in FY 2008, a 19% increase over FY 2007. In FY 2008, the company had operating profits of Yen 355 billion, a 13.5% fall as compared to last fiscal year; however, the net profits registered an increase of 11.4% over FY 2007 to reach a of Yen 462 billion in FY 2008.
Innovation 2009 is a 2 year plan, under which Mitsubishi has listed its growth plan to be “A New Industry Innovator”. As per the growth strategy under this plan, the company has segregated its strategies into 3:
* Promote Growth Strategy - Under this strategy, Mitsubishi plans to tap global growth, promote and support innovation in new markets and fields and solidfy structures and systems. This would include focusing on next generation business highlighted by the company, namely medical healthcare, new energy and environment and finance.
* Develop and Use Human Resources - Mitsubishi plans to develop and use HR across the globe, employee relocation and create good and energetic corporate culture.
* Strengthen Management Foundations - The Company will focus on increasing the efficiency and effectiveness across entire organization. It also plans to reform administrative process and establish systems for IT and internal control.
Under this plan, Mitsubishi is expected to spend Yen 500 Billion to Yen 800 Billion in Energy and Metal Resources. This amount is a part of Yen 1,500 billion investments planned for a 2 year period under Innovation 2009.
We have also included the growth plan by Nippon Oil. As per the 4th Medium term Management Plan of Nippon Oil:
* Increase investments in Exploration & Production of Oil and Natural Gas existing business - YEN 850 Billion to be invested as a part of regular and strategic investment, including YEN 430 billion to be invested in E&P oil and natural gas
* Investment s in 4 core regions - UK North Sea, Gulf of Mexico, South-east Asia and Oceania
* Company's financial strategies include more strategic investments
* Environmental issues include working towards reducing CO2 at refining and consumption phase
* Nippon's - Major new development projects include Papua New Guinea LNG, Tangguh No. 3 Train, Canada Syncrude, Malaysia PM308A and SK 333, Thailand B6/27 and Vietnam 16-2
Sumitomo Corporation is a trading company. It was established in 1919 and has 8 business segments, namely corporate group; infrastructure; general products & real estate; financial & logistics; metal products; media, network & lifestyle retail; mineral resources, energy, chemical & electronics and transportation & construction systems. It is a diversified company with 70,755 employees in 26 domestic offices and 120 overseas offices in 60 countries. Sumitomo is listed in Tokyo Stock Exchange.
* Corporate group
* General Products & Real Estate
* Financial & Logistics
* Metal Products
* Media, Network & Lifestyle Retail
* Mineral Resources, Energy, Chemical & Electronics
* Transportation & Construction Systems
With respect to Mineral Resources, Energy, Chemical & Electronics, the company is strengthening balanced upstream resource portfolio for coal, copper, LNG and petroleum and adding new interests in other minerals, such as iron ore, manganese, nickel and zinc. Regarding midstream and downstream fields, Sumitomo is also increasing investments and trades in growth industries like solar cell materials and environment-related businesses.
In FY 2009, Sumitomo made a gross profit of Yen 935 billion, an insignificant increase from the FY 2008 of Yen 934 billiion. However, there was a drop in the net income from Yen 239 Billion in FY 2008 to Yen 215 Billion in FY 2009.
Sumitomo Corporation has a Medium Term Management Plan - “Focus'10”. Regarding the energy business, following are the focus areas:
• For upstream, develop and implement projects, acquire interests in high-quality resources and stabilize operations.
• The plan has identified Environment and New Energy business as a “future pillar of profit”. The company intends to establish a new business division with 4 business lines - Environment, New Energy (to include Solar, Eco), Food-Agricultural Area and Sub-Saharan Africa Market.
As per Focus'10, there were investments and asset replacements by the energy business:
• Acquisition of Oranje-Nassau Energie, which holds assets in British North Sea
• Increase in interest from 9% to 15% in POGO Gold Mine
In April 2009, Chemical and Electronics Business unit was integrated with Mineral Resources & Energy Business Unit . As per Focus'10, the company wants to achieve synergy in the business integration.
Sojitz Corporation is a general trading company. It was established in April 2003 and was formed after the merger of Nichimen Corporation and Nissho Iwai Corporation. The company has 4 business segments namely, machinery, energy and metal, chemicals and functional materials and consumer lifestyle business. Sojitz is headquartered in Tokyo, Japan and has 17,460 employees across 7 domestic office and 94 overseas offices. The company has 151 domestic subsidiaries and 370 overseas subsidiaries as of December 31, 2009. It is listed in Tokyo Stock Exchange.
Sojitz Corporation has 4 business divisions:
* Energy and Metal
* Chemicals and Functional Materials
* Consumer Lifestyle Business
With respect to Energy and Metal business, the company plans to increase sales by investments in upstream resource concessions and distribution operations. The company wants to increase investments in businesses such as coal, gas, LNG, oil and rare metals. It also seeks to achieve business portfolio optimization by adjusting products, time scales i.e. short term and medium-long term and geographic regions. The company intends to strengthen its distribution business by leveraging on networks in Japan and overseas. Sojitz is also collaborating with growing companies inside and outside Japan to achieve business expansion globally. The company has identified environmental and clean energy as businesses with sustained growth and highlights biofuels, LNG, nuclear power and solar power generation with a positive future growth outlook.
In FY 2009, the net sales for the company dropped to Yen 5,166 billions from Yen 5,771 billions in FY 2008. There was also a drop in gross trading profit by Yen 42 billion to Yen 235 billion in FY 2009. The net income was Yen 19 billion, a 70% decline from FY 2008 of Yen 63 billion.
Sojitz Corporation has come out with 3 year Medium-Term Management Plan - “Shine 2011”. As per the plan,
• Regarding environmental awareness, company wants to ensure a stable supply of finite sources as a general trading social mission.
• Opportunities to replace and accumulate mining interests in petroleum and gas as a stable and long-term revenue stream for the business.
• Secure entry into bio-ethanol business.
• Focus company resources on solar panels, batteries and nuclear energy.
• Develop team for Solar Business.
• Strong focus on energy and environment to achieve sustained company growth.
The company will increase investments in existing projects and expand alternative energy business. Sojitz plan to also expand upstream production business further, build longer-term portfolio of quality upstream production and upgrade upstream development of nuclear energy and renewable sources of energy including bio-fuels, solar or wind power.
Noble Group is an independent energy company. It was established in 1932 and is involved in exploration, development and production of natural gas and crude oil in the US and globally. Noble is headquartered in Houston, Texas and operates in the US, the UK, Israel and Cayman Islands. The company has 1,571 employees globally.
The company business is divided into:
* Northern Region
* Southern Region
* International Operations
* Northern Region - This includes Rocky Mountain areas, Bowdoin and Siberia Ridge Fields, the Niobrara and Mid-Continent area. Rocky Mountain areas include Wattenberg field, Wind river, San Juan and Piceance basins.
* Southern Region - It includes onshore areas like Indiana, Texas, Illinois and Louisiana and deepwater Gulf of Mexico.
* International Operations - This includes natural gas and crude oil reserves in China, Cameron, Ecuador, Equatorial Guinea and Suriname.
In FY 2008, Noble Energy had revenues of USD3.9 billion, a rise of 19.2% over FY 2007. The operating profit was USD1.6 billion in FY 2008, an increase of 10.7% over FY 2007. In FY 2009, the net profit had an increase of 43% over FY 2007 and achieved a of USD1.3 billion.
Below are the growth strategies planned/adopted by the Noble:
• Noble to incur USD1 billion of initial development capital in next 2 years to achieve higher margins and strong returns in the future.
• The company plans to spend approximately USD2.5 billion as a apart of 2010 capital program, 55% of whicg would be invested in the US and rest 45% outside US.
• Noble intends to achieve self-funding projects after 2011 with complete cash return by 2015.
• Major projects undertaken in West Africa, Deepwater Gulf Of Mexico and Eastern Mediterranean to increase net production by 100,000 Boe/d and free cash flow to reach USD1 billion. The major projects also include onshore US.
• Further growth to come from:
• West Africa project going online after 2015.
• More successful expected exploration.
• Increase in energy markets in Eastern Mediterranean.
• Recently, Noble is expanding DJ Basin exposure to increase core position in Wattenberg and Central DJ Basin position to over 530 thousand net acres. The assets were purchased for USD494 million from Petro-Canada Resources and Suncor Energy.
• To support its growth plans, Noble has approximately USD1 billion as Cash on hand. Further, it has USD1.6 billion available under credit facility and hedges to support future cash flow requirements.
21 Feb 2009
Vitol is a one of the largest energy traders in the world. It was established in 1966 and is involved in various businesses. Vitol is a private company, headquartered in Rotterdam, Netherlands. The company produces and markets oil, provides refining services, develops oil and gas terminals and pipelines and offers financial services. It has 4 regional centers and 24 offices worldwide with operations in United States, Africa, Bahrain, Brazil, Canada, Central America, China, Europe, India, Kazakhstan, Mexico, Nigeria, North America, Peru, Russia, Singapore, Switzerland and Thailand. Vitol has 2700 employees across the globe.
Following is the , which enlists the businesses in which Vitol is engaged.
Vitol is one of the key players in trading crude oil in markets globally. Crude oil is the largest contributor in the total energy portfolio for the company. The company is also in supplying natural gas and trading LPG and LNG.
The following charts give Vitol's turnover and breakdown of revenues:
In 2009, Vitol's revenues declined to USD143 billions from 2008's USD191 billions. The crude oil is the biggest contributor to total turnover with USD49 billions to a total pie of USD 143 billions.
Vitol has been quite active in acquisitions in FY 2009 and plans to look for further good opportunities to grow in the future. It also entered into a couple of arrangements and agreements to achieve its growth plans.
• In January 2010, Vitol completed the 100% acquisition of Petroplus Refining Antwerp N.V. and Petroplus Refining Antwerp Bitumen N.V.
• Vitol has been awarded the right to purchase half built product storage terminal in Kenya.
• In November 2009, company acquired 100% stake in SemGroup Energy Partners GP and 12.6 million subordinated units SemGroup Energy Partners LP. and renamed it Blueknight Energy Partners in December 2009.
• Vitol has also signed a definitive arrangement agreement to acquire all shares and 10% convertible debentures of Hillsborough Resources.
• The company entered into an agreement with Harvest Energy Trust for the extension of Harvest's refined product offtake and existing crude oil supply agreement.
Source: Datamonitor profle
Wimar International Limited is one of the leading agribusiness group in Asia. It was founded in 1991 and is involved in complete value chain of agricultural commodity processing business. . Wilmar is headquartered in Singapore. It has 70,000 employees across 250 processing plants and operations in 20 countries. The company primarily focuses on China, Europe, India, Indonesia and Malaysia. The company is listed in Singapore Stock Exchange.
Wilmar has 4 business segments:
* Plantations - This segment engages in cultivation of palm oil in Malaysia and Indonesia.
* Merchandising and Processing - This segment is involved in processing pal and lauric oils into biodiesel, RBD palm olein, RBD palm oil, RBD palm stearin, specialty fats and oleochemicals at various lauric and palm oils processing plants China, Europe, India, Indonesia and Malaysia.
* Consumer Pack - In this segment, the company packs and markets its products in China, Indonesia and India.
* Other Businesses - This segment includes manufacturing and sale of fertilizers and owning bulk vessels to meet transportation requirements.
Following is the business model of WIlmar:
Wilar is involved entire value chain of agricultural commodity processing business, starting from origination, moving onto processing and finishing at merchandising, shipping and distribution to customers.
In FY 2008, the company had revenues of USD 29 billion, a significant increase from FY 2008's USD16 billion. The net profit was USD1.5 billion in FY 2008, more than double the net profit of USD0.7 billion.
Wilmar International has planned/adopted following growth strategies:
• Wilmar continues to expand its operations In China and India to tap high demand for agricultural commodities.
• In Indonesia, Wilmar is growing its plantation acreage to approx. 223,000 hectares and processing capacities in refining and fertilizer manufacturing, palm oil milling, and palm kernel crushing.
• Apart from Asia, the company is increasing its capacities in The Netherlands and Germany to tap the increase in demand for palm oil.
• Wilmar is also expanding its business in Africa, Russia, CIS and Europe.
• In Africa, company's joint ventures are developing palm plantations, processing and merchandise business.
• Joint ventures in Russia and Ukraine also growing in respective markets.
• The company is quite positive on the outlook for pal
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