Market Analysis of Oil and Gas sector based on data of the year 2013 from NYSE listings and also from annual reports of the companies.

1. MARKET ANALYSIS OF OIL AND GAS SECTOR
ROYAL DUTCH SHELL CORPORATION - LOGISTICS
Pramod Philip John
14MBA1039
[crossbearer26792@gmail.com]
Abstract
The national oil companies hold over 80% of the worlds reserves while the major private firms like Royal Dutch Shell, Exxon Mobil, BP etc hold very few reserves. There is a difficulty to analyse the market share of the state owned firms because they are not listed publicly in stock exchanges. Market Share is done on the top companies which are publicly listed and have annual reports. SINOPEC from China has the highest revenue return in the year 2013. Capital/Labour Ratio is highest for Total SA from France. Special study is done on the logistics division of Royal Dutch Shell Corporation. Also a Weka forecast is done for 10 days for the same company based on its closing price.

2. CONTENTS
VIT BUSINESS SCHOOL ........................................................................................................................... 2
INTRODUCTION TO OIL AND GAS SECTOR........................................................................................ 3
UPSTREAM ............................................................................................................................................. 3
MIDDLESTREAM ................................................................................................................................... 3
DOWNSTREAM ...................................................................................................................................... 3
OIL COMPANIES ALL OVER THE WORLD ........................................................................................... 5
MARKET SHARE ANALYSIS ................................................................................................................... 6
CAPITAL LABOUR RATIO ....................................................................................................................... 9
COMPANY ANALYSIS – ROYAL DUTCH SHELL PLC. ..................................................................... 10
PRODUCT MIX AT SHELL ................................................................................................................. 11
WEKA FORECAST FOR SHELL ......................................................................................................... 11
SHELL OPERATIONS IN INDIA ......................................................................................................... 12
LOGISTICS PLANNING IN SHELL .................................................................................................... 13
CONCLUSION ........................................................................................................................................... 15

3. VIT BUSINESS SCHOOL
VIT University was established in 1984 by well-known educationalist and former parliamentarian, Dr. G. Viswanathan, Founder and Chancellor. Dr. V. Raju, Former Professor of State University of New York, USA, currently the Vice Chancellor, Dr. Anand A. Samuel, Pro-Vice Chancellor. Chennai Campus is in Vandalur-Kelambakkam Road.VIT University has more than 17 Bachelor’s and 32 Masters’ programmes, 29000 (including 1000 foreign students from 44 countries) and 4000 faculty members Accreditation:  The National Assessment and Accreditation Council (NAAC) of the University Grants Commission (UGC) has accredited the university with a 'A'.  The Institution of Engineering and Technology (IET), and the Energy Institute, UK have audited the teaching-learning processes at VIT and accredited the programmes in 2004, with the highest validity of five years  Programmes at VIT are accredited by the Institution of Engineers, India (IEI).  The Accreditation Board for Engineering and Technology (ABET) of the USA accredited the Civil, Mech, CSE, biomedical, ECE, EEE programmes. VIT Business School, under the aegis VIT University has created a niche for itself as an institution promoting excellence in management education and research with Dr. M J Xavier as its Executive Director.

4. INTRODUCTION TO OIL AND GAS SECTOR
The Oil and Gas sector or in other words the petroleum industry is responsible for the exploration, extracting, transportation and refining of petroleum products. The largest volume products of the industry are fuel oil and gasoline (petrol). Petroleum (oil) is also the raw material for many chemical products, including pharmaceuticals, solvents, fertilizers, pesticides, and plastics. Petroleum is vital to many industries, and is of importance to the maintenance of industrial civilization in its current configuration, and thus is a critical concern for many nations. Oil accounts for a large percentage of the world’s energy consumption, ranging from a low of 32% for Europe and Asia, to a high of 53% for the Middle East. Other geographic regions’ consumption patterns are as follows: South and Central America (44%), Africa (41%), and North America (40%). The world consumes 30 billion barrels (4.8 km³) of oil per year, with developed nations being the largest consumers.
The industry is divided into three major categories :- upstream, midstream and downstream. Midstream operations are usually included in the downstream category.
UPSTREAM :- Upstream is the part of the oil production process that focuses on locating and recovering crude oil and natural gas. Those in the upstream sector are focused on locating underground and underwater oil fields.
MIDDLESTREAM: - When oil is drilled from a location where it is originally discovered, the oil must be stored, marketed and transported. This aspect of petroleum production is known as midstream. Petroleum is marketed as a commodity at this point. The point where upstream ends and midstream begins is at the gathering system. This system collects wet natural gas and petroleum and begins the transportation process to the gas processing plant. While some gas processing occurs near the point where the gasoline is extracted, in other cases, the midstream process involves the transportation of wet gasoline through pipelines. In many cases, midstream is considered a part of the downstream process. In some of the largest distribution networks, enormous cargo ships are responsible for transporting oil across multiple oceans. DOWNSTREAM :- The downstream sector focuses on the process of refining crude oil to create different products, including gasoline, petroleum gas, jet fuel and diesel fuel. Additionally, there

5. are numerous products that are not fuels at all, including pesticides, antifreeze, synthetic rubber, plastics and pharmaceuticals. All of these products are created and distributed through the downstream sector.
The following table shows the supply done by various countries in terms of millions of barrels of oil.
Saudi Arabia produces the largest quantity with 9.75 million barrels of per day followed by Iraq, Iran and then UAE. Among the OECD USA produces the largest with 11.48 and among the Non –OECD’s Russia produces the largest with 10.76 million barrels per day.

6. OIL COMPANIES ALL OVER THE WORLD
There are generally two types of companies based on the ownership.
 Private owned
 State owned
Privately held companies have the goal of maximizing shareholder value. The management of the company may accomplish that goal through organizing production so that a profit is made in the current time frame as well as in the future.They also might make investment decisions to take advantage of opportunities to raise the company’s rate of return. They also have the motivation to achieve productive efficiency to hold down costs to enhance the profitability of any given revenue level. This activity is thought to benefit consumers by assuring that physical shortages are avoided and that the good is available at the lowest price consistent with demand and supply factors.
In the oil industry, maximization of shareholder value is taken to mean that the value of oil resources should be maximized through managing production, exploration, and development activities to assure a functioning market.
National oil companies do not necessarily follow the shareholder value maximization model alone. Since these companies are totally, or majority, owned by their national governments, maximizing the value of the company might have to compete with other, governmentally mandated objectives. Although all national oil companies respond to their national governments to one degree or another, the amount of influence varies widely. The national oil companies of more developed nations, Statoil in Norway, and Petronas in Malaysia, for example, tend to follow a more commercially oriented strategy than the Nigerian National Petroleum Co. And Petroleos de Venezuela, where government objectives largely supplant commercial objectives, and the companies are under pressure to maximize the flow of funds to the national treasuries.
The national oil companies use the revenue from the oil industry for the following :-
 Wealth Distribution
 Job Opportunities
 Economic Development
 Foreign Policy
 Energy Security
The oil produced by the "supermajor" companies accounts for less than 15% of the total world supply.

7. Over 80% of the world's reserves of oil and natural gas are controlled by national oil companies.
Of the world's 20 largest companies, 15 are state-owned companies.
This figure shows the world reserves of oil held by different countries. It is understood that the national owned companies hold more than 80% of the worlds reserves. Saudi Aramco tops the list.
The private sector which includes companies like BP, Royal Dutch Shell Corporation , Total SA etc hold just the remaining % of the reserves.
For this study only information of the private owned and few state owned companies were taken because the state owned firms usually do not list on any of the stock exchanges.
MARKET SHARE ANALYSIS
Market Share values are taken from the Annual Reports and also from NYSE listings of the firms. The national oil companies especially from the Middle East do not feature in this list because they are not listed in any stock exchanges. Few private oil firms and also national oil firms and their data are tabulated below

8. Name of Companies
Country
Turnover or revenue in millions of dollars
Number of Employees in Thousands
Capital Expenditure in Millions of Dollars
Capital/Labour Ratio SINOPEC CHINA 469052 368 23608 64152.17391
ROYAL DUTCH SHELL
NETHERLANDS
451235
92
40145
436358.6957 EXXON MOBIL USA 420836 75 33699 449320
BP
UK
379136
85
24520
288470.5882 PETROCHINA CHINA 373003 544 50232 92338.23529
Total
FRANCE
236534
99
126991
1282737.374 Chevron USA 220156 65 37985 584384.6154
Conoco Phillips
USA
171596
14
1779
127071.4286 GAZPROM RUSSIA 157529 417 20580 49352.51799
KUWAIT PETROLEUM CORPORATION
KUWAIT
139761
19
6795
357631.5789 ENI ITALY 114722 83 12750 153614.4578
The table shows that Sinopec from China has the largest revenue for the year ending 2013 with 469,052 millions of dollars followed by Royal Dutch Shell with 451,235 millions of dollars and Exxon Mobil with 420,836.Number of employees is notably highest for Petrochina with 544,000 followed by Gazprom and Sinopec. All three have the number of employees much higher than the others because they are state owned and they tend to provide more job opportunities and increase employment. Total SA from France has the highest Capital/ Labour Ratio i.e the firm invests a lot in building new infrastructure. It has high capital expenditure with comparatively less employee intake.

9. The market share of these 11 companies is plotted based on their revenues.
Sinopec comes on top with 15% closely followed by Royal Dutch Shell with 14% and Exxon Mobil with 13%.
The chart below is a comparitive chat of total turnover and the number of employees in the firms tabulated

10. PetroChina, Gazprom and Sinopec have the highest number of employees in descending order and this is because the cost of labour is cheap in the countries where they operate i.e China and Russia and also these companies look to create more employment for the citizens of their respective countries.
CAPITAL LABOUR RATIO
It measures the ratio of cpital employed to the number of employees in a firm. So a company with higher capital/labour ratio recruits less employees and are focussed more in improving productivity through using better equipment and machinery to replace human work. This is why most international oil companies like Total SA, Chevron, Exxon Mobil all have high capital/ labour ratios. On the other hand the state owned firms like PetroChina, Gazpromand Sinopec have very low values of the same because they employee more workers even though they maintain similar capital expenditure when compared to the international oil companies.
The graph below shows the capital labour ratio of the 11 companies.
Total SA from France holds the highest capital/labour ratio. Chevron from USA comes second followed by Exxon Mobil and Royal Dutch Shell.

11. COMPANY ANALYSIS – ROYAL DUTCH SHELL PLC.
Royal Dutch Shell is an Anglo –Dutch Multinational oil company that has its headquarters in Hague, Netherlands. It came into being through the amalgamation of Royal Dutch Petroleum and Shell Transport in the year 1907. It is the second largest in the world in terms of revenue after SINOPEC and its revenue stands at 451,235 million US dollars. It had an income of $16.5 million and Net Capital Investment stood at $44 billion while the company invested $1.3 billion in research and development in the year 2013.
In the Forbes List , in 2011 it came in 5th place, in 2012 4th place and after which its position has declined to 7th position in 2013 and 11th position 2014. It employees 92,000 workers as per the annual report 2013.
Name of Companies
Country
Turnover or revenue in millions of dollars
Number of Employees in Thousands
Capital Expenditure in Millions of Dollars
Capital/ Labour Ratio ROYAL DUTCH SHELL NETHERLANDS 451235 92 40145 436358.6957
This is an infographic obtained from the annual report 2013 of Shell.

12. PRODUCT MIX AT SHELL
Shell produces both fuels and lubricants
FUELS
LUBRICANTS
Hi-Octane
Rimula C
Super Unleaded
Rimula D
Super
Rimula X
Hi-speed Diesel
Helix Plus
CNG
Helix Super
Helix Standard
Shell Helix (CNG)
WEKA FORECAST FOR SHELL
A 10 day forecast from 22nd Sept 2014 is shown below. The weka forecast is plotted based on the Closing price of the stock. According to the forecast the stock prices do not appear to vary much.

13. SHELL OPERATIONS IN INDIA
 Lubricants :- A state-of-the-art lube-oil blending plant at Taloja (outside Mumbai in western India) – considered to be among the finest lube-oil blending plants in Asia, manufacturing a range of branded lubricants focused on the automotive and industrial sector
 Bitumen :- A High Capacity Plant of 70,000 MTPA at Uluberia, West Bengal producing a range of Bitumen Specialty products such as Bitumen Emulsions, Crumb Rubber Modified Bitumen (CRMB) and Polymer Modified Bitumen (PMB)
 Retail :- Only international company to be granted and actualize Government of India approval to retail fuel in India till date
 License for 2000 fuel retail stations
 R&D – Centre in Bangalore. Third Shell Global Center for Technology, the other two being in Houston and Amsterdam
Figure shows a Shell petrol station outside Bangalore.

14. Shell India also has a strong tradition of providing opportunities to benefit the local community through employment. Additionally Shell is committed to understanding the needs of the marginalized and looks to their integration in the local community. To encourage increased participation of this segment of the society in the economic opportunities generated by our retail fuel business, Shell India has adopted the following measures and has integrated into the business plan:
 Design handicap-friendly outlets.
 Diversity at work place especially by creating favourable conditions for disabled persons and women to work at the outlets.
 Encourage economically marginalized youth to take up entrepreneurship opportunities of managing and running the Shell outlets.
Shell Retail now has a presence across 6 states- Gujarat, Andhra Pradesh, Maharashtra, Karnataka, Tamil Nadu and Assam in the country and remains keen to expand its presence in the country to offer customers everywhere our international quality fuels.
Shell has a business service centre in Chennai. The main focus in Chennai is on Finance Operations which supports delivery of the global Finance functional plan. There is also a ‘Downstream India’ - Customer Services Team that handles lubricant depot ordering within the country. The Business Service Centre (BSC Team) manages the centre facilities and supports business partners’ operations on site. There is a strong focus at SBSC on safety & well being of staff and on its three core values: Compliance, Intervention & Respect.
LOGISTICS PLANNING IN SHELL
 ADGENT TOOL is used to model producer and receiving terminals, shipping logistics and shipping delivery programs for both liquid natural gas (LNG) and crude oil.
 It helps in decision making using upto date simulation technology.
 Benefits :-
 keep the volume of existing LNG storage tanks to a minimum
 optimise the LNG ship capacity and speed requirements
 optimise the level of storage capacity needed to guarantee reliable delivery of LNG and eliminate bottlenecks in existing LNG plants.
 The Shell Shipping organisation is based in London, with specialist centres in Houston, The Hague, Singapore, Perth and Tokyo - networked to maritime professionals across the globe.
 Shell has 300 terminals and 9000 kilometres of pipeline all over the world.

15. The figure above shows how small scale transportation of LNG takes place in SHELL. Mtpa stands for million tons per annum. For quantity from 0.5 – 2 mpta LNG carriers are used while large ships are used for transportation of LNG via sea for 2-5 mpta .
The figure below shows the different vessels and their capacity that is used for transport of LNG.
Oceanic LNG Carriers have the largest capacity of 140,000 m3and carry weight of upto 62,500 tons.

16. CONCLUSION
 It is understood that the national owned companies hold more than 80% of the worlds reserves. Saudi Aramco tops the list.
 The private sector which includes companies like BP, Royal Dutch Shell Corporation , Total SA etc hold just the remaining % of the reserves.
 Sinopec from China has the largest revenue for the year ending 2013with 469,052 millions of dollars followed by Royal Dutch Shell with 451,235 millions of dollars and Exxon Mobil with 420,836.
 Number of employees is notably highest for Petrochina with 544,000 followed by Gazprom and Sinopec. All three have the number of employees much higher than the others because they are state owned and they tend to provide more job opportunities and increase employment.
 When revenue is shown on pie chart Sinopec comes on top with 15% closely followed by Royal Dutch Shell with 14% and Exxon Mobil with 13%.
 PetroChina, Gazprom and Sinopec have the highest number of employees in descending order and this is because the cost of labour is cheap in the countries where they operate i.e China and Russia and also these companies look to create more employment for the citizens of their respective countries.
 Total SA from France holds the highest capital/labour ratio. Chevron from USA comes second followed by Exxon Mobil and Royal Dutch Shell.
 Royal Dutch Shell has a very effective transportation system that ensures safety in its method of transportation of fuels across countries or within a country.

17. For Further details Contact: Dr P James Daniel Paul, Professor, VIT- BS, Chennai, jamesdanielpaul.p@vit.ac.in Tel: +91 44 3993 1040 HP: +91 98402 94590
Pramod Philip John
VIT University, Chennai
Tel : +918943768874