Business Restructuring in International Oil Companies (IOCs) - Increasing Focus on Upstream Business With Spin-Offs and Divestitures in Downstream Operations

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Aug 06, 2012, 07:19 ET

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Business Restructuring in International Oil Companies (IOCs) - Increasing Focus on Upstream Business With Spin-Offs and Divestitures in Downstream Operations

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Business Restructuring in International Oil Companies (IOCs) - Increasing Focus on Upstream Business With Spin-Offs and Divestitures in Downstream Operations

Summary May 2012 Scope

- Key challenges faced by integrated oil companies in the global oil and gas industry

- Steps taken by major IOCs to increase profitability and shareholder value

- Key objectives of divestments or spin-offs of major IOCs

- Increased focus on upstream activities to improve production levels and reserve life

- Divestment strategies adopted by major IOCs to improve cash flows

Reasons to buy

- Develop business strategies with the help of specific insights into the oil and gas E&P market

- Identify opportunities and challenges in the oil and gas industry leading to divestments and spinoffs by major IOCs

- Plan your strategies based on expected developments in the oil and gas exploration activities by major IOCs and newly formed upstream pure play companies

- Understand the competitive landscape of the emerging market in the upstream and downstream sector

Table of Contents

1 Table of Contents1 Table of Contents 31.1 List of Tables 51.2 List of Figures 52 Introduction 62.1 Overview 62.2 GlobalData Report Guide 63 Major Integrated Oil Companies Annouce Spin-Offs and Divestments to Ensure Future Growth 73.1 High Crude Oil Prices and Intense Competition for Reserve Acquisitions Prompt IOCs to Increase Focus on Upstream Activities 73.1.1 IOCs Need to Increase Focus on Upstream Activities to Stay Competitive with Pure-Play E&P Companies 73.1.2 Decrease in Number of Discoveries in the Last Two Years will Drive Upstream Activities in 2012 93.1.3 Sustained High Crude Oil Prices Prompt IOCs to Increase Focus on Upstream Activities 103.2 Environmental Regulations and Increasing Need for Complex Refineries Driving IOCs to Divest from the Downstream Sector 123.2.1 Stringent Environmental Regulations in North America and Europe Make Downstream Activities less Attractive for IOCs 123.2.2 Low Gross Refining Margins Affect Construction of New Refineries in Europe 133.2.3 IOCs Divert Capex towards Upstream Sector Considering Adequate Complexity Levels of their Refining Operations 144 ConocoPhillips and Marathon Oil Corporation Announce Spinoff to Ensure Future Growth 164.1 ConocoPhillips Spun-off its Downstream Segment in May 2012 164.1.1 The "Shrink to Grow" Strategy Drives ConocoPhillips' Decision to Spinoff 164.1.2 ConocoPhillips Increasing its Focus on Upstream Activities by Divesting from Non-core Assets 194.1.3 The New Downstream Entity is Among the Largest Refiners in the US 234.1.4 ConocoPhillips is Buying Back Shares to Increase Shareholder Returns 254.2 Marathon Oil Corporation's Spin-Off Enhanced its Downstream Business 264.2.1 Marathon Oil Corporation Decided to Spin-off its Downstream Sector in June, 2011 264.2.2 The Spinoff will Lead to Increased Shareholder Value 274.2.3 Marathon Oil Corporation Increasing its Upstream Activities especially in Shale Plays 284.2.4 Marathon Petroleum Corporation will Focus on Refining and Retail Markets in 2012 305 Major Integrated Oil Companies Decide to Restructure Business Segments through Divestments 325.1 ExxonMobil Corporation Increases Production Levels by Divesting Non-Core Assets 325.1.1 ExxonMobil is Currently Restructuring its Operations to Increase its Upstream Activities 325.1.2 Recent Divestitures of Non-core Assets will Help the Company to Focus on High Growth Strategic Assets 355.1.3 ExxonMobil Plans to Focus on over 130 Upstream Projects to Improve its RRR 365.2 BP Divesting Stakes from its Assets to Meet the Deepwater Horizon Accident Liabilities 385.2.1 BP Raised $38 Billion until 2011 through its Divestment Program to Meet Oil Spill Liabilities 385.2.2 BP will Focus on Upstream Activities to Strengthen its Core Sector 405.2.3 BP Plans to Drill Wells Globally to Increase its RRR 425.3 Royal Dutch Shell will Concentrate on Profitability in 2012 435.3.1 Royal Dutch Shell Plans to Unlock Capital from its Downstream Business 435.3.2 Recent Divestitures of Few Downstream Assets to Focus on Profitability Instead of Growth 445.3.3 Royal Dutch Shell will Focus on Gas Production until 2016 455.4 Chevron Plans to Improve Profitability Through Business Segment Restructuring 475.4.1 Chevron Plans to Streamline its Refining Business to Increase Capital Investments in Exploration 475.4.2 Chevron has been Divesting its Stakes in Non-Core Assets to Increase its Focus on Strategic, Unconventional Shale Plays 505.4.3 Chevron Corporation Increases Unconventional Exploration Activities in 2012 515.4.4 Chevron Corporation Increases Upstream Activities to Improve RRR 536 Appendix 556.1 Market Definition 556.2 Abbreviations 556.3 Sources 566.4 Methodology 566.4.1 Coverage 566.4.2 Secondary Research 576.4.3 Primary Research 576.4.4 Expert Panel Validation 576.5 Contact Us 576.6 Disclaimer 58

List of Tables

Table 1: ConocoPhillips, Major Divestments, January 2011 – February, 2012 20

Table 2: ConocoPhillips, Planned Production Assets, 2011–2016 22

Table 3: ExxonMobil Corporation, Major Acquisitions, 2011 33

Table 4: ExxonMobil Corporation, Major Divestments, 2011 35

Table 5: BP Plc, Major Divestments, 2011 38

Table 6: BP Plc, Major Acquisitions, 2011 41

Table 7: Royal Dutch Shell Plc, Major Divestments, January 2011 – February, 2012 44

Table 8: Royal Dutch Shell Plc, Major Acquisitions, January 2011 – February, 2012 45

Table 9: Chevron Corporation, Major Divestitures, 2011 50

Table 10: Chevron Corporation, Major Acquisition of Unconventional Reserves, 2011 51

List of Figures

1.2 List of FiguresFigure 1: Average Reserve Replacement Ratio of Pure-play E&P Companies and IOCs, %, 2007 - 2011 7Figure 2: Exploration and Production Companies, Reserve Replacement Ratio, %, 2007 and 2011 8Figure 3: Discoveries by Major Integrated Oil Companies, Global, 2007 - 2011 9Figure 4:Trend of Brent, OPEC and WTI Crude oil Prices, $/bbl, January 3, 2011 – April 9, 2012 10Figure 5: Affect of Crude Oil Prices on Upstream Capex of Major IOCs, Global, $bn, $/bbl, 2007 – 2011 11Figure 6: Planned Refining Capacity Additions, By Region, MMtpa, 2012-2016 12Figure 7: Comparison of Refinery Margins in North America, Europe and Asia Pacific, $/bbl, January 2011 – March 16 2012 13Figure 8: Comparison of Complexity Levels of Refining Operations of Major IOCs, Nelson's Complexity Index, 2011 14Figure 9: ConocoPhillips, Portfolio of Business on Growth-share Matrix, 2011 17Figure 10: ConocoPhillips' Revenue and Net Profit Margin by Segment, $bn, 2011 18Figure 11: ConocoPhillips, Regional Production and Reserves, MMboe/d, Bboe, 2011 19Figure 12: Average Reserve Life Higher for IOCs, 2011 21Figure 13: Refining Capacity of IOCs and Domestic Pure-plays in the US, MMtpa, 2011 23Figure 14: Phillips66, Downstream Operations Worldwide Map, October 2011 23Figure 15: Phillips 66, Change in Total Refining Capacity, MMtpa, 2012–2016 24Figure 16: ConocoPhillips, Share Buyback, Cash Flow from Operations and Buyback as a Percentage of CFO, 2007–2011 25Figure 17: Marathon Oil Corporation, Geographic Distribution of Oil and Gas Production, 2011 26Figure 18: Trend in Market Capitalization of MRO and Spun-off Entities, $/bn, December 2008 – April 2014 27Figure 19: Marathon Oil Corporation, Eagle Ford Shale, 2011 28Figure 20: Marathon Oil Corporation, Upstream Capital Expenditure, 2007 – 2012 29Figure 21: Marathon Oil Corporation, Downstream Capital Expenditure, $bn, 2009 – 2012 30Figure 22: Marathon Petroleum Corporation, Downstream Operation, 2011 31Figure 23: ExxonMobil Corporation, Operational Overview, 2011 32Figure 24: ExxonMobil Corporation, Cash Flow From Operations, Capex and Capex as Percentage of CFO, $bn, 2007 - 2011 33Figure 25: Integrated Oil Companies, Debt to Equity Ratio, %, 2007 - 2011 34Figure 26: ExxonMobil Corporation, Production from Upcoming Assets, MMboe, 2011 – 2015 36Figure 27: ExxonMobil Corporation, Reserve Replacement Ratio, %, 2007 - 2011 37Figure 28: BP Plc, 10-Point Plan for 2012 39Figure 29: BP Plc, Fall in Production Levels and RRR in 2011, Mboe, 2007 – 2011 40Figure 30: BP Plc, Upcoming Production Assets, 2011 – 2016 42Figure 31: Royal Dutch Shell Plc, Return on Capital Employed of Downstream Business, %, 2007 – 2011 43Figure 32: Royal Dutch Shell, Upcoming Production Assets, 2012 – 2016 46Figure 33: Chevron Corporation, Contribution of Downstream Operations to Total Revenue and Net Income, (%), 2007–2011 48Figure 34: Chevron Corporation, Cash Flow From Operations, Capex and Capex as Part of CFO, $bn, 2007 – 2011 49Figure 35: Chevron Corporation, Key Unconventional Exploration Activities, 2012 51Figure 36: Chevron Corporation, RRR, %, 2007 - 2011 53Figure 37: Chevron Corporation, Planned Conventional Exploration Activities, 2012 54