Oil and Gas sector Overview

The industry of Oil and gas are considered to be the largest one in the sphere as far as market capitalization is concerned. With revenues of around $4 trillion in the previous fiscal year, this industry experienced 7.23% of an average growth.

Within oil, gas and consumable fuels industry, integrated oil and gas sector is one of the major sub sectors. The sub-industry comprises companies that are engaged in upstream as well as downstream activities. Oil companies are also known as ‘Majors’ as they have spread themselves around the globe to explore, extract, refine and market oil and gas. The majors, because of their vast global network and highest revenues among all firms, face strong headwinds from environmental groups to alter their heartless practices as well as experience grave setbacks due to geo political unrest. Upstream activity includes the exploration of a site, to extraction of crude oil and/or natural gas and downstream activity includes Refining of the upstream extractions and marketing them to end users.

The key players in integrated oil includes: Chevron, Exxon, British petroleum and Royal Dutch shell. These ‘Big Four’ oil super-majors own around 20.3% - calculated using last FY figures - of the total developed oil and gas reserves held by the top 33 firms falling in the sub-industry, including state-owned integrated oil and gas companies such as Petrobras of Brazil. From production and exploration perspective, oil and gas integrated companies are faced with the pressure of replacing their energy reserves for sustaining future production. The techniques of EOR have drastically altered energy background in this regard.

The two key players in the industry includes Chevron and Exxon, ExxonMobil Fuels & Lubricants is one of the leading companies in the marketing of the finished asphalts, lubricants, and other special products. The company also specializes in the supply of base stocks. The global brands of the company actually recognize the ExxonMobil product, which are distributed all around the world. The company has a huge customer base in which most of the large industries come up front.

The California-based oil company named chevron is considered to be the one of the largest oil companies in the world traded in NYSE as “CVX”. It is founded in 1984, having total numbers of employees of around 64,600 as on December 2013.The operations of chevron have been divided into the upstream (related to exploration and production) and downstream (related to oil marketing) activities.

Because of their energy extraction yield the methods of EOR which are being employed by oil and gas companies. Using conventional methods, the energy extracted was around 20% to 40% of the overall en deposit of energy in a specific field, while new innovations in EOR techniques have increased it to 30% to 60%. North Sea was the main source of Oil production in a Brent, is a mature field on which oil extraction started. With the number of easy oil fields (conventional source) decreasing, companies of oil and gas need to search for other unconventional sources in order to increase their reserves. In this case as well, EOR techniques have played a major role. Unconventional sources such oil shales and oil sands which are developed by the oil firms in order to increase their reducing reserves.

The US has a pro-stance towards the EOR methods whereas in Europe, especially in the UK, there are ongoing protests related to the use of such kind of techniques.  Fracking and hydraulic are the technique that is employed in shale oil and gas extraction had faced severe criticism on part of the strain it puts on the surrounding environment. This is the reason that shale been exclusively been in the US.

Taking this into account, oil and gas integrated companies has been required to raise their exposure relatively towards natural gas, even though the prices of natural gas have declined while the prices  of crude are on the rising side. This is so because carbon emissions from burning natural gas are 30% less as compared to the amount of oil burned to produce the same amount of energy.

The prices of crude oil are the key drivers of revenue for the upstream segment of the oil and gas integrated companies. Benchmark price of crude oils are utilized as reference against which the price of the oil extracted is calculated, judging on the differences in the quality

Natural gas prices in Europe (as indicated by the Heren NBP index) increased in FY12 to lure supply away from Asia, even though natural gas demand decreased in Europe. On the other hand, Henry Hub prices have fallen as shale gas production has rebounded after declining in 2007.Refining margins reflect the value addition in the crude oil after it has gone through the refining process. Therefore, it heavily depends on various input costs.