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Gaurav Agnihotri

Gaurav Agnihotri

Gaurav Agnihotri, a Mechanical engineer and an MBA -Marketing from ICFAI (Institute of Chartered Financial Accountants), Mumbai, is a result oriented and a business focused…

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A Closer Look At The World’s 5 Biggest Oil Companies

A Closer Look At The World’s 5 Biggest Oil Companies

Today, the ‘black gold’ that is oil has become a true global commodity. With global oil prices still subject to volatility and geopolitical uncertainty, most of the oil ‘Supermajors’ have decided to reduce their operating costs by combining different strategies such as mergers, acquisitions and downsizing of existing staff. In these uncertain times, it is important to pose a question: Which is the best oil company in the world? Let us be clear that we are not searching for the biggest oil company in terms of revenues or market value. We are looking for a company that not only generates revenues, but invests in future technologies, fights climate change and gives power to its stakeholders.

Which is the best oil company in the world? Is it a Big Oil firm? Or is it more unexpected than that? Let us examine some possible contenders…..

Saudi Aramco

Founded: 1933
Headquarters: Dhahran, Saudi Arabia
Type: National Oil Company
CEO: Khalid A. Al- Falih
Revenue (2014): $378 Billion
No of Employees: 60,000 (2015)

Many would consider Saudi Arabia the undisputed king of oil and gas. The desert kingdom has around 16% of the world’s proven oil reserves and is the biggest global exporter of petroleum liquids. There is little doubt as to why its national oil company, Saudi Aramco, the biggest energy company in the world, generates over $1 billion in revenue every single day. With current recoverable crude oil assets standing at around 260 billion barrels, Aramco operates the Ghawar oil field which has production capacity of around 6 million barrels per day and is the world’s largest onshore field. As per Sadad al Husseini, a former top executive at Aramco, "Aramco produces almost 9.5 million barrels a day, and if it needs to replace these reserves it needs to add almost 35 billion barrels of new reserves every 10 years. That's a very large challenge."

Investment In Technology

With an intention to increase its already vast oil reserves, the NOC’s research arm EXPEC ARC has undertaken a challenge to improve its oil and gas recovery techniques. Smart Water Flood is one of its homegrown recovery technologies that can improve the oil recovery rates of its reservoirs. ‘First Drilling Microchip’ is another innovation that aims to develop low- cost sensor systems for downhole drilling measurement.

Resbots are another breakthrough discovery that the company has made in the last few years. Being close to 1/1000th the size of the human hair, Resbots analyze reservoir pressure, investigate fluid and rock properties, assess the type of fluid and provide temperature measurements when injected into the reservoir. Resbots were successfully tested in 2010.

Resbots

Resbots at work

Royal Dutch Shell

Founded: 1907
Headquarters: The Hague, Netherlands
Type: Private
CEO: Ben Van Beurden
Revenue (2014): $419.4 billion (-6.79% change from last year)
Profit (2014): $14.8 billion
Net Profit Margin: 3.53% Source: As above
No of employees (2015): 92000
Stock Forecasts:

RDSAStockForecasts

Source: CNN Money

Shell has been one of the most respected oil companies in the world and came second in the Fortune Global 500 2014 list. Although the company has registered a huge drop in profit by around 40% from the previous year, it is hopeful of improving its operational performance and project delivery. In fact, on April 7, 2015, the company proposed a merger with the British gas producer BG group for $69.7 billion cash and stock. It is interesting to note here that this is the first big acquisition of the oil and gas industry this year, and will make Shell the largest producer of liquefied natural gas in the world. The merger of the two companies would produce financial benefits to the tune of around $ 2.5 billion. However, the takeover of BG group could have a direct effect on Shell’s arctic ambitions. As per the US geological survey, the Arctic is said to have close to 30% of the world’s undiscovered natural gas reserves and 13% of the world’s undiscovered oil reserves. Since Shell now has to invest around $70 billion in acquiring BG, its spending on Artic with its harsh conditions might not be an option at present. Related: Top 12 Media Myths On Oil Prices

Shaping The Energy Future Through Innovation

In order to promote cleaner, smarter energy, Shell is focusing on natural gas as it emits around 50% fewer emissions than coal-fired power plants. The company has also started biofuel production in Brazil in the form of ethanol from Brazilian sugarcane.

Exxon Mobil

Founded: 1999
Headquarters: Texas United States
Type: Integrated Oil Company
CEO: Rex W. Tillerson
Revenue (2014): $364.8 billion (-7.35% change from last year)
Profit (2014): $32.5 billion
Net Profit Margin: 8.92% Source: Same as above
No of employees (2014): Approximately 75300.
Stock Forecast:

XOMStockForecast

Source: CNN Money

Exxon is the second largest company in the US as far as revenues go. However, its revenues have dropped by more than 7 percent from the previous year along with decreased oil production and increasing exploration expenditures. As of 2013, the company had about 71.9 million barrels of natural gas and 13.2 million barrels of liquid proved reserves. Exxon has three divisions: Upstream, Downstream and Chemical with upstream being the biggest of them all. Exxon is also the biggest refiner in the world with a refining capacity of around 5.5 million barrels per day, with Royal Dutch Shell in second place with a refining capacity of around 4.1 million barrels per day.

Being the world’s biggest refiner, Exxon has carefully hedged its risks as low oil prices would be beneficial for its refining margins.

Investments In Tech And Energy Efficiency

Exxon is working on a Carbon Capture Storage (CCS) technology that could play a major role in combating global greenhouse gas emissions. As per the Intergovernmental Panel on Climate Change, power plants result in around 60% of the world’s total CO2 emissions. CCS technology is leading the way in reducing these harmful emissions.

ExxonMobilInvestment

Source: Exxonmobil.com

The corporation has also improved its energy efficiency by around 10 % in refining and 12 % in chemical manufacturing from 2002 to 2012. These numbers are huge, considering the size and magnitude of the company’s global operations which stood at a massive 1.5 billion gigajoules in 2012.

Petrochina

Founded: 1988
Headquarters: Dongcheng District Beijing China
Type: State Owned Integrated Oil and gas Company
Chairman: Zhou Jiping
Revenue (2014): $367.94 billion (-8.2% change from last quarter)
Net Income (2014): $17.27 billion
Net Profit Margin: 4.69% Source: As above
No of employees (2014): 544083.

With around half a million employees, Petrochina, the listed arm of state owned China National Petroleum Corp. (CNPC) is easily one of the biggest oil and gas companies in the world. The company operates in four segments: Exploration and Production, Refining and Chemicals, Marketing and Natural Gas and pipeline. Related: Is Saudi Arabia Setting The World Up For Major Oil Price Spike?

On April 9, 2014, Petrochina surpassed Exxon Mobil as the biggest energy company by market value for the first time since 2010. Out of the total profits of the company, about 86.5 % came from the exploration and production sector while the remaining came from its natural gas and pipeline units.

In fact, the Chinese government is toying with the idea of combining the nation’s energy companies in order to compete with the likes of Exxon Mobil and Shell, revive its slowing economy and battle low oil prices. One of the options that are being considered is the merger of CNPC with its domestic arch rival Sinopec. One of the biggest reasons for this merger would be to increase efficiency by eliminating the overlapping operations of state owned oil and companies in exploration, refining and running gas pumps. If any such merger does take place, the new corporation could be twice as big as Exxon. However, some analysts are calling this as just a rumor as both Sinopec and CNPC have declined to comment on this possibility.

Energize. Harmonize. Realize

Few are aware that Petrochina invests around $1.75 billion in Research and Development initiatives which is the highest for any oil and gas company. Technologies at Petrochina are developed with a view to promoting green development and effective utilization of traditional fossil fuels. Petrochina has developed a set of Coal Bed Methane (CBM) exploration and development technologies that suits CBM storage and reduces seepage. This is in addition to the industrialization assessments and resource assessments of shale oil, biodiesel and gas hydrate. In 2010, the company achieved better than expected results in reduction of energy consumption and emissions through key energy saving projects and improved utilization of energy and water resources. It resulted in the saving of 1.73 million tons of coal equivalent and 28.65 million cubic meters of water.

BP

Founded: 1909
Headquarters: London, UK.
Type: Private Integrated Oil and gas Company
CEO: Bob Dudley
Revenue (2014): $353.57 billion (-21% change from last quarter)
Net Income (2014): $3.78 billion
Net Profit Margin: 1.07 % Source: As above
No of employees (2014): 84500.
Stock Forecast:

BPStockForecast

Source: CNN Money

Being an integral part of the ‘Big Oil’ group and having operations in almost 80 countries, British Petroleum or BP is an integrated oil and gas company that provides its customers with fuel, lubricants and petrochemical products.

BPBusinessModel

BP’s Business Model. Image Source: BP

The company has an upstream and a downstream section. The upstream section consists of oil and gas exploration, field development and production, and the midstream consists of transportation, storage and processing. Seismic imaging, real time data support and enhanced oil recovery are some of the technologies that support the company’s upstream business. The downstream section is responsible for refining, marketing, transportation, and supply trading of crude oil, petroleum and petrochemical products to wholesale and retail customers. Related: What’s Really Behind The U.S Crude Oil Build

BP Holds A Unique Position

Being the biggest oil company in Russia, Rosneft is also the largest publicly traded company in the world based on its hydrocarbon production volume. BP holds a 19.75 % share in Rosneft which makes it a beneficiary to a broad range of existing and future projects in Russia, a country that has huge hydrocarbon resources. Despite EU and US sanctions on Russia, BP and Rosneft signed an agreement on a long term project for exploration and development of the Domnaik formations in the Volga- Urals region of Russia. This is in addition to the agreement that enables a technical collaboration between the two companies in the upstream and downstream sector.

Battling The Ghosts Of The Past

It’s been five years now since BP oil spill disaster occurred in the Gulf of Mexico. But the legal proceedings related to this accident still continue as BP has recently appealed against the accusations of being grossly negligent and committing a willful misconduct. BP has set aside $42 billion to cover the costs of claims and other payments related to its Gulf of Mexico oil spill and so far it has paid around $28 billion that includes claim payments, restoration work and clean up. BP is now awaiting the federal court’s decision on how much it owes under the Clean Water Act penalties.

So, Which Is The Best Oil Company In The World?

At a time when oil giants such as Exxon, Shell, and BP have decided to cut their spending, sell assets and focus on cash generation which is the company that is going to invest $40 billion annually in the next 10 years? It is the company that operates its own private airlines and own airports.

It is Saudi Aramco.

With the increase in its production output to 10.3 million barrels per day, Saudi Arabia has decided to defy the west and take away market share from the US shale drillers. Interestingly Saudi Aramco has earmarked a $10 billion investment in an unconventional energy development plan that includes the development of its domestic shale gas production. Saudi Aramco is not only trying to replicate the US shale success story, it has even created a well laid out strategy of hiring America’s best energy talent. Several US shale field workers who have lost their jobs are being offered employment by Aramco. So far in the oil price slump, around 75000 oil and gas jobs have been lost. Saudi Aramco is one of the few companies that are actually increasing their head count.

No other oil and gas company has invested more in newer technologies through establishing a network of global research centers (Aberdeen, Beijing, Houston, Massachusetts and others) and alliances with industries and world class universities. One of Aramco’s centers at southeast Michigan will focus on carbon capture from mobile sources.

Last year, the CEO of Saudi Aramco statedWe are convinced that innovation and cutting edge technology are the key strategic enablers of our current success and future competitiveness, which is why we are tripling our R&D manpower and increasing our R&D funding fivefold. Our research agenda is targeting a leadership position in about a dozen technology domains. They include multiple technologies that will help us achieve our goal of increasing our oil recovery to 70 percent and allow us to add more than a hundred billion of barrels of oil resources to our already large portfolio. In addition, we are targeting major advancements in drilling, which constitutes 60 percent of our upstream budget and is vital to realizing our significant unconventional gas potential.”

By Gaurav Agnihotri of Oilprice.com

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  • Max on April 21 2015 said:
    Yes, the future looks indeed bright and successful for Saudi Aramco. They keep their share of the market, they're knocking out their American rivals, they heavily invest in R&D, they are among the few one still hiring people, people with precious skills developed in the American shale Bonanza.

    But Saudi Armaco is a NOC. If it's not as heavily stuck to its short-term benefits as a IOC, it has long-term political responsibilities for the sake of the people of Saudi Arabia. Saudi Arabia's population is growing fast. Their needs are growing accordingly. Social pressure, religious tensions have been tamed during the Arab Spring but for how long? The needs in energy will soon undermine projects for exports and weaken the revenues of the Kingdom. Furthermore, everyhting needs still to be done regarding the diversification of the economy.

    Saudi Aramco is in a strong position today but its resources will be used at a huge cost for the company in the transformation of Saudi Arabia. It is its duty to do so.
  • Larry Sullivan on May 01 2015 said:
    The article does not make a fine but major distinction between the National Oil Companies who own land and the oil & gas in place versus the Super Majors (BP, Shell, ExxonMobil, Total) who do not own much land or oil rights. Between 80 and 90% of the oil remaining in the earth is the patrimony of soverign and national oil & gas operators. Saudi Aramco is owned by the Kingdom of Saudi Arabia. ExxonMobil is not owned by the federal government of the United States of America. That is not something to be ignored. There are fine cases like the Province of Alberta in Canada owns and produces oil. The great State of Texas owns land and minerals under that land which provides. It is important to know that often the Super Majors are in Production Sharing Agreements (PSA) where the sovereign and national oil owners permit the Super Major to produce oil and gas but they are not owners of the assets under the seabed or land.
  • Pablo on August 05 2015 said:
    With only 60,000 employees, relatively easy to access reserves, private ownership and a totalitarian government, the true magnitude of Saudi Aramco's advantage is hard to measure, but it is massive. Current low world prices will continue as the middle eastern oil producers attempt to force the hand of western producers. Allowing Iran back into the global market could depress prices even further, possibly to sub $40 levels creating massive pressure on companies that rely on expensive sources to maintain production levels. If America wants to continue on a path to energy independence, we may see yet another escalation of middle eastern hostilities. That the Obama administration has continued on a path of reducing middle eastern tensions begs the question of what alternative energy research is coming down the pike in America. Current trends in the oil industry will place tremendous pressure on American producers to remain competitive and a few years of trimming staff will strain their ability to adjust capacity, although the downturn will contain wages which have been a source of pressure in North America for years.

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