Hypothetical: In the past 3 years, oil/gas prices have been going to hell. Many IOCs and NOCs are shying away from E&P (Upstream in general) and investing in Midstream/Downstream assets/Technology to drive further growth in the future.
Are there any example companies that could back up this hypothesis? (Preferably 2 NOC and 2 IOC. Dont care which country they are from but hopefully diversified; e.g. BP (UK) and Conoco Phillips (US); Qatar Gas and Saudi Aramco, etc.
Thanks!!
yes petroleum engineer here. what is a IOC and NOC?
Edit: international vs national company. I haven't heard that term before.
Upstream profit margins essentially got cut in half. Downstream profit margins are a lot less volatile and can go up when oil is down (you buy crude and sell gasoline. For a while gas was still high while crude was down refineries were making out).
Midstream is hurting but not nearly as bad as upstream.
Look at the rig count. it's dropped from 2k 2-3 years ago to less than 500.
IOC - Independent, i.e. not owned by gov, i.e. XOM NOC - National, i.e. owned by gov., i.e. Saudi Aramco, i.e. just about anywhere else but America
In the industry, XOM is what we call an IOC as in Integrated Oil Company, instead of Independent. Anadarko Petroleum Company (APC), which is much smaller in size, is a good example of Independent Oil Company.
Thanks for the help beastmode123. Do you know of any specific companies who are actively investing in midstream or downstream business as of recently? (~2 years)
hbear the only NOC that fits what you are looking for is Saudi Aramco off the top of my head. They are investing in downstream to create petrochemical facilities to ramp up production on things such as ethylene crackers.
Shell is doing the same as feedstock is cheap (natural gas) and there will be an ever increasing demand for plastics and other consumer goods derived from petrochemicals.
I can dig around some more and see what I find.
Aramco is also buying up refineries from what I hear.
Motiva Enterprises was Aramco--Another Major(Shell I think) in downstream refining here in the US.
It's not as back and white as the initial question. Refineries do change a lot but it is a huge operation (billion++ $ deal usually).
I am working on a deal in Latin America where the NOC is having us fund the drilling budget and we are receiving repayment through production. I know this doesn't directly answer your question but it is one way a NOC is dealing with the cash crunch.
The big wig O&G corporations, for lack of a better phrase, don't give a fuck about where Wall Street thinks oil will be in X years time. They run the most sophisticated math and physics models on the most cutting-edge technology. I'm talking NASA-level stuff, I kid you not.
Yes, allocation to pure E&P assets is going down, but I think that this isn't a one-for-one proxy for corporate sentiment. Actually, allocation to R&D goes up dramatically during a slump, because while everyone's (read: Wall Street) worried about oil as a price and supply/demand point, sharp minds on the inside are more concerned with having cost-efficient tech ASAP to benefit from an inevitable upward curve.
Haha I have friends that do this "NASA Level Stuff". It still isn't THAT accurate. It is however extremely complex given the conditions that we are trying to solve for. If I tried to explain how it worked you would tell me to shut up after about 20 seconds.
The only thing that comes close to our reservoir simulation stuff is SpaceX or NASA. Maybe a large particle accelerator. Exxon used to have the best computer until the Saudis over at Aramco started swinging their giant supercomputer dick.
Wall street is extremely earnings focused. What will XX reservoir be worth tomorrow? How about the next day? That's why they don't care. If Wallstreet ran big oil nothing would ever get done. Unlike typing numbers into excel & relationships drilling for oil gets pretty fucking complicated pretty quickly. Fuck up? Well you may have just cost the company a couple of million $$$.
Reservoirs have a 50+ year life and offshore projects take YEARS to get underway. That's why big oil doesn't give a shit about your "current" valuations. They use the price of oil as a reference to what projects are economical & what the profit might be, but other than that they don't care.
Follow John Kemp from Reuters --- he sends out daily emails for oil and gas news and writes solid stuff.
at JKempEnergy on Twitter or PM me and I can give you his email to subscribe
Look into LNG. Big driver of the Shell/BG deal, and rumors swirling about XOM trying to acquire a Papua New Guinea LNG developer.
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