This document presents a vision for how oil companies can better integrate commercial and operational decisions to improve competitiveness. The authors argue that companies can maximize profits by optimizing operations and planning across business units in real time. They outline key steps like standardizing processes, integrating strategic and tactical planning, and establishing a command center for near real-time optimization and monitoring. The first companies to successfully implement these integrated solutions could see annual profit improvements of billions of dollars by reducing costs and better capturing market opportunities.

1. This paper presents our vision of how downstream oil
companies can take advantage of technology and best
business practices to capture market opportunities with a
closer coupling of commercial decision making with
refinery operations. An enlightened approach to business
processes with enabling technologies can dramatically
improve downstream company competitiveness. We identify
how downstream oil companies of the future can
dramatically improve performance by integrating operational
and strategic decisions to take advantage of market
opportunities and produce superior financial results.
A Vision for
the Petroleum Company of the Future
Combining Commercial Excellence
with Operational Excellence
By Darrell Rangnow and Jack Davis
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of their respective owners.
INTRODUCTION
All the major oil companies are focused on integrating commercial
excellence with operating excellence to gain strategic advantage.
INTEGRATING MARKET OPPORTUNITIES
WITH OPERATIONAL CAPABILITIES
Some leading petroleum companies are developing programs and initiatives
to take advantage of the opportunity.
END-TO-END VISION
Petroleum companies will be able to maximize margins across the enterprise
by adopting best and emerging business practices. Decisions to make, buy,
sell, or exchange products can be made with confidence, in less time, and
business risks are reduced and managed through a better understanding
of the supply chain.
THE PRIZE
The first visionary companies to successfully implement these solutions and
business processes will reap the benefits while the laggards will continue
to see only profit erosion.
SUMMARY
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12Tokyo 102-0083 JAPAN
Chiyoda-ku
ABOUT ASPENTECH12

2. A Vision for the Petroleum Company of the Future
© Copyright 2002 Aspen Technology, Inc. APRIL 2002 2
Introduction
Petroleum industry executives have been challenged to deliver superior results to
their shareholders, in terms of:
> Superior financial rates of return
> Consistent, more predictable earnings and cash flow streams
> Revenues growth
> Marketplace differentiation
> Acceptable stock prices, without chronically low, bottom-of-commodity cycle dis-
counted price to earnings ratios
All the major oil companies are focused on integrating commercial excellence with
operating excellence to gain strategic advantage. The main technology barriers to
overcome to make this a reality are interoperability between applications, integrated
planning and scheduling tools and visibility for collaboration across the enterprise.
The petroleum industry is mature and characteristic of mature industries, it is:
A Commodity - Over the last 30 years, petroleum and its products have become
commodity markets. This has allowed speculators to buy and sell petroleum and its
products through futures or swaps markets – without owning physical assets.
Cyclical - Petroleum markets have investment cycles. During periods of over-
investment, the markets approach variable cost recovery. During under-investment
periods, petroleum markets approach full investment economics. These commodity
cycles whipsaw earnings, cash flow, and capital programs, as well as stock prices.
Highly competitive - The physical markets for petroleum are generally transparent
and liquid across the supply chain. Liquidity and transparency reduce the barriers
to entry into the market, which encourages purchasing or selling products at various
points along the supply chain. The ability to enter and exit the supply chain
combined with the use of financial instruments or physical forward markets, dramati-
cally increases business complexity and competitive intensity.
The reality of commodity businesses is forever decreasing margins, as illustrated in
the figure below. We have plotted the difference between gasoline price (without road
tax) and the crude price from 1918 through 1999 in constant 2000 dollars. As I am
sure you suspected, this is a downward trend and we believe that this will not change
in the near term. This is the major driver for our industry.

3. A Vision for the Petroleum Company of the Future
© Copyright 2002 Aspen Technology, Inc. APRIL 2002 3
Figure 1 - Long Term Learning Curve
In response, the industry has implemented initiatives and most of us have direct and
sometimes painful experience with:
> Downsizing or rightsizing
> Rationalizing assets; closing refineries
> The rise of business units focused on optimizing segments of the business such
as trading, manufacturing, supply and distribution, marketing - creating today’s
“silos”
> Outsourcing non-core functions such as IT, T/A staffing, maintenance, etc
> Mergers of majors players. Ten years ago who would have imagined Exxon and
Mobil merging?
> And finally the initiative this paper is exploring - integrating market opportunities
with refinery or enterprise capability.
Long-Term Learning Curve

4. A Vision for the Petroleum Company of the Future
© Copyright 2002 Aspen Technology, Inc. APRIL 2002 4
Integrating Market Opportunities
with Operational Capabilities
Some leading petroleum companies are developing programs and initiatives to take
advantage of the opportunity. Industry leaders are focusing on three areas:
Foundation builders
> Improving planning, scheduling, and rigorous model consistency and fidelity
> Standardizing business process and technology across the enterprise
> Developing infrastructure to integrate back office ERP systems with front and
mid-office hydrocarbon optimization capability.
Step-outs
> Moving to a regional market optimization that integrates multi-refinery and primary
logistics optimization
> Developing ability to optimize across refinery and chemicals (e.g. wedge optimiza-
tion)
Visionary Activities
> Near real-time enterprise scheduling optimization
> Integrating available, capable, profitable to promise (ATP, CPT, PTP ) capability
with scheduling optimization technology
> Creating a digital dashboard with visibility across the enterprise
Most refiners are at least addressing what we are calling ‘foundation builders’. While
the leaders have the foundation in place and are working on the step outs and
visionary activities.
End to End Vision
Petroleum companies will be able to maximize margins across the enterprise by
adopting best and emerging business practices. Decisions to make, buy, sell, or
exchange products can be made with confidence, in less time, and business risks are
reduced and managed through a better understanding of the supply chain.
Our vision incorporates industry best practices that can easily be implemented and
standardized across the enterprise, resulting in significant operational improvements.

5. A Vision for the Petroleum Company of the Future
© Copyright 2002 Aspen Technology, Inc. APRIL 2002 5
With our solutions, a company can develop a marketing strategy, execute the strategy,
and monitor its execution.
AspenTech achieves this vision by a) creating a hub-centric planning and scheduling
model and b) creating a maintainable suite of solutions designed to optimize operat-
ing facilities. The hub-centric model aggregates feedstock requirements, demand,
prices, within production and logistical constraints in order to optimize decisions
across the entire enterprise. Production optimization keeps the plant running opti-
mally (aligned with the optimized supply chain) in real time, resulting in reduced
energy costs, maximum upgrade to light products and increased plant capacity.
Our end-to-end vision focuses on maximizing global margins. In order to achieve
this vision, a number of critical requirements have to be met. These critical elements
include:
> Integrate decisions across the enterprise
> Integrate strategic and tactical decisions
> Integrate decision making and execution on a near real-time basis (command
center)
> Real-time optimization/simulation
> Standardized business processes employing best practices, and
> Supporting enterprise architecture
The following is a discussion of these requirements.
Integrated Decisions
Typical silos exist today in most refining enterprises. For the first time, with support
from modern technologies, companies can now manage and optimize their entire
Integrated Decisions Across the Enterprise
Figure 2 - Integrated Decisions Across the Enterprise
®

6. A Vision for the Petroleum Company of the Future
© Copyright 2002 Aspen Technology, Inc. APRIL 2002 6
enterprise. Our vision would provide visibility, collaboration, and interoperable appli-
cations within and between these business functions, such that decisions can be
made, on a consistent basis, across the entire enterprise, as illustrated in Figure 2.
Integrated Strategic / Tactical Decisions
How well a company manages to integrate strategic and tactical decisions forms the
basis for most of its strategic advantage in manufacturing. This is not easy as these
business processes are on vastly different time frames. The order fulfillment process
may go into the future about six months to account for turnaround planning, but
is focused more on the next one to two weeks. However, the strategic decisions,
going out to five or ten years, will set the constraints on the order fulfillment process.
Figure 3 illustrates the complexity of integrating tactical and strategic activities.
There are many interconnections between these two business processes where
companies can differentiate themselves. As an example, within the order fulfillment
business processes there are many market entry and exit opportunities and the
capability to exercise these opportunities is determined by past decisions made within
the asset optimization set of business processes concerning both refinery capabilities
and marketing strategies.
Figure 3 - Integrated Strategic and Tactical Decision Making
Integrated Strategic and Tactical Decision Making

7. A Vision for the Petroleum Company of the Future
© Copyright 2002 Aspen Technology, Inc. APRIL 2002 7
Near Real Time Decisions
In order to fully execute the order fulfillment business processes, the following
capabilities are required:
> Real time decision support system
> Monitor every stage of the supply chain process - from sourcing to product delivery
> Operate cross-enterprise, cross-function and cross-application (including ERP,
business information warehouses and order management)
> Event driven system that identifies anomalies in the supply chain and recom-
mends action
> Provide executive information to track and display key performance indicators
(KPI) across the value chain.
One view of a supply chain event management system (SCEM) is illustrated in Figure 4.
According to AMR, these systems must be able to:
> Monitor events across the entire enterprise
> Notify present stakeholders based on event type and triggers
> Simulate current operations and future results
> Control supply chain decisions and subsequent events
> Measure actual results against key performance indicators (KPI).
Figure 4 - Command Center

8. A Vision for the Petroleum Company of the Future
© Copyright 2002 Aspen Technology, Inc. APRIL 2002 8
Below shows how each actor in the supply chain will have a configured view of the
SCEM to meet their needs while sharing common information with the large group of
individuals required to manage the enterprise supply chain (Figure 5). This provides
the platform for collaborative business process, which creates the needed supply
chain agility.
Another attribute of the SCEM is to be able to alert the proper set of decision makers
to respond to unanticipated market, operational, or logistical changes that impact the
profitability of the overall supply chain (see Figure 6). Sometimes that requires action
to be taken in only few hours.
Figure 5 - SCEM Improves Supply Chain Agility
Figure 6 - SCEM Alerts Decision Makers
SCEM Improves Supply Chain Agility
SCEM Alerts Decision Makers

9. A Vision for the Petroleum Company of the Future
© Copyright 2002 Aspen Technology, Inc. APRIL 2002 9
Planning and Scheduling Optimization Architecture
One of the most difficult problems, to allow near real-time supply chain optimization,
requires the integration of planning and scheduling tools to solve both the economic
optimization and feasible path constraints. We believe the following are required to
solve these problems:
1. Use the right model representation for the problem that is consistent across
planning, scheduling, and process engineering tools, and
2. Use the right optimizer for the right problem.
Standardized Business Processes
Below shows one set of possible standardized business processes to integrate market
opportunities with operational capabilities. This vision has a concept of centralized
supply chain planning that sets the economic goals and targets for the rest of the
supply chain communicated by way of a nomination bus.
Market
Call
Price
Forecasts
Demand
Forecasts
Inventory
Management
Plan
Hub
Manange
Nomination
Exchanges
Sales
Orders
Schedule
Orders
Schedule
Hub
Financial
Forecast
Purchase
Orders
Packing
Order
Rank
Feedstock
Scenarios
Suppliers
Negotiate
Purchase
Purchase
Feedstock
Evaluate
Delivery
Options
Arrange
Delivery
Market
Offers
Evaluate
Feedstock
Deliver
Feedstock
Process
Feedstock
Measure
Feedstock
Margin
Sell
Feedstock
Schedule
Refinery
Generate
Orders
Execute
Orders
Monitor
Execution
Scorecard Yield
Accounting
Process
Data
Simulation
Model
Capacity
Notes
Model
Accuracy
Offer
Inquiry
Marketing
Strategy
Customer
Grading
XTP
CRM
ERP
Delivery
Status
Claims
Status
Product
Trading
Sourcing
Replenish
Inventory
Demand
Forecast
Arrange
Transport
Administer
Contacts
Monitor
Delivery
Current Developing Acquiring
Nominations Bus
Supply Chain Planning
Feedstock
Sourcing
Demand
Optimization
Production Optimization
Figure 7 - Standardized Business Processes
Standardized Business Processes

10. A Vision for the Petroleum Company of the Future
© Copyright 2002 Aspen Technology, Inc. APRIL 2002 10
Supporting Enterprise Architecture
The overall vision showing the major business processes that are enabled by an
enterprise architecture as shown in Figure 8. This architecture is supported by
middleware such as MQSeries™, Vitria™, TIBCO™ that has adapters to communicate
with all of the major applications such as ERP, CRM, production management, asset
management, etc. via a common domain model and then viewed from the Command
Center.
The Prize
Based on a 2000 study by Deutsche Bank (Figure 9), over the next three years the
process industries will need to reduce their operating costs by over 11% to remain
profitable. As history indicates, nearly half of this competitive gain will be lost to
market competition. This includes reducing the cost of goods sold by 12.8%. We
believe that most of this reduction will be a direct result of the implementation of the
vision we have put forward by the market leaders.
Figure 8 - Supporting Enterprise Architecture
Supporting Enterprise Architecture

11. A Vision for the Petroleum Company of the Future
© Copyright 2002 Aspen Technology, Inc. APRIL 2002 11
If one applies these assumptions to a major oil company, this would mean a $9
billion annual opportunity improvement if they were a leader in implementing these
solutions of which 2/3’s of the benefits are within the downstream refining business.
We also used two other estimation methods that appear to validate the size of this
opportunity (see Figure 10).
This means that the first visionary companies to successfully implement these solu-
tions and business processes across their enterprises will reap the benefits while the
laggards will continue to see only profit erosion.
Estimated Margin Improvement Over the Next Three Years
Source: Deutsche Bank Study 2000 for Process Industries
Assumptions Leader
Old Model New World Change
(% of Net Sales Revenues) Cost Cost %
Cost of Goods Sold 70.0 61.0 -12.9%
General and Admin 3.0 2.1 -30.0%
Sales, Marketing and Tech. Services 9.0 7.5 -16.7%
Cost of eBusiness Implementation 0.0 1.2
Reseach and Development 4.0 4.2 5.0%
Inventory Holding Cost 1.0 0.8 -20.0%
Operating Cost 87.0 76.8 -11.7%
Netback Price 100.0 90.0 -10.0%
Adjusted EBIT 13.0 13.2 1.5%
Operating Margin 13.0% 14.7% 12.8%
Benefits Summary
Benefits of Enterprise Optimization
$MM Annually
Aspen SCD Deutsche Bank Leader Attributes
Estimate Method Method
Upstream Business 1,922 1,391 1,710
Downstream Business 6,537 6,848 6,061
Chemicals Business 970 735 1,460
Total Corporation 9,429 8,974 9,231
Figure 10 - Benefits Summary
Figure 9 - Estimated Margin Improvement Over the Next Three Years

12. A Vision for the Petroleum Company of the Future
© Copyright 2002 Aspen Technology, Inc. APRIL 2002 12
Summary
In Summary:
> A major trend in our industry is the integration of commercial excellence with
operational excellence that is being led by the oil majors
> The tools required to facilitate these new business processes to meet this vision
are within our reach today
> Those that are successful in achieving this vision ahead of others will reap
significant rewards.
About AspenTech
Aspen Technology, Inc. is a leading supplier of integrated software and
solutions to the process industries. The company's Aspen ProfitAdvantage™
solution enables companies to identify and maximize profit opportunities
throughout their entire value chain—from the supply of raw materials, through
the production of goods, to the delivery of final products to customers. The
Aspen ProfitAdvantage solution encompasses engineering, manufacturing,
supply chain and e-Business collaboration technologies, providing the tools
that enable manufacturers to design, optimize and execute business
processes in real time. Over 1,200 leading process companies already rely on
AspenTech's 21 years of process industry experience to increase revenues,
reduce costs and improve capital efficiency. AspenTech's customers include:
Air Liquide, AstraZeneca, Bayer, BASF, BP, Chevron, Dow Chemical, DuPont,
ExxonMobil, GlaxoSmithKline, Lyondell Equistar, Merck, Mitsubishi Chemical
and Unilever. For more information, visit http://www.aspentech.com