This document provides an overview of the oil and gas industry structure in North America. It discusses the industry components of upstream, midstream, and downstream operations. In the US, it notes that imports have been increasing by 3% annually on average and come primarily from the Persian Gulf, Mexico, Canada, and Venezuela. In Canada, it states that oil sands account for approximately 30% of oil production and exports to the US average 1.5 million barrels per day. The document also discusses major risks to the industry such as commodity price fluctuations, environmental regulations, and accidents.

1. Oil and Gas IndustryOil and Gas Industry
Michael BowenMichael Bowen

2. OutlineOutline
 IntroductionIntroduction
– Industry overviewIndustry overview
– Risk analysisRisk analysis
 SuncorSuncor
– Corporate ProfileCorporate Profile
– Risk ManagementRisk Management
 American Oil SandsAmerican Oil Sands
– Corporate ProfileCorporate Profile
– Risk ManagementRisk Management

3. Oil and GasOil and Gas
Industry StructureIndustry Structure
 The oil and gas industry is a branch of the Energy IndustryThe oil and gas industry is a branch of the Energy Industry
 Oil and Gas Industry components:Oil and Gas Industry components:
– Upstream operations (Exploration)Upstream operations (Exploration)
– Midstream operations (Refining)Midstream operations (Refining)
– Downstream operations (Distribution and sales)Downstream operations (Distribution and sales)
 The industry is pro-cyclical (it is positively correlated withThe industry is pro-cyclical (it is positively correlated with
the business cycle)the business cycle)
– Pro-cyclical demandPro-cyclical demand
– There have been negative supply shocks (1970’s OPEC andThere have been negative supply shocks (1970’s OPEC and
current OPEC quotas)current OPEC quotas)
 Barriers to entry due to high capital requirementsBarriers to entry due to high capital requirements

4. Oil Industry StructureOil Industry Structure
 Global Industry:Global Industry:
 Top 10 Oil Producers and ConsumersTop 10 Oil Producers and Consumers

5. Oil Industry StructureOil Industry Structure
 Global Industry:Global Industry:
 Largest Oil Companies by production (Oil and Gas Journal, 1999)Largest Oil Companies by production (Oil and Gas Journal, 1999)
– State-owned companies are marked with a starState-owned companies are marked with a star **

6. Oil Industry StructureOil Industry Structure
 Global Industry:Global Industry:
– Technically RecoverableTechnically Recoverable
Reserves:Reserves: the amount of oilthe amount of oil
that experts are certain ofthat experts are certain of
being able to extract withoutbeing able to extract without
regard to cost from Earthregard to cost from Earth
– Only a small fraction of theOnly a small fraction of the
World’s TechnicallyWorld’s Technically
Recoverable Reserves can beRecoverable Reserves can be
extracted at current prices.extracted at current prices.
– Of the known oil reserves thatOf the known oil reserves that
can be profitably extracted atcan be profitably extracted at
current prices, more than halfcurrent prices, more than half
are in the Middle East; only aare in the Middle East; only a
small fraction are in Northsmall fraction are in North
America.America.
World's Technically Recoverable Reserves
(billions of barrels)
7%
93%
North America
Rest of the w orld

7. Oil Industry StructureOil Industry Structure
 Global Industry:Global Industry:
– World Oil Demand isWorld Oil Demand is
projected to grow byprojected to grow by
over 2 percent in 2004over 2 percent in 2004
and 2005.and 2005.
– On the supply side, oilOn the supply side, oil
inventories have beeninventories have been
low for the last yearlow for the last year
and are expected toand are expected to
remain the same forremain the same for
2004 and 20052004 and 2005

8. Oil Industry StructureOil Industry Structure
(North America)(North America)
 US: General aspectsUS: General aspects
– The United States isThe United States is
the world'sthe world's largestlargest
energy producerenergy producer,,
consumer, and netconsumer, and net
importer. It also ranksimporter. It also ranks
twelfth worldwide intwelfth worldwide in
reserves of oilreserves of oil
– During 2002, theDuring 2002, the
United StatesUnited States
produced around 8.1produced around 8.1
million barrels per daymillion barrels per day
Energy Information Administration:
http://www.eia.doe.gov

9. Oil Industry StructureOil Industry Structure
(North America)(North America)
 US: ImportsUS: Imports
– US oil demand hasUS oil demand has
been increasing by 3%been increasing by 3%
on averageon average
– Imports from:Imports from:
 Persian GulfPersian Gulf
 MexicoMexico
 CanadaCanada
 VenezuelaVenezuela
Energy Information Administration:
http://www.eia.doe.gov

10. Oil Industry StructureOil Industry Structure
(North America)(North America)
 US: Sector OrganizationUS: Sector Organization
– Merger activity in the oilMerger activity in the oil
business acceleratedbusiness accelerated
sharply during 2000 andsharply during 2000 and
2001 (before slowing2001 (before slowing
considerably in 2002 andconsiderably in 2002 and
early 2003).early 2003).
– The largestThe largest
merger/acquisitionmerger/acquisition
announcements came fromannouncements came from
BP and Amoco, Exxon andBP and Amoco, Exxon and
Mobil, BP Amoco andMobil, BP Amoco and
ARCO, and, most recently,ARCO, and, most recently,
Chevron and TexacoChevron and Texaco

11. Oil Industry StructureOil Industry Structure
(North America)(North America)
 US: ProductionUS: Production
– Top producing areas as of 2002:Top producing areas as of 2002:
 Gulf of Mexico (1.6 million bbl/d)Gulf of Mexico (1.6 million bbl/d)
 Texas onshore (1.1 million bbl/d)Texas onshore (1.1 million bbl/d)
 Alaska's North Slope (954,000 bbl/d)Alaska's North Slope (954,000 bbl/d)
 California (707,000 bbl/d)California (707,000 bbl/d)
 Louisiana onshore (274,000 bbl/d)Louisiana onshore (274,000 bbl/d)
 Oklahoma (181,000 bbl/d)Oklahoma (181,000 bbl/d)
 Wyoming (150,000 bbl/d).Wyoming (150,000 bbl/d).

12. Oil Industry StructureOil Industry Structure
(North America)(North America)
 Canada: General aspects:Canada: General aspects:
– Canada was the fifth-largestCanada was the fifth-largest energy producerenergy producer in the world in 2001:in the world in 2001:
 39% natural gas39% natural gas
 25% oil25% oil
 20% hydropower20% hydropower
 11% coal11% coal
 5% nuclear power5% nuclear power
– 3rd largest producer of natural gas3rd largest producer of natural gas
– 9th largest producer of crude oil9th largest producer of crude oil
 Oil sands account for approximately 30% of Canada’s total oilOil sands account for approximately 30% of Canada’s total oil
productionproduction
– According toAccording to Oil & Gas JournalOil & Gas Journal, Canada's total crude oil reserves, Canada's total crude oil reserves
stood at 180 billion barrels as of January 2003stood at 180 billion barrels as of January 2003
– Annual Production Average: 2.9MM bbl/dAnnual Production Average: 2.9MM bbl/d
– Annual Consumption Average 2.0MM bbl/dAnnual Consumption Average 2.0MM bbl/d
– Exports 2002:1.5MM bbl/d crude (to US)Exports 2002:1.5MM bbl/d crude (to US)

13. Oil Industry StructureOil Industry Structure
(North America)(North America)
 Canada: General aspects:Canada: General aspects:
Energy Information Administration:
http://www.eia.doe.gov

14. Oil Industry StructureOil Industry Structure
(North America)(North America)
 Canada: ExportsCanada: Exports
– Canada is a major source ofCanada is a major source of
U.S. oil imports. In 2002, theU.S. oil imports. In 2002, the
United States imported 1.97United States imported 1.97
million bbl/d of oil frommillion bbl/d of oil from
Canada.Canada.
– This makes Canada the topThis makes Canada the top
petroleum supplier to thepetroleum supplier to the
United States and the third-United States and the third-
largest supplier of crude oillargest supplier of crude oil
imports (behind Saudi Arabiaimports (behind Saudi Arabia
and Mexico, and ahead ofand Mexico, and ahead of
Venezuela).Venezuela).
– Canada has been the topCanada has been the top
supplier to the United Statessupplier to the United States
of refined petroleum products,of refined petroleum products,
including gasoline, jet fuel,including gasoline, jet fuel,
distillate, etc., since 1996.distillate, etc., since 1996. Energy Information Administration:
http://www.eia.doe.gov

15. Oil Industry StructureOil Industry Structure
(North America)(North America)
 Canada: ExportsCanada: Exports
CAPP: www.capp.ca

16. Oil Industry StructureOil Industry Structure
(North America)(North America)
 Canada: Sector OrganizationCanada: Sector Organization
– Significant mergers and acquisitions in recent years.Significant mergers and acquisitions in recent years.
– In 2001, U.S. firms purchased over $35 billion inIn 2001, U.S. firms purchased over $35 billion in
Canadian oil and gas assetsCanadian oil and gas assets including the purchase ofincluding the purchase of
Gulf Canada.Gulf Canada.
– EnCana Corp.EnCana Corp. was the result of the merger betweenwas the result of the merger between
the 2 largest Canadian oil companies. It is nowthe 2 largest Canadian oil companies. It is now thethe
world's largest independent oil and natural gasworld's largest independent oil and natural gas
producer (by market value).producer (by market value).

17. Oil Industry StructureOil Industry Structure
(North America)(North America)
 Canada: Sector OrganizationCanada: Sector Organization
CAPP: www.capp.ca

18. Oil Industry StructureOil Industry Structure
(North America)(North America)
 Canada: Exploration andCanada: Exploration and
ProductionProduction
– The industry is based primarilyThe industry is based primarily
inin AlbertaAlberta
 TheThe Athabasca Oil SandsAthabasca Oil Sands
depositdeposit, in northern Alberta, is, in northern Alberta, is
one of the two largest oil sandsone of the two largest oil sands
deposits in the worlddeposits in the world (Oil(Oil
Sands)Sands)
– Atlantic CoastAtlantic Coast: Mainly in: Mainly in
NewfoundlandNewfoundland
– Pacific Coast:Pacific Coast: TThe Britishhe British
Columbia government isColumbia government is
pushing to lift a 30-year-old banpushing to lift a 30-year-old ban
on exploration in the Pacificon exploration in the Pacific
Ocean in order to beginOcean in order to begin
production by 2010production by 2010..

19. Oil Industry StructureOil Industry Structure
(North America)(North America)
 Canada: Main ProducersCanada: Main Producers
– EnCanaEnCana
– SyncrudeSyncrude (a joint venture of eight companies with Canadian Oil(a joint venture of eight companies with Canadian Oil
Sands Investments Inc. having the largest stake) is Canada'sSands Investments Inc. having the largest stake) is Canada's
largest producer of crude from oil sandslargest producer of crude from oil sands..
– SuncorSuncor,, the first company to begin processing Alberta oil sandsthe first company to begin processing Alberta oil sands
in 1967, completed in 2001 its Project Millennium, which increasedin 1967, completed in 2001 its Project Millennium, which increased
production capacity to 225,000 bbl/dproduction capacity to 225,000 bbl/d
– Shell Canada LimitedShell Canada Limited
– Chevron Canada LimitedChevron Canada Limited (a wholly owned subsidiary of(a wholly owned subsidiary of
ChevronTexaco Corp.)ChevronTexaco Corp.)
– Western Oil Sands IncWestern Oil Sands Inc
– Canadian Oil SandsCanadian Oil Sands

20. Oil and Gas Industry StructureOil and Gas Industry Structure
(North America)(North America)
 Canada: Natural GasCanada: Natural Gas
– Canada is the thirdCanada is the third
largest natural gaslargest natural gas
producer (after theproducer (after the
United States andUnited States and
Russia)Russia)
– Second largest naturalSecond largest natural
gas exporter (aftergas exporter (after
Russia)Russia).. Energy Information Administration:
http://www.eia.doe.gov

21. ProductsProducts
 Products BeingProducts Being
Produced:Produced:
– Oil:Oil:
 GasolineGasoline
 KeroseneKerosene
 Jet FuelJet Fuel
 LubricantsLubricants
– Natural GasNatural Gas
 Major SubstitutesMajor Substitutes
 Nuclear PowerNuclear Power
 HydrogenHydrogen
 HydropowerHydropower
 CoalCoal
 MethaneMethane
 Solar energySolar energy
Galons obtained from the destilation of a 42gal. barrel
11
5.3
20.4
5.3
0 0
21
2
9
3 3
4
0
5
10
15
20
25
Gasoline Kerosene gas oil and
distillates
heavier
destillates
Jet Fuel Lubricants
Product
Galons
1920
Now

22. RegulationsRegulations
 Global:Global:
– The United States maintains energy sanctionsThe United States maintains energy sanctions
against several countries, including Iran andagainst several countries, including Iran and
LibyaLibya
– OPEC regulate its members oil productionOPEC regulate its members oil production

23. RegulationsRegulations
 Canada:Canada:
– Government:Government:
 Efficiency and market regulations (National EnergyEfficiency and market regulations (National Energy
Board and Office of Energy Efficiency of NaturalBoard and Office of Energy Efficiency of Natural
Resources Canada)Resources Canada)
 Environmental Regulations (Environment Canada)Environmental Regulations (Environment Canada)
 Property Regulations (Provincial Government andProperty Regulations (Provincial Government and
Federal Government)Federal Government)
– Self-regulation:Self-regulation:
 Canadian Association of Petroleum ProducersCanadian Association of Petroleum Producers
(CAPP)(CAPP)

24. Major RisksMajor Risks
 General Business riskGeneral Business risk ((production and sales uncertaintyproduction and sales uncertainty))
 Financial and commodity market risk:Financial and commodity market risk: (interest rate risk,(interest rate risk, FX riskFX risk andand
in the form of volatile oil and natural gasin the form of volatile oil and natural gas pricesprices))
 ExcessiveExcessive Cash Flow fluctuationsCash Flow fluctuations
 Credit risk and liquidity risk:Credit risk and liquidity risk: (Counterparty failures (airlines, etc.))(Counterparty failures (airlines, etc.))
 Operational Risk:Operational Risk: ((PricingPricing))
 Legal risk:Legal risk: (contract enforcement, i.e. OPEC)(contract enforcement, i.e. OPEC)
 Environmental RegulationsEnvironmental Regulations: Kyoto Protocol and growing: Kyoto Protocol and growing
environmental concerns (environmental concerns (Canada ratified the Protocol in DecemberCanada ratified the Protocol in December
2002)2002)
 Other:Other:
– Accidents:Accidents: Plant, equipment and frontline employeesPlant, equipment and frontline employees
– Lack of diversificationLack of diversification (assets and current and future investments)(assets and current and future investments)
– Exploration and DevelopmentExploration and Development

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