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Managing Oil and Gas Value Chain (MOGVC) Assignment

MODULE- 5

ASSIGNMENT: Explain the value chain of your business. You need to include your buyers and suppliers in your value chain explanation. Identify key business processes of your each element of business chain. What are the issues related to optimization of business processes? How can we optimize these processes?

SUBMITTED TO: PROF. SUDHIR YADAV, IPMG Date of Submission: 23rd September 2010

Submitted by:

DEBABRATA PANDA Roll No. 2009 3003, MODULE-5, BATCH: 2009 -11 dpanda@gspc.in deba.panda@gmail.com
Phone: (91) 79 66701103 Mobile: (91) 9879506075

You need to include your buyers and suppliers in your value chain explanation. Identify key business processes of your each element of business chain. out of which 11 are overseas Blocks located in Egypt (5). with the sole objective of value creation to its assets and stake holders.ASSIGNMENT: Explain the value chain of your business. The below slide depicts the diversified business sectors that GSPC and its group companies are pursuing the business. oil and gas companies create myriad business opportunities for other firms in ancillary services which are often overlooked. In generating huge surpluses from their core activity. Within a span of 15 years. GSPC is relatively new player in the E&P sector which started its E&P operation in 1995 with Hazira field. it has grown its portfolio of both exploration & Production assets which currently are 62 Blocks. which is mainly engaged in the Exploration & Production activities both in India and abroad. While profitability of the individual segments of the industry varies substantially and periodically. Yemen (3) . there exists the vast potential for attractive returns commensurate with risks and resource availability throughout the energy value chain and that is one of the drivers for GSPC to diversify across the hydrocarbon value chain. Managing KG – An increasing stretch The need for a focused international expansion Managing finances Upstream GSPC E&P Trading Expanding outside Gujarat Focusing on the right segments Improving internal processes GSEG sourcing – An integrated view Downstream GSPL Transportatio n Marketing GSPC Gas Distribution GSEG Power GIPL Bandwid th Consulti ng Managing Human Resources – An increasing challenge Other corporate issues – The need for delegation The profits of integrated oil and gas companies are derived from their participation in the entire value chain – from source to final consumer. . What are the issues related to optimization of business processes? How can we optimize these processes? I am working in Gujarat State Petroleum Corporation Limited (GSPC). Australia (2) and Indonesia (1).

The value chain is depicted pictorially to give an overall understanding. The upstream value chain that includes Exploration and production is the most important activity which provides the momentum and growth in the other segments of the value chain. KEY BUSINESS PROCESS (shown in red circle below): . The Upstream chain is provided below.

These include geophysical activities. but it generates the highest returns when successful. Value creation in the E&P industry of the future will focus on the knowledge-intensive activities of finding and managing oil and gas reserves and their associated risks. including t he Upstream (extraction and production of oil and gas). The business is dominated by large vertically integrated companies or firms with substantial risk capital. technological development/ Technology transfer and infrastructure development also flow from an energy value chain. Optimization of these activities is essential. The E&P business is reputed to be the most risk prone economically and physically. The more developed the value chain. The most visible activity in the oil and gas value chain is exploration and production (E&P) or upstream phase. this value chain is the constellation of activities that surrounds the production of hydrocarbons. process chemicals. technology can be applied strategically. Opportunities for profitable business exist along the entire value chain. When business drivers alter the way upstream petroleum companies compete. including those activities that are ancillary to the core production processes. employment. which provide the company with multiple revenue streams. condensate and natural gas liquids. drilling and associated services. auxiliary industries (financial. Significant Marco–economic benefits i n t he form of additional income. Petroleum producing wells may yield a variety of commercial streams including oil. applicable to the hydrocarbon sector. To date. Representative technologies that span the entire E&P upstream value chain are complex data mining and portfolio management. in support of core business objectives. Web-based initiatives in E&P have focused primarily on reducing transaction costs through e-procurement systems. etc. illustrates a simple value chain. optimization. Our technology can add value at any point in the chain. decision makers focus on key activities in the Value Chain. gas processing and the production of downstream petrochemicals). A new E&P business model must include ways of shedding assets and gaining more value from knowledge and intellectual capital. downstream processing (oil refining. the current industry model masks longer-term advantages that are being created by more innovative companies. the greatest opportunities occur in the middle. and asset performance prediction. natural gas. Here. However. sub sea engineering construction of platform.). While these . Technologies of particular value in the center include operational modeling and simulation. Both local and foreign firms are actively involved in the provision of services which absorbs up to 80% of total E&P expenditure. at the center of upstream production operations where competitive advantage can be gained. By emphasizing short-term cash flow from existing assets. as well as across the entire chain. transportation (pipelines) and associated service industries as depicted above. the greater the benefits that accrue to both individual firms and the economy.A value chain can be defined as a sequence of consecutive production activities. engineering and design. supply and maintenance of machinery and equipment. E&P investments also create a market for petroleum services estimated at US$ 160 billion annually. In the case of the hydrocarbon sector.

Virtual value chains scale much faster and are more costcompetitive than vertically integrated ones. they will have far more impact on short-term P&Ls than on long-term competitive advantages. the “total pie” is much larger than if only one or two vendors dominated the market. But the idea of sharing the value chain by virtually integrating with best-of-breed third parties has never been widely embraced. which have created a competitive advantage. therefore. like so many other industry initiatives. product can also be delivered as a service. I want to buy a bunch of one-inch holes. Virtual integration goes way beyond traditional outsourcing. the chasm between the service sector and oil companies had widened under endless price pressures and cost-cutting initiatives. must extend far beyond the corporation’s firewall. outsourcing certain operations is how the oilfield service industry was born. Virtual partners and remote service providers must become an integral part of an E&P organization’s value proposition. If anything.e. including its information technology.certainly have a role to play in our industry. It is also to be noted on the aspects of Marketing Myopia by Theodore Levitt. How does virtual integration apply to the oil and gas business? The E&P industry has a history of partnering and outsourcing. In fact. But virtual trumps vertical only in the . which is the pivotal activity: • • • • • • • • • • • Capital Program Optimization Asset Earnings & Risk Modeling Lifecycle Management of Assets Field Development Optimization Enhanced Recovery Optimization Workover Resource Management Real-Time Data Surveillance Drilling Program Optimization Supply Chain Efficiency Fleet Management & Logistics Organizational Design & Effectiveness Value creation throughout a virtually integrated system is such that. to be sure. not the product. higher is the requirement of services by E&P companies. even though all the participants share the profits. “All products have benefits.demand relationships of oilfield services are based on crude price volatility. Major oil companies used to purchase drilling “products” – ships.” To an industry that drills a lot of holes. They must be economically aligned and effectively integrated with the company’s internal systems. The “virtual IT” system of the future. i. that you want to buy. but it is the benefits. higher the crude price. rigs and bits. this analogy rings particularly true. Now they contract drilling services. The Porter’s 5 principles of strategy are partially applicable as the supply. The optimization of the various business process as shown in the above schematic (red circle) in the value chain can be carried out under the following major activities in the upstream value chain. I don’t want to own a one-inch drill.

It is to be appreciated that some of the major discoveries in the US have been made by virtually integrated systems wherein the university students were part of it and they had contributed to these discoveries. Global trade in LNG is projected to increase six fold between 2003 and 2030.presence of effective and responsive communications. That’s why the Internet will be the the backbone of the open architecture value chain. calling for massive investments in liquefaction. with most companies in the LNG business holding equity in all stages of the value chain. LNG is a highly integrated business. re-gasification and tanker capacity. which gives them the flexibility to harvest benefits optimally. Opportunity beckons across the energy value chain: where are the entrepreneurs? Submitted by: Debabrata Panda . Hence. future of the highly risky Upstream business will rely on value creation through a virtually integrated system. The highly interlinked nature of the energy value chain and the continuing importance of energy in economic life create abundant opportunity for firms to participate directly and indirectly in the industry.

Roll No. 2009 3003 .