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Technological Education Institute (T.E.

I) of EMaTh, Department of Oil


and Gas Technology, MSc in Oil and Gas Technology

Case Study: Chevron


Strategic
Management
Analysis
Stelios Veisakis, Athanasios Pitatzis, Evangelia Margoni,
Aikaterini Souvatzoglou, Nikolaos D. Ntintas

Course Leader: Georgios Theriou


Course: Strategic Management
Kavala 2014

Introduction

Source: Chevron Annual Report 2013

Chevron is one of the first O&G Companies it was establishes in San Francisco, California,
and named Pacific Coast Oil Company, they were incorporated by a group of explorers and
merchants in 1879. Since, their brand name has changed seventeen times. In 1900 they were
acquired by the West Coast operations, John D. Rockefellers original Standard Oil
Company. Eleven year later, U.S. Supreme Court the decided to divide Standard Oil in thirty
four autonomous entities. In 1926 Pacific Oil Company was acquired to become Socal
Standard Oil Company of California. From that time on, a chain reaction of mergers,

acquisitions and joint ventures began. The majority of thoughts led the company to fully
integrate in the Oil & Gas Industry. They eventually vertically integrated in the Upstream,
Downstream, but also the Midstream sector. In 1936 Texas Company and Socal Company
formed Caltex Group of Companies to explore and produce in Middle East and Indonesia, the
crude oil produced was introduced in the African and Asian markets via future Texacos
marketing networks. Acquiring Sigma Oil Company they dominated midstream sector in
Western U.S. adding 2,000 retail stations. Until 1961 the company was a major producer in
the U.S. Gulf of Mexico and Louisiana, due to the fact, they needed new markets for the
crude oil produced. Therefore a major acquisition of Standard Oil Company (Kentucky) took
place and they entered five major markets in the southeastern states to distribute petroleum
products. About twenty year later from 1984 until today, major mergers, acquisitions and
joint ventures took place in an average of four years. Acquiring Gulf Corporation they
involved with activities concerning industrial chemicals, natural gas and coal. Their new
products were branded as Chevron. Further purchasing Petroleum properties in the Gulf of
Mexico U.S. from Tenneco Inc.s, made them the largest Natural Gas producers U.S. In 1993
they are the first entering independent Kazakhstan, forming Tengizchevroil in joint venture
with the Republic of Kazakhstan in order to exploit the major Tengiz Field. Six years later
they entered the Asian Natural Gas markets by acquiring Rutherford-Moran Oil Corporation.
Until 2005 they relocated the cooperate headquarters to San Ramon California. They were
established as second largest energy company, based in the U.S. after merging with Texaco
Inc. and acquired Unocal Corporation an independent strong upstream O&G, E&P Company.
Initially the brand name change to Chevron Texaco but then to ensure international brand
name integrity they switched and are known until today as Chevron Corporation. The last
acquisition in 2011 was Atlas Energy Inc, focusing in the future by investing to develop and
produce shale gas resource primary Marcellus shale gas development. In our days Chevron
has also a partnering with Weyerhaeuser, the forest products company, on developing
technology to commercialize biofuels from wood fiber and other waste prod

Vision of Chevron
At the heart of The Chevron Way is our visionto be the global energy company most
admired for its people, partnership and performance.
Our Suggestion: At the heart of The Chevron Way is our vision.to expand the
technological capabilities and knowledge through innovation of oil and gas industry

worldwide and we imagine our company impact could be beneficially for global society and
local communities.
Mission of Chevron:
Our companys foundation is built on our values, which distinguish us and guide our actions.
We conduct our business in a socially responsible and ethical manner. We respect the law,
support universal human rights, protect the environment and benefit the communities where
we work.
Our Suggestion: Its general accepted by oil and gas industry and proven by chevrons
history that they had a satisfy tool faced the challenges.
Generally, we believe that chevron mission includes all the aspects of a company mission
statement.
Strategies:
Our major business strategies will develop leading integrated positions in growth areas of
the world:
Global Upstream
Grow profitably in core areas and build new legacy positions
Global Gas
Commercialize our equity gas resource base while growing a high-impact global gas
business
Global Downstream
Improve base business returns and selectively grow with a focus on integrated value creation
Renewable Energy
Invest in renewable energy technologies and capture profitable positions in important
renewable sources of energy.
Objectives:

Invest in people to achieve our strategies


Leverage technology to deliver superior performance and growth
Build organizational capability (4+1) to deliver world-class performance in
operational excellence, cost reduction, capital stewardship and profitable growth[1]

Oil Sands
OIL SANDS
Oil sands are a natural mixture of sand, water, clay, and bitumen.
BITUMEN
Bitumen is heavy, high viscous crude oil. Oil sands could be found 70 meters (200 ft) from
the surface but the majority is deeper underground. At the temperature of 10C bitumen have
reached to solid phase. To extract when the depth exceeds 70 m the underground should be
heated and additional upgrading should be applied.
LOCATION
Near Fort McMurray the Oil Sands are at the surface and easy to retrieve. Al other deposits in
Athabasca, Peace River and Cold Lake deposits in Alberta and Saskatchewan, are deeper
underground.

Source: Upstream Dialogue The facts on oil Sands, CANADAS OIL SANDS PRODUCERS, OILSANDSTODAY.CA

Environmental Impact of the Oil Sands

GHG EMISSIONS AIR

The most harmful GHG emissions are CO2, CH4, N2O, which are responsible for climate
changes and F-Gases that are responsible for high global warning. All thoughts gasses among
others are emitted into the air by burning fossil fuels for electricity generation, industrial uses,
and
transportation
also
for
heat
in
our
case
underground
heating.

Source: http://oilsandsfactcheck.org/learn/environment-health/

Water supply and waste water disposal are among the most serious concerns because of
heavy use of water to extract bitumen from the sands. For an oil sands mining operation, as
stated by M Humphries - 2008 [21] about 2-3 barrels of water are used from the Athabasca
river for each barrel of bitumen produced; but when recycled produced water is included, 0.5
barrels of make-up water is required, according to the Alberta Department of Energy. The
freshwater used for in-situ operations is needed to generate steam, separate bitumen from the
sand, hydro transport the bitumen slurry, and upgrade the bitumen to a light crude. For SAGD
operations. To minimize the use of new freshwater supplies, SAGD operators use saline

water from deeper underground aquifers. Serious disposal problems have occurred due to the
large amount of solid waste that is produced by using saline water.[2]
Wastewater tailings (a bitumen, sand, silt, and fine clay particles slurry) also known as fluid
fine tailings are disposed in large ponds until the residue is used to fill mined-out pits. From
the disposal ponds can result erosion, breaching, and foundation creep.[2]
Another major issue is the rehabilitation of the natural environment by the Oil Sand Industry
after exploitation is completed to avoid Surface disturbance.

Chevron in Canada- Oil sand industry position of the company


Western Canada
Athabasca Oil Sands Project (AOSP) The Company holds a 20 percent non operated working
interest in the AOSP near Fort Mc-Murray, Alberta. Oil sands are mined from both the
Muskeg River and the Jack-pine mines. After extracting the bitumen from the Oil Sands, they
are transported via pipeline Near Edmonton, Alberta. There they are upgraded to synthetic oil
by the use of hydro processing. In 2013, average total daily production increased to 236,000
barrels (43,000 net) of synthetic oil. During 2013, there was progress in the constructions
work concerning the Quest Project, a carbon capture and sequestration project that is
designed to capture and store more than 1 million tons of carbon dioxide produced annually
by bitumen processing at the AOSP. By 2015. May 2014, by Chevron. [22]

Source: Chevron Supplement Report 2013

The Athabasca Oil Sands that was completed in 2003 is the latest fully integrated Project, that
was developed in 25 years. In our days it supplies over 10% of Canada's needs in Oil. The
project consists of two main components:

The Muskeg River Mine, located 75km north of Fort Mc Murray in Alberta.

The Scot-ford Up-grader, next to Shell's Scot-ford Refinery north of Fort


Saskatchewan in Alberta
The development of Athabasca is a joint venture between Shell Canada Limited (60%),
Chevron Canada Limited (20%) and Western Oil Sands L.P. (20%). Shell is the majority
owner; therefore they are the operators of the Scot-ford Up-grader and the overall project
administrators. A new company was created by the joint venture named Albian Sands
Energy; they operate the Muskeg River Mine. Shell has a goal to obtain 15% of its
production from sources such as oil sands by 2015. The Athabasca oil sands development
controls leases over 1.7 million acres in the region. [3]
SWOT Analysis of Oil Sands Industry
SWOT
Opportunities
Analysis

Strengths

167 BILLION BARRELS


Environmental The Government
Canada has 173 billion impact
of Alberta
barrels of oil that can be
implemented
recovered
GHG regulations
economically with todays
in 2007 requiring
technology. Of Canadas 173
a mandatory
billion barrels of oil, 167
12% reduction in
billion barrels are located in
GHG emissions
the oil sands. SOURCE: AER
intensity for all
2014 AND OIL AND GAS
large industrial
JOURNAL 2013. [5]

Increase of Oil prices

Global
demand
for
energy is expected to
increase 33%* by 2035 as
economies
in
both
developed and emerging
countries continue to
grow and standards of
living improve. SOURCE:
IEA 2013 *GROWTH
FROM 2011 TO 2035,
NEW
POLICIES
SCENARIO.[5]

All sources of energy,


developed responsibly, will
be needed to meet growth
in global demand. With
conventional oil supply
declining, the need for
unconventional resources,
like
oil
sands,
is
increasing.[5]

Weaknesses

Oil
sands
account
for
8.7%
of
Canadas
GHG
emissions and
about 0.13%
of global GHG
emissions.*[5]

Threats

sectors including
existing oil
sands facilities, or
a payment in
lieu[5]
Cost
of
production
per
barrel.
Some
organization
estimate that the
profitable price of
oil for oil sands
must be between
110$
and
150$.[4]Low
prices of oil

South East Asia oil and Canada independence from


gas
demand
will oil Imports
increase until 2040 (BP
Energy statistics 2013)

USA market of oil and USA independence from


Gas
Oil imports of Middle East.
Canada is the largest
supplier of crude oil and
petroleum
products to the U.S. [5]

The majority (81%) of


world oil reserves are
owned or
controlled by national
governments.
Only
19% of total world oil
reserves are accessible
for
private
sector
investment, 53% of
which are found in
Canadas oil sands. [5]

The
oil
sands
has
significant
economic
impact outside
Alberta in the rest of
Canada, the U.S. and
around the
world. Almost every region
in Canada has been
stimulated
by oil sands development
through job creation and
economic activity.[5]

Cost
of
production per
barrel. Some
organization
estimate that
the profitable
price of oil for
oil sands must
be
between
110$
and
150$.[4]
Northern
Alberta, where
oil
sands
operations
occur,
has more than
86% of
Albertas
water
supply[5]

USA production
boom from shale
oil can reduce the
imports of Oil
from Canada to
USA.

The
Athabasca
River is the main
source of water
for oil sands
mining projects.
Strict
regulations
restrict water
withdrawal
when river flow
is low [5]
182 KM2
Canadian
The total area government
of existing
regulations and
tailings ponds environmental
is 182 km2
legislation [5]
including
associated
structures
such as ditches
and
dykes.
The total
surface area of
all fluid
tailings is 77
km2.
SOURCE:
AESRD
2013[5]

Proposed Strategies to Chevron for oil Sands Industry:

Invest in new technologies which reduce the cost of production and eliminate the
environmental impact
Provide services to the other operators of oil sands like Shell which involve
decline in the production cost, reduce the environmental impact and increase

energy efficiency (reduce waste of water and fuels generally). All of that of
course required the necessary costs in R&D development and innovation.
Key Words for Chevron: eliminate the environmental threats, differentiation
strategy, specialization inside the specialize sector (oil sands) of oil and gas global
industry.

Shale Gas
Shale gas is an unconventional natural gas trapped within shale rock formations. Shale rocks
are fine-grained sedimentary rocks that have a tendency to trap within they thin cracks oil and
gas.
Horizontal Drilling and Hydraulic Fracturing
A combination of horizontal drilling and hydraulic fracturing is applied over the last years,
and has allowed access to large volumes of shale gas that were previously not cost effective
to exploit. Natural gas production from shale formations has rejuvenated the natural gas
industry in the United States. [6]

Source: http://www.wdde.org/19762-fracking-critics-urge-officials-block-delaware-basin-gas-development

Source: http://www.horizontaldrilling.org/

Environmental Impact of Shale Gas

Source: http://wws.princeton.edu/news-and-events/news/item/fracking-dark-biological-fallout-shale-gas-productionstill-largely

10

It was concluded by biologists of Princeton University and seven other biologists from
various organization and institutions after conversations. The industrial impact to the
environmental by the Shale-Gas extraction; cannot be yet fully understood by today's science.
Individually and eventually collectively gas wells can act as a source and can pollute by air,
water, noise and light pollution. In such case it is possible to negatively affect, wild animal
health, habitats and reproduction. By hydraulic fracturing, a technique that releases natural
gas from shale by breaking the rock up with a high-pressure blend of water, sand and other
chemicals; by this procedure a huge amount of fluids and waste water are produced that can
that can lead to major environmental issues. [7]
Is fracking safe?

Shale gas exploitation seams to lead to pollution of clean water horizons

It is stated that risks as water pollution could be solved

Earth tremors and explosions are also a concerning issue [8]

Is shale gas beneficial for climate change prevention?

The CO2 emission of burning gas is less of when burning oil or coal

It is believed by the industry that shale gas could reduce CO2 emissions.

Environmentalist believe that Shale Gas may be as bad as coal [8]

The estimations of shale gas reserves are roughly calculated. An assessed by the US
government assessment of 32 countries claimed they had 169 trillion cubic meters of
technically recoverable shale gas around the same as the world's economically recoverable
reserves of conventional natural gas. The largest reserves were located in China, as the survey
reported, followed by US, Argentina and Mexico. The estimates keep constantly changing.
The official figure for the US was almost halved in early 2012, while Cuadrilla claims that its
Blackpool site alone has 5 trillion cubic meters ten times more than the US estimate for the
whole UK. Similarly, China's own survey put its reserves nearly twice as high as the figure
given in the US survey. [8]
However when comparing to economical, political as well as technological factors of each
region, the extraction rate of the reserves, concludes not to be dependent on the reserve size.
The US government expects shale gas to account for 46% of its natural gas extraction by
2035 and according to BP shale gas along with tar sands and other unconventional fuels
America is expected to become largely self-sufficient in energy by 2030. An opposition was
claimed by the Deutsche Bank. They reported that due to factors, such as higher population
density and stronger environmental regulation there would be no 'shale gas revolution' [8]

11

Source: www.chevron.com

Source: http://www.theguardian.com/environment/interactive/2011/apr/26/shale-gas-hydraulic-frackinggraphic?guni=Article:in%20body%20link

12

SWOT Analysis of Shale Gas Industry


SWOT
Analysis
1

Strength

Opportunities

Weaknesses

Threats

Low prices of
natural
gas
locally increasing
economic growth
and
increase
economic
competitiveness
for the national
industry
(BP
Statistics 2013-4)

Environmental
impact
during
drilling
operations such
us
Horizontal
Drilling
and
Hydraulic
Fracturing (see
environmental
impact above)

Government
environmental
and
taxation
legislation

Energy security
for the countries
producer,
especially
the
USA
(BP
Statistics 2013-4)

Increasing
demand
for
natural
gas
due
to
increasing
electricity
demand
worldwide and
especially from
South
East
Asia,
Africa
and
Middle
East . (Many of
these countries
use natural gas
to
produce
electricity) (BP
Statistics 20134)
Friendly
environmental
production for
drilling
operations on
shale gas and
oilTechnology
innovationSpecialization

Decreasing of
oil
prices
globally

Geopolitical
Impact
(for
instance control
the production of
natural
gas,
control the prices
globally etc..)
Reduction
of
national
CO2
emissions
of
energy country
producer due to
decreasing coal

Cost
of
production per
barrel , If crude
oil prices fall
below
$80 a
barrel,
production of oil
from shale gas
formation in the
US will become
uneconomical,
warn analysts[9]
Groundwater
ContaminationAffect the life of
many
peoplemay
affect
economic growth

More friendly
Rise of LNG
energy
on
global
national mix,
market[10]
see
USA
example (BP
Statistics 20134)
Increasing in Gas Flaring in Technological
the percentage some cases
Risks
of
Poor
well
unconventional
performance
fossil fuels in
Lack
of
the
global
infrastructure

13

consumption
energy
mix
which replaced (BP Statistics
by natural gas 2013-4)
(BP
Statistics
2013-4)

Reserves
uncertainty
Reserves
accessibility
Equipment
shortages[10]
Increase national Energy
Brand/reputation Energy
and
GPD (see USA Security
of damage of the climate change
example
since European
operator
policies [10]
shale gas boom)
Union(
EU company such us
independence
Chevron in a
on
Russian case
of
an
natural gas)
accident.

Chevron position in the Shale Gas Industry


Chevron is involved in every phase of natural gas development. We are leasing land and
exploring for natural gas. We are conducting pilot projects to test technologies and evaluate
gas shales for future projects. We are drilling and completing new wells. And we are
producing, processing and distributing natural gas from shale, which, like other dense or
tight rock formations, can also produce oil and natural gas liquids.
Chevron produces natural gas from the Marcellus Shale, which underlies a large area of the
eastern United States, and the company is drilling to substantially increase production there.
The company has significant shale and tight resources with 7 million net acres (28,300 sq
km) in countries around the world, including the United States, Canada, Poland, Romania,
Ukraine and Argentina.[11]
For more information see the map above Natural gas from Shale: a word of opportunity.
Proposed Strategies to Chevron for Shale Gas Industry:

Invest in new technologies which reduce the cost of production and eliminate the
environmental impact
Provide services to the other operators of shale gas such us Shell and Exxon
Mobil which involve decline in the production cost, reduce the environmental
impact and increase energy efficiency (reduce waste of water and fuels
generally). All of that of course required the necessary costs in R&D
development and innovation.

Key Words for Chevron: eliminate the environmental threats, differentiation strategy,
specialization inside the specialize sector (shale gas) of oil and gas global industry. Also
Chevron must be the first producer from shale gas globally. Focus on development of
shale gas wells in China, USA, Mexico and Argentina the first four countries which
have the biggest shale gas reserves.

14

Methane Hydrate: The fuel of the


future?
Methane hydrate or fire-ice is water crystals formations that have trapped methane gas within
then and have a sherbet-like substance. They are buried beneath continental shelves around
the world; energy experts estimate that it could be the next major energy resource.
It was previously believed to exist only in the outer reaches of the solar system in our days
scientists begin to believe that it could be 'the new shale gas'.[12]

Fire ice: Balls of methane hydrate are set alight as part of a demonstration. Japanese scientists have become the first to
work out how to extract pure gas from the substance found under the continental shelves
Source:
http://www.dailymail.co.uk/sciencetech/article-2292555/Japanese-breakthrough-country-extract-fuel-icereserves-locked-beneath-coast.html#ixzz3JBy7C2kQ

State-run Japan Oil, Gas and Metals National Corp (JOGMEC) said the gas was tapped from
deposits of methane hydrate near the country's central coast.
Since 2001 Japan due to the fact of importing the majority of its energy needs, has invested
millions of pounds to develop efficient technology capable to retrieve the methane hydrate

15

reserves that have been discovered on its coast. Japan experienced an energy crisis after
Fukushima nuclear accident. This led Japan to become the largest global LNG importer in
order to fulfill the domestic needs in energy consumption. Japan's trade ministry after
production tests that was followed by analysis concerning the amount of gas that was
produced; they believe that they can achieve commercial production within six years. [12]

'The new shale gas': An aerial view shows deep-sea drilling vessel "Chikyu" in the Pacific, off Aichi Prefecture, central
Japan, as it hunts for methane hydrate reserves to exploit
Source: http://www.dailymail.co.uk/sciencetech/article-2292555/Japanese-breakthrough-country-extract-fuel-icereserves-locked-beneath-coast.html#ixzz3JByvbMTg

Methane is a major component of natural gas and governments including Canada, the U.S.,
Norway and China are also looking at exploiting hydrate deposits as an alternative source of
energy.[12]

16

Source: http://www.jogmec.go.jp/english/oil/technology_015.html

Methane Hydrates Reserves, Source: http://www.dailymail.co.uk/sciencetech/article-2292555/Japanese-breakthroughcountry-extract-fuel-ice-reserves-locked-beneath-coast.html#ixzz2NSgeQfQe

17

Methane hydrate is formed within marine sediments or beneath permafrost where chemical reactions or microbes
break down organic matter to produce gas which then freezes under high pressure
Source: http://www.dailymail.co.uk/sciencetech/article-2292555/Japanese-breakthrough-country-extract-fuel-icereserves-locked-beneath-coast.html#ixzz3JC3JLvXr

HOUSTON, TEXAS (April 19, 2013) Baker Hughes announced that it participated in the
first successful marine methane hydrate production test well offshore Japan on March 12,
2013. The test was conducted from a drill ship for the Japan Oil, Gas and Metals National
Corporation (JOGMEC) in the Nankai Trough, approximately 60 km off the southeast coast
of Japan, as one of the research activities in Japans Methane Hydrate R&D Program. Baker
Hughes provided the completion system for the test well, which was drilled in approximately
1000 m of water into a hydrate formation approximately 300 m below the mud line.[13]
Gas hydrates one of the emerging clean energies of the 21th century. The prospective
methane contained in global gas hydrate reserves is 21,000 trillion cubic meters which are
about 100 times the total natural gas reserves in the current world. Assuming 10% of the
total reserves were exploited ,It can be used for about 600years,as shown in
Tables9and10.[14]

18

Source: A global survey of gas hydrate development and reserves :Specifically in the marine field Shyi-MinLu, Energy and
Environment Research Laboratories ,Industrial Technology ResearchInstitute , Chutung ,Hsinchu310 ,Taiwan

Mining methane hydrates from the land semi-permafrost and the sediments of offshore coastedge The bottom right figure
shows the formation of methane hydrate under appropriate conditions of temperature and pressure.
Source: A global survey of gas hydrate development and reserves :Specifically in the marine field Shyi-MinLu, Energy and
Environment Research Laboratories ,Industrial Technology ResearchInstitute , Chutung ,Hsinchu310 ,Taiwan

19

Various methods for the detection of gas hydrates undersea,including the reflection seismic,submarine detection
seismograph,submarine detectio nresistor,ground heat measurement, sampling and analysis of marine sediments,
submarine camera or unmanned underwater vehicle sobservation, deep-seadrilling and well testing and so on.
Source: A global survey of gas hydrate development and reserves :Specifically in the marine field Shyi-MinLu, Energy and
Environment Research Laboratories ,Industrial Technology ResearchInstitute , Chutung ,Hsinchu310 ,Taiwan

Proposed Strategies for Chevron for Methane Hydrate Industry

Buy or emerge with Baker Hughes, because they probably have the technology of
the extraction methane hydrates. (see above statement about Baker Hughes)
Invest a lot of money to create of expand the knowledge and technological
capabilities for methane hydrates exploration and refinery process.
Become the first operator in methane hydrate industry
Strategic alliance with JOGMEC (Japan Oil, Gas and Metals National
Corporation), propose to japan government new invests in japan exclusive
economic zone for exploration of methane hydrates with major target the energy
security of Japan.
Due to the global estimated methane hydrate reserves if Chevron enters the
industry first may become the biggest oil and gas operator globally.

20

SWOT Analysis of Chevron Upstream


Section
Highlights
Thru its long experience in the upstream sector of the Industry, Chevron has formed a wide
portfolio of upstream operations located around the globe. They have gained experience and
competences by operating and managing projects in varied environments, using innovative
technologies and successfully collaborate with multiple partners. With Chevrons upstream
business magnitude, its strengths and capabilities they could help meet the worlds energy
demands. The companys upstream has operations in most of the worlds key hydrocarbon
basins and a portfolio that provides a foundation for future growth. [15]
Business Strategies
Grow profitably in core areas and build new legacy positions by:

Achieving world-class operational performance.


Maximizing and growing the base business.
Leading the industry in selection and execution of major capital projects.
Achieving superior exploration success.
Commercializing the equity gas resource base.
Identifying, capturing and effectively incorporating new core
businesses.[15]

upstream

21

Strengths

Financial stability

Financial Analysis of Chevron Corporation


: Chevron Annual Report 2013 Supplement

Particulars

2013

2012

2011

2010

2009

2008

Current ratio

1.50

1.60

1.60

1.70

1.40

1.10

Interest coverage
Debt ratio

126.20
12.1%

191.30
8.20%

165.40
7.70%

101.70
9.80%

62.30
10.30%

166.90
9.30%

Return
on
stockholders equity
Return on capital
employed
Return
on
Investment
DPS (Dividend Per
Share)

15.00%

20.30%

23.80%

19.30%

11.70%

29.20%

13.50%

18.70%

21.60%

17.40%

10.60%

26.60%

8.44%

11.80%

13.60%

10.90%

6.40%

15.40%

3.90

3.51

3.09

2.84

2.66

2.53

13.32

13.44

9.48

5.24

11.67

EPS (Earning
Share)

Per 11.09

Total
stockholder 15.51% 5.00%
20.30%
22.30%
8.10%
return
Source: Annual Report of Chevron 2008, 2009, 2010,2011,2012,2013,

-18.40%

Brand Reputation
Worlds largest holder of deep water(area of continued growth) acreage in Gulf of
Mexico and Nigeria [15]
Technology Innovation in upstream technologies

More specific:
For instance: Chevron is among leaders in the application of ocean bottom node sensing
technology in deep water fields. Also Chevron executed its first airborne full-tensor gravity
gradiometry (FTG) survey over the Partitioned Zone between Saudi Arabia and Kuwait. [15]

Diverse and highly skilled global workforce consists of approximately 64,500


employees, including more than 3,200 service station employees (Chevron facts Sheet
May 2014)
Production Produced 2.597 million net oil-equivalent barrels per day, with about 75
percent of the volume outside the United States in more than 20 different countries.
(Chevron facts Sheet May 2014)
massive oil reserves (11 billion barrels) [15]
Continuous investment in high profile projects to increase oil production [15]
Second largest integrated energy company in the world [15] (Platts 2013 Global
Energy Outlook 2013)
Big political influence due to lobbing and sponsoring the two big parts of USA,
Democrats and Republicans.

22

For example, In 2009, Chevron turned on its most aggressive outside track campaign to
date, creating a veritable lobbying tsunami. Chevron increased its federal lobbying
expenditures by more than 60% over 2008itself Chevrons previous record breaking year.
By comparison, ExxonMobil actually decreased its lobbying expenditures from 2008 to 2009.
With more than $21 million spent on federal lobbying, Chevron earned a spot on the top ten
list of highest spenders on all federal lobbying in 2009. The only other oil company in the top
ten was ExxonMobil (number two). [16] (the numbers are ok, we have checked them).

Access to instability areas to produce oil and gas such us Kurdistan on Iraq through
political influence globally
Geopolitical player, more specific geoenergy player through political influence, cash
flow and big international size of the company
Differentiated Portfolio Management

Make strategic alliances to expand and develop technology through R&D innovation

For instance, Chevron Energy Technology Company and GE Oil & Gas announced the
creation of the Chevron GE Technology Alliance, which will and commercialize valuable
technologies to solve critical needs for the oil and gas industry.
The Alliance builds upon a current collaboration on flow analysis technology for oil and
gas wells. It will leverage research and development from GEs newest Global Research
Center, the first dedicated to oil and gas technology.
(More information about that coalition in this link: https://www.lanl.gov/discover/newsrelease-archive/2014/February/02.03-chevron-ge-tech-alliance.pdf )

In 2013 they ranked No. 2 in earnings per barrel relative to their peer group [Annual
Report 2013 Chevron]
Beneficially company environment- High level of Satisfaction among the employees
of Chevron- Acceptable company policies and performance from the employees

23

(Source: 2013 Global Employee Survey Favorability Percentage in Chevron 2013


Corporate Responsibility Report)

Source: Chevron 2013 Corporate Responsibility Report

Increase energy efficiency across all the operations, the company used Chevron
Energy Index (CEI) to track energy use performance across the value chain and
measured a 34 percent improvement during that time from 1992 until 2012.[18]
Increase job opportunities locally, according to the Chevron the 92% of their
employees work near their home.[18]
The past 8 years Chevron has invest 1,5 billion dollars in social programs with
partnerships in health, education and economic development [18]
90% of the segment earnings of the company coming from upstream activities

Weaknesses

Legal Issues
Cost of environmental hazards

For Instance: Chevron engages in gas flaring, the burning of associated gas that comes out of
the ground when oil is extracted, Chevron is among the worst offenders in Nigeria, flaring
over 64% of its gas in 2008. Flare emissions in Nigeria are the highest or perhaps secondhighest in the world..[16]

Brand reputation decline the previous years due to many reasons such us gas flaring in
Nigeria or use/rent of national army of Nigeria to protect the infrastructure of the
company in Nigeria.
Influence by the low prices of oil in the production of the company which leads to
decreasing revenues (Source: Chevron Annual Report 2013)

For instance:

24

Chevrons potential future project portfolio (2014-2050 production) is generally low cost,
with 46% requiring a market price of at least $75/bbl for sanction and 26% (6.1bn barrels) at
least $95/bbl.
In the medium term, over the next decade, 14% of Chevrons production will need oil prices
over $95/bbl for sanction.
But by the end of 2025, projects requiring $95/bbl or more will have risen to 36% of the
companys potential future production. This is at the upper end of the range for the majors,
leaving Chevron at greater risk to its competitive position from price or cost volatility,
especially in a low carbon scenario.[17]

Source: http://www.carbontracker.org/

Catastrophic decisions from the management team and the company we believe
doesnt has any brand reputation marketing strategy

For instance, In January 2012 a Chevron rig exploded off coast of Nigeria and killed Chevron
workers including the manager who told the company the rig was unsafe and begged them to
fly people off the North Apoi platform before it exploded.
Chevron ignored his request and then allowed the fire to burn for FOUR weeks before it even
attempted to drill a relief well to stop the fire.
Meanwhile the onshore host communities were becoming ill, the fish in the nearby waters
that were their livelihood died. Nine local communities ultimately had to abandon their
villages, lives and livelihoods. [16]

Focus of the company on a domain sector of oil and gas industry, especially upstream.

25

Source: Chevron Annual Supplement Report 2013

Stable levels of GHG Emissions the last 5 years, this situation can increase the cost
production for Chevron due to the penalties from the national authorities of each
country which operates, especially the last trend globally is zero emissions.

Source: Chevron 2013 Corporate Responsibility Report: Performance Data

26

Threats

Government environmental and taxation legislation


High competition
Cost of production and exploration of oil and gas wells

See information above in the section of the weaknesses in the bullet point for the oil prices.

Low global economic growth-> Decreasing the demand for oil mainly and natural gas
secondly (we mention that because we think that in mid-term perspective we will
have many geopolitical changes in global scale and for that reason we dont think that
the global economy will increasing all the years until to 2040 according to Exxon
Mobil and Word Bank Forecasts for global GPD until 2040. Also we must be aware
that in many countries we have economic bubbles according to many economic
articles and reports due to the central banks of west economies (USA, Japan and EU)
increase credit or we call it cut more money to the economy nationally. These
actions can increase the possibility of an economic bubble like the technology bubbles
in 2000.)
Geopolitically instability (Libya, Iraq, Syria, Israel- Gaza and Ukraine)
Technological Risks in some specific upstream sectors such as shale gas and oil
sands( Poor well performance , Lack of infrastructure , Reserves uncertainty,
Reserves accessibility, Equipment shortages)
Fuel Cell and Electric Automobiles
Risks associated with conducting business outside the US (geopolitical, political,
economic, environmental risks)
Unmanageable Chevron Environmental impact, such as gas from shale depends on
drilling methods and chemicals that may put in danger groundwater supply. (see
above environmental impact of shale gas exploration)
Expand or creation of a new market inside the oil and gas industry such as methane
hydrates industry-market from a major competitor like Exxon or Shell or more worse
Statoil, Saudi Aramco etc..
The use of oil prices as a diplomatic weapon from the major players globally like
USA to put pressure to country oil producers like Iran and Russia. (Low prices of oil)
Currency war, For example we all know that the last century after WW II dollar is the
main reserve currency until today, but the last decade we have and other coins to
compete dollar in global scale such as Euro, Chinese Yuan and Russian ruble. All of
that can influence some activities of the company in USA, South East Asia or in
Middle East.
Over Debt countries globally, this situation can damage global economic growth and
the outcome of this situation will decrease the demand for oil and gas.(observe the
statistics below)
Energy and climate change policies implemented by international organization such
as United Nations or Word Bank

27

Source: http://en.wikipedia.org/wiki/List_of_countries_by_external_debt

Unexpected and unpredictable problems, such as dangerous weather conditions like


hurricanes
NOC- National Oil Companies influence and ownership of the global reserves. It is
known that the majority (above 80%) of world oil reserves are owned or controlled by
national governments.

Opportunities

Increasing fuel/oil prices


Increasing natural gas market & increasing demand for LNG
Discovered enormous oil field all around the world.
Aggressive Market penetration in the markets of shale gas and oil sands through
merges and acquisitions
Focus of the company in gas sector, due to the big investments that will happened the
next years until 2035 according to IEA (International Energy Agency)

28

World Energy Investment Outlook, Special Report, IEA 2014

Increasing global energy demand due to the rapidly growth of the global population
until 2040
Provide services which eliminate the environmental impact of the extraction of shale
gas and oil sands in the other major competitors like Shell and Exxon through R&D
Innovation
Technology R&D innovation in the field of exploration of methane hydrates which
can lead the company to become the major oil and gas player globally.
Focus on development of shale gas wells in China, USA, Mexico and Argentina the
first four countries which have the biggest shale gas reserves.
Strategic alliance with JOGMEC (Japan Oil, Gas and Metals National Corporation)
and Baker Hughes which succeed the first drilling operation in methane hydrates.
Access to know-how of this technology- Competitive advantage.
Increase energy efficiency among all the operations of the company, minimize waste
and low the cost of production (eco-friendly approach)
Continued field discoveries in areas like North Duri and Bangladesh
Merge and acquisitions with National Oil Companies
Decrease GHG Emissions
Propose a new strategic marketing plan to increase brand reputation in global scale
European Union and Japan energy security for the future

29

SWOT
ANALYSIS
OF
CHEVRON
UPSTREAM
SECTOR

Strengths

Weaknesses

Opportunities

Threats

Financial
stability

Legal Issues

Government
environmental
and
taxation
legislation

Brand Reputation

Cost
of
environmental
hazards

Worlds
largest
holder
of
deep
water(area
of
continued growth)
acreage in Gulf of
Mexico and Nigeria

Influence by the
low prices of oil
in the production
of the company
which can be
decrease/decline

Technology
R&D innovation
in the field of
exploration
of
methane
hydrates
Strategic alliance
with JOGMEC
(Japan Oil, Gas
and
Metals
National
Corporation)
and
Baker
Hughes
Discovered
enormous
oil
field all around
the world.

Technology
Innovation
upstream
technologies

Global
workforce
consists
of
approximately
64,500 employees

Catastrophic
decisions from
the management
team

Produced
2.597
million
net
oilequivalent barrels
per day, with about
75 percent of the
volume outside the
United States in
more
than
20
different countries.
massive oil reserves

Focus of the
company on a
domain sector of
oil
and
gas
industry,
especially
upstream

Brand
in reputation
decline
the
previous years

Stable levels of

Aggressive
Market
penetration
in
the markets of
shale gas and oil
sands
through
merges
and
acquisitions
Increasing global
energy demand
due
to
the
rapidly growth
of the global
population until
2040
Focus of the
company in gas
sector, due to the
big investments
that
will
happened
the
next years until
2035 according
to IEA
European Union

Cost
of
production and
exploration
of
oil and gas wells

Low
global
economic
growth->
Decreasing the
demand for oil
mainly
and
natural
gas
secondly
Geopolitically
instability

Technological
Risks in some
specific
upstream sectors
such as shale gas
and oil sands
Risks associated
with conducting
business outside
the US

High competition

30

GHG Emissions and


Japan
the last 5 years
energy security
for the future
Provide services
which eliminate
the
environmental
impact of the
extraction
of
shale gas and oil
sands
in the
other
major
competitors like
Shell and Exxon
through
R&D
Innovation
Merge
and
acquisitions with
National
Oil
Companies

Second
largest
integrated
energy
company in the
world

Access to unstable
areas to produce oil
and gas such us
Kurdistan of Iraq

10

Geopolitical player,
more
specific
geoenergy player

Propose a new
strategic
marketing plan
to
increase
brand reputation
in global scale

11

Increase
energy
efficiency across all
the operations

12

Beneficially
company
environment- High
level of Satisfaction
among
the
employees
of
Chevron

Increasing
natural
gas
market
&
increasing
demand for LNG
Increasing
Currency war
fuel/oil prices

13

Focus
on
development of
shale gas wells in
China,
USA,
Mexico
and
Argentina
the
first
four
countries which
have the biggest
shale
gas
reserves.

Unmanageable
Chevron
Environmental
impact

The use of oil


prices
as
a
diplomatic
weapon from the
major
players
globally
like
USA
The creation of a
new
market
from a major
competitor like
Shell
(For
instance hydrate
methane)
Over
Debt
countries
globally

NOC- National
Oil Companies
influence
and
ownership of the
global reserves

31

EFE Matrix for Chevron Upstream Sector


Key External Factors
Opportunities Weight
Rating
1. Technology 0.08
3
R&D innovation
in the field of
exploration
2.
European
Union and Japan
energy security
for the future
3.
Increasing
natural
gas
market
&
increasing
demand for LNG
4.
Increasing
fuel/oil prices
5.
Increasing
global
energy
demand
6
Aggressive
Market
penetration
in
the markets of
shale gas and oil
sands

Weighted Score
0.24

0.1

0.40

0.08

0.16

0.05

0.1

0.05

0.1

0.06

0.18

7.

Strategic
alliance
with
JOGMEC (Japan
Oil, Gas and
Metals National
Corporation) and
Baker Hughes

0.1

0.4

8.

0.08

0.16

Threats
1. Over

Debt
countries
globally/Low
Global economic
growth

0.04

0.12

2.

0.1

0.4

Merge and
acquisitions with
National
Oil
Companies

NOC- National
Oil
Companies
influence
and
ownership of the
global reserves

32

3.

Cost
of
production and
exploration of oil
and gas wells

0.06

0.12

4.

0.05

0.15

5. The creation of 0.05

0.1

The use of oil


prices
as
a
diplomatic
weapon
a new market
from a major
competitor

6.

Geopolitically
instability

0.05

0.2

7.

Cost
of
production and
exploration of oil
and gas wells

0.05

0.15

Total

1.00

2.64

33

IFE Matrix for Chevron Upstream Sector


Key Internal Factors
Strengths
Weight
Rating
1. Financial
0.08
3

Weighted Score
0.24

stability

0.1

0.4

0.06

0.24

0.05

0.2

0.05

0.15

0.06

0.18

7. Second largest 0.08

0.24

0.12

0.48

0.04
0.1

2
2

0.08
0.2

0.06

0.12

0.05

0.1

0.05

0.1

2.

Brand

Reputation
3 Worlds largest
holder of deep
water acreage in
Gulf of Mexico
and Nigeria
4. Technology
Innovation
in
upstream
technologies
5
Global
workforce
consists
of
approximately
64,500 employees
6 massive oil
reserves
integrated energy
company in the
world

8.

Geopolitical
player,
more
specific
geoenergy player

Weaknesses
Legal Issues
Cost
of
environmental
hazards
Influence by the
low prices of oil
in the production
of the company
which can be
decrease/decline
Brand reputation
decline
the
previous years
Catastrophic
decisions
from
the management
team

34

Focus of the
company on a
domain sector of
oil
and
gas
industry,
especially
upstream
Stable levels of
GHG Emissions
the last 5 years

0.05

0.05

0.05

0.05

Total

1.00

2.83

35

SWOT Analysis of Chevron Downstream


Section
Highlights
The company has a strong presence in all aspects of the downstream industry refining,
marketing, trading and transporting of hydrocarbon products and petrochemicals. As such,
downstream is an important element of Chevrons integrated value chain to obtain higher
value for equity production.
Business Strategies
Deliver competitive returns and grow earnings across the value chain by:

Achieving world-class operational excellence.


Continually improving execution of base business.
Driving earnings across the crude-to-customer value chain.
Pursuing targeted growth opportunities.
Adding value to the upstream business.

Source: Chevron Annual Report Supplement 2013

36

Chevron Cooperate Structure, www.chevron.com

Strengths

88% of the operating revenues of Chevron for 2013 obtained from the downstream
section-observe the graphs in the next page.
34% of the Investments and Advances of Chevron for 2013 invested in downstream
sector
Well placed in Asia- Pacific area because Chevron owns 12 refineries and 1 chemical
factory in this area
Marketing network supports retail outlet on 6 continents [19]
Excellent use of the capacity of the refineries in big percentages- The company
ranked 1th in 2012 on the Refinery Utilization among all of the competitors

Source: Presentation from Mike Wirth Executive Vice President from Chevron, Downstream and Chemicals www.chevron.com

37

Segment Earnings- Chevron Annual Report 2013

Investments and Advances- Chevron Annual Report 2013

Segment Sales and Other Operating Revenues- Chevron Annual Report 2013

38

Chevron downstream margin are 2-3$ per barrel the last 5 years since 2009

Chevron's average downstream margin during the five years since 2009 has been just under
$2 per barrel, while competitors have reported an average margin of approximately $1.50.
There is a reason for this outperformance, though: the crowning jewel of Chevron's
downstream
empire,
Chevron
Phillips.(Source:
http://www.fool.com/investing/general/2014/06/17/heres-how-chevron-is-outperformingdownstream-peer.aspx )

Source: Presentation from Mike Wirth Executive Vice President from Chevron, Downstream and Chemicals www.chevron.com

Chevron is 2th in Return on capital employed with a 18,1% for 2012


according to the graph above. (A higher ROCE indicates more efficient use of
capital. ROCE should be higher than the companys capital cost; otherwise it
indicates that the company is not employing its capital effectively and is not
generating shareholder value.)
Competitive Asia Portfolio in downstream sector among to the competitors
like Shell, BP and Exxon Mobil, observe the graphs below (Refinery Capacity
and High Valued Products)
Chevron Phillips, Chevron most valuable asset in downstream section, see
graph below, It is one of the worlds leading producers of olefins, polyolefin
and alpha olefins and is a leading supplier of aromatics and polyethylene pipe.
Chevron Oronite, Oronite is a world-leading developer, manufacturer and
marketer of quality additives that improve the performance of lubricants and
fuels. ( increase in earnings after taxes the last 3 years, see the graph below)

39

Chevron Phillips Performance, efficiency use of the assets of the company


Source: Presentation from Mike Wirth Executive Vice President from
Chevron, Downstream and Chemicals www.chevron.com

Informations for Chevron Asia-Pacific Area


Source: Presentation from Mike Wirth Executive Vice President from
Chevron, Downstream and Chemicals www.chevron.com

Chevron Oronite Performance, efficiency use of the assets of the company


Source: Presentation from Mike Wirth Executive Vice President from Chevron, Downstream and Chemicals
www.chevron.com

40

Chevron Lubricants, Chevron is among the leading global developers and marketers
of lubricants and is a top supplier of premium base oil worldwide.( Decrease in
operational expenses and doubled earnings after taxes the last 3 years until 2012)

1 Lubricants Performance, efficiency use of the assets of the company


Chevron
Source: Presentation from Mike Wirth Executive Vice President from Chevron, Downstream and Chemicals www.chevron.com

Chevron cooperated with Microsoft because wanted to improve refinery performance


and reliability, chevron uses Windows Mobile devices which runs Microsoft
software, Using IntelaTrac (software program) to accelerate and sustain process
improvements, Chevron has reduced maintenance costs, improved availability, and
achieved cost-effective regulatory compliance, said by Mike Brooks, Global Refining
IT Adviser, Chevron (Microsoft Customer Solution Manufacturing Industry Case
Study)
Global well positioned in all continents with 14 refineries and 5 chemical factories
worldwide
Chevron and its affiliates has serve 7,700 Caltex branded retail outlets in Africa and
Asia-Pacific regions
Second-largest integrated energy company globally
Decreasing in petroleum spill [18], observe the graph below
Safety in all the refining process and low percentage of injuries, observe the chart
below
Financial Stability

41

Source: Chevron Cooperate Responsibility Report 2013

Source: Chevron Cooperate Responsibility Report 2013 Performance Data

42

Weaknesses

Cost of environmental hazards, due to gas flaring from refinery activities and
dangerous accidents in Chevron refineries such as explosions, observe the photos
below.

Chevron El Segunto Refinery- Gas Flaring, Source: Reference [16]

Fire burning at the Chevron refinery in Pascagoula, Mississippi,


Source: Reference [16]

Chevron Richmond refinery near Sun Francisco, Source:


http://phys.org/news/2012-08-refinery-highlights-pollution.html

Legal issues, due to the major accidents above but and for many other things
Decreasing in US and International Refined Product Sales, see the facts below,

Source for the 2 graphs: Reference [15]

43

Decreasing in Marketing Retail Outlets, observe the chart below

Source: Chevron Annual Report 2013

Source: Reference [15]

Decreasing in Worldwide Downstream Earnings, observe the graph above.


Decreasing in operational revenues the last 3 years since 2011, operational revenues
dropped from 244,371$ the 2011 to 220,156 $ the 2013. (Millions of dollars)

300.000

250.000
Chevron Operational
Revenues in million dollars

200.000

Chevron Upstream
Operational Revenues in
million dollars

150.000

100.000

Chevron Downstream
Operational Revenues in
million dollars

50.000

0
2011

2012

2013

Chevron operational revenues depend on downstream operational revenues

44

Opportunities

Decreasing oil prices, reduce the cost per barrel for the refineries
Expand our refinery portfolio near to unconventional resources, such as shale gas and
methane hydrates.
Reduce costs and waste from the refinery of Chevron through R&D Innovation, such
as step-out ICR 1000 hydro treating catalyst which extending catalyst life and
allowing processing of more difficult feedstock.
Focus on development of the refineries in Asia-Pacific, due to expected increase in
energy demand in this region, observe the chart below.

Source: OPEC oil downstream outlook for 2040, OPEC Oil Outlook 2014

Market penetration in downstream sector of the company on alternative regions such


as Middle East, Africa and South America.
Expand our portfolio of refineries through merge and acquisitions, especially in
Europe, because there the refinery business is downsized and the company can
acquire a lot of refinery assets in very beneficially prices.
Strategic alliance with major National Oil Companies in Asia-Pacific area which
owns a lot of refinery assets in the area, observe the graph below.
US refinery can increase their operating revenues due to they have low energy costs.
(see KPMG oil and gas outlook 2014)

45

Focus on the further development of lubricants and petrochemicals

Source: Presentation from Mike Wirth Executive Vice President from Chevron, Downstream and Chemicals
www.chevron.com

Production of petroleum products from biofuels- New refinery processes- Technology


Innovation- Expand or enter to new markets
Customer trends for more friendly and clean fuels

Source: Global refining Survey, Fueling profitability in the turbulent times ahead By Jos de S,, BAIN &
COMPANY

46

Threats

Security issues. Such as terrorist attacks or asymmetric threats ( for example cyber
terrorism)
Geopolitical instability
Government Environmental and Taxation Legislation
Increase of natural gas share in global energy mix (International Energy AgenctEnergy Outlook 2013)
Up and down crude slate quality [20]
Tight crude and unconventional NGLs (National Gas Liquids) supply growth [20]
Low global economic growth
Low global energy demand for refinery products
Supply and demand Curve, the oil and gas downstream industry is linked with
consumption of refinery products through price and quality of those products. It is
obvious that this complex situation is affected from many factors like the examples
we mention above, thus through a PEST Analysis and based on the curve of supply
and demand refinery managers can identify many threats and opportunities.
Increasing oil prices
National Oil Companies, political influence and ownership of the global oil reserves

Source: http://www.investopedia.com/university/economics/economics3.asp

47

SWOT
Strengths
ANALYSIS OF
CHEVRON
DOWNSTREAM
SECTOR
1

88% of the
operating
revenues
of
Chevron
for
2013 obtained
from
the
downstream
Section
34% of the
Investments
and Advances
of Chevron for
2013 invested in
downstream
sector

Weaknesses

Opportunities

Threats

Cost
of Decreasing
oil
environmental
prices,
reduce
hazards
the cost per
barrel for the
refineries

Security issues.
Such as terrorist
attacks
or
asymmetric
threats

Legal issues, due


to the major
accidents in their
infrastructures

Expand
our
refinery portfolio
near
to
unconventional
resources, such
as shale gas and
methane
hydrates.
Well placed in Decreasing in US Reduce costs and
AsiaPacific and
waste from the
area
because International
refinery
Chevron owns Refined Product processes
of
12
refineries Sales,
Chevron through
and 1 chemical
R&D
factory in this
Innovation,
area
Marketing
Decreasing
in Focus
on
network
Marketing Retail development of
supports retail Outlets,
the refineries in
outlet on 6
Asia-Pacific, due
continents
to
expected
increase
in
energy demand
in this region,
The company Decreasing
in Market
ranked 1th in Worldwide
penetration
in
2012 on the Downstream
downstream
Refinery
Earnings,
sector of the
Utilization
company
on
among all of the
alternative
competitors
regions such as
Middle
East,
Africa and South
America.

Geopolitical
instability

Chevron
downstream
margin are 2-3$
per barrel the

Tight crude and


unconventional
NGLs (National
Gas
Liquids)

Decreasing
in
operational
revenues the last
3 years since

Expand
our
portfolio
of
refineries
through merge

Government
Environmental
and
Taxation
Legislation

Increase
of
natural gas share
in global energy
mix

Up and down
crude
slate
quality

48

last 5 years 2011, operational


since 2009
revenues
dropped
from
244,371$
the
2011 to 220,156 $
the 2013

10

11

12

and acquisitions,
especially
in
Europe, because
there
the
refinery business
is downsized and
the company can
acquire a lot of
refinery assets in
very beneficially
prices.
Chevron is 2th Chevron
Strategic alliance
in Return on operational
with
major
capital
revenues depend National
Oil
employed with on downstream Companies
in
a 18,1% for operational
Asia-Pacific area
2012 ,they had revenues
which owns a lot
13% for 2013
of refinery assets
in the area.
Competitive
US refinery can
Asia Portfolio
increase
their
in downstream
operating
sector among to
revenues due to
the competitors
they have low
energy
costs.
(shale gas boomlow prices of
natural gas)
Chevron
Focus on the
chemistry
further
sector, such as
development of
Chevron
lubricants and
Phillips
and
petrochemicals
Chevron
Oronite
Global
well
Production
of
positioned in all
petroleum
continents with
products
from
14
refineries
biofuelsNew
and 5 chemical
refinery
factories
processesworldwide
Technology
InnovationExpand or enter
to new markets
Chevron and its
Customer trends
affiliates
has
for more friendly
serve
7,700
and clean fuels
Caltex branded
retail outlets in
Africa
and
Asia-Pacific
regions
Second-largest

supply growth

Low
global
economic growth

Low
global
energy demand
for
refinery
products

Supply
and
demand Curve

Increasing
prices

oil

National
Oil
Companies,
political
influence
and
ownership of the
global
oil
reserves

49

13

integrated
energy
company
globally
Chevron
cooperation
with
technologies
companies like
Microsoft
aiming
to
reduce refinery
costs
or
to
improve
refinery
processes

50

IFE Matrix for Chevron Downstream Sector


Key External Factors
Strengths
Weight
Rating
1. 88% of the 0.1
4
operating
revenues
of
Chevron for 2013
obtained
from
the downstream
Section
2. 34% of the
Investments and
Advances
of
Chevron for 2013
invested
in
downstream
sector
3.Chevron
downstream
margin are 2-3$
per barrel the
last 5 years since
2009
4.Chevron
cooperation with
technologies
companies
5. Global well
positioned in all
continents with
14 refineries and
chemical
factories
worldwide
6 Chevron and its
affiliates
has
serve
7,700
Caltex branded
retail outlets in
Africa and AsiaPacific regions
7.
Chevron
chemistry sector,
such as Chevron
Phillips
and
Chevron Oronite
8. The company
ranked 1th in
2012
on
the
Refinery
Utilization
among all of the
competitors

Weighted Score
0.4

0.05

0.15

0.08

0.32

0.05

0.2

0.12

0.48

0.05

0.15

0.04

0.12

0.06

0.24

51

Weaknesses
1.Cost
of
environmental
hazards
2.Legal
issues,
due to the major
accidents in their
infrastructures
3. Decreasing in
US
and
International
Refined Product
Sales,
4. Decreasing in
Marketing Retail
Outlets,

0.1

0.2

0.05

0.1

0.05

0.1

0.05

0.05

5.

Decreasing in
Worldwide
Downstream
Earnings,

0.1

0.2

6.

Decreasing in
operational
revenues the last
3 years since
2011

0.1

0.2

7.Chevron

0.1

0.2

operational
revenues depend
on downstream
operational
revenues

Total

1.00

3.11

52

EFE Matrix for Chevron Downstream Sector


Key External Factors
Opportunities Weight
Rating
1. Decreasing oil 0.1
4
prices, reduce the
cost per barrel
for the refineries
2. Expand our
refinery portfolio
near
to
unconventional
resources, such
as shale gas and
methane
hydrates.
3. Focus on the
further
development of
lubricants
and
petrochemicals
4. US refinery
can increase their
operating
revenues due to
they have low
energy
costs.
(shale gas boomlow prices of
natural gas)
5.
Strategic
alliance
with
major National
Oil Companies in
Asia-Pacific area
which owns a lot
of refinery assets
in the area.
6 Expand our
portfolio
of
refineries
through merge
and acquisitions,
especially
in
Europe
7.
Focus
on
development of
the refineries in
Asia-Pacific, due
to
expected
increase
in
energy demand
in this region,

Weighted Score
0.4

0.05

0.1

0.05

0.15

0.05

0.15

0.1

0.3

0.05

0.15

0.1

0.4

53

8. Production of
petroleum
products
from
biofuelsNew
refinery
processesTechnology
InnovationExpand or enter
to new markets
Customer trends
for more friendly
and clean fuels
Threats
1. Security issues.
Such as terrorist
attacks
or
asymmetric
threats
2.
Geopolitical
instability
3. National Oil
Companies,
political influence
and ownership of
the global oil
reserves
4. Increasing oil
prices

0.05

0.1

0.05

0.15

0.1

0.4

0.05

0.15

0.05

0.15

5.

Government
Environmental
and
Taxation
Legislation

0.06

0.18

6.

Increase of
natural gas share
in global energy
mix

0.04

0.08

7.

Low global
economic growth

0.07

0.21

8.

Up
and
down crude slate
quality

0.03

0.06

Total

1.00

3.03

54

Chevron Competitive Profile Matrix


Critical
success
factors

Chevron

Exxon
Mobil

Shell

weight

Rating

Score

Rating

Score

rating

score

Advertising

0.20

0.60

0.60

0.60

Product
quality

0.10

0.30

0.40

0.20

Management

0.07

0.28

0.21

0.21

Financial
position

0.10

0.30

0.20

0.30

Customer
loyalty

0.05

0.10

0.15

0.15

Global
expansion

0.20

0.60

0.80

0.80

Market share

0.09

0.27

0.27

0.36

Geopolitical
Influence

0.15

0.45

0.45

0.45

Production
capacity

0.04

0.12

0.12

0.16

Total

1.00

3.02

3.20

3.23

55

Grand Strategy Matrix for Chevron

Source: http://mba-lectures.com/management/strategic-management/1129/grand-strategy-matrix.html

Chevron has 8% annual growth the last 4 years since 2009 and chevron CPM evaluation
score is 3.02. According to these statistics chevron is located in Quadrant 1.

56

The Internal-External Matrix for


Downstream and Upstream Chevron
Sector

IFE Score of downstream is 3.11 and the EFE Score is 3.03. The downstream earnings
represent the 9% of total segment earnings.

57

IFE Score of upstream is 2.83 and the EFE Score is 2.64. The upstream earnings
represent the 90% of total segment earnings

SWOT Matrix of Upstream and


Downstream Chevron Sector

58

59

The decision stage: Simplified


methodology
Proposed Strategic
Options for
Downstream

Internal External
(IE)Matrix
Hold and Maintain

Market Penetration
Market
development
Product
development
Horizontal
integration
Related
diversification
Unrelated
diversification

x
x

x
x

SWOT Matrix

Grant Strategy
Matrix

x
x

According to the following methodology we will follow to the downstream sector these
strategies:

Market Penetration
Product development

Proposed Strategic
Options for
Upstream

Internal External
(IE)Matrix
Grow and Build

SWOT Matrix

Grant Strategy
Matrix

Market Penetration
x
x
Market
x
x
development
Product
x
x
development
Horizontal
x
x
integration
Related
diversification
Unrelated
diversification
According to the following methodology we will follow to the downstream
strategies:

x
x
x
x
x

sector these

Market Penetration
Product development

60

Market development
Horizontal integration

61

Conclusion
Proposed Strategies:

An offshoot of the unconventional Management is that sometimes follow offer


strategies which may have positive or negative effects that nobody can explain.
Our proposal is a scientific collaboration with institutes as NASA investing in
environmental studies of the Earth. This practice has no direct relation with their
business activities but will offer both; the opportunity to unlock secrets and solve
major environmental obstacles, serving future evolution.

China Fact Sheet May 2014 Mentioned that Chevron has expanded operations in
China through our subsidiaries. The range of businesses includes petroleum
exploration and production and fuels and lubricants marketing. In addition, we
contribute to the development of people and technology. Richard Pullin says that
Chevron has co investor in a $6.4 billion gas project being built by Chevron CVN.X
in China, now facing further delays due to disagreements with partner PetroChina
(0857.HK) over how to develop the technically tricky fields, three industry sources
said. The Chuandongbei project, the U.S. firm's largest investment in China, is now
not expected to deliver first gas until the second half of 2014, nearly 7 years after the
firms clinched a 30-year deal to produce 7.6 billion cubic meters of gas a year.
Although this project has significantly delayed; thus we proposed that they should
find ways to pursuit partners to accelerate the project completion, it is a great
opportunity to penetrate in the Chinese Gas upstream industry before major
competitors appear in the region. [23]

As we mentioned the Proposed Strategies for Chevron for Methane Hydrate Industry:
1. Buy or emerge with Baker Hughes, because they probably have the technology of the
extraction methane hydrates. (see above statement about Baker Hughes)
2. Invest a lot of money to create of expand the knowledge and technological
capabilities for methane hydrates exploration and refinery process.
3. Become the first operator in methane hydrate industry
4. Strategic alliance with JOGMEC (Japan Oil, Gas and Metals National Corporation),
propose to japan government new invests in japan exclusive economic zone for
exploration of methane hydrates with major target the energy security of Japan.
5. Due to the global estimated methane hydrate reserves if Chevron enters the industry
first may become the biggest oil and gas operator globally.
By this strategies Chevron is expected to be the pioneer in the next generation of the energy
map; there isnt any other company of the same magnitude to compare with.

The company has reached a high level of profitability and technological advantage in
the upstream sector. We suggest for them to follow this tactic in the downstream

62

sector by supporting and advertising the brand name in the E.U. countries. Europe is
attracted by high quality specialized and environmental friendly products. For them
to approach those markets they must minimize the environmental hazard beginning
with decreasing GHG Emissions.
The Companys global upstream operations are often locates in countries, known for the
political instability. Being innovative and using techniques of which, the environmental
impact cant be fully assessed; increases the risk of uncertain legal, environmental and social
impact. Furthermore the low bargaining power of the national entities; resolving from geoeconomic instability and pour regulation, could be beneficially used from the company and
wider from the industry to apply change .It is a fact that leaders in regions as Africa,
Argentina and other Counties, owners of huge hydrocarbon reserves, are driven by
corruption. Consequentially leading nations; into high political instability as also social
misguidance, while decreasing the power of local communities. Chevron has experienced
several legal issues concerning operations abroad. The strategy proposed is Chevron to be
innovative. To generate this time a innovative legal framework or best operation practices.
To apply transparency of all entities involved, in every phase of upstream exploitation and
exploration. By applying strict rules if the national entities are not complying with the
practices required from the company. Pre-requirements concerning facilitation and
operations abroad, prohibiting any agreements or operations, predefining serious penalties or
even cancellation of contracts; concerning the following issues: transparency, environment,
community care. If all major Oil & Gas Companies agreed to common Best Practices
regarding the matter, then they could use thus practices as a pressure point. National Entities
depend on extracting the hydrocarbon reserves as they are sometimes the only countable
revenue. According to international regulation major O&G companies are obliged to take all
legal responsibility, for any illegal act performed by third parties even if they were not
aware about though actions. Furthermore, the technologies applied for unconventional oil
and gas have a great risk involved. They require a high level of environmental and social
foundations to avoid hazard environmental impact, terrorist attacks and other undesired
outcome. The same stands in our days for conventional reserves; their becoming more and
more demanding concerning the extraction phase, they are technologically advanced but
involve unknown risks. Creating a western operating platform will be beneficial in several
ways. It will increase the brand name integrity by operating in a more environmental friendly
manner. Being environmentally friendly will lead to fewer GHG emissions and other
polluting consequences. Best operation practices abroad will secure the integrity of tangible
assets. Those are many times targets of terrorist or revels. Due to unstable political situation,
the communities have no gain from the industries activities. Furthermore they suffer
experiencing the decrease of clean water air and food. Chevron can gain high future
sustainability by being a part in the evolution of local societies linked to the O&G Industry
by creating a fair play environment.

63

References
[1] History, Vision, Mission, Strategies and Objectives of Chevron is from Annual
Report of Chevron 2013 and from the official website of Chevron:
http://www.chevron.com/
[2] North American Oil Sands: History of Development, Prospects for the Future,
Updated December 11, 2007 Marc Humphries, Analyst in Energy Policy, Resources,
Science, and Industry Division, CRS Report for Congress
[3]
Information
from
technology.com/projects/athabasca/

the

website:

http://www.hydrocarbons-

[4] Information from the website: http://gulfnews.com/business/oil-gas/canada-s-oilsands-feel-heat-of-price-drops-1.1400762


[5] Information from this report: Upstream Dialogue The facts on oil Sands,
CANADAS OIL SANDS PRODUCERS, OILSANDSTODAY.CA
[6] Information from the website: http://geology.com/energy/shale-gas/
[7]
(Frontiers
in
Ecology
and
the
Environment)
See
more
at:
http://wws.princeton.edu/news-and-events/news/item/fracking-dark-biological-fallout-shalegas-production-still-largely#sthash.RQ8lcYpJ.dpuf
[8]
Information
from
the
http://www.theguardian.com/environment/2012/apr/17/shale-gas-fracking-uk

website:

[9]
Information
from
the
website:
http://www.businessstandard.com/article/companies/crude-oil-fall-to-nix-ril-s-returns-from-us-shale-gasassets-114101300036_1.html
[10] Information from the report: Risk Assessment for the Shale Gas industry in
Europe,Lucie Roux*, Jim Seaton, Dr Patrick Gougeon, Dr Kostas Andriosopoulos,
Research Centre for Energy Management, ESCP Europe Business School, London,
United
Kingdom,
http://www.rcem.eu/media/188904/risk_assessment_for_the_shale_gas_industry_in_eur
ope.pdf
[11]
Information
from
the
http://www.chevron.com/deliveringenergy/naturalgas/shalegas/

website:

[12] Information from the website:

64

http://www.dailymail.co.uk/sciencetech/article-2292555/Japanese-breakthroughcountry-extract-fuel-ice-reserves-locked-beneath-coast.html#ixzz2NSgeQfQe
[13] Information from the website:
http://www.bakerhughes.com/news-andmedia/press-center/product-announcements/houston-texas-april-19-2013
[14] Information from the scientific article: A global survey of gas hydrate development
and reserves :Specifically in the marine field Shyi-MinLu, Energy and Environment
Research Laboratories ,Industrial Technology ResearchInstitute , Chutung
,Hsinchu310 ,Taiwan
[15] Chevron Annual Report 2013 Supplement
[16] Chevron Alternative Annual Report 2010 , http://truecostofchevron.com/
[17] Carbon Tracker Initiative Report, Oil & Gas Majors: Fact Sheets Chevron
Corporation August 2014, http://www.carbontracker.org/
[18] Chevron 2013 Corporate Responsibility Report
[19] Chevron Annual Report 2013
[20] OPEC oil downstream outlook for 2040, OPEC Oil Outlook 2014
[21] By M Humphries - 2008 www.dtic.mil/cgi-bin/GetTRDoc?AD=ADA477532
[22] Chevron, May 2014 http://www.chevron.com/countries/canada/businessportfolio/
[23]http://in.reuters.com/article/2013/12/06/us-chevron-cnpc-gas
idINBRE9B507520131206

65