PIRA: World's top 10 energy companies' strategies revealed in new study

The strategies of some of the largest publicly traded oil and gas companies have been revealed in a recent comprehensive study released by energy consulting firm PIRA Energy Group, New York City.

By OGJ editors

HOUSTON, Nov. 26 -- The strategies of some of the largest publicly traded oil and gas companies have been revealed in a recent comprehensive study released by energy consulting firm PIRA Energy Group, New York City.

The study, "Market Dominance and Success: Strategies of the World's Top 10 Energy Companies," profiles the companies using eight financial-based key performance indicators (KPIs), 9 operating-based KPIs, and 4 risk-based KPIs. Each company's final total score was then used to benchmark it among its peers.

The companies' ranks and total scores were ExxonMobil Corp., 132; BP PLC, 130.5; Royal Dutch/Shell Group, 126.5; TotalFinaElf SA, 102; ChevronTexaco Corp., 99; ENI SPA, 94.5; ConocoPhillips, 90; Repsol-YPF SA, 73.5; Marathon Oil Corp., 73.5; and Amerada Hess Corp., 68.

"The global energy industry has undergone significant restructuring and rationalization over the last 5 years triggered by a period of weak financial performance following the oil price weakness caused by the 1997-98 Asia Crisis," PIRA said. Largely through mergers and acquisitions, these 10 companies are "making concerted drives to get bigger and thus more capital and cost-efficient," PIRA noted, which has led to internal restructuring and massive cost reductions.

"In a period of highly uncertain equity markets and a rash of industry bankruptcies, achieving enhanced shareholder value is the number one priority of all public companies," PIRA said, adding, "Energy firms are no different."

Key findings
The study contained several key findings:

-- As more production and proven reserves come from more "uncertain areas" such as western and northern Africa and the Caspian Sea, PIRA said, companies' risk profiles will change. "Production increases are centered in these areas for all companies except Repsol, ConocoPhillips, and BP. Repsol, meanwhile, has significant risk exposure in South America, while BP is the only company to improve its upstream risk profile from additional production in the Gulf of Mexico and NGL operations at Trinidad."

-- The increased importance of natural gas will continue its rise "due to its status as the preferred energy source," PIRA said. Companies with competitive advantages possess "significant" gas in their portfolio to meet demand in Asia, Europe, and the Americas, PIRA said, adding, "Companies with below-average gas reserves—such as ChevronTexaco on a worldwide basis and Shell in the US—must consider and implement acquisitions to address weaknesses in their gas reserves base.

-- Operations located downstream will continue to be "challenging," PIRA said. "Companies with large exposure in Asia, such as ChevronTexaco, will have returns squeezed. ExxonMobil, Shell, and BP have placed 'big bets' for potential growth opportunities in China, which will lower returns in the short run, yet still offer no guarantees on enhanced income and capital efficiency in the long run," it said. Meanwhile, "companies with primary exposure in the US, such as Marathon and ConocoPhillips, will outperform those companies with activities centered in Europe (TotalFinaElf and ENI) and South America (Repsol)."

-- Continually lowering costs "is key in generating profitability that is not tied into margins," PIRA said. "Larger companies such as ExxonMobil, BP, and Shell can spread technological improvements over larger asset bases and operations, thus lowering unit costs. Companies with recently completed mergers (ChevronTexaco and ConocoPhillips) and acquisition (Shell) are in excellent positions to deliver immediate synergy benefits that should improve their near-term earnings picture."

-- Those companies with "unique advantages" will sustain higher operating income and capital efficiencies, PIRA noted. "ExxonMobil has the largest lubricant operations in the world; ConocoPhillips enjoys a strong position in the specialty coke market; Repsol's earnings reflect its dominant position in the LPG markets in both Spain and in South America; and both TotalFinaElf and ENI have been able to develop relationships in areas in Northern Africa and the Middle East that are unavailable to American-based companies."

More in General Interest