Petroleum Crude oil Natural gas
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• Petroleum • Crude oil • Natural gas •LNG • Fractionatio n • Oil fields • Dissolved gas drive • Gas-cap drive • Water drive OIL EXTRACTION & PRODUCTION • How was oil used after its discovery in western PA? What products did it replace? • How do geologists find oil now?
Transcript of Petroleum Crude oil Natural gas
• Petroleum
• Crude oil
• Natural gas
• LNG
• Fractionation
• Oil fields
• Dissolved gas drive
• Gas-cap drive
• Water drive
OIL EXTRACTION
& PRODUCTION
• How was oil used after its discovery in western PA? What products did it replace?
• How do geologists find oil now?
Successor companies to Standard Oil include:Standard Oil of Ohio - or Sohio now part of BP Standard Oil of Indiana - or Stanolind, renamed Amoco
(American Oil Co.) - now part of BP Standard Oil of New York - or Socony and merged with
Vacuum - renamed Mobil, now part of ExxonMobil Standard Oil of New Jersey - or Esso (S.O. or Eastern States
Standard Oil) - renamed Exxon, now part of ExxonMobil Standard Oil of California - or Socal - renamed Chevron Atlantic and Richfield - merged to form Atlantic Richfield or Arco
- now part of BP - Atlantic operations spun off and bought by Sunoco
Standard Oil of Kentucky - or Kyso was acquired by Standard Oil of California - currently Chevron
Continental Oil Company - or Conoco now part of ConocoPhillips
OIL EXTRACTION & PRODUCTION
•Regulation of drilling (“drilling mud” and other wastes) and refining (air pollution and other wastes)
OIL EXTRACTION
Common law
Rule of capture
Monogahela case (PA, 1907): “every landowner or his lessee may locate his wells wherever he pleases … He may crowd the adjoining [landowner] …”
OIL EXTRACTIONDoes the rule of capture tend to ensure production at the maximum efficient rate of recovery? If not, how might we achieve this goal?
•“unitization” and “pooling” • government ownership•“secondary recovery”
Lower 48 Crude Oil Reserves & Production, 1945-2000
0
5
10
15
20
25
30
35
40
1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000
Cru
de
Oil
Res
erve
s, B
illio
n B
arre
ls
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Cru
de
Oil
An
nu
al P
rod
uct
ion
, Bill
ion
Bar
rels
Lower 48Reserves
Lower 48Production
PeakProduction1970
PeakReserves1959
Source:
BP
Production by National Oil Companies
Example: Oil Industry
Early 20th c: rapid growth of international oil industry
1930s-70s: Latin American nationalizations
1960: OPEC formed
1960s-70s: Middle east nationalizations
1973: first oil crisis in US; price controls instituted
1977: second oil crisis in US
Nationalization
1917: Russia
1931: Mexico PEMEX
1970s: Libya, Iran
Do nations have a legal right to nationalize private assets?
“act of state” doctrine in international law
Economics of Oil Industry
• Shift from control by private oil companies toward state-owned companies
• Declining profitability
• OPEC
OPEC and Oil Prices:
• 10/73-3/74: OPEC embargo more than doubles world prices
• Israeli-Egypt war
• 1979-83: price more than doubles again
• Iranian revolution
• OPEC price controls
• Post 1983: declining OPEC power
What is OPEC’s goal in supply/price-setting?
What is impeding OPEC’s ability to control prices now?
Investing in Developing Countries:
Political Risk
What is “political risk”?
What sort of political risks can undermine the value of a firm’s investment?
Nationalization or “creeping expropriation”
Law or Policy change (regulatory; monetary)
Terrorism/war/civil strife
How can firms contemplating investment in developing countries predict political risk?
Example: Oil Industry
Early 20th c: rapid growth of international oil industry
1930s-70s: Latin American nationalizations
1960: OPEC formed
1960s-70s: Middle east nationalizations
1973: first oil crisis in US; price controls instituted
1977: second oil crisis in US
Assessing/Predicting Risk:
• “Grand Tours” approach
• “Old Hands” approach
• Quantitative analysis
• Qualitative analysis: “Delphi” technique
Do you think political risk is predictable?
Investing in Developing Countries:
Political Risk
“corporate managers came to view risk analysis as an ‘ivory tower exercise,’ rooted in academic theory rather than managerial practice.”
HBS Note on Political Risk
Then how do companies (or their investors or insurers) decide when political risk is too great? What characteristics do you think are correlated with political-legal stability, or negatively correlated with political risk?
Investing in Developing Countries:
Political Risk
What should investors look for?
Investing in Developing Countries:
Political Risk
What should investors look for?
1. Veto points in the policy process (e.g., divided government, separated powers, federalism)?
2. System stability, but peaceful political change?
3. Strong independent bureaucracy & judiciary?
In other words, “credible commitments against arbitrary policy changes”.
Like what?
Investing in Developing Countries:
Political Risk
How can corporate managers manage political risk?
• Insurance
• Sharing risk with host nation
Investing in Developing Countries:
Political Risk
