1. Patrick Long and Steve Roberts May 2014
Overview of Midstream and Downstream: Highlighting Current Events and Their Impact on the Back Office
Patrick Long and Steve Roberts May 2014

2. Did You Know…
…the 42 gallon barrel originated with John D. Rockefeller? Some oil was spilled during one of his early shipments. The result was 50 gallons a barrel now being 42…

3. Agenda Introduction to Opportune Process & Technology
Downstream Overview
Crude Origin
Logistics
Refining
Final Thoughts

4. Introduction to Opportune
Opportune at a glance
Opportune is a leading energy consulting firm, serving clients throughout North America and Europe from offices in Houston, Denver, and London.
We are unique in that we have the deep energy expertise of a large firm, but the nimbleness of a smaller firm.
We bring heavily experienced teams to deliver value to our clients in addressing complex strategic, transaction, process and technology issues.
Practice Areas
Process and Technology
Corporate finance
Complex financial reporting
Strategy and organization
Restructuring & Bankruptcy
Strategic Tax
Energy Segments
Energy trading and risk management
Upstream oil & gas
Refining & marketing
Power generation
Transport/distribution and storage

5. How Downstream Fits Into Oil Production
UPSTREAM
MIDSTREAM
DOWNSTREAM

6. Downstream’s Role Within the Industry
Upstream
Midstream
Downstream
Representative Companies
Integrated Oils

7. Senate Asks EIA to Study Crude Oil Export
Energy is in the News
Senate Asks EIA to Study Crude Oil Export
Administration Delays
Keystone XL Decision
Crude by Rail Costs
Rival Pipeline
Environmental
Groups
Want Extensive
Oil Review

8. North American Unconventional Basins

9. Crude Origin Crude at the Wellhead Complexities
Almost no value without the ability to get it to market
First Purchaser usually makes initial logistical move towards liquid market
Small pipeline gathering system or limited well-site storage and truck transport to pipeline or storage
Complexities
Geographically dispersed supply
Divisions of interest
Economics of transportation
Leased Crude

10. Complexities / Challenges
Crude Origin
The increase in drilling technology has outpaced the industry’s ability to absorb the change efficiently.
Complexities / Challenges
Leased Crude
Limited infrastructure to support boom
Health and safety uncertainty around methods of drilling (e.g., fracking debate)
Inventory tracking and reconciliation
New Suppliers with Limited Credit History
New Logistical Processes (Transloading)
New crude types
Current Events
Shale boom has generated production in new regions
Fracking technologies have generated increased production in existing regions

11. Crude Origin – Accounting Impacts
New crude sources have created opportunities for many new companies to emerge almost overnight in this space.
Accounting Impacts
Boom has created new companies to support the value chain, many of which are focused on operations and have limited accounting capabilities
Secondary costs are often “invisible” to commercial deal teams, and only reveal themselves during actual transactional flow
Significant transactional volume for royalty, tax, and other associated payments
Increased regulatory reporting requirements (permitting, first purchaser reports)

12. Complexities / Challenges
Crude Logistics
Two primary modes of logistics from initial gathering to market:
Bulk
Non-Bulk
Complexities / Challenges
Pipelines have limited and fixed operating locations and throughput
Vessels / barges are limited by access
Trucks have flexible operating locations, but high costs and limited per truck volume
Rail has wide operating range, similar capacity to barge
Current Events
New oil production onshore has outpaced the available pipeline capacity in the region
Cyclical swings in marine utilization has current costs very high
Wellhead gathering demand has driven up truck costs
High profile rail incidents have increased scrutiny on operations

13. Crude Logistics – Accounting Impacts
Two primary modes of logistics from initial gathering to market:
Bulk
Non-Bulk
Accounting Impacts
Most pipelines very automated and provide volumetric and invoice integration, but work on a monthly cycle
Marine movements have numerous line item costs, events to manage, and mode of transport is highly paper based
Limited tank car capacity leads to high number of transactions for equivalent volume of crude (vs bulk)
Crude by rail is relatively new in industry, and organizations are slow to evolve processes to support the transactions

14. Rail Delivery System Under Lots of Pressure
Rail is in the News
Railroad Fills
Void as Oil Pipelines
Fall Short
Railway Car
Manufacturers
Won’t Talk Safety
Despite Concerns
Rail Delivery System Under
Lots of Pressure
Oregon oil train shipments increased 250% in 2013

15. Rail Specific Complexities…in Accounting
Crude rail creates many complexities not typically seen with other modes of bulk transportation…they all have accounting implications!
Hydrocarbon Pricing, Costs, Commercial Terms
Transloading Costs
Inspections
Railcar Leases and Riders
Destination Offloading Costs
Cleaning
Track Repair
Yard Fees
Car Location Messages (CLM): Locations, Sight Codes, Dates / Times, Destinations, Railroads, ETA’s
Freight Costs
Fuel Surcharge
Customs Charges
Equipment Surcharge

16. Crude Types Around the World
Different regions of the world have different crude types... 40 35 30 25 20 15 10 5
High
Low
Light
Heavy
API
Gravity
(API)
Sweet
Sour
Sulfur (%)
Libyan
USA WTI
North Sea Brent
Nigerian Forecados
Indonesian Duri
Arab Light
Dubai
Arab Medium
Arab Heavy
Alaskan
North
Slope
Venezuelan BCF-17
Mexican Maya
Venezuelan Pilon
Ural
Bakken
Need to add brent crude 3 5

17. Crude Properties
Light or heavy designation depends on the average molecular weight of the crude oil.
Heavy oils are high in either tar (asphaltic) compounds, polyaromatics, or both.
Light oils are high in low molecular weight compounds, like small alkanes. Light crude is easier to process which brings a higher price.
Sweet or sour depends on the sulfur content.
Sweet crudes have a low sulfur content.
Sour crudes have a high sulfur content.
Sweet crude is easier to process which brings a higher price.

18. Converting Crude to Refined Product
Refineries convert crude oil into finished (refined) products
Processes
With Assistance of
Separation
Heat
Conversion
Pressure
Blending
Catalysts
Treatment
Additives
Oil Refinery
Clean up colors

19. What Goes Into the Cost of Gasoline?
Update

20. Refinery Types and Crude Optionality
Every refinery is different in terms of what units it has and how big each unit is.
Major groups: margin vs investment
Topping plant
Cracking plants
Coking plants
Determined by crudes to be run and products to be produced
Far East: run light crude to produce distillates
West Coast: run heavy crude to make gasoline
Rocky Mountain: limited crude access
East Coast: must produce home heating oil

21. Crude Conversion Happens in Different Ways
Hydrocraking
Breaks up the next heavies components using hydrogen / catalysts
Fluidized Catalytic Cracking (FCC)
Breaks up diesel quality components using catalysts
Alkylation
Combines light ends from crude tower with by products from FCC
Needs work

22. Refining Current Events
North American domestic oil production has increased, adding to the crude optionality for refineries
In US, Jones Act restricts export of domestically produced crude
Anything that is processed can be exported, leading to new construction of splitters that run crude through a single process then export the refined products
Global political instability has a constant impact on crude and refined product markets
Formatting and tailor to accountants and Tech

23. Accounting Impacts
Numerous sources of crude coming into refinery must be tracked and measured
Changing economic landscape is bringing new counterparties with which to transact
Inventory Reconciliation
Yield Accounting
Production or increased supply from new areas brings new locations
Master Reference Data impact
Potential new tax implications
New points at which to hold inventory
Formatting and tailor to accountants and Tech

24. Final Thoughts
Transaction Processing and Scaling Organization and Processes to Support
Focus on larger trends and analysis
Health Checks to catch issues early
(Over) Communicate with the Business
Formatting and tailor to accountants and Tech

25. Appendix
Formatting and tailor to accountants and Tech

26. PADD: Petroleum Administration for Defense Districts
The United States is divided into five Petroleum Administration for Defense Districts, or PADDs. These were created during World War II under the Petroleum Administration for War to help organize the allocation of fuels derived from petroleum products, including gasoline and diesel (or "distillate") fuel. Today, these regions are still used for data collection purposes. When the looking at market share for M&A purposes the regulatory agencies look at how big a company is in the PADD’s that would be affected.
Source: eia.gov

27. Key Numbers and Stats to Remember
Gallons of Oil per Barrel 42
Barrels of Oil per Metric Ton (U.S.)
7.33
U.S. Petroleum Consumption
18.5 million barrels/day
Dependence on Net Petroleum Imports
45.6%
Motor Gasoline Retail Prices U.S. City Average
$3.41/gallon
Regular Grade Motor Gasoline Retail Prices U.S. City Average (2011)
$3.32/gallon
Premium Motor Gasoline Retail Prices U.S. City Average
$3.68/gallon
Federal Motor Gasoline Tax
18.3 cents/gallon
U.S. Motor Gasoline Consumption
9,120,000 barrels/day (383 million gallons/day)
Share of US Oil Consumption for Transportation
69%
U.S. Average Home Heating Oil Price
$4.23/gallon (excluding taxes)
Number of U.S. Operable Petroleum Refineries
148
Largest U.S. Refinery by Capacity – Port Arthur, TX (Motiva)
600,000 barrels/day
Top U.S. Petroleum Refining States - Texas
4,717,199 barrels/day
Need to update

28. Did You Know…
…U.S. oil demand in 2013 was 18.5 million barrels per day? …every day the US consumes enough oil to cover a football field with a column of oil 2500 feet tall? That's 121 million cubic feet. … the current U.S. refining capacity is 16.1 Million BPD
Need to update

29. What to Know About Gas Prices
As this year’s driving season begins, gas prices this week reached a nationwide average of $3.17 per gallon, four cents per gallon higher than the previous record set last year.
The media stories are increasing, and as friends and family start to ask about gas prices, it’s important to understand the facts about what goes into the price at the pump:
Crude price drives the price of gasoline
Gasoline is a global product
Taxes take a toll
Consumers are in control

30. What Are the Most Common Refined Products?
Application
Specifications
Gasoline
Transportation
Octane, Vapor Pressure, Oxygen & Sulfur
Jet Fuel
Power Generation & Transportation
Freeze, Flash & Smoke Points
Diesel Fuel
Sulfur, Cetane Index, Viscosity & Pour Point
Home Heating Oil
Heating
Sulfur, Viscosity & Pour Point
Residual Fuel Oil
Industrial Uses, Power Generation & Transportation
Others – LPG, Lubricants, Naphtahs, Greases, Asphalt, Coke & Waxes
Heating, Industrial Uses, Transportation & Petrochemicals

31. Measuring Crude Oil Using Density and Gravity
The lighter the crude, the more desirable the components it naturally contains are.
Measured in degrees API
Light crude > 30 API / Heavy crude < 30 API
EX: Roofing Tar = 8 API; Motor Oil = 40 API

32. Quality and Price of Various Marker Crudes
Gravity
Sulfur
Price
WTI
39.6
0.24%
$100.32
Brent
38.3
0.37%
$111.30
ANS
30.0
1.09%
$110.46
Maya
21.8
3.33%
$107.05
Update and come back as to keep or not

33. Classifying Refineries by Major Processes
When looking at an oil refinery from a technical perspective items are the most relevant.
Complexity - an oil refinery’s ability to process feedstocks, such as heavier and higher sulfur content crude oils, into value-added products. Generally, the higher the complexity and more flexible the feedstock slate, the better positioned the refinery is to take advantage of the more cost effective crude oils. The result is incremental gross margin opportunities for the refinery.
Capacity – is a measurement of how much crude oil can be processed on a daily basis. The measurement is determined based on the standard crude slate that is run through the refinery. By adjusting the crude slates, there is the ability to slightly adjust the maximum amount that a refinery can run on a daily basis.

34. Distillation: A Boiling Process
Crude oil boils at a number of temperatures…
BOILING TEMPERATURE of
100
200
300
400
500
600
700
800
900
1000 10 20 30 40 50 60 70 80 90
LIGHT NAPHTHA
BUTANES & LIGHTER
HEAVY NAPHTHA
GAS-OIL
CAT PLANT FEED
RESIDUE
CUMULATIVE PERCENT VOLUME
Crude Oil Distillation Curve and Its Fractions
KEROSENE
Crude oil boils at
150o… 450o… 750o… 900o...
150
450
750
900
Each type of crude has a unique distillation curve that characterizes the kinds of chemical compounds in that crude
Petroleum Refining: Leffler

35. Major Components of Distillation: Crude Tower
Vaporizes crude oil
Separates components
Sends lighter gas to top
Settles heavier liquid to bottom
Directs components to other processes
Keeps chemical nature the same

36. Major Components of Distillation: Vacuum Tower
Receives heavier crude from the crude tower
Heats crude again
Distills under a vacuum to prevent decomposition
Distills lighter vapor into gas oil
Sends heavier crude to coker unit
Produces Fuel Oil

37. Major Components of Distillation: Summary
The outputs of these two units are sent throughout the refinery, either as finished products or components that need more refining
Going from lightest to heaviest distilled component, natural gas (or methane) comes first
Methane is used as fuel in the refinery

38. Major Components of Conversion: Delayed Coker
Receives heavy crude from the vacuum tower
Breaks up the heaviest components with high temperature and pressure
Makes heavy components lighter
Sends some components for further processing
Produces solid industrial fuel called coke

39. Improving Octane Through Conversion
Low Octane – Molecules in straight line Higher Octane – Molecules in shape or branch Two processes for reshaping molecules
Reforming
Forms a ring of molecules
Isomerization
Rearranges molecules geometrically
Maybe too technical

40. De-sulfurization: Getting It Out
Removes sulfur using catalysts and pressurized hydrogen
Low pressure – 600 to 800 psi (reduces sulfur to 500 ppm)
Medium pressure – 800 to 1,200 psi (reduces sulfur to 50 ppm)
High pressure – 1,200 to 1,800 psi (reduces sulfur to 5 ppm)

41. Gasoline Blending: Getting the Right Mix
Mixes components from:
Crude / vacuum tower
Hydrocracker
FCC
Alkylation
And creates products with specifics, desired characteristics
Regular
Premium
Aviation gasoline

42. Top 10 List: Largest Global Refineries
Rank
Company
Location
Crude Capacity (b/cd) 1
Paraguana Refining Center
Cardon/Judibana, Falcon, Venezuela
940,000 2
SK Corp.
Ulsan, South Korea
817,000 3
GS Caltex Corp.
Yeosu, South Korea
750,000 4
Reliance Petroleum Ltd.
Jamnagar, India
660,000 5
ExxonMobil Refining & Supply Co.
Jurong/Pulau Ayer Chawan, Singapore
605,000 6
Reliance Industries Ltd.
580,000 7
S-Oil Corp.
Onsan, South Korea
565,000 8
Baytown, Texas, USA
560,500 9
Saudi Arabian Oil Co. (Saudi Aramco)
Ras Tanura, Saudi Arabia
550,000 10
Formosa Petrochemical Co.
Mailiao, Taiwan
540,000
Check for updates

43. Top 10 List: Largest US Refineries
Rank
Corporation
State
Site
Barrels per Calendar Day 1
Motiva
Texas
Port Arthur
600,000 2
ExxonMobile
Baytown
584,000 3
Marathon
Louisiana
Garyville
522,000 4
Baton Rouge
503,000 5
Texas City
451,000 6
PDV AMERICA INC
Lake Charles
427,800 7
BP PLC
Indiana
Whiting
405,000 8
Chevron Corp
Mississippi
Pascagoula
370,000 9
Beaumont
348,500 10
Sunoco / ETP
Pennsylvania
Philadelphia
335,000
Check for updates

44. Top 10 List: Petroleum Refining States
Rank
State
Operating Crude Oil Distillation Capacity (1000/day)
# of Operating Refineries 1
Texas
4,241 24 2
Louisiana
2,534 16 3
California
2,005 20 4
Illinois
904 5
Pennsylvania
770 6
New Jersey
655 7
Washington
624 8
Ohio
511 9
Oklahoma
487 10
Indiana
433
Check for updates

45. Did You Know…
…U.S. oil demand in 2013 was 18.5 million barrels per day? …every day the US consumes enough oil to cover a football field with a column of oil 2500 feet tall? That's 121 million cubic feet. … the current U.S. refining capacity is 16.1 Million BPD
Need to update

46. The Largest U.S. Refiners Are…
Company Name (2013 Fortune 500)
Rank
Revenues ($b)
Profits ($mm)
Exxon Mobil 2
449.9
44,880
Chevron 3
233.9
26,179
Phillips 66 4
169.6
4,124
Valero Energy 9
138.3
2,083
Marathon Petroleum 33
76.8
3,389
Hess 75
38.4
2,025
Tesoro 95
32.5
743
Murphy Oil
104
28.8
971
PBF Energy
142
20.1
HollyFrontier
143
1,727
Western Refining
283
9.5
399
Update

47. What to Know About Gas Prices
As this year’s driving season begins, gas prices this week reached a nationwide average of $3.17 per gallon, four cents per gallon higher than the previous record set last year.
The media stories are increasing, and as friends and family start to ask about gas prices, it’s important to understand the facts about what goes into the price at the pump:
Crude price drives the price of gasoline
Gasoline is a global product
Taxes take a toll
Consumers are in control

48. Refining Take Aways – Remember these…
Refined products are designed with specific properties based on engine requirements.
Refineries convert crude oil into finished products.
Distillation separates hydrocarbons into fractions using different boiling temperatures.
Quality improvement operations increase gasoline octane and remove sulfur impurities.
Conversion operations break larger hydrocarbons (fuel oil) into smaller ones (gasoline).
Refineries are built using combinations of different processing units.
Formatting and tailor to accountants and Tech