Course Leader: Georgios Theriou

Course: Strategic Management

Kavala 2014

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

1

Introduction

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. Rockefeller’s 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,

Source: Chevron Annual Report 2013

2

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 Texaco’s

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 vision…to 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

3

worldwide and we imagine our company impact could be beneficially for global society and

local communities.

Mission of Chevron:

Our company’s 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: It’s 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]

4

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 10°C 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, CANADA’S OIL SANDS PRODUCERS, OILSANDSTODAY.CA

5

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

6

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

7

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

Analysis

Opportunities Strengths Weaknesses Threats

1 Increase of Oil prices

167 BILLION BARRELS

Canada has 173 billion

barrels of oil that can be

recovered

economically with today’s

technology. Of Canada’s 173

billion barrels of oil, 167

billion barrels are located in

the oil sands. SOURCE: AER

2014 AND OIL AND GAS

JOURNAL 2013. [5]

Environmental

impact

The Government

of Alberta

implemented

GHG regulations

in 2007 requiring

a mandatory

12% reduction in

GHG emissions

intensity for all

large industrial

sectors including

existing oil

sands facilities, or

a payment in

lieu[5]

2 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]

Oil sands

account for

8.7% of

Canada’s

GHG

emissions and

about 0.13%

of global GHG

emissions.*[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

8

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

3 South East Asia oil and

gas demand will

increase until 2040 (BP

Energy statistics 2013)

Canada independence from

oil Imports

Cost of

production per

barrel. Some

organization

estimate that

the profitable

price of oil for

oil sands must

be between

110$ and

150$.[4]

USA production

boom from shale

oil can reduce the

imports of Oil

from Canada to

USA.

4 USA market of oil and

Gas

USA independence from

Oil imports of Middle East. Canada is the largest

supplier of crude oil and

petroleum

products to the U.S. [5]

Northern

Alberta, where

oil sands

operations

occur,

has more than

86% of

Alberta’s

water

supply[5]

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]

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

Canada’s 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]

182 KM2

The total area

of existing

tailings ponds

is 182 km2

including

associated

structures

such as ditches

and dykes.

The total

surface area of

all fluid

tailings is 77

km2.

SOURCE:

AESRD

2013[5]

Canadian

government

regulations and

environmental

legislation [5]

9

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

10

Environmental Impact of Shale Gas

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

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

11

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]

12

Source: www.chevron.com

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

13

SWOT Analysis of Shale Gas Industry

SWOT

Analysis

Strength Opportunities Weaknesses Threats

1 Low prices of

natural gas

locally increasing

economic growth

and increase

economic

competitiveness

for the national

industry (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 2013-

4)

Environmental

impact during

drilling

operations such

us Horizontal

Drilling and

Hydraulic

Fracturing (see

environmental

impact above)

Government

environmental

and taxation

legislation

2 Energy security

for the countries

producer,

especially the

USA (BP

Statistics 2013-4)

Friendly

environmental

production for

drilling

operations on

shale gas and

oil-

Technology

innovation-

Specialization

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]

Decreasing of

oil prices

globally

3 Geopolitical

Impact (for

instance control

the production of

natural gas,

control the prices

globally etc..)

More friendly

energy

national mix,

see USA

example (BP

Statistics 2013-

4)

Groundwater

Contamination-

Affect the life of

many people-

may affect

economic growth

Rise of LNG

on global

market[10]

4 Reduction of

national CO2

emissions of

energy country

producer due to

decreasing coal

Increasing in

the percentage

of

unconventional

fossil fuels in

the global

Gas Flaring in

some cases

Technological

Risks

Poor well

performance

Lack of

infrastructure

14

consumption

which replaced

by natural gas

(BP Statistics

2013-4)

energy mix

(BP Statistics

2013-4)

Reserves

uncertainty

Reserves

accessibility

Equipment

shortages[10]

5 Increase national

GPD (see USA

example since

shale gas boom)

Energy

Security of

European

Union( EU

independence

on Russian

natural gas)

Brand/reputation

damage of the

operator

company such us

Chevron in a

case of an

accident.

Energy and

climate change

policies [10]

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.

15

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-ice-reserves-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

16

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]

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]

'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-ice-reserves-locked-beneath-coast.html#ixzz3JByvbMTg

17

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

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

18

“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 Japan’s 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]

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-ice-reserves-locked-beneath-coast.html#ixzz3JC3JLvXr

19

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

20

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.

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

21

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 Chevron’s upstream

business magnitude, its strengths and capabilities they could help meet the world’s energy

demands. The company’s upstream has operations in most of the world’s 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 upstream

businesses.[15]

22

Strengths

Financial stability

Financial Analysis of Chevron Corporation

Source: Annual Report of Chevron 2008, 2009, 2010,2011,2012,2013,

Brand Reputation

World’s 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.

Particulars 2013 2012 2011 2010 2009 2008

Current ratio 1.50 1.60 1.60 1.70 1.40 1.10 Interest coverage 126.20 191.30 165.40 101.70 62.30 166.90 Debt ratio 12.1% 8.20% 7.70% 9.80% 10.30% 9.30%

Return on

stockholders’ equity

15.00% 20.30% 23.80% 19.30% 11.70% 29.20%

Return on capital

employed

13.50% 18.70% 21.60% 17.40% 10.60% 26.60%

Return on

Investment

8.44% 11.80% 13.60% 10.90% 6.40% 15.40%

DPS (Dividend Per

Share)

3.90 3.51 3.09 2.84 2.66 2.53

EPS (Earning Per

Share) 11.09 13.32 13.44 9.48 5.24 11.67

Total stockholder

return

15.51% 5.00% 20.30% 22.30% 8.10% -18.40%

Πηγή: Chevron Annual Report 2013 Supplement

23

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 2008—itself Chevron’s 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 GE’s 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/news-

release-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

24

(Source: 2013 Global Employee Survey Favorability Percentage in 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 second-

highest 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:

Source: Chevron 2013 Corporate Responsibility Report

25

Chevron’s 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 Chevron’s 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

company’s 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]

Catastrophic decisions from the management team and the company we believe

doesn’t 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.

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

26

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

27

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 don’t 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

28

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)

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

29

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

World Energy Investment Outlook, Special Report, IEA 2014

30

SWOT

ANALYSIS

OF

CHEVRON

UPSTREAM

SECTOR

Strengths Weaknesses Opportunities Threats

1 Financial

stability

Legal Issues

Technology

R&D innovation

in the field of

exploration of

methane

hydrates

Government

environmental

and taxation

legislation

2 Brand Reputation

Cost of

environmental

hazards

Strategic alliance

with JOGMEC

(Japan Oil, Gas

and Metals

National

Corporation)

and Baker

Hughes

Cost of

production and

exploration of

oil and gas wells

3 World’s 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

Discovered

enormous oil

field all around

the world.

Low global

economic

growth->

Decreasing the

demand for oil

mainly and

natural gas

secondly

4 Technology

Innovation in

upstream

technologies

Brand

reputation

decline the

previous years

Aggressive

Market

penetration in

the markets of

shale gas and oil

sands through

merges and

acquisitions

Geopolitically

instability

5 Global workforce

consists of

approximately

64,500 employees

Catastrophic

decisions from

the management

team

Increasing global

energy demand

due to the

rapidly growth

of the global

population until

2040

Technological

Risks in some

specific

upstream sectors

such as shale gas

and oil sands

6 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.

Focus of the

company on a

domain sector of

oil and gas

industry,

especially

upstream

Focus of the

company in gas

sector, due to the

big investments

that will

happened the

next years until

2035 according

to IEA

Risks associated

with conducting

business outside

the US

7 massive oil reserves Stable levels of European Union High competition

31

GHG Emissions

the last 5 years

and Japan

energy security

for the future

8 Second largest

integrated energy

company in the

world

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

Unmanageable

Chevron

Environmental

impact

9 Access to unstable

areas to produce oil

and gas such us

Kurdistan of Iraq

Merge and

acquisitions with

National Oil

Companies

The use of oil

prices as a

diplomatic

weapon from the

major players

globally like

USA

10 Geopolitical player,

more specific

geoenergy player

Propose a new

strategic

marketing plan

to increase

brand reputation

in global scale

The creation of a

new market

from a major

competitor like

Shell (For

instance hydrate

methane)

11 Increase energy

efficiency across all

the operations

Increasing

natural gas

market &

increasing

demand for LNG

Over Debt

countries

globally

12 Beneficially

company

environment- High

level of Satisfaction

among the

employees of

Chevron

Increasing

fuel/oil prices

Currency war

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.

NOC- National

Oil Companies

influence and

ownership of the

global reserves

32

EFE Matrix for Chevron Upstream Sector

Key External Factors

Opportunities Weight Rating Weighted Score

1. Technology

R&D innovation

in the field of

exploration

0.08 3 0.24

2. European

Union and Japan

energy security

for the future

0.1 4 0.40

3. Increasing

natural gas

market &

increasing

demand for LNG

0.08 2 0.16

4. Increasing

fuel/oil prices 0.05 2 0.1

5. Increasing

global energy

demand

0.05 2 0.1

6 Aggressive

Market

penetration in

the markets of

shale gas and oil

sands

0.06 3 0.18

7. Strategic

alliance with

JOGMEC (Japan

Oil, Gas and

Metals National

Corporation) and

Baker Hughes

0.1 4 0.4

8. Merge and

acquisitions with

National Oil

Companies

0.08 2 0.16

Threats

1. Over Debt

countries

globally/Low

Global economic

growth

0.04 3 0.12

2. NOC- National

Oil Companies influence and ownership of the global reserves

0.1 4 0.4

33

3. Cost of

production and exploration of oil and gas wells

0.06 2 0.12

4. The use of oil

prices as a diplomatic weapon

0.05 3 0.15

5. The creation of

a new market from a major competitor

0.05 2 0.1

6. Geopolitically

instability

0.05 4 0.2

7. Cost of

production and exploration of oil and gas wells

0.05 3 0.15

Total 1.00 2.64

34

IFE Matrix for Chevron Upstream Sector

Key Internal Factors

Strengths Weight Rating Weighted Score

1. Financial

stability

0.08 3 0.24

2. Brand

Reputation

0.1 4 0.4

3 World’s largest

holder of deep

water acreage in

Gulf of Mexico

and Nigeria

0.06 4 0.24

4. Technology

Innovation in

upstream

technologies

0.05 4 0.2

5 Global

workforce

consists of

approximately

64,500 employees

0.05 3 0.15

6 massive oil

reserves

0.06 3 0.18

7. Second largest

integrated energy

company in the

world

0.08 3 0.24

8. Geopolitical

player, more

specific

geoenergy player

0.12 4 0.48

Weaknesses Legal Issues 0.04 2 0.08 Cost of

environmental

hazards

0.1 2 0.2

Influence by the

low prices of oil

in the production

of the company

which can be

decrease/decline

0.06 2 0.12

Brand reputation

decline the

previous years

0.05 2 0.1

Catastrophic

decisions from

the management

team

0.05 2 0.1

35

Focus of the

company on a

domain sector of

oil and gas

industry,

especially

upstream

0.05 1 0.05

Stable levels of

GHG Emissions

the last 5 years

0.05 1 0.05

Total 1.00 2.83

36

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 Chevron’s 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

37

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

Chevron Cooperate Structure, www.chevron.com

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

38

Segment Sales and Other Operating Revenues- Chevron Annual Report 2013

Segment Earnings- Chevron Annual Report 2013

Investments and Advances- Chevron Annual Report 2013

39

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-outperforming-

downstream-peer.aspx )

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 company’s 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 world’s 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)

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

40

Information’s for Chevron Asia-Pacific Area

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

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

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

41

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)

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

Εικόνα 1 Chevron Lubricants 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

42

Source: Chevron Cooperate Responsibility Report 2013

Source: Chevron Cooperate Responsibility Report 2013 Performance Data

43

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.

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,

Fire burning at the Chevron refinery in Pascagoula, Mississippi, Source: Reference [16]

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

Chevron Richmond refinery near Sun Francisco, Source: http://phys.org/news/2012-08-refinery-highlights-pollution.html

Source for the 2 graphs: Reference [15]

44

Decreasing in Marketing Retail Outlets, observe the chart below

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)

Chevron operational revenues depend on downstream operational revenues

0

50.000

100.000

150.000

200.000

250.000

300.000

2011 2012 2013

Chevron OperationalRevenues in million dollars

Chevron UpstreamOperational Revenues inmillion dollars

Chevron DownstreamOperational Revenues inmillion dollars

Source: Reference [15] Source: Chevron Annual Report 2013

45

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.

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)

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

46

Focus on the further development of lubricants and petrochemicals

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

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

47

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 Agenct-

Energy 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

48

SWOT

ANALYSIS OF

CHEVRON

DOWNSTREAM

SECTOR

Strengths Weaknesses Opportunities Threats

1 88% of the

operating

revenues of

Chevron for

2013 obtained

from the

downstream

Section

Cost of

environmental

hazards

Decreasing oil

prices, reduce

the cost per

barrel for the

refineries

Security issues.

Such as terrorist

attacks or

asymmetric

threats

2 34% of the

Investments

and Advances

of Chevron for

2013 invested in

downstream

sector

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.

Geopolitical

instability

3 Well placed in

Asia- Pacific

area because

Chevron owns

12 refineries

and 1 chemical

factory in this

area

Decreasing in US

and

International

Refined Product

Sales,

Reduce costs and

waste from the

refinery

processes of

Chevron through

R&D

Innovation,

Government

Environmental

and Taxation

Legislation

4 Marketing

network

supports retail

outlet on 6

continents

Decreasing in

Marketing Retail

Outlets,

Focus on

development of

the refineries in

Asia-Pacific, due

to expected

increase in

energy demand

in this region,

Increase of

natural gas share

in global energy

mix

5 The company

ranked 1th in

2012 on the

Refinery

Utilization

among all of the

competitors

Decreasing in

Worldwide

Downstream

Earnings,

Market

penetration in

downstream

sector of the

company on

alternative

regions such as

Middle East,

Africa and South

America.

‘Up and down’

crude slate

quality

6 Chevron

downstream

margin are 2-3$

per barrel the

Decreasing in

operational

revenues the last

3 years since

Expand our

portfolio of

refineries

through merge

Tight crude and

unconventional

NGLs (National

Gas Liquids)

49

last 5 years

since 2009

2011, operational

revenues

dropped from

244,371$ the

2011 to 220,156 $

the 2013

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.

supply growth

7 Chevron is 2th

in Return on

capital

employed with

a 18,1% for

2012 ,they had

13% for 2013

Chevron

operational

revenues depend

on downstream

operational

revenues

Strategic alliance

with major

National Oil

Companies in

Asia-Pacific area

which owns a lot

of refinery assets

in the area.

Low global

economic growth

8 Competitive

Asia Portfolio

in downstream

sector among to

the competitors

US refinery can

increase their

operating

revenues due to

they have low

energy costs.

(shale gas boom-

low prices of

natural gas)

Low global

energy demand

for refinery

products

9 Chevron

chemistry

sector, such as

Chevron

Phillips and

Chevron

Oronite

Focus on the

further

development of

lubricants and

petrochemicals

Supply and

demand Curve

10 Global well

positioned in all

continents with

14 refineries

and 5 chemical

factories

worldwide

Production of

petroleum

products from

biofuels- New

refinery

processes-

Technology

Innovation-

Expand or enter

to new markets

Increasing oil

prices

11 Chevron and its

affiliates has

serve 7,700

Caltex branded

retail outlets in

Africa and

Asia-Pacific

regions

Customer trends

for more friendly

and clean fuels

National Oil

Companies,

political

influence and

ownership of the

global oil

reserves

12 Second-largest

50

integrated

energy

company

globally

13 Chevron

cooperation

with

technologies

companies like

Microsoft

aiming to

reduce refinery

costs or to

improve

refinery

processes

51

IFE Matrix for Chevron Downstream Sector

Key External Factors

Strengths Weight Rating Weighted Score 1. 88% of the

operating

revenues of

Chevron for 2013

obtained from

the downstream

Section

0.1 4 0.4

2. 34% of the

Investments and

Advances of

Chevron for 2013

invested in

downstream

sector

0.05 3 0.15

3.Chevron

downstream

margin are 2-3$

per barrel the

last 5 years since

2009

0.08 4 0.32

4.Chevron

cooperation with

technologies

companies

0.05 4 0.2

5. Global well

positioned in all

continents with

14 refineries and

chemical

factories

worldwide

0.12 4 0.48

6 Chevron and its

affiliates has

serve 7,700

Caltex branded

retail outlets in

Africa and Asia-

Pacific regions

0.05 3 0.15

7. Chevron

chemistry sector,

such as Chevron

Phillips and

Chevron Oronite

0.04 3 0.12

8. The company

ranked 1th in

2012 on the

Refinery

Utilization

among all of the

competitors

0.06 4 0.24

52

Weaknesses

1.Cost of

environmental

hazards

0.1 2 0.2

2.Legal issues,

due to the major

accidents in their

infrastructures

0.05 2 0.1

3. Decreasing in

US and

International

Refined Product

Sales,

0.05 2 0.1

4. Decreasing in

Marketing Retail

Outlets,

0.05 1 0.05

5. Decreasing in

Worldwide

Downstream

Earnings,

0.1 2 0.2

6. Decreasing in

operational

revenues the last

3 years since

2011

0.1 2 0.2

7.Chevron

operational

revenues depend

on downstream

operational

revenues

0.1 2 0.2

Total 1.00 3.11

53

EFE Matrix for Chevron Downstream Sector

Key External Factors

Opportunities Weight Rating Weighted Score 1. Decreasing oil

prices, reduce the

cost per barrel

for the refineries

0.1 4 0.4

2. Expand our

refinery portfolio

near to

unconventional

resources, such

as shale gas and

methane

hydrates.

0.05 2 0.1

3. Focus on the

further

development of

lubricants and

petrochemicals

0.05 3 0.15

4. US refinery

can increase their

operating

revenues due to

they have low

energy costs.

(shale gas boom-

low prices of

natural gas)

0.05 3 0.15

5. Strategic

alliance with

major National

Oil Companies in

Asia-Pacific area

which owns a lot

of refinery assets

in the area.

0.1 3 0.3

6 Expand our

portfolio of

refineries

through merge

and acquisitions,

especially in

Europe

0.05 3 0.15

7. Focus on

development of

the refineries in

Asia-Pacific, due

to expected

increase in

energy demand

in this region,

0.1 4 0.4

54

8. 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

0.05 2 0.1

Threats

1. Security issues.

Such as terrorist

attacks or

asymmetric

threats

0.05 3 0.15

2. Geopolitical

instability 0.1 4 0.4

3. National Oil

Companies,

political influence

and ownership of

the global oil

reserves

0.05 3 0.15

4. Increasing oil

prices 0.05 3 0.15

5. Government

Environmental

and Taxation

Legislation

0.06 3 0.18

6. Increase of

natural gas share

in global energy

mix

0.04 2 0.08

7. Low global

economic growth

0.07 3 0.21

8. ‘Up and

down’ crude slate

quality

0.03 2 0.06

Total 1.00 3.03

55

Chevron Competitive Profile Matrix

Critical success factors

Chevron Exxon Mobil

Shell

weight Rating Score Rating Score rating score

Advertising 0.20 3 0.60 3 0.60 3 0.60

Product quality

0.10 3 0.30 4 0.40 2 0.20

Management 0.07 4 0.28 3 0.21 3 0.21

Financial position

0.10 3 0.30 2 0.20 3 0.30

Customer loyalty

0.05 2 0.10 3 0.15 3 0.15

Global expansion

0.20 3 0.60 4 0.80 4 0.80

Market share 0.09 3 0.27 3 0.27 4 0.36

Geopolitical Influence

0.15 3 0.45 3 0.45 3 0.45

Production capacity

0.04 3 0.12 3 0.12 4 0.16

Total 1.00 3.02 3.20 3.23

56

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.

57

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.

58

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

59

60

The decision stage: Simplified methodology

Proposed Strategic

Options for

Downstream

Internal – External

(IE)Matrix

Hold and Maintain

SWOT Matrix

Grant Strategy

Matrix

Market Penetration x x x Market

development

x x

Product

development x x x

Horizontal

integration

x

Related

diversification

x

Unrelated

diversification

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 x Market

development x x x

Product

development x x x

Horizontal

integration x x x

Related

diversification

x

Unrelated

diversification

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

strategies:

Market Penetration

Product development

61

Market development

Horizontal integration

62

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 isn’t 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

63

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 Company’s global upstream operations are often locates in countries, known for the

political instability. Being innovative and using techniques of which, the environmental

impact can’t be fully assessed; increases the risk of uncertain legal, environmental and social

impact. Furthermore the low bargaining power of the national entities; resolving from geo-

economic 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.

64

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 the website: http://www.hydrocarbons-

technology.com/projects/athabasca/

[4] Information from the website: http://gulfnews.com/business/oil-gas/canada-s-oil-

sands-feel-heat-of-price-drops-1.1400762

[5] Information from this report: Upstream Dialogue – The facts on oil Sands,

CANADA’S 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-shale-

gas-production-still-largely#sthash.RQ8lcYpJ.dpuf

[8] Information from the website:

http://www.theguardian.com/environment/2012/apr/17/shale-gas-fracking-uk

[9] Information from the website: http://www.business-

standard.com/article/companies/crude-oil-fall-to-nix-ril-s-returns-from-us-shale-gas-

assets-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 website:

http://www.chevron.com/deliveringenergy/naturalgas/shalegas/

[12] Information from the website:

65

http://www.dailymail.co.uk/sciencetech/article-2292555/Japanese-breakthrough-

country-extract-fuel-ice-reserves-locked-beneath-coast.html#ixzz2NSgeQfQe

[13] Information from the website: http://www.bakerhughes.com/news-and-

media/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