(September 2012) Our annual financial ranking shows some remarkable shifts among the industry’s shareholder value leaders. Despite flat demand and low commodity prices, investor-owned...
Gas Marketers: Oblivious to All the Fuss
With its U.S. gas production totaling almost 300 Bcf in 2000, Conoco believes it has a strong foundation to make a rapid ascent into the mega-marketer echelon. The scope of its production assets promises to grow even larger following the completion of its mergers with Gulf Canada Resources and Phillips Petroleum.
What sets Conoco apart from other major upstream players, though, is its expertise with managing financial instruments and transportation and storage capacity, says Mike Stice, president of Conoco Energy Solutions (CES). "Conoco has developed a level of commercial sophistication," explains Stice, whose tenure at Conoco totals 20 years. On his previous assignment, as president of Conoco Gas and Power Marketing, a unit of CES, Stice managed the company's trading operations during which time the company's marketed gas volumes grew by more than 50 percent.
Today, Conoco markets 7 Bcf/day of gas, still far behind the super-mega-marketers, each of which markets at least 13 Bcf/day. If there's a slowdown in the expansion of the gas market from the projected 30 Tcf market by 2010, though, Stice believes the size of a company's trading book will determine whether it survives a shakeout. "We want to be one of the top five energy marketers. We want to be talked about in the same vein as Dynegy and Duke," Stice says.
For many upstream companies, the expertise ends at the wellhead. But during the past year, marketers have needed to tap deeply into their ingenuity to address the rapidly changing needs of their customers as prices fluctuated from the high end to the low end of the spectrum. "Last year, they were sweating reliability. This year, they are sweating getting rid of the gas," Stice says, referring to the transition from limited supply last winter to an abundance of gas this winter. In the current contango market, customers want to know "if you can make this [gas] go away in an economic way," Stice says.
Conoco can succeed in either type of trading environment, he argues, based on its flexible trading book. A winning strategy involves maintaining a "large portfolio," with a balance of industrial and local distribution company customers, Stice explains. "You should be able to make money in all markets," he says, alluding to the need for companies to succeed in both the record price environment of last winter and the "choppy market" that characterized trading during the last couple of months of 2001.
In order to leap from its current position outside the top-10 gas marketer club into the realm of the heavy hitters, Conoco will need to ensure all systems in its trading division are running smoothly. "Growth can be a double-edged sword," Stice says, explaining that the mid- and back-office functions inside a marketing unit must keep up with the dealmakers in the front-office part of the company.
Conoco doesn't believe other top trading players need to fade from the marketing space for it to join the mega-marketer club. In fact, Stice had hoped Enron's trading presence would survive in one form or another. "They provide[d] so much