1. Solomon’s Worldwide Energy Industry Benchmarking
Anniversary
Solomon’s Worldwide Energy Industry Benchmarking
IAPG CONFERENCE 2006
Mendoza, Argentina

2. Benchmarking Topics Introduction Solomon’s Key Metrics
Performance and Gap Analysis
Cat. Cracking Performance Analysis
Use of Benchmarks

3. What We Do
Provide comparative performance analysis for the global energy industry
Fuels/lubes refining
Petrochemicals
Pipelines and Terminals
Electric Power generation
Provide consulting services worldwide to facilitate performance improvement

4. Knowing Where You Stand Competitively Is Imperative!
The pacesetter refineries use their participation in the studies data to drive performance improvement at their refineries.
You need to know “where you are starting from” and “where you are headed”…periodically review the progress that has been made.

5. NSA Participation and Trend Groups
USA CAN LTA Total
Population
Trend Group
Trend Group – participation in each of last three studies

6. Benchmarking Topics Introduction Solomon’s Key Metrics
These examples are representative of the data collected-- but do not include every item!!

7. Refineries Seeking Answers To Two Key Questions To Strengthen Positioning
Competitiveness Looking outside the fence
Efficiency Looking inside the fence
“How competitive is my refinery in the marketplace?”
“How well is my refinery operating
the facilities that it has today?”
Study participants (especially refinery managers) continue to focus on two major areas of interest when assessing how well their refineries are performing.
The first is “competitiveness” which is a view of “looking outside the refinery fence” to assess how a refinery compares with other refineries in the region.
The second is “efficiency” which is a view of “looking inside the refinery fence” to assess how a refinery compares with what is typically expected of a refinery with the facilities that it has.

8. How Competitive Is A Refinery In The Marketplace?
Strategic perspective – economic viability
Comparison of total cost and resources required to manufacture petroleum products
Without regard for number or size of process units or other structural aspects contributing to higher costs
As a result, competitive positioning may be limited by structural or configuration constraints
Customers unwilling to cover differences in cost per barrel of product by refineries supplying the market
Competitiveness addresses the economic viability or survivability of a refinery in the market place from a cost perspective.
While raw material cost is also an important part in assessing economic viability, it is also important to be competitive in the cost of manufacturing products.
Higher costs (per barrel of product manufactured) can result from having smaller process units or multiple units of a similar type.
Every refinery would like to recover its total manufacturing costs through the sale of its products. However, the price that customers are willing to pay in the market does not vary based on who produced the product or their specific costs.
All suppliers of products to a specific market have a common market price, so the refinery with higher costs has to pay any incremental costs out of a fixed margin…thus reducing its cash profitability.
This further emphasizes the need to keep a strong focus on reducing costs and using the best available tools to assess where costs are out of line with the competition.
Customers at the pump don’t care if a refinery has higher costs – they only want the lowest price

9. How Well Is A Refinery Operating The Facilities That It Has Today?
Operational perspective – focus on efficiency
Comparison of total costs and resources
Taking into account actual configuration aspects –number and size of individual process units and other structural aspects
While assessing a refinery’s competitiveness is critical, it is also important to assess the operational efficiency of a refinery’s facilities.
A key to being competitive often starts by operating a refinery efficiently.
Unlike a competitive assessment that does not take into account the size or number of process units, efficiency should be more reflective of actual configuration and structural aspects of a refinery.
Efficiency assessments provide new insights into how effective refinery costs are being controlled and its resources managed.
While major investments may be required to alter refinery configuration to be more “competitive” in the marketplace, increases in efficiency are typically less capital intensive and are often driven by changes in work practices at a refinery.
Focus is on the effectiveness of cost control and resource management typically within a refinery manager’s control

10. Competitive Metrics Overview Key Metrics (Same As Previous)
EDC is the normalization factor for competitive metrics
Refinery EDC (UEDC) based metrics
Cash Operating Cost, US Cents/UEDC
Non-Energy Cost, US $/EDC
Maintenance Index, US $/EDC
Personnel Index, Work Hours/100 EDC
Personnel Cost Index, US $/EDC
Capital Investment Index, US $/EDC
Solomon has adopted EDC as the normalization factor for competitive assessments.
The key metrics are essentially the same as previous EDC metrics, but are now based on the revised EDC methodology and updated configuration factors that will be describe further in this section of the presentation.

11. Efficiency Metrics Overview Key Metrics
Energy Efficiency (no change in methodology)
Energy Intensity Index – EII™
Non-Energy Efficiencies (new)
Maintenance Cost Efficiency Index – MEI™
Personnel Efficiency Index – PEI™
Non-Energy Cost Efficiency Index – NEI™
The key metrics used for efficiency assessments includes Solomon’s Energy Intensity Index (EIITM) and three new non-energy efficiency metrics.
Solomon’s EIITM methodology is unchanged from the previous methodology, while new methodologies have been developed to address refinery efficiency performance in the non-energy areas of maintenance cost, personnel, and total non-energy costs.
We will explain each of these in detail.

12. 2004 Competitive vs Efficiency Metrics Maintenance
Competitive Metric
118.1
US Study Average
MEI™ 76
184.7
88.9
155.1
157.5
87.6
158.9
77.7
Efficiency Metric
86.3
138.0
149.9
94.5
US EDC
Group
US $/EDC
26.6
US Study Average
Using New EDC Factors 1
23.8
43.7 2
18.6 48 3
21.0
38.4 4
35.6
20.3
Performance comparisons for US EDC Groups are provided on these charts for both the competitive maintenance cost metric and the maintenance cost efficiency metric.
In this case, we are comparing the updated maintenance cost competitive metric with the new maintenance cost efficiency metric.
A comparison of average performance lines on each bar for the competitive metric versus the efficiency metrics illustrates the impact of economy of scale.
On an efficiency basis, the averages of all of the US EDC Groups are now much closer to the study average, indicating that disadvantages related to economy of scale have been essentially eliminated with the new standard factors.
Small refineries can now compete on an “apples to apples” basis with larger refineries when assessing efficiency. 5
37.9
16.7 6
20.1
32.9

13. Benchmarking Topics Introduction Solomon’s Key Metrics
Performance and Gap Analysis

14. Impact on 2004 Company Results Maintenance – US Quartiles
Competitive Metric, US $/EDC
15.3
49.3
Efficiency Metric, MEI™
66.3
184.7
This chart again compares competitive assessments with efficiency assessments using study quartiles to illustrate the differences in these two perspectives on refinery ranking/positioning.
Small refineries with low maintenance costs are no longer disadvantaged by size and thus may move up in their ranking/positioning. However, small refineries with high maintenance cost for their size may not improve in their relative ranking/positioning.
Large refineries with low maintenance costs may not see much of a decline in ranking/positioning, while high cost large refineries will no longer benefit from economy of scale and may move more in ranking/positioning.

15. Two-Dimensional Analysis Example – Maintenance Cost
US Average
Refinery
Competitive Gap
Here is an example of a refinery being compared against at target peer group (either a standard study peer group or a custom peer group selected by the participant).
Notice that the target group in this example is not necessarily the best four in maintenance competitiveness or efficiency.
We have shown by an arrow, the movement of the refinery required to close the gap in performance.
Next we have shown the gap from solely a competitive perspective (using delta $/EDC) and the gap solely due to efficiency differences.
We will next look at the associated gap analysis for this example comparison.
Target
Peer
Group
Efficiency Gap
US Participants

16. Gap Analysis Refinery Vs Peers – Maintenance Cost
US $M
Key Gap Components
Efficiency (15)
Size/Complexity* (8)
Total Competitive Gap (23)
In this example, the total gap to be analyzed is the competitive gap.
There are two major components driving the competitive gap – differences in efficiency and differences in non-efficiency related areas, described here as size/complexity differences.
The efficiency gap is known and determined separately using the difference in the efficiency metric, however, the size/complexity gap is determined by subtracting the efficiency gap from the competitive gap.
Size/complexity gaps can result from having relatively smaller units, multiple units of similar process types, more tankage than covered by tankage EDC, high amount of off-sites, etc.
In this particular case, the refinery has a negative competitive gap which means it is disadvantaged versus its peer group.
Efficiency gap is also negative and makes up about two-thirds of the competitive gap.
Therefore, this results in a negative size/complexity gap as well by difference.
Clearly, there are situations where refineries can have positive or negative gaps in either of two these areas. For example, a small refinery can have a negative competitive gap due to its size, but have a positive efficiency gap. These are the insights that were not possible with the previous factors.
* Size/Complexity = Competitive Gap – Efficiency Gap

17. Closing The Gap Efficiency Vs Size/Complexity Gap – Maint. Cost
US Average
Closing 100% of
Efficiency Gap
Refinery
Competitive Gap
Size/Complexity Gap
It is important to note the path to closing the gap is typically not the straight line connecting the two points, but rather a two-step effort.
In this case, if the refinery closes all of the efficiency gap, it has also improved it’s competitiveness by closing about two-thirds of the total gap.
To close the remaining gap, the refinery must address its size/complexity gap. This can be done by addressing unit consolidations, tankage consolidation, etc., which my required significant investment.
However, if the refinery can further improve efficiency beyond what is needed to close the efficiency gap, then the competitive gap may also be closed possibly without significant investment. Since there are refineries that have demonstrated better efficiency than this example peer group, there is a possibility of further driving efficiency improvements and totally closing the competitive gap in this case.
Target
Peer
Group
Efficiency Gap

18. Impact on 2004 Company Results Maintenance – US Quartiles
Competitive Metric, US $/EDC
15.3
49.3
Efficiency Metric, MEI™
66.3
184.7
This chart shows both the competitive and efficiency positions of the refinery and example peer group.
The refinery is totally closing the efficiency gap and thus moves from third quartile to first quartile.
However, the competitive gap is not totally closed, but the refinery does move up from third quartile to second quartile.
As mentioned in the notes on the prior slide, further efficiency improvements could help close the remainder of the competitive gap, however, if constrained on efficiency improvements, then investment may be required to close the gap.

19. Closing The Gap Efficiency Vs Size/Complexity Gap – Maint. Cost
US Average
Closing 100% of
Competitive Gap
Via Efficiency Improvements
Refinery
Competitive Gap
If the refinery can further improve efficiency beyond what is needed to close the efficiency gap, then the competitive gap may also be closed possibly without significant investment.
In this case, there are refineries that have demonstrated better efficiency than the example peer group, so there is a possibility of further driving efficiency improvements and totally closing the competitive gap in this case.
Target
Peer
Group
Efficiency Gap

20. Impact on 2004 Company Results Maintenance – US Quartiles
Competitive Metric, US $/EDC
15.3
49.3
Efficiency Metric, MEI™
66.3
184.7
This chart shows that by further improving efficiency, the competitive gap is totally closed and the refinery moves even higher in competitive positioning.

21. Benchmarking Topics Introduction Solomon’s Key Metrics
Performance and Gap Analysis
Cat. Cracking Performance Analysis

22. Study Focus Raw material selection Product yields Plant utilization
Operating cost analysis
Energy efficiency
Maintenance and reliability effectiveness
Labor productivity
The focus of the study was on:
Raw material selection – more details than in main study
Product yields
Plant utilization
Operating cost analysis
Energy efficiency
Maintenance and reliability effectiveness – with scope-adjusted turnaround
Labor productivity

23. Operating Expense Breakdown
All Other
Fixed Costs, 1%
Energy, 59%
T/A
Maintenance, 7%
Non-T/A
Maintenance, 7%
Non-
Maintenance Personnel, 8%
Energy outweighs all other expenses. Maintenance is only 14% on average. Part of the reason is that energy and catalyst costs are so high that it lowers the percentages for things such as maintenance and personnel.
Other Volume- Related, 4%
Chemicals, 3%
Catalysts &
Catalyst Additives, 11%

24. Yields and Margins Raw Material Breakdown1%
36% 4%
Unhydrotreated
Feedstock 2% 4%
21% 2%
For the overall study, one-third of the feedstocks were hydrotreated. However, many units had 100% hydrotreated feed.
Hydrotreated
Feedstock
20% 4% 6%
Vacuum Gas Oil
Heavy Gas Oil
Atmospheric Reduced Crude
All Other
Light Gas Oil

25. Yields and Margins Raw Material Pricing Adjustments
Various gas oils – sulfur and aniline point
Heavier feeds – sulfur and Concarbon residue
Feed prices are adjusted for quality. For example, high aniline point (high UOP K factor) gas oils will be priced higher, and can reduce gross margin if the unit does not have a high yield of good products.

26. Yields and Margins Product Pricing
Catalytic naphtha based on gasoline blending value
Light-cycle oils valued as distillate feed or blending stock; dependent on local market
Heavy-cycle oils and slurry valued as fuel oil blending stocks
Butylenes and i–butane valued as alkylation feeds
Propane and n–butane valued as finished products
Propylene valued as chemical feed
Because few of the FCC products are finished products, most of them have to be valued based on their usage as intermediate feedstocks or blending components.

27. Net Cash Margin Distribution By Region
Non-US Countries
1Q/2Q Break
2Q/3Q Break
United States
3Q/4Q Break
There is fairly uniform distribution of Net Cash Margin across the study, for both US and Non-US units.

28. Range of Study Performance US $/bbl
Average Value
Gross Product Value
60.27
47.19
Raw Materials Cost
49.21
29.25
Gross Margin
24.56
5.95
Operating Cost
4.43
1.67
Note: For a private presentation, the points for the company’s unit(s) will appear on the bars. For regional presentations, the companies will have to refer to their handout sheets of their results, or refer to their client tables and output files.
Gross Margin and Net Margin vary much more than Operating Cost.
Net Cash Margin
21.10
3.68
US $/bbl
Higher Values
Lower Values

29. Net Cash Margin 19 MRCC or RCC 16 Net Cash Margin, US $/bbl 13 10 FCC
There are similar distributions of Net Cash Margin per barrel for the resid crackers and conventional FCCs. However, the resid crackers do much better overall. 7 4 25 50 75
100
Percent of Participation

30. Percent of Participation
Return On Investment 70 60
MRCC or RCC 50
Return on Investment, % 40
FCC 30
When viewed on a Return on Investment basis, the relative advantage of the resid crackers is not as great, due to their greater investment requirements. The ROI was calculated by dividing their annual NCM (GM minus operating expenses) by their replacement value.
The average ROI for the study was just under 40%. On a simple payback basis, this means that with 2004 prices, the average unit had a payback period of two and a half years. 20 10 25 50 75
100
Percent of Participation

31. Benchmarking Topics Introduction Solomon’s Key Metrics
Performance and Gap Analysis
Cat Cracking Performance Analysis
Use of Benchmarks

32. Use of Benchmarks Establishing a plant’s performance level
Quantification of improvement opportunities by expense type and maintenance category
Confirming causal plant characteristics
Discovery of practices responsible for performance gaps with “Peer Group”
Provide “business case” for change programs
Convince personnel of need for new targets

33. Anniversary