Downstream Outline

1. Each sections is organized as follows: • Key processes • Critical success factors (CSFs) • E-business vision theme and business issues • Web site catalog (industry and non-industry) • Value added by global E-Business approach • Sample problem definition Downstream Outline Our downstream presentation is organized by supply chain components Relate top industry issues to: • Trade Crude • Refine • Trade Products • Market Wholesale • Sell Retail Trade Crude Trade Product Market Wholesale Sell Retail Refine

2. Elements of the Downstream Hydrocarbon supply chain from crude to retail is our subject Crude Acquisition and Transportation Bulk Distribution Refining MARKETING Final Distribution Retailing Terminals & Wholesalers RISK MANAGEMENT

3. Five Forces Facing the Downstream Based on input from top executives at the CERA 2000 conference in Houston • Global market liberalization • Continued margin pressure across the chain • Re-balancing of refining-marketing by majors • Growing importance of trading competency • Size no guarantee of competitiveness Trade Crude Trade Product Market Wholesale Sell Retail Refine

4. Trade Crude - Processes and CSFs This section describes the characteristics of a “global optimization process” Trade Crude Trade Products Market Wholesale Sell Retail Refine Processes • Forecast demand & supply • Crude selection & optimization • Make & document deals • Arrange transportation • Manage risk/exposure/position • Settle and analyze deals • CSFs • Strong relationships with producers • Instantaneous global access to price and changing market conditions • Accurate assays especially for swing purchases • Powerful price and market analytics capability • Accurate position system-wide, paper and physical

5. Trade Crude - Theme and Key Issues In optimizing globally, the following needs to be considered: Key issues in “Global Optimization” • Large cargo market, few transactions, few sellers • Power shifted to producers • Transportation cost important, controllable component • Lack of crude quality transparency • Evaluation of open vs flexible crude slate options • Understanding margin drivers & required synergies • Current business decision model process very slow PAM: Add a Globe

6. Trade Crude - Web Value Added Enhance competitive edge through collaboration and reduced decision time Web allows traders to: • Integrate-optimize selection & cargo movement • Respond more rapidly to global conditions • Identify & manage selective quality premiums Websites • RedMeteor.com • Enrononline.com • Altra • BPUK: E-Energy trading site • GoCargo.com

7. Trade Crude - Industry E-Business Examples There are numerous examples of new trading channels developing: • www.RedMeteor.com - announced launch of online marketplace for Crude Oil, Electricity, Natural Gas, and Natural Gas Liquids. • Enron Online (www.enrononline.com) - Enables companies to buy and sell the full range of wholesale energy products on the web. The site also provides free of charge access to hundreds of commodity prices across the globe. Paper instruments will be added this year • Altra (www.Altra.com) - Altrade provides registered users a real-time, on-line exchange for trading natural gas, electricity and liquid fuels. For gas, Altra provides limited clearing servicwess for anonymous buyers and sellers.. Altra is counterparty to the trades. To limit exposure, Altra uses credit and forward exposure limits for its customers. Users have the ability to view: Live Chalkboard activity, Pricing Summary, Completed NGL Transactions and Completed Crude Transactions.

8. Trade Crude - E-Business Examples There are other examples of how far it can go: • BP Amoco launched an internet-based gas trading service, in an effort to assist its UK business customers in managing their gas portfolios more efficiently. The service, called "e-EnergyTrade," is available to all existing customers contracted to buy gas on a risk-managed basis. The service allows customers to buy/sell physical quantities of gas in accordance with their contractual arrangements. • JPMorgan - announced plans to launch an online derivatives service company called Cygnifi (www.cygnifi.com) to be complete by the end of Q1 2000. • GoCargo.com (www.gocargo.com) -is a neutral exchange manager between shippers and qualified transportation service providers. Provides solution for buying and selling container shipping services. Similar initiatives are underway in crude & products tonnage

9. Trade Crude - Problem Definition Enhancing crude trading effectiveness • Trading is global - practically 24 x 7 • Need relevant data • Integrate on-line historical data • Need more consistent feedstock quality information • Enhance business decision model process Solution • Web-enabled information, customized to each trader’s requirements • Ability to “hand off” trades in progress from Singapore to London to Houston, for example • Web-based 24 x 7 trading systems Solution Benefits/Value • Rapid on-line analysis and answers to common inquiries • Increased transparency in the crude markets • Increased productivity of workforce

10. Processes Plan and select feedstocks, production forecasting Schedule feedstocks, products, units Operate to plans & schedules Enhance operational reliability & safety Blend, store and ship on-spec products Adjust for variations and measure performance Refine - Processes and CSFs Characteristics of an “interactive refinery” Trade Crude Trade Products Market Wholesale Sell Retail Refine • CSFs • Maximize variable margin • Optimal economic utilization • Minimize give-away and energy usage • Maximize controller utilization and improve unit reliability • Meet or exceed SHE requirements

11. Refine - Theme and Key Issues 3.3.3 New models needed to enhance value drivers with continued margin pressure Key Issues in achieving an “Interactive Refinery” model • Improve collaborative planning • Head toward real-time performance management • Reduce deviations from plan/schedule • Verify data consistency/visibility over hydrocarbon supply chain • Accurate and timely feedstock/product quality

12. Refine Web Value Added 3.3.8 Utilizing the web can enhance decision processes • Collaboration across plants or functional departments • Consistent performance management with accountability • Improved knowledge management & best practice sharing • Improved data consistency • Faster decision processes Websites • OilMonitor.com • Honeywell - Myplant.com • AspenTech - ProcessCity.com • Refiningonline.com

13. Refine - E-Business Examples There are numerous examples of E-Business offerings developing: • PricewaterhouseCoopers - (OilMonitor.com) A web-based crude oil evaluation service that provides crude oil characterization data, whole crude property trending, discussion forums for specific topics of interest related to oil quality and US petroleum import reports. The site will add functionality related to assay-cut standardization, customized assay-cutting, assay formats and linear programs. • Honeywell - Myplant.com (www.myplant.com) Microsoft recently joined Honeywell in alliance to accelerate the growth of MyPlant.com by increasing the site’s reach and offering’s significantly. It is a forum for plant manages, engineers, and other operations people to exchange ideas, use Honeywell software to simulate their processes, buy Honeywell products and even view banner ads from other manufacturers.

14. Refine - E-Business Examples There are numerous examples of E-Business offerings developing: • AspenTech - Processcity (www.processcity.com) Provides a collaborative B2B portal for the process industries, with content and services directed at refining, petrochemical, chemical, polymers, life sciences, specialty chemicals, metals, mining, pulp & paper, consumer packaged goods, utilities and semiconductor industries. Members can interact, share ideas, get news & information, find jobs, buy books, access software, tools, services and other resources relevant to their work. • RefiningOnline (www.refiningonline.com) - provides a web-based value-added information on refinining. The website is aimed at refining-industry professionals ranging from engineers to consultants to business managers. One of the main features of the site in an online Q&A for refining-related issues.

15. Refine - Problem Definition: Option 1 3.3.4 Feedstock quality impacts of $0.04 - $0.15/bbl • Lack of transparency in true crude oil quality • Transport quality degradation not tracked or sufficiently analyzed • Outdated crude oil quality representation results in non-optimal crude slate • Undetected crude oil quality variation decreases refinery performance • Most feedstock quality processes are still very manual and time-consuming Solution: (drill down to 3.3.4.1) • One centralized internet hub for oil quality information • Automated data gathering/retrieval/model loading • Shared costs/resources for crude oil quality tracking Solution Benefits/Value • Improved crude slate optimization • Improved quality of domestic common streams (LLS, WTI, WTS) • Reduced crude testing costs; reduced time cycles for quality updates • Profit Improvement of $0.04 - $0.15/bbl of crude

16. Price Reporting Services (e.g. Platt’s, OPIS) Futures Exchanges (NYMEX, IPE, SIMEX) Other Paper Markets GAP Understanding Oil Supply Risks 3.3.4.1 Parameters, Drivers and Management of Risks Risk Parameter RiskDriver Management Facilitated by: • Pricing Window • Pricing Formula Terms • Volatility • Ability to Hedge • Quality Transparency Price Oil Supply Risk • Wellhead quality • Gathering/blending • Cargo degradation • Pipeline degradation • Producer Assays (infrequent) • GAP • Receipt Testing (too late) Delivered Quality Delivery Timing • Cargo Load Window • Cargo Discharge Window • Transit Time • Pipeline Schedule • Storage Capacity Avails • Ability to “time trade” cargo • Logistics/Supply Coordination • Inventory Management

17. Today, because of cost pressures, most refiners under-invest in quality monitoring and management, spending less than 0.5 cents/bbl. Typical Refinery Feedstock Quality 3.3.4.2 Relieving constraints in Feedstock Quality Management (FQM) is the big prize A shift from cost-focused to value-focused quality management is needed Gross Margin Incentives 4 to 15 Cents / bbl 15 10 5 0 3 Accounting High-return investments in FQM are easily justified 2 Legal Cents / bbl Crude Cents / bbl Crude Procurement 1 Taxes Average Personnel Analytical “Best Practice” 0 Feedstock Quality Management (FQM) Crude Quality Monitoring Costs vs. Other Less-Value-Added Functions Recognizing the gap between current spending levels and potential benefits warrants an increase in resources for FQM

18. Feedstock Quality Management (FQM) Practices 3.3.4.3 In-house opportunities for improvement • Develop formal FQM process w/ Sponsor and Owner • Implement centralized database repository with assay tool • Consider outsourcing crude analysis work • Conduct “commodity” analyses; in-source proprietary know-how • Identify areas for simulated distillation or on-line analyzer applications

19. Sales Contract Thereby and wheretofore all parties are in agreement that the aforementioned proposed plan to build on confirmed site shall be witnessed by all parties and executed this day of April 7, 2000. In the interests of the owner and the agent, this contract furthermore shall serve to unite said parties to this agreement and be considered legally binding in a court of law. • Expanded quality specs • Independent reference for baseline (‘typical’) specs Feedstock Quality Management (FQM) Practices 3.3.4.4 Industry drivers to enhance quality information • Industry Solutions COQG • Participate in industry Crude Oil Quality Group (COQG) consortium to address supply chain quality issues • Establish independent, centralized quality monitoring and reporting service • Approach crude producers and common carriers about adding meaningful quality specs to contract terms OilMonitorTM

20. Sales Contract Thereby and wheretofore all parties are in agreement that the aforementioned proposed plan to build on confirmed site shall be witnessed by all parties and executed this day of April 7, 2000. In the interests of the owner and the agent, this contract furthermore shall serve to unite said parties to this agreement and be considered legally binding in a court of law. • Expanded quality specs for sales contracts • OilMonitor used as reference for “typical specs” OilMonitor.com - Purpose 3.3.4.5 Price transparency links to feedstock quality • To make crude oil quality more transparent to the oil industry; price transparency requires quality transparency • To facilitate each refiner’s quality management process - data accuracy, speed, data utility • To provide oil quality ‘intelligence’ - new streams to market, quality changes to existing streams, predicted quality

21. OilMonitor.com - Benefits to the Refinery 3.3.4.6 Reduce margin risk associated with feedstock quality • Assay and other testing costs are significantly cheaper • More frequent and more comprehensive data - OilMonitoras a “one-stop shop” • Assay is provided in usable format for expediting LP modeling • Ability to characterize quality variation for use in crude oil valuation improves quality and optimality of crude selection • Refiners can evaluate quality on crudes not routinely run • Crude quality variation should decrease with increased measurement and attention • All corners of the globe can participate in OilMonitorto provide even greater span of quality data

22. Economic Impact of Crude Oil Quality Variation 3.3.4.7 Small variations yield large economic impact Quality Variation Annual Impact 2% Yield Variation Impact, $/bbl per 100 M BPD Economic Basis $2/bbl value delta $ 0.04 $1.5 MM Diesel to VGO 0.10 $5/bbl value delta 3.6 MM VGO to Resid 0.20 7.2 MM $10/bbl value delta Naphtha to light ends Overall Crude 0.06 Typical pipeline quality bank 2.2 MM Sulfur +/- 0.1 wt% value of $0.60 per 1 wt% sulfur 0.15 Typical pipeline quality bank 5.5 MM Gravity +/- 1 degree API value of $0.15 per deg API $0.04 - 0.55 $1.5 - 20.0 MM Consistent v. Common Stream Range of Valuation

23. Refine - Problem Definition: Option 2 3.3.5 Hydrocarbon supply chain planning across system • Delayed communication and decisions regarding high $ impact events • No mechanism to quickly “re-publish” operating plan once “copies are made and the meeting is over” • No common view of economic drivers across supply chain, “what’s ‘my’ optimal vs. what’s ‘your’ optimal” • Disparate planning decision support tools with no visibility outside of functional “walls” • Accuracy of planning model constraints Solution: (link to 3.2.5.1) • Packaged intranet platform for collaborative planning -- “Virtual Plan” • Common standards for planning documents; defined processes, workflow Solution Benefits/Value • Better decisions and faster decision cycles • Rapid deployment of IT platform; low cost roll-out • Managed work processes; knowledge organization and capture • Profit Improvement of $010 - $0.30/bbl of crude

24. The Refiner’s Paradox 3.3.5.1 Relieving constraints in the planning process • Yesterday’s technology platforms do not facilitate excelling in all three dimensions • Refiners have had to choose between competing operating philosophies: • Currently asset-driven or “supply-push” oriented • “Decision can wait, the plant is running well...” Accuracy/ Robust Analysis • Companies that value consensus decision-making • “We need buy-in from RALPH before we do anything...” • Need to be more trader-driven or market-oriented • “I needed a decision an hour ago, the market’s moving...” Supply Chain Visibility / Collaboration Nimble Decision Process

25. Virtual Plan - Our Integrated Solution 3.3.5.2 Remove the walls, but retain functional expertise • Today’s technology can facilitate excelling in all three dimensions • Required characteristics of enabling technology include: - Intranet-enabled workflow management - Decision support applications - Active operational repository - Integration tools Visible = Supply Chain View / Collaboration Customers Suppliers Marketing Distribution Refining Crude Supply Nimble = Rapid Event Resolution Robust = Accurate Information / Optimization

26. Virtual Plan - Benefits 3.3.5.3 Collaboration across the hydrocarbon supply chain • Better Decisions = Better Plans = Increased Margins • Better, Faster Information = Better Response to Unplanned Events • Clear ownership of planning roles/tasks, and documents • Consistent and searchable framework for storing “ad hoc” or unstructured knowledge about the current plan or past plans (e.g. discussions, news postings, etc.) • One, common communication platform - “If it’s not on Virtual Plan, it’s not the ‘official’ plan” • Manages geographically-dispersed plants and/or organizations(e.g. Refinery Planning, Supply & Trading, Refinery Operations) • Fast Payout • Immediately leverages existing documents and processes to capture value • Results are visible quickly; improvement progress can be tracked • Cost effective technology - web browser only on client side

27. Model Support, Maintenance Monthly Production Program CapEx Program Customer Event Market Event Demo Processes Planning Process Taxonomy 3.3.5.4 Industry has a planning vocabulary - ideal for “best practices” Conventional “Best Practice” Strategic Planning Long Term (5 yr) Plan Monthly Planning Annual Budget Weekly Planning “Event Management” Production Schedule Price Forecasting Supplier Event Blend Optimization Crude Selection Delivery & Lifting Schedules Plant Event

28. Mgr - Products & Chemicals Mgr - Crude & Feedstocks Mgr - Planning Mgr - Chartering / Logistics Wholesale Marketing Retail Marketing Manager Manager Manager Manager Demonstration: The Players 3.3.5.5 Multiple decision points in the process Supply chain optimization requires at least seven different organizational departments working together in concert to make the best decisions for the company. Supply & Trading Planning Mgr - IT/DS Applications • Blending • Scheduling • Logistics • Feedstocks • Foreign Crude • Domestic Crude • Clean Fuels • Fuel Oil • Chemicals • Monthly Program • Crude Analyst • Performance Control Operations Maintenance Technical • Foreign Cargoes • Clean Barges / Chemicals • Dirty Barges Lap Supt Operations Supt. Maintenance Supt. Engineering Supt. • Oil Movements • Shift Foreman • Operators • Quality Control • Crude Analysis • Process Unit Support • Controls and APC • Planning • Routine Maintenance • Turnaround Maintenance • Company-Op • Dealers • Merchandise • Fuel • Branded • Unbranded • Spot • Gasoline • Diesel Red italics indicates typical players involved with monthly planning/crude selection

29. Unexpected Outage Demonstration - Plant Event 3.3.5.6 Impact to the planning process Review / Change Product Delivery Options Review Impacts to Crude & Product Supply Supply & Trading Review / Change Crude Delivery Options Supplier Event Market Event Customer Event Re-optimize plant programs / targets Re-run Crude Selection Review Impacts to Plan Planning / Scheduling Publish New Schedule Adjust Schedule & Inventory Position Notify Impacted Process Owners Start Operations yes yes Assess Repair Requirements & Outage Duration Outage < 1 Week ? Outage < 1 Day? Maintenance Assess Yield Impacts & Capacity Limits Technical (Engineering+Lab)

30. Refine - Problem Definition: Option 3 3.3.6 Performance management - “What gets measured, gets managed.” • Company strategy and operating goals are unclear • Disparate performance measures (KPIs), across departments • Measures are not integrated with follow-up action plans • Above factors lead to incidences of micro-management, and answering the same question multiple times • Drive economics for functional silos rather than across functions Solution: (this will drill down to 3.2.5.1) • Web-enabled performance management tool • Aligned measures and clear articulation of business objectives Solution Benefits/Value • Aligned and empowered workforce • An evergreen process for continuous improvement, action plans incorporated into system • Rapid on-line analysis and answers to common inquiries • Increased productivity of workforce

31. Processes Forecast Supply & Demand Make & Document Deals Arrange Transportation & Exchanges Manage Risk & Exposure Manage Inventory & Position Settle & Analyze Deals Trade Product - Processes and CSFs This section describes the CSFs needed to “exploit volatility” Trade Crude Trade Product Market Wholesale Sell Retail Refine • CSFs • Accurate demand forecast daily • Instantaneous global access to price and changing market conditions • Understand transportation and exchange options by network • Powerful supply chain optimization analytics capability • Accurate position system-wide, paper and physical

32. U.S. Yearly Average Refining Margins* 3 2 1 Refining Margin, $(1996)/bbl 0 -1 -2 '70 '75 '80 '85 '90 '95 -3 Year Trade Product - Theme and Key Issues Traders love volatility... Refiners and manufacturers hate it Key Issues to “Exploit Volatility” • Many transactions, many sellers • Power shifted to large consumers • Optimize and match supply-demand in each network • Monitor physical & paper position • Grade complexity • seasonality • blend components • pipeline grades

33. Trade Product - Theme and Key Issues External trends are rapidly changing the trading function... • Key Issues to help“Exploit Volatility” • Globalization of markets - Continued possibility of mergers (NYMEX / SIMEX, NYMEX / IPE), the development of electronic trading systems (NYMEX’s ACCESS, GLOBEX) and improved global IT and telecom infrastructure • 24x7 market access - With globalization, the need emerges for 24 hour access to all markets. Use of NYMEX “Access” and other (IPE) electronic trading systems will expedite after hours trading • New E-Market models - Online intermediaries are bringing buyers and sellers together electronically. Anonymity of exchanges- auctions increases competition and improves price transparency. Trading volumes and liquidity will also rise similar to the success of online stock market trading • Knowledge management - Powerful online analyticsand improvements in gathering, selecting and accessing global information are allowing the traders to improve their deals by understanding all factors driving the physical and paper markets

34. Trade Product - Internal Acceptance Traders already live in the E- Business world... • Traders thrive in a volatile and dynamic environment • Traders have a multi-tasking orientation - like their counterparts in stocks • Tasks are very time sensitive/critical - especially deal making & execution • All deals are driven by external data - critical to profitability & risk management • All knowledge capital must be rapidly disseminated and used immediately

35. Websites • NRGline.com. • Houston Street.com - with Equiva • Fuelspot.com • Enrononline.com - expand to products Trade Product - Web Value Added A lot of activity and announcements in last 60 days • Anonymous matching of buyers & sellers • Many competing initiatives, majors & brokers • Custom front-ends and some back office capabilities developing

36. Trade Product - E-Business Examples Newest examples of commodity E-Trading channels developing in products: • NRGline (www.nrgline.com) - Provides online brokerage services for energy products, feedstocks, lpg and petrochemicals trading. The site allows users to post, accept or negotiate postings • HoustonStreet (www.HoustonStreet.com) - will launch a Web exchange for trading of crude oil and refined products at the wholesale level after Equiva Trading Company announced it will invest $6 million as an equity stake in HoustonStreet to help develop the exchange. The exchange will allow all industry traders to participate - anonymously • Fuelspot.com

37. Trade Product - E-Business Examples Downstream commodities are following financial market developments... • Bank of America (www.bankamerica.com) signed a contract with Fundtech to use their payments vendor's web interface into a new Continuous Linked Settlement (CLS) service for settlement of foreign exchange trades. The service, scheduled to go live in 2000 with 62 of the world's largest foreign exchange trading banks, should eliminate foreign exchange settlement risks. • Barclays (www.internationalbanking.barclays.com) has innovated two electronic projects, XTAS (eXchange Traded Access System) and CB Webinfo. XTAS is an web-based futures trading platform that allows users to directly enter orders. CB Webinfo and CB Webtrade are two phases of an web trading system for convertible bonds. • GlobalNet and NexTrade (www.matchbookfx.com and www.nextrade1.com) announced they would launch an web ECN for spot foreign exchange trading. Chief of NexTrade said, "If you look at the forex market today, it operates essentially the same way as it did 80 years ago. We aim to bring ECN technology the same type of algorithms and order matching will bring price transparency, firm quotes, tighter spreads and direct market access to an electronic forum, taking the dealer out of the equation."

38. Trade Initiation Analytics Trading Order Routing Portfolio Management Risk Management Market & Customer Management Clearance & Settlement Regulatory Reporting Document Management General Ledger Trade Product - Web Value Added Vision Virtual Trade Management, “best-in-breed” e-applications across the trading cycle...

39. E-Applications Available and in Development Virtual Trade Management addresses the complete trade life cycle... Trade Life Cycle Application Functional Requirement • Order Management • Trade Analytics • Order Routing • Position/Profit & Loss Trading • Credit/Limit/Exposure Mgmt • Portfolio Analysis/Reporting • Market & Customer Management • Risk Management • Portfolio Management • CRM Trade Administration • Clearance Interface • Exception Processing • Trade Processing • Trade Clearance • DVP/RVP Settlement • Reconciliation Clearance & Settlement • General Ledger • Regulatory Reporting Facility • Document Management • Customer Record-keeping • Regulatory Reporting • Firm Books & Records • Document Management Record-keeping

40. Trade Product - Conclusion To “exploit volatility” the pace will increase... “If you think you will be doing business in 2001 the way you did in 1999 - you’re woefully wrong.” Richard Grasso Chairman of NYSE September 1999

41. Trade Product - E-Business Application To help “exploit volatility”, we plan to demonstrate the following... Problem Definition: • Trading is global - practically 24x7 • Need specifics on cargoes & product inventories • Need access to changes in supply-demand in real time E-Business Solution: • Web access to 24x7 products trading systems • Ability to “hand off” trades in progress - globally • Web-enabled information, customized to each trader’s network Solution Benefits/Value: • Increased transparency in the market • Rapid on-line analysis and answers to common status inquiries • Increased accuracy - lowers risk • End to information overload