Performance Measurement for Oil and Gas Companies: Functional Currency

Transcription

1 Performance Measurement for Oil and Gas Companies: Functional Currency Fumihiko Matsubara, Ph.D. student Hosei University Graduate School of Business Administration Tokyo, Japan November,

2 Marubeni Company Profile Founded May 1858 Incorporated December 1, 1949 President and CEO, Director Paid-in Capital Head Office Number of Branches and Offices (Including Tokyo Head Office)* Number of Employee (non-consolidated) Number of Employee (consolidated) Notes: As of March 31, 2017, except * as of April 1, Number of consolidated companies Fumiya Kokubu JPY 262,686 million Tokyo Nihombashi Tower, 7-1, Nihonbashi 2-chome, Chuo-ku, Tokyo, , Japan 131 branches and offices in 68 countries and regions, consisting of 12 domestic branches and offices, 57 overseas branches and offices and 30 overseas corporate subsidiaries with 62 offices 4,458 (Excluding 433 local employees of overseas branches and offices and 1,520 local employees of overseas corporate subsidiaries) 39,

3 Marubeni s Business Wide range of business with 16 divisions in 5 groups. Food & Consumer Products Group The Food & Consumer Products Group develops its business in a wide range of fields related to the food, clothing, and shelter that are indispensable to our daily lives, and its operations spread from the upstream to the downstream areas of these fields. This business group strives to create new businesses by incorporating various lifestyle changes. Power Business & Plant Group The Power Business & Plant Group takes part in developing the infrastructure that forms the foundations for societies and economies around the world. Specific areas of operation include power plants, water and wastewater facilities, oil & gas production and transportation, industrial plants, and transportation systems. Business activities are advancing in these fields while exercising Marubeni s strengths in terms of project management and fund procurement. Chemical & Forest Products Group Operating primarily in the chemical, forest products, and building & construction materials fields, the Chemical & Forest Products Group provides a wide range of industries with raw and basic materials. In this business group, agricultural material retail business has been consolidated into the Agri-Input Business Division, which is forming the foundation for Marubeni s agriculture businesses. Transportation & Industrial Machinery Group The Transportation & Industrial Machinery Group has a wide range of businesses that include operations of aircraft, ships, automobiles and related leasing, and construction and industrial machinery. While strengthening existing trading, sales, and other operations, we also actively invest in new businesses that ensure stable earnings bases, such as the aircraft operating lease business. Energy & Metals Group The Energy & Metals Group is engaged in the stable and efficient supply of resources through our wide-ranging value chain from the exploration and production business to the trading and marketing business. Through investment and trading activities, we are able to establish a flexible structure, which easily adapts to changing business environments. 3

4 Energy & Metals Group: MARUBENI S RESOURCE INTERESTS Marubeni operates energy and metal resource development and production operations around the world. Our LNG project portfolio is dispersed geographically, taking place in such countries as Qatar, which represents a major proponent of operations in this field. In the oil and gas development field, we conduct oil and gas development and production in the United States, the United Kingdom, Russia, and other countries. Operations in the metal resource field, meanwhile, include the development of iron ore, coal, and copper mines and aluminum smelting in countries including Australia, Canada, and Chile. 4

5 Marubeni Group by the Numbers 131 offices in 68 countries / areas 438 companies 39, (As of April 1st, 2017) (As of March 31, 2017) (As of March 31, 2017) (As of March 31, 2017) NET POWER GENERATION CAPACITY 10,743MW As a leading Independent Power Producer (IPP) business player in Japan, Marubeni has a top-class net power generation capacity. * The total sum of Japan and overseas VOLUME OF COFFEE BEANS TRADED 30 of coffee consumed in Japan Approximately 450,000 tons of coffee are consumed in Japan each year. Marubeni handles approximately 30% of this volume. GRAIN TRADING Trading volume 67million tons Marubeni boasts the top grain trading volume among Japanese companies. Year ended March 31, 2016 (includes some double-counted trades) GLOBAL ETHYLENE TRADING MARKET 30 % Approx. % share (All figures are as of March 31, 2016, unless otherwise noted.) Industry No.1 Using specialized tankers, Marubeni has secured approximately 30% of the global ethylene trading market. HELENA CHEMICAL COMPANY No.2 in the U.S. 487sales locations Helena Chemical Company is the No. 2 retailer of agricultural chemicals, fertilizers, seeds, and other crop protection products in the United States, the world s foremost agricultural super power, with 100,000 customers and annual net sales exceeding US$4.5 billion. AFFORESTATION BUSINESS SITES 210,000hectares 4 projects managed in 3 countries with a total of 210,000 hectares (roughly the size of Tokyo). * Leading site area among Japanese companies COPPER EQUITY VOLUME 150,000 tons Doing copper mining business in Chile. Equity volume is one of the largest in Japan. PEOPLE SERVED BY MARUBENI S WATER BUSINESS AND SEVICES 9 million people Marubeni is conducting diversified water projects in Central & South America, China, Asia, the Middle East, Australia, and Europe. PROVISION OF HOUSING IN CHINA 8,600 units Marubeni was one of the first Japanese companies to enter into the Chinese real estate market and has been engaged in such business operations as the development of housing for Chinese homebuyers and complex facilities since NUMBER OF AIRCRAFT OWNED 153 Marubeni commenced investment in Aircastle Limited in 2013, and we are now leasing aircraft to 53 airlines in 33 countries worldwide through this company. 5

6 Contents Crude Oil Price and US Production Value chain of oil and gas Previous Study Functional Currencies - Alba Field in UK North Sea PIW Top 50 in Major Oil Companies 2National Oil Companies 3National Flag Oil Companies 4Independent Companies Change of Functional Currencies Conclusion 6

7 Jan-1986 May-1987 Sep-1988 Jan-1990 May-1991 Sep-1992 Jan-1994 May-1995 Sep-1996 Jan-1998 May-1999 Sep-2000 Jan-2002 May-2003 Sep-2004 Jan-2006 May-2007 Sep-2008 Jan-2010 May-2011 Sep-2012 Jan-2014 May-2015 Sep-2016 Crude Oil Price and US field production of crude 160 WTI Spot Price FOB Cushing Oklahoma (Graph 1) (US Dollars per Barrel) U.S. Field Production of Crude Oil (Graph 2) (Thousand Barrels per Day) Data Source: US Energy Information Administration 7

8 Value Chain of Oil: Upstream to Downstream (Diagram 1) Refining Refined products Exploration, Development and Production oil Chemical Chemical products Gas Gas processing LNG Liquefication LNG ship LNG Regasfication Gas market Gas Pipeline Power Electricity Upstream Downstream Source: Various web page 8

9 Participants in the Alba Field in the UK North Sea and Parent Companies Source: Each company s financial statements 9

10 Previous Studies (1) Authors Revsine (1984) Arnold and Holder (1986) Doupnik and Evans (1988) Findings He pointed out the possibility that FASB guideline may lead to the incompatibility of financial statements. They interviewed the executive managers of 22 multinational companies in the US. They found that among the 18 companies whose functional currencies were local currencies, only five companies took formal steps to address the six indicators required by the FASB 52. They also pointed out that all the four companies, whose functional currency was US$, used the FASB 52 indicators properly. They pointed out that among the 338 multinational corporations that selected a foreign currency as their functional currency as of 1983, only 126 companies had appropriately selected their functional currency. They also pointed out that among 102 cases that selected US$ as their functional currency, 99 cases had followed the appropriate procedures and decided the US$ as their functional currency. 10

11 Previous Studies (2) Authors Mehta and Thapa (1991) Nobes (2006) Aoki et al (2016) Findings They pointed out that the subsidiary companies of Exxon (ExxonMobil) used local currencies as their functional currencies, except for operations in highly inflationary economies, where US$ is the functional currency. The subsidiary companies of Texaco (Chevron), on the other hand, used US$ as their functional currency. Both Exxon and Texaco had carried out similar operations under the US GAAP through their overseas subsidiary companies but they were different in practice. He pointed out that an entity s functional currency in the UK would generally be that of its country of operation. They discussed the same trend in Japan, pointing out that 54 out of the 61 companies in Japan, who had adopted the IFRS, used the current method for currency translation, which indicates that the functional currency must be the local currency. 11

12 PIW Top 50 in

13 1 Major Oil Companies 13

14 2 National Oil Companies: Export Oriented 14

15 3 National Flag Oil Companies: Import Oriented 15

16 4 Independent Oil and Gas Companies 16

17 0% 1-49% 50-99% 100% National Flag Total(10,$), Repsol(30, ), BG(37, ) Major Oil ExxonMobil(3,$), BP(6,$), Shell(8,$), Chevron(11,$) Independent Lukoil(16,$) Surgutneftgas(24,RB), ConocoPhillips(29,$), Novatek(35,RB), CNR(38,C$), Anadarko(40,$), Devon(42,$), Reliance(44,$), Chesapeake(45,$), EOG(46,$), Suncor(47,C$), Occidental(47,$), BHP Billiton(47,$), Tatneft(50,RB) National Flag Petrobras(12,BR), Eni(23, ), Inpex(43,\) National Flag Sinopec(20,RMB), ONGC(25,RP) National Oil Rosneft(6,RB), Gazprom(9,RB), Statoil(28,$), PDO(34,na), Ecopetrol(36,CP), YPF(41,$) National Flag CNPC(3,RMB), CNOOC(30,RMB) National Oil Aramco(1,na), NIOC(2,na), PDV(5,$), Sonatrach(12,na), KPC(14,KD) Adnoc(15,AED), QP(17,QR), Pemex(18,MP), Petronas(19,RM), INOC(21,na), NNPC(21,na), EGPC(26,na), Pertamina(27,$), Kazmunaigas(32,KT), Libya NOC(33,na), Uzbekneftegas(39,na) Diagram 2 (Source: Table 3, 4, 5, 6)

18 Companies that changed their functional Currencies 18

19 Conclusion (1/2) Previous studies confirm that the managements of multinational companies have the ability to choose their functional currencies. Major oil companies all use US$ as their functional currency. National oil companies (NOCs) have a clear tendency to select their own national currencies as functional currencies. National flag oil companies also showed clear tendency to use their own national currencies as functional currencies. Independent oil and gas companies showed that their functional currency is same with their presentation currency. 19

20 Conclusion (2/2) The managements of E&P companies have some discretion in choosing their functional currency. However, when the functional currency changes, the management s discretion to change it becomes limited, and requires events, such as structural changes, business circumstance changes, or change in accounting principles, as leverage. 20

21 Thank you! Fumihiko Matsubara, Ph.D. student, Hosei University Graduate School of Business Administration Tokyo, Japan November,