Higher Return on Capital Employed (ROCE) in Oil & Gas Downstream Operations Part 3: Increasing Revenue

Executives responsible for managing Oil & Gas downstream operations are being tasked to come up with new ways to either cut costs or generate higher revenues over the life of their process plants. Although many rely on rising crude oil prices to drive revenues, this is a short-term strategy that should be supplemented with longer term efficiency improvement initiatives. Many are investing in new technologies to help streamline operations but are having difficulty in assessing the business value of that technology. Measurements in revenue gains or cost savings should not only be scrutinized by assessing the value of individual technology components, but as an integrated whole. In this way a metric such as Return on Capital Employed (ROCE) can be used to identify how much the new technology is contributing to the value to the operation.

ROCE represents the percentage return that a company makes over its invested capital, a measure of the profitability and value-creating potential after taking into account the amount of initial capital invested. The ROCE ratio is expressed as Earnings Before Interest and Tax (EBIT) / Capital Employed. Thus, ROCE can serve as a useful metric for calculating efficiency and profitability and can help determine how to squeeze a higher return out of corporate capital investments.

This blog is the third in a three-part series that assesses the impact of technology modernization on CapEx, OpEx and revenue generation. These three financial variables present an overall picture of how ROCE metric elements can be combined to determine the business value of automation technology investments. All three blogs reflect real-life downstream Oil & Gas industry case studies in which Schneider Electric played a key role as technology consultant and provider.

Case study: Increased refinery revenues

Technology deployments that generate healthy ROCE also contribute to revenue growth aspects of refinery operations. Schneider Electric field studies have shown that annual revenue gains of 1.77% can be realized within refineries from improved responses to changes in market conditions, reduced material losses, fewer operator errors, increased yield of more valuable products, increased volume, increased market share, and increased average sales price.

Our studies analyzed some of the ways technologies can be deployed to increase refinery throughput, improve the yield structure and optimize utilization rates so that revenues, efficiencies, maintenance and turnaround times are improved.

Below is a summary of some of the more significant revenue generation methods, and their impact on the earnings of a medium-size petroleum refining facility:

The biggest contributor to revenue gain ($21.83 Million) was the reduction in material losses. These reductions were achieved through new generation daily refinery yield accounting systems. Sources of loss were quickly identified and reduced or eliminated. The loss elimination increased the volume of fuel products available for sale, resulting in higher refinery margins.

Revenue gains of $14.55 Million were generated through the increased yield of more valuable refinery products. Online, real-time optimization systems and high-performance advanced process control systems were able to maintain target values of refinery operations outputs resulting in these higher yields.

Another source of revenue gain (totaling $7.97 Million) was driven through fewer operator errors. By consistently enforcing best operating practices, and by minimizing incorrect decisions though simulation-based training, error frequency was reduced, in some cases by more than half.

The ability to respond better to changes in market conditions also positively impacted revenue (with gains totaling $7.28 Million). Better designed refinery supply chain management systems enabled planners to identify the most profitable crude oils to purchase, and allowed refinery schedulers to respond quickly to changes in feedstock properties, energy costs, product demand and product prices.