The fundamental energy industry restructuring, particularly in the midstream and downstream sectors, continues to generate attractive opportunities for Morris Energy clients. While these sectors are unique with respect to economic and strategic drivers, both share a common origin in their crude oil and raw natural gas commodity base, integrated natural gas liquids relationship and petroleum products trading activities. The midstream gas, downstream oil, specialty chemicals and specialty products sectors share many processes and functional relationships. Each sector’s business activities are based on adding value to a common raw natural gas or crude oil stream. The processes to high grade these commodities are complementary and similar in function and ultimately provide a wide range of hydrocarbon-based products to multiple markets.
Sector participants add significant value to the commodity stream once the oil and gas leaves the wellhead. In addition, there is both a functional and strategic commonality between the sectors. In contrast to the exploration, development and production business, the financial results of the midstream gas and downstream oil businesses are driven by the strategic configuration and deployment of physical assets. Oil and gas reserves, the principal assets of the upstream companies, are largely resource-based assets. Gas gathering, processing and marketing assets as well as oil refining, marketing and transportation assets, are predominantly strategic assets with limited substitutability.
Similarly, the oilfield service and equipment sector and the downstream service and equipment sectors are unique with respect to economic and strategic drivers. However, they often share common products and services. Participants in the oilfield service and equipment sector largely support exploration and production company clients whose economic activity is largely driven by absolute oil and gas prices. Whereas participants in the downstream service and equipment sector serve the hydrocarbon processing industry including oil refining, petrochemical manufacturing, chemical manufacturing and other process industries whose economic activity is largely driven by the relative price of one set of commodities to another.
Parallel and inter-related to the midstream and downstream sectors is the alternative energy sector. This sector is heavily regulated and power supply and fuels generated by the alternative energy sector are currently aided by numerous federal, state and local economic incentive programs. As such, these new products are targeted to supplant traditional fuels and power supply and necessarily represent products and technologies disruptive to the established midstream, downstream and power supply chains. Ethanol and bio-diesel compete with gasoline and diesel while wind and solar power compete with coal, natural gas, fuel oil and nuclear power. However, each alternative energy product has unique feedstock supply, midstream logistics and product profile challenges to overcome to be competitive on a non-subsidized basis with traditional energy products.