oil refinery business plan pdf

Crude Oil Refinery Business Plan [Sample Template]

By: Author Tony Martins Ajaero

Home » Business Plans » Oil & Gas Sector

Are you about starting a crude oil refinery? If YES, here is a complete sample crude oil refinery business plan template & feasibility report you can use for FREE .

Okay, so we have considered all the requirements for starting a crude oil refinery . We also took it further by analyzing and drafting a sample crude oil marketing plan template backed up by actionable guerrilla marketing ideas for crude oil refineries. So let’s proceed to the business planning section.

Crude oil is also popularly called black gold and is indeed a major source of income for countries where they have deposit of crude oil in commercial quantities.

As a matter of fact, players in the crude oil or oil and gas industry are known to generate massive income year in year out. This is so because all over the world people depend on products from this industry in order to operate their machines and automobiles et al.

It is important to state that if you are tinkering with starting a crude oil refinery, even if it is on a small scale, you must be ready to cough out a huge start – capital. Crude oil refinery business is indeed a highly capital intensive  trade which is why in most cases, investors with same or similar business ideology pool their cash together to be able to set up their own crude oil refinery business.

If you are interested in starting a crude oil refinery business, then you have got to brace up to follow through the somewhat challenging processes required to fulfill you dream.

You should equally be ready to go through the bureaucracy needed before you can acquire your license and permit and also source for funds et al. Below is a sample crude oil refinery business plan that will help you successfully launch your own business;

A Sample Crude Oil Refinery Business Plan Template

1. industry overview.

The crude oil refinery industry is indeed strategic industry and players in this industry refine crude oil into petroleum products. Basically, petroleum refining involves one or more of the following activities: fractionation, straight distillation of crude oil and cracking.

A close study of the industry shows that establishments in the crude oil refinery industry experienced volatile conditions over the last five years. Rising crude oil prices powered revenue growth as refiners have passed costs down the distribution line.

Over the last five years, profit has steadily recovered in line with improving demand, while low domestic oil prices further bolstered margins. Going forward, profit is expected to rise marginally, though it remains below historic levels.

The Crude Oil Refinery Industry is a thriving sector of the economy of the united states, United Arab Emirates, Russia, Venezuela, Nigeria, Angola, Canada, Saudi Arabia and Kuwait. Statistics has it that in the United States of America alone, The Crude Oil Refinery Industry generates a whooping sum of well over $369 billion annually from more than 135 registered and licensed crude oil refineries.

The industry is responsible for the employment of well over 58,230 people. Experts project the industry to grow at a -14.2 percent annual rate. Chevron, Exxon Mobil, Shell, Phillips 66 and Marathon Petroleum Corporation are the leaders in The Crude Oil Refinery Industry, they have the lion share of the available market in the industry.

For aspiring entrepreneurs who are considering starting a crude oil refinery business whether on a small scale or in a large scale should ensure that he or she conducts a thorough and exhaustive market survey and feasibility studies so as to get it right.

The truth is that, this type of business do pretty well when it is strategically positioned. Any location that is close to oil wells is ideal for such business. Over and above, crude oil refinery business is indeed a profitable business venture and it is open to any aspiring entrepreneur to come in and establish his or her business as long as they have the finance and expertise.

2. Executive Summary

Seven Seas Oil & Gas, Inc. is a small scale but standard and licensed crude oil refinery business that will be based in Juneau – Alaska, United States. Although we intend starting out on a small scale, but that will not in any way stop us from maximizing our potential in the international crude oil industry.

We hope to grow the business so as to start exporting refined crude oil products from the United States to other countries of the world. Our business goal as a standard and licensed crude oil refinery business is to become one of the leading oil and gas companies.

Our business activities will involve; gasoline production, kerosene production, distillate fuel oil (diesel fuel) production, aviation fuel production, residual fuel oil production, lubricant production, producing aliphatic and aromatic chemicals as byproducts, diesel fuel oil, jet fuel, liquefied petroleum gases, residual fuel oil, other refined petroleum products.

We have been able to secure permits from all relevant departments in the State of Alaska to run the business. Seven Seas Oil & Gas, Inc. is set to build a highly profitable crude oil refinery business which is why we have put plans in place for continuous training of all our staff members at regular interval.

No doubt the demand for refined crude oil products is not going to plummet any time soon, which is why we have put plans in place to continue to explore all available market for our products. In the nearest future, we will ensure that we create a wide range of distribution channels across the United States and on a global scale. With that, we know we will be able to maximize profits in our business.

Seven Seas Oil & Gas, Inc. will at all times demonstrate her commitment to sustainability, both individually and as a firm, by actively participating in our communities and integrating sustainable business practices wherever possible. We will ensure that we hold ourselves accountable to the highest standards by meeting our customers’ needs precisely and completely.

We will cultivate a working environment that provides a human, sustainable approach to earning a living, and living in our world, for our partners, employees and for our customers.

Seven Seas Oil & Gas, Inc. is a family business that is owned by Mr. Andrew Coppersmiths and his immediate family members.  Mr. Coppersmiths has a B.Sc. in Petroleum Engineering from A & M University, Texas. He has well over 10 years of hands on experience in the oil and gas industry, working for some of the leading brand in the United States.

Although the business is launching out as a family owned business but there is a plan to invite other investors who has same investment ideology in other to grow the business.

3. Our Products and Services

Our intention of starting Seven Seas Oil & Gas, Inc. is to make profits from the crude oil refinery industry cum oil and gas industry and we will do all that is permitted by the law in the US to achieve our corporate aim and ambition. Below are some of our products offering;

• Gasoline production
• Kerosene production
• Distillate fuel oil (diesel fuel) production
• Aviation fuel production
• Residual fuel oil production
• Lubricant production
• Producing aliphatic and aromatic chemicals as byproducts
• Diesel fuel oil
• Liquefied petroleum gases
• Residual fuel oil
• Other refined petroleum products

4. Our Mission and Vision Statement

• Our vision as a crude oil refinery business is to build a highly profitable business that will have a strong global presence like companies such as Chevron , Shell and Exxon Mobile et al.
• Our mission is to establish a standard and world class crude oil refinery business that in our own capacity will favorably compete with leaders in the industry. We want to build a crude oil refinery business that will be listed amongst the top 20brands in the United States of America.

Our Business Structure

Ordinarily, we would have succeeded in running our small scale crude oil refinery business with few employees, but as part of our plan to build a top flight crude oil refinery business in Juneau – Alaska, we have perfected plans to get it right from the onset which is why we are going the extra mile to ensure that we have competent employees to occupy all the available positions in our company.

The picture of the kind of crude oil refinery business we intend building and the business goals we want to achieve is what have informed the amount we are ready to spend to ensure that we build a business with dedicated workforce and a robust distribution network that cut across the United States of America, and the global market.

In view of that, we have decided to hire qualified and competent hands to occupy the following positions at Seven Seas Oil & Gas, Inc.;

• Chief Executive Officer (President)

Crude Oil Refinery Manager / Petroleum Engineer

Human Resources and Admin Manager

• Sales and Marketing Officer
• Accountants / Cashiers

Crude Oil Refinery Machine Operators

• Tanker Drivers/Crude Oil Products Wholesale Distributors
• Customer Service Executives

5. Job Roles and Responsibilities

Chief Executive Officer – CEO (President):

• Increases management’s effectiveness by recruiting, selecting, orienting, training, coaching, counseling, and disciplining managers; communicating values, strategies, and objectives; assigning accountabilities; planning, monitoring, and appraising job results; developing incentives; developing a climate for offering information and opinions; providing educational opportunities.
• Creates, communicates, and implements the organization’s vision, mission, and overall direction – i.e. leading the development and implementation of the overall organization’s strategy.
• Responsible for fixing prices and signing business deals
• Responsible for providing direction for the business
• Responsible for signing checks and documents on behalf of the company
• Evaluates the success of the organization
• Responsible for overseeing the smooth running of the refinery
• Makes sure that quality is maintained at all times
• Maps out strategy that will lead to efficiency amongst workers in the refinery
• Responsible for training, evaluation and assessment of the workforce
• Ensures operation of equipment by completing preventive maintenance requirements; calling for repairs.
• Ensures that the refinery meets the expected safety and health standard at all times.
• Responsible for overseeing the smooth running of HR and administrative tasks for the organization
• Updates job knowledge by participating in educational opportunities; reading professional publications; maintaining personal networks; participating in professional organizations.
• Enhances department and organization reputation by accepting ownership for accomplishing new and different requests; exploring opportunities to add value to job accomplishments.
• Defines job positions for recruitment and managing interviewing process
• Carries out staff induction for new team members
• Responsible for training, evaluation and assessment of employees
• Oversees the smooth running of the daily business activities.

Sales and Marketing Manager

• Manages external research and coordinate all the internal sources of information to retain the organizations’ best customers and attract new ones
• Models demographic information and analyze the volumes of transactional data generated by customer purchases
• Identifies, prioritize, and reach out to new partners, and business opportunities et al
• Responsible for supervising implementation, advocate for the customer’s needs, and communicate with customers
• Develops, executes and evaluates new plans for expanding increase sales
• Documents all customer contact and information
• Represents the company in strategic meetings
• Helps to increase sales and growth for the company
• Responsible for operating crude oil refinery machines
• Actively involved in gasoline production, kerosene production, distillate fuel oil (diesel fuel) production, aviation fuel production, residual fuel oil production, lubricant production, producing aliphatic and aromatic chemicals as byproducts, diesel fuel oil, jet fuel, liquefied petroleum gases, residual fuel oil, and other refined petroleum products for the company.
• Handles any other duty as assigned by the palm oil processing plant manager

Accountant / Cashier

• Responsible for preparing financial reports, budgets, and financial statements for the organization
• Provides managements with financial analyses, development budgets, and accounting reports; analyzes financial feasibility for the most complex proposed projects; conducts market research to forecast trends and business conditions.
• Responsible for financial forecasting and risks analysis.
• Performs cash management, general ledger accounting, and financial reporting
• Responsible for developing and managing financial systems and policies
• Responsible for administering payrolls
• Ensures compliance with taxation legislation
• Handles all financial transactions for the organization
• Serves as internal auditor for the organization

Tanker Drivers / Crude Oil Products Wholesale Distributors

• Assists in loading and unloading crude oil products
• Maintains a logbook of their driving activities to ensure compliance with federal regulations governing the rest and work periods for operators.
• Keeps a record of vehicle inspections and make sure the truck is equipped with safety equipment
• Assists the transport and logistics manager in planning their route according to a delivery schedule.
• Local-delivery drivers may be required to sell products and businesses on their route, obtain signatures from recipients and collect cash.
• Transports petroleum products over land to and from the refinery to retail and distribution centers
• Inspects vehicles for mechanical items and safety issues and perform preventative maintenance
• Complies with truck driving rules and regulations (size, weight, route designations, parking, break periods etc.) as well as with company policies and procedures
• Collects and verify delivery instructions
• Reports defects, accidents or violations

Client Service Executive

• Ensures that all contacts with customer (e-mail, walk-In center, SMS or phone) provides the client with a personalized customer service experience of the highest level
• Through interaction with customers on the phone, uses every opportunity to build client’s interest in the company’s products and services
• Manages administrative duties assigned by the store manager in an effective and timely manner
• Consistently stays abreast of any new information on Delta Palm Oil Ventures products, promotional campaigns etc. to ensure accurate and helpful information is supplied to customers when they make enquiries

6. SWOT Analysis

Due to our drive for excellence when it comes to running a small scale but standard crude oil refinery business, we were able to engage some of the finest business consultants in the United States to look through our business concept and together we were able to critically examine the prospect of the business and to access ourselves to be sure we have what it takes to run a small scale but standard crude oil refinery business that can compete favorably in the oil and gas industry.

In view of that, we were able to take stock of our strengths, our weakness, our opportunities and also the threats that we are likely going to be exposed to in the United States and also in other parts of the world that we intend selling our crude oil products.

Here is a of what we got from the critically conducted SWOT Analysis Seven Seas Oil & Gas, Inc.;

Our strength lies in the fact that our refinery is strategically located in an oil and gas drilling area. We have state of the art crude oil refinery facility and equipment that has positioned us to meet the demand of petroleum products within our capacity even if the demand tripled overnight or if we have a massive order to meet and emergency need.

Another factor that counts to our advantage is the background of our Chief Executive Office; he has a robust experience in the oil and gas industry and also a pretty good academic qualification to match the experience acquired which has placed her amongst the top flight oil and gas experts.

We are not ignoring the fact that our team of highly qualified and dedicated workers will also serve as strength for our organization

We do not take for granted the fact that we have weaknesses. In fact, the reality that we are setting up a small scale crude oil refinery business in a city with other smaller and larger crude oil refinery businesses might likely pose a challenge for us in breaking into the already saturated market.

In essence our chosen location might be our weakness. But nevertheless, we have plans to launch out with a big bang. We know with that, we will be able to create a positive impression and we have a proper handle when it comes to building on already gather momentum.

• Opportunities:

The opportunities available to us are unlimited. Loads of people make use of petroleum products on a daily basis and all what we are going to do to push our push our products to them is already perfected. Juneau – Alaska is just ideal for crude oil refinery business because there are loads of oil wells in the State.

The threat that is likely going to confront us is the fact that we are competing with already established crude oil refinery businesses in United States and also there are other entrepreneurs who are likely going to launch similar business within the location of our business. Of course, they will compete with us in winning over the available market.

Another threat that we are likely going to face is unfavorable government policies and economic downturn. Usually economic downturn affects purchasing / spending powers and unfavorable government policies can hinder our free – flow of exporting crude oil products to other countries of the world.

7. MARKET ANALYSIS

• Market Trends

It is common trend in the crude oil refinery industry to find crude oil processing companies positioning their business in locations and communities where they can easily have access to fresh and cheap palm kernels.

If you make the mistake of positioning this type of business in a location where you would have to travel a distance before you can access crude oil, then you would have to struggle to make profits and maintain your overhead and logistics. Because a good chunk of your expenditure will go into transportation of the crude oil

So also another trend in this line of business is that most registered and well organized crude oil refinery companies look beyond the market within their locations; they are involved in exporting petroleum products to countries that do not have crude oil.

It is indeed a brisk business if you can secure reliable international client. Besides there is always a ready market for petroleum products all across the globe.

Lastly, in the bid to stay afloat and continue to make profits from this line of business, most standard and large scale crude oil refinery businesses tend to work hard to ensure that they own their crude oil wells. So also it is highly profitable to position this type of business in developing countries with crude oil in commercial quantities and fewer standard crude oil refineries.

Countries like Nigeria , Angola and Sao Tome and Principe readily come to mind if you can successfully secure the required license for such business.

8. Our Target Market

When it comes to retailing petroleum products, there is indeed a wide range of available customers. In essence, our target market can’t be restricted to just a group of people, but all those who make use of any of the following gasoline, kerosene, distillate fuel oil (diesel fuel), aviation fuel, residual fuel oil, lubricant, aliphatic and aromatic chemicals, diesel fuel oil, jet fuel, liquefied petroleum gases, residual fuel oil, other refined petroleum products..

One thing is certain; there are no restrictions to the demographic and psychographics composition of the target market for petroleum products in the world. This goes to show that the target market for petroleum products is wide and far reaching, you can create your own make niche yourself to serve a specific purpose.

In view of that, we have conducted our market research and we have ideas of what our target market would be expecting from us. We are in business to engage in retailing and wholesale distribution cum exporting of petroleum products to the following groups of people;

• Cars cum automobile owners
• Generators cum plant owners
• Corporate organization
• Households who make use of petroleum products
• Industries that depends on raw materials from crude oil manufacturing industries to produce their products
• Restaurants and canteens that make use of petroleum products
• The shipping industries
• The aviation industry

Our Competitive Advantage

First and foremost, the fact that anybody or group of investors with good financial standings and business interest in the oil and gas sector can decide to start a crude oil refinery business means that the business is open to all and sundry hence it is expected that there will be high – level competition in the industry.

There is hardly any crude oil producing communities that you wouldn’t find several crude oil refineries business especially on a small scale level.

As a small scale but standard crude oil refinery business, we know that gaining a competitive edge requires a detailed analysis of the demographics of the surrounding area and the nature of existing competitors. And even if you are successful at first, new competitors could enter your market at any time to steal your regular customers. Hence we will not hesitate to adopt successful and workable strategies from our competitors.

We are going to be one of the very few small scales but standard crude oil refineries in Juneau – Alaska that will also engage in wholesale distribution of petroleum products all across the United States of America and also export petroleum products to other countries of the world.

Another competitive advantage that we have is the vast experience of our management team, we have people on board who are highly experienced and understands how to grow business from the scratch to becoming a national phenomenon, especially businesses in the oil and gas sector.

Our large and robust distribution network and of course our excellent customer service culture will definitely count as a strong strength for the business. One thing is certain, we will ensure that in future, we own our crude oil well and grow big to favorable compete with leaders in the industry. With that our brand will be well communicated and accepted nationally.

Lastly, our employees will be well taken care of, and their welfare package will be among the best within our category (startups small scale but standard crude refinery companies) in the industry, meaning that they will be more than willing to build the business with us and help deliver our set goals and achieve all our aims and objectives.

We will also give good working conditions and commissions to freelance sales agents that we will recruit from time to time.

9. SALES AND MARKETING STRATEGY

• Sources of Income

Seven Seas Oil & Gas, Inc. is established with the aim of maximizing profits in the crude oil refinery industry cum oil and gas industry both in the United States of America and throughout the world.

We are going to go all the way to ensure that we do all it takes to sell our petroleum products both in retail and wholesale to a wide range of customers who make use of petroleum products. Seven Seas Oil & Gas, Inc. will generate income by simply selling the following petroleum products;

• Distillate fuel oil (diesel fuel)
• Aviation fuel
• aliphatic and aromatic chemicals as byproducts

10. Sales Forecast

One thing is certain when it comes to crude oil refinery business, if your business is centrally positioned and easily accessible, you will always attract customers cum sales and that will sure translate to increase in revenue generation for the business.

We are well positioned to take on the available market in the United States of America and every other country of the world where we intend exporting our petroleum products to and we are quite optimistic that we will meet our set target of generating enough income / profits from the first six month of operations and grow the business and our clientele base.

We have been able to critically examine the crude oil refinery industry cum oil and gas industry and we have analyzed our chances in the industry and we have been able to come up with the following sales forecast. The sales projection is based on information gathered on the field and some assumptions that are peculiar to similar startups in Juneau – Alaska, United States.

Below are the sales projection for Seven Seas Oil & Gas, Inc., it is based on the location of our business and other factors as it relates to small scale and medium scale crude oil refinery company start – ups in the United States;

• First Fiscal Year-: $2Million
• Second Fiscal Year-: $5Million
• Third Fiscal Year-: $10Million

N.B : This projection is done based on what is obtainable in the industry and with the assumption that there won’t be any major economic meltdown and there won’t be any major competitor offering same petroleum product and customer care services as we do within same location. Please note that the above projection might be lower and at the same time it might be higher.

• Marketing Strategy and Sales Strategy

Before choosing a location to launch Seven Seas Oil & Gas, Inc., we conduct a thorough market survey and feasibility studies in order for us to be able to be able to penetrate the available market in Nigeria and the international market.

We have detailed information and data that we were able to utilize to structure our business to attract the numbers of customers we want to attract per time and also for to compete with other small scale but standard crude oil refinery companies.

We hired experts who have a good understanding of the crude oil refinery industry cum oil and gas industry to help us develop marketing strategies that will help us achieve our business goal of winning a larger percentage of the available market for our petroleum products.

In order to continue to be in business and grow, we must continue to sell our petroleum products to the available market which is why we will go all out to empower or sales and marketing team to deliver our corporate sales goals. In summary, Seven Seas Oil & Gas, Inc. will adopt the following sales and marketing approach to sell our wide range of cupcake flavors;

• Introduce our business by sending introductory letters to residence, merchants and other stakeholders both in United States of America and abroad.
• Open our crude oil refinery business with a party so as to capture the attention of residence who are our first targets
• Engage in road show in targeted communities  from time to time to market our brand
• Advertise our products in community based newspapers, local TV and radio stations
• List our business and products on yellow pages ads  (local directories)
• Leverage on the internet to promote our product cum business
• Engage in direct marketing and sales
• Encourage the use of Word of mouth marketing (referrals)

11. Publicity and Advertising Strategy

Regardless of the fact that our crude oil refinery business is a standard one that can favorably compete with other small scale but standard crude oil refineries in The United States of America and in any part of the world, we will still go ahead to intensify publicity for all our products and brand. We are going to explore all available means to promote Seven Seas Oil & Gas, Inc.

Seven Seas Oil & Gas, Inc. has a long term plan of owning our own oil well in Africa and exports our product all across the world. This is why we will deliberately build our brand to be well accepted in Juneau – Alaska before venturing out to other cities in United States of America and the world.

As a matter of fact, our publicity and advertising strategy is not solely for selling our products but to also effectively communicate our brand. Here are the platforms we intend leveraging on to promote and advertise Seven Seas Oil & Gas, Inc.;

• Place adverts on both print (community based newspapers and magazines) and electronic media platforms
• Sponsor relevant community programs
• Leverage on the internet and social media platforms like; Instagram, Facebook , twitter, et al to promote our brand
• Install our Bill Boards on strategic locations all around major cities in the United States of America
• Engage in road show from time to time in targeted communities
• Distribute our fliers and handbills in target areas
• Position our Flexi Banners at strategic positions in the location where we intend getting customers to start patronizing our petroleum products
• Ensure that all our staff members wear our customized clothes, and all our official cars and distribution tankers are customized and well branded.

12. Our Pricing Strategy

When it comes to pricing for products such as petroleum products, there are no hard and fast rules, the prices are based on per liter or the container in which the petroleum products are placed in.

In view of that, our prices will conform to what is obtainable in the industry but will ensure that within the first 3 to 6 months our petroleum products are sold a little bit below the average prices when compared to other petroleum products production businesses in Nigeria. We have put in place business strategies that will help us run on low profits for a period of 6 months; it is a way of encouraging people to buy into our brands.

• Payment Options

The payment policy adopted by Seven Seas Oil & Gas, Inc. is all inclusive because we are quite aware that different customers prefer different payment options as it suits them but at the same time, we will ensure that we abide by the financial rules and regulation of the United States of America.

Here are the payment options that Seven Seas Oil & Gas, Inc. will make available to her clients;

• Payment via bank transfer
• Payment with cash
• Payment via online bank transfer
• Payment via check
• Payment via bank draft

In view of the above, we have chosen banking platforms that will enable our client make payment for farm produces purchase without any stress on their part. Our bank account numbers will be made available on our website and promotional materials to clients who may want to deposit cash or make online transfer for the purchase of petroleum products in wholesale.

13. Startup Expenditure (Budget)

In setting up any business, the amount or cost will depend on the approach and scale you want to undertake. If you intend to go big by renting a place, then you would need a good amount of capital as you would need to ensure that your employees are well taken care of, and that your facility is conducive enough for workers to be creative and productive.

This means that the start-up can either be low or high depending on your goals, vision and aspirations for your business.

The tools and equipment that will be used are nearly the same cost everywhere, and any difference in prices would be minimal and can be overlooked. As for the detailed cost analysis for starting a crude oil refinery business; it might differ in other countries due to the value of their money.

We know that no matter where we intend starting our crude oil refinery business, we would be required to fulfill most of the items listed below;

• The Total Fee for Registering the Business in the United States of America – $750.
• Legal expenses for obtaining licenses and permits as well as the accounting services (software, P.O.S machines and other software) – $1,300.
• Marketing promotion expenses for the grand opening of Seven Seas Oil & Gas, Inc. in the amount of $3,500 and as well as flyer printing (2,000 flyers at $0.04 per copy) for the total amount of – $3,580.
• Cost for hiring Business Consultant – $2,500.
• Insurance (general liability, workers’ compensation and property casualty) coverage at a total premium – $2,400.
• Cost for payment of rent for 12 month at $1.76 per square feet in the total amount of $550,000
• Cost for construction of a small scale but standard crude oil refinery – $2Million
• Other start-up expenses including stationery ( $500 ) and phone and utility deposits ( $2,500 ).
• Operational cost for the first 3 months (salaries of employees, payments of bills et al) – $1Million
• The cost for Start-up inventory – $250,000
• Storage hardware (bins, rack, shelves, food case) – $3,720
• Cost for store equipment (cash register, security, ventilation, signage) – $13,750
• Cost of purchase of distribution tankers – $100,000
• The cost for the purchase of furniture and gadgets (Computers, Printers, Telephone, Fax Machines, tables and chairs et al) – $4,000.
• The cost of Launching a Website – $600
• The cost for our opening party – $10,000
• Miscellaneous – $10,000

We would need an estimate of $4 million to successfully set up a small scale but standard crude oil refinery in Juneau – Alaska. Please note that this amount includes the salaries of all the staff for the first 3 month of operation.

Generating Funding / Startup Capital for Seven Seas Oil & Gas, Inc.

No matter how fantastic your business idea might be, if you don’t have the required money to finance the business, the business might not become a reality. Finance is a very important factor when it comes to starting a business such as crude oil refinery business.

No doubt raising start – up capital for a business might not come cheap, but it is a task that an entrepreneur must go through.

Seven Seas Oil & Gas, Inc. is a family business that is owned and financed by Mr. Andrew Coppersmith and his immediate family members. Although in future they plan to welcome external investors, but for now, they do not intend to welcome any external business partners that is why he has decided to restrict the sourcing of the start – up capital to 3 major sources.

These are the areas we intend generating our start – up capital;

• Generate part of the start – up capital from personal savings and sell of stocks
• Source for soft loans from family members and friends
• Apply for loan from my Bank

N.B: We have been able to generate about $1.5 million (Personal savings $1 million and soft loan from family members $500,000) and we are at the final stages of obtaining a loan facility of $2.5 million from our bank. All the papers and document have been signed and submitted, the loan has been approved and any moment from now our account will be credited with the amount.

14. Sustainability and Expansion Strategy

The future of a business lies in the numbers of loyal customers that they have the capacity and competence of the employees, their investment strategy and the business structure. If all of these factors are missing from a business (company), then it won’t be too long before the business close shop.

One of our major goals of starting Seven Seas Oil & Gas, Inc. is to build a business that will survive off its own cash flow without the need for injecting finance from external sources once the business is officially running. We know that one of the ways of gaining approval and winning customers over is to retail our petroleum a little bit cheaper than what is obtainable in the market and we are well prepared to survive on lower profit margin for a while.

Seven Seas Oil & Gas, Inc. will make sure that the right foundation, structures and processes are put in place to ensure that our staff welfare is well taken of.

Our company’s corporate culture is designed to drive our business to greater heights and training and retraining of our workforce is at the top burner. As a matter of fact, profit-sharing arrangement will be made available to all our management staff and it will be based on their performance for a period of three years or more.

We know that if that is put in place, we will be able to successfully hire and retain the best hands we can get in the industry; they will be more committed to help us build the business of our dreams.

Check List / Milestone

• Business Name Availability Check:>Completed
• Business Registration: Completed
• Opening of Corporate Bank Accounts: Completed
• Securing Point of Sales (POS) Machines: Completed
• Opening Mobile Money Accounts: Completed
• Opening Online Payment Platforms: Completed
• Application and Obtaining Tax Payer’s ID: In Progress
• Application for business license and permit: Completed
• Purchase of Insurance for the Business: Completed
• Leasing of a facility and construction of a small scale but standard crude oil refinery: In Progress
• Conducting Feasibility Studies: Completed
• Generating capital from family members: Completed
• Applications for Loan from the bank: In Progress
• Writing of Business Plan: Completed
• Drafting of Employee’s Handbook: Completed
• Drafting of Contract Documents and other relevant Legal Documents: In Progress
• Design of The Company’s Logo: Completed
• Graphic Designs and Printing of Packaging Marketing / Promotional Materials: In Progress
• Recruitment of employees: In Progress
• Purchase of the needed crude oil processing equipment, furniture, racks, shelves, computers, electronic appliances, office appliances and CCTV: In progress
• Creating Official Website for the Company: In Progress
• Creating Awareness for the business both online and around the community: In Progress
• Health and Safety and Fire Safety Arrangement (License): Secured
• Opening party / launching party planning: In Progress
• Establishing business relationship with vendors – wholesale suppliers / merchants of petroleum products: In Progress
• Purchase of delivery tanks: Completed

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Sample Crude Oil Refinery Business Plan

Are you into oil refining or wish to start a business in the oil and gas line ? Click here for a sample crude oil refinery business plan.

It’s a great business idea that will require getting everything in place to launch a successful operation. One of the most fundamental requirements includes having a plan.

CRUDE OIL REFINERY BUSINESS PLAN SAMPLE

Your business plan is simply your blueprint to success.

Need to write a plan for your venture? Download a FREE Business Plan PDF Sample to develop a template for your own startup.

However, a shabbily written plan won’t do much to help your business grow. This is why we’ve written this crude oil refinery Business Plan to serve as a guide.

SEE: Developing A Diesel Supply Business Plan

Here, we’ve included all the basics with the strong hope that you’ll get the help you need.

It Begins with Identifying the Main Sections

Every business plan is structured in a certain way.

Here, we’re referring to the key sections contained within the plan. Basically, these sections include the executive summary, the company description, and the products & services sections.

There’s more!

Other key inclusions are the market analysis section, the strategy & implementation, the organization & management team as well as the financial plan & projection sections.

Detailed analysis and breakdown of each of these sections are needed to have a comprehensive plan.

i. Executive Summary

Consider the executive summary section as an introduction to the plan.

This is a compressed version that highlights the vital aspects of the plan. It’s written comprehensively and largely determines whether your business idea is viewed favorably by lenders or not.

Here, the aim is to keep your readers interested and making them want to learn more about your business idea.

Although the executive summary section appears first in order of arrangement, it’s actually written last. This helps capture all the key points to be included.

Business Name & Location

The business name and location are key details you can’t leave out or ignore. Your crude oil refining business must have a name. Where is it going to be located?

Location counts as it has to do with the supply of raw materials (in this case crude oil) as well as easy distribution of refined products.

Products and/or Services Offered

There’s also the products and services section. Whatever your scale of operation, crude oil refining is big business.

Apart from gasoline, a wide range of by-products is derived from crude. You’ll need to list your products while also stating any number of services offered.

Mission & Vision Statements

The mission and vision statements give an idea of where the business is headed and what it seeks to accomplish.

Your mission statement should briefly explain what your business offers, how it does this, and also who it helps. In a nutshell, it should encapsulate the value of your products and service.

The vision statement on the other hand is part of your strategic plan. It should clearly describe what you wish to achieve and also what you intend to offer your customers.

It should be inspiring enough to allow your workforce to key into it.

Purpose of the Plan

What’s the purpose of putting together a crude oil refining plant? Clearly stating its purpose gives more direction and enables you to clarify your goals. This enhances your likelihood of success.

ii. Company Description

The company description section is important to you as well as to your audience (lenders). It clearly highlights key aspects of your operations. It explains who you are, your goals as well as your operations.

This section should include information on the legal structure of your crude refining business.

Also, comprehensive information on the nature of the business as well as its brief history must be stated. What specific demands do you wish to satisfy?

Crude refining products serve the needs of a huge energy market.

Include an overview of services & products not leaving out your customers and suppliers. Ensure you include financial & market highlights as well. There should also be a summary of short and long-term business goals.

Clearly identify how you intend to make a profit.

iii. Products & Services

What products will your crude oil refining business offer? These must be clearly defined in addition to stating how they benefit the market or your customers.

Some visual representation such as the use of diagrams and pictures will make your presentation more understandable.

The market role of your products and services is crucial. You’ll need to state its advantages over competing products. What research and development activities are currently in place?

Will they lead to the development of more products?

iv. Market Analysis

This is where a great deal of work is needed. The market analysis section is written after thorough research of the refining industry.

It should include details such as a targeted customer segment sketch, an industry description, and outlook with statistical backing as well as historical, current, and projected marketing data.

It’s also important to include an evaluation of your competitors. Here, you’ll be more interested in identifying their strengths and weaknesses.

v. Strategy & Implementation

A summary of sales and marketing strategies as well as their implementation is what this section encapsulates.

You’ll need to explain you intend to promote your crude oil refining business to the market. Provide all details on product costs, pricing, promotion & distribution.

There needs to be a clear understanding of how your business will function. Here, the operational cycle, as well as information on labor sources and employees is necessary.

vi. Organization & Management Team

The organizational structure of your crude oil refining business needs to be discussed. This is better presented with an organizational chart that describes key departments and employees.

Details about the owners, their names, level of involvement as well as percentage ownership are necessary.

The profiles of your management team must also be stated. Key inclusions will cover skills and background, positions, names, and main responsibilities.

vii. Financial Plan & Projection

Your crude oil refining business plan won’t be complete without the financial plan & projections section. The input of a professional is vital here.

With the help of a professional accountant, have a detailed breakdown of your historical financial data, in addition to realistic prospective financial information.

A brief analysis of your financial data is also a necessary inclusion to your crude oil refining business plan.

With these sections comprehensively written, you have a solid plan that guarantees success.

You can also follow this framework to create a unique oil and gas business plan .

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Petroleum Refinery Planning and Economics

• Reference work entry
• First Online: 01 January 2015
• Cite this reference work entry

• David S. J. Jones 4 &
• Peter R. Pujadó 5  

6867 Accesses

This chapter is divided more or less into three parts. The first part (section “Refinery Operation Planning”) deals with the planning of a refinery’s operation, which includes its optimized crude runs, product slate, and any process expansion or debottlenecking that may be required to meet this optimized operation. The second part (sections “Process Evaluation and Economic Analysis,” “Discounted Cash Flow and Economic analysis,” and “Using Linear Programming to Optimize Configurations”) deals with the process economic evaluation of a proposed new refinery or new facilities within an existing refinery. (The execution of the capital project is discussed in the chapter “ Petroleum processing projects ” elsewhere in this Handbook.) The third part (section “Common and Expressions Used in Standard Economic Analyses”) is a summary of common terms and expressions used in a standard economic analysis.

David S. J. Jones: deceased.

Peter R. Pujadó has retired.

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David S. J. Jones

UOP LLC, A Honeywell Company, Kildeer, IL, USA

Peter R. Pujadó

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Appendix 1: Refinery Plant Inadequacies Report: Example Work Sheet

See Fig. 12 .

Refinery Plant Inadequacies Report: Example Work Sheet

Appendix 2: Example of a Crude oil program Crude Oil Inventory Schedule

See Fig. 13 .

Example of a Crude Oil Inventory Schedule

Appendix 3: Example of a Intermediate stock report Product Inventory and Schedule

See Fig. 14 .

Example of a Product Inventory and Schedule

Appendix 4: An Outline Operating Schedule

See Fig. 15 .

An Outline Operating Schedule

Appendix 5: A Typical Detailed Operating ProgramRefinery operating program and schedule and Schedule

See Fig. 16 .

A Typical Detailed Operating Program and Schedule

Appendix 6: A Typical Weekly Program

See Fig. 17 .

A Typical Weekly Program

Appendix 7: Typical Factors Used in Capacity factored cost estimation Capacity Factored Estimates

Appendix 8: background for economic calculations.

The following summary provides the background necessary for most economic calculations and should be used for reference as needed.

First of all, let us consider the following terms:

P present value of a sum of money or a series of sums

F future value of a sum of money or a series of sums

C capital (investment or loan) at one given time

A sum of money every compounding period

n number of compounding periods

i annual rate of interest

r rate of interest per compounding period

L salvage value

The rate of interest per compounding period ( r ) should be used in all cases.

The interest rate stated legally is the nominal annual rate i ). If the compounding period is less than 1 year, the rate of interest per compounding period is obtained by dividing the nominal annual rate, i , by the number of compounding periods in a year. It is done this way by law.

A commercial year is understood to consist of 360 days. Likewise, a generic commercial month consists of 30 days. Thus, if the compounding is done daily, the annual rate of interest, i , will have to be divided by 360; if monthly, the annual rate will be divided by 12, irrespective of the month. Note, however, that the amount compounded over a period of time will be calculated on the basis of the actual days. Thus, 28 days for a normal February, 31 days for May, 365 days for a normal year, or 366 days for a leap year.

Future Value

$$ {F}_n=P{\left(1+r\right)}^n $$ (7) F n , or simply F , represents the value at the end of the n th period of a sum of money, P , at time zero (e.g., present time).

The factor, (1 + r ) n , is sometimes called the ( F / P ) factor or the “compound amount factor for a single sum,” (CAFS). Thus, $$ F=P{\left(F/P\right)}_n^r $$ (8) Or $$ F=P{\left(\mathrm{CAFS}\right)}_n^r $$ (9)

Present Value

The present value, P , of a future sum of money, F n , represents the reciprocal of the future value calculation. $$ P={F}_n\frac{1}{{\left(1+r\right)}^n} $$ (10) The reciprocal factor is also called the (P/F) factor or the “present worth factor for a single sum” (PWFS). Thus, $$ P=F{\left(P/F\right)}_n^r $$ (11) Or $$ P=F{\left(\mathrm{PWFS}\right)}_n^r $$ (12) In all these formulas, the compounding becomes effective at the end of the period . This is true in all the expressions used in economic calculations; modified formulas are needed if the compounding becomes effective at the beginning of the period, but this is seldom, if ever, the case. The formula modification, if needed, involves a (1 + r ) factor.

Future Value of a Uniform Series of Payments (Made at the End of Each Period)

See Appendices 9 and 10 for justification.

If the amount paid at the end of each period is A , the future value, F n , of the sum is given by $$ {F}_n=A\frac{{\left(1+r\right)}^n-1}{r} $$ (13) The multiplier is also known as the ( F / A ) factor or the “compound amount factor for a uniform series” (CAFUS). $$ F=A{\left(F/A\right)}_n^r $$ (14) Or $$ F=A{\left(\mathrm{CAFUS}\right)}_n^r $$ (15)

Sinking Funds

A sinking fund consists of a series of payments made for the purpose of accumulating a given amount of money, F , at some future time. As usual, we assume a uniform series of payments, A being the amount paid at the end of each period. The calculation assumes that the rate of interest does not change over time; trial and error would be required otherwise.

In order to accumulate an amount F n at the end of n periods, the amount A to be deposited at the end of each period is $$ A={F}_n\frac{r}{{\left(1+r\right)}^n-1} $$ (16) This is the reciprocal of the future value of a series of uniform payments.

The multiplier is at times called the ( A / F ) factor or the “sinking fund factor” (SFF). Thus, $$ A=F{\left(A/F\right)}_n^r $$ (17) Or $$ A=F{\left(\mathrm{S}\mathrm{F}\mathrm{F}\right)}_n^r $$ (18) As used in economic estimates, depreciation and amortization are essentially sinking funds at zero rate of interest. Again, to repeat, no item should ever be treated both as a sinking fund amortization and as an expense at the same time.

Loan Repayments

The loan repayment calculation, or “mortgage formula,” is one of the most useful expressions in economic calculations. It is a combination of the previous cases. It represents the series of uniform payments, A , to be made at the end of each period to repay a loan, P , taken out at time zero. In this situation, the present value, P , often is just denoted by “capital” C .

The derivation of the formula is given in Appendices 9 and 10 . $$ A=P\frac{r{\left(1+r\right)}^n}{{\left(1+r\right)}^n-1} $$ (19) The multiplier is also variously known as the ( A / P ) factor or the “capital recovery factor” (CRF). $$ A=P{\left(A/P\right)}_n^r $$ (20) Or $$ A=P{\left(\mathrm{C}\mathrm{R}\mathrm{F}\right)}_n^r $$ (21) It ought to be very clear what these formulas mean: A , the uniform series of payments, represents a constant amount paid to the lender at the end of each compound period. This quantity, A , is made up of two variable parts: a capital return part and an interest payment part. The capital return part represents a very small fraction at the beginning of the loan repayment period, but it increases slowly (and nonlinearly) until it becomes the dominant term toward the end. Conversely, the interest payment term is proportionately very large at the beginning of the loan repayment period and decreases progressively until it becomes small at the end.

This formula is predicated on the idea of making uniform payments, as is often done with mortgages, hence the name. Naturally, there are many other ways of repaying loans, and expressions could be derived for other situations too, if desired.

An offshoot of the mortgage formula is the concept of an “average rate of interest,” sometimes used in economic calculations to reflect the average cost of long-term debt. See Appendix 11 for this concept.

Present Value of a Uniform Series

Logically, this represents the reciprocal of the loan repayment schedule. $$ P=A\frac{{\left(1+r\right)}^n-1}{r{\left(1+r\right)}^n} $$ (22) The multiplier is also called the ( P / A ) factor or the “present worth factor for a uniform series,” (PWFUS). $$ P=A{\left(P/A\right)}_n^r $$ (23) Or $$ P=A{\left(\mathrm{PWFUS}\right)}_n^r $$ (24) The above expressions represent most of the situations encountered in economic evaluations. There are other expressions available for other situations (e.g., when the series of payments increases or decreases progressively at a uniform rate – the “gradient” method), but these are far rarer and need not be discussed here.

Appendix 9: Progressions in Economic Analyses

Though trivial, the concept of arithmetic and geometric progressions is useful in economic calculations. These concepts are outlined as a refresher.

Arithmetic Progressions

An arithmetic progression (or an arithmetic series) is a series of terms such that each is made up of the previous term plus an additive (positive or negative) constant.

The following series is an arithmetic progression:where a is the first term and q is the constant addendum.

As seen, the nth term of an arithmetic progression is given by $$ b=a+\left(n\hbox{--} 1\right)q $$ (25) The sum of the first n terms of an arithmetic progression is $$ S=\frac{\left(a+b\right)n}{2} $$ (26) For example, if we wish to add, say, the first 100 numbers – 1–100 – we can observe that 1 + 100 = 101, 2 + 99 = 101, and so on to 50 + 51 = 101. Since there are 50 such pairs, the answer is immediate, 5,050.

Geometric Progressions

Geometric progressions (or geometric series) are of more interest for economic calculations.

A geometric progression is a series of terms such that each term is the previous one multiplied by a constant factor.

Therefore, the n th term of a geometric progression is given by $$ b=a{q}^{\left(n\hbox{--} 1\right)} $$ (27) More importantly, the sum of the first n terms is $$ S=\frac{bq-a}{q-1} $$ (28) Or $$ S=\frac{a{q}^n-a}{q-1}=a\frac{q^n-1}{q-1} $$ (29) Often q < 1. In this case, both the numerator and the denominator will be negative, and for comfort, we can write $$ S=a\frac{1-{q}^n}{1-q} $$ (30) These expressions are the basis for the mortgage formula and many other economic calculations.

Appendix 10: Loan RepaymentsLoan repayment (Mortgage FormulaMortgage formula )

Let us assume that we have borrowed a certain amount of money, C , that we plan to return over a total of n periods such that at the end of each period, we repay the same amount, A. We further assume that the rate of interest remains constant and is r for each period.

Take the loan out. We owe C.

End of the First Period

We owe C (1 + r ). We repay an amount A. Therefore, we now owe C (1 + r ) – A.

End of the Second Period

We owe \( \left[C\left(1+r\right)\hbox{--} A\right]\left(1+r\right)=C{\left(1+r\right)}^2\hbox{--} A\left(1+r\right) \) . Again we repay an amount A . Therefore, we now owe \( C{\left(1+r\right)}^2\hbox{--} A\left(1+\mathrm{r}\right)\hbox{--} A \) .

End of the Third Period

After repaying the amount A, we owe \( \left[C{\left(1+r\right)}^2\hbox{--} A\left(1+r\right)\hbox{--} A\right]\left(1+r\right)\hbox{--} A,\ \mathrm{or}\ C{\left(1+r\right)}^3\hbox{--} A\left[{\left(1+r\right)}^2+\left(1+r\right)+1\right] \) .

Keep repeating the reasoning for all other intermediate periods.

End of the n th Period

After making the last payment, A , we owe \( C{\left(1+r\right)}^n\hbox{--} A\left[{\left(1+r\right)}^{\left(n\hbox{--} 1\right)}+{\left(1+r\right)}^{\left(n\hbox{--} 2\right)}+\cdots +\left(1+r\right)+1\right] \) . But since we are repaying the loan in n periods, at this time the balance must be zero!

By applying the summation formulas in Appendix 11 , we can rewrite this as $$ C{\left(1+r\right)}^n-A\frac{{\left(1+r\right)}^n-1}{\left(1+r\right)-1}=0 $$ (31) Or $$ C{\left(1+r\right)}^n=A\frac{{\left(1+r\right)}^n-1}{r} $$ (32) Or, solving for A $$ A=C\frac{r{\left(1+r\right)}^n}{{\left(1+r\right)}^n-1} $$ (33) which is the “mortgage” formula.

Appendix 11: Average Rate of Interest

The “average rate of interest” is a concept that arises when a loan is repaid over a number of time periods, but we wish to conduct a preliminary economic analysis over one of the time periods only. We saw in Appendix 10 that if a uniform series of payments is used, the actual amounts paid as interest vary from a high at the beginning to relatively small amounts toward the end. The question then is: what is the “average” amount of interest paid over a typical period? This value is normally calculated by adding up all the interest payments and simply prorating them by dividing the sum over the total number of periods. Calculation of this value has interest in cases when the capital may be strongly leveraged (i.e., a high percentage of debt) since, obviously, the average interest paid will be less than the interest paid over the first period on the basis of the total amount of debt outstanding.

How much interest is paid over the life of the loan? Since we have borrowed a capital C and we have made a total of n payments of A dollars each, the difference between the amount paid and the capital borrowed must be the amount paid as interest. $$ \mathrm{Total}\ \mathrm{interest}\ \mathrm{paid}= nA\hbox{--} C $$ (34) Therefore, the average amount paid out as interest every compounding period is $$ \mathrm{Average}\;\mathrm{interest}\;\mathrm{payment}=A-\frac{C}{n} $$ (35) Or, on a percentage basis relative to C , we obtain $$ \mathrm{Average}\;\mathrm{rate}\;\mathrm{of}\;\mathrm{interest}=\frac{A}{C}-\frac{1}{n} $$ (36) This rate is per compounding period; it should be annualized by multiplying it by the number of compounding periods in 1 year.

What is the effect of using interest averaging? Just to give an example, a 10-year loan at 10 % compounded annually ( A = 0.1627454, if C = 1) represents an average annual interest of only 6.27 %.

Appendix 12: An Example of an Exercise Using Linear Programming

From: Linear programming aids decisions on refinery configurations, D. S. J. Jones (Fluor (England) Ltd.) and J. N. Fisher (Bonner & Moore Associates, Inc., Houston, Texas)

Mathematical modeling using linear programming can solve many problems associated with refinery operation and planning. The technique, compared with the cost of an error of judgment, represents only an insignificant financial outlay.

It is becoming more and more evident that there is a definite economic incentive to studying problems associated with refinery planning by mathematical modeling using linear programming.

Ever-increasing investment costs associated with the tightening of product specifications, changing crude slates, alterations in the energy pattern in marketing countries, and expanding petrochemical requirements all make an error in decision judgment of refinery processing increasingly costly. Wherever this basic risk can be reduced by modern mathematical techniques, the potential saving in capital or investment could make the financial outlay on such a study insignificant.

What follows is a description of a typical refinery simulation study, but this is only one of an increasing number of problems that can be solved by mathematical modeling using linear programming.

Wider impetus . The application of linear programming techniques using computers has long been used in the oil refining industry for the development of planning and operating policies. With the introduction of modern high-speed, large-capacity computers, this technique grew considerably within the industry.

Briefly, linear programming is the developing of linear submodels which mathematically describe many of the various operations within the industry, such as refinery processing, crude and product flows, marketing demands, etc. These linear submodels are interrelated to build up a complete mathematical model of the specific operation. By the use of the computer, the equations within the model can be solved to optimize, on a selective basis, the operation under study.

The growth of mathematical models using this technique provides management with a means of making an increasing number of decisions which do have a calculable basis. Thus, in many cases, the need for decisions based only on individual experience or “feel,” with its obvious inherent dangers, is being eliminated.

One such study illustrates a relatively simple refinery problem application of mathematical modeling and linear programming techniques.

Definition of Problem

A client wished to build a new refinery. It had already executed a marketing survey in the area and could specify quantity and quality, together with prices, of the products which would meet its market requirements. Its management now had to decide the economic optimum refinery configuration that would satisfy its crude and product slate. At this stage, only one type of crude was intended for the refinery, and to some extent, this simplified the problem. However, to satisfy other considerations, management required the solutions to the following premises:

The refinery configurations, which would satisfy a minimum investment, when producing a high volume of gasoline with and without a low sulfur content limitation of the fuel oil. All other products were to meet quality and quantity requirements.

The refinery configurations which would give the maximum return on investment to satisfy a fixed crude throughput with no quantity restriction on the product slate and then to satisfy a limited restriction on the product slate with no limit to the crude throughput.

Such a problem lends itself readily to linear programming, and thus, a refinery simulation model was developed to solve these two premises.

Process Consideration

The first step in constructing the model was to establish as many processing units as could conceivably contribute to the solution of the problem. For instance, with such large requirements of gasoline, there would obviously be required a cracking unit of some kind. Thus, the model included a reformer, fluid cracker, hydrocracker, coker, and visbreaker. Some combination of these processes must satisfy the premises of the problem.

Similarly, the lower sulfur content of the fuel oil would probably require some form of residue treating. Thus, two severity desulfurizers for both short and long residue, respectively, were included together with a process for hydrocracking these residues.

The many process units now included were then defined in terms of feed streams, product yields and quality, and operating costs, all based as a percentage on the feed streams. This part of the study was the first important step which required the expertise of specialists. This data forms the basis for the rational solution to the problem, and therefore, it was necessary to be accurate and to augment prediction and theory with realism and technical experience.

For instance, in arriving at the yields from the crude and vacuum units, the effect of fractionation on the product yield was considered. Realistic ASTM distillation gaps were used that could be met by a commercial distillation unit.

In the fluid catalytic cracking units, a more sophisticated approach was needed to correlate the yields from the many feedstocks which would be independent of thermodynamic considerations. Here, a base case feed yield data (in this case a straight run waxy distillate) at a conversion of 75 % using zeolite catalyst was used.

Yields from all other feedstocks (including those which had been hydrotreated) were related by first principle kinetic and thermodynamic considerations to the base case. A short and simple computer program was used for this purpose, and it was also possible to simulate the effect of changing the quantity of zeolite catalyst by this means. The results of these computerized calculations were checked against existing plant data before being incorporated into the study.

In other processes such as hydrocracking, hydrotreating, visbreaking, etc., care was taken that only proven yield data or correlations were used.

Catalytic reforming yield data was obtained from a correlation which related yield to severity for a basic naphthene and aromatic content of the feedstock. A whole range of severity operations from 95 to 105 O.N. (Research) clear was encompassed in the study. Spot checks of the predicted yield by this method against actual yield from an operating unit showed that the method was viable and acceptably accurate.

Basic Economic Data

Having developed the physical yield structure of the “model,” the next step was to complete the basic data by providing investment and maintenance costs.

There is, of course, a considerable wealth of plant cost data available to a contractor from the projects he has completed over the years. However, there is always the need to analyze these costs and to review them in terms of up-to-date material and labor cost changes.

For this study, a large amount of cost data was statistically analyzed for each type of plant. From this analysis, a base cost and an empirical exponential factor was developed in order to relate a total investment cost to capacity in as realistic way as possible. This relationship can be expressed mathematically in a nonlinear form.

C = Investment cost

C o = Base cost at a base throughput To

T = New throughput

K = An empirical constant

The inclusion of a nonlinear form for investment costs in a linear program required special consideration, and we shall see later how this was utilized.

In the models, many of the units considered were licensed processes, for which a royalty would be paid. A value in terms of a paid-up royalty in dollars per barrel of throughput was included in the investment. Where chemicals and catalysts were used, the first inventory of these was also included as part of investment.

Chemicals and loss of catalyst was considered as an operating cost based on usage as were utilities. Labor, a fixed operating cost, was included with the return on investment. Maintenance cost was fixed as a percentage of the total maintenance cost.

Model Development

At the same time as the process and cost data were being generated, the basic form that the model would finally take was also being developed. This consisted of defining the various optional routes of each stream within the simulated refinery model.

The optional routing of the streams was carefully selected. This selection had to satisfy at least one of two requirements. Firstly, would such a routing actually contribute to satisfying the product slate and the premises of the problem? Secondly, would such a routing be feasible under actual operating conditions?

Just as a refinery is described by the units of which it is comprised, so also was the refinery linear model described. Here, each processing unit was considered a submodel in itself, and these submodels were defined by their process and economic data.

These data were arranged in tabular from which were easily accessed and listed in recognizable terminology. An example of a submodel tabulation as used in this study is shown in Table 23 . From this tabulation, a matrix generator, called GAMMA was used to assemble the many submodels into a complete LP matrix. The matrix was solvable by a linear programming system called OMEGA. These tabular input arrays were also used by the solution report writers as we shall see later.

This complete mathematical model of the refinery was displayed by an equation listing of the entire contents of the data. The equations showed the interrelationships of the many variables, including the refinery streams, the blending constraints, the unit to investment ties, etc. These were also in a form which was recognizable to the engineers working on the project.

Having now assembled all the data in a manner usable for linear programming, it was necessary to check it for errors. Various computer techniques had been developed for this purpose, and these, together with a secondary check by the process engineers, substantially eliminated the possibilities of obvious error and invalid data.

However, as an added safeguard, a final checkout was carried out by actually solving a test case. These results were scrutinized to ensure that the output gave a realistic refinery configuration and that all was in balance.

Optimizing and Other Techniques

A major value of linear programming is that once environment is reflected within an LP framework, this environment can be optimized. In this study, optimization could be accomplished either by maximizing profit or minimizing expense. In this specific case, the former was selected. It should be emphasized that optimization can only be achieved for the environment reflected in the model. Great care was taken therefore to reflect all the meaningful, worthwhile options known to be available.

There are many refinery variables that are of a nonlinear nature. Among these nonlinearities are the effects of blending on motor gasoline, the capital expenditures in relation to size of the units, and many severity effects within the various processes. When these effects could be described on a cost basis by a CONVEX curve, they were generally included in the model as linear segments of a curve (see Fig. 18 ).

LP representation of the convex and concave

If the severity to value of product relationship was a concave curve, only one variable could be used to reflect changing severity. This by nature has to be an estimate with a review of the estimate upon solution.

The blend to octane relationship is highly nonlinear and a new approach was used to reflect this in the model. This approach had considerable advantage over the older techniques in that it was relatively easy to understand and use.

It was capable of reflecting the value of octane susceptibility to the individual components available for the blends. It also had the capability to represent accurately more than one type of octane (i.e., research, motor, road, etc.) with these effects also reflected back to the various components.

This technique required the aid of a recursive routine to update various model coefficients that reflected the actual susceptibilities at the solution point. The model then re-optimized with the recalculated octane for various blendstocks and again they were checked. This was repeated until no further change was required.

The nonlinearities of the capital expenditures are concave in nature. Thus, the initial investment cost estimate was updated by means of a recursive routine which calculated the investment cost per unit of activity at the solution level. This recursive routine is described in detail next. Among the various factors that could be considered in investment costs are total investment cost to size relationships, offsites, insurances, taxes (both income and property), overhead, maintenance, labor, royalties, escalation, plant or service factors, depreciation, and the expected economic life of the various facilities.

Solution Approach

In a study of capital expenditure (commonly called facilities planning) such as this, there are many possible mathematical techniques which can be used to obtain a solution. Experience has shown, however, that linear programming on a computer is by far the most economic approach to solving this type of problem. By this method, most of the many possible solutions can be examined quickly and effectively. Before discussing the solution approach used in this study, let us quickly review the investment environment for any typical refinery unit. This is illustrated in a simplified form in Fig. 19 .

Cost parameters for any typical refinery unit

The total cost curve, on linear graph paper, shows that as a volume throughput is increased, the total cost of a unit will increase. However, the plot of unit volume cost ($/BPCD) against throughput shows the reverse; that is, the cost per unit of throughput will decrease as the volume of throughput increases. It is this type of cost that is reflected in an LP model.

Figure 19 also shows a plot of the average cost slope and the incremental cost slope at a given throughput level. This average cost slope includes all the costs associated with a particular unit. The slope is linear and must pass through the origin. The incremental cost slope reflects the change in cost per unit throughput over a short range. This slope is always tangential to the total cost curve at any throughput under consideration.

It can be seen that the average cost gives the model “greater than to be expected” incentive for changing the size of the unit, while the incremental cost curve on the other hand gives the expected incentive. The incremental cost ignores all fixed costs at the solution level and consists mainly of the expected return on investment.

The technique used in this study was to begin the solution by establishing a very nominal cost on all units. This allowed any unit to be chosen in the solution. Once the LP had selected an optimal unit configuration with those nominal costs, a recursive program for investment cost estimating was used to determine average cost of the units at the solution throughputs. These average costs were based on a minimum return of investment and an expected economic life calculated on a discounted cash flow basis.

These new calculated costs were then substituted for the original arbitrary cost in the model. This average costing tended to delete the very unrealistically small units that may have been chosen in the unrestricted configuration. Again, the model was optimized with these new costs.

The recursions and solutions were repeated until no further cost, configuration, or size changes were required. All the items described above were carried out in a single computer run, and this solution was saved on tape and reported. Close scrutiny of the results then followed to make sure that they were reasonable and that there was no automatically restricted unit that might have been selected had a different solution path been used.

A second step was then commenced which restored the solution of the first step based on the average cost to the computer. The investment costs for the configuration were then recalculated using the incremental cost concept. This incremental cost required no return on investment, and an infinite economic life was assumed for the units. The only costs that were recognized in this step were the incremental maintenance for each unit. Therefore, the building costs did not economically suppress the size of units or the total investment. The unit sizes and total investment were optimized on the premised product slate and available raw materials. A similar recursive step was again used, but this time it included only the incremental maintenance cost.

The model contains a variable that carries the sum total of the investment. This variable is updated at the same time as the unit costs are updated by the recursive operations described. Using this total investment variable, it was possible to step down (parameterize) on the total investment, until a feasible solution was no longer possible. An infeasible solution in this context is that in which the cash flow for the configuration becomes less than zero.

As the total investment is reduced, the unit sizes, the product slates, and the raw materials are changed within the framework of the overall premises. Therefore, by this parametric sweep, the refinery configurations (both in size and form) could now be found which would satisfy the following requirements:

Maximum investment

Maximum return on investment

Maximum expected cash flow

Minimum investment

The results of each parametric step were reported and documented.

Solution Analysis

Besides the specially designed report writing technique already discussed, the LP also has a standard number of solution reports, and these are generally of a more technical nature. Although of great value, they do not readily lend themselves to immediate and apparent interpretation. It is imperative, however, that some members of a team using an LP can read and interpret these outputs, particularly as one major use of these reports is to highlight any obvious errors that may have been overlooked. Some of these reports used in this study were called the BI/DJ and range output. They warrant a brief explanation.

The BI/DJ output (see Table 24 ) gives the solution level activities (BI) for all the variables that were selected in the optimum solution. For those variables that were not selected, the cost or decrease in profit that would occur were they forcibly included in the configuration (or basis) is given by the DJ value.

The range information is a complementary report to the BI/DJ. The ranges give the incremental volume associated with the DJs and the cost ranges associated with the basis variables. The valuable use of the BI/DJ and the range files can best be expressed by an example, using the extracts shown in Tables 24 , 25 , and 26 .

Consider the component CYO that has been selected in the configuration. (The code FU/CYO in this case indicates that the refinery stream CYO is routed to fuel.) The quantity of the stream CYO that enters the fuel blend is 1,457 BPCD. Now consider the component “HBM.” This has not been selected in the basis, and this stream has a DJ value (i.e., no prefix). To route the “HBM” stream to fuel forcibly would cost $0.6095/bbl. This information is interesting, but has no real value unless the ranges for their streams are known.

Because the FU/CYO item is selected in the basis, the range data for this is found in the primal range output (Table 26 ). Interpreting the statement for this stream in this output means that optimum volume levels of the solution would not have changed even if the variable had a very small negative incentive (less than $0.000001). Further, the situation would not have changed even if this variable had a positive cost incentive of up to $0.02807/bbl.

Let us now look at the “HBM” variable. This was not chosen in the basis and it appears in the dual range output (Table 27 ). Interpreting the data for this item shows that to route “HBM” to fuel would cost 60 cents/bbl for the first 549 BPCD. All that is known thereafter is that the cost per barrel over 549 BPCD would increase.

The example chosen here describes the economic analysis of two optional streams which can be logically routed to a fuel blend. It is emphasized that the BI/DJ and range outputs, however, contain similar information for all variables whether process units, refinery streams, product specifications, etc., contained in the model.

Computer Report Writer

The data generated by the computer contains all facts relevant to the solution. However, to all but a few highly trained people, the data in this form would be meaningless and of no practical use. The LP system used in this study contained a specially designed report writer, coded in a language called DART. This converted and assembled the computer LP output into management orientated reports that could easily be read and understood without sacrificing the relevant technical content.

In this particular case, too, much of data, as produced by the report writing sequence, was in such a form as to be reproducible and able to be included in the final documentation. Table 27 shows an example of such a report. (Note: the actual calculated data in this example has been deleted).

For the parametric series discussed above, a special report writing technique was developed which allowed each succeeding parametric step to be repeated in a case stacking fashion. This type of report was considerably condensed from the reports described earlier.

Final Documentation

When the solutions to the four premises of the problem had been determined, using the techniques described, they existed, hidden among the mass of tabulated data that formed the computer output. It remained now to extract the pertinent section of the output and to present it so that the objective of the study, which was to provide management with information to make a good decision, could be achieved. The most common means of doing this – and the one chosen on this occasion – is by a written report in which the data is summarized and discussed and the conclusion stated.

Although it is not proposed to discuss the general techniques of technical report writing here, some fundamental requirements of a complex presentation such as this are worth highlighting. This report had to satisfy two principal functions. The first is to present as succinctly as possible the conclusion, and the interpretation of those conclusions, for the convenience of the client’s management. Secondly, it had to present all the backup data in as short a form as possible that would be necessary to enable the client’s own staff to check and confirm the conclusions reached.

This second function was satisfied in this report in the form of an appendix. This included copies of the actual pertinent computer printouts complete with tabular listing of the submodels, economic balances, etc. These data were further augmented by the summary of the economic and yield output for the respective parametric runs.

The main body of the report consisted of a short description of the study, together with discussion of the result. The results were however succinctly described by two illustrations for each of the four cases of the problem. The first illustration showed the ultimate refinery complex which satisfied the premise of the case studied, and a typical example is shown in Fig. 20 . The second illustration, typified by Fig. 21 , gave the basic economic trend for this configuration and also described the yields of major products for each parametric case.

Typical final optimum configuration

Bar chart summarizing economic studies for configuration in Fig. 20

The charts shown are meant only as an example and the figures are fictitious or have been purposely deleted. However, it can be seen that Fig. 20 describes the result in terms of the processes that must be built to satisfy the premise. Figure 21 shows why such a configuration is the optimum and what the ultimate product slate would look like. Such a chart also gives the client’s management an opportunity to assess quickly the effect of changing a basic premise such as maximum return on investment or minimum capital investment.

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Jones, D.S.J., Pujadó, P.R. (2015). Petroleum Refinery Planning and Economics. In: Treese, S., Pujadó, P., Jones, D. (eds) Handbook of Petroleum Processing. Springer, Cham. https://doi.org/10.1007/978-3-319-14529-7_28

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A little child was playing one day with a very valuable vase. He put his hand into it and could not withdraw it. His father too, tried his best, but all in vain. They were thinking of breaking the vase when the father said, "Now, my son, make one more try. Open your hand and hold your fingers out straight as you see me doing, and then pull."

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Every great achievement was once impossible until someone set a goal to make it a reality.

Lewis Carroll's famous masterpiece Through the Looking Glass contains a story that exemplifies the need to dream the impossible dream. There is a conversation between Alice and the queen, which goes like this:

"I can't believe that!" said Alice.

"Can't you?" the queen said in a pitying tone. "Try again, draw a long breath, and shut your eyes."

Alice laughed. "There's no use trying," she said. "One can't believe impossible things."

"I dare say you haven't had much practice," said the queen. "When I was your age, I always did it for half an hour a day. Why, sometimes I've believed as many as six impossible things before breakfast."

When you dare to dream, many marvels can be accomplished. The trouble is, most people never start dreaming their impossible dream.

How High Can You Jump?

Flea trainers have observed a predictable and strange habit of fleas while training them. Fleas are trained by putting them in a cardboard box with a top on it. The fleas will jump up and hit the top of the cardboard box over and over and over again. As you watch them jump and hit the lid, something very interesting becomes obvious. The fleas continue to jump, but they are no longer jumping high enough to hit the top. Apparently, Excedrin headache 1738 forces them to limit the height of their jump.

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The Culprit of Your Overweight Challenges Has Been Finally Identified

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Now, experts Agree that more businesses face an unstable business environment. Improvements in data processing and telecommunications have made major changes in many industries. In addition to this, improvements in transport and the development of foreign markets (especially in Europe and Asia) have created a global marketplace and surpassed certain businesses. Additionally, as consumers are exposed to more choices, loyalty has become less significant than it once was; a marginally better price or a temporary lack of stock can easily result in the loss of consumers. Competitors can also change rapidly, with new ones appearing from out of nowhere (frequently this means another side of the globe). With the instability of the global market, it's important that you make strategic planning component of your overall company plan. Proactive Versus Reactive Management. A couple of decades ago, you can establish and maintain a company by reacting to and fulfilling changes in tastes, prices and costs. This reactive style of management was often enough to help keep the business moving. But, today changes occur fast and come from a number of directions. From the time a reactive supervisor can make the required alterations, they may lose many clients -- possibly for good. Proactive Planning is the anticipation of future events. Decisions are based on predictions of future conditions of the environment instead of responses to several crises as they occur. Proactive planning within an unstable, technology-driven business environment is critical to ongoing success in almost any endeavor. As opposed to responding to the situation as it changes, proactive planning requires you to examine environmental forces and earn resource-allocation decisions. By doing this you will take your business where it needs to be in another month, decade and year. Barry Worth, a consultant specializing in small business management, puts it this way: Today's entrepreneur must be a company proprietor. Anything constructed in the present business environment must have a step-by-step blueprint or plan on the best way to reach success. The blueprint for the business owner is a company program. The Need To Get a Strategic Plan. Planning plays an important role in any business enterprise. It can make the difference between the success or failure of your organization. You should plan carefully before investing your time and effort, especially, your money in any business enterprise. The need for a strategy is best exemplified by the following situation -"A Tale of 2 Businesses." Two franchises (B and A ) were launched by people who had worked in direction in much bigger companies. While Franchise A provided a item and Franchise B per service, the output of the franchise systems had been sold exclusively in the USA before the present owners became involved. The output of both was readily available in other developed nations as well. The franchises started about precisely the exact same time and neither franchisee had a solid market presence, nor do they at present. Today Franchise B is broke. By comparison, Franchise A is promoting products in the Midwestern United States and in Europe. What was the Deciding difference from both franchises' success? You probably expect it to be the one had developed a tactical plan and the other hadn't; howeverit isn't this easy. Several things can influence the outcome of a business venture. There were many similarities between the businesses, but there also were many differences. Most notably, Franchise A sold a solution and Franchise B a service (although this doesn't clearly limit choices ). The other variation was that Franchise A had a carefully thought-out plan. The investors understood as they looked to get a franchise partner they wanted to find a product which could satisfy international markets along with a franchiser who'd encourage that type of sales effort. These investors were established in the Midwest, but negotiated for exclusive rights to export the franchiser's product. Once they had obtained the franchise, as soon as they started to establish their company domesticallythey also began to contact government experts in the U.S. Department of Commerce as well as educators and local managers with global experience. Clear plans Were developed outlining how they would position, market and distribute the solution and which foreign markets would be targeted first. Even as they were building sales in one European market, they were attending trade shows and preparation entry strategies others. 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Title: -PROJECT PROPOSAL ON EDIBLE OIL PROCESING COMPANY PREPARED BY: Group Two Members

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