Philip L. Frederickson, Executive Vice President, Commercial

Pam Johnson, director, supply-power marketing, keeps a close watch on commodity prices at the company’s trading floor in Houston, Texas. Instantaneous communications allow traders like Johnson to minimize ConocoPhillips’ costs for purchasing electric power, natural gas, crude oil and refined products, as well as enabling the company to realize the best prices when selling these commodities.

Commercial
Gaining the Most Value
from Supply and Demand

The Commercial organization was created to bring together all of the company’s commodity supply chains into a global commercial business. Commercial generates value by optimizing the commodity flows of the upstream and downstream businesses, including nearly 2.5 billion barrels of crude oil and products and more than 2 trillion cubic feet of natural gas annually across the globe.

The group includes 550 people who market ConocoPhillips’ equity crude oil and natural gas production, market third-party natural gas, select and procure crude oil, and distribute products for the company’s 18 refineries. Commercial also supplies the gas and power needs of company assets and markets the gas, liquids and power produced at company facilities.

“Our large, diverse asset base gives ConocoPhillips a competitive advantage,” says Philip Frederickson, executive vice president of Commercial. “Having a single, integrated organization that sees both the supply and demand perspectives enables us to globally optimize across the whole hydrocarbon value chain.”

The Commercial group includes commodity buyers, traders and marketers who execute thousands of transactions a day. Offices in Houston, London, Singapore and Calgary provide around-the-clock trading capabilities. For maximum effectiveness, employees work on common trading floors at each location along with professionals who handle risk management, planning, scheduling, transportation, accounting and other support functions.

The crude oil, refined products, natural gas, gas liquids and power markets can be extremely volatile and are influenced by many factors, including world political and economic events, weather patterns, and numerous other issues impacting supply and demand that are in constant flux. “Having all these experts together facilitates constant, instantaneous communication needed to make rapid decisions, which is critical in this arena,” comments Frederickson.

An important function within the Commercial organization is managing the risks inherent in the business. The risk management group uses highly disciplined processes to identify and measure the potential for financial loss due to credit exposure and price volatility in the market. The Commercial group’s risk is controlled within prescribed volume and loss limits. “The goal of risk management is to ensure that the trading groups understand the risks they are incurring,” explains Frederickson. “Therefore, they know if they are getting appropriate returns on those risks.”

Evidence of the benefits of the global Commercial structure is found in the significant number of synergy opportunities already being captured by the group:

	Regional commodity supply and demand imbalances are significantly reduced;
	New, more cost-effective transportation and distribution options are being utilized;
	More crude oil supply substitution and marketing options are being leveraged;
	Expanded regional natural gas supply availability is being marketed to customers; and
	Significant new options for responding to supply disruptions are being utilized, most recently during the national labor strike in Venezuela.