Oil & Gas 502017The annual report on the worlds most valuable oil and gas brandsMarch 2017Brand Finance Oil & Gas 50 March 2017 3.Brand Finance Australia 100 March 2016 2. Global 500 February 2016 Airlines 30 30 February 2015Oil & Gas 50 March 2017ForewordForeword 2 Definitions 4Methodology 6Executive Summary 8Full Table 12Understand Your Brands Value 13How We Can Help 14Contact Details 15ContentsDavid Haigh, CEO, Brand FinanceWhat is the purpose of a strong brand; to attract customers, to build loyalty, to motivate staff? All true, but for a commercial brand at least, the first answer must always be to make money. Huge investments are made in the design, launch and ongoing promotion of brands. Given their potential financial value, this makes sense. Unfortunately, most organisations fail to go beyond that, missing huge opportunities to effectively make use of what are often their most important assets. Monitoring of brand performance should be the next step, but is often sporadic. Where it does take place it frequently lacks financial rigour and is heavily reliant on qualitative measures poorly understood by non-marketers. As a result, marketing teams struggle to communicate the value of their work and boards then underestimate the significance of their brands to the business. Skeptical finance teams, unconvinced by what they perceive as marketing mumbo jumbo may fail to agree necessary investments. What marketing spend there is can end up poorly directed as marketers are left to operate with insufficient financial guidance or accountability. The end result can be a slow but steady downward spiral of poor communication, wasted resources and a negative impact on the bottom line.Brand Finance bridges the gap between the marketing and financial worlds. Our teams have experience across a wide range of disciplines from market research and visual identity to tax and accounting. We understand the importance of design, advertising and marketing, but we also believe that the ultimate and overriding purpose of brands is to make money. That is why we connect brands to the bottom line. By valuing brands, we provide a mutually intelligible language for marketers and finance teams. Marketers then have the ability to communicate the significance of what they do and boards can use the information to chart a course that maximises profits. Without knowing the precise, financial value of an asset, how can you know if you are maximising your returns? If you are intending to license a brand, how can you know you are getting a fair price? If you are intending to sell, how do you know what the right time is? How do you decide which brands to discontinue, whether to rebrand and how to arrange your brand architecture? Brand Finance has conducted thousands of brand and branded business valuations to help answer these questions.Brand Finances recently conducted share price study revealed the compelling link between strong brands and stock market performance. It was found that investing in the most highly branded companies would lead to a return almost double that of the average for the S&P 500 as a whole. Acknowledging and managing a companys intangible assets taps into the hidden value that lies within it. The following report is a first step to understanding more about brands, how to value them and how to use that information to benefit the business. The team and I look forward to continuing the conversation with you. Brand Finance Oil & Gas 50 March 2017 5.Brand Finance Oil & Gas 50 March 2017 4.DefinitionsDefinitions+ Enterprise Value the value of the entire enterprise, made up of multiple branded businesses+ Branded Business Value the value of a single branded business operating under the subject brand+ Brand Contribution The totaleconomic benefit derived by abusiness from its brand+ Brand Value the value of the trade marks (and relating marketing IP and goodwill attached to it) within the branded businessBranded BusinessBranded EnterpriseE.g.Exxon Mobil Corp.E.g.EssoE.g.EssoBrand ValueBranded BusinessBranded EnterpriseBrand ContributionE.g.EssoBranded Business ValueA brand should be viewed in the context of the business in which it operates. For this reason Brand Finance always conducts a Branded Business Valuation as part of any brand valuation. Where a company has a purely mono-branded architecture, the business value is the same as the overall company value or enterprise value. In the more usual situation where a company owns multiple brands, business value refers to the value of the assets and revenue stream of the business line attached to that brand specifically. We evaluate the full brand value chain in order to understand the links between marketing investment, brand tracking data, stakeholder behaviour and business value to maximise the returns business owners can obtain from their brands.Brand ContributionThe brand values contained in our league tables are those of the potentially transferable brand asset only, but for marketers and managers alike. An assessment of overall brand contribution to a business provides powerful insights to help optimise performance.Brand Contribution represents the overall uplift in shareholder value that the business derives from owning the brand rather than operating a generic brand. Brands affect a variety of stakeholders, not just customers but also staff, strategic partners, regulators, investors and more, having a significant impact on financial value beyond what can be bought or sold in a transaction.Brand ValueIn the very broadest sense, a brand is the focus for all the expectations and opinions held by customers, staff and other stakeholders about an organisation and its products and services. However, when looking at brands as business assets that can be bought, sold and licensed, a more technical definition is required. Brand Finance helped to craft the internationally recognised standard on Brand Valuation, ISO 10668. That defines a brand as “a marketing-related intangible asset including, but not limited to, names, terms, signs, symbols, logos and designs, or a combination of these, intended to identify goods, services or entities, or a combination of these, creating distinctive images and associations in the minds of stakeholders, thereby generating economic benefits/value”Brand Strength Brand Strength is the part of our analysis most directly and easily influenced by those responsible for marketing and brand management. In order to determine the strength of a brand we have developed the Brand Strength Index (BSI). We analyse marketing investment, brand equity (the goodwill accumulated with customers, staff and other stakeholders) and finally the impact of those on business performance. Following this analysis, each brand is assigned a BSI score out of 100, which is fed into the brand value calculation. Based on the score, each brand in the league table is assigned a rating between AAA+ and D in a format similar to a credit rating. AAA+ brands are exceptionally strong and well managed while a failing brand would be assigned a D grade. Effect of a Brand on StakeholdersPotentialCustomersExistingCustomersInfluencerse.g. MediaTradeChannelsStrategicAllies &Suppliers InvestorsDebt providersSalesProductionAll OtherEmployeesMiddleManagersDirectorsBrandBrand Finance Oil & Gas 50 March 2017 7.Brand Finance Oil & Gas 50 March 2017 6.Methodology InputsStakeholderBehaviourPerformanceBrand Equity Value DriversBrand ContributionAudit the impact of brand management and investment on brand equity Run analytics to understand how perceptions link to behaviourLink stakeholder behaviour with key financial value driversModel the impact of behaviour on core financial performance and isolating the value of the brand contribution Brand Audit Trial & Preference Acquisition & RetentionValuation Modelling1 2 3 4Brand Finance Typical Project ApproachBrand Finance calculates the values of the brands in its league tables using the Royalty Relief approach. This approach involves estimating the likely future sales that are attributable to a brand and calculating a royalty rate that would be charged for the use of the brand, i.e. what the owner would have to pay for the use of the brandassuming it were not already owned. Brand strength expressed as a BSI score out of 100.BSI score applied to an appropriate sector royalty rate range.Royalty rate applied to forecast revenues to derive brand values.Post-tax brand revenues are discounted to a net present value (NPV) which equals the brand value.The steps in this process are as follows: 1 Calculate brand strength on a scale of 0 to 100 based on a number of attributes such as emotional connection, financial performance and sustainability, among others. This score is known as the Brand Strength Index, and is calculated using brand data from the BrandAsset® Valuator database, the worlds largest database of brands, which measures brand equity, consideration and emotional imagery attributes to assess brand personality in a category agnostic manner.Strong brandWeak brandBrand strength index(BSI)BrandRoyalty rateBrand revenues Brand valueForecast revenuesBrand investmentBrand equityBrand performance2 Determine the royalty rate range for the respective brand sectors. This is done by reviewing comparable licensing agreements sourced from Brand Finances extensive database of license agreements and other online databases. 3 Calculate royalty rate. The brand strength score is applied to the royalty rate range to arrive at a royalty rate. For example, if the royalty rate range in a brands sector is 1-5% and a brand has a brand strength score of 80 out of 100, then an appropriate royalty rate for the use of this brand in the given sector will be 4.2%. 4 Determine brand specific revenues estimating a proportion of parent company revenues attributable to a specific brand. 5 Determine forecast brand specific revenues using a function of historic revenues, equity analyst forecasts and economic growth rates. 6 Apply the royalty rate to the forecast revenues to derive brand revenues. 7 Brand revenues are discounted post tax to a net present value which equals the brand value.League Table Valuation Methodology6. Build scale through licensing/franchising/partnerships5. Build core business through market expansion4. Build core business through product development3. Portfolio management/rebranding Group companies2. Optimise brand positioning and strength1. Base-case brand and business valuation(using internal data), growth strategyformulation, target-setting, scorecard andtracker set-upEvaluate ongoing performanceCurrent brand and business valueTarget brand and business valueMaximising astrong brandHow We Help to Maximise ValueBrand Finance Oil & Gas 50 March 2017 9.Brand Finance Oil & Gas 50 March 2017 8.Oil & Gas50Executive SummaryRank 2017: 2 2016: 3 BV 2017: $ 29,555m BV 2016: $ 20,156mBrand Rating: AA+Rank 2017: 5 2016: 4BV 2017: $ 20,736m BV 2016: $ 19,227mBrand Rating: AA+125+16%+47%Rank 2017: 6 2016: 6 BV 2017: $ 18,857m BV 2016: $ 16,692mBrand Rating: AA+Rank 2017: 7 2016: 7 BV 2017: $ 18,514m BV 2016: $ 14,737mBrand Rating: AAA-Rank 2017: 9 2016: 8 BV 2017: $ 10,596m BV 2016: $ 10,024mBrand Rating: AAA-6789+11%+26%+6%+8%Rank 2017: 3 2016: 2 BV 2017: $ 29,003m BV 2016: $ 20,318mBrand Rating: AA+34+24%Rank 2017: 10 2016: 9 BV 2017: $ 8,477m BV 2016: $ 9,768mBrand Rating: AAA-10-13%+43%+26%Rank 2017: 1 2016: 1 BV 2017: $ 36,783m BV 2016: $ 31,665mBrand Rating: AAA-Rank 2017: 4 2016: 5 BV 2017: $ 22,058m BV 2016: $ 17,822mBrand Rating: AAA-Rank 2017: 8 2016: 10 BV 2017: $ 11,278m BV 2016: $ 8,975mBrand Rating: AA+In brand value terms, the last year has been perhaps surprisingly successful for Oil & Gas brands. Just seven of the top 50 have lost value, with dozens of major brands seeing double digit growth. Oil prices saw a fairly steady increase across 2016 as supply became slightly more constrained, helping to improve revenues. After a drop at the beginning of the year, Brent Crude nearly doubled in value from early January to the end of December. Shell remains the worlds most valuable oil and gas brand with a brand value of US$37 billion. For many years, Shell has successfully retained top position in the list. Its asset disposal program following the completion of its merger with BG. This, combined with a reduced presence in some territories will reduce brand value as revenues no longer fl ow to Shell. However the consolidation does appear to have strengthened Shells brand, which has been upgraded from AA+ to AAA- thanks to a BSI score of 82. Shells longstanding partnership with Ferrari continues to deliver returns, with a demonstrable price premium attributable to the association with the worlds most powerful auto brand. Shell is also acutely aware of CSR concerns and sustainability in particular and invests heavily in campaigns that position it as an innovative provider of the clean energy solutions of the future. As part of its Make the Future initiative, Shell enlisted the help of six popstars from around the world for its Best Day of My Life video, which became one of the most viral ads of 2016.In 2nd and 3rd place are Sinopec and PetroChina. As in so many other of Brand Finances industry league tables, Chinese brands are just on the cusp of taking the number one spot. Sinopec is planning a US$10 billion IPO of its retail business which includes over 30,000 sites. A clear understanding of brand value drivers will be a useful tool in extracting maximum value from the listing and, post-sale brand management will become even more critical as shareholders demand accountability. Sinopec and PetroChinas brands are worth US$29.5bn and US$29bn respectively and even with far lower rates of growth than this year (47% and 43%), both could easily overtake Shell in 2018. The worlds strongest oil and gas brand is Ecopetrol. The Colombian producer has thrived since its IPO a decade ago. Rapidly improving governance and security in Colombia, including the start of the disarmament of the FARC this year are helping to strengthen what is the countrys most valuable brand from any sector.Images from Shells Best Day of my Life adBrand Finance Oil & Gas 50 March 2017 11.Brand Finance Oil & Gas 50 March 2017 10.Executive Summary0510152025303540ExxonMobilChevronPetroChinaSinopecShell2017201620152014201320122011Brand value (US$bn)Brand Value Over Time-2000.000000-285.7142861428.5714293142.8571434857.1428576571.4285718285.714286LukoilConocophillipsPEMEXMarathon PetroleumDevonSurgutneftegasBaker HughesBPEniTotalChevronShellPetroChinaSinopec$-111$-179$-562$-563$-1,290$-1,296$-1,460$9,399$8,686$5,118$4,236$3,778$2,303$1,895-40 -24 -8 8 24 40 56 72 88 104 120LukoilDevonConocophillipsMarathon PetroleumPEMEXSurgutneftegasBaker HughesCNRLPTTHindustan PetroleumInpexRepsolFPCC