Future of Oil & Gas- Case Study

This assignment requires students to research into the emerging themes within the business sector related to their programme of study and use the evidence gathered to inform operational and strategic decisions. Students should apply their critical understanding of relevant emerging themes to formulate alternative courses of action necessary.
The following case studies provide the necessary background required for you to complete this assessment task.
Read ONE case study that is relevant to your specialism of study
Case Study : http://www3.weforum.org/docs/GACFutureofOilandGas_Executive_Summary.pdf

1.0. Introduction

As World Economic Forum (2016) stated, Oil and Gas industry is the industry giving most of the contribution to a lot of national economies. Since Industrial Revolution, this industry has become very crucial for continuing other industries, because oil and gas is used for all the machinery and almost every emerging industry needs oil or gas for operating. It is critical for the industry to know its challenges and solutions to them (Longwell, 2002). This report introduces four themes related to oil and gas industry which are to be discussed along with the recommendations for the improvement. This report also sheds some light on the operational and strategic decisions of the industry and for that it uses various articles, books and pdfs as a source of Secondary Data. Nevertheless, Oil and gas industry is having its impact on almost every industry, hence, it is crucial to analyse its emerging themes and trends.

2.0. Finding and Analysis

2.1. Operational and Strategic Decisions

As discussed earlier, Oil and Gas has a vital role in the global energy system (WEF, 2016). But like any other industry, this industry has faced a lot of ups and downs throughout the period of their operations. In the ups, as in boom, organisation hires many employees, they spend in their resources and it is often done at the cost of current resources. Whereas, the organisations have to cut down on their expenses and resources for surviving during recession. A lot of uncertainty is created in the industry due to this constant contraction and expansion. Hence, it is important for the organizations to get long lasting and durable operational strategies (EY, 2015).

EY (2015) further stated that oil and gas industry must achieve Operational Excellence. It is the part of leadership in organisations. It asks organisation to use all the available resources as well as getting emerging tools and technology for making your operations of the organisation stable, effective and efficient.

2.1.1. Industry Objectives:

Objective of Oil and gas industry regarding their operations are:

·         Economic Growth: It is the aim of this industry to reach economic expectations. Manage cost without sacrificing the performance and increase the value of the organisation for its stakeholders (EY, 2015).

·         Improving HSEQ: HSEQ stands for health, safety, environmental and quality. Oil and Gas industry contains a lot of risks for its employees. Hence, its crucial for any organisation in this industry to make strict safety precautions for the people working under them. (EY, 2015).

·         Growth: Growth is the aim of any organisation although their strategies may differ. Oil and gas industry also aims on growing through delivering their promises and brining efficiency (EY, 2015).

2.1.2 Client and Top Management

Top Managers has to improve its standing in the perception of clients by doing CSR activities. It has to start working on the environment and society along with its organisation (OPEC, 2014). Moreover, it is stated on OPEC’s (2014) annual report that they have a goal to make energy accessible for everyone. Hence, they are working with UN and WPC (World Petroleum Council). They have also organised an event which recognises the importance of CSR activities for oil and gas industry. These activities are focused towards people who have no access to energy services. Furthermore, it was stated that these activities bring a win-win situation in the industry. They are helping us in improving the community as well as they help the organization in bonding with the people of their community. Along with that, OPEC (2014) emphasized on data transparency as well.

2.1.3 OE Components

OE stands for Operational Excellence. The components of getting operational excellence are:

·         HSEQ (Health, safety, environment and quality): Special majors shall be taken for the safety of employees, contractors and other respective stakeholders. Health of the people working in the organisation shouldn’t be impacted as well as organisation must not play a role in destructing the environment. Along with that it should be made sure that quality is not being impacted by such majors. Quality of the product must remain constant (EY, 2015).

·         Unified plans: It’s important for achieving OE that an organisation transforms its long-term goals into short-term operating strategies. They must be working towards one long-term goal and must be in sync with each other. Then only maximum OE can be achieved (EY, 2015).

·         Operating Model: It defines in what way processes, stakeholders and systems are coordinating in order to get the maximum level of efficiency.

·         Asset reliability and integrity: An organisation must be aware of its asset turnover as well as the life of its assets, that is how long will it take for an asset to be demolished and how it can be improved or when would it need more maintenance. (EY, 2015)

·         Cost Efficiency: Prices of oil and gas are constantly changing. Hence, it is crucial for an organisation of this industry to implement such processes which will help them in coping up with the costs included in all the process. They must be aware of their hidden costs and manage them effectively.

·         Supplier and Contractors: Supplier and Contractor are a vital part of any organisation. In order to achieve efficiency in OE, Supplier and contractor must be given proper introduction to the  processes of your organisation and they must be aware of the goals of your organisation so they can work accordingly (EY, 2015).

2.2 Improving Operations

It has been discussed in the case study that the oil and gas industry is moving towards the revenue-oriented strategies. Revenue- oriented strategies are the ones which focus on increasing the income of the organisation. It doesn’t matter if the goals are short term or long term , what’s important is that their focus should be on maximizing the revenue. A lot of forecasts are being done for the future of oil and gas industry. Some of them are indicating a decline in the demand of oil and gas industry whereas some are indicating a rise in the demand of oil and gas. With that in mind, industries are to keep up with their strategies and must plan their operations according. It has also been stated in the case study, that if market and industry becomes sure of the peaking or declining of the industry then it can change the investments. Hence, it is crucial for the organisations in this industry to keep up with their expansion projects in a way that it doesn’t hurt them in the long run and they keep getting the required investments for the operations of their businesses.

The thing that can be changed in operations is that they can make their decision making strategies more transparent and flexible (EY, 2015). EY (2015) has also stated that an organisation’s performance can be improved by improving the performance of its procedures. Changing their processes and having proper assessments for the employees can boost their performance. Other than that, an organisation must make sure to integrate new technologies and have a working environment which shall be liked by the upcoming generations. Upcoming generations are the people who are going to work for your organisations from now on. Hence, it’s important to make your organisation according to their needs and practices.

2.3. Emerging Themes

            The emerging themes also known as the four pillars identified in this case study are as follow: Society, Technology, Work environment and Industry/Market.

2.3.1. Society

            Society is basically a combination of relations, a complicated system of processes, authorities, assistance and a mutual consent of various groups to control human behaviour and their state of freedom (MacIver and Page, 1950). In the modern age, it has been described as the vast group of people having same values, mission, interest or goals (Webster, 2018). Society has a core place in this study, as it can be witnessed that the oil and gas industry has been facing a number of issues regarding society such as resistance, lack of trust, and revenue reduction. As highlighted in the private Goldman Sachs study that approximately 50% of the risky oil and gas projects were due to the risks associated with the customers and not the technical issues. As these trust issues among the society has been degrading the oil and gas industry like it was mentioned in the 2013 Gallop poll that oil and gas industry ranked the least trusted industry that can be a serious issue which should be catered. Despite of the high usage of oil and gas this industry has been facing a bad image among the society which should be changed through certain actions. This lack of society also became the reason for less development and restricted government approvals for major projects.

2.3.2. Technology

Technology has been described as the application of scientific knowledge that changes human vision into reality. It is also defined as the development of things through systematic techniques over time. Technology plays a key role in the oil and gas industry. As it can help an industry to rise for e.g. if an industry has all the techniques and material but it lacks the latest technology then it will be very hard to reach to the point of potential growth. Relatively, as analyzed from this case that countries can reduce the cost of extracting oil from the field through technological innovations. Moreover, it had also make the International Energy Agency forecast questionable that either the oil demand will raise or not? As mentioned in the study that the industry will also be facing technological challenges in making it second leg in the electricity sector. However, it has identified that oil and gas industry has to consider technology in order to sustain its position in the world (The Economic Times, 2018).

2.3.3. Work Environment

The term work environment can be described as the surroundings of a company or employee operations. It can be the peer group, the working conditions or standard procedures (Money-zine.com, 2018). A good work environment is the key factor of an employees’ increased productivity that directly enhance a company’s profitability. Moreover, work environment played a vital role in this study. As there was clearly mentioned that changes have to be made in the operating environment of this industry like it has to shorten its lead time and the companies have to bring consistency in the environment to continue attracting investors. As the changing environment has been affecting nearly all the companies in this industry, some serious actions should be taken to answer this for e.g. adapting towards a leaner environment.

2.3.4. Industry/Market

Industry can be defined as the branch for the particular activities (i.e. commercial or economic). Furthermore, it can be elaborated as the activities take place for an economic growth. Although, a market is the place or area consist of all the buyers and sellers of a considered or related area (The Economic Times, 2018). Industry and market are two of the core themes in this study. As studied in the case that there could be a huge role of market and industry in the expansion and enhancement of the oil and gas industry. If the industry and market began to shift their strategies then the whole scenario could be changed. Moreover, due to its negative impact over marketplace this industry also losing its market shares. However, industry and market are related to each other and this is the reason if an industry has to enhance to it should cater its market efficiently. As mentioned in this case, this industry has to take some serious actions to maintain its market share, this clearly witnesses that this theme is one of the emerging themes in this case.

2.4. Alternative Course of Actions

As far as this course understanding is concern, some of the alternative actions should be taken in the current scenario of the oil and gas company which are as follow:

·         The oil and gas company should be involved in more Corporate Social Responsibilities (CSR), to gain trust and confidence of the society.

·         The companies should move towards automation and artificial intelligence that will help them in assisting operations and supply management.

·         They should move towards technological advancement that will result in cost-reduction and output efficiency.

·          All the companies should start investing in different kinds of industries for the resistance from downfall.

·         They should move towards a leaner environment that will impact the supplier industry and they will be successful in achieving the national revenues.

·         They should simply create a layer of transparency to gain the trust of the society again.

·         They should start performing recycling and minimizing product wastage.

·         These actions will enhance the image of oil and gas industry that results in the recruitment of a better workforce, gathering highest market share and prevents this industry to enter a declining stage.

2.5. Emerging Themes Cause Destruction to Organizations

History has witnessed the success and destruction of different organization through the emerging themes mentioned above as well as others. Many of the organizations had faced a decline stage just because of the advancement of technology without any research. Research plays an important role in implementing anything. So, it should be made sure to conduct a research before any technological innovation (Ahmad et al., 2015). Then, there is an example of environment and society related to the oil and gas industry where an organization sealed up just because of the carelessness in the disposal of the wastage. As the employees’ were having the practice of disposing off the wastage in the sea that causes sea pollution, air pollution and many more germs and bacteria were injected in water because of that disposal (Harper et al., 2017). Many precautions should be taken before implementing or advancing any emerging theme.

2.6 Areas to Focus on

According to the publication of EY (2015), there are 6 most common operational areas on which usually oil and gas industry focuses. Those areas are:

·         Expansive asset reliability

·         Expansive production efficiency

·         Management of HSE risk

·         Operating Cost reduction

·         Focus on Culture

·         Employee Retention

 But, as the trends and situations are changing we need to focus on other things along with these areas. One of those areas would be the reputation of oil and gas industry.

2.6.1. Reputation of Oil and Gas Industry

It has been stated in the case study, that due to trust issues of people on this industry, organisations of this industry are facing a lot of issues, including investment problems, regulatory issues and even recruitment issues. Investors wouldn’t fund their projects due to their reputation. A lot of the projects of this industry are closed due to legal issues. Governments wouldn’t allow them to operate in their areas because of the hatred for them in the public. Not only that but they are having troubles in recruiting the young talent in the industry. According to OPEC’s (2014) annual report, it is crucial for organisations in this industry to participate in CSR activities and make sure their operations aren’t hurting the environment. By doing so, they can improve their standing in the industry and the issues mentioned above can be solved. Furthermore, OPEC (2014) stated that data transparency should be created in the organisations for diminishing the trust issues.

2.6.2. Expansive Production Efficiency:

            According to EY (2015), it is crucial for organisations in this industry to be more efficient in their production. They must implement effective processes and indulge recent technological innovation in production processes. Along with that as the case study suggests they must look for the replacements of oil and gas and try to enter those markets as well. For that they may have to work a lot. They need investors, willing to invest in other products as well as they themselves have to research in order to get a product which will be beneficial for them in the long run.

2.6.3. Operating Cost Reduction:

            Another area in which organisations must focus is on operating cost reduction. With constant ups and downs of the prices of oil and gas it is crucial for the industry to cut down its cost and manage its operation in such a way that it saves them from the expected losses. (EY, 2015).

2.7. Recommendations

·         More investment should be made in human capital and training as this will help in any kind of shortage of skill.

·         Adaptation towards technological advancement and innovation.

·         Move towards digitalization as it will allow to some immediate course of action without delays.

·         Expand and invest in partnerships to minimize the risks and maximize profits.

·         Invest capital in more than one industry to stabilize any deficiency in future.

·         Promote CSR activities to gain public trust and market share too.

·         More recruitments should take place because new talent brings new opportunities

·         Outdated framework should be declined and new frameworks should be introduced.

·         Promote and invest in research and developments.

·         The following blockchain can be used to achieved the desired goal more effectively:

Source:  (Allied Consultants, 2016)

3.0. Conclusion

After analyzing the whole case, it can be concluded that oil and gas industry is facing an unstable phase and many of the past activities are the reasons for this. However, many of the operational decisions should be taken for the stabilization of the industry. The companies should change their past strategies to achieve economic growth. Top management should gain the clientele again through different activities as mentioned above. This industry has to put their key attention over the four pillars (i.e. the emerging themes) in order to gain sustainability and consistency. Some of the serious actions should be taken and their alternative should also be prepared in order to avoid any failure. The companies should keep an eagle eye on their competitors’ activities and take a lesson from their mistakes. This industry can enhance its’ market through different strategies and actions. As far as the understanding of this case, some of the recommendations mentioned above can be the reason of the rise of the oil and gas industry.

 

References

• Ahmad, Zaki & Bilal, Kanwal and Khan, Asad & Mastoi, Naila. (2015). Impact of Emerging Technologies on Human Values. International Journal Of Core Engineering & Management. 1.
• Allied Consultants. (2016). Next Generation P2P Solution for Oil and Gas Companies. [online] Available at: http://www.alliedc.com/sharepoint-p2p-solution-oil-gas-companies/ [Accessed 8 Aug. 2018].
• EY (2015). Driving operational performance in oil and gas. [online] UK: EY - Building a better Working World. Available at: https://www.ey.com/Publication/vwLUAssets/ey-driving-operational-performance-in-oil-and-gas/$FILE/ey-driving-operational-performance-in-oil-and-gas.pdf [Accessed 5 Aug. 2018].
• Harper, C., Harper, C., Snowden, M. (2017). Environment and Society. New York: Routledge.
• Longwell, H.J., 2002. The future of the oil and gas industry: past approaches, new challenges. World Energy, 5(3), pp.100-104.
• MacIver, R.M. and Page, C.H., 1962. Society: An introductory analysis. Macmillan.
• Money-zine.com. (2018). Work Environment. [online] Available at: https://www.money-zine.com/definitions/career-dictionary/work-environment/ [Accessed 8 Aug. 2018].
• Oxford Dictionaries | English. (2018). industry. [online] Available at: https://en.oxforddictionaries.com/definition/industry [Accessed 8 Aug. 2018].
• The Economic Times. (2018). Definition of Markets | What is Markets ? Markets Meaning - The Economic Times. [online] Available at: https://economictimes.indiatimes.com/definition/markets [Accessed 8 Aug. 2018].
• Webster, M. (2018). Definition of SOCIETY. [online] Merriam-webster.com. Available at: https://www.merriam-webster.com/dictionary/society [Accessed 7 Aug. 2018].
• WEF (2016). Future of Oil & Gas. [ebook] Switzerland: World Economic Forum. Available at: http://www3.weforum.org/docs/GACFutureofOilandGas_Executive_Summary.pdf [Accessed 5 Aug. 2018].