Oil Exploration And Production Companies Management Essay

underbred bounderish Exploration And Production Companies Management EssayThe oil heavens value effort is a sector which of importly offers service to the oil geographic expedition and clientele companies. Schlumberger is the leading name in the oil sphere of influence servicing commercialise which has droves of gage in the high-pitchedly emulous market environment of the centerfield eastmost. This get everyplace is fundamental on the wholey an in depth understanding nearly the behavior and process of Schlumberger in the highly agonistical environment.The initial abbreviation of the discipline would sharpen on the qualitative verbal expressions of the oil field service application. It would provide an everyplaceview of round the current inclinations prevailing in the assiduity which would sponsor in getting a better understanding about the issues and the current matters taking place. It would provide an in-depth compendium of how the oil and be adrift sets atomic number 18 affected by the inquire in labor.In order to run a successful business, every(prenominal) fraternity should contract a agonistical advantage in the market. This aspect would be catchd through Porters quintuple force get, which leave behind se equalityate the sources of competitive forces Schlumberger would face in the market in the emerging.The later segmentation of the depth psychology would focus on the strategical approach of Schlumberger and the military posting of the beau monde in the market with regards to its adversarys which atomic number 18 H bothiburton, bread maker Hughes and Weatherford. The strategic approach appointment of each caller-up and the market position would be d angiotensin-converting enzyme by utilizing Porters framework of competitive abstract and exit help in analyzing the position of the companies through its competitions grade.This report will provide insights into the speed with which the comp etitors in half trend eastbound atomic number 18 able to acquire the market shargon and as well take Schlumbergers value-creating schema which would determine how long this competitive advantage will last.List of figures variant 1 Revenue of the Oilfield Service assiduity in Billion $ omen 2 upstream Capital Expenditure from 2001 2013 elaborate 3 Average install Count correspond to baker Hughes internationalisticFigure 4 Porters 5 dollar bill force modelFigure 5 Production of lowbred oil in the Middle easternFigure 6 Production of inborn blow in the Middle EastFigure 7 Revenue of Schlumbergers competitors region-wiseFigure 8 Estimated percentage of optical fusion and acquisitions in next 2 old age.List of draw up offs duck 1 Baker Hughes internationalistic keep in line Count displaying the active put ins. turn off 2 sex act amidst WTI crude oil footing, upriver CAPEX and avg Rig Count display board 3 Impact of each force on the oilfield service sedulous nessTable 4 Key success factors of the oilfield service attentionTable 5 Global and Middle East tax incomes of Schlumbergers competitors in Middle EastTable 6 Comparative analysis of Schlumberger and its competitorsTable 7 Competitors array of SchlumbergerTable 8 YTD revenue of Schlumbergers competitorsContentsIntroductionThe oil and flatulency exertion scram the appearance _or_ semblances to perk up rec overed from the slump in 2008-09 due to the frugal crisis as we bottomland see that the oil and hit man costs are come up for the past trio years. The oilfield service assiduity which is an integral t carriageger of the rock oil industriousness was no exception to this phenomenon. The oilfield service industry which provides serve to the exploration industries has witnessed growing in the fat quarters over the past three years and it continues to grow despite the current Euroz champion crisis and all the challenges faced by the service industry due to scotchal state of affairss such as the BP Deepwater opinion incident.Schlumberger, which is the leading oilfield service come with all across the globe, enjoys a study market share over bare-ass(prenominal) companies and has been unrivaled of the most bankable companies amidst all these hardships. As of December 31, 2011, the company had to a greater extent than 113,000 people of over 140 nationalities working in approximately 85 directries. The companys revenue affected $39.54 trillion in 2011 crossing the highest revenue by any company in this sector.Schlumberger is located in mingled geographic areas such northeasterly America, Latin America, Middle East/Asia, Europe and Africa. In the Middle East/Asia region, Schlumberger does lay down a competitive advantage over antithetics save no competitive advantage is permanent. and past the company has to keep a constant quantity check on its existing competitors and the sunrise(prenominal) players to the oil field operate ind ustry. given the industry context mentioned supra, the main aim of this business report is to analyze the current trend in this industry and in same(p) manner to analyze Schlumbergers competitors in the Middle East to sustain its competitive advantage.The primary physical object of this report is to keep in line that Schlumberger is aware of the changes going on in the Middle East that is affecting its ongoing strategies and business syllabuss and excessively to keep a close eye on its competitors new strategies and the bring inments they are making. It is also to ensure that their current strategies are in line with the business environment and if non, what changes can be brought about in order to keep it at par with the an other(prenominal)(prenominal) competitors within the industry.The main riskings of the project will assist Schlumberger not only in maintaining their strong position within the industry, but will also help them in evaluating and forecasting about the changes in advance and develop their business plans accordingly.Chapter 1 Literature ReviewPorter five forces Model in that respect are a number of management as wellls which analyze the industrys profitability despite the existing competitions and changes in the economy. This section will help us in getting an understanding about the appropriate strategies to sens industry analysis. For getting an understanding about the seemly strategic analysis of an industry, there are a few management tools and theories such as SCP Paradigm, Porter five forces model and Value benefit model.The Structure tick Performance framework is derived from the Industrial Organization (IO) economicals and it studies the market ground on the three elements and also tries to draw a connection between them, (Fu, 2003). Mason (1939, 1949) and Bain (1951, 1956, 1959) as cited in (Goddard, Wilson and Lipcztynski, 2005, p6) had demonstrable the SCP paradigm. It correlates the coitionship between the mark et structure, company conduct and company surgical procedure (Ajlouni, 2010). agree to this approach, the structure of a market influences the conduct of the unshakables operating in the market, which in turn influences the performance of those watertights. (Goddard, Wilson and Lipczynski, 2005, p6). thus the SCP paradigm analyses the industry in three steps. First, the structure analyses the basic framework of the market which is required by the company for conducting business. It involves the buyers and sellers, barriers to entry, product differentiations, perpendicular integration and diversifications. Second, the model analyses the behavior of the star signs to get an in depth analysis about the business objectives, pricing policies, research and development, acquisitions and mergers. The third, performance describes the parameters required to streak the performance of the industry through profitability, growth and increase efficiency.The SCP Paradigm is establish mainly on empirical research than on theoretical aspects and it was one of the dominant models work the early 1980s (Slade, 2003). Thus there were umteen criticisms about the model because of its dependence on the empirical researches and one of the main problems of the paradigm was to analyze some(prenominal) of the variables in each factor of the paradigm. The encourage growth on the Industrial Organization witnessed the introduction of Porters five forces model. unmatched of the well-kn possess and an meaning(a) framework is Porter Five Forces Model. Porters five forces is to a great extent influenced by the SCP Paradigm as one the Structure of the paradigm is fundamentally the Porter Five Forces model and the other Performance is outcome of Porters model which is the profitability (Goddard, Wilson and Lipcztynski, 2005, p16-18). Micheal E.Porter (1979) developed this model which attempts to handle the main forces which affect the industry structure. Porter five forces model tries to explain the industry structure and the competitive conditions by evaluating the following forces the risk of new entry in the industry, the grad of rivalry among established competitors, the bargaining power of buyers and suppliers and the threat of substitute products. According to Porter, the presence of stronger forces of the model, make the business environment of the industry to be more(prenominal) challenging and is less attractive to the investors. On the contrary, if the forces are weak, then the companies seem to be in a more profi hedge condition as there would be less competition in the market.According to Kevin Coyne and Somu Subramanian (1996) as cited in The McKinsey Quarterly(2001), this model is built under three essential assumptions Firstly, the buyers, suppliers, substitutes and competitors are not related and do not interact with each other in the industry. Secondly, more capital will be available to the companies that have a structural advantage over the ir competitors and potential entrants. Thirdly, there is a good deal lower risk involvement which let the companies in the market to plan goodly and prepare a outline accordingly.According to Mintzberg (1994), Porter assumption that future of the industry can be predicted ground on the pose market conditions is being discarded by Mintzberg. He explains that a company cannot forecast future market conditions precisely owing to economic changes and also technological innovations.Every model has its limitations and criticisms and Porter Five forces model is no exception to it. The limitations are Firstly, the model was establish o strollerinally on the economic situation of the eighties when there was a strong competition and relatively s give in market structures. Second, it does not focus on the different challenges that a company faces as it enters international arena. The challenges faced by them in other nations are extremely different in comparison to what it faces in its o wn nation. Third, Porter takes into consideration only the industrial factors, whereas it overlooks the company resources available to the industry without which the profitability of the industry cannot be determined. Finally, as and when the companies expand, they diversify themselves into mixed other markets and other regions and thus the model does not concentrate on portion of expansions and various acquisitions (Parnell, 2004, p50-51).Brandenberger and Nalebuff (1985) as cited in Un distinguishn (n.d.) too identified an serious flaw in the Porter model. In the book, Coopetition (Competition + Co-operation), has been discussed but the model ignores the strategic alliance which exists between some industries and which in turn helps each other to bring out a finalized product. These are mainly cognise as complementors in business terminology. Thus Brandenberger and Nalebuff in addition to suppliers, consumers and competitors introduced a new force videlicet the complementors. This was cognise as Value Net. This is basically an character of the Porters model and is known by the name of Value Net model. Porters five forces analyze what are the challenges in the face of their growth opportunities whereas Value Net model analyses threats and opportunities available to the industry (Unknown, n.d.).Porter admits that developing a strategy in a new emerging industry or in a business undergoing revolutionary technological change is a restrain proposition (Downes and Mui, 2000, p60). According to Downes and Mui, Porter explains that the new digitalized and high tech orb comes with a lot of complexities and developing a full proof strategy is a daunting task and this does not mean that the old rules are invalid. But if we look around in todays work environment, we will find that every industry is heavily dependent on the new technology. Thus Downes and Mui introduced three new forces to the Porter five force model namely Digitalization, Globalization and Dereg ulation (Downes and Mui, 2000, p64-67). These are the driving forces which steers the modern business houses in the right direction and amongst these the most important force is Digitalization.Thus the change of mind with the Porters framework is the absence of the digitalization force which has revamped the industries with the introduction of modern technology.though from the above discussion it may appear that Porter five forces is outdated as it does not consider digitalization. But if we consider both its assumptions and limitations, it is one of the government issueive management tools that can be apply in business and can easily be understood by the managers.Porters Competitive fabricThere are different strategic frameworks available which would be ministrant for doing a competitor analysis. The most prominent among them are Porters Competitive role model and SWOT analysis. Porters Competitive Framework is a management tool which is used to analyze the industry on four b asic elements namely future goals, current strategies, assumptions and capabilities. Future goals discuss what drives the competitor, current strategy discusses what a competitor is doing or can do, assumptions focus on the supposition made by the firm about itself and the industry and capabilities discuss about the strengths and weaknesses of the firm (Porter, 1980). This is one of the most prominent frameworks but a lot of researches are based on assumptions about competitor analysis which is discussed below.A lot of scholars have defined what a competitors analysis is but the most difficult part is the evaluation of the competitor at a firm level (Tsai, Su and Chen, 2011). A number of studies have been conducted on how a competitor could be study at a firm level. Porac et al, 1995 presented a cognitive model which is developed on the basis of the observation the firm makes about its competitors actions and reactions and then dissolve on its strategy. Also, Baum and Lant (2003) as cited in (Tsai, Su and Chen, 2011) illustrated that resemblance in geographic spatial relation, determine and size are sufficient for a firm to have an topic about their competitors. Chen in 1996 gave a different perspective of competitor by introducing the two-firm concept explaining that a competitor analysis is mainly based on market commonality and resource similarity. But many researchers lay out the two-firm concept to be difficult to relate with the competitor analysis.Competitors analysis is needed for every enterprise as because there may be certain(a) gaps which the company might not foresee while making competitive decisions. Zajac and Bazerman(1991) discussed the relation between the strategic decision making process and competitive analysis and named the gap between them as competitive blind spots. They discussed how a wrong assumption by a firm about its competitor may result in blind spots. Rothschild (1979) too discussed on where the companies many miss the link and what are the questions to be posed for a proper competitor analysis. Tsai, Su and Chen, 2011 gave a different perspective with regard to the competitor analysis by introducing the concept of competitor acumen. It illustrated about the relationship between the different firms in the same industry and also the extent to which a firm can understand its competitors.Every researcher mentioned above has challenged the Porters framework but none of these have the same prominence as Porters framework. However, there exists a challenge which in the Porters framework that cannot be ignored. Porter does discuss about the fact that when a competitor analysis is done, a firm should know both its direct (current) and indirect (emerging) competitors. However, it does not discuss whether a firm should consider all its competitors or only the top three or four or just a bunch of them. Thus the firm has to analyze the industry first, reveal its competitors and then go for competitor analysi s (Rao, 2011).The SWOT analysis focuses on the Strength, Weakness, Opportunity and threats which a firm faces and its advantages in comparison to other competitors in the marketplace. SWOT analysis has a lot of advantages, for example its framework is extremely simple which helps a firm to identify its focus and can be applied to many intelligence reports comparable market intelligence. The analysis has a drawback as well. It can be too private and disconnected from the realities that are impacting the company (Evans, n.d, p7).Since Strength and Weakness part is been covered in the Capabilities part of the Porters framework and Opportunities and flagellums are also discussed, it is an important competitor analysis tool despites its limitation.Chapter 2 Oilfield Service (OFS) Industry and its trends2.1 dry land of the Oil Field Service IndustryThe energy sector comprises of the crude (oil and gas industry), electric power, coal, nuclear power and the renewable energy industries. The fossil oil industry plays an important role in this sector as crude oil and unconventional natural gas account for a bragging(a) percentage in worlds energy consumption which is around 56% (BP, 2012). Thus, the work of the petroleum industry is primarily classified into two main activities namely- upriver and downriver activities.The upriver activities in this industry are the exploration and yield activities. The exploration activities allow locating of the hydrocarbon reserves, such as oil and gas reserves, which can be done through desk study, aerial survey and uns plank survey. later onward locating the reserves, the next step is to drill the surface and bosom the hydrocarbon out of the reserves. This can be done both on the offshore (water) and offshore (land) through drilling rigs. After the drilling and getting an desire about the size of the oil field, the next step would be performance and development activity where the oil and gas is produced through vari ous techniques and services.After the oil and gas has been take a routeed from the reservoir and brought to the surface, it is then taken to the refineries where the downstream activities begin. The downstream activities in the industry include refining and processing of the oil and gas products and then further distribution of these products through various distribution convey exchangeable the retailers, distribution companies, chemical plants etc.The important industry which supports the upstream activities is the oilfield service industry. The oilfield service industry provides equipment and services which are utilized in the exploration and extraction of the hydrocarbons mainly oil and gas. This industry is thus the back of the oil and natural gas industry providing various services and equipments for the proper running of the industry.(Etechinternational, n.d.)2.2 Demand for the oilfield service industryThe demand for the oil field services industry in the market can be me nsural in terms of the revenue generated by the industry over the years. Given below is the revenue generated by the industry in USD billion over the years from 2007-2011 and it also states about the forecast of the industry for the next five years till 2016.(Source MarketLine, 2012)Figure 1 Revenue of the Oilfield Service Industry in Billion $The world(prenominal) revenue of the industry increased till the 2008 where it reached the highest point of USD 361.9 billion. Then there was a decrease in the revenue in 2009 to USD 256.9 billion where the revenue declined by 29.1% mainly due to the global economic and financial crisis resulting in the lessening of the oil price. The WTI Crude Oil Price for past few years (refer Appendix 1) indicates that the oil price was once at its peak in 2008 at $145.16/barrel (Yahoo Charts, 2012) and then there was a sudden drop in the oil price and this price drop did sustain in the industry for quite sometime. This drop in the price of the oil led t o loss of billions of dollars due to various macro and micro-economic factors in the market (Hamilton, 2009).But later on after the financial crisis, the industry started to improve its business and now since the market has been stabilize and it seems to be rising and expected to reach global revenue of $638.4 billion by 2016 (MarketLine 2012).Knowing the basics of the oilfield service industry, gives us a draft idea about the indicators which is extremely useful for understanding the growth of the industry and the factors influencing its growth.2.2 a upriver Capital ExpenditureThe growth of the oilfield service industry also depends upon the capital uptake of the companies in the upstream industry. The companies in the upstream industry is basically segregated into large integrated super-major oil and natural gas companies, international independent oil and natural gas companies which are also known as the International Oil Companies(IOCs), and the national or state-owned oil c ompanies known as the National Oil companies(NOCs). Thus the upstream outgo will result as a combination of all these three types of companies.The upstream capital disbursement appears to be rising over the past few years and is expected to be profitable over the next few years as well. The total capital expenditure was estimated to be USD 450 billion in 2011(Brown, n.d), which was at an all time high over the years and the oil field service industry seemed profitable at this juncture. The oil and gas exploration and production capital expenditure (CAPEX) for the past decade and for the next few years is registern below.(Source Combination of WoodMackenzie bodily Analysis Tool and Upstream Service cited in Brown,n.d and Energy Equipment and reserve Services Oilfield Services sphere Report, 2010, please refer Appendix 2 and 3)Figure 2 Upstream Capital Expenditure from 2001 2013In the above figure we see that the upstream capital expenditure does not include the exploration and appraisal spend. In this graph, we see that the expenditure was increasing until 2008, after which there was a dive in 2009 due to the global economic and financial crisis.2.2b Rig CountThere are many indicators where the investors of oilfield service industry can gauge the growth or the demand of the industry. The upstream capital expenditure is one of the principal indicators which provide insights on how the industry is generating the revenue but the major concern with the upstream capital expenditure is that the figures are not released on a timely basis as it is shown in the quarterly or the annual report. So it is difficult to have modifyd information for a particular period of time like each week or monthly about the industry.Thus, to have timely updates about the industry, another important indicator which helps the investors to know about the global demands of the industry is known as the rig count. The rig count indicates the number of rigs which are soon active in the industry and this shows the number of active rigs, and the specific areas has more demand indicating the demand for more labor. It is very easy and the quickest way for accessing the growth in the oil field service industry. It is used by many companies, analysts like for example Wall Street analysts use the rig count for profit projections from the oil field service companies (Sprehe, 2004).There are a number of rig counts available to serve the industry like the Baker Hughes, Smith Tools but the most commonly used rig count is the Baker Hughes (BHI) rig count as it is one of the oldest rig counts in the industry. Baker Hughes Rig count gives a weekly update on the North America rigs and a monthly update on the International rigs.AreaLast CountCountChange from earlier CountDate of Prior CountChange from Last twelvemonthDate of Last Years CountUS17-Aug-121914-1710-Aug-12-6019-Aug-11Canada17-Aug-12326+2710-Aug-12-16019-Aug-11InternationalJul-121264-21Jun-12+114Jul-12(Source BHI Rig Count as on 20-Aug-12, Baker Hughes Investor Relations, Rig Count)Table 1 Baker Hughes International Rig Count displaying the active rigsAs we see in the above table, it shows the update on the active rigs in America, Canada and in the International arena as well where we can see that the last count for the America rigs is on the 17-August 2012(weekly) whereas for International it is July 2012(monthly). This table also analyses the changes in the active rig count from the date of prior count. This table also presents before us a clear picture on how the industry has grown comparing from previous years figures (Baker Hughes Investor Relations, Rig Count, 2012).The Baker Hughes rig count measures the number of rigs which are actually being drill at a give point of time on a weekly (North America) and monthly (rest of world) basis. This indicator also provides additional information like rig count in different states, or whether the rigs were used for drilling the oil or the natural gas from the surface. A lot of products and services are required for an active rig and thus the use of these products and services show the demand for the services provided by the oilfield service industry (Brener, 2008). An increase or decrease in the rig count also shows the fluctuations in the job market of the oilfield service industry. Increase in rig count increases the job opportunities in the oilfield.The BHI count considers the count of active rigs which means the rigs which are actually drilling holes on the land or the sea to extract the oil or the gas. Therefore, if a rig is being transferred from one location to another, or is being involved in non-drilling activities like casing or completion and production activities, then Baker Hughes does not count the rig as active, even if the activity is still being performed at the field by a number of suppliers and outworkers. Though the rig count provides us with a brief idea about the drilling activity, it does not show many other important factors. The factors which the rig count does not focus on are production activities, depth, cost and location (Brener, 2008).The chart shows the intermediate rig count worldwide from 2000 to June 2012 and we can observe that number of rigs have been on the increasing trend apart from when there was a dip during the financial crisis which hit the industry adversely.(Source Baker Hughes Investor relations, Rig Count 2012).Figure 3 Global average Rig Count (Oil + Gas + Misc) according to Baker Hughes InternationalThe average rig counts for 2011-present from various geographical locations is shown in Appendix 4 where we observe that North America has been leading all the way and that is where the companies generate the maximum amount of revenue.2.2c Current Industry editThe trends of an industry help us to understand what are the current issues and their effect which help us to speculate the likelihood of its impact in the future. There have been many other micro and macro factors which affect the industry trends like government rules and regulations, the oil and gas demand and supply etc which in conclusion are the main reasons for the fluctuations in oil and gas price. Thus the trend of the industry can be known from the fluctuations in the oil and gas prices. High prices are beneficial for the industry and vice-versa. The following table shows the relation between the WTI oil price, upstream capital spending and the rig count.Avg. oil rig countInt.N.A.CanadaAvg. WTI Oil Price200776829712776200881437916187200976427810355201082559119980.5201189798427895.52012(August)946134426093.5(Source Avg.WTI Crude Oil Price Average WTI crude oil price Yahoo Charts.Upstream CAPEX Combination of WoodMackenzie Corporate Analysis Tool and Upstream Service cited in Brown, n.d and Energy Equipment and Support Services Oilfield Services Sector Report, 2010, please refer Appendix 2 and 3.Average oil Rig Count Baker Hughes Investor Relations)Table 2 Relation b etween WTI crude oil price, upstream CAPEX and oil Rig CountThe above table shows the main trends in the industry indicating that the its demand is dependent on the Upstream CAPEX and Rig count which depend on the WTI crude oil price. This shows that when crude oil price increase, there is a tendency for the investors to invest more in this industry. We see a dip in 2008 due to the economic crisis but in this year we saw that the highest price was $145.16 per barrel in July and the lowest was $30.28 per barrel in December. The average rig counts has also seen a dip during the year 2009 from 2008 indicating that there was less demand of labor during that year. Thus we can apprise that the Rig Count depends on the Investment in the Upstream Industry which in turn is dependent on various factors such as crude oil and gas price fluctuations.Having known the trend in the industry we need to analyze how a company will maintain its profitability in different economic situation which holds good for the future as well. This can be analyzed in the next chapter using the Porter Five Forces Model.Chapter 3 Porter five forces analysisIn order to know the profitability of an industry, the corporate strategists suggest using the Porter five forces model as it is the best way for anticipating the competitive environment. Porter (2008) said Understanding the competitive forces, and their underlying causes, reveals the grow of an industrys current profitability while providing a framework for anticipating and influencing competition (and profitability) over time.The Porter 5 forces are Rivalry among existing customers, Threats of substitutes, billet of suppliers, Power of buyers and Threats of new entrants. The impact of the forces on this industry is shown in the following tableForcesImpactRivalry among the existing competitorsHIGHPower of SuppliersMODERATEThreat of SubstitutesLOWPower of BuyersHIGHThreat of New EntrantsLOWTable 3 Impact of each force on the oilfield servic e industry(Source 12manage, n.d.)Figure 4 Porters five force model3. a Threat of new entrantsIf we consider this particular industry, then one thing that is moderately clear is that the competitors have been operating in this sector for many years and giving them a tough challenge is not an easy task. An model new entrant tries to enter and capture the market share and put pressure on the competitors directly by applying new technology and new ideas.The impact of the new entrants in the oilfield service industry is low. The presence of