Glenbervie Energy Plc (GE) and Its Corporate Social Responsibility - Case Study Example

work - Glenbervie Energy Plc (GE) The Global culture of effective corporate social responsibility and corporate governance in the oil industry The primary focus of any organization including oil companies like Glenbervie Energy Plc (GE) is to give a clean management based on preset ethics and by incorporating CSR; otherwise the repercussions will not be favourable. Focusing on ethics and thereby CSR is paramount as it will have an effect on the business both in the short run as well as long run. Companies that do not have proper… ethics procedures risk severe damage to their reputation, criminal/legal action and regulatory penalties. The consequences could include loss of customers, reduced share price1 So, incorporation of perfect work ethics as part of GE’s CSR and CR strategy, which has been norm of optimal global culture, will only ensure smooth functioning for the organization and importantly will elevate its image, thus enabling the company to grow from a smallcap into one of the top global Oil and Gas independents. The two main issues in which GE has to give a lot more focus as part of CSR and CR are whether its operations could have negative impacts on the environment and on the people, and then importantly whether they are doing anything constructive for the community, where it has located its operations. GE could cause negative impact on the environment if there are oil spillages from offshore oil rigs and this will severely deteriorate both the financial as well as the ethical standing of GE. This exact problem is happening off the coast of Australia for the company Pttep Oil with environmental groups protesting against the oil spillage from one of its rigs. “For 10 weeks, a crippled deep-water oil rig has been leaking millions of gallons into the ocean between Australias northwest coast and the islands of Indonesia. It is bringing to light the possible environmental impact when offshore drilling goes wrong…Environmentalists are monitoring the damage”2 Although, there are many international regulations to avert these kinds of problems, GE for its part should prevent this by safeguarding its operations. And even if it happens, it should do maximal actions to limit the impact of the oil spillage in the immediate environment. Instead of pushing away the blame, GE should put all its resources including financial, technical, etc to control the damage in association with the environment groups and government bodies. If GE is able to take these kinds of positive steps in case of oil spillages in its offshore operations, its CSR and CR image will be optimized Apart from these key CSR issues, GE particularly during onshore operations has to focus on developing the community in which it operates, as part of developing its CSR image. Oil companies including GE should also indulge in the development of welfare facilities for the local populations like the construction of hospitals, schools, etc. For instance, in the Nembe area of Bayelsa state in Nigeria, Africa, Shell has provided power plants for the generation of electricity, provided scholarships for selected students, constructed a network of roads, paid allowances to teachers of the secondary school, built a six-block classroom for the primary school, provided micro-credit for women, provided drugs in the hospital, etc.3 As part of ethics in the external environment, GE has to incorporate CSR and CR as part of their functioning. Through this strategy, GE will show interest and take care of certain crucial social issues, coming up with constructive strategies and solutions for the welfare of the society and its people. This positive action of the GE will fulfil their CSR and importantly will optimize its image among the people including its prospective customers, leading to an optimal development Different Styles of strategic planning in the oil industry and also of performance management Strategic planning is an organizational process of developing its direction, strategy as well as decision making on how to allocate resources in order to meet its desired goals. The long term goal of GE is to become a top global Oil and Gas company from its current position as a smallcap. To achieve that long term target, GE as part of strategic planning has to focus and achieve a set of short term targets. One of the key short term target on which the GE can focus its maximum resources and thereby increase their presence is in the upstream sector. Although downstream sector can be developed, if GE focuses mainly on upstream with good resources, they can reap good benefits in a quicker way, thereby actualizing the long term target. This has been trend from the starting of this decade, with many oil companies including the larger ones as part of their strategic plan mainly focusing on the upstream operations of oil and gas exploration, including the search for underground as well as underwater oil and gas fields. “The common theme in the strategic planning of the large oil companies is the concentration on the upstream sector. This is no surprise. Since the diversification debacle of the mid 1970s, all the oil companies have realised the good profitability of their upstream investments.”4 Even the financial results of British Petroleum or Beyond Petroleum (bp) validate this strategic planning. That is, BPs profits from its UK upstream operations have been excellent, while on the other hand the downstream profits have been unsatisfactory. Although GE can continue its downstream operations in markets, where it has a stronger holding and position, in case of newer markets and importantly in case of markets, where it has been struggling, it would be advisable for GE to go for upstream operations as part of its strategic planning. Whilst a good market share does not guarantee good profitability, future investments can be channelled into projects in the sector, which will be the most happening and productive sector. 5 Performance management (PM) refers to commitment by leaders and managers to achieve highest performance levels from the employees. Involvement of employees in all the important processes inside the organization is a key part of the performance management system. Likewise, GE and its top management team as well as department managers should productively involve the employees to motivate the employees and also to elicit better productivity from them. They should implement this aspect of PM in every department at every operation including offshore or onshore operations, upstream or downstream operations. That is, as part of the PM system, the managers or supervisors can involve the workers in all the important processes particularly decision making process by using the inputs from the employees for the optimum functioning of the organizations. Managers or supervisors should put for discussion his/ hers thoughts among the workers, and thereby involving them productively as a form of teamwork. “…give them a clear sense of purpose, an accurate explanation of their personal importance in the running of the organisation, and regular communication about the direction and performance of the business”6 This strategy will have favourable results. If the managers or supervisor does not productively involve the employees it will surely lead to de-motivation and this can be seen in the survey results of an Omani Oil and Gas company. “One of the key factors in motivating employees is the ability of management to empower and involve employees in decision making. There is nothing worst than isolating an employee and make him unworthy. This section shows that 42 % of employees believe they are not involved in making decisions.” 7 So, managers’ or supervisor’s act of involving and allowing co-workers as a team to play a part in the important processes, but at the same time being the final authority is one of the important parts of the performance management systems. Strategies used in the oil industry for Mergers and Acquisitions. In the oil sector, mergers and acquisitions has become a key and omnipresent phenomenon, with many well known companies going for Mergers and Acquisitions (M&A) for their survival and importantly as a success strategy. That is, in the current tough economic scenario, oil companies are struggling to put up a sizeable presence. So, to salvage its somewhat current position, they are merging with companies with which it can work together and survive the tough times. Apart from being a survival strategy, M&A is also a successful strategy because oil companies have strong opportunities around the world and to actualize those opportunities, they strike mergers instead of fighting independently in a losing cause. “A flurry of merger and acquisition activity of late has forged a small group of titans in the oil industry that are aggressively looking to gain access to new global markets and to cut costs. These moves have marginalized the companies left out of the M&A dance and left them little option but to follow suit and partner up.”8 As far as GE’s strategy is concerned, although its goal is to become one of the top global Oil and Gas independents, it would be better if it slightly reorients its goal and tries to become one of the top global Oil and Gas COMPANY with a partner. However, GE can try acquiring some other oil company, then it would still become top oil independent but for a small cap company like GE acquiring a major play is simply not possible. So, GE has to go for a merger with a major player atleast in the initial stages and then with its growth and influence can fully takeover its partner, thereby still achieving its goal of becoming top oil and gas independent. There are many reasons why mergers are a necessity for GE to become a major player. The current trend in the oil sector is that many major oil companies are merging into big entities or conglomerates thereby garnering all the opportunities and leaving the independent and the small players in the lurch. A recent report by Moodys Investors Service foresees a continuation of M&A activity as the oil industry divides into a three-tier structure, with those in the first tier having further distanced themselves from their rivals by expanding in order to redress major production declines more effectively, gain access to many emerging and politically volatile hydrocarbon provinces, and boost their credit quality.9 These opportunities only led many global players to merge among themselves. Mobil’s merger with Exxon created the largest private petroleum company in the world and firmly solidified Exxon Mobils position in the first tier of oil companies, along with BP Amoco/Arco and Royal Dutch/Shell Group (which is restructuring).10 With this merger, Mobil brings Exxon its petroleum production in Africa (Nigeria) and in the CIS republics (Caspian Sea), regions where Exxon did not have a strong foothold and downstream, the new group has increased its worldwide refining capacity by about 60 %; as for distribution.11 Due to the BP Amoco deal, BP was able to complement its hefty oil reserves with Amocos natural gas strength. This being the scenario, GE has to try the merging option, by looking for a major player in the global scene, who will complement its strength. Also, the current economic crisis can benefit the buyers because of the low prices and as the sellers need to better their prospects, it has created good opportunities for M&A among the oil and gas companies and GE should also take that route, atleast in the initial stages. “In order to stay in the game and continue to have size and scale and a competitive advantage against their competitors they have to get bigger, mergers and acquisitions will probably be the main way.”12 To hold a balanced and geographically diverse portfolio Successful organizations or even organizations wanting to achieve success like GE will not remain “static”. These organizations will keep on moving ‘crossing boundaries’ both in the geographical sense as well as economically, to capture foreign markets and emerge successful. Before initiating the entry, firms will have to first analyze the countries and the regions, which will be a good option. Every foreign country will have distinct political, social and cultural aspects and this will give rise to many opportunities as well as challenges. Among these aspects, the culture of the country needs to be firstly understood and then appreciated, to make a successful entry. So, GE should first find apt and feasible countries and then understand those countries distinct aspects to make an optimal entry, thereby developing a strong geographical portfolio. For GE as well as other oil and gas companies, Africa presents great opportunities with many African countries having optimal oil and gas reserves, with its respective national governments also exhibiting a welcoming attitude. With many untapped reserves in Africa, GE can start off in Africa, exploring many African countries and then try other countries and regions to develop its geographical portfolio. The interest is evident in Africa, one of the worlds more promising oil provinces. Anadarko Petroleum Corp. (APC) Chief Executive James Hackett, whose company has a large presence in West Africa, said in an interview that "most of the companies that you can name, either international companies or national oil companies, are interested."13 However, the challenge for GE is that many companies from all over the world are fighting for these same reserves and so GE has to come up with apt strategies to strike productive deals. Africa is emerging as a hot spot for rivalries between western and Asian oil companies competing for a toehold in one of the last remaining energy frontiers open to foreign investment. 14 Organizations entering foreign territories need to work in unison with the local or home grown employees to reach their targets. Constant communication between the management and the workers and vice versa will only lead to the formation of teams of employees, enabling them to coordinate and conclude the work successfully. Firms operating in foreign locations will be composed of workers from three national categories, Parent Country nationals (PCNs), Host country nationals (HCNs) and Third country nationals (TCNs).15 Majority of the employees in international operations could be local employees or HCNs from the same region and could also be from the same culture. Based on the skills, knowledge, experience and attitude of the HCNs, GE as part of optimal HRM policies can recruit them for various positions. This recruitment process, apart from complying with the unwritten rule of giving maximum employment to the local population, will also benefit the GE in many ways. That is, apart from elevating the organization’s image in the eyes of the local population, it will also provide them with surplus and at times cheap labour. Thus, GE by recruiting HCNs as part of regional factors can achieve two targets in one single action, and in turn can develop a strong geographical portfolio thereby becoming top global player. Role of Farmins and Farmouts in achieving a balanced and diverse portfolio Farmins and Farmouts are the terms given to an agreement process under which an oil and gas company with full working interest, assigns that working interest or even a portion of that working interest to another small time or big company. They will assign that working interest because of the desire of the other company to drill on the leased acreage. As far as the financial interests are concerned, the assignee who desired for the agreement has to drill one or more wells to earn its interest in the acreage, while the assignor usually retains a royalty or reversionary interest in the lease. The interest that is received by an assignee is a "farm-in" while the interest transferred by the assignor is a "farm-out.16 GE can adopt either one of the two positions according to their business situation and their targets. That is, to actualize a balanced and diverse portfolio and thereby becoming a top global company, GE should go for agreements like this instead of being uni-dimensional. GE can go for Farmins when it has good reserves or acreages and when it is short of funds or when it wants to focus on some other target markets. That is, when the buyer has funds and a shortage of acreage and prospects, they can approach GE who could have good acreage, but is short of funds. The funds that can be retrieved from this Farmins can be used by GE to expand its operations in some other very prospective markets. Also, GE can go for Farmins and give its acreage, if it wants to get rid of the acreage which is nonessential and secondary to its main operations. As those acreages can be expendable, GE can give it for profit and focus on its core areas. Often companies will dispose of assets which consume time and effort to an extent which they regard as disproportionate to their value in order to concentrate on acreage where they have reasonably sized interests.17 On the other hand, as GE is a smallcap company on the verge of growth, it can also try Farmouts to achieve a diverse and strong portfolio. That is, with GE being a minor player, they will have to utilize the opportunities that may arise in various regions, particularly through the Farmout route. For that, GE should look for potential acreages all over the world or particularly in the geographically closer regions of Europe and Africa. Or importantly, GE can look for potential acreages nearer to its already existing facilities. This will be productive when GE also has plans to expand its operations by constructing pipes or other structures and thereby connect with existing production facilities. “Fourthly, proximity to local production infrastructure, platforms and pipelines is also a strong motive for seeking a farm-in in a particular vicinity, especially if the farming-in party has an interest in the infrastructure, platforms or pipelines.”18 When any of these criteria gets fulfilled, GE can approach the seller. Then, if the seller of a particular potential acreage is interested in assigning it to GE, then GE should come up with funds and apply a for it. With good work and optimal productivity, GE can expect handsome Farmouts. Legal and financial aspects of the decommissioning phase of an oil company’s operation Decommissioning is the process that will be carried out or need to be carried out by the oil and gas companies to manage as well dispose its installations and platforms to eliminate physical and environmental footprint once that facility has stopped production or have reached the end of its economic life. Decommissioning will be carried out both in the onshore as well as in the offshore regions and GE will have to be involved in these processes. This decommissioning process will not be a smooth affair with various tangles including legal and financial tangles impeding the decommissioning process. “Decommissioning of disused offshore oil and gas structures has posed a plethora of legal, regulatory and technical challenges for international law, individual states and the oil and gas industry.”19 When viewed from the legal perspective, the decommissioning process seems to have evolved and strengthened with oil and gas companies becoming duty bound by law to carry out this process. Formulation of law conventions and legislations in specific countries put the legal responsibility on the oil and gas companies. UNCLOS: The United Nations Convention on the Law of the Seas permits the partial removal of structures provided that IMO criteria are met. The 1972 London Convention (and the subsequent 1996 Protocol) made the provision of generic guidance for any wastes that can be dumped at sea. New guidelines were adopted in 2000, to specify different classes of waste, including oil and gas platforms and other man-made waste. International Maritime Organisation (IMO) sets the standards and guidelines for the removal of offshore installations worldwide Petroleum Act 1998 regulates decommissioning of oil and gas installations and pipelines on the UKCS.20 These legal conventions and other laws clearly put the onus on the oil and gas company who with the cooperation of the respective governments of the country, in which the faculties are located, should undertake the decommissioning process. This will be the norm for GE also, so GE has to decommission its archaic and unproductive facilities as per legal regulations, taking care of the financial costs as well. That is, decommissioning is a quite costly affair and could also be considered as an unprofitable affair, when viewed from the financial angle. Even with national governments pitching in sometimes, the major costs have to be incurred by the companies. “The International Marine Contractors Association estimates global expenditure on decommissioning to exceed US$75 billion. It is therefore clear that the costs to be expended by the oil industry (in many cases to be contributed to by host governments, either directly or indirectly through fiscal means) will be sizeable.21 Because of this sizeable financial factor, controversies keeps on arising between the national governments and the oil and gas companies with many decommissioning process not reaching the logical conclusion. “The issue of how to ensure that there are companies or corporate entities available and able to meet the cost of eventual decommissioning at the end of a field’s life, remains problematic in many jurisdictions. This is clearly unfinished business.”22 However, oil and gas companies including GE should only take the financial responsibility during the decommissioning process, with support sometimes coming or not coming from the respective national governments. That is, to grow optimally into a top oil and gas independent from its current position has small cap, GE should have a clean image and should not have any legal tangles which could drag it down. So, by following the legal responsibility and taking the financial responsibility, GE has to optimally contribute to the decommissioning process to achieve success. 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