The Global Oil, Gas, and Petroleum Industry - Coursework Example

REPORT ON THE GLOBAL OIL, GAS AND PETROLEUM INDUSTRY: A CRITICAL CASE EVALUATION OF BP AND OTHER GLOBAL MEGA PETROLEUM ENTITIES Contents Executive Summary 3 Introduction 4 Part 1: Corporate Governance and Competitiveness 5 Comparative Analysis of CSR and CG in BP and Shell 6 Part 2: Network Level Strategies and Competitiveness 8 Part 3: Creating and Maintaining High Performance Cultures 11 Bibliography 15 Executive Summary This report examines the elements of competitiveness and productivity in the oil and gas industry. This is done by fundamentally evaluating the way firms adjust and change in relation to the changes in some key market indicators like changes in demand, quest for better production and environmental systems as well as the desire to eliminate uncertainty and financial risks. To critically access this, this paper examines important aspects of the affairs of the BP Group. The first section of the paper evaluates the elements and aspects of corporate governance and corporate social responsibility in the global oil and gas industry. To this end, a comparative analysis of BP and Shell are conducted. The second section evaluates the network and expansionist plans of global oil and gas entities like BP. This is done by evaluating how BP expands and seeks its interests through a network of firms and activities. The final section examines corporate culture and how it is manifested in BP and how it influences results. This is done by evaluating the important trends of corporate culture in BP in the year under review. Introduction This report analyses and evaluates current trends in the global oil and gas industry. As a background to this analysis, significant trends like the growth in demand to fuel the rapid industrialisation of emerging markets like Brazil, India, Eastern Europe and China have caused massive increases in the demand for oil, gas and petroleum products (Speight, 2013; Fahim, Al-Sahhaf, & Elkilani, 2014). The changes in demand for petroleum products in the world have also prompted major needs for adjustments in the way oil and gas entities and institutions are to be run. This include the sensitivity to social and environmental matters as well as the need to attain and maintain high levels of competitiveness (Steinberg & Van Deveer, 2012; Sun, D., & Hollard, 2014; Werther & Chandler, 2010). These adjustments have made it significantly distinct to run a global petroleum company chain. This is because there is the need for several levels of awareness and there must be concessions to be made in different issues and matters. Uncertainty and financial risks are major elements and aspects of the global oil and gas industry this is because numerous political risks and other matters play major roles in causing shifts and adjustments in the demand and supply of oil and gas (PWC, 2014). The growth in demand is due to the demands and requirements of different consumers in previously obscure and less productive aspects and elements of the global economy. This report will focus on the elements and aspects of corporate governance and competitiveness as well as networking, partnership and agglomeration as a means of attaining competitiveness and finally, the creation and maintenance of high performance cultures. The research will be conducted in three separate parts and this will focus on various levels of data collection and case analysis that will involve the critical review of the financial statements and reports of petroleum giants around the world. This will bring to bear the processes of attaining competitive advantage in this era of innovation, globalisation and competitiveness in the oil and gas industry. Part 1: Corporate Governance and Competitiveness Corporate governance is defined as “the system of regulating and overseeing corporate conduct and of balancing the interest of internal stakeholders and other external stakeholders, governments and local communities” (Du Pleiss, Margovan, & Bagaric, 2010). Corporate governance is about managing the relationship between the firm and its stakeholders (Solomon, 2007). In the oil and petroleum industry, corporate governance can be defined as the relationship within the firm and between the firm and its environment (Stolt, 2012). Corporate social responsibility on the other hand has to do with the examination and evaluation of three different components of a business, economic, environmental and social matters (Sims, 2013). Corporate social responsibility is about corporate social performance, environmental performance as well as financial performance (Zu, 2008). Corporate governance and corporate social responsibility are important elements and important aspects of the operation of oil and gas in order to attain profitability and control different elements and aspects of their costs in order to attain the optimum results in their affairs and in their operations. Environmental responsibility of oil and gas firms cuts down costs and ensures that these firms attain better results through improved and enhanced services that are with little or less risks that might come with demands and expectations from stakeholders in the external environment (PWC, 2014). Performance improvement is attained through the advanced and enhanced methods of promoting efficiency and effectiveness in order to attain the best results for firms. This include the use of enhanced and better methods and technology as a means of production and also creating products that are of an appreciably high level of productivity that consumes less of environmental resources and elements. Governance and risk management of the significant elements and aspects of the environment helps to improve performance and also attain the best results for firms and organisations (PWC, 2014). This includes the integration of important standards and targets for the attainment of the best results for firms and organisations. And once this is done, there is the need for auditing and continuous supervision of these different standards in order to attain the best results. Also, there is the need to review partners and other stakeholders to attain the best results. Comparative Analysis of CSR and CG in BP and Shell Corporate governance and environmental responsiveness are two important elements and aspects of the operations of BP and Shell. This is because they are all global entities. Hence, there is a pervasive exhibition and show of the desire and expectation of these firms to deal with environmental and other social issues. Hence, there is evidence that both of these two global energy giants have invested a sizeable amount of money and effort in maintaining corporate social responsibility and institutionalising corporate governance. Corporate governance is achieved in both BP and Shell through the fact that they all have a two-tier corporate governance structure. They both have the board of directors who are charged by shareholders to run and utilise their firms’ resources for the betterment of the firm. However, the board of directors do not carry out day-to-day affairs in the management and control of affairs. This is left in the hands of the management team who run the company. Thus, effectively, both BP and Shell have corporate governance left in the hands of the board of directors who are required to steer the company in a responsible way and manner. The board of directors of Shell includes the board chairman and the deputy chairman who is a senior independent director and supported by several independent non-executive directors. Also, there are executive directors and the CEO on the board. In BP, it appears the board of directors and the management team play an egalitarian role in dealing with affairs. This include a board that is ran through various committees that proactively deals with issues and matters in the management of the firm. BP’s management is complemented by various non-executive independent directors who supervise affairs and matters in the firm and ensure that the firm is ran in the right way and manner. BP also has an executive team that plays a supervisory role in specialised issues and matters that helps to deal with compliance matters and issues in order to attain the best and most significant results. Therefore, from the analysis of the two global oil and petroleum companies, it appears that they all centralise the role of control and governance from the basis of guiding and directing the firm through a strong and effective governance and leadership system that combines board of directors’ activities through an effective supervisory committee approach as well as the mainstream management system and structure. These two managerial and supervisory committee systems set up compliance standards and targets and ensure that the firm operates within the right framework of risks to avoid pitfalls and issues. The study shows that BP’s system is more centralised and focused on the board who have strong committee systems that supervise affairs. Shell on the other hand has a somewhat egalitarian system through which management is given sufficient power and are allowed to use proactive methods and approaches to contribute to the company’s governance and live above corporate social responsibility risks. Part 2: Network Level Strategies and Competitiveness The demand and supply of oil and gas is not fixed or defined like that of other products and services. Demand fluctuates significantly in the short term and long term due to changes in circumstances and growth in infrastructure in other economies respectively (De Rocquigny, Devictor, & Tarantola, 2012). Changes in peace and other stability variables causes demand to move up and down within the short term. However, in the long-term, the growth in developing economies and research variables ensures that other means of energy usage are identified and this makes petroleum either scarce or in vogue. Supply is somewhat responsive to the changes in conditions and circumstances and this is mainly due to the movements in demand for petroleum and oil and gas products. Firms expand and grow in relation to the changes in demand and supply lines. This is because in all situations, the management of firms will have to find ways and means of growing and expanding their influence in various ways and means possible. However, this might be done through a number of different and separate routes and channels that can be utilised by different companies in order to gain profitability and also expand or grow their asset base. The case of BP shows elements of how a typical oil and gas entity exists and expands as a means of growing and expanding in order to meet the mission and vision. In order to do this, BP presents its idea of how it seeks to grow and expand in its mission and vision which it describes in its 2013 annual report as: “BP is one of the world’s leading integrated oil and gas companies. We aim to create long-term value for shareholders by helping to meet growing demand for energy in a safe and responsible way. We strive to be a world-class operator, a responsible corporate citizen and a good employer” (BP Corporate Report, 2013) This refers to the blueprints of how BP plans to grow and expand in order to meet its aspirations and fundamental aims. The mission states that BP seeks to grow to become a global entity and this involves the vertical and horizontal integration of various global entities that are involved in affairs of the oil and gas sector in different parts of the world. This is meant to help BP to attain its ends in different parts of the world in order to attain the fundamental end of growing and expanding to meet the different ends of this mission and vision. Horizontal integration refers to the acquisition of output units that is aimed at controlling the production of various units of products in an advantageous manner (Kozami, 2012). This involves buying other production units and sectors of the economy in order to control the petroleum industry around the world. On the other hand, vertical integration is about integrating backward in order to acquire and control the input producing system and process (Hill & Jones, 2012). The main affairs BP involves in are prospecting and exploration as a fundamental aspect of petroleum products in different parts of the world. Once a site is secured, the team will involve itself in various degrees of upstream extraction of the oil. With the petroleum extracted, there is the transportation and trading of the petroleum, manufacturing and marketing. These activities form the core elements and aspects of the BP Group with its headquarters in London, United Kingdom. Thus, BP has various units and segments for different activities around the globe. These units have various plans and various approaches that are used to attain the fundamental ends of the company in attaining the fundamental ends of the company. According to the Chairman’s report, the 2012/13 trading period was suffering from the shadow of the global financial crisis and difficulties that came up in 2007 to 2010. However, due to the expansion and growth of the global economy, BP realised that there was a general increase in the demand for petroleum energy, hence BP responded by expanding its infrastructure in the right way and manner. BP therefore focused on the growing demand for various products and services like the growth in the demand for shale gas in the United States and this led to the need to the acquisition of product development and extraction plants and systems in the country. Also, in 2012/13, BP invested heavily in the research and establishment of infrastructure into various alternative energy processes and systems. This culminated in the creation of different research centres, particularly in the Americas where different research projects into cleaner energy were conducted as a prelude into expanding by acquiring smaller entities that would be able to serve the needs of the company. On the other hand, BP sought to expand into the Russian and markets in the Former Soviet Union including countries like Azerbaijan where the company acquired different production facilities and plants as a means of expanding and growing in these cheaper regions where energy could be acquired at a far less rate and also shipped to different consumers in various parts of this geostrategic location which links up to Western Europe, Eurasia, Russia and the Middle East. Thus, this form of horizontal integration is done as a means of growing the firm by the integration of two important and strategic production units in the Eurasian zone. In Africa, BP also purchased the rights to nine offshore drilling units which covers over 30,000 kilometres square and the rights were acquired from the Angolan firm and the Angolan government. This is done in order to grow the company and expand the company into different units and components around the world in this oil and gas industry which is exceptionally specialised and focuses on various activities and processes that are somewhat restricted to a few entities around the world. Thus, the growth into Russia included the plan to expand into this new geostrategic location by acquiring some important mines and strategic units of production through vertical integration. Horizontal integration occurred in the United States where the company sought to control systems of research and marketing in order to control important fuel systems that are of importance in order to attain results in future. Also, in Africa, BP was able to expand through horizontal integration as a means of growing and expanding through the acquisition of important rights that are part of the horizontal integration plan of this large and major entity. Part 3: Creating and Maintaining High Performance Cultures In order to examine and review the performance, it can be noted that BP came up with various changes and modifications in the period that helped the firm to carry out its activities and processes within the period under review. This is evidenced by the reports and views presented on page 6 of the company’s annual report. This is presented by BP Group’s Chairman, Carl-Henric Svanberg to produce an efficient and simpler organisation that is designed to improve performance and maintain a consistent system of high productivity. Organisational culture in the context of strategic management has to do with the institution of effective and efficient processes and systems of doing things in the organisation in order to attain the vision and mission of the organisation in a consistent way and manner (De Wit & Meyer, 2010). This implies that organisational culture is a process and system through which the management of an organisation encourage positive practices that is seen to be good in the organisation and discourage negative practices (Johnson, Scholes, & Whittington, 2005). Culture is defined as the way things are done in and around an organisation (Mintzberg, Ahlstrand, & Lampel, 1998). These are seen to be the relatively stable customs, rituals and practices that are pervasive in an organisation and defines the way members of the organisation must react to some issues and matters (Lynch, 2006). This implies that organisational culture evolves through various conjunctions of cultural practices and dominant trends and processes. And this provides the basis for the identification of the set of popular and relevant actions and processes. This is complemented by the actions and processes have been in place in the organisation for several years in the past. This evolves either unconsciously or consciously through the deliberate addition of new strategies and new actions in order to improve and enhance the organisation’s systems of carrying out actions and processes (Mintzberg, Ahlstrand, & Lampel, 1998). From the Chief Executive of BP’s submissions, the company seeks to build safer, stronger and better performing companies within the BP Group. Therefore, the company sought to pursue a proactive approach towards the growth and expansion of the firm through the acquisition of new portfolios and keeping a diversified and strengthened portfolio. These different approaches and methods are meant to maintain the investments of BP in a positive and productive way and manner. Also, the challenge of dealing with terrorists has forced the BP group to pursue a more vigilant system through which the company. This has culminated in the creation and maintenance of a system that is somewhat distinct and unique in safeguarding BP’s assets and resources in sensitive parts of the world where there is the possibility of terrorist attacks occurring. The focus of BP is therefore on safe and reliable systems and premises as a means of dealing with the company’s needs, expectations and requirements. Safety in operations has been a priority for Shell and this is clearly elucidated in the affairs of the company. It can be recalled that a major accident off the coast of Mexico caused a major oil spill for BP and this led to a major reputational issue and matter. Hence, BP has integrated a major approach and a new system that has been extremely sensitive to the environment and this includes the placement of the right structures to ensure that the company examines its different occupational safety matters. This helps BP to maintain a fairly responsible outlook in their operations and activities. This has safeguarded their assets and prevented accidents with major costs to the environment. In 2013, this process was streamlined and improved in order to deal with problems and issues that came with it. Therefore the environmental system can be seen as one that is steeped in a quest for zero defects and incidents and this is continuously improved on a year on year basis. Profitability is an important and fundamental aspect of the firm that BP bas sought to improve to make it competitive for existing shareholders and attractive for prospective investors. Therefore, BP sought to create a healthy and handsome profit in the period and this has been the case of BP which has made profits in different years and different periods. In this process, BP has sought to improve its productivity by investing in aspects of their production that brings more returns than those that do not do the same. This has caused BP to evaluate and review their production systems and consider certain investments from certain parts of the world. Hence, they give away less productive units of their operations and acquire more profitable units as a means of improving their turnover on a regular basis. This has culminated in the selective expansion into upstream and downstream investor lines which have both come with various degrees of successes and specialisations in different markets around the world. In relation to attaining and maintaining competitiveness, BP has invested heavily in some unique capabilities as a source of competitive advantage. This is because at every point in time, BP tends to focus on some aspect of their operations as a means to attain some kind of benefit and advantage in the commercial sense. In the period under review, BP has sought to invest in acetic acid and ethylene technology as a means of attaining distinctive capability. Also, BP is seeking to invest in the geostrategic oil finds in Russia and investing in cleaner fuels in the United States. Therefore, the culture of BP is one that seeks to attain the best and most important levels of profitability as well as a focus on sustainability and other social responsibilities. The focus on sustainability has to do with more care and sensitivity to the sites within which they work. This is evidenced by the fact that the company has a quest for continuous improvement and enhancement. Also, BP seeks to promote health and safety of their employees and this has been improved over the years. However, the fundamental end that BP seeks is to attain the highest levels of profitability in order to attain the highest levels of returns to shareholders. And the quest to attain a secured productivity system has been actualised through the attainment of competitive advantage. 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