Production and Operation Management: Oil Sands Mining - Research Paper Example

 Production and Operation Management: Oil Sands Mining Introduction The deepwater horizon drilling rig that exploded in the offshore of Louisiana killing eleven men was the largest oil disaster in U.S. history. Tragedies have been repeating because the rigs are pushed well beyond their technological capacity and even beyond the government’s capacity to regulate them. There should be efficiently established strategy for the orderly transition of the crude oil and the sustainable use of the future energy. The paper deals with the exploration of crude oil and its conversion into consumer fuels. And also examines the Marathons Oil product process and their need for efficiency improvements. The retail prices of gasoline and its relations to the world’s demand for crude oil as well as the firm’s strategies to keep up the profit margin while maintaining a lower price in the market place are some of the other factors discussed in this paper. Marathon Oil Corporation is a leading oil and gas exploration and production company, having refinery activities in United States, Norway, Equatorial Guinea, Canada, and Angola. Besides, Marathon carry out other business too, like transporting its own and third-party gas, oil and other oil products. They transports throughout Europe, United States, and West Africa products manufactured from liquefied natural gas and methanol. Marathon’s Product Process Marathon is an international energy company dealing exploration and production of oil and gas products, refining, marketing and transportation. Key production investment continues in Equatorial Guinea, and invests in production growth and development projects in Russia and Ireland. The product process of Marathon is a long and compact series of activity starting from the mining and exploration to the synthetic crude oil production (Marathon facts, 2011). The product process starts form the base plant supplying with oil sands ore, working at full capacity adding 100 gross mbpd. Land position of the firm allows for further expansion and exploitation of opportunities, providing the product process with a secure production stream for decades to come. Environmental care is an integral part of the product process. It is integrated with the project’s design, actioned during operation and carried out through land reclamation (Marathon facts, 2011). There are various phases in the product process of Marathon Oil Company. There are chances for development of efficiency in the land reclamation as progressive land reclamation reduces the impacts on wildlife and plants and also diminishes the visual impacts and limits dust spread. Land reclamation is carried out returning an equivalent capability and using the most modern technology and innovative environmental strategies. The Product process is continued thereon by filling in with sand and covered with top solid obtained from the stripping process. The latest projects puts Marathon and its partners in leading edge technology for commercial scale carbon capture and sequestration (CCS) projects. Retail Price of Gasoline vs. World Demand for Crude Oil Looking at the gasoline prices, the prices seem to rise so swiftly but fall very slowly. As Townsend (May, 7, 2010) points out, when the Crude Oil is priced for $46 per barrel, it may not make it to the car fuel and gasoline for so long; and as turning back into May 2008, we find that the crude oil contango was pulled into the high $30s. That was the main reason for the dropping of the gas price by more than a few cents in July. Besides, the phenomenon of fluctuating gas prices, rising quickly and falling gradually is caused by the competitions in the marketplace. As crude oil prices increase, all gas stations throughout the nation are in need of increasing their selling prices accordingly. They are left with no other choice unless they are willing to lose some money on each sale. They make only a relatively small mark up in the fuel they sell as they all have to pay the same price for the refined oil, and so they have to pass along with the increase. In the same way, as the oil prices come down, what forces the gasoline prices to decrease is the same competition. A few gas stations cut down their prices by a few cents and drags more consumers, and it in turn forces others too in curbing down the price of gas, and thus the price gradually climbs down to their earlier state. The retailers are able to make a greater profit for a few days, until the competition force them to down their prices to the original margin. The gas stations gain profit mainly on the quick convenience store, and maintains the price at the affordable low levels to drag in customers. Decrease in Crude Oil Production The Marathon can form efficient strategies to keep the price without losing the marginal profit. And the most suitable one is to order the materials in bulk quantities. They would be able to maintain the same price without losing profits even if the global crude oil production decreased by 10%. They cannot price their products competitively if they are going to buy from an expensive buyer at lesser quantities. While ordering the bulk quantities, they must make sure not to over buy, because too much money stored in terms of materials will affect the easy cash flow. Another strategy that can be adopted by Marathon is to gain the advantage of discount on the bulk order of cooperative purchase. They can join hands together with many other oil and gas companies who are doing the similar business. In this way, Marathon can achieve a better price than what they would acquire if they would buy alone. Apart from purchasing, the transportation cost of oil, gas and other products must be reviewed. These costs must be cut down wherever possible to increase the profitability of the firm. A widely used strategy which can be applied to the Marathon is the process of reducing the labor time, ‘work smarter, not harder’. A detailed analysis of the time records would show which would be the process that needs reducing its working time. By making simple changes in the workspace of the firm by efficiently altering the layout of the section, the Marathon can maintain a larger profit ratio through more saving in time. The human resource efficiency of the Marathon Company must be increased. It is an important factor to evaluate that how talented the employees are. The firm would be required to hire personnel at a cheaper hourly rate. The management should find out people who are capable of doing jobs for $25 per hour; now jobs are done by employees for $50 per hour. However, while hiring an employ, it is to be taken in to consideration that, if a person works out of the company, the firm is required to bear additional costs such as taxes and insurances. It is advisable for the firm to work with an independent contractor who is able to work within the firm and facility. Finally, Marathon should take additional care to diminish the overall expenditure of the firm. Every possible option shall not be spared to trim the costs and figures. Some of the areas that are to be kept under review include, where the corporate office of the firm must be situated, is it possible to share the same building with other business undertakings, can the employees be allowed to work from home, etc. By analyzing these factors, the firm should make sure the possible ways for trimming down the excess spending. Moratorium on Deep Water Drilling The Obama’s Moratorium on the deepwater drilling was intended to resist the excess exploratory drilling in the region. This highly sophisticated and unwarranted moratorium would impose higher economic costs on an already troubled region. Though this imposition was intended for the negligent spill of small number of rigs, this decision is going to affect the oil and gas industry and the whole economy. The moratorium does not include the already running rigs, but freezes the exploratory drilling of thirty-three rigs and hangs the permission for new ones till the investigations are carried out. The continued moratorium would create huge impacts on the retail gas prices in the United States. Looking at the figures, we find the average price for a gallon of unleaded gasoline is high up at $3.86 on April 25, which is more than $1 per gallon higher than during the last year and is just nearing the record high set in 2008. In fact, the prices for a gallon have doubled comparing to the price when Obama took the chair in January 2009 (Seymour, 2011). The rig industry has openly said that the administration has misrepresented the scientific panel studies and has imposed executive order on the offshore drilling. The process for the permission of drilling works has been influenced with sclerosis, they say. The price for gasoline has already reached at the foot of $4 for a gallon. This is not yet the summer and we are going to face the crisis of high gasoline prices boosted by the increased demand and diminished supply for the product. If the moratorium is extended, people will have to pay $6 for a gallon of gasoline. And the United States will have to depend on foreign oil more than ever before. There are huge disagreements and protests against the declaration of moratorium, as it will boost the gasoline price soon. The prices seem to reach at an all time high record of $8 per gallon, equal to the rates in Europe. References Marathon facts: Oil sands mining. (2011). Marathon. Retrieved from http://www.marathon.com/content/documents/fact_sheets/fact_sheet_osm_May2011.pdf Seymour, J. (2011). Gas prices top $1-a-gallon higher than year ago; Media don’t blame Obama. News Busters. Retrieved from http://newsbusters.org/blogs/julia-seymour/2011/04/25/gas-prices-top-1-gallon-higher-year-ago-media-don-t-blame-obama Townsend, E. (May 7, 2010). The Speculative Peak Cheap Oil Trade – Part I. Retrieved from http://www.eriktownsend.com/etownsend/doc_download/11-the-peak-cheap-oil-trade-part-i.html Read More