Strategic Management Oil and Gas Assignment

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StrategicManagement Oil and Gas Assignment

TABLEOF CONTENT

INTRODUCTION……………………………………………………………….3

COMPANYINFORMATION…………………………………………………..3

FINDINGSAND ANALYSIS…………………………………………………..4

SeekingMergers and Partnerships………………………………………………..4

Payfor Performance………………………………………………………………5

TheUse of Modern and Advanced Technologies…………………………………6

EmployeeDevelopment…………………………………………………………..7

Market-DrivenStrategy…………………………………………………………..7

ProductStrategy………………………………………………………………….8

OrganizationStructure Strategy………………………………………………….8

Capitalizingon the Business Environment……………………………………….9

Outsourcing………………………………………………………………………9

Promotion………………………………………………………………………..10

CONCLUSION…………………………………………………………………10

REFERENCELIST……………………………………………………………..12

APPENDIX……………………………………………………………………..14

Theoil and gas industry is faced with a lot of challenges a major onebeing the low pricing. Prices of oil and gas have been fluctuatingfrom time to time all over the entire globe. Low prices have madecompanies in the industry to experience low profits since companiesespecially the small ones, have not been capable to sail well throughthe low prices (Bret-Rouzaut &amp Babusiaux, 2011 pp. 106). However,some companies in the industry have been capable of makingsignificant profits even during the unpleasant moment of low pricesof gas and oil. This has been achieved through the adoption ofstrategies that ensure growth and profitability even when the pricesin the industry are low. In 2014, the prices of oil and gas remainedlow making some companies in the industry experience lowprofitability and growth. For example, LGO Energy was one of thecompanies in the sector that experienced low profits that were below£100 million of revenues since its annual revenues during the yearwere recorded as £9 million (see appendix 1). In this report, LGOEnergy will be discussed and the strategic options available for thecompany’s growth and increase in revenues will be criticallyanalyzed.

CompanyInformation

LGOEnergy is a gas and oil organization that provides explorationservices. The activities of the organization entail exploration,development as well as production of gas and oil properties. Theorganization identifies and acquires projects that are in the oil andgas segment. Also, the company identifies and acquires theunderexploited projects and oversees the implementation of oilfieldtechnologies for exploitation. LGO Energy has exploration regions inTrinidad, Spain, and US Gulf of Mexico. Furthermore, the company hasan investment in the production of hydrocarbons and has itsheadquarters in London, UK.

Findingsand Analysis

Theperformance of the company in 2014 was not badly off given thefalling prices of oil and gas. During the year, sales for the companyincreased by approximately 55% from the previous year, but thecompany ended up making an operating loss as well as a pre-tax loss(see appendix 1). Although the company applies modern technologies inits activities, it does not apply modern technologies that can helpin forecasting plateau periods in its production in Goudron field.This is an indication that the company is not sure of its realproduction potential in the Goudron field. Also, the performance ofthe company in 2014 can be attributed to an increase in the company’sadministrative expenses during the year.

Fromthe financial information of the company, it is evident that thecompany is experiencing a downward performance. However, LGO Energycan adopt different strategies in spite of the falling prices thatcan help the organization to experience an increase in revenues aswell as growth. The following paragraphs will discuss variousstrategies that the organization can use in making the companyexperience growth as well as an increase in revenues.

SeekingMergers and Partnerships

Mergersand partnerships are exceedingly critical in mitigating the costsincurred in the operations of a business (Gaughan, 2011 pp.74). Inthe oil and gas sector, companies involved in the exploration anddrilling of oil go through extraneous costs that can be avoidedthrough mergers or partnerships. LGO Energy may seek a merger or apartnership in the drilling of oil because the cost of drilling oilis extremely high and the extra cost used in drilling adds to theoperating costs of the company. One advantage that LGO Energy willhave by considering a merger or a partnership in the drilling of oilis reduced expenses in drilling, which would increase the earnings ofthe company. A merger or a partnership in the drilling of oil willensure that drilling costs are shared between the company and theother company a move that would reduce the operating costs. When theoperating costs are minimized, it is likely that the earnings of thecompany will be increased since a reduction in the operating costshas an impact of increasing the earnings. Therefore, seeking of amerger or partner in drilling would have an impact of bringing growthto the company since the earnings of the company realized through thesaved costs would realize this impact.

Payfor Performance

Asindicated above, the income statement for the company indicates thatthere was an increase in the administration costs during the year2014. Administration costs comprise of benefits that are provided tothose in the administration positions thus, an increase in theadministration costs for the company could be contributed to highbenefits offered to individuals in the administration position asmotivational benefits. In order to ensure growth, the company shouldensure that it uses a strategy that would be capable of reducing thehigh administration costs. Thus, instead of the company incorporatingbenefits in the administration costs, it should focus on introducingpay for performance strategy. In this case, the company would pay theadministrators based on their performance. The company should onlypay for a certain performance that has been achieved by anadministrator. Through adopting the pay for performance strategy, thecompany would have several benefits. One such benefit that wouldemanate from this strategy is that the company would only be requiredto pay a certain agreed performance cost in case an administratoraccomplishes a stipulated achievement (Chingos, 2002 pp. 66). In casean administrator does not attain an agreed accomplishment, it impliesthat he/she would forfeit the benefit. In the latter situation, thecompany would save the benefits that were earlier received withoutattaining an agreed performance. Also, as a result of pay forperformance strategy, administrators would be highly encouraged to doexceedingly well above their normal performance. This would have animpact of increasing the revenues of the company as well as drivingthe company to new growth heights.

TheUse of Modern and Advanced Technologies

Technologiescan be deemed to be very significant aspects in realizing growth andenhanced productivity. Generally, advanced technologies have animpact of making a complex idea or conception become easier. LGOEnergy Company, due to lack of using advanced technology, does notcurrently have an idea of the potential that it has in Goudron field.Knowing the plateau periods in the company’s production is ofimmense importance because it can help the company decide the amountof investments it needs to put in the field. Thus, the company shouldconsider using modern and advanced technologies that would help inforecasting plateau periods in its production in Goudron field.Besides, it should also focus on applying modern technologies incarrying out all its operations. This would be a critical aspect asthe company would ensure efficiency in the delivery of its processesand activities. Efficiency would mean that the inputs of the companywould be utilized in a manner that would yield maximum benefits.Hence, emanating from the use of modern and advanced technologies inits processes, LGO Energy would have increased revenues and anexcellent opportunity for growth.

EmployeeDevelopment

Employeedevelopment is of immense importance to an organization because ithelps employees to have the required competencies in carrying outspecific roles that the employees are assigned to by an organization.Also, employee development is important to an organization because ithelps in motivating employees (Sheckley et al., 2001 pp.116). As aresult of providing employees with the required competencies andmotivation to work for an organization, employees become moreproductive since they are capable of carrying out their roles withefficiency. This ensures that a company increases revenues andprovides an opportunity for growth. Therefore, LGO Energy mayconsider employee development as a strategy for increasing itsrevenues and realizing growth.

Market-DrivenStrategy

Amarket-driven strategy is whereby an organization concentrates oncertain markets for the products that it produces or sells (Day, 1999pp. 96). In this case, the market may be considered in simple termsas a given area, or it may be considered in broader terms to implyselected number of countries or a particular economic region. Inorder to ensure that a company realizes growth as well as increase inrevenues, the company must ensure that it selects the markets that ithas more confidence that it can sell more this may emanate from themarket trends which indicate the use of the products that the companyis selling and the sales revenue obtained from selling the productsin the market. Therefore, in order to increase its revenues andrealize growth in its business, LGO Energy may focus on certainmarkets where the trends indicate higher consumption of thecommodities that it deals with. This may help the organization inobtaining higher revenues.

ProductStrategy

Thechoice of product that a company handles and their trend in theglobal market is an exceedingly critical aspect to an organization.The products that a company sells or produces determine the revenuesthat a company will obtain (Pils, 2009 pp. 64). In the industry thatLGO Energy is operating, there are several firms selling andproducing the same commodities. This is an indication that thesector, where LGO Energy operates, is filled with rival companiesthus, there is a lot of competition producing and selling the samecommodity. The market for the commodity is not attractive since it isfaced with falling oil and gas prices, which may further result inthe company yielding low revenues. However, in order to increase therevenues of the company, it is important for the company to considerdealing with other products that may be a source of revenue for theorganization. In case the company diversifies in the products that itprovides in the markets, it will be in a position to earn revenues incase one of its products does not yield sufficient revenues due toinfluences of price (Pils, 2009 pp. 74). In its product strategy, theorganization has to put into consideration complementary andsubstitute commodities.

OrganizationStructure Strategy

Anorganization structure of a company indicates the different levels ofan organization and the manner in which duties are coordinated withinan organization. The organization structure of an organization maylead to inefficiencies, which can in turn result in an increase incompany expenditures thus making a company realize low earnings.Also, as a result of inefficiencies caused by an organizationstructure, an organization may have problems in collecting revenuesthat reflect the resources it has used in producing the revenues. Incase the organization realizes that the organization structure it iscurrently using is leading to inefficiencies that are affecting therealization of growth in the company, as well as the collection ofsufficient revenues, then the organization should considerre-organizing its organization structure. In re-organizing theorganization structure, the company should consider having smallerunits that would facilitate easy coordination of tasks andmanagement. This would be critical to the organization since it wouldincrease efficiencies in carrying out of different activities,leading to increased collection of revenues.

Capitalizingon the Business Environment

Thecurrent environment is not favorable for businesses operating in oiland gas sector because the price for the products is facing adownward trend. Since the environment is not favorable for firmsoperating in the sector, the industry as a whole is also notattractive. This implies that the cost base for the industry has alsodecreased. Thus, exploration of new ventures in the industry islikely to cost less in the present time due to decreasing oil and gasprices (Glynn, 2008 pp. 27). The organization may consider takingadvantage of the current situation and use capital in exploring newventures in the industry. As the organization capitalizes on newventures in the industry, it will be increasing its tangible assets,which will offer an opportunity for enhanced revenues in the futureand future growth (Glynn, 2008 pp. 38).

Outsourcing

Outsourcingis a beneficial strategy to an organization because it helps insaving costs that could have otherwise used inappropriately (Greaver,1999 pp. 53). From the financial statements of the company, it isapparent that the company has an increase in its expenditures. Theexpenditures that the company experience are a major contributor todelayed growth in the company since the earnings of the company areaffected by the high expenses. Therefore, in an attempt to enhancegrowth of the organization, the company should outsource servicesthat seem costly for the organization to handle but can be handled byanother organization at a lower cost. This would help theorganization cut down some costs a move that would boost theearnings of the organization and promote the organization’s growth.

Promotion

Promotionis considered as an important element in driving revenues a companythat has an excellent promotion strategy is likely to have higherrevenues compared to a company that has a poor promotion strategy(Ferrell &amp Hartline, 2014 pp. 90). A company must thereforeensure that it has an excellent promotion strategy that would resultin high revenues. Since promotion is associated with high revenues,LGO Energy Company should consider carrying out promotion in order togrow its revenues as well as experience growth. However, the choiceof promotion strategy that the organization makes would determine therevenues that the company would realize. Hence, the organization mustbe in a position to select an effective promotion strategy. Forinstance, the use of integrated promotion strategy may yield nobleresults.

Conclusion

Priceplays a critical role in influencing the revenues of an organization.Companies are likely to experience poor performance in instances,where the prices of the products that it deals with, have a decliningtrend for instance, the performance of companies operating in theoil and gas sector. Nevertheless, a company may come up withstrategies that it may use to ensure that it enhances its revenuesand growth, despite decreasing prices. Such strategies includepromotion promotion is considered as an important element in drivingrevenues a company that has an excellent promotion strategy islikely to have higher revenues compared to a company that has a poorpromotion strategy, restructuring of organization structure thishelps in increasing efficiency, use of modern and advancedtechnology, which influences productivity, outsourcing this isbelieved to have an impact of cutting down expenses and enhancing acompany’s earnings, market-driven strategy a market-drivenstrategy is whereby an organization concentrates on certain marketsfor the products that it produces or sells, product strategy acompany should consider diversifying its products for an increase inrevenues, seeking mergers and partnerships mergers and partnershipsare exceedingly critical in mitigating the costs incurred in theoperations of a business, and employee development employeedevelopment helps in increasing productivity of an organizationthrough motivating employees and increasing efficiency. Thisincreases an opportunity for an organization to realize more revenuesas well as the enhancement of an organization’s growth. Thesestrategies may be used by LGO Energy in ensuring that it increasesits revenues and creates an opportunity for growth.

Listof References

Bret-Rouzaut,N., &amp Babusiaux, D. (2011). Oiland gas exploration and production: Reserves, costs, contracts,Paris, Editions Technip.

Chingos,P. T. (2002). Payingfor Performance: A Guide to Compensation Management,New York, John Wiley &amp Sons.

Day,G. S. (1999). Marketdriven strategy: Processes for creating value,New York, Free Press.

Ferrell,O. C., &amp Hartline, M. D. (2014). Marketingstrategy.Mason, Ohio, South-Western Cengage Learning.

Gaughan,P. A. (2011). Mergers,acquisitions, and corporate restructurings,Hoboken, N.J, Wiley.

Glynn,J. J. (2008). Accountingfor managers,London, Cengage Learning.

Greaver,M. F. (1999). Strategicoutsourcing: A structured approach to outsourcing decisions andinitiatives,New York, AMACOM.

LGOEnergy PLC. Retrieved from https://uk.finance.yahoo.com/q?s=LGO.L

LGOEnergy, Company Profile. Retrieved fromhttp://www.proactiveinvestors.com/LON:LGO/LGO-Energy/

Pils,F. (2009). Diversification,relatedness, and performance,Wiesbaden, Gabler.

Sheckley,B. G., Keeton, M. T., &amp Council for Adult and ExperientialLearning (U.S.). (2001). Improvingemployee development: Perspectives from research and practice,Bloomington, IN, 1stBooks.

APPENDIX

Appendix1 Income Statement of LGO