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ZZBU5611 Strategic Decision Making
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ZZBU5611 Strategic Decision Making
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Course Code: ZZBU5611
University: University Of New South Wales
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Country: Australia
Question:
The period 2014-2017 saw an unprecedented decline in the number of companies operating within the UK oil and gas sector. Decommissioning activity however is on the increase and presents a growing business opportunity. Paul Wheelhouse, Scottish Government Minister for Business, Innovation and Energy, wrote recently in the December 2017 issue of Energy Voice, “The Scottish Government is seeking to further increase the ability of the supply chain to secure onshore decommissioning contracts, with the Programme for Government committing a further £7.5 million towards establishing an ‘ultradeep water port’ in Scotland.”Assignment TaskYou are a manager in the Decommissioning Services department of an oil and gas company of your choice operating in Scotland and the UKCS. As part of your responsibilities, you have been asked to perform a critical evaluation of decommissioning opportunities into the North Sea region for your company. Frameworks you may wish to consider could include:1. Victor Cheng Business Situation and Profitability Analysis2. Porter’s Five Forces to evaluate competitiveness3. SWOT4. PESTEL
Answer:
Introduction
This report is based on decommissioning opportunities in the North Sea for the company named Britoil which is one of oil and gas companies in Scotland, having their headquarters in Glasgow. The report will perform a critical evaluation of the decommissioning opportunities into the North Sea for Britoil. The North Sea consists of 20 billion barrels of oil reserves which are yet to be recovered and extraction of such oil and natural gas will take more than 20 years (Paul Wheelhouse 2018). Decommission is a major opportunity for the companies in the energy industry where improvements in the supply chain has to be made. There are various companies that are already capitalizing on the decommissioning opportunities in the North Sea. The majority of the assets in the North Sea has reached their field lives and decommissioning is highly required for tapping into the huge reserves of oil still embedded into the North Sea.
PESTLE analysis
The PESTLE analysis is a macro environment analysis tool which will analyse the political, economic, social, technological, environmental and legal environment.
Political
The Scottish government has been proactive is supporting the different organizations in the oil and natural gas industry. They have been assisting in developing expertise and skills which is the reason that they have acquired majority of the contracts for decommissioning activities. The government has been also providing funds for new decommissioning activities so that Scotland becomes the hub of decommissioning (Paul Wheelhouse 2018). The decommissioning has attracted all the major companies to invest in decommissioning. Politically the country is still stable but BREXIT may lead to instability. Therefore, Britoil has the opportunity of capitalizing on new opportunities in the market due to the enhancement in support from the government.
Economic
The BREXIT vote has affected the economy as there has been depreciation of the currency and inflationary pressure has increased significantly due to the increase in the cost of raw materials, energy, transport and packaging. However, the government have been proactive in taking measures to support the companies so that they can maintain their sustainability in the market and boost the overall economy (Keating 2017). However, currently the economy is stable till the BREXIT actually happens and the companies in the oil and natural gas industry should focus on decommissioning opportunities provided by the government in order to keep up with the rival companies in the market. The oil and natural gas industry is one of the largest contributor to GDP and jobs to the population of which most are well paid. This is an effective method of dealing with the impact of BREXIT.
Social
The majority of the population in the country age above the age group of 40 and after the announcement of BREXIT the annual disposable income of the population have decreased significantly (Walsh et al. 2017). However. A large portion of the population still enjoy high disposable income and decommissioning of the infrastructure will result in the catering to a huge market segment that require energy resources on a daily basis.
Technological
Scotland has already been technologically superior and the decommissioning projects and opportunities have started new innovative and technologically advanced projects to extract oil in the North Sea. The government has encouraged new innovative and feasible projects so that the companies in the United Kingdom can compare with the global industry giants. This is the reason that they are funding and encouraging companies to set up innovative projects such as the establishing a floating infrastructure made of dry rock solution and developing a permanent crane at the quayside into the North Sea (Paul Wheelhouse 2018).
Legal
The man purpose of the government is enhancing the recovery of the resources in a cost effective way. The government has updated the different regulations and licensing after the year of 2014 which consist of regulations including processes such as licensing of oil and gas, exploration of oil and gas, production of oil and gas and carbon storage licensing (Billing et al. 2017). The government had developed regulations to facilitate the growth of the industry after the fall in the prices of the oil and gas products. Moreover, as BREXIT will result in increase in overall cost of production, export and import, the government has taken precautionary measures.
Environmental
The government has been strict about the environmental laws in the country and United Kingdom has additional laws in respect to carbon emission and industry benchmarks for oil extraction and production (Cotton 2017). The effect of oil and natural gas extraction has a major impact due to the high risk of accidents and hazardous events which may occur due to negligence and lack of safety measures.
Porter’s five forces
Porter’s five forces is used to analyse the micro environment of any organization which consists of factors such as bargaining power of the buyer, bargaining power of the supplier, threat of substitution, competitive rivalry and threat of new entry.
Competitive rivalry
The competitive rivalry in the industry is very intense especially in the upward stream consisting of industry giants, private organizations and shale companies. Moreover, with the vote of BREXIT the majority of the organization are facing challenges due to the increase in cost and they are relatively unable to compete with the industry giants due to the increase in the export and import costs (Dean 2018). Therefore, competitive rivalry is high in the industry and Britoil can compete with their rivals by decommissioning strategy.
Threat of New entrant
The threat of new entrant in the market is low due to the huge investments that are required in the industry. The national oil companies have the control over the majority of the reserves and use of innovative research and development strategy has made it almost impossible for the new entrants to survive in the market (Robinson and Morgan 2016).
Threat of Substitution
The threat of substitution in the industry is still low even though are large number of substitutes available in the industry. The alternative sources to oil and gas are nuclear energy, hydrogen, coal, biofuels and renewable sources of energy (Dean 2018). Even though these sources of energy can replace a considerable amount of oil and natural gas products but it requires considerable amount of research and development to produce energy in bulk to meet the rising demand of energy sources.
Bargaining power of the buyers
The major buyers of natural gas and oil are distribution companies, international oil and gas companies, traders, refineries, national oil companies and different countries. The nature of the industry has made the bargaining power of the buyers to be relatively small. The oil and natural gas are categorized based on their prices and quality (Robinson and Morgan 2016). The buyers are unable to affect the prices of oil as it is a necessity and they will have to make a purchase even though there has been increase in price. The bargaining power of the byers in the industry is low and they are highly dependent on the suppliers.
Bargaining power of the suppliers
The ability of the oil and natural gas suppliers to affect the prices are high due to their high level of involvement in all the segments of oil and gas extraction and production. Therefore, the big companies in the market experience a greater power in dictating prices in the industry (Rouse et al. 2017). Britoil can become one of those dictators if they are able to successfully decommission into the North Sea and extract the available resources.
SWOT analysis
SWOT analysis is conducted to identify the internal strengths, weaknesses, opportunities and threats of any organization. This are specific to each of the organization and will vary depending upon their individual capabilities.
Strengths
Weaknesses
· Support from the government
· Availability of funding
· Strong infrastructure
· Strong engineering knowledge and supply capacity
· Strong asset knowledge
· High HSE standards and experience
· Technological superiority
· Lack of continuity in work
· The late life processes are unclear
· Lack of planning in addressing the decommissioning
· Non-integrated approach
Opportunities
Threats
· Planning an end to end decommissioning project
· Developing standardize approach to planning and operations
· Large competition from the rival companies
· The duration of these project is high and requires high investment.
(Source: Britoil.com.sg 2018)
Conclusion
The environment analysis and the swot analysis of the report shows that Britoil has the opportunity to implement decommissioning. The government has been proactive in allocating funds to the companies in order to encourage them to decommission the existing infrastructure. However, there are large number of companies in the market that will be competing to take an advantageous position. Britoil has good resources and infrastructure to adopt to these change in the market. Moreover, the research and development of the organization has led to development of highly innovative supply chain processes. Therefore, it is expected that Britoil can capitalize on this situation and gain competitive advantage in the market. Thus, the conclusion that can be drawn from the study that Britoil will have to have more systematic and integrated in planning the decommissioning process. Even though the organization will be facing immense competition from the rival companies, Britoil can gain competitive advantage through their innovative and superior supply chain processes.
References
Billing, S.L., Tett, P., Brennan, R. and Miller, R.G., 2017. Societal, Policy and Academic ‘Visions’ for the Future of the Marine Environment and Its Management, Exemplified in the Western and Northern Isles of Scotland. Humanities, 6(4), p.81.
Britoil.com.sg 2018. Britoil Offshore Services Pte Ltd. [online] Britoil.com.sg. Available at: https://britoil.com.sg/ [Accessed 2 Jul. 2018].
Cotton, M., 2017. Fair fracking? Ethics and environmental justice in United Kingdom shale gas policy and planning. Local Environment, 22(2), pp.185-202.
Dean, G., 2018. The Scottish oil-shale industry from the viewpoint of the modern-day shale-gas industry. Geological Society, London, Special Publications, 465, pp.SP465-13.
Keating, M. ed., 2017. Wealthier, Fairer Scotland: The Political Economy of Constitutional Change. Edinburgh University Press.
Paul Wheelhouse, I. 2018. Opinion: Scotland must ‘capitalise on decommissioning market’ – News for the Oil and Gas Sector. [online] Energy Voice. Available at: https://www.energyvoice.com/opinion/157664/opinion-scotland-must-capitalise-decommissioning-market/ [Accessed 2 Jul. 2018].
Robinson, C. and Morgan, J., 2016. North Sea Oil in the Future: economic analysis and government policy. Springer.
Rouse, S., Kafas, A., Catarino, R., Peter, H. and Handling editor: Steven Degraer, 2017. Commercial fisheries interactions with oil and gas pipelines in the North Sea: considerations for decommissioning. ICES Journal of Marine Science, 75(1), pp.279-286.
Walsh, D., McCartney, G., Collins, C., Taulbut, M. and Batty, G.D., 2017. History, politics and vulnerability: explaining excess mortality in Scotland and Glasgow. Public health, 151, pp.1-12
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