Global Oil & Gas Industry Case Study Solution

Global Oil & Gas Industry Case Study Solution

GROUP No. 7

Group Members and Roll No.s :

Bhimesh Lavvanshi (15)

Sudeep Eric Lakra (62)

Shreya Sumeet (57)

Saurabh Scott (80)

Sakshi Kuntal (91)

Vaibhav Agnihotri (67)

Answer 1.

The characteristics of oil & gas industry are as follows :

1. It is difficult to determine the Oil & Gas reserves , which means that the true reserves are a combination of price , politics and technology.
2. The new emerging technology helps in exploring new resources of Oil & Gas .
3. Price is always the most important key factor, as the price of Oil & Gas rises the resources which were earlier considered as non-economic to explore become feasible and profitable and when the prices fall sometimes the opposite occurs.
4. The Oil & Gas industry works on the principle of demand & supply.
5. Resource owners have sought more control over access.
6. The oil and gas is cyclical with prices moving up and down and it lasts for years.
7. The Oil & Gas industry is highly profitable industry by paying maximum taxes and revenues for governments.
8. The value chain of Oil & Gas industry is the most diversified industry as it consist of exploration and production, refining, marketing and retail.

Answer 2.

The organization’s relative position in the global oil and gas industry determines whether the organization’s profitability is better or not in the industry. The key figure for any organization in which the profitability is above the average of the industry in the long run is sustainable competitive advantage for that organization. There can be two types of competitive advantages these organizations can come across with. These are: 1). Low Cost or 2). Differentiation. The another factor that influence the competitive advantage is the Focus of the organization towards achieving it.

The different types of competitive advantages implied by the organizations in the Global Oil and gas industry are:

• Cost Leadership- This includes the value chain of the organization. If the expenditure is high in cost for the exploration and production in the upstream and the organization makes good margin in downstream. For eg: RIL- Reliance is making good margin in refining sector by the refining heavy crude mix.  
• Innovation and Technology- This has improved the capability and ease for the organization in both upstream and downstream industries. 3-D seismic data has reduced the risk for both in vertical and horizontal drillings. In the oilfields, the wireless technologies help in faster and cheaper communication. Nanotechnology in refineries have improved the catalysts to accelerate reactions.
• Mergers and Acquisitions- these have been a very strong aspect in oil and gas industry from the beginning. The organizations are merging and acquiring to gain access to the resources and trying to grow together for wealth maximization and profits.
• Retailing-In downstream the Organizations have stated making their consumers loyal by providing them good services in outlets. The new idea for opening supermarkets and hypermarkets in the RO’s have attracted new customers for better business.

Unconventional oil and gas-This will play a very important role in next few decades. The innovation of new technologies are making it easier for the organizations to extract more oil for more profit.

Answer 3.

Competitive dynamics is a term used to describe the firm’s ability to gain resources that will enable it to perform at a higher level compared to its competitors. In Today’s world , Dynamic capabilities is being used to capture  opportunities and mitigate risk in oil and gas exploration and production. Basis for competitive advantage

• 1.Economies of scale
• 2. Product differentiation
• 3. Capital requirement
• 4. Access to distribution channels
• 5. Government policy

Factors impacting dynamics of Oil and gas industry are:

• 1. Stableness of Oil and gas export governments-  Unstableness will lead to crude price fluctuation.
• Size of Oil and Gas company- The bigger it is, the more competitive it would be and it also includes vertical integration

A firm with  a competitive advantage has added value and therefore the potential for profit.Porter’s model attempts to assess potential levels of profitability, opportunity and risk based on five key factors within an industry.

• Suppliers
• Buyers
• Entry/Exit Barriers
• Substitutes
• Rivalry

Competitive advantage is the essence of firm performance in competitive markets. Petroleum exploration  is more cooperative than competitive as exploration outcomes can benefit others.So atlast we can summarize factors that majorly effect the competitive dynamics of oil and gas industry as

• Price of Oil and Gas
• Product Innovation
• Location of Oil and Gas
• Promotion
• Marketing Strategy
• Quality Products

Competitive advantage can be achieved by:

Differentiation strategy

low-cost strategy.

Answer 4.

Vertical integration is a common practice in oil and gas industry wherein two or more processes of production operated by different firms is combined in a single firm. It can also be called an amalgamation of multiple processes which otherwise would have been handled by different entities.

The reason for most head honchos to follow the vertical integration model are as following:

1. Desire to get larger – The most important desire in any business is to be the behemoth organization that everyone looks upto. It is this ideology that every company wants to have integration among all processes and become so big that it is intimidating for the other players.
2. Process independence – Without integration firm A will have to be dependent on firm B for a product that firm B will produce and give them, so that they can move ahead in their business cycle. Eliminating this dependence on other companies and be at their mercy for price fluctuation is an ambition of every oil and gas company.
3. Sheep in the herd – One of the (not so major but substantial) reason to have integration is to do what others are doing so the company can be head to head with the competition. This also ensures that all profits and market shares are not swallowed by only one company that has adopted the model since others nudge in with the same changes and implementation.

Fear of extinction – A very strong factor to be considered and also mentioned in the case is the probable scenario of extinction if the company sticks to only one chain of process, like only extraction or only refining. This is in sync with the fact that don’t put all eggs in a basket to minimize risk. Thus, having integration ensures that losses or disruption in one particular process can be abated by other ongoing activities.