Wednesday, May 6, 2020
Strategic Management of Oil and Gas Click Now To Get Solution
Question: Choose one oil field service provider and report on its position in the sector. The report should cover the period from the beginning of 2014 to the present day. The report should analyse the current state of the chosen oil field service provider, and then consider the strategic options available to that provider. The report should include the use of appropriate academic model(s) when considering the strategic options available to the chosen firm. Answer: Introduction In the early 21st century, petroleum and crude oil sector has become one of the dynamic factors, which may influence the performance as well as productivity level of a nation in terms of economic aspects. In this context, large numbers of UK based organizations such as Schlumberger, Transocean, Halliburton and Weatherford establish their business in the oilfield service looking at the scope in the global market (Lukoil 2013). Halliburton is one such company that develop their business throughout the world to provide the best of oil field service to the oil and gas manufacturer. Halliburton started their business in the year 1919 and since then they have become one of the trusted service provider in this field. Halliburton is operating their business in more than 70 countries with more than 65000 employees throughout the globe. The net operating income of the organization is 3.50 billion dollar with a total asset of 32.24 billion dollar (About Us - Halliburton - Halliburton 2016). The company is operating their business from dual headquarter based in Dubai and Houston. Halliburton has another business of construction but majority of the contribution is from the oilfield service. It is the second largest oilfield service company in the world with a mission to provide the best and trusted service to their clients that increase their competitive advantage in terms of productivity (Chen et al. 2012). The company is specialized in the segment of upstream oil and natural gas, locating hydrocarbons and managing geological data, drilling and formation evaluation, well construction and completion and optimizing production throughout the life of the field. Strategic management According to Bezrukova and Petrov (2015), Strategic management is the process of administering a company or business such that it continuously formulates, adjusts and implements strategies for the development of the business in a continuous basis. On the other hand Flotemersch et al. (2015), has defined the strategic management as the part of the business that deals with the critical analysis of the associated factors of the business that may be external and internal and aimed to increase the competitive advantage in the market. Strategic management is the subject that deals with the companys strength and weakness to understand the best option for the organization. The strategic management of Halliburton is also associated with the risk factor of the business. These risk factors may include the market competition, competitors product superiority, technology advancement of other companies, market reputation that contribute to the overall productivity of the organization. Halliburton is one such company that is very strong with their strategic management and provides the best possible option to survive in the market. Strategic approaches of Halliburton Halliburton adopts four strategic approaches such as merger and acquisition, joint venture, diversification and technology to enhance their business capabilities. The strategic approaches are defined as follows: Merger and Acquisition: In the year 2014, Halliburton as well as Baker Hughes jointly merged with each other. Halliburton acquires with the Baker Hughes to combine their product as well as service capabilities in order to deliver greater solutions to the customers. Due to the merger of the two companies, they provide with wide range of services for drilling, completion as well as oil and gas wells (Petroleum and crude oil Industry of UK 2015). The merger helps Halliburton to provide with services to the oil drillers such as drill bits to make the oil extraction process more profitable. Therefore, with the purchase of the company Baker Hughes, the Halliburton gains the companys coveted oil tools business as well as technology to boost the production from older wells. Even the merger of Halliburton and Baker Hughes are controlling over the share more than 90 percent that consists of offshore drilling fluids as well as safety valves offshore cementing. Lastly, the merger benefits the tr ansaction, which provides the customers with high access of products and reduces the cost per barrel of oil equivalent. Diversification: Halliburton increases their international diversification by announcing a partnership with a Russinal major Gazprom Neft in order to roll out their technology. Halliburton has consisted of diversified business; it means that the company consists of lower degree of geopolitical risks (Young 2014). The diversification helps to reduce the risk of failure of business processes in any one country. Joint Venture: Halliburton announces to establish a joint venture with SPT Energy Group to focus on hydraulic fracturing as well as enhance their production in China. Due to the joint venture, Halliburton provide stimulation services such as design and analysis, acquisition of data, chemical services as well as pumping (Halliburton 2016). Apart from this, it extends the international growth opportunity when reducing the risk to the shareholders. Technological used: Halliburton uses the technology such as hydraulic fracturing which is one of the right choices to make profitable their business operations. This drilling process is used in the oil and gas company. The goal of this technology is to make a network of consistent fractures, which provide for the movement of the oil as well as natural gas towards the well bore. Application of strategic management by Halliburton The market of the oilfield service is highly competitive because many big companies are operating their business in this segment. All the companies are able to manage their expertise in a particular segment therefore; most of them do not contradict others business. If we consider Halliburton strategic management in this segment then it is evident that the company has sensed the need of the service diversification. Halliburton is able to enhance their expertise in every segment of the oil and gas production (Valadkhani 2014). Halliburton is able to provide their service in the exploration of the oil and gas is able to provide the support to drill in the deep water, is able to extract oil and gas from the deep sea. All these capabilities are the part of the strategic management application by Halliburton. The company has increased its capability to provide better service to the oil and gas industry in such a way so that no one could match the extent of their service. It helps the organization to increase their competitive advantage in the market by its reputation and vast knowledge in the field of oil and gas exploration due to several acquisitions of other companies in the market. The existence of the company in more than 70 countries is also a competitive advantage because they are present in every major oil producing country (Blanchard and Riggi 2013). The existence of the company gives the massage that they are able to provide their service wherever their partners required. Current market position of Halliburton Halliburton is the second largest oilfield service providers in the world and they are able to provide almost all the service to their client regarding the oil and gas extraction. The company is operating their business in such a way so that they are becoming one of the most important service providers in the field of oil and gas industry (World Energy Council 2015). Most of the big oil companies are depending on Halliburton to extract their oil because the company is providing their service from the very first of oil exploration to transportation of that oil to the customer. The market capitalization of the company is associated with the service of the oil industry. Figure 1: Percentage of market share in the global market (Source: World Energy Council 2015) Critical analysis with different models Critical analysis of the strategic management of Halliburton is done with the help of three different models. All these models are implemented to analyze the best option fir the organization to improve the performance in the global scenario. Potters five force model, Ansoff matrix and value chain analysis is the three model that are used to analysis the strategic management situation of the organization. Porters five force model Figure 2: Porter's five force model analysis of Halliburton (Source: Ozdemir and Akgul 2015) Porters five force model is associated with the analysis of the external and internal environment of the organization. In this case Halliburton is the companies that are associated with the oil and gas companies to provide the best of service to their business. IN this segment lot of companies are operating tier business that are also considered to analyze the situation. Competitive rivalry If we consider the market from the perspective of Halliburton then there are not too many rivalry in the global market however there are many small companies who are providing the specialized service to their client. Halliburton is getting the maximum competition in the drilling segment because lot of companies in the market is able to provide this service. However the company is able to reduce the competition through the acquisition process (Drakos and Konstantinou 2012). Halliburton is able to provide the A to Z service to their client in the oil field segment therefore most of the client is preferring their service where only one or two company is able to provide competition. Schlumberger, Transocean is the other company who are providing good competition in terms of service and innovation. Buyers Power The market of oilfield service is structured in such a way that is mostly dependent on the oil market. In recent time the market of the crude oil is volatile therefore lot of oil producing companies are reducing their production unit as well as investment that is increasing the buyers power in the market (Huang and Chao 2012). Most of the clients are asking for lowest price quotation because of the price volatility of the market. The buyer in the market is reducing their business because of thee introduction of several renewable energy that are contributing to increase the buyers power because the market scope is becoming narrow. Suppliers power Suppliers power is dependent on the number of supplier available in the market. If the number of supplier in the market is high then the power automatically reduces because the competition among them is high. In this market the supplier is huge therefore Halliburton gets all the benefit to bargain with their supplier for the best possible price (International Energy Agency 2014). Most of the supplier in the market is able to provide the same quality that ensures Halliburton to get the best product in the lowest possible price within time. The process of working becomes very easy in this case. Threat of new entrants The service of the oilfield require lot of investment along with lot of experience therefore it is not possible to establish a company in this segment that will provide proper competition in the market. From this perspective it is safe for Halliburton to operate their business in this segment where the threat of new entrant is very less (Moore and Mirzaei 2014). The barriers to the entry level is the cost and economies of scale that is nor affordable without huge investment. Threat of substitute The business of oilfield service is dependent on the technology and it is evident that the company is more productive who is using the latest technology. In this segment there are lots of threats from the competitors because they are also investing lot of money to invent new technology that is a huge threat to the company (Energy Information Administration 2015). If Halliburton is not able to introduce good technology then other companies will take the contract as they will provide better productivity. Ansoff matrix Ansoff matrix is generally associated with the external analysis of the oilfield service. The market of the oilfield service is reducing as the natural resources are becoming rare in the earth. Most of the energy producer is emphasizing on the renewable energy therefore there is a need to analyze the present and the future scope of thee business. The company is operating in a market where there is no scope of market development because the market is already saturated. The companies already have a deep penetration in the market because of their cost leadership and increased productivity. Most of the companies are making profit with the service of Halliburton because they are able to provide the cost leadership to their clients. There is no scope for market penetration and market developments for Halliburton however there are scope in the market to develop new products that may help to increase the productivity of the client. Therefore there is a need of diversification of business in the global market because the scope will be reducing as the resources will become rare. Figure 3: Ansoff matrix analyzing the market position of Halliburton (Source: Shirai 2014) Value chain analysis Figure 4: Value chain analysis (Source: Drakos and Konstantinou 2012, pp- 160) Value chain analysis is mainly associated with the supply chain process of the organization that is also associated with the value creation of the organizations products. Most of the time productivity of the organization is associated with every aspect however the value chain is mainly dependent on the supply chain and the product development part. The value chain analysis is emphasized on the new product development because in this industry there is no scope to develop new market as the market has become saturated (Wang and Chueh 2013). The majority of the company is associated with the invention of new technology that is helping their clients to enhance the productivity of the organization in terms of cost leadership and value addition. Justification of the selected strategy Porter five force models is the best possible option for this industry and Halliburton to analyze the situation of the market. This market is perfectly defined and every aspect of the market is suited to the porters model. According to the discussion the market of the oilfield service is structured very well and they are explained in a manner that identifies every advantages and disadvantages of the market. Since the market is saturated therefore there is very less competitors in the market. According to the five force analysis the power of buyer and supplier is also not very significant that can influence the market. The Threat of new entrants is also low because of the cost of investment however the only problem is the introduction of the substitute product that are associated with the new technology which will threaten the business. Recommendations Analyzing the market situation of the oilfield service it is evident that there are very less organization that can match the service of Halliburton however it is recommended to the organization to emphasis on the cost part. The competitors are providing cheaper service to their client whereas Halliburton is not able to provide the lowest rate in the market. The technology innovation should also be increased by the company because it is the only scope to sustain the market share in the market. Halliburton should emphasize on the research and development to invent new technology so that other companies do not match the quality process. Conclusion From the above discussion it can be concluded that Halliburton is the second largest company in the world in the oilfield service therefore their market share is also high as compared to their competitors. The acquisition strategy of the company helps them to introduce several new products that were not available with them. The company is able to beat other companies in the market because they are providing the best technology in the segment. The several model also help to understand the situation of the organization and they suggest to emphasis on the technical part because it is the only segment where the company can develop to increase the competitive advantage in the market. Reference List Bezrukova, T. and Petrov, P., 2015. DEFINITION OF INTRODUCING FOR STRATEGIC CONTROLLING IN MANAGEMENT SYSTEM OF INDUSTRIAL ENTERPRISES. kon. prom., (2), p.61. Blanchard, O. and Riggi, M. 2013. Why are the 2000s so Different from the 1970s? A structural Interpretation of Changes in the Macroeconomic Effects of Oil Prices.Journal of the European Economic Association, 11(5), pp.1032-1052. Chen, P., Chang, C., Chen, C. and McAleer, M. 2012. Modelling the Effects of Oil Prices on Global Fertilizer Prices and Volatility.Journal of Risk and Financial Management, 5(1), pp.78-114. Drakos, K. and Konstantinou, P. 2012. Investment decisions in manufacturing: assessing the effects of real oil prices and their uncertainty.J. Appl. Econ., 28(1), pp.151-165. Energy Information Administration, 2015. What Drives Crude Oil Prices? Spot Prices [Online] Available at: https://www.eia.gov/finance/markets/spot_prices.cfm [Accessed July 26, 2015]. Flotemersch, J., Leibowitz, S., Hill, R., Stoddard, J., Thoms, M. and Tharme, R., 2015. A Watershed Integrity Definition and Assessment Approach to Support Strategic Management of Watersheds.River Res. Applic., p.n/a-n/a. Huang, W. and Chao, M. 2012. The effects of oil prices on the price indices in Taiwan: International or domestic oil prices matter?Energy Policy, 45, pp.730-738. International Energy Agency, 2014. Energy. The Journal of the International Energy Agency, Vol. 6, Iss. 2, pp. 1-52. Lukoil, 2013. Global Trends in Oil Gas Markets To 2025. Global Trends, pp. 1-64. Moore, T. and Mirzaei, A. 2014. The Impact of the Global Financial Crisis on Industry Growth.The Manchester School, pp. 18-22. Ozdemir, S. and Akgul, I. 2015. Inflationary effects of oil prices and domestic gasoline prices: Markov-switching-VAR analysis.Petroleum and crude oil Science, 12(2), pp.355-365. Petroleum and crude oil Industry of UK, 2015. Activity Survey 2015. Petroleum and crude oil UK (London), pp. 1-56. Shirai, M. 2014. Effects of Quality and Price Appeals on Consumers Internal Reference Prices and Quality Perceptions.ME, 05(08), pp.831-840. Valadkhani, A. 2014. Dynamic effects of rising oil prices on consumer energy prices in Canada and the United States: Evidence from the last half a century.Energy Economics, 45, pp.33-44. Wang, Y. and Chueh, Y. 2013. Dynamic transmission effects between the interest rate, the US dollar, and gold and crude oil prices.Economic Modelling, 30, pp.792-798. World Energy Council 2015. 2015 World Energy Issues Monitor. Energy Price Volatility: The New Normal, pp. 1-103. Young, K. 2014. Losing Abroad but Winning At Home: European Financial Industry Groups in Global Financial Governance since the Crisis.Journal of European Public Policy, Vol. 21, Iss. 3, pp. 367-388.