Oil and Gas Business Management

Question: Explain about the term for Oil and Gas Business Management. Answer: Conoco Inc was an American multinational company that was founded in 1875 as the Continental Oil and transportation Co. Later it got merged with Marland Oil co. In 1899 and renamed it as Continental oil company. Much later in 2002, Conoco has merged with Phillips Petroleum to rename it as ConocoPhillips. The company was initially concentrating on all upstream, midstream and downstream business. But later in 2011, the company intended to separate them. All its upstream and downstream business was made into public traded corporations with the objectives of maximising shareholders value. In 2012, the midstream and downstream chemical and marketing operations were separated into a different company called as Phillips66. As a result of this, presently Conoco Phillips is continuing its operation only as an upstream company and concentrates only on exploration and production. Thus the company solely focuses on exploring, developing and producing oil and natural gas globally. The operations of the company are managed through six operating segments defined according to their geographical areas as, Latin America, Alaska, Europe, Canada, Middle East and Asia Pacific (Conocophillips.com 2016). In recent years oil and gas industry has gone through several global economic turmoil along with increasing competitions and unprecedented swing in prices. The traditional structural of oil industry which was controlled by cartels has now been replaced by systematic imbalances between increasing supply and diminishing demand growth. The cause of the changing scenario is the weaker global economy, tougher regulations for fuels, availability of viable alternative energies and development of efficient engines that reduces the usage of oil and gas. All this together has brought the downfall in the demand of oil (Milliou and Pavlou 2013). In 2014, an estimate was made by U.S. Energy Information Administration that the global supply of petroleum has increased twice the increase of consumption. It has led to fall in price and thus in profit. Hence it called for cutting down of investment by the companies for further exploration and production of oil (Kelland 2014) Conoco Phillips is presently continuing its operation as upstream company that is involved more in exploration and production, finding, developing and producing oil and gas. Due to the changing trends of fall in demand for oil and rising supply, the company should thick of changing its business model from upstream to downstream (Mitchell and Mitchell 2014). In upstream though the profit margin is higher compared to downstream, the diversity of product is more in downstream as it is concerned with marketing, refining and trading. It delivers different petroleum products, crude oil, natural gas and other related products to the customers. As diversity of products is there, the company can reduce its risk of lowing profit. Further as the margin of profit is high in upstream, the margin of loss is also high but in downstream the margin is less so risk of loss is less (Kelland 2014). Hence, the Strategy is Product and Service Development Strategy that indicates the development of new product, such as, in the case, the company adopts the strategy of moving to downstream production from upstream production in long run. It will make the firm earn positive profit due to larger demand for downstream products (Kindermorgan.com 2016) The falling demand of crude oil and rising supply of crude oil in the current situation calls for the change in the business model of the company. The company if in upstream production should look for reduction in cost of production by adopting innovative methods of production (Papavinasam 2013). The upstream growth strategies can be organic and inorganic growth. Organic refers to exploration of natural resources that require huge investment and becomes risky if the prices follow a downward trend. However, inorganic refers to expansion of the production through mergers and acquisition and through investment in the existing upstream firms. The growth through inorganic means is less risky that through organic means as the acquired business is already established and only the owners are changed. So the loss in the investment is low as compared to organic production (Dholakia et al. 2015). Thus, in short-run, the strategy of the firm is Competitive Priorities Strategy that refers to the reduction of cost of production by adopting new techniques to overcome the loss due to fall in price and competition in the market. For example, the modernised techniques of It will help the company to compete with lower price in the market (Cnrl.com 2016). Hence to conclude, the company need to change its business model and adopt new strategies to cope up with the fall in demand and rise in supply. Either the company can go back to downstream production or need to adopt strategies to reduce the cost of product and increase the demand of crude oil. Further, the company can also concentrate more on alternative usage of crude oil, like diesel and LPG for production and refinery units. It will help the company to reduce the risk of loss and investment will be diversified. Organic growth under upstream production requires huge investment, so it is recommended that company should go for inorganic process of growth and acquire the already established companies to grow in the crude oil market. References Cnrl.com. 2016.Canadian Natural Resources - Home. [online] Available at: https://www.cnrl.com/ [Accessed 23 Jun. 2016]. Conocophillips.com. 2016.The World's Largest Independent EP Company| ConocoPhillips. [online] Available at: https://www.conocophillips.com/Pages/default.aspx?utm_source=Googleutm_medium=PaidSearchutm_campaign=Brandedutm_content=Conoco_phillipsgclid=CjwKEAjwy6O7BRDzm-Tdub6ZiSASJADPNzYrHCdsspF3M8oed4AtcN2d_-AvoLeYJeyN_gKlkxHevhoC2TDw_wcB [Accessed 21 Jun. 2016]. Dholakia, U.M., Mittal, V., Han, K. and Dayal, A., 2015. Results from the Integrated Oil Gas Sector: The 2015 Strategy and Corporate Performance in the Energy Industry (Scope) Study.Available at SSRN. Kelland, M.A., 2014.Production chemicals for the oil and gas industry. CRC press. Kindermorgan.com. 2016.Kinder Morgan - A Different Kind of Energy Company. [online] Available at: https://www.kindermorgan.com/pages/about_us [Accessed 23 Jun. 2016]. Milliou, C. and Pavlou, A., 2013. Upstream mergers, downstream competition, and RD investments.Journal of Economics Management Strategy,22(4), pp.787-809. Mitchell, J.V. and Mitchell, B., 2014. Structural crisis in the oil and gas industry.Energy Policy,64, pp.36-42. Papavinasam, S., 2013.Corrosion control in the oil and gas industry. Elsevier.