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Cash Crunch of sub-$50/bbl Oil on projects and dividends

Discuss about the term for Oil and Gas Management for Gases Production?

Wilson and VanBriesen (2012) opined that Oil and Gas management plays the potential approaches in terms of resolving the issues in oil and gases production. Safety and health management is one the most vital constituents of the oil and gas industries. For overcoming the problems related to the cash crunch on dividends and project, it is necessary to consult with the oil and gas management team.

This research essay clearly illustrates the issues faced by the Big Oil during their manufacturing of oil and gasses. The research focuses on the cash crisis of sub- $50 per barrel on projects and dividends.  It also illustrates the strategies that the Oil and Gas industries need to implement for overcoming the problems related to it. The research concentrates on the necessity of production maximizing policies. Finally, the research report focuses on the planning of oil companies for reducing the emission of carbon in the atmosphere.

Recently, the Oil and Gas companies over the world are facing many issues and struggling enough to earn real cash for covering their plans, spending, and dividends. For that reason, they use to put their maximum effort to spend billions of dollars from their available budget to overcome the situation of frequent changing in oil prices (Fuller 2013).

In early 1998, the oil prices were going around $20 per barrel and at that time the existing oil companies seems to be successful (Wilson and VanBriesen 2012). Then, in the year 1999, the price of each barrel dropped down to $10 resulting in gaining economies of scale as well as developed some renowned companies like Royal Dutch Shell PLC, Exxon Mobil Corporation., BP PLC, and Chevron Corporation. During the three years from 2011 to 2014 June, the prices of the oil per barrel seemed to be $110 per barrel with low volatility (Keefer et al. 2015). The Exxon, Chevron, BP, and Shell were facing a slump in oil prices resulting in cash crunching of the oil barrels.

From the year, 1998 different types of things have changed in the field of Oil and Gas management. The demand for these oil barrels was coming from the Eastern regions of the World, and due to this fact, the oil companies are developing and planning strategically to gain the economic stability of their businesses by preparing higher cost fields (Uddameri, Morse and Reible 2014). The cost cutting affects the ability of enterprises to increase and maintain the future production. Due to the growing impact of Oil industries in the United States, the oil companies of United States started producing nine million barrels per day. After taking all such initiatives by raising the price of each barrel to $90, still the oil companies of United States were unable to meet their targets. During the year 2015, the cost of oil extraction was quite high whereas the price per barrel of oil was only $50 (Wilson and VanBriesen 2012).   For that reason, the leaders of oil industries are facing immense pressure, and they are trying to focus on some strategic planning to overcome the problems (Ingraffea et al. 2014).

Abandon of Production maximizing policies

After the completion of the whole research procedure, some fundamental strategic thinking has come forward which is very crucial to overcome the problem that the big oil was facing (Keefer et al. 2015). The strategic thinking that has been demonstrated in some public announcement of ‘Big Oil’ to overcome the issue of cash crunch includes: Firstly, the seven major oil companies have taken a logical strategy to overcome the oil exploitation and to gain profits by using geological tools, equipments, and some latest technologies including fracturing (Fuller 2013).  Secondly, they even set some goals for selling their pre-existing oil reserves to the customers. They also need to distribute the vast amount of cash to their shareholders before drying of their low cost oil fields (Pedroni et al. 2013). The strategy upon which the oil companies are focusing is usually self-liquidation (Kelland 2014). Thirdly, the management heads of Oil companies believes that the religious emotion is increasing the demand for oil and its prices. For that reason, only the oil management teams are trying to waste money for reserving the Oil and Gas to maximize the shareholder’s cash payouts. Fourthly, the oil administration team finally declined the strategy of an investment shift from an oil exploration to current energy technologies that is going to replace the fossil fuels. All these strategic thinking are present in the mind of the Oil and Gas management teams of ‘Big Oil’ to overcome their current cash crunch issues (Yusuf et al. 2014).

The Oil and Gas companies need to focus strongly on the production maximizing strategies for their survival in this present competitive market. The research clearly reveals that if those Oil and Gas companies do not concentrate on the production maximizing systems, then their economic infrastructure will sure get affected. Possibly, they will not be able to earn the actual revenue for which they have already planned earlier (Gregory and Mohan 2015).

There are several reasons for the dramatic decrease in the price of oil in the United States. The reasons for these consequences are less demand of oil barrels because of global economic dullness, and excess production of oils in the United States, which in turn increases the value of the dollar as compared to other currencies (Pedroni et al. 2014). All these questionable circumstances result in the collapsing of production maximizing business model of Big Oil.

The Big Oil needs an active and urgent recovery in output maximizing business model, and hence, there is no question to abandon production-maximizing policies (Rodriguez and Soeder 2015). During the time of price declination, the oil manufacturers were continuously concentrating on pumping out of petroleum for gaining profit. The Big Oil was focusing on their business model, which was dealing with ever-increasing demand for the oil though it was costly to refine and manufacture (Rahm and Riha 2014).

Companies like Exxon (largest US oil firm) and Chevron (second most major oil company) have made a significant profit in the current years. Suddenly, with the less demand and excessive production of oil led to the dramatically dysfunction of that production maximizing policies. The production maximizing policies were first adopted in the year 2005 when the Big Oil was facing a critical situation (Shin et al. 2013). Many oil companies were shifted to some dry regions, which allow the experts to predict a probable increase in global oil production (Hladik, Focazio and Engle 2014). During that time, the experts were also focusing on the climatic change, which in turn threaten the future of the Big Oil companies. These issues even created pressure on the leading oil companies and forced them to invest their money in some alternative sources of energy (Aramayo et al. 2013).

The research reveals that at the end of the first decade of the twenty-first century, the Big Oil has taken a strategic approach based on the latest production maximization, and the name of the procedure was called as drill-baby-drill (Pedroni et al. 2013). This production-maximizing policy was comprised of latest technologies for extracting oil and involved appropriate investments (Thurner and Proskuryakova 2014). In the recent years, this system made a remarkable change in the production maximizing policy, which in turn brought difficult to reach oil reservoirs on an online basis (Pedroni et al. 2013). According to the research, O’Reilly with his colleagues had proposed a production-maximizing strategy, which was comprised of two key assumptions including the following: (1) as time passes by, the demand for oil will gradually increase by a large speed. (2) Due to this increasing demand for oil, the price of the oil will also need to rise for balancing the costly investments in oil extraction (Shuen, Feiler and Teece 2014).

However, presently, those assumptions seems to be false and for that reason, the Big Oil companies need an employ strong management teams for taking the initiative to plan for production-maximizing policies (Shin et al. 2013). This, in turn, will meet the demands of the oil companies by increasing the profit and revenues (Davies et al. 2014).Planning by oil companies for low carbon global world (Wilson and VanBriesen 2012). 

According to the research, it is evident that the Oil and Gas companies of the world need to focus on their responsibilities and particular challenges for improving the access to energy and for meeting the future demand for energy during the addressing of climatic risks and management of environmental impacts (Haluszczak, Rose and Kump 2013).

After the excessive investment for the alternative sources of energy, much energy forecast anticipates that fossil fuels are going fulfill 50% of the demand for global energy within the year, 2040. Some potential is there for reducing the emission of carbon dioxide (CO2) by using the natural gas instead of using coal. When the natural gas is burnt, it liberates around half of the carbon dioxide per unit as compared to coal (Hickenbottom et al. 2013).

The oil industries require concentrating not only on commercial, financial, and technological risks but also on the climatic hazards (Wilson and VanBriesen 2012).   This, in turn, is going to give an innovative opportunity for the oil industries for meeting the needs of carbon efficiency and sustainability. The Oil and Gas companies have the chance to invest in renewable energy by installing wind farm, which is surely going to reduce the carbon gas emissions (Rahm et al. 2013).

Another strategic measure that the Big Oil needs to implement for reducing the carbon emission is to introduce the global carbon price. The global carbon price technique plays a crucial role in encouraging the technological options related to little global carbon world. Statoil has a carbon price of $50/tonne, which plays a significant role in reducing their carbon emissions by half as compared with the other oil companies (Murray 2013).

Many Oil and Gas companies are investing in the carbon storage and capture technique. The carbon capture and storage technique can prevent CO2 generation up to 75-90% (Pedroni et al. 2013). From the research and analysis, it is evident that the Carbon capture and storage method became commercially viable and became an important part in the sustainable development of the environment.

The four ways by which the emission of carbon can be reduced includes the next strategic planning: The efficiency of Energy: By using the fuel-efficient vehicles while traveling, by improving the building insulations, and by using the electrical devices can reduce the amount of CO2 emission in the atmosphere (Shin et al. 2013).  Conservation of Energy: If the personal use of energy can be reduced by turning off the electrical appliances then the demand for electricity can also be reduced (Wilson and VanBriesen 2012).  The less use of vehicles for short distance travel can lessen the assumption of petroleum. All the two steps help to reduce the excessive emissions of CO2 in the atmosphere (Curran, Wolff and Stahl 2013). Fuel Shifting: The production of the huge amount of energy from the renewable sources of energy such as solar power, geothermal energy, wind energy, hydropower, biomass energy and by using the fuels having lower carbon percentage can reduce the emission of carbon into the atmosphere (Pedroni et al. 2013). Sequestration and capture of carbon: The capturing and sequestration of carbon dioxide are the two technologies that lessen the emission of CO2 from the existing and current coal and gas (Russo 2015).

 Conclusion

After the overall analysis of the research, it can be concluded that the management of the Oil and Gas industries are very much essential for overcoming the problems related to the production and extraction of oil and gasses. The Oil and Gas companies were facing many pitfalls to earn sufficient cash for covering the spending, dividends, and projects. Then some latest technologies and methods like hydraulic fracturing, self-liquidation, and shifting from oil exploration to latest energy technologies helped to reduce the cash crisis issues. The Oil and Gas industries also concentrated on the policies regarding production maximization to increase the revenue and profit percentage. Finally, the research concludes the different planning techniques that the oil companies need to plan for reducing the carbon emission in the atmosphere including efficiency of energy, conservation of energy, sequestration, and capture of carbon, and fuel shifting.

References

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Chang, C.L., McAleer, M. and Tansuchat, R., 2013. Conditional correlations and volatility spillovers between crude oil and stock index returns. The North American Journal of Economics and Finance, 25, pp.116-138.

Curran, M.F., Wolff, B.J. and Stahl, P.D., 2013. DEMONSTRATION STUDY: APPROACHING OIL AND GAS PAD RECLAMATION WITH DATA MANAGEMENT: A FRAMEWORK FOR THE FUTURE1. Journal American Society of Mining and Reclamation, 2(2).

Davies, R.J., Almond, S., Ward, R.S., Jackson, R.B., Adams, C., Worrall, F., Herringshaw, L.G., Gluyas, J.G. and Whitehead, M.A., 2014. Oil and Gas wells and their integrity: Implications for shale and unconventional resource exploitation. Marine and Petroleum Geology, 56, pp.239-254.

Fuller, M.R., 2013. Raptor nesting near Oil and Gas development: an overview of key findings and implications for management based on four reports by HawkWatch International (No. 432). Bureau of Land Management.

Gregory, K. and Mohan, A.M., 2015. Current perspective on produced water management challenges during hydraulic fracturing for Oil and Gas recovery.Environmental Chemistry, 12(3), pp.261-266.

Haluszczak, L.O., Rose, A.W. and Kump, L.R., 2013. Geochemical evaluation of flowback brine from Marcellus gas wells in Pennsylvania, USA.Applied Geochemistry, 28, pp.55-61.

Hickenbottom, K.L., Hancock, N.T., Hutchings, N.R., Appleton, E.W., Beaudry, E.G., Xu, P. and Cath, T.Y., 2013. Forward osmosis treatment of drilling mud and fracturing wastewater from Oil and Gas operations.Desalination, 312, pp.60-66.

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Ingraffea, A.R., Wells, M.T., Santoro, R.L. and Shonkoff, S.B., 2014. Assessment and risk analysis of casing and cement impairment in Oil and Gas wells in Pennsylvania, 2000–2012. Proceedings of the National Academy of Sciences, 111(30), pp.10955-10960.

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