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Analysis

Prepare a Report that prioritises, analyses and evaluates the issues facing the board of SR, based on the issues highlighted in this scenario.

The companies operating in Oil and Gas sector have to operate under certain financial, legal and societal constraints. It is important that organizations operating in this sector should have long-term plan of operations and development. The success of companies operating in this sector would depend on the existing oil and gas reserves and on the new licenses for oil and gas. The companies operating in this sector would require good cash reserve to keep growing (Carmichael, 2001). It is also important that the management of the company should take all the stakeholders together to make important decisions about the company.

As mentioned in the case study SR has won the right to test drill on three different fields (Edwina, Felicity and Georgia). This appears to be a good news for the company and in fact, this news increased the stock price of SR. However, Charles Lincoln is worried about the future operations of the company. The company has been awarded new licenses but it appears that it lacks the financial to operate the three sites. The existing sites of the company has also limited oil and gas reserves. Charles Lincoln is engulfed among lot of issues such as outsourcer problem, pressure from environmental organization, internal organizational problem. He wants to focus on the long-term plan of the company. The objective of this paper is to discs the various challenges faced by SR Limited for discussion at Board level. This paper would discuss the various issues surrounding SR and some recommendations would be made.

SR Company has been a matured player in oil and gas exploration and production industry (E&P).  The company is headed by Charles Lincoln who has always focused on growth and development. Recently, company has got the license to dig into three new fields. It is a very good opportunity for SR. Therefore, it is important that company should be in a position to handle all its internal and external issues. One of the most important consideration for SR is the cash consideration. The company is required to acknowledge the license of three new fields within 2 weeks and CFO of the company is on leave. Charles Lincoln is not sure that how much money company can gather. A joint venture or a farm out offer with other company called Drill Well is an option. It is important that management must analyze the pros and cons of all the options before making any decision. The immediate issues for SR can be discussed as:

Underlying issues for the company

From the case study, it can be inferred that SR is surrounded by both internal and external issues. These internal and external issues for SR can be discussed as:

Charles Lincoln is aware of the fact that regardless of the decision whether to test drill all three sites the SR board is clear that SR will lack the financial capacity, and the managerial and productive capacity to bring all three wells into production. Therefore, Charles Lincoln wants to have a farm offer with Drill Well. Under this offer, some of the money would come from DW. However, the deal with DW does not appear to be a smooth deal. DW has come up with its own terms and conditions for the deal. DW has offered the option payment at this moment but in return, it wants the right but not an obligation to extract oil and gas from the field. It can be said that the terms and conditions of the deal does not make this deal a very attractive deal for SR. However, Charles Lincoln has limited options and it appears that the company must deal with DW so that its financial condition and cash reserves can be improved. This issue is an internal issue for the company and company must discuss it internally to reach a consensus.

This issue is an external issue for the company. This issue exists not only for SR but also for other companies operating in this sector. The SR head office was targeted last week by a protest about the use of finite fossil fuels. This was a coordinated attack against the industry rather than SR alone. It can be said that this issue is not very serious for the company at this moment. However, management must be cautious of any such issues because it can result in bad reputation for the company and this would be the last thing that company would want when it has plan to expand for three more oil fields. This issue could also have an impact on the share price of the company.

The companies operating in oil and gas sector would typically outsource the production work to external vendors. SR also has the partnership with different vendors that perform the production work for the company. BoringHolesUK Limited is one of the chosen outsourcer at the Apache field and has been working with SR from the start. They have a good reputation and have always worked well within SR’s and industry regulations. Recently, there has been political and military unrest in this farm field. As a result, several employees of BoringHolesUK Limited has left the job. It appears that this company is under serious resource crunch to do the tasks. SR has the policy to have frequent check of the operations of BoringHolesUK Limited. In one of the recent audit, some irregularity was surfaced in the control log record. Some employee of the company was making forged signature of an employee who has left the company couple of months back. This is an alarming issue for SR and it is expected that SR would have a system of check and balances on all its partners and outsourcing vendors.  

Farm out offer with Drill Well (DW)

One of an important issue for the company is about the sustainability of its existing fossil fuels reserves. The existing reserves of the company would only last for another 7 years. The company does not have any Plan B for the future and it is a serious issue for the company. This is also an internal issue for the company. However, a thought leadership and strategic thinking would be required to resolve this issue. Some radical changes in the organization and operations and some hard decisions could also be required to bring SR on sustainable path.

The issues discussed above are critical from operations point of view. It is very important that SR must have the plan to overcome all the issues. Some of the issues and internal in nature that could be managed with internal discussion. While, some of the issues are external in nature. For external issues, SR must tie up with partners and competitors. Some of the recommendations for SR can be discussed as:

The first and most important recommendation for SR is that it must focus on sustainable development. The company must have a vision and long-term plan. The management of the company should be clear as where they see the company five years down the line, ten years down the line and beyond. It is also important that the vision and plan of the company should be shared with all the stakeholders. In fact, in order to develop long-term plan and vision, SR must take inputs from all the stakeholders of the organization. It would include both internal and external stakeholders. The companies operating in this sector would usually operate in Business-to-Business models. Therefore, most of the customers of SR would be business entities. It is recommended that SR should also take the input from its customers in order to develop a sustainability strategy.

As discussed above, the company is dependent on its outsourcing vendors like BoringHolesUK Limited. It is recommended that SR should have a strong system of audit for its outsourcing vendors. In the current environment, SR does have the provision of spot-checking and periodic checking. However, it appears that the current system is not strong enough. It is recommended that SR must focus to increase its control system on its outsourcing partners. One of the ways to achieve this would be to have more than one outsourcing vendors. It is recommended that SR should have a pool of outsourcing vendors. The company should have a rating system wherein it would rate the performance of its outsourcing partners. In fact, the payment and rewards for the outsourcing vendors would also depend on the way these companies performs. This would in turn motivate outsourcing vendors to perform well. In addition, SR could also have the provision of external inspection wherein the Audit team would visit its outsourcing vendors.

The issue of environmental organization should also be given due importance. It is important that the management of SR should have the strategy to deal with environmental issues also. It is recommended that SR should increase its consideration for social corporate responsibility. It would be good if SR can portray itself as an environment friendly firm. It is recommended that SR should also invest in certain programs around environment and CSR. The objective of the company should be to join hands with environmental organizations and to realize them that the company is working to increase the energy resources that is the requirement of entire world. It is recommended that SR should establish a dedicate function of Corporate Social Responsibility within the organization. The objective of this function would be to work with environmentalists for a sustainable and green future.

Conclusion

The above paper discussed the various issues facing SR. With the above discussion, it can be said that SR is surrounded by certain serious issues. However, a planned approach and a holistic understanding of the future can help company to overcome these issues (Mukherjeea, 2010). The first step for the company would be to have the strategy for internal and external issues. It is also important that company should realize that it couldn’t solve all the issues on itself. There are certain external issues that could be solved only with a partnership with competitors and other industry players. The company must also focus on CSR issues. SR should have and should promote only green operations. It would ensure that company has the trust and respect of environmental organizations and society. It is also important that company should have both short-term plans and long term plans to address the issues. The management of the company should formulate the plans with a thorough discussion with all the stakeholders of the company.

References

Carmichael, L. (2001) Energy services: a status report [Online] Electric Power Research Institute (ERPI). Available from: https://my.epri.com/portal/server.pt?Abstract_id=000000000001001901 (Accessed: 24 February 2011).

 Duttaa, M., & Mukherjeea, S. (2010) An outlook into energy consumption in large scale industries in India: The cases of steel, aluminium and cement, Energy Policy, 38(11) p. 7286-7298, 12p     

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