STRATEGIC MANAGEMENT - I

OIL & GAS INDUSTRY

Submitted to Prof. Diptiranjan Mohapatra

Group01
Kunal Yadav 2018PGP077
Nilesh Chohan 2018PGP081
Bodepalli Jagadish 2018PGP070
Suman Sarkar 2018PGP094
Aninda Dutta 2018PGP065
 Table of Contents
I. OIL AND GAS INDUSTRY.
II. Pestle Analysis of Oil and Gas Industry in India
III. Competitive analysis
IV. EXXONMOBIL
V. Recommendations:

OIL AND GAS INDUSTRY.

Oil and gas industry is one of the biggest, most complex, and most essential Global ventures.
Enterprises that is everybody's life recommend transportation, warming, and power fuel,m
Lubricant profane, 10000 of petrochemical items from corporates to eyeglasses to dress. The
business impacts national security, races, geopolitics, and universal clashes. In late year, industry
seen numerous choppiness occasions seek oil and gas generation in States authorized on Russia
and enhanced International association with Iran. proceeded with Technology headway
development oil and gas continuous worry in Iraq and Libya, and different other oil sending out
Nations
Background.
At the point when Edwin Drake battle in Northern west Pennsylvania in 1859, the main period of
oil industry start. John D Rockefeller rose in those early days as a Pioneer in Industrial starts.
The joined Standard oil and 39 subsidiaries come Deloitte trust in 1882. His objective was not to
frame imposing business model his genuine intention was to accomplish economies scale which
date by consolidating every one of the Refineries activities under a single administration
structure.
With Spindletop disclosure of oil in East assessments in 1901 industry start. Oil was primarily
utilized for light and greases yet after the revelation the oil new fuel for new creations by plane
and car. Shapes and train that are the way to guarantee recently keep running on coal need to
change to oil. Oil and gas would be the world most important wellspring of vitality.

Oil and Gas in the global economy.

Oil and Gas play a vital role in the global economy. i.e. International Energy Agency(IEA)
instant energy demand will rise significantly over the next three decades, most of the increase
coming from developing countries most of the world's growing energy needs till 2030 will
continue to meet by Oil, gas, and coal. Increase Energy Efficiency, energy as a percentage of
total GDP Has Fallen and is expected to continue to fall.

Oil and Gas Supply.

All countries are a consumer of product derived from the oil and gas industry Sony a small set of
nations are major oil and gas producer. The past decade the larger developed economies all the
world has become the net importer of oil and gas. Please see the graph

Role of OPEC.
Organization of Petroleum and Exporting Countries (OPEC) was founded in 1960 bargaining
power 22 the producing countries large Oil Companies. In 2006, this industry saw A Remarkable
bevy of government Regulation and intervention over the past century. Creation of immediate
government intervention on a global scale.
The mission is to co-ordinate in unifying the petroleum policies of member country relation of
oil price to secure an efficient, economical and regular supply of Petroleum to consumers, main
study income fare return on capital to those investing in the petroleum industry. Despite all this
ability control price was questioned?

Major Industry Players and Competitors.

Integrated Oil Company (IOC) the first two companies that operate in many industry segments
from exploration to refining, marketing, and retail. In the early days of this industry, there was
true vertical integration in which produces refined of their production and then marketed refined
products through company-owned retail outlets. oil and gas industry.
  Standard oil and New Jersey ESCO later become Exxon and then merged with Mobil to
create Exxon Mobil.
 Royal Dutch Shell.
 British Petroleum.(BP)
 Chevron
 Gulf Oil which became part of Chevron.
 Texaco merged with Chevron.

Oil and Gas Industry Value Chain

Esteem alludes to what clients are eager to pay for, demonstrate the esteem distinguishes specific
exercises that make an incentive all through the change. Organizations can utilize esteem change
to figure out where they are stable and where they have restricted focused quality. The Oil and
gas industry has upstream, midstream and downstream are critical descriptors of industrial
action.

Upstream
Upstream activities include exploration development and production. Oil and gas bring
exploration the discovery require development and production is the long-term process of
drilling and extracting the oil and gas. Most countries grant oil and gas development the
negotiation of bidding. The main aim of private companies is profit maximization, where is the
host country government is usually interested in maximizing revenue.

Midstream
Midstream is the value change comprises of storing trading and transporting crude oil and natural
gas that is produced must be transported from the well heated to the refinery. Natural gas must be
moved to market via pipelines or ship.

Downstream.
Downstream is the refining of crude oil producers of loading gasoline jet fuel, home heating oil
and chemical feedstock. In the US about 60% refinery products volume is gasoline products are
sold directly to end users through retail location directly to the larger user such as utilities and
commercial customer’s entry wholesale network.

Pestle Analysis of Oil and Gas Industry in India

Crude oil, due to its immense role in any country’s economic growth is often regulated by
government bodies. Therefore, prices have been regularly and closely monitored by the
government as well as economists alike. The rupee’s high valuation, continued inflationary
pressure and high real interest rate difference with the US will maintain pressure over 2019, but
the pace of depreciation will slow. Economists put rupee at 76 to a USD at the end of 2019, up
from 73 rupees to a USD at the end of 2018.
The constitution of India provided the government with the power to legislate in respect of oil
and gas. O&NG industry is divided into three segments:
 Upstream Major Players: Oil and Natural Gas Corporation (ONGC), Oil India Limited
and Crain Energy

 Midstream Major Players: Indian Oil Corporation, Gas Authority of India Limited, etc.

 ƒ Downstream Major Players: Indian Oil Corporation, Bharat Petroleum Corporation

Limited, Hindustan petroleum, etc. IOCL is the largest in India.

Key initiatives were undertaken by the GoI to promote the oil and gas sector, which are
as follows:
i. Concessional Royalty regime introduced whereby deepwater, and ultra-deepwater
areas shall not have any royalty for the first seven years, and after that shall have
subsidized rate of 5% (in deep water areas) and 2% (in very deep water areas). In
shallow water areas, the charge has been reduced to 7.5% from 10%.

ii. ii. The Government of India plans to build a 90 lakh tonne refinery in Rajasthan
and a six crore tonne refinery in Maharashtra, auction oil and gas fields, increase
use of liquefied natural gas (LNG). Also, Saudi Aramco is in talks with the
government to invest in India.

iii. 100% FDI in exploration and production projects.

iv. HELP- The policy formed in 2016 allows a single license for exploration of all
types of hydrocarbons, easy to administer revenue sharing model and marketing
and pricing freedom for oil and natural gas produced

The supply and prices of oil are also related to geopolitical conditions. For example, with the
economic turmoil in Venezuela, production there is currently down to some 1.5 million
bbls/d(billion barrels per day). If the state were to suffer an economic collapse, almost 2 million
bbls/d of oil supply could vanish which could have an impact all over the world including India.

Economic
The Indian oil and gas are growing robustly, and players are undertaking investments to cater to
the burgeoning demand. The industry is expected to demand $25 billion in exploration and
production by 2022(as per directorate general of hydrocarbons). India is the world’s third largest
market for oil and gas regarding consumption. The demand for primary energy in India is
expected to grow threefold by 2035 to 1,516 million tonnes of oil.
India has maintained an average of 0.75 million barrels per day in oil production throughout
2012-17. However, due to factors such as a weak rupee in comparison to the dollar as well as a
reduction in total available coal and oil sites has led a gap in the supply and demand, with
demand superseding supply in 2017 for the first time in a decade.
However, the increasing preference for electromotive vehicles poses a threat because due to a
decrease in demand and an oversupply, the oil prices could see a crash similar to that in
2014(also caused due to excess supply)

Social
Oil and gas have always had an image as a dirty fuel due to their usage being associated with
many adverse effects such as global warming, a decline in air quality, impact on water bodies
and many more. These combined with the scarcity of fossil fuels has led to the creation of
alternative sources of energy which do not carry much of the ill effects of fossil fuels. However,
the demand for oil is believed to stay active in the coming years, which can be gauged from the
increased investment in oil refineries and multi-billion facilities by Asian counties such as India
and China that are expected to produce oil for decades. The electric vehicles will co-exist with
their fossil fuel counterparts. , compared to about 2 million vehicles currently on the road. This
will reduce global oil demand by 2.5 million barrels per day or about 2%.

Technological
Due to the natural volatility in the oil and gas sector producers often find themselves time to
addressing the problem of an over- or under-supplied market.
Therefore in the short term, companies must maintain a strict capital budget and focus on
productivity improvements and applying new technology. In the long run, they need to use their
technological developments and make their portfolios profitable against low break-even costs.
The overall goal of technological improvements should be to future-proof their overall portfolio
and make a protective moat amid the transition to a lower carbon and renewable energy world.

Legal
The primary laws which are affecting the oil and gas industry are as follows :
 The Petroleum Act, 1934
 The Oilfields (Regulation and Development) Act, 1948
 The Petroleum and Natural Gas Rules, 1959
  The Oilfields Act is responsible for the grant of Production Exploration Licenses and
mining leases
 NELP promotes investments in the oil and gas sector by facilitating allotment of
exploration blocks through the bidding process

Environmental
Offshore mining of oil and gas and deep-water exploration are well known to possess significant
threats to the environment regarding the potential dangers of water contamination. Further
particulate emissions of refineries and production plants could have an adverse impact on the
environment which has been well documented and researched. Environmental impacts arising
out of exploration and production are:
a) Human, socio-economic and cultural impacts, (changes in the usage of land, local population
level fluctuation, changes in the socio-economic system, changes in the way of transportation)
b) Atmospheric impacts (due to flaring, venting, etc., combustion processes such as diesel and
petrol engines, fugitive gases, airborne particulates from soil and land)

Competitive analysis
Most of the significant oil and gas companies are quite equal in size, power, and capabilities.
Product differentiation is little here. This intensifies the rivalry resulting in a price war. As a
result, the revenues have decreased over the years. But it is expected to rise in the next few years
as commodity prices are expected to increase. There had been a slowdown in production
processes in the past. Such a downturn leads to more intense competition. The competition is so
severe that the top 5 oil and gas companies have only 18% market share.
Threat of New Entrants in Oil and Gas Industry
There are a lot of barriers to entry in the oil and gas industry. Some of them are:
 Huge capital is required to enter the market.

 National Oil Companies control 90% of proven oil and gas reserves.

 If older companies invest more in R&D, they will get a boost in innovation and can
improve their existing technology. With better technology, the barrier to entry will get
higher as new entrants, without such technology, will find it difficult to enter. Also, the
cost required to enter will become more.
  The older companies can easily compete with new entrants since they have the advantage
of economy of scale.

 National and international regulations restrict the entry of new entrants to some extent.

 Oil and Gas Reserves are located generally in war zones or geographical areas with
geopolitical disputes or political instability.

Threats of Substitutes in Oil and Gas Industry

Alternatives sources to oil and gas for producing energy, which can be used for electricity,
transportation, heating, etc. are:

 Nuclear Energy

 Coal

 Hydrogen

 Biofuel and other renewable sources such as solar and wind energy

Concern for climate change and the environment has brought in new laws and regulations.
Worldwide, environmentalists are pitching for lesser use of petrochemicals and more use of
renewable energy. Alternatives will slowly replace the petrochemicals depending on their quality,
performance, and price. A right amount of investments in R&D and producing procedures will
make sure that the possibility for alternatives to dominate the global energy mix until 2040 is
minimal.

Bargaining Power of Buyers in the Oil and Gas Industry

The main buyers of oil and gas products are:

 Refineries

 National Oil Companies

 International Oil and Gas companies

 Distribution companies

 Traders
  Countries like USA, China, Japan, etc.

The bargaining power of buyers in Oil and gas industry is minimal because of the nature of this
industry. Buyers are mainly interested in the price and the quality of a product. Global oil
benchmarks determine the oil price. The main benchmarks for oil and gas industry are:

 Brent Blend

 West Texas Intermediate (WTI)

 Dubai/Oman

So it is evident that the buyers cannot affect the oil prices. The large buyers only like EU,

China, USA, Japan, and India in comparison with other countries have higher bargaining power.
But the fact is that the only bargaining power of buyers in the oil industry is only what quality of
the oil they want to buy. Also, the concentration of buyers is low, or the market is highly
fragmented. This negates the buyer's power a bit.

Bargaining Power of Suppliers in the Oil and Gas Industry

Titans in the oil and gas industry are fully integrated oil and gas industry ( both International and
National Oil Companies), which are very active in the whole value chain of oil and gas sector.
These companies can be seen as the big International oil companies like Chevron, Shell and
Exxon Mobil or National oil companies like Saudi Aramco, Gazprom, and Petrobras. The ability
of those companies to influence oil prices and the industry is high due to their presence in every
part of the value chain of the oil and gas industry, so their bargaining power is significantly
higher than the buyers. Another group of strong players is the oil-rich countries (or as they call
them oil producing countries) or else OPEC, has significant bargaining power. OPEC nations
own at least 70% of the world's proven oil and gas reserves. These reserves have some of the
lowest cost of production in the middle-east in contrast with those counties who produce from oil
sands and deep-water oil fields, which are expensive regarding the costs of production. But
locally, the number of suppliers is high and the supplier power is low.

EXXONMOBIL
Company Background
ExxonMobil is the world's largest gas and oil MNC. They are the world’s largest refiner as well
as a marketer of petroleum products, and their chemical division is one of the largest in the
world.
They operate in almost all of the world's countries and are famous for their familiar brand names:
Exxon, Esso, and Mobil. They make the products that power cities, lubricate industry, drive
modern transportation, and provide primary petrochemical products that lead to the production of
thousands of consumer goods.

Corporate Strategy Business Portfolio

 ExxonMobil is a related constrained diversified & highly integrated company.

 The Upstream business – is the Largest one (>70 percent of earnings). The Upstream
business segment employs an average capital that is four to six times that of other
portions of the value chain. It deals with the exploration, development, and production of
crude oil and natural gas which by nature is highly capital intensive & risky, so here the
firm grows through mainly M&A.
 Mid-Stream - Since the resources present in the midstream industry are highly tradable,
ExxonMobil mostly outsources these activities such as Oil and gas procured from E&P
operations is collected and sent to their processing units, where it is refined further stores
and transports the finished products to the Downstream division.
 Downstream business - 12 percent of earnings. Unlike the Upstream segment which has a
higher margin with higher risk, the Downstream business is a low margin business but
not much risk. Also, operational efficiency and cost reduction make a massive difference
 in this arena, so ExxonMobil has a large and diversified portfolio which deals with
refining and marketing across the globe.

 The Chemical operation – ExxonMobil's chemical business has a number of different

product lines that help reduce the volatility of the demand for diverse petrochemical
products and deliver consistent results.
 The corporate advantage is derived from a combination of low-cost feedstocks,
proprietary technology, and application expertise. Most of the company's petrochemical
units are integrated with its refineries so that they obtain the most economical feedstocks.

Acquisition & Mergers - Value Chain Synergies:

The M&A increases shareholder value by utilizing cross-business synergies such as:
 Transferring valuable expertise and technological know-how from its different
businesses. From oil exploration and production to the natural gas exploration and
production businesses.
 Sharing resources and exploration facilities to reduce the costs of discovery and
development
  Leveraging ExxonMobil’s leading brand name to deliver other products
 Combining the value chain activities of diverse spectrum of business to ExxonMobil to
improve operational efficiencies in marketing, shipping, and distribution.

Joint venture & alliances

ExxonMobil often seeks foreign partners to:
 So that they can bypass import quotas & tariff barriers.
 Gain local knowledge about cultural factors & customs to get better access to distribution
outlets.
 Overcome political pressures & governmental regulations.
 The Downstream business is highly competitive with tight margins so any unused
refining capacity would result in the reduced margin. To resolve this problem,
ExxonMobil tries to form alliances so that they can optimize the plant utilization and
thereby improve their margins.

Resources & Capabilities of ExxonMobil (The Dynamic View of Resources)

ExxonMobil is the mammoth of Oil & Gas industry & through its continued successes in the oil
and gas industry has developed a number of critical resources and capabilities that enable it to be
operationally and financially effective:
 Valuable human assets and intellectual capital – experienced and capable workforce with
 Proven technological know-how,
 Skills, Expertise and Competence – technological innovation, Global integration &
operational excellence.
 Valuable physical asset – diverse geographic coverage of Oil and gas acreage & reserves
(proven and unproven) with longterm oil and gas field rights, balanced mix of portfolio
 Rock-solid financial base with huge reserves & surplus
 Valuable intangible assets – a disciplined investment with long-term focus & excellent
brand name.

SBU: Exxon Mobil PetroChemicals Division

ExxonMobil Chemical is one among the top three global petrochemical companies with earnings
of $6.2bn and sales volumes of 36m tonnes in 2018. It has manufacturing locations in more than
20 countries with its products are marketed in more than 150 countries.
It is a Leader in some of the largest-volume and highest growth commodity petrochemical
products in the world. Ex. Aromatics, olefins & Hydrocarbon fluids
Also, it makes synthetic base stocks that are critical components for advanced lubricants.
Corporate Advantage feeds Competitive Advantage. The emphasis is on petroleum integration in
which much of its manufacturing capacity is located in mostly integrated refining and chemical
complexes.

Chemical Business Strategy

 Capitalizing on the core competencies of the Holding company to build propriety
technology & position within the industry where they capture the full benefits of
integration across ExxonMobil operations
 ExxonMobil’s Chemical division employs a best-value strategy to leverage its leadership
in production, costs and proprietary chemical and polymer Offerings. The Company
achieves cost leadership through synergies gained by combining refining and chemical
production operations.

Recommendations:
The recommendations can be drawn to both short term and long term periods;--
For short term--

 Should invest more in finding oil, processing, and refining it

 Should mainly focus on the supply side of the market compared to the demand side

 Should target emerging markets

For long term--

 Should invest in unconventional sources of energy

 Should invest in exploration and finding spots for exploration

 Should invest in renewable sources which are unlimited

 For maximum profits and growth, it should operate its functions in developing places

 In the process of exploration or production it should not harm the environment, to make
sure of it should follow strict norms by governments

 Should invest in employee training or enhancement skills in the training process

 Future of the company, it should plan the budgets in a correct manner to safeguard from
the issues of future.

 Correct positioning in the market must be done

  Should maintain the quality of the products and affordable prices

Conclusion: ExxonMobil is a long term planning company; it's not new to it to make long term
goal oriented plans. Because of its strong strategic planning and cost-effective techniques, it can
maintain its position in the market as a leading supplier of cost-efficient petrochemical products
and also global energy. If it makes it stand in the unique process and technologically advanced
processing techniques then it would mark its position in the market for a long time.