Emerging Themes in the Oil and Gas Sector

This report discusses the emerging themes affecting the oil and gas sector, including capital allocation, operational excellence, cost management, low carbon economy, and rebalancing asset portfolios. The report also analyzes the factors affecting decision-making in the industry, such as big data, political environment, technological advancements, demographic changes, social trends, industry globalization, legal transformations, and global economic issues.

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Emerging Themes
Report
7/18/2018
Student Name

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Contents
Introduction...........................................................................................................................................2
Finding and Analysis.............................................................................................................................2
1. Emerging Themes......................................................................................................................3
2. Themes affecting the decision-making..........................................................................................7
3. Recommendation.........................................................................................................................10
Conclusion...........................................................................................................................................11
References...........................................................................................................................................13

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Table of Figures
Figure 1..................................................................................................................................................3
Figure 2..................................................................................................................................................6
Figure 3..................................................................................................................................................9
Figure 4................................................................................................................................................11
Figure 5................................................................................................................................................14
Figure 6................................................................................................................................................15

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Introduction
The oil and gas sector divided into different segments by the Institute of American
Petroleum, which includes the upstream and downstream. The oil and gas sector is
enormously contributing to the economy and planning to save the resources for future use.
However, there are many challenges faced by this sector, as there is a scarcity of the natural
resources (CDP, 2018). With the rise in future demand, climate change, authority and
declining public level connections, the industry finds it is itself in a elusivered condition. The
oil and gas sector is facing the emerging theme in regulating in the market. This theme
includes the allocation of asset and management, operational excellence and integrity, cost
management, low carbon economy and rebalancing the asset portfolios. These themes and
factors are not only affecting the internal environment but also affects the social, work
environment, technology, and market (Strategy&, 2017).
Figure 1

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(Source: Strategy&, 2017)
The decision making for the oil and gas sector becomes difficult for big organisation like
OPEC, and other regulatory bodies which are planning to sustain their business for the future.
Use of natural resources cannot be restored by any of it substitutes perfectly so this is the
reason that companies of oil and gas is so concerned in saving and optimizing the use of these
natural resources (Brandt, 2014). Organisation like OPEC makes the strategy of low carbon
possible in the economy, which will help to save the resources. For this various decision-
making done. This will include the use of the technology in operating the oils, gas industry,
and follow the rules and regulations.
Finding and Analysis
There are many trends found in the oil, gas industry, which includes that existing fields,
would operate longer. The capacity of yield will increase by injecting water or gas such as
carbon dioxide. This will boost pressure of the reserves. The production of heavy oils from
oil sands will become more environments friendly and the use of energy will reduce.
According to research by British Petroleum, it can analyze that the majority of the energy
consumed by the economies, which are emerging in nature. There is a need to reduce the cost
in oil and gas companies to match up the needs of the economy.
1. Emerging Themes
From the case study, it can analyzed that there are certain areas, which affect the current
business strategies of the oil and gas sector, which includes:
Capital allocation and management
In this, companies are restructuring their funds in order to get the best results from them. The
quantity of the infrastructure spent has found to stagger in the recent years. Domestically and

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abroad, cost, risk, procurement, communications and quality, knowledge of resources and
time must manage in order to have the good governance model in the business structure. This
model will ensure the natural resources can use for the long period (Shuen, Feiler and Teece,
2014).
Operational excellence and integrity
International companies, which are dealing in oil and gas are looking forward to maintaining
the balance between their operating models and try to match the demands for the efficiency
globally. This will provide the data to the company about local responsiveness. The
operational excellence is required in the business to operate in the market efficiently
irrespective of its nature and size of the business. This will be applicable to every type of
business.
Cost Management
Companies are trying to control the cost of extracting and refining natural resources so that it
can provide at low cost in market. While in today’s scenario cost management done by the
expert. Uncontrolled cost can limit the growth strategies- postponing or even jeopardizing in
the future plans and projects. In this winner will be those companies, which are able to
manage their cost while optimizing their resources. One of the examples can be taken is of
the OPEC, which is considered an organisation who have taken the revenues oriented strategy
believing that this oil constrained world had arrived. It will be more important under the
ground rather than on the market (Yusuf, 2013).
Low carbon economy
Increasing the sustainability of the energy system will need a mixture of keys. Renewable use
of energy will show a crucial role in the global energy mix. The development of the
infrastructure like building of smart grids will essential to implement so that the scale of

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challenge will not get underestimated. Oil and gas industry and companies are trying to
experience the situation of dynamic and unpredictable future energy as they come to the
sources of future sources of energy. This will increase the level of regulations and an
evolution of the business model (CDP, 2018).
New energy value chain
Industry and many companies are trying to develop the new value chain in the company,
which will enable optimum and useful utilization of the resources. The value chain should be
prepared in a manner, which enables the use of energy resources for future use too. From
trading to refining the fuel, to retail offers, to the integration of the clean energy sources- all
these factors get affected by the value chain (Khatita, 2014).
Rebalancing the asset portfolios
In rebalancing asset portfolio, the allocation of asset will do again by the top-level
management and authorized experts. This rebalancing in asset portfolio includes the sector,
which is going to shut down due to the consistent losses in them, and the portion, which gets
there viable, funds to improve (Warneke, 2014).
Areas of focus can include any combination of the following, which discussed below:
1. Political environment
The public has less trust in the oil and gas sector due to some events like Petrobras and
Nigerian Government scandals, which make the public perception not to believe in this
industry. This can be seen from the table given below. The lack of faith in industry obscures
the development of the project and endangers the government support for major infrastructure
projects. It considered a costly problem that creates the inefficiency in the supply chain and

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can result in the huge fines and agreement cost. This will damage the linking economy and
bring political instability in the oil industry itself (Raufflet, Cruz, and Bres, 2014).
Figure 2
(Source: CDP, 2018)
2. Technological advancements
The countries like the United States and Paris have shown the boom in extracting oils and
natural gas by using the technology so that scarce resources should utilized properly.
Majority of the countries try to extract the resources from the rock as well as through the
conventional sources as they are declining through the technological innovations (Yusuf,
2013).
3. Demographic changes
In near future, the world will demand more and more energy in near future. According to the
research of the United Nations Organization (UNO, the world population will continue to
grow at a pace of 0.8% per year from 2010 to 2040 (E&P, 2017). This increase in population
will be primarily concentrated in Africa and Asia, which are driving towards the global
competition and urbanization. Larger the population, higher will be the demand of energy in
market. In addition, the research by UNO also indicates that by the year 2040, the global
urban population will get double the rural population (Reboredo and Rivera-Castro, 2014).

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4. Social trends and shifts
From the case, it can see that there is a more challenging environment for the oil and gas
sector. This fuel will remain the leading fuel for the transport for the next two or three
decades. Oil and gas sector met the sharp confrontation around the world in many countries
and communities that have skilled the negative environmental, social, and geopolitical
consequences from the oil and gas exploration and development. Oil and gas sector also have
the meet the expectation of their stakeholders in order to operate its functioning properly in
the environment. However, in real life cases, actual presentation has dropped short of these
prospects (Tietenberg and Lewis, 2016).
5. Industry globalization
Countries like Brazil using the concept of sustainability in business. This will make the
globalization in oil and gas sector. They are offering the different and varied alternative
strategies in producing the energies like liquid hydrocarbons will growing in the market due
to high demand of resources (LUKOIL, 2018). Like oils and natural gases by providing the
adequate incentives and regulatory frameworks. This will do to supply energy demand and
replace the use of the less sustainable thermoelectric plants (Hickenbottom, 2013).
One of the famous examples can take off the Redline Agreement, in which the decision
related to the cartel taken. The cartel is the formal agreement between the oil producers so to
have the coordination and integrity in selling oil. Iraq Petroleum Company (IPC) has made
the cartel in which 99.5% of the territories explored by them in Iraq. This agreement was a
larger part of person secret arrangement made in the Achnacarry Castle, Scotland
(Arvanitoyannis and Kassaveti, 2008).
6. Legal transformations

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Another example, which can take from the case study, is Gallop Poll in 2013, ranked the oil
and gas industry as the least trusted industry. This loss of trust is because of debated lobbying
and suits against the climate change policies and other environmental and safety regulations
(Popoola, 2013). All legal rules in the oil and gas industry made while considering the
economic condition and climate change. From the graph, it can be clearly seen that the safety
in transferring the gas and oil is taken care.
Figure 3
(Source: Technavio, 2018)
7. Global economic issues
There are various issues which are taken into the consideration globally includes the
economic issues which are contributing to the oil and gas industry. These issues relates to the
policy framed by the OPEC, growing cost and exploration of the nature (Lukeoil, 2018).
According to the World Economic Forum’s Global Agenda Council on the future oil and gas

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considers the strategies that can be deemed robust for the oil and gas industry in future
2degree Celsius world towards 2040 as well as most alternative futures (Haggerty, 2014).
2. Themes affecting the decision-making
It has analyzed that the process of strategic decision-making is the most important and
complex of all the processes or functions of the management in every company and sector
irrespective of its size, nature of the business. For doing this proper understanding of the
environment and themes, which related to the oils and gas sector should understood by the
manager. This will help them in better decision making in the organization. Majorly there are
factors, which are categorised on the different stages and processes in the organization
(Kilian, 2016). These factors are decision specific factor, which includes those factors, which
affect the decision in familiarity, decision complexity, crises, and opportunities in the market
and type of decision. External environment characteristics include environment dynamism,
hostility, uncertainty, heterogeneity and environmental threats and opportunities. Internal
organizational characteristics include the structure, size, performance, and power available to
the company in the market (World Economic Forum, 2017). Management Team
Characteristics include multiple dimensions such as risk propensity, education, experience,
diversity, affective conflict, and complexities in the business.
Themes affecting the operational or strategic decision-making are as follows:
The growth of big data
Use of big data gives the tremendous advantage s to the companies in storing and sharing the
data. With the use of it in the industry, companies can easily able to identify the detection of
the faulty equipments through sensors, better drilling, and connections of a new well and a
predictable approach for the maintenance of pipelines and other equipment. In addition, it has
other benefits too which includes managing all sort of data such as drilling data, data of

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fracking performance and rate of production within the sector. This will help in maximizing
and optimizing design and production structure in the oil and gas sector (Li and Lin, 2016).
Figure 4
(Source: Strategy&, 2017)
Operational excellence and integrity
To sustain in the market for the long period, the operational excellence should maintain by
the company. These companies include who has less monopoly over the market like IPC,
OPEC. If these companies need to maintain their stability for a long span of time then the
availability of the resources, volatility in the market should be there, analysis of risk and
regulation done by the companies to know so that the operating in the different market
becomes easy.
The connection between the improved asset management

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If the company in the oil and gas sectors does not have the good equipment, it is hard to
operate with excellence. This is the reason behind the asset management and allocation,
which is linking towards the organizational excellence and integrity in operations. This will
maintain the asset for the long time and ensure smooth and efficient operations (Reddy and
Bantilan, 2012).
Use of differentiated capabilities
Companies should use the differentiated capabilities to become an important issue to get the
achievement in future. In recent years, it has been identified that oil and gas sector has been
considered by a varied range of operating the environments, including the onshore
unconventional reservoir production and frontier exploration in increasing challenge and
remote environments. The companies like Chesapeake Energy, EOG Resources, and Whiting
Petroleum, which have personalized their working models to the exclusive demands of
unconventional production (Barker and Jones, 2013).
Review the portfolio for coherence and resilience
Evaluating the portfolio considered simpler than using the divestment to generate the cash.
This should see as restructuring the business to forecast the business condition to match with
the organization competences. For example, in reassessing the portfolio, companies found to
expand in preparing the low carbon environment (Adeduntan, 2017).
4D seismic technology
This technology helps in mapping and interpreting the hydrocarbons reserves. This mapping
helps in improving the quality of reserves description as well as monitoring of expensive
injection programs. This will decrease the drilling risk and maximize the profitability in
changing and uncertain industry. 4D seismic also boost the efficiency of existing wells,
which continuously decreases the need for additional well, or drilling (Delloite, 2015).

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Managing the cost
The oil and gas companies are trying to manage the cost by using the updated technology in
the operation to reduce the cost in the business. The cost in oil and gas companies can control
by detailed analysis, tracking, and forecast the demand from the market. Demand and supply,
supplier, category cost are the cost drivers and influence the cost of procuring the oil and gas.
The decision of procurement should be taken with due care. More predictable deliveries and
bottom line cost savings by identifying the supply bottlenecks and opportunities. The check
towards the better supplier relationship and competitive intelligence for vendors should
check.
The oil and gas industry is in turmoil. In the near future the crude oil markets are found to be
taken a bumpy path which results into the declining the oil prices. This leads to deep CAPEX
spending reductions. In the next five years, there will be changes in the oil supply and
demand. The prices of oil and gas will decrease in the near future. The demand for oil and gas
industry is going to be decreased due to availability of its substitutes. These substitutes
include introducing of the hydrocarbons in the market, which can be purely the substitute for
these natural resources.

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Figure 5
(Source: EIA, 2016)
The graph shows the production and consumption of the liquid fuels. From the graph, it can
be seen that the growth has been recorded until 2015-2018 but after that, there is a slowdown
in the use of the oil and gas. The demand and supply both will be showing the decreasing
trend due to scarcity of the natural resources and availability of close substitutes in the market
(Deloitte Market Point Analysis, 2018).
.

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Figure 6
(Source: Deloitte Market Point Analysis, 2011)
3. Recommendation
Drive a culture of innovation
Oils and gas organization should strive to focus on the areas like innovation while using the
technology to save the resources for the future use. The company should open a channel for
ideas and encourage having the new ideas and technology to enhance the firm’s capability to
create a more fluid and multidisciplinary team (Yudha, Tjahjono and Kolios, 2018).
Invest in human capital and development programmes
The development of the human capital is necessary in this case as they are the one who
assesses their capabilities to develop the new techniques to substitute the use of technology.
Investment in the human capital builds a strategic workforce plan to address any shortage of

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skills in them. They try to develop the management of talent in the industry, which will be
useful for the future course of action.
Invest in a collaborative ecosystem
In this oil and gas, companies try to invest in the collaboration with the other companies so
that the mutual benefit can take out. This will help in the innovation of new techniques to
save the natural resources and leverage the new business models (Galperina and Klen, 2017).
Promote shift towards the low carbon economy
These companies should shift towards the society, which promotes the low carbon economy
that can donate to a broader reform agenda for greener and work for resilience and inclusive
growth. This shift to the low carbon economy will encourage the savage of the natural
resources and optimally use of scarce resources (World Economic Forum, 2017).
Globalize standards
Develop the global data standards and policies related to the data sharing and security. This
will encourage the principle of transparency of operations at work. Globalization not only
results in the integration of activities but also brings the unity in the oils and gas sector. This
maintains the same standards all over the globe will enhance the proper utilization of the
resources (Galperina and Klen, 2017).
Foster an ecosystem of innovation
This will help in building the innovation ecosystem and innovate with his or her own
organization to unlock the value and meet the ever-changing demand of the individual. This
will able to meet the diverse needs of their constituents (E&P, 2017).

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Conclusion
From the above discussion, it can conclude that the oils and gas sector is flourishing and
finding the different ways to sustain a long time in the market by saving the natural resources.
The whole industry focused on providing the natural resources while optimizing their use in
the environment. There are a few themes, which take into consideration, which affects the
working and nature of the oils and gas industry. This theme includes allocation of the asset,
maintaining the portfolios, managing with the operational efficiency and excellence while
coordinating with the economy with low carbon. These themes are affecting the political
environment, technological advancements, and transformation in law and changes done in the
demographic environment. This will also affect the social trends and shift towards the other
side. All this themes will affect the decision-making taken in the oils and gas sector. For this
proper decision-making is done to ensure that the shape of the industry will be done in the
right direction so that use of natural resources should be done in a proper manner.
Organisations like OPEC (Organization of Petroleum Exporting Countries) and other start
use of low carbon economy, which increase the sustainability in the business. This problem
can solve by using the high technology in the business. Use of the big data, hiring and
retaining the talented workforce, globalized the standards, which derived towards the culture
of innovation.

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