Oil and Gas Management : Essay

Oil and Gas management

The rising demand of global energy is creating immense challenges as well as
opportunities for the oil and gas industry (Aaluszczak, Rose and Kump, 2013). The given
industry is being regarded as one of the largest industry and hence it significantly contributes
towards the economic growth of country. The present essay is based on the case scenario of Big
Oil companies which are going through with the number of challenges and due to which they are
facing the biggest threat of survival. The Big Oil companies are also known as supermajors and
it consists the list of seventh and eight largest oil and gas companies that is Chevron Corporation,
BP plc, Shell Plc, Royal Dutch, Total SA, Eni and Conoco Philips Company and Exxon Mobil
Corporation etc. Here, the respective essay will give the overview about the oil and gas
companies. In this regard, the essay will illustrate the three major challenges which is being
faced by the given big oil companies.
Cash crunch of sub-$50/bbl oil on projects and dividends
The first challenge which the Big Oil companies are facing is of cash crunch. In this
regard, as per the view point of Arouri, Jouini and Nguyen (2011) Cash crunch is the type of
condition in which firm does not have sufficient funds with an aim to meet its day to day
operational demand effectively. The oil and gas companies are going through with the given
situation because of declining oil prices. In accordance with the given context, on the basis of
analysis it is examined that in 2014 oil prices a barrel is recorded as 100 dollars in first quarter,
more than 60 dollars in second quarter and however in third quarter it is declined to 50 dollars a
barrel (Cash Crunch Clouds Future for Oil Firms, 2016). From the given statistic, it is right to
said that the oil and gas companies are facing the drastic changes in terms of their oil prices.
In addition to this, Anderson (2012) has depicted that marginal oil companies are facing
the solvency issues and due to which they have to make the decision of slashing the dividends.
Due to oil crises, a firm will have to make the decision to slash their dividends. This is because,
if firms will not perform this at that time it will become very difficult for them with regard to
survive in the respective market in an effectual way. For instance, British Petroleum has slashed
its dividend due to declining oil prices. The given thing has caused significant impact upon the
brand image of company.
But, Osborn and et.al (2011) have argued that slashing dividend of stakeholders is not the
only option for dealing with the condition of cash crunch. This is because, stakeholders are the
people which plays very effective role in the success of any enterprise. It is through these people

only, any big oil company can turn into loss making from the profit making company. Hence, it
is being required by the companies that they should give consideration to these people whenever
they are going through with the tough times (Wilson and VanBriesen, 2012). This is because, if
the given type of thing is not performed by firm at that time they may face major difficulties in
the future.
For example, Chevron which is the second largest supermajors has a different view on
dealing with the condition like declining oil prices. Here, company believe that slashing the
dividend of stakeholders is not the only option as there are other things too which organizations
can perform that is divesting asset and issuing new debts etc. In this context, it is examined that
Chevron has the long history of paying rising dividends. Herein, in the fiscal year 2015 company
has paid 8 million dollar in dividends (Dividend Cut Risk of The 6 Oil Super Majors, 2016). The
given type of tactic is also practised by varied other Big Oil firms too. This indicate that the firm
giving importance to their stakeholders and it is the reason why they are making all sort of
efforts for not losing the trust of their stakeholders in an effective way. In the similar way, Shell
has pulled out all the shares with an aim to protect the dividend. This is done by Shell with an
aim to protect the interest of the company as well as in order to maintain the continuity of the
operation.
In this regard, Hickenbottom and et.al (2013) have also stated that cash crunch due to
declining oil prices making the big oil firm with regard to slash their spending. In this regard, it
is assessed that supermajors which consists of Exxon, Chevron, Shell and BP have slashed their
total spending by more than 30 million dollars recently (Wilson and VanBriesen, 2012). This is
done by them by cutting down different type of projects such as laying off workers and delaying
projects etc. It is the good approach for cutting the cost of firm and dealing with the situation
which is prevailing in market.