Impact of Shale Gas on Oil Industry

This assignment examines the consequences of shale gas production on the global oil industry. It explores how shale gas has influenced oil prices, dividend payouts by major oil companies, and the overall investment landscape in the sector. The analysis delves into the economic factors driving these changes, including supply and demand dynamics, technological advancements, and regulatory policies.

Oil and Gas Management
1

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
Theme 1: Cash crunch of sub-$50/bbl oil on projects and dividends..........................................3
Theme 2: Whether to abandon production-maximising policies.................................................5
Theme 3: Planning by oil companies to promote low carbon global world................................7
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9
ILLUSTRATION INDEX
Illustration 1: Dividend and profit ratio...........................................................................................4
Illustration 2: Dividends at $100 a barrel .......................................................................................5
2

INTRODUCTION
Oil and gas sector plays a key role in economic development through performing various
activities in regard to oil production and sales. In addition to this, Big oil industry is considered
as critical factor because it holds membership of various big oil giants. Classification of big oil
and gas business firms can be as BP, Shell, Total, Nioc, Cnooc, Conoco, etc. It has been
identified that the working of such big oil and gas companies is related with the fossil fuels lobby
(Schroders, 2015). It also have direct influence on the economic development and political
aspects of the country. Price and demand changes plays a vital role in oil and gas industry.
However, the current learning is focused towards various challenges that big oil organisation
faces in international and domestic market. Furthermore, issues will be discussed under themes
of cash crunch, desertion of policies in context to production-maximization. It will also focus on
various factors of planning process that can reduce the carbon issue in the world.
Theme 1: Cash crunch of sub-$50/bbl oil on projects and dividends
As per the structured study, it has been identified that the cash crunch is considered as a
market circumstances where companies does not have sufficient funds to operate business. In
other aspect, it is referred as an issue in context to low liquidity which impacts the overall work
culture of the sector. Advancement in such kind of issues have direct influence on the operational
activities and profitability of the firms. For the same, the oil and gas industry also demands high
investment in order to perform production activities but due to lack of liquidity the companies
are facing issue of cash crunch (Kent, 2015). Big oil firms require funds to maintain equipments
and machineries, delivery of final product and salary of employees. Moreover, big oil and gas
business firms that are classified as BP, Shell, Total, Nioc, Cnooc, Conoco, etc. also demands the
same to operate business in sustainable manner. As per current statistical report, it has been
identified that in last one year, the Shell, Total and BP are facing issue regarding decrease in
pricing of their products and services (Anderson, 2012). It has also impacted the overall
development of oil and gas industry in global context. Perception of shareholders has also
affected due to such kind of negative changes in market. It has also increased the issue of low
liquidity in the global market and influenced operational activities.
Moreover, in order to overcome such issue the big oil companies has started focusing on
reduction in operational cost. In last six months due to lack of liquidity the internal and domestic
3

giants has decreased their expenses nearby $30 billion (Entrekin and et.al., 2011). In regard to
this big oil companies like BP, Shell, Total, Nioc, Cnooc, Conoco, etc. are ensuring that their
projects may get delayed so that their production units can have sustainable working and their
return on investment can be increased. Profit margin ratio of oil and gas firms has also decreased
in last one year due to cash crunch issue (Imam and Capareda, 2012). In starting of year 2015 the
organizations were facing cash crunch issue nearby $20 billion and it is increasing day by day. It
also higher their operational cost and providing less rate of return.
As per the above statical report, the cash dividend payment of big oil companies has
decreased but still considered as positive in regard to cash. It also indicates that in year 2014 the
net profit of BP, Chevron, Shell and Exxon Mobil has decreased which has impacted the overall
development of the sector. BP is facing loss of 3 billion in year 2014 that has impacted its
operational activities in the internal market (Osborn and et.al., 2011). It also indicates that the
Exxon Mobil is much stable in the market as compared to other competitors in the market. It is
due to optimistic strategy of sustainability, company is focusing on advancement of production
unit rather than decrease in cost of operation. However, the decreases in price of oil products also
impacts the rate of return and creates negative influence on the organisation. It is one of reason
that the organisations have started decreasing their cost of operation (Wilson and VanBriesen,
2012).
The following graph indicates that the dividend of international oil and gas sector is
having rapid changes. In the starting of year 2014 the prices of crude oil has started decrease
4
Illustration 1: Dividend and profit ratio
(Source:Kent, s., 2015)

which has influenced the working of big oil companies. In mid of year 2014 the free cash flow
has also reduced that has created an issue of cash crunch in the market (Anderson, 2012). As per
the consideration of the statical report, in year 2016 the companies will be facing extreme issue
of cash crunch and low liquidity aspects. It has also been predicted that in year 2016 the big oil
firms may attain growth opportunities in the market.
Theme 2: Whether to abandon production-maximising policies
In regard to overcome the issue of cash crunch the contradictory climatic policies are
formed by the government so that negative influence on businesses can be reduced. It has been
identified that the Climate Change act 2008 is established in order to provide support to
environmental aspects and reduce the carbon emission. It is also essential for governing bodies to
design strategies that can maximize the economic recovery in context to oil and gas sector of
UK. Big oil companies are also focused towards advancement of production so that issue of cash
crunch can be decrease it forces authorities to maximizing the bills (Gregory, Vidic and
Dzombak, 2011). UK has aim to maximize production for oil and gas by taking into account
increasing demand of the same in the marketplace. In order to increase the efficiency and cut
down the cost of production the authorities have also designed the OPEC which ensure that the
oil and gas sector is having better opportunities in the market (Inkpen and Moffett, 2011).
5
Illustration 2: Dividends at $100 a barrel
(Source:Schroders, 2015)

Moreover, in order to render a better support to oil and gas industry the government of
UK is also focused towards modifications in policies. Such as, recently petroleum act 1998 has
transformed to infrastructure act 2015. It is formed to ensure that the policies are designed to
provide support in production units and leads sector to impressive level of success (Rahm and
et. al., 2013). OPEC ensures about the standards so that better goals can be accomplished in
desired form. In addition to this, the government of UK is also focused towards abandoning
activities in North Sea oil and gas sector even its potential in generating huge oil. This clearway
indicates that for effective operation in the future and to accomplish the demand the authorities
are making such kind of decisions (Wilson and VanBriesen, 2012). It has also been identified
that the Scottish control is also providing an assistance to improve return on investment and
forces firms to be stable till the prices get high.
In addition to this, the application of policies set out the production standards that need to
be followed by big oil companies. Decrease in price of crude oil also increases the barriers for
organisations and forces them to focus on activities that can reduce negative impact. Targets are
set out by the organizations in order to meet the production level in desired time frame so that
goals can be accomplished. Application of policies in the working some time creates a slowing
factors in the production that may increase the overall growth in negative manner (Jones, Hillier
and Comfort, 2015). It has been identified that the economic aspects plays a vital role in the
development of policies because the business of oil and gas firms is more focused towards units
of barrels. However, local body regulates and make plans and policies regarding the targets
which business establishment have to achieve within the set time frame.
As per the evaluation of the comments, the oil and gas sector is in the support of abandon
of maximizing policies because it helps in setting out various standards. It also increases the
productivity and accomplish organisational goals in most desired form. With an assistance of
these standards and OPEC monitoring the big oil companies can easily overcome the issue of
carbon emission and cash crunch (Valadkhani, Smyth and Vahid, 2015). But it has also been
noticed that the authorities of North sea are not in the support of the production maximizing
policies. It means contradictory aspects in the policies also impacts the business of oil and gas
sector in diverse manner.
6

Theme 3: Planning by oil companies to promote low carbon global world
As per the structured study, carbon emission is one of critical issue that impacts the
environmental conditions as well as working of oil and gas sector in global context. It is essential
for big oil companies to design actions that can overcome carbon emission issue in appropriate
manner. In this regard, the big giants of oil and gas sector has started focus on promotion of low
carbon global world (Jones, Hillier and Comfort, 2015). Oil companies are planning activities
that cut down the negative impact of carbon emission. Government is also establishing various
policies that can boost economic development and reduce carbon emission. It will provide better
opportunities to the fast growing sector and lead businesses to better success. It has been
identified that in order to promote the environmental aspects the big oil companies have also
asked government authorities to pay charged on promotion carbon emission (Wilson and
VanBriesen, 2012). It has been noticed that the working of oil and gas sector is impacting global
warming aspects. In this respect, the management of oil and gas sector has decided to charge on
carbon emission. It also provides an assistance to economic development. For example, BP,
Shell and other authorities provide financial support in social development in respect of carbon
emission issues. Other than this, it has also been identified that the oil and gas sector big giants
are also following rules and regulations in appropriate manner so that global warming issue can
be overcome in effective manner (Inkpen and Moffett, 2011). Number of oil and gas
organisations are also increasing their investment on equipments and machineries development
so that carbon emission can be reduced in order to protect environmental aspects.
Moreover, the technological changes are also planned by the organisations in order to
ensure about environmental issues. 3D monitoring system and x-ray technology is being used to
have optimum use of raw materials and render a support to environmental conditions. It also
helps overcome various issues that impacts the image of the sector in negative manner. BP and
Shell has also decided to adopt green environment at their work place (Gregory, Vidic and
Dzombak, 2011). They are now investing more on plantation of trees their pumps and other
corporate infrastructure. It also provides a support to environmental conditions. Other than this,
in order to reduce the carbon emission the OPEC has also designed environmental policies that
need to be followed by big oil companies (Anderson, 2012). Various safeguarding policies are
designed and authorities are also planning to bring transformation in the rules and regulations so
that standards can be maintained in appropriate manner.
7

Furthermore, oil companies are planning for their expansion where Shell proposed to
explore for oil in the Arctic whereas BP expended its operation in Gulf of Mexico. However, it
shows that the demand of oil and gas energy is increasing so management of big oil companies
are organizing campaigns that can reduce the demand of oil and gas products (Wilson and
VanBriesen, 2012). In addition to this, organisations are also focusing on implementation of
various corrective activities that can promote environmental aspects and reduce the issue of
carbon emission. Organisational frameworks are also designed according to carbon emission
policies. Technological tools are being used to promote renewable energy so that goals can be
accomplished in most appropriate manner.
CONCLUSION
As per the above study, it can be concluded that the oil and gas sector is facing various
challenges that can impact the overall development. Big oil companies are working in the
competitive market such as BP, Shell, Total, Nioc, Cnooc, Conoco, etc. It has been identified
that the cash crush is one of critical issue that impacts working of firms. Continuous decrease in
price of crude oil is key factor that increases low liquidity issue. Moreover, carbon emission
issue can be reduced by following work frameworks and technological updates in machineries.
8

REFERENCES
Books and Journals
Anderson, G., 2012. Oil and gas in federal systems. Oxford University Press.
Entrekin, S. and et.al., 2011. Rapid expansion of natural gas development poses a threat to
surface waters. Frontiers in Ecology and the Environment. 9(9). pp.503-511.
Gregory, K. B., Vidic, R.D. and Dzombak, D. A., 2011. Water management challenges
associated with the production of shale gas by hydraulic fracturing. Elements. 7(3). pp.181-
186.
Imam, T. and Capareda, S., 2012. Characterization of bio-oil, syn-gas and bio-char from
switchgrass pyrolysis at various temperatures. Journal of Analytical and Applied Pyrolysis.
93, pp.170-177.
Inkpen, A.C. and Moffett, M.H., 2011. The Global Oil & Gas Industry: Management, Strategy
& Finance. PennWell Books.
Jones, P., Hillier, D. and Comfort, D., 2015. The contested future of fracking for shale gas in the
UK: risk, reputation and regulation. World Review of Entrepreneurship, Management and
Sustainable Development. 11(4). pp.377-390.
Osborn, S.G. and et.al., 2011. Methane contamination of drinking water accompanying gas-well
drilling and hydraulic fracturing. Proceedings of the National Academy of Sciences.
108(20). pp.8172-8176.
Rahm, B.G. and et. al., 2013. Wastewater management and Marcellus Shale gas development:
trends, drivers, and planning implications. Journal of environmental management. 120.
pp.105-113.
Valadkhani, A., Smyth, R. and Vahid, F., 2015. Asymmetric pricing of diesel at its source.
Energy Economics. 52. pp.183-194.
Wilson, J. M. and VanBriesen, J. M., 2012. Oil and gas produced water management and surface
drinking water sources in Pennsylvania. Environmental Practice. 14(04). pp.288-300.
Online
Kent, s., 2015. Oil Majors’ Dividends Survive Plunge in Oil Prices. [Online]. <Available
through: http://www.wsj.com/articles/oil-majors-dividends-survive-plunge-in-oil-prices-
1447634165>. [Accessed on: 13 April, 2016].
9

Schroders, 2015. What does the oil price fall mean for income investors. [Online]. <Available
through: http://www.schroders.com/nl/nl/institutioneel/nieuws-narktinformatie/markets/
what-does-the-oil-price-fall-mean-for-income-investors/>. [Accessed on: 13 April, 2016].
10