Chapter 1 Introduction
Introduction
The world’s primary energy source is gas and oil production. The discovery and refinement of oil led to different products that improved the quality of life of individuals and enhanced business operations by contributing to efficiency and convenience in fuelling different areas such as transportation. Since most of the world’s activities, in one or another, have utilized petroleum products, the discovery of oil and gas sources together with the efficient collection and processing of raw products to produce consumable oil and gas became significant areas of investment. (The Columbia Encyclopedia 2007) Efficiency in the tapping into the oil and gas sources and processing these into consumable products has gained importance because of the significance of oil and gas to the world. Without oil and gas, most households would not have any electricity or heat and many factories would close. Expertise and specialization in these different areas such as engineering has gained importance and many firms compete to gain the oil and gas companies as clients (AMEC plc 2008).
As much as oil and gas are important to the world’s daily activities, these resources are scarce not only because of the complexity and difficulty of tapping into natural sources of raw products but also because of the non-renewable character of these raw products. Oil and gas take time to accumulate or build-up even reaching to centuries so that what we are exploiting now is the result of centuries of nature’s work. (The Columbia Encyclopedia, 2007) At the rate of oil and gas expansion, there is an expected shortage in the long-term, which has affected current prices.
Consumption of oil and gas on a global scale continues to grow but variedly in different regions, with the OECD countries reflecting declines in consumption and non-OECD countries experiencing growth in consumption. (Energy Information Administration 2008)
Preliminary data on expected oil and gas consumption of OECD countries in 2008 shows an increase of 630,000 barrels per day during the first quarter alone. This represents almost half of the projected consumption of 1.0 million barrels per day. This is due to the flat consumption level of many OECD countries due to slow growth or slumps in economic sectors as well as the warmer weather in many cold regions leading to lower consumption of oil and gas for heating systems. Projections for the rest of 2008 include further decreases in consumption within OECD countries. (Energy Information Administration 2008)
In contrast, consumption in non-OECD countries showed growth by as much as 1.2 million barrels per day attributed to large economies such as China and India as well as the Middle Eastern countries. China’s rapid economic growth is the reason for the spike in oil consumption as many manufacturing plants, industrial complex sites, and high-rise buildings continue to emerge. As such, China is the primary reason for the growth in oil and gas consumption in non-OECD countries. In other countries, such as India and Indonesia in Asia and many countries in the Middle East, the increase in oil and gas consumption is due to the implementation of subsidy programs that makes oil and gas cheaper and more accessible to consumers leading to the aggregate spike in consumption. (Energy Information Administration 2008)
By considering consumption alone, the decline in oil and gas consumption of OECD countries offsets the rise in consumption in non-OECD countries. This means that the annual consumption of oil and gas is more or less flat. However, this considers consumption as a single variable when supply is also a determining factor of world oil and gas trends.
Annual production of oil and gas is on a downward trend in non-OPEC countries but remains on an upward trend in OPEC countries (Energy Information Administration 2008). This means that even with a flat consumption, supply could meet demand but reserves become an issue in controlling price hikes.
In the case of supply from non-OPEC countries, projections indicate an increase by 310,000 barrels per day in 2008, which represents a lower volume from the actual production of 240,000 barrels per day. In addition, production for the first and second quarter of 2008 is lower than the production in 2007. The main sources of oil and gas in non-OPEC countries are Russia, Azerbaijan, Norway, Brazil and Mexico. The decline in production finds attribution to the decline in extraction from the older fields, together with inefficiencies in the operations of new fields leading to delays in productivity. (Energy Information Administration 2008)
With regard to the OPEC countries, supply projection is increase by 36.9 million barrels per day in the second quarter of 2008, which is higher than the production in the second quarter of 2007. Nigeria experienced decrease in production because of intervening strikes of workers and the fragile security situation in the country. However, Saudi Arabia has increased production by 300,000 barrels per day in the second quarter, with expected further growth. (Energy Information Administration 2008)
In terms of surplus production to meet any shifts in future consumption, global reserves is at 1.4 million barrels per day as of June 2008, which represents a lower supply when compared to the same period in 2007. Improvements in the security and labor situation in Nigeria and the enhanced production in Iraq are important to the sustenance of the global surplus. In addition, the oil inventories of OECD countries decreased by 430,000 barrels per day resulting to total of 2.54 billion barrels in reserves equivalent to 53 days forward consumption. Additions to the reserves should decrease in the last two quarters. (Energy Information Administration 2008)
By considering consumption and supply, current supply is able to meet consumption but the concern is the existence of enough reserves as security net for future consumption. Current reserves and increases in the reserves are falling behind projected future supply. This is the reason for the continuing rise in oil and gas prices in the world market. As such, efficiency in oil and gas production operations becomes necessary to optimize existing oil fields and develop new sources of raw oil and gas to achieve enough reserves to stabilize world prices as well as to ensure profit for oil and gas companies as an incentive for further investments into the industry. (Steitz 2008)
Due to the developments and challenges faced by the oil and gas industry resulting to the demand for support services intended to facilitate development and enhance efficiency, competition in expert support services for oil and gas companies intensified. Many companies meeting the changing needs of the oil and gas industry started to offer a variety of support services, with some specializing in one aspect such as deep sea drilling operations while other provide a range of services involving engineering design. (AMEC plc 2008) Competition is intense for a number of reasons. The ability to obtain oil and gas companies as clients is likely a long-term partnership so that each firm offering support services tend to outbid each other in providing quality support services catering to the specific needs of the firm. The pool of experts is scarce so that support service companies also compete not only for clients but also for the best individuals in their field. (Investopedia 2008) The oil and gas industry is a high-stake game, risky but highly rewarding, so that the success of oil and gas companies redounds to the support service firms in terms of commission and profit. As such, this is sufficient incentive to make the support service sector highly competitive.
In this context, the study focuses on one support service company, QED International Limited, in terms of the manner that the firm understands its competencies and resources based on its strategic audit to support strategy formulation and implementation. Understanding of its competencies and resources should be in consideration of the changing context of the oil and gas industry. The strategy should ensure the competitiveness and viability of the industry in providing the changing needs of oil and gas companies and offering service value, higher than its competitors. Results should provide the position and status of the company within the industry and in relation to its competitors to determine long-term viability and sustainable competitiveness of the firm. This has implications on the provision of the necessary service support to oil and gas companies to achieve efficiency and optimization.
Company Background
QED International Limited forms part of the service support sector for the energy industry covering oil and gas companies. The company has been in operation since 1987 as a firm specializing in providing engineering and other support services oil and gas companies. It started servicing oil and gas production operations along the UK North Sea. As the company grew, this led to the development of a wider network of clients and expertise together with the development of technology-based tools to provide enhanced support especially to international clients. (QED International Limited 2008)
The company applies the integrated approach expressed in its provision of all the support services that oil and gas companies require. In line with this, the company established four working divisions, which are 1) recruitment—the pooling of technical experts in various areas of oil and gas operations, 2) commissioning—the evaluation or inspection of the facilities, plants and equipment of oil and gas companies to ensure efficient functioning, 3) technical assurance—the provision of consultancy services on environmental compliance and safety policies and standards, and 4) engineering—the provision of design engineering solutions for the energy sector. By operating through an integrated approach, QED International Limited is able to provide oil and gas companies with all the services that these require from only a single company with four service divisions, instead of outsourcing the services offered by the four divisions from different business firms. This enhances coordination efficiency and decreases cost to oil and gas companies. (QED International Limited 2008)
As an international organization, QED International Limited has headquarters in Aberdeen, United Kingdom but it also has offices in the United States, United Arab Emirates, Nigeria, Brazil, Azerbaijan and Kazakhstan. The location of these offices is the headquarters of most oil and gas companies. To ensure its technical expertise and competitiveness, the company established a continuing recruitment program to tap into the global pool of experts to find people to staff its four divisions. Areas of operation for its personnel are in the United Kingdom, Eastern Europe, Northern Europe, and Africa. The company seeks experts through online applications saved to a database for review and reference. Its database has over 15,000 applications for a range of positions from administrators to project managers and engineers. Processing of application also happens online or by phone. (QED International Limited 2008)
QED International Limited operates based on four values. First is its commitment to excellence. The company recognizes that the oil and gas companies require the completion of tasks during the first attempt or with minimal mistakes in accordance with the project objectives. QED International Limited closely collaborates with its clients to ensure alignment between its support services and the specific needs of the client. Second is client commitment by providing quality support service to ensure maximized returns for all clients. This happens by having a pool of personnel who are the best in their respective fields. Third is team commitment by enforcing workplace policies that creates an environment of open communications, honesty, diversity, and professionalism. Fourth is commitment to the growth and well-being of employees by implementing continuous learning, entrepreneurship, and team orientation to create a balance between personal lives and professional growth. (QED International Limited 2008)
Aims and Objectives
The aim of the investigation is to determine the extent that QED International Limited plays the role of sustaining the oil and gas industry by providing specialist engineering and support services globally. This should provide information to support the placement or positioning of the company as a support services firm managing its capabilities and resources to draw and satisfy its clients to achieve competitive advantage over its many competitors. Results have implications on the status and viability of the company and sustainable competitiveness in servicing the oil and gas industry.
To achieve this aim, the study finds guidance through the primary objective of conducting a strategic audit of QED International Limited. A strategic audit determines the extent that the business firm understands its competencies and resources in addressing its goals and objectives. A strategic audit has six parts, which constitute the sub-objectives of the study. First is the completion of a resource audit to determine the resources available and accessible to the business firm. Second is value chain analysis to determine and understand the processes taking place in the firm and evaluate these in terms of competitive strength. Third is core competence analysis by identifying the capabilities of the firm that allows it to achieve an edge over its competitors so that managers should focus on the enhancement of these capabilities. Fourth is performance analysis by looking at the trends in resource use and allocation of the business firm and comparing this with close competitors to determine the position of the business firm in this aspect. Fifth is portfolio analysis by looking into the management of the business units located in different countries to ensure consistency and responsiveness. Sixth is SWOT analysis by identifying the strengths, weaknesses, opportunities, and threats faced by the firm to position the firm in the industry and market. (Miesing 2006)
Significance of the Study
The study has significance to the firm as well as the support service industry. The strategic audit provides an assessment of the current condition and states of QED International Limited in terms of its various aspects covering organizational and strategic soundness with implication to its future direction. As a preparatory stage, the strategic audit is the prelude to recommendations on the future strategic action of the company. This then entails data on the areas for improvement as well as areas of competence that need enhancement to ensure that the business achieves competitiveness and remains competitive in servicing the oil and gas industry. The experiences and strategies of QED International Limited could also become best practices for application by other firms in the industry.
References
AMEC plc. 2008. AMEC expert paper: The oil and gas services market. Available at http://www.amec.com/uploadfiles/FurtherInformationDocuments/AMEC%20EP%20Oil%20Gas.pdf [accessed 7 July 2008]
Energy Information Administration. 2008. Short-term energy outlook. Available at http://www.eia.doe.gov/steo [accessed 7 July 2008]
Investopedia. 2008. The industry handbook: The oil services industry. Available at http://www.investopedia.com/features/industryhandbook/oil_services.asp [accessed 7 July 2008]
Miesing, P., 2006. Conducting a strategic audit. University of Albany School of Business. Available at www.albany.edu/~pm157/audit.html [accessed at 7 July 2008]
QED International Limited. 2008. qedi group. Available at www.qed-i.com. [accessed at 7 July 2008]
Steitz, C., 2008. Long-term expectations of oil scarcity drive oil price – German institute IfW. Forbes.com. Available at http://www.forbes.com/afxnewslimited/feeds/afx/2008/06/09/afx5094516.html [accessed 7 July 2008]
The Columbia Encyclopedia. 2007. Oil industry. New York: Columbia University.
Credit:ivythesis.typepad.com
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