Executive Summary for ConocoPhillips
ConocoPhillips is an American multinational dealing with energy. The Houston, Texas-based company ranks among the world’s Fortune 500 companies and is the world’s largest independent pure-play exploration and production companies. The company explores for, produces, transports and markets bitumen, Natural Gas Liquids (NGLs), Liquefied natural Gas (LNG) and crude oil around the world. ConocoPhillips came into being following the merger of Phillips Petroleum Company and Conoco Inc. in 2002. In 2012, the company had a revenue of US$62 billion, more than 16,900 employees and was producing about 1.6 million barrels of oil per day. It currently operates in 30 countries under the following regions Alaska, Canada, Lower 48 and Latin America, Asia Pacific, Europe, Middle East and Other International. In order to expand, acquire more market share and attain sustainability in the energy industry, ConocoPhillips needs to upgrade its operations to surpass its competitors, venture in the developing world, adopt advanced technology in its operations among several other related measures.
The international expansion of the company focuses on the lower-risk legacy assets in Europe, North American resource rich shale, Asia and Australia. There is also an emerging conventional and unconventional inventory of global exploration prospects. The company’s value proposition to its shareholders is to deliver competitive returns on capital, production, compelling dividend, and cash flow margin growth. The company plans to do all this and maintain its fundamental commitment to safety, environmental stewardship, and operational excellence. In all, the company shall achieve the proposition through investing in high margin developments, optimizing its portfolio, maintaining financial flexibility, and applying technical capability.
The industry
There are very many companies in the energy exploration and production industry. In the Americas (USA, Canada, and South America), there are 52 major and properly established energy companies. Nearly all these companies target the same conventional areas such as The Middle East, the Americas, and parts of Africa and Asia for the exploration and production of oil. They also deal in the same products; crude oil, bitumen, LPG and NGLs. Just like ConocoPhillips, several large companies have come together in merger and acquisitions and formed large and very powerful companies. These companies include Exxon and Mobil, The Royal Dutch and Shell companies. The industry faces major problems such as oil spills and environmental blames. The recent BP Deepwaters Oil Spill Tragedy compels all energy companies to put in place measures to curb oil spills and to handle it in case it occurs. The magnitude of the oil spill had to be addressed by all industry players because tougher transportation rules came into play.
The energy industry needs companies to create departments that address very specific concerns. For instance, the operators and engineers ought to create a SHEAR (Safety, Health, Environment, and Regulatory Affairs) Department. The work of the department would be to identify opportunities for energy efficiency and to improve operations. The redesign of ConocoPhillips facilities to accommodate workers without posing dangers to their health and general wellbeing would be a welcome move by its SHEAR department. Issues such as labeling at the refineries as well as the creation of ample walkways can act to minimize accidents. This issue can lead to acquisitions of talented employees who prioritize their safety at the workplace above all else.
Conoco Philips also needs to review its Corporate Social Responsibility (CSR) activities. The company supports education in Asia and other parts of the world. It also supports the environmental sustainability of the water bodies through responsible use of the bodies by discouraging dumping of crude oil products at the sea. Other CSR activities include the offering of educational bursaries and scholarships to students in several of the countries that the company operates. The CSR activities help to market the company while also serving the important role of giving back to the society. ConocoPhillip’s management should intensify the CSR activities because they are a very healthy way of studying the activities of the other industry players through joint CSR activities.
Competitors
The top competitors for ConocoPhillips are Exxon Mobil Corporation, Royal Dutch Shell PLC, and BP PLC. Exxon Mobil Corporation is the market leader in energy exploration, production, and transportation. The Royal Dutch Shell comes in second and BP Plc comes in third. As of 2012, Exxon Mobil proved it had reserves of 25.2 billion barrels of oil and had 32 refineries in 17 countries with a capacity of 5.4 million barrels of oil per day. The Royal Dutch Shell had reserves of 14.2 billion barrels of oil equivalent while BP Plc operated in 30 countries and had proved reserves of 17 billion barrels of oil. The Royal Dutch Shell also offers ConocoPhillips massive competition in the exploration of oil in new non-conventional areas. RDS is currently investing heavy in exploration works in the Athabasca Oil Sands project. BP is the largest gas and oil producer in the US and is a major refiner. As such, competition in order of priority for ConocoPhillips comes from Exxon Mobil, Royal Dutch Shell and BP Plc. In order to maintain its pace on the industry leaders, ConocoPhillips is doing the following; investing in the acquisition of acreage, development if newly acquired fields, exploration of new oil and gas fields, maintaining of existing fields, constructions of LPG facilities and oil pipelines. Notably the three companies offering the stiffest competition to ConocoPhillips are all engaged in the production of petrochemicals. As such, the management at the company should look into ways of diversifying to other products to match the industry pacesetters.
Global market expansion associated expansion
The global market for crude oil product and natural gas is increasing especially in the developing world. These new areas in Asia, Africa, South America, and parts of Europe provide business in two-pronged manner. First, they need petroleum products to power their growth and they have unexplored grounds that could hold potential for massive deposits of energy. In Africa, oil exploration companies have discovered oil in Ghana, Uganda, and Kenya in addition to discovering more deposits in areas such as Sudan, Nigeria, and Libya. Notably in Africa, exploration of oil at the seas is minimal. As such, ConocoPhillips should venture into the developing world since there is massive business that can sustain the business. This would be particularly beneficial because the developed world is slowly turning away from using oil and gas and into the use of renewable energy sources such as wind, hydropower, biomass, and sunshine.
In order for the company to expand to the international market, it has to adopt strategies based on the following, geological engineering, and geophysical research, and technology, economic analysis in connection with portfolio management, experience and expertise as well as safety in the safe operation of gas producing properties.
Recommendations
Oil exploration can be a very expensive venture and since exploratory companies stand to lose huge profits when they do not find the energy products. As such, the company should equip its Research and Development team to increase its capacity of detecting oil or LNG within a short period after embarking on any exploratory venture.
The company should also retrain, reshuffle, or acquire new and highly skilled employees who are conversant with the latest technology in the energy sector. A competent staff stands a better chance of implementing changes and maintaining the company’s momentum with the industry players.
It is imperative that ConocoPhillips expands its production capacity since production processes such as refining have lower business risks as compared to exploration.
The company also needs to focus on the key areas that have high business and that have relatively minimal expenditure. The US Alaska region has abundant natural gas, crude oil, and NGS. By June 2013, the region contributed 23% of ConocoPhillip’s worldwide liquids production. As such, the company should earmark and intensify business in these regions. Some of the activities to aid in achieving more business include the use of advanced machinery, technology, proper well management, and provision of talented and dedicated employees.
It is also very important that the company acquire all legal documentations and authorities prior to engaging in exploratory or production work. The energy regulations differ very much from one country to another and as such it imperative for foreign explorers familiarize themselves with local energy regulations while ensuring that pre-exploratory contracts are not ambiguous or oppressive. This minimizes the company’s risk of running at losses through dubious and unproductive ventures.
