Management
Introduction
The oil and gas sector of the United States of America supplies around 65 percent of U.S. energy. This sector includes petroleum refining and gas and oil extraction industry. Globally, the United States of America accounts for more than 500,000 producing wells for petroleum and has around 4000 natural gas and oil platforms. It is the third largest producer of petroleum in the world. In total, this country has around 144 refineries which produce crude oil of more than 17 million barrels daily (U.S. Environmental Protection Agency).
There have been several factors like alternative fuels, growing production of domestic oil, diverse economic indicators and record temperatures that have contributed to the slight reduction in sales in the year 2012. The sale of distillate fuel oil registered a decrease of 0.1 percent in the year 2012. The year 2012 has witnessed a slight reduction of 0.8 percent for the total sales of kerosene and fuel oil. The sale of residual oil also decreased by almost 5.3 percent in the year 2012 (U.S. Energy Information Administration, 6). As per information collected from the American Petroleum Institute, the petroleum industry invested around 1.2 trillion dollars on energy projects from the years 1996 to 2007 and has got a total income of 974 billion dollars. As compared with other industries, the overall revenues garnered by the oil and gas firms in the United States of America fall in a middle position. As compared with the manufacturing industry, the oil and gas companies earned 7.4 cents per each dollar sales. This was lesser than the chemical and the manufacturing sectors and better than the ailing automobile sectors (Wamsted).
The oil and gas industry is facing stringent competition from alternative cheaper fuels. Another issue is that of environmental restrictions and regulations. The levels of pollution control have also impacted this industry as there have been restrictions in storage and transportation of products. Another issue is that of the seasonal nature of the business. The travel pattern of the consumer is one of the major contributors to the sale and revenue of gasoline and petroleum. Also the winter months have an increased sale of residual and heating oil. This may lead to fluctuations in the outcomes of the organization.
Company overview: Global Partners LP
Global Partners LP is one of the premier regional distributors of oil and gases including residual and heating oil, kerosene and gasoline and has been in business since 1930s. The company has its listings in the New York Stock Exchange and its products are distributed to a number of retailers and wholesalers. It has vast geographical reach in the north east region of the United States of America ranging from Maine to Pennsynvania. The company has as many as twenty facilities which are either maintained, leased or owned and has a storage capacity of 9.30 million barrels. Other than cooking oil and gases, the company also sells diesel and gasoline under the brand name of Diesel One to around 975 gas stations and wholesalers. However, its main product is heating oil which is sold under the brand name Heating Oil Plus to around 1100 retailers and wholesalers. The year 2009 has witnessed an overall sale of 94 percent from sale of oil and gases to wholesalers.
Currently, Global Partners LP is fully concentrated on distributing both commercial and wholesale refined petroleum goods. This organization has its based in the United States of America and its head office is located in Massachusetts. As of December, 2013 its total strength of employees were 943. The financial year ending December, 2013, recorded annual revenues up to the tune of USD 19,549 million from the sale of residual oil and kerosene. The company profited by 11.1 percent over the year 2012. Its total operating revenue for the year 2013 was USD 85.4 million which was a slight decrease of 5.4% over the previous year. The total profit for 2013 was USD 42.6 million was a decrease of 8.8% over the financial year 2012 (Marketline, 3).
The company is currently facing several challenges, but also has opportunities for growth. One of the main challenges is that of environmental regulations levied by the U.S. government. This means that the company has to abide to several local, state and federal rules and restrictions related to environmental protection. The U.S. government has levied strict pollution control regulations and it is mandatory for such companies to comply with these. Further, non-conformity to these restrictions will lead to increased operational costs and may also lead to forfeiting of regulatory permits. Also the operations may be negatively impacted as it may increase transportation and storage of products due to environmental restrictions.
Operational challenges and competition
The organization is facing several operational challenges due to several factors including the location of the commodity, the product grades, customer demand for the goods, transportation facilities available, the structure of the local market price, the regular volumes of delivery and the costs and timings taken to deliver the product to the customer. The firm has tried to reduce its basis risk by concentrating sale and purchase activities by means of the quality of the goods and the location. Basis risk may be described as the intrinsic market risk made while exchanging, selling or purchasing a particular good as compared with the exchange, sale and purchase of the same product at an alternate place or time including the variation in time and the discrepancies in the transport costs. In a real world situation, it is not possible for firms to completely eliminate the basis risk. The basis risk can be high for locations having unfavourable market condition. A high basis risk can adversely impact the financial condition and lead to negative outcomes of operations and revenue (United States Securities and Exchange Commission, 10).
The company is also facing high debts and this may lead to several challenges in the smooth functioning of its activities. In trying to get extra financing, Global Partners may face several difficulties in the form of credit from banks, senior notes and the credit agreement of the organization. The firm may be forced to lessen or totally eliminate the distribution of its commodities, capital expenditures, investments, acquisitions and other business tasks may be delayed due to limited funds available for operations.
The company is facing stringent competition which is based on geographic locations and products and the logistics available. The terminal firms, marketing affiliates, independent, producer and wholesale marketers, experience, financial resources and crucial oil firms. The north east region of U.S.A. in which the company has its maximum operations faces competition in the residual oil markets.
Alternate fuels
The oil and gas industry as a whole is facing competition from alternate fuels. Experts are looking forward to cheaper technologies and alternate fuels to expensive oil substitutes like petroleum. Petroleum is widely used as the major source of fuel across the country for transportation. Currently one of the significant source of energy used by the transportation sector is crude oil. In contrast, alternative fuel uses including natural gas serves the commercial/residential, industrial end user and the power sector. This scenario is changing and from a modest usage of 3 percent in the year 2007, the total consumption of natural gas used in the transportation sector in the United States of America in the year 2012 has increased to 22 percent (Azzarello, 2). One of the main threats that this industry faces is the entry of natural gas into the transportation sector. Liquefied natural gas is now being used for the long haul and heavy duty transport segments. On the other hand, compressed natural gas is being used to serve corporate fleets and to some extent passenger vehicles (Market Insights, 3).
Analysis
Global Partners LP has entered into new partnerships in order to spread its reach in the United States of America and also face stringent competition. It has acquired Alliance Energy, Cascade Kelly Holdings and 60 percent membership interest in Basin Transload. The company is trying to increase its geographical base in U.S.A. Cascade Kelly Holdings is situated in the West Coast and its acquisition helps Global Partners to sell its commodities to the West Coast of the United States of America. Acquiring Basin Transload also helps the organization to slowly widen its reach to both east and west coast of the United States of America.
The company has recently entered into an agreement to purchase 100 percent equity shares of Warren Equities Inc., which is one of the largest sellers of petroleum products in the north east of USA. The company will widen its operations into the ten states of USA in which Warren Equities Inc., is currently functioning. The firm is increasing its base to establish operations in USA. Having acquired establishments in the east, west and north east coast will help to sell its products to more US states and locations (Marketline, 8). The company is strategically expanding its oil and gas base to serve more and more states of the United States of America.
Most of the logistics are transported by means of pipeline, marine, truck and rail and any significant barriers may substantially impact its operations. Transportation barriers may be posed due to stringent environmental rules and regulations issued by the government of USA. Operating cost may accelerate due to stringent restrictions imposed to control the levels of pollution. The US government is taking strict action against firms for non-conformance with pollution control regulations and this may lead to severe operational challenges. The strategic acquisitions that the company is undertaking will lead to lessen transportation costs. Recently, a five year contract has been signed between Global Partners LP and Phillips 66. Under this contract, Global Partners LP will use the transportation, logistics and trans-loading system of Phillips 66 to deliver its commodities from North Dakota to Phillips 66 refinery located in New Jersey. This will help the firm to substantially evade the environmental issues and problems related with transporting its products. The firm is adapting such strategies so as to cope up with the strict pollution control guidelines (Pipeline & Gas Journal).
Data analytics
Most organizations are using competitive intelligence in order to collect and review information about the current markets trends and competitors so as to help in the decision making process. Global Partners LP has started exploring business intelligence solutions to gain competitive edge. Such tools are helping the firm to determine the product price. It provides valuable insights on the customer trends and factors considered prior to purchasing their commodity (Lamont). The company has recently restructured its processes and systems in order to embrace the latest software solutions. The credit control and the inventory management systems has been automated. Complex tools helping to locate customer preference has also been embraced. Such technology solutions have made it possible to ease decision making. The company has entered into several strategic partnerships and the latest technologies have helped in taking these strategic decisions.
Challenges
Global Partners LP has strategically acquired firms so as to widen its customer base. At the same time, the organization has entered into long term contracts to transport commodities.
The decision to switch over to business intelligence and competitive intelligence tools has led the firm to automate technology to facilitate decision making. The switch over from manual to automated processes and the adaptation of complex technologies has been challenging for the firm. It has completely restructured its processes and systems by using diverse data management tools. At the same time, the company is striving to streamline its operations using these software. Such data management and business intelligence software has make it possible for the firm to get access to real-time information for excellent credit control measures and inventory management. This further aids the firm to productively trade in the market by the usage of market intelligent solutions. The excellent contribution to adapting process and systems to suit the latest changes in technology has been possible for its partnership with Telvent GIT. Telvent GIT is one of the leading technology companies which provides technology and information support (Business Insights).
The switch over to business intelligence tools to managing big data has been a challenge for Global Partners LP. The company currently has more than 10 million barrels of oil storage capacity in the United States of America. Based on weather conditions, levels of inventory, speculation in the international market, competitor and demand prices there is a daily price change. The oil and gas market is highly volatile and this is the reason for a regular change in prices of oil and gas products. The company has to be highly equipped to be aware of the market price change and then adjusting the price of its products. Hence, embracing business intelligence tools is highly relevant for this firm.
The market has endless data on the prices, inventory management and other relevant factors in the oil and gas market. However, the challenge lies in taking out relevant data and then applying it to current situations for excellent decision making. According to the Chief Information Officer, Mr. Piddington, the main challenge faced by the company is resistance to change. The development of a common master data warehouse to distribute information to all analysts met with a lot of resistance. The company still faces heightened resistance as this led to the creation of new processes, reducing the number of headcounts and the change in job design from data entry clerks to data analysts. The main challenge is to change the organizational culture to suit to accept the latest technologies and embrace new software. According to Mr. Piddington, there is heightened resistance to change the organizational culture rather than adapting to new techniques (Economics Intelligence Unit, 9).
Results
Global Partners LP has entered into a series of strategic acquisitions in order to widen its operations in USA. The long term contract with Phillips 66 for transporting its commodities to the refinery in New Jersey is also a strategic manner in which the company is trying to meet up with strict environment control guidelines. On the other hand, the company has partnered with Telvent GIT for effective business intelligence solutions. A total restructuring of processes and systems has helped the firm to gain competitive edge. As per experts, Global Partners LP has an above average performance and has excellent prospects of growth in the future. The product and service quality is above average. Market experts have maintained that the company has the capacity to outperform its average market performance in the year 2015 (Sadif, 1).
Furthermore the purchase of 148 Mobil gas stations in the year 2010 across Rhode Island, Massachusetts and New Hampshire has also helped the company to make its products and commodities accessible to more customers (The Food Institute Report).
One of the strong points of this company is the strategic acquisitions that it has recently entered into. The contracts signed for transportation, switch over to latest automation and technology and having 100 percent stake in companies in the east, west and north east coast of USA has helped in expansion and growth. The strategic acquisitions has increased chances for the company to be a market leader and outrun its nearest competitors for the US market for oil and gas. The significant tie ups for transporting oil and gas products to the refineries have been strategically planned and will further aid to streamline operations. This will not only lead to cost effective delivery of commodities but will also help in smooth delivery of commodities. Customers will have greater access to petroleum and other gas products as the company has increased its reach by the establishment of 148 Mobil gas stations. Select states in USA have significantly benefitted from the significant acquisitions and partnerships that Global Partners LP has entered into. The company is again trying to attain other strategic partners so as to widen its base and reach out to more customers in the United States of America.
Conclusion
Global Partners LP has emerged as a market leader in oil and gas industry in the United States of America. The company is slowly moving towards a path of success by means of excellent strategic decisions. According to market study reports, it is a steadily growing firm and has an above average performance (Sadif, 1). The company has faced high resistance in restructuring its operations to embrace business intelligence tools. The biggest challenge faced is the transition of an organizational culture which is friendly towards competitive intelligence tools. Overall, there is high prospective of growth for this company.
Works cited:
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