Petroleum

Is hydrologic fracturing a suitable form of energy production? Over the past 85 years, the American Petroleum Institute, API, has been developing and refining engineering standards and practices for the industry. The past decade has brought about a new practice that involves hydraulic fracturing in order to produce oil and natural gas in places where conventional technologies are ineffective. This is a rather in-depth process. Firstly, a production drill is drilled through the rock layers to intersect the coal seem that contains coal bed methane, CBM.

Next, fractures are created or existing fractures are enlarged in the coal seem so that the CBM can be drawn from the well and pumped to the surface. These fractures are created or enlarged by using a thick water-based fluid which is gradually increased by rate and pressure. Then, over time the coal seam is unable to keep up with the fracturing fluid which results in high pressure causing the coal to fracture along the weaknesses within. Sand is pumped into these fractures to keep them ‘propped’ open after the pressures are released.

The first diagram in the appendix shows what occurs in the subsurface during a typical hydraulic fracturing event. After a period of fluid recovery or groundwater extraction is when the extraction of CBM occurs. As pumping continues, the pressure eventually decreases so that the methane desorbs from the coal, flows and is extracted through the production well. The fracture created acts as a conduit in the rock or coal formation, allowing the CBM to flow more freely from the coal seems through the fracture system and to the production where gas is pumped to the surface.

Unlike conventional gas production, the amount of water extracted declines proportionally with increasing CBM production (US EPA, 2004). The demand of natural gas is expected to increase drastically over the next 20 years, causing the need for innovative production to fill the growing demand. Many may believe that there are other ways to fulfill the need of natural gas, due to production concerns, but this is a suitable form of energy production. Hydraulic fracturing should be used because it will provide a significant increase in jobs, economic growth, and clean burning energy.

The Keystone XL pipeline has had much controversy in the news recently. This pipeline is an extension of the existing pipeline running from Canada to the United States. The pipeline would increase crude oil capacity between the two countries allowing for a more diverse supply among the United States’ worldwide crude oil sources, shorten the transportation pathway for crude oil supplies, and increase the crude oil supplies from a major non-organization of petroleum exporting countries producer. “The use of hydraulic fracturing will help make our country more energy self-reliant and more secure” (Green, 2012).

This statement was made by the API President and CEO, Jack Gerard during the second State of American Energy event January 4. He also proceeded to state that the United State’s resources on and offshore are among the largest in the world. This means that with the right policies in place, there could be 100 percent of our liquid fuel needs supplied domestically and from Canada by 2026. Also, with a pro-energy development approach 1 million new US jobs by 2018 could be produced along with billions of dollars in additional revenue to government (Green, 2012).

The increase in jobs from this production is approximately 334,000 in the past two years after the 3 million manufacturing jobs lost from 2001-2007. Hydraulic fracturing has rapidly increased the domestic production of natural gas and has seen low domestic prices for households. Figure five below shows the increase in production rates over the last several years (Green, 2012). The oppositions to this vision are primarily political on an ecological level. In order for the process to run smoothly water use is needed.

Many think that the water used for hydraulic fracturing could deplete fresh water supplies and impact aquatic habitat. Some also say that the groundwater could be contaminated. Some hydraulic fracturing fluids can also contain chemicals. Typically a mixture of water, proppants and chemicals are what is pumped into the rock or coal to fracture the wells. Eco-friendly leaders and environmentalists are taking a stand to state that these chemicals, use of water and damage to groundwater are not acceptable and this energy method should not be used. Firstly, chemicals typically make up just 0. and 2% of the total volume of the fracturing fluid with the majority being water. Secondly, natural gas emits fewer greenhouse gases than other fossil fuels, about half as much of carbon dioxide as coal which contributes to less global warming. Thirdly, with the halting of fracturing in some states due to pressures from environmental and public health groups asking the EPA for tests and proof that it is safe to continue with this type of energy production, supporters are concerned that it could hinder U. S. job growth and energy output in a time of need (McLendon, 2010).

The tests from the EPA will take roughly two years, so until then it is a waiting process. As you can see, this is a roughly new energy production that does need to be researched more. From my point of view the pros seem to outweigh the cons. I think more tests and actual data about contamination and whether it is really safe will be the true test. The increase in jobs, economic growth, and clean burning energy is most definitely what this country needs right now. The true outlook on this issue will come towards the later part of this year when the test results conclude.

References

1. Green, M. (2012, January 05). Starting the energy debate. Retrieved from http://energytomorrow. org/blog/starting-the-energy-debate/
2. McLendon, R. (2010, December 10). Big frack attack: Is hydraulic fracturing safe?. Retrieved from http://www. mnn. com/earth-matters/translating-uncle-sam/stories/big-frack-attack-is-hydraulic-fracturing-safe
3. US EPA. (2004, June). Evaluation of impacts to underground sources of drinking water by hydraulic fracturing of coalbed methane reservoirs. Retrieved from http://www. epa. gov/safewater/uic/pdfs/cbmstudy_attach_uic_exec_summ. pdf

This year, oil prices is affecting negatively EasyJet and other airlines, since they cannot make a profit if the oil price stays at current levels. Strong demand is the only positive side of the unprecedent rise in costs due to the high prices of oil, $140 a barrel, which could lead to a loss of nearly 6$ billion this year. Those airlines which will be in the market this summer will have a very high revenue and costs because of the rise of petrol, which will lead to a very low profit.

In September, when the peak summer season has finished, the revenue will dicrease drastically, as a result, the profit will turn negative. EasyJet is already working in lowering costs, so that the high price of petrol won’t strike in a hard way the company. Their planes are now flying up to 2% slower on some routes in order to save hundreds of punds per flights. In first place, for airlines, oil is the fundamental material needed to offer their services.

When the price of oil increases, the supply dicreases, which leads to an increase in the price, but dicrease in quantity. This action produces a dicrease in the total income, which can be seen in the following graph: In this graph, we can see how the supply dicreased because of the rice in costs. To lose the less amount of profit, the price is increased, and because of that the demand dicreases. As a result the quantity supplied dicreases. The quantity demanded in the summer season increased because of the vacations and the high demand in trips over the world.

This won’t help as much as the airline might think, as EasyJet’s director of communications, Toby Nicol, said: “Those airlines which are in the market this summer will have another good few months in terms of revenue, but it will not be enough to cover the costs,” The demand in quantity increase because of the summer season can be seen in the following graph: In this graph, we can see how the demand affect the price of the service. As the demand for the service increases, the price and the quantity supplied increases as well. In this case, the price increased won’t be enought to cover the high costs.

In the normal season, the elasticity is very high, because people want to fligh within the less cost possible. This means that the company can’t increase too much the prices to cover the costs, because as a result, they will lose a lot of customers who will change to a cheapier service. In the other hand, in the summer season, EasyJet took advantage of the high demand, so increased the price, since the elasticity goes down when the demand increases. This happens because very few customers will change company, because nearly all companies increases their prices in summer seasons.

The dicrease in elasticity because of the increase of demand can be seen in this graph: Finally, EasyJet found a way to dicrease its costs. They decided to fly their planes 2% slower in some routes in order to conserver fuel. This method will lower their costs in a huge way, taking into account the thousands of flights that the company has each month. Also as they lower their costs, they woun’t need to increase their prices to cover the costs, as a result EasyJet will have a higher demand because of low prices, and will continue growing.

In conclusion throughout this analysis I understood the importance of having low costs in a company, and the difficult problems that most airlines are having with oil. Also I realise that the summer seasons are very helpful for airlines, but now a days, even high revenues in summer vacations can’t afford extremely high costs of companies, which are centralized in oil. EasyJet has found a little solution to this problem, which consists in lowering by a low percent the airplanes velocity, so that costs care lowered.

Marketed the world’s first intumescent epoxy material, is a production from the Apollo Program conducted by NASA, in which spacecraft was tested in every aspect to ensure that the astronauts and the spacecraft themselves can withstand the harsh condition of space and the extremely high temperatures of re-entry into the Earth’s atmosphere. The material is used in the heat shield of the Apollo.

When re-entering, the shield will burn because of the high temperature due to friction. However, Chartek chars, dissipates heat through burn-off and creates a protective coating which prevents the heat from penetrating anywhere further than the outer surface of the spacecraft, keeping the inside cabin at a comfortable temperature of 21oC. When exposing to high temperature heat or flame, Chartek expands in volume, acting as an insulating barriers.

Although there is not yet any serious fire accident reflecting its quality, Chartek is considered an effective material used in modern fireproofing systems, based on the results of tests on stability, integrity and insulation conducted by the Underwritten Laboratories (UL) and Norwegian Petroleum Directorate (NPD). The following table shows some comparison fire endurance times for various composite panels.

The black bar shows 60 minutes for the time endurance of a Chartek-coated panel, which is relatively long.

It is constantly improved and recently has been marketed out in form of intumescent paints and foams; its innovations are critical fire-proofing materials in such industrial facilities as oil refineries, petrochemical plants, as well as in commercial infrastructures and such public buildings as schools, hospitals, airports and shopping malls. Chartek and one of its innovations, Interchar, contribute largely to the development of safer workplace and public buildings.

In normal condition, Chartek coating provides a resilient and smooth finish to the exposed steel structure. In emergency fire events, the materials offer longer time of fire protection, slowing down the process of collapsing and providing more time for the building occupants to evacuate safely. The use of Chartek in fireproofing systems significantly benefits the economy. The infrastructures are so effectively protected in fire events that the cost of repairing the buildings is greatly reduced.

The material also acts as a corrosion protection layer, increasing the durability of the inner material, which can save a great deal of money on maintaining the buildings in good condition. In addition, human damage and injury payment can be considerably cut down since the workplace is much safer. Some of Chartek innovations, such as Chartek 3, Chartek 7 and Chartek 1709, are used in the fire-proofing systems of offshore structures as in the oil refinery platform of Norwegian Petroleum Directorate and Caltex Lytton refinery in Brisbane, Australia.

Since its inception, ExxonMobil has sort to explore and produce energy in potentially lucrative and profitable opportunities in reservoirs around the world. The world over, ExxonMobil has drilled wells, partnered with many companies in efforts to make the company highly effective and efficient in energy production and supply. ExxonMobil’s core business is the exploration and production of oil and gas.

The company’s petroleum is mainly sold through Exxon’s/Esso’s service stations around the world, while the company’s aviation fuel is mainly marketed and sold at the airports. To cater to the fuel needs at the ports ExxonMobil Marine Fuels is the core servicer to the ports. Not only is the company, the world’s largest non-governmental seller of equity natural gas, but also the world’s leading marketer of finished lubricants, using the brand name Mobil and the world’s largest wholesaler of helium.

Among the company’s chemical products are plastics, oriented polypropylene film, synthetic rubber, fluids, plasticizers, basic chemical building blocks such as ethylene, ethylene glycol, propylene and paraxylene, fuel and lubricant additives and synthetic lubricant base stocks. In its operations, the company operates its coal extraction and mining in two continents while oil and gas exploration is done all over the world.

The company presumes that oil and gas, as energy sources, can maintain approximately 60% of energy resources in 2030 and that no major substitutes to oil will be realized as the transport fuel in the near future. ExxonMobil’s analysis is that alternative energy resources could offer the highest carbon-emitting impact in the electricity section, and the world would then maintain its demand for oil and gas for its key energy needs for years and years to come. Strategic mergers and acquisitions have seemingly been ExxonMobil’s strengths.

Competing with such highly competitive companies as BP ConocoPhillips in pipeline proposal in Alaska, ExxonMobil seems to have exerted its competitiveness as it finally clinched the deal. As Smith (2009) reported: Two decades after the Exxon Valdez oil spill, ExxonMobil, has joined a massive Alaskan engineering project and maybe about to regain the favor of the state’s citizenry … The company announced on Thursday that it’s putting its expertise behind a massive $26 billion pipeline project that will transport natural gas from Alaska’s North Slope all the way to Chicago.

In doing so, it’s joining TransCanada Corp., one of the largest pipeline operators in North America. My main takeaway from this new series of events is increased regard for ExxonMobil, which clearly will go anywhere to ply its trade. With more North Slope natural gas reserves than anybody, it clearly has the most to benefit from the pipeline. And with crude prices having moved upward in the past few months, Foolish investors clearly should not be unrepresented in the energy sector.

In my opinion, ExxonMobil is the ideal proxy for the group. ExxonMobil’s exploration strategy is to identify, evaluate, pursue, and capture the highest quality opportunities around the world. Esso, Mobil and ExxonMobil’s operations in the United Kingdom are all under their parent company Exxon Mobil Corporation.

With an eye in approximately 50, oil and gas producing fields in the United Kingdom, and “the largest net licensed acreage on the UK Continental Shelf”, Exxon Mobil Corporation sets itself out as one of the leading companies in the oil and gas industry. Esso Exploration and Production UK Limited as well as Mobil North Sea LLC are at the forefront of the company’s offshore operations based in the United Kingdom (UK). In a 50/50 joint venture with Shell, ExxonMobil made great investments in the North Sea in the UK for the exploration of oil and gas though Shell still remains as the operator of most of the fields as designated in the joint venture.

This strategy has been one that is developed based on existing operation as well as the local cultures and customs that make each relevant to the international markets in which it operates. However, McDonald’s could not rely merely on its brand success and simply run their international locations. They needed to attune their brand to the needs and wants of the local customers in each of the markets they had entered. Within this awareness about brands and brand development, McDonald’s faced a challenge that needed some serious considerations In order to Insure Its chances of success In International markets.

Marketers need to be aware of the cultural and societal connotations the brand is taking on and the way these are changing or staying the same as norms of interacting are changing or staying the same as norms of interacting are changing or staying the same. McDonald’s has embraced its international operations and the challenges that come as part of this expansion. It menus and brand offerings are catered to needs of the local customers. McDonald’s Is up to the challenge of meeting the local desires of Its International operations, and It Is not afraid to try some very unique approaches to its product offerings. What types of managerial levels do you think exist within the McDonald’s corporation? How would these levels interact to accomplish the goals of the organization? Board Of Directors on top of the top managers, there is a board of directors and those people represent or elected by the stockholders to establish corporate management’s policies and making the decisions on major corporation issues. These are the example of the board of directors in McDonald : Andrew J. McKenna, Susan E. Arnold, Robert A. Cocker, Unripe Hernandez and Jar. Jeanne P. Jackson.

Top Managers after the board of director. The top managers which is composed of the chief executive officer (CEO), chief operating officer (COO), chief financial officer (SCOFF), chief information officer (CIO), president and vice president. Top managers are responsible to be a good planner as they have to make decisions that will affect the entirety of the corporation. They will identify the goals for the organization and direct the middle manager, first-line managers and workers to work hard and achieve the goals. Middle Managers are the one who direct report to the top manager.

They have the responsibility to carry out the goal that set by the top managers. Middle managers more focus on the team work or linking group performance compare to individual performance and they always support and supervise first-line managers. Middle managers also work with first line managers to identify new ways of reaching organizational goals. First-Line Managers are responsible for the daily management and supervision of non-managerial workers that who actually work day- to-day to produce the product or offer the service.

In the organization, first-line managers in every work unit work as a role model because they have a direct contact with the workers. McDonald’s Manager Trainee responsible to learn the basics operations and procedures in order to prepare for managing shifts in a McDonald’s restaurant. The Upside-Down Pyramid McDonald’s Interaction direction is the main goal is to “be our customers’ and way to eat. ” The upside-down pyramid show that customers and clients is the main target and they served by the frontline worker that supervise by manager.

Interaction is everything in the McDonald and they drive McDonald’s goal forward. In the beginning, Top manager will set the aspiration and strategy according to the external environment. Middle manager will translate the strategy into concrete equines plan and they merely involved in implementing the strategies from top manager First-Line Managers work as a mediator between the manager and non- managerial workers. They must be good enough to be an effective communicator where best Non-managerial workers which are the front-line worker will follow the instruction from manager.

They will try their best to serve the customer. 3. How will McDonald’s be able to develop managerial skills and competencies necessary to continue their success in the future? McDonald’s be able to develop managerial skills and competencies through Experience and Self-Assessment. Experience and self-assessment is engaging personal characteristics, and understandings. McDonald’s can learn from others, learning about itself and end-of-chapter Management Skills and Competencies section that includes both Back to You.

McDonald’s can learn from others by demonstrate how it can learn from the experiences from others, and by benchmarking what people and organizations do very well. McDonald’s can learn by itself by engages in active personal inquiry. Next, McDonald’s be able to develop their managerial skills by Inquiry and Reflection. Inquiry and reflection is the process f discovering, thinking about, and understanding the knowledge base of management. The Real People feature brings chapter content to life in terms of a person’s actual career accomplishments.

Research Belief illustrates the types of questions researches are trying to answer in their scientific inquiries. Learning Checks are chances to pause and check understanding before reading further. Lastly, McDonald be able to develop managerial skills and competencies through the process of analysis and application and it completes the Management 1 Ill learning model. It is facilitated by a Real Ethics feature that presents real ethics dilemmas, ND then asks to engage in critical thinking about how to best deal with it. Management Smarts provide bullet list pointers on how to put the theories and concepts into practice.

McDonald’s has established a code of conduct for their Board of Directors and they agree and will act in the best interests of, and fulfill their fiduciary obligations to, McDonald’s shareholders; act honestly, fairly, ethically and with integrity; conduct themselves in a professional, courteous and respectful manner and comply with all applicable laws, rules and regulations. This shows that McDonald apply the Real Ethics. References: Facial, P. 2009). Everything I Know About Business I Learned At McDonald’s. McGraw- Hill. P. 141-176. Crock, R. (1977). Grinding It out: The Making Of McDonald’s. SST.

Martin’s Paperbacks case 13 Milliner: Leadership Knows No Boundaries Operating a global firm such as Milliner is impossible without the appropriate level of focus on effective leadership. Milliner has constructed a clear purpose for their operations that professes: “Our corporate purpose states that to succeed requires the highest standard of corporate behavior towards everyone we work with, the communities we touch and the environment on which we have an impact. In order to meet its stated purpose, leadership must begin at all levels to insure commitment is present across all of Milliner’s employee.

The core principle that building leaders is everyone’s responsibility stays. Leadership at Milliner begins with Paul Pullman,CEO, who shares his thoughts on leadership conviction at Milliner as:” Everybody is a leader. My definition of leadership is very simple: if you positively influence someone,you are a leader. ‘With leadership beliefs such as this at the top of the organization, it is clear why Milliner has been able to achieve such a high level of success in its industry. Milliner has developed a global framework of defined leadership competencies, called the “leadership for growth profile” (LOG), which combines the following components.

First, everyone in the company is expected to create growth vision. Growth is considered the key criteria for employees’ behavior at Milliner. Second, everyone has to drive growth through implementation and to energize others for growth. Third, it is important to secure commitment to growth. And by defining a new set of LOG competencies and using it for management development and recruitment Milliner tries to change manager’s behavior and increase behaviors which are more linked with achieving strategic goals for growth. 2.

How has this commitment to leadership allowed it to capitalize on opportunities in the marketplace? Leadership at Milliner by Paul Pullman, CEO said that, “. Everybody is a leader, as far as I’m concerned. And my definition of leadership is very simple, if you positively influence someone, you are a leader. ” This shows that Milliner’s leadership behaviors might be a leader high in concern of people. The leadership maintains good social relationships towards followers, is sensitive to their needs and shows trust in them. Inkwell’s shows that leadership is everyone’s responsibility.

Through participative leadership, team member may involve in decision making, consulting with them and asking for suggestion may bring new ideas to competitive in the market. At every level and in every kind of Job, teamwork is an essential part of life at Milliner. They stimulate ideas in each other and encourage more innovative thinking may bring advantages on opportunism in the marketplace. They’re also committed continuously improving the way of their environmental impacts and are working towards their long-term goal of developing a ND customer focus trough continuous improvement.

They aim to give consumers a great experience when they use their brands which better than the competitors. Through this, they having the ability to move these ideas across categories further unlock new market opportunities. Therefore, a leader may gathering information and communicated to the group for making a consultative decision. Besides that, innovation is one of the key levers can pull to drive growth in business by the intelligence of leadership’s works with the followers. This enabling Milliner to benefit from much bigger market opportunities. 3. You were an upper executive within Milliner, how would you apply the concepts you have learned about leadership to your position? If I am an upper executive within Milliner, I will apply the following leadership concepts to my position: First, visionary leadership. The term visionary leadership describes a leader who brings to the situation a clear and compelling sense of the future, as well as an understanding of the actions needed to get there successfully. This means having a clear vision, communicating the vision, and getting people motivated and inspired to pursue the vision in their daily work.

Visionary leadership brings meaning to people’s work, it makes what they do seem worthy and valuable. Second, servant leadership. Servant leadership is leadership based on a commitment to serving others, to helping people use their talents to full potential while working together for organization that benefit society. Servant leaders empower others by providing them with the information, responsibility, authority, and trust to make decisions and act independently. They expect that people who are empowered will follow through with commitment and high-quality work. Third, transformational leadership.

Transformational leadership is inspirational and arouses extraordinary effort and performance. A raises aspirations and shifts people and organizational systems into new, high-performances patterns. The presence of transformational leadership is reflected in followers who work very hard to support them and who strive for superior performance accomplishments. The goal of excellence in transformational leadership is a challenge. Fourth, leadership. Emotional intelligence is the ability to manage our emotions in social legislations.

The emotionally intelligent leader is good at self-management, or self- regulation, ability to think before we act and to control otherwise disruptive impulses. Emotional intelligence in leadership involves motivation and persistence in being willing to work hard for reasons other than money and status. Besides, a leader high in emotional intelligence is good at relationship management, ability to establish rapport with others and to build social capital through relationships and networks. Fifth, moral leadership. This is leadership with ethical standards that clearly meet the est. of being “good” and “correct”.

Ideally, anyone in a leadership position will practice high ethical standards of behavior, try to build and maintain an ethical organizational culture. Moral leadership begins with personal integrity, a concept fundamental to the notion of transformational leadership. Leadership integrity into action. When a leader has integrity, he or she earns the trust of followers. Case 18 British Petroleum: Getting Drilled about Their Operations 1 . How does BSP response to the oil spill disaster in the Gulf of Mexico display the control processes at BP?

The Gulf of Mexico oil spill is a oil spill in Gulf of Mexico which flowed unabated for three month in 2010, and continue to leak fresh oil. It is a largest accidental marine oil spill in the history of petroleum industry. BP realized that it was in the midst of the largest disaster of this kind in recent history and that it would have to formulate a strategy to control its response and address the concerns of stakeholder in the vicinity of the spill as well as those in the global market. BP admitted that it made mistakes which led to the Gulf of Mexico oil spill.

BP set up a 20 billion fund to compensate victims of the oil spill, the fund has paid $4. 7 billion to 198,475 claimants. One aim of the fund will be to minimize lawsuits against the company. BP began documenting the daily response effort on its web site, while these effort began using only BSP resources. Initially, BP employed remotely operated underwater vehicles, 700 workers, four airplanes and 32 vessels to cleaning up the affected area. Besides that, BP kept interested parties informed of the progress being made to address this disaster. BP set up a call line to take cleanup suggestions which achieved 92,000 responses.

The three basic approaches for removing the oil from the water were burning the oil, filtering offshore, and collecting for later processing. BP ordered 32 machines that separated oil and water with each machine capable of extracting up to 2,000 barrels per day. BP had successfully removed 890,000 barrels 2. How important are these control processes for a company like BP? How would it have responses to this disaster if it lacked any form of control processes? Process control can be defined as methods that are used to control process variables when manufacturing a product.

Manufacturers control the production process for three reasons that is reduce variability, increase efficiency, ensure safety. Process control can reduce variability in the end product, which ensures a consistently high-quality product. Manufacturers can also save money by reducing variability. The costs in production and containment losses in their operation also will reduce. Some processes need to be maintained at a specific point to maximize efficiency. For example, a control point might be the temperature at which a chemical reaction takes place. Accurate control of temperature ensures process efficiency.

Manufacturers save money by minimizing the resources required to produce the end product. The safety of the public which is no accidents, no harm to people and no damage to the environment is important in the control processes that have to be ensuring by BP. If lacked any form of control processes, the manager of BP need to examine the management of the company and we have to test the regulatory process so that the disasters that occur can be controlled. The managers have to find out the main problem of the disaster. Managers need to identify problems and threats as a result of changes outside the organization.

The managers have to do the analysis for the problem and the manager can compare the result from the analysis with the results of an issued. This can reduce costs in production and organizational goals can be achieved at the specified time and find out the best solution to recover for the disaster. 3. What may BP have learned from this disaster? How will this information assist it in the future operations? The first from the BP oil spill is companies can lost the reputation as a sustainability leader. Companies which have a good reputation as a sustainability leader is valuable but it can be lost very fast.

They may quietly reduce its investment in renewable energy to a negligible percentage of sales and profit. Besides that, their focus has been on cutting costs and the company has explicitly avoided talking about “green” initiatives in the media. The second lesson is environmental risk can threaten the viability of a business. They should focus on environmental efforts for many years so that they will have a bit pass as a forward looking argument for sustainability. They do not meet the new sustainability-themed supply-chain demands from business customers. They can downplay the role of risk reduction in creating new value.

The third lesson is downplaying your mistake. Most importantly set the standard for corporate behavior in the face of existential threats and action. Whenever we faced disasters strike, we always take charge and fix the issues. Nowadays, finger pointing is the second activity lawyers will frequently ask to perform. However, any responsible corporation should put the needs of the public ahead of the perceived lawsuits. This information assists in future operations by never downplay safety in favor of cost. In a world of shareholders, performance bonuses and corruption it is worth mentioning and it goes naturally.

Discounted Cash Flow Valuation of Aggregate Reserves Discounted Cash Flow Valuation – Proved Developed Reserves Discounted Cash Flow Valuation – Proved Undeveloped Reserves Discounted Cash Flow Valuation – Probable Reserves Discounted Cash Flow Valuation – Possible Reserves Question 3 To value MW Petroleum we would consider the assets in place and the option bearing assets discretely. The assets in place consist of the proved developed reserves since they are already producing a determinable quantity of oil and natural gas, as well as the non-producing assets as if developed immediately (valued as the NPV of free cash flows).

The expenditures associated with the proved developed reserves are also known with some certainty since they consist primarily of maintenance and replacement costs that follow experience based norms. The NPV is subject to commodity price risk due to volatility in oil and gas prices, as well as uncertainty regarding the discount rate. The options consist of the delay in developing proved undeveloped, probable and possible reserves. In the case of these assets, significant development costs must be incurred to monetize the reserves.

In the case of the probable and possible reserves, the estimated cash flows are already risk weighted to account for the uncertainty in producible reserves. The options on these reserves are timing options. By incorporating volatility in commodity prices over time, Apache can value the ability to postpone capital expenditures to develop the reserves until volatility in commodity prices returns to historical levels. It is important that Apache have some level of certainty regarding minimum likely commodity prices over time since these are long-lived projects.

These options yield a higher value than the DCF valuation (of the aggregate cash flows). Since we are considering these reserves as potential projects in years five through seven, we use the Black-Scholes model to value the options. The option values are inclusive of the project, i. e. not just the option alone. Question 4: The assets underlying the options are quite risky as demonstrated by the rising volatility presented in the case.

Since Apache was primarily concerned with the oil assets, we used the highest recent oil price volatility of 50%. Since volatility is such a driver of option value, we also performed a sensitivity analysis to evaluate how the projects plus options would be valued at different revenue levels as well as with differing volatility. Question 5 Based on the value of all the call options derived in question 4, if the sale goes through then Apache Corporation would not exercise any of the options early.

In doing so, they would incur significant financial hardship while bearing the risk of highly volatile underlying assets. Given the potential financial strain of this acquisition, as incorporated by the cost of capital, Apache would benefit from observing prices develop over time. Our answer is based on the volatility which is assumed at 50%. Based on the sensitivity analysis it does not appear Apache would attempt to develop the possible reserves within the 5-7 year timeframe.

Exxon Mobil Corporation declared its 2009 first quarter results which were quite depressing if compared to the same quarter last year. Exxon’s earnings for the first quarter of 2009 went down by 58 % while EPS (Earning per share) nosedived by 54% Quarter on quarter compared to first quarter of Year 2008. Exxon Mobil is a petroleum company which has an oligopolistic market structure and which also happens to be world’s largest publicly traded company.

Oligopolostic market structure is one in which the gamble of market dominance is played between a few players who through their business strategies try to obtain as much share from the market as possible , by weaning away the consumers from other companies . Sometimes these companies may collude with each other to dictate the supplies, thereby causing a major shift in market prices. More than 50% of the world’s largest companies are oil companies. Impact of new companies entering in Oil sector

As per the recent ranking study of oil companies of the world by Petroleum Intelligence Weekly [1], the top slots is taken by Saudi Arabian State oil company while Exxon Mobil is at 3rd position after Iran’s state oil company. Venezuelan and Chinese state owned oil companies were at 4th and 5th position respectively. This ranking clearly underscores that State support is must for any enhancement in the net worth. May be this is the reason that the latest entrants into the top 50 list of PIW [1] Uzbekneftegas, China’s CNOOC and Kazmunaigas of Kazakhstan — all majority state-owned. Read about E xxonMobil functional structure

The advantage with a state owned company is that they need not worry much about any exploration decisions or loss in revenue as State government is backing them up in any such crucial decisions. Hence, it’s not difficult to understand the reason why more than 50% companies in top PIW [1] ranking are Majority state owned. The State owned petroleum companies need not compete with any other petroleum company as state provides them the secured market where other publicly held petroleum companies are not allowed to compete. Oil prices and the Share prices of Exxon Mobil

In order to remain competitive, Companies like Exxon, Chevron corporation need to continually re-invent to remain at the top position. This background helps to understand why Exxon Mobil is still differentiating from its competitors, by going for spending spree in oil exploration [2] when the oil price is hovering somewhere around $40. The same strategy is being adopted by Chevron Corporation. Though, this does not seem to be a trend as some companies like BP ; Concophilips have mentioned that the oil prices need to increase so that they can fund any capital spending. Read about E xxonMobil functional structure

Nevertheless, shares of Exxon Mobil increased by 2. 7% during middle of May 09 after their announcement of oil exploration. The fall in oil prices lead to deferment of Oil Company’s capital spending projects or may also result in mergers of oil companies as well as this also induces energy companies to restructure their existing business practices . Some companies may also choose to raise money from market as in case of Santos ,Australia’s third largest oil and gas producer which recently announced that it was in pursuit to raise up to $3 billion through a deeply discounted rights offer.

The other example in this case would be Woodside Petroleum that announced a new synidicated loan facility of $US1. 1 billion ($A1. 41 billion) earlier this week. Hence as can be seen from above oil price analysis in recent markets ,that oil companies need to equip themselves with best strategies to meet challenges of dynamic oil market that daily touches new crests and toughs due to fluctuations in oil supplies demands and prices.

Bibliography

1. EXXON MOBIL CORPORATION ANNOUNCES ESTIMATED FIRST QUARTER 2009 RESULTS.(2009). Retrieved May 19, 2009, from 1. http://www. exxonmobil. com/Corporate/Files/news_release_earnings1q09. pdf

2. Petroleum Intelligence Weekly Ranks World’s Top 50 Oil Companies (2009). (n. d. ). Retrieved May 23, 2009, from http://www. energyintel. com/DocumentDetail. asp? document_id=245527

3.. ExxonMobil veers from its competitors in its capital spending. (2009, March 09). Retrieved May 23, 2009, from http://www. bloggingstocks. com/2009/03/10/exxonmobil-veers-from-its-competitors-in-its-capital-spending