The Methodology
The methodology adopted in the study is the collection of secondary data, mainly from the internet and company reports published on the company website, and conducting a detailed analysis of the same and deriving conclusions thereof.
Limitations
Time was a major constraint in the conduct of this study. Due to the unavailability of sufficient time, a detailed and elaborate study was possible. The data available was limited and also latest updates were not available.
Beach Petroleum Limited
“Beach Petroleum is a publicly listed oil and gas exploration and production company based in Adelaide, South Australia.” (Corporate Information, Beach Petroleum 2008). The firm was established in early 1960 by the Late. Dr. Reg Sprigg, a highly regarded oilman, geologist, explorer, and conservationist.
Beach holds interests in exploration and production tenements within Australia, New Zealand, and Papua New Guinea. The firm is mainly engaged in drilling and extraction of oil, sales gas, sales and ethane, LPG, and condensate. The firm is also doing exploration in basins like Cooper/Eromanga, Otway, Browse, PNG, Surat, etc.
Firm’s external environment
A business firm is affected in many ways by the environment in which it belongs. The influence of the external environment is analyzed by different methods. One of the most popular methods of external analysis is Porter’s Five Force model. “Michael Porter provided a framework that models an industry as being influenced by five forces.” (Porter’s Five Forces, quickmba.com 2007) The influence of external environment on Beach Petroleum can first be analyzed based on Porter’s Five Force Model. The following diagram illustrates clearly Porter’s Five Forces model.
Supplier power
Supplier power is the first analysis in Porter’s Five Forces model. This refers to the bargaining power of the supplier. The bargaining power of the supplier makes them charge more on the resources they supply. This increases the cost of production for the company. In the case of Beach Petroleum, there is less scope for increased supplier bargaining power. The reason for this is that the major resources of the company are extracted by the company itself. It is not received from any external sources. Thus the sot structure of Beach Petroleum is not affected by the supplier power.
Buyer power
Buyer power has a certain influence on the business and profitability of Beach Petroleum. But compared to other products the company is less influenced by buyer power. The major reason for this is that there are a large number of buyers in the case of the products of Beach Petroleum. When there is a large number of buyers the buyers will have less bargaining power. Another reason for low bargaining power is that the producers are not in excess. When there are more producers the buyers will have more choices. Thus the buyer power also has less influence on the profitability of Beach Petroleum. Price sensitivity also falls under this category. The price of petroleum products is high sensitivity.
The threat of substitutes
The threat of substitutes is the next external factor that affects the company. As the term implies threat of substitutes refers to the entry of substitute products for Beach Petroleum. But it can be seen that there are very few substitutes for petroleum products. Petroleum products cannot be substituted with any other products. But there are substitutes from among the petroleum products. For example, nowadays most petroleum products are substituted by sales gas.
Degree of rivalry
Among Porter’s Five Force model degree of rivalry has a major influence on Beach Petroleum. There are other major competing companies for Beach Petroleum. Australia is the hub of mining and oil exploration companies. Many companies operate in the sector of oil exploration in Australia. Beach Petroleum is one of the mid-cap oil exploration companies in Australia. There are other major players in the market in large, medium, and small-cap segments.
Barriers to entry
Barriers to entry are the next influencing factor. This refers to the barrier to the entry of new players in the industry. There are fewer barriers to the entry of new players in the sector. But the intensity of entrance of new companies is limited even after the fewer barriers. The companies have to be specialized in the sector and need to make huge investments in order to enter the segment.
PESTEL analysis is another major tool that is used to analyze the external environment that influences the company. The external factors that are analyzed in this are Political, Economic, Social, Technical, Environment and Legislative. “It is a strategic planning technique that provides a useful framework for analyzing the environmental pressures on a team or an organization.” (PESTEL analysis)
Political factor has a major influence on the company. Political factor is related to the opinion of the general public regarding the product or the company. A group of people can be turned against the company with the help of political influence. One of the most prominent influences of political factors is the influence of change in Government on the company’s business. When a new government comes into power the policies that are being framed by the previous government will be changed to the new one. This might adversely affect the smooth operation of the company.
The economic factor is the second major factor that influences the operation of the company. Economic factor refers to the economic policies that are being framed by the government and their influence on the operation of Beach Petroleum. The changes in the economic indicators and determinants will affect the company in many ways. Petroleum products and their prices have a major influence on the company and the country in which it operates.
Social factors are closely related to the commitment of the company towards society. The company belongs to the society in which it operates. As such it is influenced by the decisions that have an influence on the societal level. Societal factors are sometimes derived from political factors.
Technological factor influences in such a way that when new innovations are introduced in the industry it has to be adopted by the company for the better and improved production process. One of the influences of technological change in Beach Petroleum is the introduction of new machinery and method of production.
Environmental influence refers to the next major influence on the business of Beach Petroleum. Environmental influence relates to the influence of the climatic conditions and other immediate environmental factors that influences the company.
Legislative or Legal factor is the last one in the PESTEL analysis. This refers to the influence of legal factors on the business of the firm. Changes in the rules and regulations of the country in relation to petroleum companies will affect the company and its operations in many ways. Legal change is more closely associated with the change of government of the country. The policies and strategies of Beach Petroleum have to be changed in accordance with the change in a legal environment.
Firm’s internal environment
Beach Petroleum is one of the leading petroleum companies in Australia. The major success factor of any company is its competitive advantage. A company’s competitive advantage makes it rule over the others in the market. The competitive advantage of a company is a result of the possession of rare resources, knowledge of varied production techniques, quality of the employees, patented production process and resources, etc. As far as Beach Petroleum is concerned its competitive advantage lies in the possession of valuable and rare resources.
Beach petroleum possesses good reserves of Oil, Gas liquids, Sales Gas, and Ethane and Oil Equivalent. The resources of Beach Petroleum are located at Cooper/Eromanga Basin, Gippsland Basin, and Surat Basin. The Cooper/Eromanga Basin consists of reserves of all four resources. The Surat Basin has reserves of only Sales Gas and Ethane, and Oil Equivalent from among the four required resources. The Gippsland Basin has reserves of Oil and Oil Equivalent. In order to analyze whether the resources contribute to the company’s competitive advantage, it is useful to apply Jay Barney’s VRIN model.
Valuable
This analyzes whether the resources of the company are valuable or not. “The world is at the beginning of the end of the age of oil, according to a growing body of analysts.” (Peak oil, Jonathan Holmes, Four Corners, ABC 2006). The oil resources of the earth would one day be fully extinct. Due to this oil has become a highly valuable resource all over the world and is one of the highly demanded resources in the world.
Rare
Beach Petroleum has its reserves of gas liquids only in Cooper/Eromanga Basin. It has 6.6 kboe of gas liquids in these reserves which forms the overall gas-liquid reserve of the company. “Analysts expect worldwide demand for NGL should rise significantly through the year 2010 because of feedstock usage, especially in the manufacturing of ethylene.” (Natural Gas Liquids, NAICS Code(s), Advameg Inc 2007). The excess demand and limited reserves make the resources rare. The gas-liquid is the rare resource that is possessed by the company at Cooper/Eromanga Basin.
Imperfectly imitable resources
This analysis is another determinant of the competitive advantage of the company. The key resources of the company are petroleum and related resources. Most of the resources used by the company are also used by other petroleum companies too. This cannot be termed under imitability of resources as it is a common resource for oil and gas companies. Thus this factor is not a contributor to the competitive advantage of Beach Petroleum.
Non Substitutability
Almost all petroleum products are nonsubstitutable. But there is a high level of substitutability among petroleum products. Sales gas is being used largely as a substitute for petroleum products at present. One of the major advantages for Beach Petroleum is that it has the highest reserve of sales gas when compared to the other oil companies. It also has major reserves of oil, oil equivalents, and gas liquids. Since sales gas is being used at large as a substitute for petroleum products the company has a major competitive advantage in the present as well as in the future.
From the above VRIN analysis, it can be inferred that the key resource that contributes to the competitive advantage of Beach Petroleum is sales gas and ethane. Compared to the competitors the company has the highest reserves of sales gas. The following diagram illustrates the total resource reserves of Beach Petroleum.
Present Strategy of the Firm
The firm follows a growth model that depends on increasing the production and in turn increasing the financial base. A major portion of this fund is used to explore more undiscovered potential areas. The growth model of the firm can be summarized as.
The firm has increased its production over the years. This has been the main strategy adopted by the firm. The firm’s sales and profits have increased over the past years adopting this strategy.
Beach Petroleum is reinvesting its profit back into the business and increasing production. They are at present the only mid-cap firm in Australia that has the highest capital reserves. Ploughing back of profits is also made to invest it in exploring new oil reserves. They are forming joint ventures with experienced partners (Anzon Australia Limited, Arrow Energy Limited, etc) who have proven their skills or possess complementary skills. They have also acquired some other petroleum companies, like Delhi Petroleum Group.
Company’s Environmental Strategy
The company follows a sound environmental policy. They take all necessary measures to avoid land, water, and air pollution. They identify the site of archaeological, historical, and natural significance that nay is affected by their operation and try to reduce the impact on them. They adopt strategies to protect the flora and fauna in all areas of operations.
Company’s Health and Safety Strategy
The Beach Petroleum conducts all its activities in a manner that ensures a healthy and safe workplace for all employees, contractors, and subordinates at all sites; protection of members of the public possibly affected by its operations and compliance with all applicable Government Acts, regulations, and standards.
Company’s Strategy and Three Horizon Model
The company follows a style very much in resemblance with the three horizon model. The company has well extended its markets in Australia and is able to face the competition without difficulty. They have now started to expand their business outside the country also by way of joint ventures and acquisitions. Now they are growing in foreign markets also and are trying to build a business on future asks.
Future Strategic Directions
The rise in demand for petrol and petrol-related products opens a wide opportunity for the industry to boom. The demand for petroleum products is expected to rise to 98-138 million barrels per day in 2030, whereas the demand for natural gas is expected to grow from 356 to 581 billion cubic feet per day in 2030.
These figures are highly motivating to the industry. However, it is quite obvious from researches that the existing energy fields may not last more than 30 years from now. Hence, it is necessary to explore new grounds to extract the minerals.
As far as Beach Petroleum is concerned, they are already future-oriented. A major portion of their funds is set up exploring new mineral grounds around the globe. They have already explored new petroleum fields at Gienaire (on-shore Otway) and Champagne Creek (Surat), as well as they, have a high potential ground at off-shore Carivarvon Hurricane. A recent discovery is also made at Cooper Basin. A large off-shore gas potential is also identified at Portland (Victoria) and South Island (New Zealand).
The firm has the right strategy of using a major portion of its profits in exploring new grounds. In fact, Beach Petroleum has embarked on strong exploring and development programs within five major Australian basins that are proven petroleum production provinces.
In spite of retaining a major portion as reserves, the firm is trying to satisfy its shareholders. This is because of the high profit they are able to derive from their operations (in fact, Beach Petroleum is the highest mid-cap reserve holding E&P Company in Australia).
With cool energy, Beach Petroleum is designing on a proposed gas-sweetening and carbon dioxide capturing plant that would facilitate CO2 geosequestration.
The firm also has the highest gas reserves with them that adds to their advantage in future boom because the environmentalists are strongly recommending natural gas as a substitute for petrol considering the low amount of carbon wastes emitted by gas as well as motor companies and users prefer natural gas for economic reasons. Moreover, the world use of natural gas is expected to increase considerably in the near future.
Bibliography
Porter’s Five Forces, quickmba.com 2007. Web.
Five Competitive Forces, 12 manage 2008. Web.
PESTEL analysis. Web.
Peak oil, Jonathan Holmes, Four Corners, ABC 2006. Web.
Natural Gas Liquids, NAICS Code(s), Advameg Inc 2007. Web.