TalismanEnergy Inc. is a global company dealing with natural gas productionand exploration and was founded in the year 1992 (Christensen,1996).Its headquarters is in Calgary, Alberta in Canada. It operatesworldwide and the operation areas includes Canada(B.C., Alberta, Ontario, Saskatchewan, Quebec) and the United Statesof America (Pennsylvania, New York, Texas ) in North AmericaColombia, South America Algeria in North Africa United Kingdom andNorway in Europe Indonesia, Malaysia, Vietnam, Papua New Guinea,East Timor and Australia in the Far East and Kurdistan in the MiddleEast. It has also constructed offshore Beatrice Wind FarmDemonstrator in Scotland’s North Sea. Ithas achieved this status through exploring and acquiring land leaseholding and assets in addition to mergers. It proactively operates toenable engagement of its business interest with the wishes orconcepts of communities where they operate since natural gasproduction for it to be successful entails cooperation amongconcerned parties (Haggett,2013).
Everypublic official, regulator, landowner, supplier, employee orcontractor is important for its success. Talisman energy Inc iscommitted to the development of a mutual long term beneficialrelationship in order to develop a positive long lasting impact onthe lives of the local community.
Theaffordable, clean and abundant natural gas is essential for meetingenergy needs since Talisman Energy Inc is endowed with key energysources and natural gas which meet the demands of up to quarter ofthe world’s energy needs.
TalismanEnergy Inc has had wide experience in drilling of very deephorizontal wells in. As noted by Christensen,(1996),Talisman energy Inc adheres to legal safety and environmental codesof conduct which also involves minding the environmental issues andcoming up with the efforts to reduce adverse impacts on theenvironment.
TalismanEnergy Inc is aware that the best environmental policy identifiesprevention as the first undertaking. It has had excellentenvironmental protection track record since 1992 and its strongcommitment on environmental protection is highly attributed to thisachievement.
Thenature of its business always brings Talisman Energy Inc into contactwith other people across the regions where operations are carriedout. It is committed to operating with every person in an honest,fair and in an open manner.
Manycompanies develop a vision statement which describes the company andpeople when all the strategies have been fully implemented. Somecompanies also use the vision statement as a source of motivation
Talismandoesn’t have a vision statement but has listed its values asdescribed below. These values can be used to develop vision statementwhich is to create sustainable commercial success through continuousimprovement, building trust with all stakeholders through integrity,teamwork and valuing our people.
Talismanmission Statement which has been updated reflects the direction ofnew business. The Mission Statement reads as follows: To deliver acompetitive and sustainable rate of return to shareholders bydeveloping, acquiring and exploring for oil, gas and alternativeenergy resources vital to the world`s health and welfare. TalismanEnergy Inc strives to do this in an environmentally responsible way,while reducing market price volatility.
Talismanenergy Inc has values which describes how it is and how it works. Itsvision and mission states what it believes and what it stands for. Inaddition it reflects its corporate culture and organization insight.Wholly, its values depict how it acts and expectation for treatmentas a Talisman team.
Thefollowing values or objectives have been outlined to supplement theachievement of its mission and mission.
Talismanobjective is to develop the best working conditions where it won’tcreate any harm to various parties. It has taken safety as thefirst priority since when the operations outcomes and safety comesinto conflict the employees tend to select safety. Thus Talisman ishas made efforts to support this selection and provides resourcesimportant to acquire safety in the working environment.
Talismanenergy inspires others through the passion it shows out for its work.
Itbelieves that by being passionate in its undertakings and for thecompany, it will achieve high productivity and success. It feelshappy and succeeds in what it does and feels enthusiastic about it.
Ithas a bias for results and takes measures to streamline things and bedone efficiently, to create value for its shareholders. Itbelieves that for the effective results to be achieved it needs tocome up a vision, set priorities and implement SMART action plans. Itis purpose driven and is accountable for timely and high qualityoutcomes
Talismanenergy Inc takes time to appreciate other stakeholder’s ideas andtreat them with respect. It values diversity of its workforce andstakeholders and values the strengths of others. It respectsothers through treating them with courtesy, listening and dignity.
Inexecuting and planning for its activities it considers theenvironment, by respecting it aiming to reduce the effect of itsoperations.
Talismanstrives to achieve excellence in what it does and how it does. Itinvolves handwork, innovation, being smart and demonstration oftechnicality, professionalism and problem solving skills. It strivesto maintain improvement in order to achieve excellence.
Talismanworks together effectively to deliver results which goes beyond onescapabilities. Through working together superior results are achieved.The common and clear goals support teamwork. it is aware that forteamwork to be realized it has to be rooted in trust and needs toaccept and needs to provide, ask for aids and give advice as well asfeedback.
Talismanshows courage in speaking honestly and supporting others to performthe same. Talisman provides honest and truthful communication anddiscloses all matters affecting it to all stakeholders. Theinformation is disseminated up, down and across all the organization.It speaks the truth even through the message passed is difficult andmay be the conversation is uncomfortable.
Goal & Strategy
Talisman’energy Inc strategic objectives are as follows
To develop sustainable growth in the north America region in addition to Norway and southeast Asia
To develop exploration portfolio to enable renewals through exploring for hydrocarbons with time
To bring these together with other sources of money in addition to focusing on the portfolio
Thestrategic objectives were developed to reduce the F and D or findingand development costs and increase life index reserve with time. TheF and D will be brought down through
Unconventional gas business model lowers the F and D costs unlike the conventional gas business model
It is planning to expand its activity in areas where F and D is lower for instance southeast Asia.
It will need to shift the exploration to larger prospects in order to lower it.
Instrategic analysis the framework which is taken into consideration atfirst is the macro level and assists in the assessment of externalenvironment of a company, the ways through which it impacts onindustry development and how it impacts on the value of a company.The PESTEL analysis has six aspects
Itaffects the natural gas and petroleum industry.
Manycountries around the globe impacts on the industry’s players,because they are oil and gas resources or hydrocarbon reserves. Bycontrolling these reserves enables the governments to make saleconcessions to various companies hence provide them with rights toexplore and produce oil in the enclosed geographical area in a giventime. In addition the government is able to favor the local oilcompanies and lock out the foreign companies in the process. Anotherinfluential body is OPEC or the Organization of the PetroleumExporting Countries which control nearly 75% of the world’s oilresource. The geopolitical effects will enhance since oil resource isgetting depleted (Haggett,2013).
Theinternal political and broad geopolitical risks will tend to limitthe investment in many countries despite best policies and goodeconomy incentives. Civil conflicts, wars, strikes, nationalizationregulatory environment and expropriation will result to disruptionand discouragement of operations and investments since it is commonin oil producing countries. For example, there is no country whichhas had guts to invest in Iraq despite its richness in oil. Thegeopolitical stress in Middle East has always kept off the foreigninvestors. Also, as added byChristensen,(1996), the resistance in Mexico which could have issued the privatecompanies with greater roles has also diverted the investors. Thesepolitical aspects negate the development of oil companies.
Thedecisions by world politicians to develop cleaner sources of energyas a result of climate change will immensely affect the petroleumindustry. The treaties such as the Kyoto protocol, which developscommitments to bind countries legally to decline the green housegases can result in reduction of profitability and adversely affectthe growth opportunities.
Oilindustry is more interdependent with the world economy. The worldeconomy depends on oil supply at a price and the world economy isimportant for the development of oil industry. This can be understoodsince the oil demand is driven by the growth of the economy, andincreasing worldwide population. When the economy fall the demand foroil also decreases. The financial and economic crisis had a greateffect on oil markets. Currently the demand for oil is on a downhilltrend as a result of decreasing demand for oil in OECD or thosecountries whose economies had been recessed. In 2009 the impressionwas not positive due to lowered demand for oil and also decreasingprices which fall from $147 in 2008 to $50 per barrel in 2009(Haggett,2013).
Thedemand for oil in the developing countries is however perceived toincre3ase in coming decades it will increase in developing countriescharacterized by high growth in GDP for example India and china. Oilhas a good characteristic in that it is inelastic i.e. it takes alonger period of time for the consumers and businesses to react tochanges in its price which is an advantage to oil companies.
Apartfrom market demand and GDP, the value of a dollar also affects oiland petroleum industry as an economic aspect. Oil is traded in dollarcurrency worldwide. For example when the oil price soared in 2008,the dollar value was down at that period. This is as a result ofexchange rates. The producers of oil sell oil in dollar currency andare always faced with exchange rates between dollar and a nationalcurrency. Therefore when the dollar gets weak, the petroleum marketincreases the oil price since producers are allowed to sell at thesame price as before in their currencies after the dollar into owncurrency. This is attributed to good management of the economy of USAalongside the dollar to provide oil price stability and increaseprofitability of oil.
Socio-culturalaspect determines the beliefs, lifestyles and beliefs of thesocieties worldwide with oil companies. These forces also enable thesocieties to select or chose a given type of energy (Maharaj,2011).Despite the fact that the demand for energy especially oil isincreasing, the share of oil as a total energy consumed worldwide hasbeen declining three decades for instance in 1980s it stood at 45%and currently it stands at 35%. The trend will go on if green sourcesof energy increase their share. Emergence of global warming caused alot of fears the social responsibilities and considerations ofgovernments and societies paved way for exploitation and search foralternative sources of energy like hydroelectric power, bio fuels,solar energy and wind (Haggett,2013).
Inorder to take measures, many people have begun focusing on the healthliving surrounding and are more concerned about the environment.Environmentally friendly and new fuels have been developed and alsoproduction cost has been declining hence the use of oil and naturalgas energy is likely to be disfavored (Maharaj,2011).
Thesocial responsibly of companies also affects the oil industry throughtheir image. Hence a lot of companies have put across during theirannual reports that they are well involved in the development whichis sustainable in areas or societies they operate. Talisman forexample has invested in various social, cultural and environmentalactivities and agrees that it is depleting natural resources whichare part of societies’ heritage therefore it has a duty to beaccountable to the society. Also it assists the local societiesthrough investment in education to create skilled labor throughfinancing and training activities which motivates local suppliers(Maharaj,2011).
Thenatural gas and oil industry is technologically driven since researchand technology has a great role in solving energy demand andchallenges worldwide. It is an important aspect from exploration tillit is refined. Improved technology and innovation has enabled theextraction of large amount of gas and oil and extract the preservedreserves which were deemed exhausted. This has permitted theprofitability of oilfields which currently exist.
Theadvances in technology have enabled successful extraction andexploration of deep water reservoirs which are very hard to reach andin most reservoirs technology is still developed. An instance of suchreservoir is the oil field discovered in Brazilian shore recentlycalled Tupi reservoir. Talisman has been committed to advance thetechnology over the last four years and it as successful in liftingthe first oil from Tupi in may 2009.
Throughemployment of modern technology to local oil fields and explore, theoil companies can acquire comparative advantage. Thus technology iscrucial for the development in the downstream and midstream sectors.For instance, in the midstream sector, there is pipelinestransporting oil under the water at a great pressure with depth whilein downstream, it is used to optimize refining process of petroleumwith different quality which improves the margins of companies. Theoutlook is that technology will affect the development of oilindustry in the future and specifically its long term sustainability.This can be attributed to hydrocarbons getting depleted and newdiscoveries are met at great depths which recently had not beenexploited profitably and technologically.
Throughoutthe development and exploration processes environmental issuesaffects the gas and oil industry which is perceived to be the highestemitter of pollutants to the environment. For instance there isalways complains of oil spillage in seas and oceans. There is no oilcompany which can be said it has never been involved in suchemission.
Itis important that polluters compensates for the environmental damagesthey cause. In addition, when concession rights are negotiated, thedetails and ways of cleaning affected areas should also be clarified(Maharaj,2011).
Companiesneed to allocate some portions of their profits in restoration andremediation of environment when inactive sites are cleaned. Theinactive sites includes waste disposal sites, service stations, oiland natural gas fields, chemical plans, refineries, terminals andnatural gas processing plants.
Allthese are burden to profitability of a company. Restriction on theenvironment also involves investment in technology to minimizepollution to very low levels. However, special care needs to be takencare of for safety of products, quality of products and means oftransportation of hydrocarbons possessing risks (Maharaj,2011).
Throughthis means the pollution of environment will be prevented and also tomaintain good reputation and the sustainability of petroleum industrythrough satisfaction of stakeholders and consumers, causing valuecreation for the shareholders.
Thelegal aspect of the macro environment also shapes the industry. Thisindustry is subjected to tough regulations ranging from imposition ofdrilling obligations, environmental health and safety regulations anddecommissioning of oil fields regulations.
Thehydrocarbon products are also sold in regulated markets. In addition,a lot of companies are faced with difficulties in paying theconcession fees and taxes and royalties on petroleum which are veryhigh as compared to fees paid for other activities commercially.There is also unpredictability on changes to various regulations andlaws whereby companies may have to stop operations or get faced withadditional costs.
Nevertheless,the main legal concern which affects companies is as a result ofcompliance with obligations, laws and regulations pertaining toclimate change and environment. There is also local, state, nationaland international regulations pertaining the products, activities andoperations. Fuel specifications, programs on climate change andregulations on emissions will impact the production, profitabilityand sale of petroleum and natural gas. The environmental laws entailscompanies to provide remedy for damages on environment beforepetroleum pollutants or chemicals are disposed or released to theenvironment.
Therehas been a lot of prediction concerning availability of naturalresources like oil and natural gases in the future and it will behard to get, develop and produce and as a result it will lead to highprices of oil and natural gas. The Department of Energy has projectedthat oil prices could raise to around $34 and $96 per barrel by theyear 2030.
TheUnited States Government has been motivating private sector todevelop alternative sources of energy by offering them withincentives and grants. The Department of Energy initiated and awardedEnergy Savings Performance Contracts (ESPC) which has been alwaysoffered to the private industry in order to explore and to developenergy efficient and alternative energy projects.
Thegovernment usually pays for any new project developed generating orsaving energy but the private company’s tries to develop thenecessary technology. It also provides the incentives to oil businessand private sector through reduction of taxes charged.
EnergyPolicy Act of 2005 issues tax break on alternative sources of energyproduction. Also in the policy is the automobile industry usingbiodiesel fuel and electric power.
Effectsof the Environment and Regulations
Talismanenergy Inc is an independent oil and exploration company. It dependson finding and development of natural gas and oil reserves.Decreasing natural gas reserve and accessible oil fields with highcost of extraction will increase the profit margins in the further.It is common that in future the oil and gas business is going todecrease. If price will go higher, people will move away from fossilfuel. The regulatory environment provides incentives to consumers andbusiness so that it avoid use of fossil fuels and ensure technologyand infrastructure are made available before change is affected.
Competitive/ Industry Analysis –Porter’s Five Forces
Todevelop a profitable competitive advantage or strategy, a companyneeds to view the competitive structure of its industry by looking atthe competitive forces since profitability of a company is influencedthrough industry profitability. In this case, strategists incorporate sector offer advice on the incorporation of Porter’sIndustry Analysis framework. This explains competitive environmentthrough five competitive forces. According to Porter’s framework,for example, competition results from producers of same products,suppliers of substitute’s products and new entrants in the market.A Company maintains high rate of returns due to barriers to entry orif the company has more advantages over the competitors. Thisanalysis permits investigation on the competitiveness in petroleumindustry which affects profitability sustainability of oil companiesin the future.
Threatof New Entrants
Threatof new entrants is the force brought by the new competitors in theindustry which affects the profits of a company. However, the threatposed by new entrants in the oil industry is small even though theindustry is attractive and high barriers to entry explain this.
First,there are a lot of capital required for the activities done by oilcompanies which are stationed in upstream, midstream and downstreamoperations of the industry. Large up-front investments are needed inoil fields development and setting facilities for production. Thecosts made here is difficult to be provided by every company.Development of oil fields, for instance, costs a lot of billiondollars in accessible reserves in Middle East to $50bn, in Brazilianoffshore Tupi field which is situated 4000meters below the seabed insalt layer and needs very complicated technology to extract.
Accordingto the International Energy Agency (IEA, 2008) report, the cost perunit in upstream oil industry have been increasing over the last tenyears averaging increases of 90% between 2000 and 2007.this involvescost of exploration, drilling, skilled services, scientific research,energy and materials, oil fields services, which create barriers tonew entrants.
Anotherbarrier is the economies of scale. As a result of increased unit costin the exploration and production of oil, bigger companies andrefineries who afford to maximize economies of scale will onlysurvive. This concept will complicate matters for the new entrantssince they will have few less number of oil reserves and may not haveinvested in foreign countries. Not investing in foreign countriesaffects a lot of oil rich countries except from Norway, Brazil andUS.
Securingdistribution channels access also causes barriers to entry by newcompetitors. Always national and international oil companies areusually characterized by well developed distribution channels indownstream or upstream or both sectors.
Pipelines,distribution stores and gas stations or both are modes ofdistribution. It is always costly and needs a lot of time to buildcreating hindrance for new competitors. Nonetheless, the greatesthindrance of new entrants is as a result of disadvantages notdependent on economy factors that are from national policies whichsupport national companies through unique ways. The natural gas andoil are resources belonging to the state and the government has totalownership hence it tends to issue access to raw materials only tocompanies operating nationally. A lot of oil rich countries permitother companies to exploit oil fields but through partnering with agiven national company.
Knowledgeand experience are important since technology is employed in findingaccess to inaccessible oil reserves. The recently discovered oilfields found offshore in Brazil, for example, special drillingtechnology are required and this technology is never possessed bymain international oil companies. Talisman energy inc. has also beeninvolved in such exploration since its formation and therefore itpossess competitive advantage over other similar related companies inthe industry.
BargainingPower of Buyers
Buyersinfluence profitability of oil industry since they did the prices ordictate for more high quality services through bargaining inpartnership with competitors. Nonetheless, in the petroleum industrythe price of oil is derived at a global level according to theeconomic relationship between oil supply and demand.
Thespecific global price of oil is the price of light crude which istraded on the New York Mercantile Exchange (NYMEX). In opposition tothis, oil is traded at global price and between two parties over thecounter. Concerning this, the ability to pay is the lone bargainingpower possessed by buyers. Oil buyers usually turns up national oilcompanies, distributers, refiners, traders, marketers and majorinternational companies. Sometimes, countries are treated as buyers.There are bigger consumers of oil such as Japan, china, US and UEwhich consumes more than half of total world oil production and thesecountries tends to exert a lot of pressure on bargaining power byvarying the demand of oil.
Despitethe fact that many countries are currently switching the dependenceof fossil fuels to the renewable energies, the dependence of fossilfuels will still be relied upon to satisfy the energy needs in futurewhere the demand is expected to increase especially in the industryand transportation.
Thereis evidence that largest buyers of oil through quantity demandedexert bargaining power in the market. Bargaining power is alsocontributed by the undifferentiated and standard product and buyersnot exposed to switching costs. These conditions don’t give thebargaining power to buyers because the product in the industry iscrucial for buyer’s services or products and buyers themselves arenot a threat in volumes purchased.
BargainingPower of Suppliers
Thesuppliers can have damage on the returns of future industry throughreducing quality of products or services or raising the price.Companies like talisman energy have a lot of suppliers from oil filedsuppliers, engineering suppliers, pipeline installations, equipmentand materials, scientific researchers and engineers and fielddevelopment management. Oil producing countries which are alsoreferred to as suppliers are the main component in the industry andown a lot of bargaining power. Currently the OPEC nations are theones mandated to nationalize the production of oil within theirdisposal and take and own all the business from larger oilcorporations.
OPECowns two-thirds of the oil reserves which have been proven globally.With cheapest means of producing oil, they thus will have highbargaining power to oil corporations. The bargaining power of OPEC iswitnessed only when oil-fields concession rights are being granted tointernational companies. In the past years when the price of oil wasrising the OPEC members or oil rich countries were found to be meanto foreign investors or companies. However, the bargaining powerchanged in 2009 when the price of oil dropped three times as from2008. Later when prices dropped drastically to $50 per barrel a lotof countries explored and found oil reserves but in smallerquantities uneconomical to be extracted by themselves and have beenlooking for assistance from international companies. Theinternational oil companies possess advantage since they haveknowledge, expertise and experience to develop fields which areaccessible (Haggett,2013). These multinational oil companies have large economies ofscale or a lot of capital and are able to take their operations toany part of the world and make oil deals with oil producers atfavorable terms.
Thepower is distributed to favor supplying countries and also it isdistributed to favor oil companies at the aspect of other remainingsuppliers in the industry. This is simply because oil industry hasmany small sub-suppliers from different industries. They are notenhanced and provided that big oil corporations have a lot of largevolume buyers and high amount of profits and hence reduce theirbargaining power. The oil companies are positioned to select the bestsuppliers to provide their businesses with the best quality ofmaterials and services supplies. Engineers and scientific researcherscomponent is also important in oil industry since they are the one’spossessed with knowledge and are able to develop technology used forextraction. Majority of oil companies are faced with difficulties ofobtaining enough of this qualified labor force.
Petroleumbusiness is cyclical and has lost its attractiveness hence theuniversity graduates have not been interested so far with thisindustry which provides them the bargaining power to oil companies.The general outlook of bargaining power distribution betweensuppliers and oil companies is that it is dependent on the type ofthe supplier. Taking a look at the suppliers of services andmaterials provides an impression that large oil companies exertbargaining power as a result of their position. But the picture isunique when taking a look at the oil fields suppliers with OPECmembers as for instance, which owns a lot of oil reserves easilyaccessible. Their policies can move out of business when theircurrent oil reserves dries out.
Threatof Substitute Products and Services
Thesubstitute products and services reduce the profits of companies andtheir value creation sources. But oil is the main source of energyand is not replaceable in some sectors categorically in industry andtransportation. It is going to stay to be the dominant source ofenergy till and after 2030. This is simply because oil is cheap ascompared to other types of fuel. When the exploitation and drillingtechnology gets more sophisticated and is going to outpace the costsof depletion, oil is going to be the cheapest energy source infuture. The oil substitutes become a threat if the price of oil willincrease drastically. The oil substitutes which are mostly used arein the following order coals, natural gas, renewable energy sourceslike solar energy and wind, hydropower and bio-fuels and nuclearenergy. Governments all over the world have begun changing theirperceptions on fossil fuels and the damages or pollutions it causeson the earth. This aspect is the most serious threat on petroleumproducts since the world is moving towards incorporation of greensources of energy.
Basedon Energy Information Administration natural gases substitute islikely to have a higher growth rate than oil. The natural gas willget high share of the market in the commercial, industrial andresidential sectors. This will good news to Talisman since itproduces oil as well as natural gas because they are always foundtogether. It will be effected since natural gas don’t have greatadverse in the environment since it emits less amount of green housegases and thus cannot CO2taxes to its price. In comparison it emits 40% less CO2thanoil and 78% less than coal.
Coalconsumption will fall in total energy share since its raw materialsare only found only in few countries and are also complex and foundfar away from main markets. In addition the coal cost of exploitationis expected to increase in future as a result of environmentalregulations like Kyoto protocol.
Therenewable energy for instance hydrogen, hydropower, and wind areprojected to increase in the market share in coming years.Nonetheless, without future planning as per the government policies,geared at declining CO2emissiononto the environment, adoption of renewable energies on a large scaleis going to be slow. If these energy sources will have high cost ofproduction, it won’t be competitive economically as compared tofossil fuels. However, the potentiality of such fuels should not bealliterated because a lot of world governments have activelyadvocated for the utilization of green energy sources.
Theexpansion of nuclear energy has been difficult in OECD countriesbecause it is more expensive option for generating electricity incomparison coal or natural gas. In addition, there is oppositionagainst exploitation of nuclear energy in some parts of the world
Becauseof environmental safety concerns, waste disposal of radioactiveelements and nuclear weapon proliferations. Thus use of nuclearenergy as a substitute is questionable. In the coming two decades ithas been projected that the worlds demand for energy is going toskyrocket in all types of energies. Also petroleum will go on leadingin the energy industry onwards but the alternative sources of energyis intensively sought more environmentally friendly sources of energywill pose a threat to petroleum industry. Therefore petroleumcompanies needs to focus on renewable energy sources. Talisman energyInc is an instance of oil companies which is increasing theproduction and research on bio-fuels.
Intensityof Rivalry among Competitors
Rivalryis initiated when competitors get pressure or endeavors to gaincomparative advantage in the industry. The competitive environment inpetroleum industry has few major players and various small playersfeatured with less power. Major competitors despite representing theinternational companies with little oil control but are enlightenedwith technology while the national oil companies which own 88% ofworld’s oil reserves in 2007 have put little focus on thetechnology.
First,most of such national oil firms are members of OPEC operating assingle entity or cartel declining the rivalry or competition. Butrivalry is getting heightened with big oil producers since the desireto replace the fields which are getting depleted exerts pressure,taking in mind the difficulties of exploring for new reserves. Thischallenge has made major producers to shift to mergers, acquisitionsand alliance formations, as a means of dealing with competitionrivalry or constraints (Trish& Matt, 2012).
Secondly,the industry which grows slowly also heightens rivalry amongcompetitors. The research which was done recently showed that gas andoil exploration is always fruitless and is easy to access and theirsupplies won’t be going alongside the demand. Since 2000, the onlyfive of the largest oil corporations have replaced 82% of oilreserves they consumed. In addition, no new refinery has been openedin US in the last twenty years.
Intheory, when there is high barriers to exit enables companies in theindustry to rival despite below average rates of returns. Highbarriers to exit is common in refineries businesses or downstreamsector but is lower in upstream sector of the industry where thefield concession rights is renounced easily as a result ofcompetitors interest to enhance new fields.
Otherfactor which contributes to competitor’s rivalry in oil industryincludes high storage costs or fixed costs and lack ofdifferentiation of oil and gas. High storage costs or fixed costscannot affects the big companies since they have advantage due toeconomies of scale and this leads to consolidation (Trish& Matt, 2012).
Thepicture shown is that competitor rivalry is significantly immensewhich is explained by lots of companies trying to replace depleted ordry oil resources. New oil fields are hard to exploit hence this taskis difficult and it requires costly and sophisticated technology. TheOPEC members have adopted protection and restriction policies towardsexploitation of oil fields. The world oil industry suggests negativetrend in the sustainability of company’s profitability. But thisdoesn’t apply to Talisman.
Talismanenergy Inc has privileges to access more oil resources. It dominateshome market, getting involved in production of alternative fuels likebio-fuels and oil and leads in extraction of oil found deep in theworld. These ensure that it has a competitive advantage over thecompetitors and get share3holders’s sustainable value. But being aninternational player, talisman’s profitability is vulnerable tobargaining power and threats from rivals or competitors.
Talisman energy inc has a lot of exploitation upstream operations in which it develop, produce, transport and market crude oil which aids it in gaining competitive advantage
It has its operations in various countries like North Africa, Australia, North Sea and Southeast Asia.
It has got more than 3000 employees which all have a lot of experience in petroleum industry
It is at high position to own the shale gas resource in USA which is an upcoming sector in unconventional source of natural gas
In Canada it is among the largest companies dealing with energy
Sometimes it depends on third parties to gain access to some assets and this sometimes affect the financial operations
It is characterized by limited scale and is outpaced by larger competitors in terms of revenue, employees and dominance of international market.
Recently it announced new gas and oil projects and has allocated a lot of capital plans to be funded by cash from operation activities, sales of assets and the potential of its balance sheet
It has joint together to venture with companies such as Sinopec and Mitsubishi. It has also made agreements such as Kurdistan and PETRONAS agreements which will enable it expand the operations and explores more oil internationally hence give Talisman more growth opportunities and will be able to increase its revenue generation
It has closed or divests its noncore assets in Poland, British Columbia and Peru for it to be committed on main business and enhance its market position.
It has been affected by the natural gas and crude oil fluctuation in their prices. This has had negative effects on its financial conditions, operation, its oil and natural gas reserve value, expenditure level of gas and oil development and exploration.
There has been fierce competition from other competitors in the market and these competitors are larger in terms of dominance and revenue hence this will make Talisman lose its share in the market.
There are sometimes occurrences of hazards and this will result in loss of skilled personnel or injury, damage of property, degradation of environment, additional cost of remedying incidents, investigation and penalties and being liable to third parties, therefore it increases the operation costs and reduces profit margins.
Strict state laws and environmental regulations will have negative impact on the talisman’s operations through increased costs, affecting development frameworks, declining revenue and flow of cash from oil and gas sale, will reduce its liquidity.
TalismanEnergy Company has expanded its geographic diversification by meansof agreements and acquisitions. In 2008, one of its subsidiariesobtained all the shares of
CNOOCWiriagar Overseas at a cost of $212.5 million and this subsidiary hada 3.06% interest in the Tangguh LNG Project (Trish& Matt, 2012).
Thisproject is situated in West Papua, Indonesia, and has a lot of oilwells at offshore, pipelines, production facilities, and plantfacilities with a capacity of 7.6 million tons per year. In additionother two subsidiaries made and agreement Kurdistan regionalgovernment in Iraq and was interested in K44 and K39 in that order.Again in 2098 it announced that it made agreement with FEI FortunaShale to be interested in US properties belonging to Hallwood. It wasmeant that upon its completion Fortuna should have acquired 1/3interest of assets belonging to Hallwood in addition to properties inLouisiana, Texas and Arkansan at an acreage of 108000. Suchagreements enables talisman to increase its growth opportunities andincrease its revenue.
Newoil and gas production
Newgas and oil exploration by talisman energy Inc has enable it toincrease its gas and oil productions. In 2008 Vietnam 46/02 which isa subsidiary for talisman produced the first oil from Song Doc field.Production from five wells was expected to be 25000 bbls/d in early2009.three other wells were being drilled. In that period it wasestimated that its share of approved reserves in the Song Doc fieldwas around 6000000 barrels (mmbbls) and the reserves which had beenproved reaching 3mmbbls (Trish& Matt, 2012).
Alsoin 2009, it produced the first gas in Rev Field Norway and it wasexpected to produce 100mmcf/d of gas in addition to 6000bbls/d ofcondensed and natural gas liquids in two sea wells. In the same yearRev East well which was a third party was expected to be takenon-stream. At the end of 2007, Talisman share of probable and provedreserves in Rev Field was at 26 million boe while the proved reserveswere at 16million boe. Norge which is also one of its subsidiarieshad 70% interest in the field while Petoro had 30%. The oil and gastransported through a pipeline to Armada in UK. Thus, new productionpursued will increase the Talisman output hence increasing itsrevenues (Trish& Matt, 2012).
Economicslowdown in the US and Eurozone
Themain markets for Talisman are US and European Union. The economicslowdown in 2009 dealt a major blow to Talisman and affected it totoady. In 2007, the growth rate in US reduced from 2% to 1.1% in 2008and was expected to reach 1.6% in 2009. In Eurozone, the GDP reducedfrom 2.6% to 1% in 2008 and was also expected to reach 2% in 2009.This slowdown exerted pressure on company’s revenue and affectsdevelopment in the industry hence affects the talisman’s demand forproducts.
Dueto oil pollution act of 1990 and Port State Control initiative, morestrict regulations have been enacted and adopted. As a result suchregulations lead to more costs channeled for pollution damages.Henceforth all companies in oil and gas industry have been subjectedto stringent environmental regulations. The storage and distributionfacilities have been strictly complying with regulations which havebeen changing from time to time. Such compliance makes Talisman incura lot of costs hence have adverse effect on its profits margins.
Theoilreserveshave been maturing especially in North America and has been leadingto increase in operation cost and replacement cost. Thus bigcompanies have been finding challenges in increasing the productionsince production has been declining in such mature oil fields. Inaddition, production from natural gas reserves in Canada has alsobeen decreasing. Despite the fact that Mackenzie valley reservesdevelopment was to boost gas reserves the overall decliningproduction is a major threat to many oil companies including the furthermore, offshore exploration and presentreserves are getting more mature and saturated. In the past there hasbeen dry holes being drilled in succession. Such saturation affectsthe operation of the company
Talismanenergy inc is an international independent oil and gas company whoseoperations is mainly on exploitation, marketing, development,transportation and production of natural gas liquid and crude oil.Its three main areas are North Sea, North America and Southeast Asia.In North America it’s a leading explore of gas and possessunconventional potential for gas. In North Sea it has 40 oilfieldsand a large acreage for exploitation in Norway. In Southeast Asia, ithas long life reserves of natural gas and large acreage forexploration. Thus strong position of market enables increases theshare in the market.
Talismanenergy Inc has diversified geographic presence and does theexploration, development and production in the following areas in theworld North America, the North Sea, Southeast Asia and Australia,North Africa, and Trinidad and Tobago. Its operations are carried outin the following 5 geographic segments North America, UK,Scandinavia, Southeast Asia, and others (consisting of North Africa,Trinidad and Tobago, Colombia, Peru, and Qatar).As a result of thatdiversified presence, it produced 452000 barrels of oil per day in2008. Of this,
189,000boe/d was from North America, 117,000 boe/d was from the UK segment,33,000 boe/d was from the Scandinavia, 92,000 boe/d was fromSoutheast Asia, and 21,000 boe/d from other parts of the world. Thusdiversified presence enables a company to decline the risks frombusiness which might arise from another area or geography (Haggett,2013).
Talismanlacks the required scale to outpace larger players in oil and gasindustry. Majority of its rivals are larger in terms of revenue,employees and dominance in Europe and other markets. BritishPetroleum is one of its key competitors and generates revenue ofapproximately $288,950million, employs 97,600 people as by 2007. Exxon Mobil Corporation isalso one of its competitor and generates revenue of $390,328 millionand employs 81,000 2007. But, Talisman generated C$7,919 million in2008, and employed 2,600 people. Thus this is a problem for Talismansince as a result of small operation scale it will tend shy away fromcompetition (Trish& Matt, 2012).
Talismanhas been having a lot of debt. In 2008 it had total debt of C$3,949million. Despite the fact that, it decreased by 9% from 2007 whichwas an outstanding amount of CAD$4,341 million, this amount is stillhigh. This will make its ability to get financing difficult and alsosatisfy obligation (Haggett,2013).
Talismancan use the cost leadership strategy whereby, it wins share of themarket by attracting the price sensitive customers through charginglowest price in market. It need to operate at the lowest cost aspossible as it offers the lowest price and maintains profitability.
Firstof all it will need to acquire high asset turnover. To achieve thisfixed cost need to be spread in more service or product units to leadto lower unit cost. This means it takes advantage of scale ofeconomies. In all industries, mass production of products is a mainstrategy in itself. Mass production or output need and leads to bigshare in the market and initiate barriers to competitors who have notgotten the economies of scale.
Secondlyit needs to achieve low direct and indirect operating costs. Thiswill be through issuing great volume of standard products andreducing personalization and customization of service. The cost ofproduction is kept low through use of few components, standardcomponents and limiting models. Also overheads will be kept lowthrough payment of low wages, building facilities in areas with lowrent rates, and initiating culture which is cost conscious. Thisstrategy will be maintained through lots of cost reduction throughcost production control, outsourcing, increasing use of assets andreducing costs on advertising, distribution and R and D (Trish& Matt, 2012).
Thirdly,the supply and procurement chain needs to be controlled to lead tolower costs. This can be met by selling oil and gas in bulk to offerdiscounts, generate competitive contact bidding, and squeezesuppliers’ price. Procurement advantages may also result fromaccessing raw materials and backward integrations (Pratima& Natalie, 2009).
However,talisman needs to take into consideration that cost leadershipstrategy has some disadvantages since it is characterized by littleroyalty of customers since customers who are price sensitive mayswitch when substitutes which are lowly priced is availed in themarket. Having reputation as cost leader can also lead to low qualityproducts which may be hard to brand it again if it movesdifferentiation strategy (Trish &Matt, 2012).
Talismanwill need to differentiate it’s in order to compete well.Differentiation is recommended where the targeted consumers are notsensitive to price, the market is not saturated and competitive,consumers have certain needs which are underserved and the companypossess uncommon capabilities and resources which are able to satisfytheir needs in means which are hard to be copied. Intellectualproperty patents and different expertise technically, talentedpersonnel and innovation processes will be employed by TalismanEnergy inc. it will be sure of successful differentiation when itwill accomplish the premium prices of its products and services,increase revenue per unit or increase the loyalty of its consumers tobuying its service or product. Differentiation calls forprofitability if the total price for the product is more that totalexpenses to get the product or service. It is also ineffective if itsunique brand is copied by its rivals. A brand management which issuccessful leads to conceived uniqueness despite the similarities ofproducts (Pratima & Natalie,2009).
Variantson the Differentiation Strategy
Talismanenergy Inc can employ the shareholdervalue model which stipulates for timing and using specializedknowledge to develop differentiation advantages so long as theknowledge is still unique. Its suggestion is that consumers maypurchase a product or a service from a given company in order toaccess the unique or uncommon knowledge. It has an advantage in thatit is static instead of being dynamic since purchasing is a onceevent (Trish & Matt, 2012).
Talismanenergy Inc can also employ the unlimitedresources model which calls foruse of mass resources which enables the company to outpacecompetitors through differentiation strategy. Since it has a lot ofresources it will be able to manage risks and also maintain theprofits easily than companies with few resources although this offersthe short term advantage. It will go on developing continuousinnovation in order to sustain its competition position (Trish& Matt, 2012).
Thisdimension explains how companies need to compete as per thedifferentiation and cost leadership. Talisman energy company mayprefer to join competition in mass market characterized by broadscope or a market with narrow scope thus competition can bedifferentiation or cost leadership (Pratima& Natalie, 2009).
IfTalisman will adopt narrow focus it will focus on few markets whichare termed segmentation. These are different groups having specialneed. Offering oil low prices or offering differentiated oil serviceswill need to depend on the resources belonging to it. If efforts inthe market will focus on narrow segments of market and employing themarketing mix to such markets, the needs of that market will be met(Trish & Matt, 2012).Talisman will thus achieve competitive advantage as a result ofinnovation and marketing instead of efficiency (Pratima& Natalie, 2009). Talisman energy Inc willtarget markets which are likely to be availed with substitutes or inmarkets with weak competition to gain above investment returns.
Byadoption of broad focus, talisman energy Inc need to identify theneed and want of the mass market and initiate competition based onprice at a lower cost of differentiation in terms of customization,quality and brand but it will need to do this taking intoconsideration the capabilities and the resources available (Pratima& Natalie, 2009).
Fromanalysis of Talisman SWOT we came across with a lot of problems andbelow are the strategies recommended to improve its performanceefficiency.
Todecline the talisman debt Talisman needs to concentrate on strategicareas and exit non strategic areas. It needs to sell non-strategicareas to enhance cash flow and thereby decline amount of debt (Trish& Matt, 2012).
Togain edge in competition from bigger oil companies like BritishPetroleum, it needs to employ differentiation strategy. MichaelPorter differentiation strategies are comes about when a companyprovides services at the similar price as competitors. By doing thistalisman will get a sustainable competitive advantages if processesof value creation is not imitated by other companies (Pratima& Natalie, 2009).
Economicslowdown in the US and Euro zone
Thebest means is to improve the efficiency. Talisman energy Inc duringeconomic crisis needed to concentrate on bottom line. The production,energy utilization is recommended to be made effective.
Asa result of strict and frequent changes of oil pollution actstalisman energy Inc incurs high cost in complying with the act. Tosolve this it need to develop a strategy by coming up with a team tomonitor this compliance process in order to avert changes. Changeswhich might occur without proper planning will lead to higher cost.
Thiswill impact on the operation of Talisman energy inc. to avert this itneeds to focus on portfolio strategy. Talisman need to focus on areaswith high exploration and exit the areas which have been depleted(Pratima& Natalie, 2009).
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