Discuss about the Growth Strategy of Woodside Petroleum.
Woodside Petroleum is the largest oil and gas exploration and production company in Australia. The Company was founded in 1954 and the headquarters of the company are situated in Perth, Australia. The company is named after a small town in Woodside, Victoria. In the 1960s, the major investors in the company were Shell as the Burmah Oil Corporation. Later, BHP replaced Burmah and BHP and Shell each obtained 40% share in the company. Later both the companies sold their major stake in Woodside Corporation (Livemint, 2010). The operations of the company can be divided into three sections, namely, exploration, development and production. In the exploration operations, the company has diversified its portfolio by creating strategic alliance and engaging in exploration operations in Asia Pacific, Australia, Sub-Saharan Desert and Latin America. Along with it, it also focuses on research and development in the oil field. For instance, the Pluto and the North West Shelf project have implemented innovative technology for the development and identification of new petroleum sites (Woodside, 2017).
The company was founded in 1954 and since then has become the largest oil production and exploration corporation in Australia. The earlier operations of the company were focused on Victoria’s Gippsland Basin. Later in 1960s, Woodside made alliance with Shell and Burmah Oil to explore North West Shelf Gas, Australia’s biggest resource development project. Burmah Oil was replaced by BHP and eventually BHP sold its entire stakes in the company. In 2000, Shell also planned to sell its shares in the company. In 2010, Shell sold approximately, one-third of its shares to the institutional shareholders of the company (Shell, 2014).
It has presence in several countries in Africa, Asia and Canada. The company has pursued the strategy of partnership to enhance its presence in different countries (Woodside, 2017). The vision of the company is to increase the shareholder returns from the company by developing its operations in the upstream oil and gas sector. The strategy of the company can be divided into following categories: capitalizing on the values of the company’s core assets, increasing the capabilities of the company and diversifying the portfolio of the company’s operations. The competitive advantage of the company is its distinct location wherein the company has abundant resources and has developed strong relationships with other companies with its world class projects. The company is focused to increase the value of its assets by operational effectiveness and increasing their life, with simultaneously increasing the number of assets. In order to increase its operational efficiency, the company has implemented the use of technology and world class infrastructure (Woodside, 2017).
In the recent years, Woodside Petroleum has received criticism from several entities for unethical practices.
Woodside Petroleum gained international attention when the Mauritanian government made accusation that the oil contract made by the company is against the interest of the company. In 2004, Woodside planned to invest six hundred million dollars to develop the Chinguetti project in Mauritania (Kloff and Van Spanje, 2004). However, the government denounced the contract after it found that the contract terms were against the national interests and reduced the government’s share in the profits (Wilson, 2007). The contract terms include reduced taxes, fewer shares in the revenue and forced guarantee of the initially investing banks. The government further claimed that the management of the company bribed the officials of Mauritanian government to establish the contract (BBC, 2006). The company did not follow international arbitration practices in contract which resulted in criticism of the company from the government and major media agencies (Baker and May, 2008).
Another initiative of the company which invited criticism from agencies all across the world was onshore processing plant in in Burrup Peninsula in Western Australia. It was the part of the company’s Pluto LNG project; however, the exploration site had several years old petroglyphs, a part of the aboriginal art. In the site, 30,000 year old rocks were carved from images including kangaroos, lizards and tigers. It is in the international World’s monument list. However, industrial activity in this area adversely impacted the world heritage site. Woodside Petroleum has built new LNG plant in nearby locations and the industrial emissions from these plants damaged the rocks. They are impacting the health standards and the international environment (ABC News, 2008). Moreover, when the company decided to build the LNG plant, it transferred the rocks with the inscription to a nearby location which damaged the natural setting of the rocks.
The environmental analysis of the company examines the external and the internal environment of the company. The external environment can be examined through macro analysis of the company with PESTEL analysis whereas the internal environment of the company can be determined through SWOT analysis (Griffin, 2010). Woodside is a leading oil exploration and production company. The PESTEL analysis of the company is as follows:
Political factors:
In the petroleum and oil production companies, the government plays a crucial role as petroleum is a highly regulated sector. The geopolitical conflicts and the political instability also impacts on the petroleum organization. The crude oil is also associated with the stock exchange and the forex reserves. Moreover, the petroleum companies need labor; therefore, they have to follow the labor laws and environmental policies. As the petroleum companies are large in size, they have to properly implement the environment and the labor laws.
Economic factors:
The economic factors that can impact the petroleum companies include the economic growth and the foreign trade of the country. The oil exploration and production is strongly correlated to the economic growth of the company as sell of petroleum increases the revenue. The economic conditions of the market impact the supply and the demand of the oil and subsequently impact the oil prices of the company (Cong, 2008).
Social Factors:
In the oil and the petroleum industry, the social factors include the demography, income and culture of the target market. In the petroleum companies, skilled and professional workers are required and accordingly, the companies decide high remuneration to attract the best workforce. The government of the countries encourages oil exploration and production as it has a drastic effect on the living standard of the company. However, certain people are against oil exploration and production as it increases the pollution in the country and damages the natural heritages (Griffin, 2010).
Technological factors:
The petroleum industry relies on advanced technology and exploration methods. A large number of petroleum production corporations invest on research and development to increase the operational efficiency and production methods. Therefore, the technology has a severe influence in the oil production organizations.
Environment:
The environmental factors are crucial in oil companies as a large number of international organizations scrutinize the oil companies for their role in environmental pollution. The oil companies have to invest in environment-friendly techniques for waste management and reduce controlling the environmental impact of the exploration and other operations in the oil production (Wälde, 2008).
Legal:
The petroleum companies face several legal issues and control. The companies have to take legal permission before initiating a new exploration project. They have to take care of the environmental laws as they are in regular scrutiny of the government (Wälde, 2008).
The specific environment of Woodside Petroleum can be explored by the Porter’s five force model. According to this model, there are five forces that are used to examine the potential opportunities and the risk for the company in a specific industry (Griffin, 2010). In the following section, the specific environment for Woodside has been examined:
Competitive Rivalry:
In the petroleum industry, the competition among the upstream sector is intense. The petroleum companies can be divided in integrated oil companies, private oil companies and the state owned oil companies. Therefore, the competitive rivalry among the oil companies is high (Porter, 2008).
Threats of New Entrants
In the petroleum sector, the threat of the new entrant is relatively low. It is due to the massive initial capital requirement, high internal competition, licensing complexities, oil and gas market volatility and the national and international law restrictions.
Threats of substitutes
The primary products of the oil industry can be replaced by nuclear energy, coal, hydrogen, bio-fuels. However, these energy resources are unable to substitute oil to lack of technology and performance outcomes. The renewable energy resources need considerable investment before they become a threat to the oil industry.
The primary buyers of the petroleum are refineries, oil companies, distribution companies and different countries. The oil prices of the companies are dependent upon the blend and the production countries. The customers have little impact on the supply and price determination. The bargaining power in the oil and the gas industry is relatively small due to the nature of the product.
Bargaining power of Suppliers
In the oil industry, the suppliers can be considered as the international oil companies which are active in the whole value chain of the oil extraction. The ability of these enterprises to affect the oil prices is high due to their involvement in all the business activities of the oil industry.
The internal environment of the Woodside Petroleum can be examined through the SWOT analysis.
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Strengths Market leader in Australia Access to the world’s richest oil basins Australia’s largest oil and gas assets Active exploration company Experience in design engineering and seashore exploration (Mac-Donald Smith, 2017) |
Weaknesses Several legal issues such as corruption and acquisition of natural gas territories Limited operational area Relatively smaller in size in comparison to other oil corporations |
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Opportunities The development of the LNG projects can increase the company’s LNG capabilities The company can develop new site near Australia to expand its capabilities Strategic alliance with other oil companies to boost the international expansion opportunities |
Threats The emergence of the Shale gas Operational risks associated with the exploration and production of oil |
Woodside Petroleum has adopted an aggressive growth strategy. In order to achieve its growth targets, the company has focused on a cultural change wherein the company is trying to build a high performance culture. As a result of several interventions from the HR department, the company has reduced the voluntarily turnover and create a fast paced work environment. The employees of the company are able to achieve higher benchmarks and performance level. The leadership style of leaders is transformational wherein the leader works with the subordinates to identify the needed change and motivates the employees through motivation (Korn Ferry, 2017).
Conclusion
It can be concluded that Woodside is a major oil and petroleum corporation in Australia. The company is the largest oil production company in Australia and has operations in several overseas countries. In order to grow strongly in the international arena, the company is investing in developing new technologies and research and development. Moreover, the company is operational in both upstream and downstream operations of the company. It has been identifies that he recent strategic initiatives by the company to invest in the oil plant in Mauritania and offshore exploration in Burrup Peninsula in Western Australia has invited criticism from all across the world. The company is criticized for bribing the country’s officials and forming contract against the international arbitration laws. On the other hand, in the Burrup Peninsula case, the company has initiated a refinery in the national heritage site. It has invited flak from various international agencies. The political factors impact the petroleum industry as it is a highly regulated sector. Moreover, the companies are also influenced by the economic growth and the financial performance of the country. The strengths of the company are its strong brand name and the establishment in Australia. The company should explore other options in other countries of the world. In order to boost the performance of the company, the senior management has adopted transformational leadership style.
References
Livemint, 2010. Shell surprises with $3.3 billion Woodside stake selldown. [Online] Available at: <https://www.livemint.com/Companies/iiGIep1MUcshmG3yYJaNyI/Shell-surprises-with-33-billion-Woodside-stake-selldown.html> [Accessed 19 January. 2017].
Woodside, 2017. Our Business. [Online] Available at: https://www.woodside.com.au/Our-Business/Developing/Pages/home.aspx#.WIBAdlV97IU [Accessed 19 January. 2017].
Shell, 2014. Shell Completed Sell-Down of 78 Million Shares in Woodside. [Online] Available at:< https://www.shell.com/media/news-and-media-releases/2014/shell-completed-sell-down-78million-shares-in-woodside.html> [Accessed 19 January. 2017].
Woodside, 2017. THE WOODSIDE COMPASS. [Online] Available at: <https://www.woodside.com.au/About-Us/Pages/The-Woodside-Compass.aspx#.WIBoq1V97IU> [Accessed 19 January. 2017].
BBC, 2006. Mauritania and firm row over oil. BBC News. [Online] Available at: <https://news.bbc.co.uk/2/hi/business/4684836.stm> [Accessed 19 January. 2017].
Wilson, 2007. Woodside abandons Mauritania at a loss. The Australian Business Review. [Online] Available at: <https://www.theaustralian.com.au/business/mining-energy/woodside-abandons-mauritania-at-a-loss/news-story/2a9be6e9666e8d0d439e18c84cd6599e> [Accessed 19 January. 2017].
Baker, R. and May, J, 2008. Woodside drill deep into an African money pit. The Sydney Morning Herald. [Online] Available at: <https://www.smh.com.au/national/woodside-drill-deep-into-an-african-money-pit-20080704-31×9.html> [Accessed 19 January. 2017].
ABC News, 2008. Resources boom ‘putting Aboriginal rock art at risk’. [Online] Available at: <https://www.abc.net.au/news/2008-07-25/resources-boom-putting-aboriginal-rock-art-at-risk/452390?site=news> [Accessed 19 January. 2017].
Korn Ferry, 2017. Case study: Woodside leadership development program. [Online] Available at: <https://www.haygroup.com/au/downloads/details.aspx?id=26440 > [Accessed 19 January. 2017].
Cong, R.G., Wei, Y.M., Jiao, J.L. and Fan, Y., 2008. Relationships between oil price shocks and stock market: An empirical analysis from China. Energy Policy, 36(9), pp.3544-3553.
Porter, M.E., 2008. The five competitive forces that shape strategy. Harvard business review, 86(1), pp.25-40.
Kloff, S. and Van Spanje, T., 2004. A review of Woodside’s Draft Environmental Impact Statement of the Chinguetti Offshore Oil Development Project in Mauritania. Mineral Policy Institute.
Wälde, T., 2008. Renegotiating acquired rights in the oil and gas industries: Industry and political cycles meet the rule of law. Journal of World Energy Law & Business, 1(1), pp.55-97.
Mac Donald Smith, A, 2017. woodside-petroleum-can-grow-without-acquisitions. [Online] Available at:<https://www.afr.com/business/energy/oil/woodside-petroleum-can-grow-without-acquisitions-ceo-20170119-gtuif1> [Accessed 19 January. 2017].
Griffin, R.W, 2010. Management. Boston: Cengage Learning.
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