Oil and Gas Industry

¶ … structure o the global oil industry b. The structure of the global gas industry.

The integrated oil and gas companies (IOCs) are vertical, tall, or centralized structures where producers refined 100% of their production and then marketed refined products through their retail outlets. Production and distribution was downward. Today many of these IOCs combine verticality with a certain horizontalness with many spreading their tasks over various fields and involved in various simultaneous activities. They operate in many segments, whilst also buying and selling oil and gas to and from other firms. The companies are therefore centralized around a certain core management with specialists in each field clustered in tiers underneath.

The vertical structure denotes uses a hierarchical structure with downward directives and management span of control where underneath tiers are controlled by and responsible to upper levels of management. Again, each of the firms demonstrate this vertical structure in diverse ways with ExxonMobil, for example, being organized around global businesses and global functions, with common global operating processes, global enterprise back-office systems, such as SAP, and integrated operating structures at major sites. BP, on the other hand, has adopted a global structure that is organized around different businesses. Many of the other IOCs tended to use more regional processes and regional management structures. They are also comprised of mergers and acquisitions.

2. What are the major factors that have influenced the structure of these industries over time?

The urge to become larger and more integrated due to decrease of availability of oil and gas resources and need to spread over the world has influenced their structure. There are also enormous financial and political risks involved in both industries with cyclical periods of unpredictability. Just to give a partial list of some of the economic and political events that have impinged on the OICs within the last few decades: These include the continuing efforts from oil-producing countries like Kazakhstan, Russia, and Venezuela to exert greater control over their resources; major technological advances in deep-water drilling and shale gas; Chinese firms acquiring exploration rights at record high prices; ongoing strife in Sudan, Nigeria, Chad, and other oil-exporting nations; continued heated discussion about global warming and non-hydrocarbon sources of energy;, and huge movements up and down in crude prices. A further example of the volatility of prices is demonstration that crude oil prices ranged between $2.50 and $3.00 from 1948 through the end of the 1960s. The Arab oil embargo of 1974 resulted in a large price increase. Events in Iran and Iraq led to another round of crude oil price increases in 1979 and 1980. The 1990s saw another spike in prices that ended with the 1997 Asian financial crisis. Prices then started back up, only to fall after September 11, 2001. After 9/11, prices rose until the recession at the end of the decade.

"True oil and gas reserves," too, are a complex combination of technology, price, and politics. While technical change continues to reveal new sources of oil and gas, prices have demonstrated more volatility than ever, and governments have sought more control over resource information and access than ever. The OICs, therefore, live in a bubble of constant flux and unpredictability. Given their huge expense in exploring, finding, gaining rights over, and distributing as well as maintaining these resources, oil and gas companies are compelled to expand into large sprawling enterprises that are made up of many acquisitions and mergers which can share the expense and to stretch.

The decline in source of oil and gas has caused them to extend and constantly move to new markets since their discovery of oil and gas resources is becoming increasingly harder and their technological investments and expense increasingly larger.

Their recent competitor too has been search for replacements of traditional gas and oil which has caused them to invest all the more wildly in technological advances to father their search for resources.

Their unpredictability, battle against competition, battle for survival, need to band together to match expense, and instability of their field has led to them forming a tight-knit, secure, and rigid vertical structure.

3. Why are so many of the firms vertically integrated?

The vertical structure enables the organization to better manage a complex value chain that is comprised of upstream, midstream and downstream tiers of activity.

Upstream activities include exploration, development, and production. Oil and gas are discovered during exploration; these resources are then developed, and production involves drilling and extracting oil and gas. All of this involves numerous details including adhering to relevant policies and bidding for oil / gas rights as well as maintaining reservoir profitability.

Midstream activities include activities of storing, trading, and transporting crude oil and natural gas. This includes dealing with distributors as well as with many other players including refiners, speculators, commodities exchanges, shipping companies, IOCs, NOCs, independents, and OPEC. Terrorism and certain conditions in certain countries can complicate these activities.