Strategic and Operations Management Deals in Production

Question: Describe about the oil and gas company that deals in production and exploration and is headquartered in United Kingdom for its operations? Answer: Introduction Cuadrilla Resources chiefly are an oil and gas company that deals in production and exploration and is headquartered in United Kingdom for its operations. It is best known for its efforts and operations in shale gas by the use of hydraulic fracturing. The company has diversified the shale gas extraction in UK and outside UK constituting of the exploration of shale gas in UK under Cuadrilla Resources is a recent phenomenon occurrence of commercial extraction (Cuadrillaresources.com 2016). Cuadrilla came into being when in 2011 it claimed to discover 5600 cubic grams of gas and later a year. By in large shale gas in UK is a game-changing resource that has transformed the UK energy market and significantly contributed to the supply of national security. However, UK is on the cusp of the energy revolution and Cuadrilla Resources Ltd. have announced shale gas discovery in Bowland Shale, which exceeds the national estimates (Mobbs 2012). On the other hand, extraction of shale gas in UK is facing macro environment problems, which needs to be analyzed in this report with the strategic policies it applies to operate and the less opinionated strategic choice it possesses. However, Cuadrilla Limited is facing a challenge in the environmental and political spheres to operate the "unconventional" natural gas using hydraulic fracturing. Macro- Environment: PESTEL Analysis The Cuadrilla Limited can be assessed based on macro environment factors that not only help in examining the organizations issues but also helps in delivering the key areas affected by different reasons. However, macro environment or external analysis is considered the first step in the strategic analysis, which is referred to pestel analysis namely political, economical, social, technology, legal and environmental factors. The macro environment analysis also helps in investigating the SWOT analysis of the company to bring out better results (Yksel 2012). Figure 1 gives the overview of PESTEL analysis. Figure 1 PESTEL Analysis Source: (Sheikh 2013) Political Factors Over half of Britain is either considered or licensed for oil gas exploration. However, the licenses are increasing its base in Cleveland Basin and Gainsborough in East and South Yorkshire respectively. The three licenses that give Cuadrilla a leading position is Gainsborough, Lancashire Bowland, and Cleveland. However, the government gives an active encouragement within Europe just after Poland in pursuing potential in shale oil and shale gas. Nevertheless, the political opposition in UK is less than Germany or France but more than Poland. In the recent government budget as stated by Finance Minister George Osborne promised cash incentives and tax breaks for companies that undertake drilling test with consent (Selley 2012). Nonetheless, the government practices a push strategy for a mature and stable shale gas industry that has not been established yet whether it is Cuadrilla Resources for the matter. However, maintaining a commercial level is imprecise. Furthermore, not only strate gic policies but regulating the new industry is even crucial (Gu and Nazmy 2014). The political reasons for Cuadrilla's standalone position are highly diverse. However, Cuadrilla was famous for its petroleum exploration and development license for Bowland between Preston and Blackpool in Lancashire (Werth 2013). Hence, national politic factors of Cuadrilla are represented by grade of the authority of the state, political parties, non-governmental organizations different factions like radicals and paramilitary entities. Economic Factors The economic implications according to Cuadrilla report estimates the drilling test to support 250 FTE jobs in a year. In addition, the UK estimated level of employment reaches its peak of 5600 FTE employment in the period from 2016-2019, which has been coursed since 2013. The interest rate at which Centrica acquired the license is of 25%. According to the reports of Institute of Directors, in May 2013; UK shales gas exploration will acquire 3.7 billion to maintain 74,000 jobs mainly focused in regions with currently high unemployment. However, reporting speech of Business Green emphasize that shale gas exploration sings hydraulic fracturing will help in bringing down the costs of energy by impacting the gas price in UK at a large level (White et al. 2014). Social Factors The social, economic issues critically assess the high profile claims in a development of energy security. However, to reach out to public. Cuadrilla adopted advertising using leaflets such that the residents in Lancashire could be aware of the process of risks associated with hydraulic fracturing. On the other hand, it has created an adverse impact while failures to discuss with the residential stakeholders. The impact has been severe in Cuadrilla's exploration sites whether it is to tress and damage private property by explosives for geological surveys in Lancashire or the ill information passed to residents for drilling operations or the possible level of breaching noise level limits that makes socially enviable to live in any environment. The other factors that influence the need for energy are urbanization because the company is producing more than required and thereby shifting the population to urban sector. However, shale gas industry creates a high degree positive and negativ e impact in the social sphere. Nevertheless, these pros and cons associated with shale gas exploration increase the importance of the company to implement suitable procedures and policies as well as high degree of transparency towards impacted communities and local stakeholders (Rcz and Wilde-Ramsing 2013) Technological Factors The technological factors are the technologies that represent the organization. These factors can influence the company as well as the UK economy. In shale gas exploration, the technologies acquired are horizontal drilling, hydraulic fracturing and water machines for the use of water. These technologies are substitutable by oil and renewable energies but not to a greater extent but is used in many ways whether it is for residential, commercial, transport, power generation or industrial (Davey 2012). Like many coal and oil industries, the shale gas is life phase of maturity because the development of new technologies becomes hard and is half depleted. Therefore, the research and development department of the company needs to work hard to make sustainable technologies that are eco-friendly (Ebenhack and Martnez 2013). Environmental Factors The environmental factors are the main area of concern because the factors influenced by shale gas exploration are many and because of this reason IEA has developed a set of "golden rules" because environmental degradation is costing 7% to the Cuadrilla company for environmental acceptance for social license' to operate. The factors that are causing havoc due to the shale gas exploration accounts for earthquake risk (seismicity) that caused two earthquakes of 2.4 Richer scale caused in Lancashire in 2011. The only potential risk inflicted from these incidents is the well-integrity failure that leads to contamination and methane leakage followed by health risks. Second factor that comes into play is water and ground contamination through hydraulic fracturing, well-integrity failure, run off from well pads, transport, spills and leaks of wastewater and poor handling of wastes or chemicals. The 34% of UK's North Sea suffers well-integrity issue (Harrison, Parkinson and McFarlane 2015). The other issues are water quality, air quality, carbon emissions in the atmosphere, climate change, and health risks are increasing and causing social and environmental determinants of health. However, the climate change perspective is due to the exploitation of shale gas exploration in preference to coal, which is leading to an overall change in carbon emissions. After reviewing the factors, the Environmental Agony has assessed the political impact of the Cuadrilla operations on the water environment and has decided not to permit under the EPR (Mobbs 2012). Legal Factors The public policy regulatory regime to change policy to promote shale gas is beginning with the improvement of fiscal terms under which the companies operates followed by a new proposed system to slower the cost of recovery and the spread of gas to a wider area than traditional oil fields (Stevens 2013). After the consultation with the planning commission, the government provided issues for consideration and insisted on industry-leading standards. The baseline monitoring by the local communities will help in providing planning commission to benefit everyone. In addition, to avoid well-integrity issues, best techniques and materials should be used with community in an oversight rule to identify any such issue (Taskforceonshalegas.uk 2016) SWOT Analysis The SWOT analysis helps to integrate the internal analysis of the environment keeping in the mind the internal analysis that can provide a competitive advantage. The SWOT can be explained by the Figure 2 below. Figure 2 SWOT Analysis of Cuadrilla Source: (Swot.advisorgate.com 2016), (Sale and Mallick 2014) Strategic Options available for Cuadrilla The Gas Generation Strategy is the strategy offered by Cuadrilla rather UK that other strategic options are a part of it. Hence, following approaches are undertaken to enhance the Gas Generation Strategy (Davey 2012). Regulatory Approach The strategic options available for Cuadrilla are based on the regulatory regime it follows. The regulatory approach of Cuadrilla has been working with different regulators namely DECC (Department of Energy and Climate Change), EA (Environmental Agency) and HSE (Health and Safety Executive) combined to achieve a joint approach. In recent years, EA has regulated many risks associated with shale gas exploration such that EA has not only published comprehensive reports but has also analyzed assessment procedures for shale gas covering. The joint approach published by EA and HSE confirms the adoption of unconventional resources (Stevens 2013). Figure 3 Regulatory Process Source: (Correia 2014) Hence, all the different approaches or strategies mentioned below constitute the strategic options. Development and Future Licensing The recent announcements taken on particular onshore licenses show that the last onshore licensing took place in the year 2007. Nevertheless, DECC instigated a Strategic Environment Assessment to further onshore licensing in 2010. The publication of UK Gas Strategy worked on environmental implication to be adopted for future inshore for shale gas exploration (Stevens 2013). The 14th Licensing round accompanied a total of 95 applications from 47 countries. Therefore, after scrutinizing the competency, financial viability, and technical analysis; the decision was taken not to award the license to Wales and Scotland, and other 159 blocks were offered licenses (Roberts and Bremen 2012). However, following the new licensing round in 2015 and favoring the new forms of energy like fracking that could lead to lower bills, lower carbon emissions for the environment. However, with the wealth fund accumulated, the profit opts to spent for the benefit of the local communities (Naturalgaseurope.com 2012) Planning Permission Different proposals for gas and oil developments are subject to necessities by the Minerals Planning Authority (MPA) for the area in which the products operations are carried out in accordance with DECC's consent. Moreover, when a decision is made on the application of planning, then only "material considerations" are explicitly taken into the version. The Government's Planning Practice Guidance list follows a number of principal considerations such that any changes or representations on issues will not be considered when planning are carried forward (shale gas. International 2016) According to March 2015 consultation, new permitted development rights for groundwater monitoring for the drilling of boreholes were considered. However, the government was in the view that speeding up delivery for continuous and strict monitoring for protection of the environment where local planning authority is required (Roberts and Bremen 2012). Corporate Social Responsibility Procedures One of the strategic options that benefit the Cuadrilla activities performed in an environmentally and socially manner is corporate social responsibility. However, Cuadrilla does not publish an annual CSR report as it faces issues in its periodic reports. Nevertheless, Cuadrilla neither is a part of any international sustainability initiatives nor is responsible for any business conduct. It withholds a one page environmental as well as health and safety policy, as most of the factors that hamper the company is environmental concerns (Rcz and Wilde-Ramsing 2013). The issues that are mentioned in the policy are of ground water and aquifer, seismicity, water use, soil protection, carbon emissions, engagement (communication policy) with the employees, disclosure (data specifications), landscape and health and safety (Ppsgroup.co.uk 2016). Tax Tax is even considered a strategic option because tax incentives are announced for shale gas since 2012 and was confirmed under gas generation strategy. However, Treasury has consulted the industry to develop the incentives for forthcoming years (Hannigan 2014) Implementation of Strategic Option Cuadrilla deals with shale gas production in UK that will require the development of the new onshore supply chain for equipment, skills and services and the inclusion of some experience from offshore hydraulic fracturing. UK has not only digging wells since 1919 from which 10% have been done through hydraulic fracturing (Lewis, Speirs and MacSweeney 2014). The implementation should accompany major part in franchising through the regulatory process such that clear incentives are given for replicating the experience in UK, which is probably seeing a decline in the North Sea as the substitutability of products are taking place and more of imports are considered. However, according to the forecasting method by 2020, 59% of gas will be imported (Davies and Green 2013). However, to move to large-scale production of shale gas the adoption of combination of strategic options will be carried to strengthen the existing planning, licensing regimes and environmental permitting for production activities: Licensing will carry a high-level assessment of complex tasks that includes health, covering the life cycle of the proposed. The licensees will consult the stakeholders for early development of the proposals. Thus, this assessment will notify and balance the risk assessment. The Health Protection Agency will review the exploration shale gas on the health impacts from the emissions of land, air, and water. DECC will require licensees to reduce flaming up of methane to the economically minimum where cost-effective alternatives exist. The Office of Unconventional Gas and Oil will perform on the reference in the Academies' Report that the regulatory bodies should review the necessities for effectual regulation of important potential production of shale gas. The EA is thereby reviewing the inferences of shale gas for its regulatory tasks, and considering whether supplementary controls and monitoring requirements are needed for methane production. DECC will be charging supplementary work on the environmental inferences of potential licensing that will regard as all the new information that is available (Uk.practicallaw.com 2013). Conclusion The critical assessment of Cuadrilla has been considered based on environmental analysis that is carried out using PESTEL and SWOT analysis in the internal and external environment. However, the analysis is further carried out using the selection and application for different strategic approaches that Cuadrilla adapts and results in implementing to a strategic option which is economically viable, involves corporate social responsibility procedures and planning permission with respect to government environment regulations like EA, DECC, and Health Protection Agency. References: Chazan, G. and Kavanagh, M. 2016.Centrica buys into Cuadrillas Lancashire fracking licence - FT.com. [online] Financial Times. Available at: https://www.ft.com/cms/s/0/38bb9bc6-d40a-11e2-8639-00144feab7de.html#axzz41ZgIanr6 [Accessed 29 Feb. 2016]. Correia, D. 2014.Proposed Shale Gas Exploration Wells Bowland Basin, Lancashire Cuadrilla Resources. [online] mme.gov.br. 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