INTRODUCTION

Oil and natural gas touch our lives in countless ways every day.
Together, they supply more than 60 percent of our nation’s energy. They
fuel our cars, heat our homes and cook our food.
But did you know that oil and natural gas also help generate the
electricity that powers our daily lives? Or that crude oil supplies the
building blocks for everything from dent-resistant car fenders to soft
drink bottles to camping equipment?
The oil and gas is truly a global industry. But with time this industry is
finding various difficulties in sustaining to its fullest. Yes, it is amidst
crisis. The present business environment has posed enormous
challenges to the management of businesses in this industry.
The basic problems are:-
• Workforce challenges
• Effect of global recession
• Cultural challenges

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WORKFORCE CHALLENGES
The workforce challenges faced by the oil and gas industry are
well documented and a frequent topic of discussion both within
and outside of industry circles. They include an aging global
population with many experienced employees recently retired or
planning soon to do so, fewer new engineers seeking jobs in the
industry, and a geographic shift in where employees are needed.

In describing the scope of the workforce shortage in their industry,

most of the oil and gas HR executives surveyed acknowledged
difficulties in recruiting executives, management personnel, and,
especially, engineers. In fact, more than one-quarter of the
executives found it “extremely difficult” to hire qualified engineers.

The effects of the shortage of qualified workers have begun to

ripple throughout the oil and gas industry. More than half of the
executives surveyed feel the talent void could affect corporate
growth as a result of an inability to staff projects.

Workforce shortages can affect many other aspects of corporate

performance. When a workforce is stretched thin, there are fewer
resources available for research and development. Forty percent
of the HR executives thought the talent void could hamper
innovation. Another 40% cited concern that this industry issue
could negatively affect safety and operations.

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According to the findings, the greatest threat to recruiting and
retention is industry competition. Respondents ranked
competition from peer companies an eight out of 10, with 10
representing a
major challenge.

Also nearly unanimous was the industry’s response to the

problem of increased compensation. Almost half of the HR
executives worried that rising labor costs would pose problems for
the
financial performance of their companies.

Although the issue of compensation is important, survey results

show there is a real opportunity to do something different, stand
out from the competition, lure new recruits, and create loyalty
among existing employees. The first company with a unique,
step-out strategy could position itself as the leader in a highly
competitive recruiting and retention environment.

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EFFECT OF GLOBAL RECESSION
As the global economy resets nervously, the only certainty is that crude oil
prices will remain volatile. After dipping to a low $33/barrel last December,
oil prices strengthened dramatically in the second quarter of 2009, peaking
at just over $73/barrel in June-faster than many in the industry expected.
While higher prices led to much lower but still reasonable earnings in the
first six months of 2009, oil companies have cause for concern: if prices
rise too fast they could slow the global recovery and stall progress on
resetting industry costs. In addition, they face hard investment decisions.
On the one hand, they must continue to cut costs without compromising on
important areas like maintenance, technology and people development. On
the other, they must invest in large-scale capital projects to replace
declining assets and increase future revenue growth.
The scale and scope of the 2008-2009 global recessions has already
affected some projects. In the US, drilling activity has dropped rapidly in
Texas and Louisiana. In unconventional Oil & Gas exploration, areas such
as tight natural gas extraction and shale oil production remain depressed,
and gas prices continue to show signs of decoupling from the trend in oil
prices. The stalling of some expansion plans in conventional Oil & Gas and
the slowdown in the hunt for new reserves could mean that oil production
capacity declines from historic highs by about 3 million to 5 million barrels
by the end of 2010. That in turn will further add to the volatility in oil prices
when demand in major markets eventually picks up in North America,
China and India.
In these circumstances, oil company leaders face tough choices making
the right decision at the right time will have huge pay-off for the winners.
Get the timing wrong and a company could miss the window of opportunity
to secure or improve its industry ranking. Those companies that have built
up reserves and have a strong projects pipeline will be in a prime position
to capture new opportunities-others will either watch from the sidelines or
be swallowed up in the industry churn.
In practical terms, Oil & Gas industry leaders must address three questions
in the next few months:
At what point do we switch the emphasis from cutting costs to ramping up
investing in the future? Bain estimates that in the first six months of 2009,
the Oil & Gas industry cut expenses by 20 per cent compared with 2008,

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mostly by reducing activity, putting pressure on suppliers and squeezing
operational costs. Looking ahead, as companies review plans and budgets
for 2010, they must find the balance between managing costs and
sustaining-even expanding-activity levels.
In a volatile price environment, what should we assume about the future of
oil prices to make investment decisions? Some companies reckon oil prices
will stabilise in the $40-$50/barrel range; others expect prices to rise to
$70-$80/barrel. Bain estimates that for upstream oil projects, the tipping
point is around $65/barrel-at that point the industry's need to contain costs
is overtaken by the desire to expand and grow. Making the right call is
essential in the second half of 2009 while planning new exploration,
development and production expansion projects for 2010.
If oil prices do indeed settle at around $60-$70/barrel for the rest of 2009
and into 2010, the multi-billion-dollar question will be: how should we
deploy the additional gross revenues? The upstream Oil & Gas industry is
a strong cash generator when prices climb above marginal production cost.
If oil prices remain above $60/barrel over the next two quarters, by early
2010, the industry could be looking at additional cash income in excess of
$100 billion. In recent years windfall profits were generally returned to
shareholders in the form of dividends and buybacks. The last twelve
months have made the decision on how to spend the money much more
complex: invest for the long term, invest in a strategic acquisition, or
abdicate the decision to shareholders?
For service companies, there is an added twist: How do we handle the
pressure from Oil & Gas customers? After a rough ride-where oil majors
used every technique for cutting costs, from hard-talk to renegotiating
contracts for equipments and services-some in the service sector may be
breathing a collective sigh of relief as oil prices recover. However, Bain's
research shows that oil companies are determined to extract even more
savings from suppliers and in fact, most plan to lock in new terms and
conditions before the industry's fortunes turn for the better. For example,
western service companies will have to find lower cost, inventive and fresh
ways to serve the needs of demanding Oil & Gas customers if they are not
to lose market share to eastern suppliers.

CULTURAL CHALLENGES
Professionals in the international oil and gas business are naturally
endowed with a range of human emotions and now have their roots in an

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increasing diversity of cultures. Therefore, the interaction between social
groups and proper management of human emotions must be continually
optimized in an industry dominated by formidable technical challenges that
relies on a multicultural workforce to solve those challenges. The impact of
cultural diversity on business efficiency is certainly not new to this
business, but has steeply intensified due to globalization. The increase in
energy demand and unequal access to reserves has led to a situation
where International Oil Companies (IOCs) struggle for access to
hydrocarbon reserves, controlled by National Oil Companies (NOCs). As a
result, energy negotiations and relation management now involve stakes
higher than ever before. Consequently, any flaw in effective communication
between stakeholders may have an adverse impact on the outcome of the
business cooperation-causing loss of future business value.
We suggest that only those energy organizations that know how to skillfully
handle Emotional Intelligence-and are prepared to invest in it-will be
successful. The oil and gas industry traditionally places much focus on the
management of technical, financial and political uncertainties and
associated risks.
Incorporating a coherent view on the management of cultural and
emotional risks adds a dimension that can help to avoid negative outcomes
in negotiations and relation management. Organizational learning at NOCs,
IOCs and service companies will benefit from intensified programs that
muster respect for the goals, expertise, culture and feelings of business
partners in a competitive, multicultural business environment.
GLOBAL RESERVES AND GLOBAL CULTURES
International Oil Companies (IOCs) traditionally work together with National
Oil Companies (NOCs) to secure mutually beneficial partnerships, although
in some cases, the distinction between IOCs and NOCs can be transitional,
as NOCs are diversifying to become IOCs. Securing access to reserves is
a strategy driver in the energy business. NOCs are attractive strategic
partners in the oil industry because they hold more than 90% of the world’s
oil reserves. In these partnerships, the IOCs have access to equity and can
bring in their carefully developed, cutting-edge technology. And most NOCs
have limited access to equity markets-because they are not listed as
shareholding companies. Strategic cooperation between NOCs and IOCs is
needed to meet the required production targets and to bridge an impending
oil and gas supply gap. The large, multi-discipline Service Companies
(SCs) increasingly facilitate production optimization by providing NOCs with

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horizontally integrated management solutions and vertically integrated
technology solutions, trying to cut out the need to involve IOCs.
ig. 1 . The majority of the reserves of the supermajors lie
The strategic relationships among NOCs, IOCs and SCs are governed by
the following questions:
_ Is there enough mutual trust
_ Is there sufficient knowledge sharing
_ Where can they improve their joint efficiencies
_ Should any of these stakeholders change their policies?
Obviously, the solutions to these strategic issues need to be settled by
people coming from an increasing range of professional backgrounds, a
diversity of company cultures, ethnic cultures and national cultures.
Attention for technological innovation, the speeding up of reserve growth
and production growth remains important, but the human factor should not
be overlooked. Modern business management must address cultural
diversity and requires trans-cultural competence, using communication,
empathy and creativity. As human actions are, in part, based on emotions
rather than rational consideration, it is legitimate to highlight the role of
emotions and cultural barriers and quantify the potential impact on
international oil and gas business.

COMMUNICATION GAPS

The global oil and gas business is driven by speed: speed in gaining
access to new prospects, speed in discovering new reserves and speed in
deciding whether it is profitable to pump up hydrocarbon volumes subject to
multiple subsurface and operational risks. All these activities are executed
by professionals, who must communicate and share their expertise to make
rapid and balanced decisions on the risk and opportunities in E&P
operations. The hiring of a multicultural workforce from a range of
countries, distinct company cultures and different age groups poses a
challenge in itself through the increased risk of communication barriers or
gaps. Global companies must now integrate their knowledge across
different disciplines, in teams with experiential differences and cultural
diversity. We map out the common traps and pitfalls in communication-at
interpersonal and inter-organizational scales-and make recommendations
for avoiding unproductive and costly mistakes.
The principal barriers that obstruct effective interpersonal communication
between professionals in complex engineering organizations are:

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Experiential Technical Gaps: When junior and senior professionals interact,
the receiver and sender may lack some common language, slang, jargon,
vocabulary or symbols. For example, junior reservoir engineers lack the
experience of a field asset manager. Integration of their knowledge base
requires continual effort to bridge the interaction gap. Establishing
Communities of Practice, mentoring and career planning play a major role.

Interdisciplinal Technical Gaps: Oil operations require experienced

professionals to interact coming from a range of different specializations.
For example, the static-reservoir model built by G&G professionals is
handed over to reservoir engineers for dynamic modeling and then
forwarded for economic appraisal. Because the receivers and senders
frequently lack common understanding of vocabulary and symbols, this
requires mutual effort to bridge the interaction gap by broadening their
inter-disciplinal technical knowledge.

Organizational Gaps : In large organizations, the chain of command may

have too many layers that a message passes through between sender and
receiver. A large number of receivers will require clear, concise and
consistent message-sending methods. Strategic goals must be understood
at all organizational levels. Increasing the learning speed-as well as the
quality of communication-is a major contributor to the success of an
organization. For example, integration of subsurface, economic evaluation
and facilities development teams can reduce the average lead time from
discovery to production to four years or less.

Cultural Gaps: Different cultural customs and beliefs may profoundly

interfere with mutual understanding. Spending time abroad in different
cultures and in different companies is very beneficial-if not essential-for
bridging Cultural Gaps.
The ultimate secret behind effective cooperation between professionals is
to avoid lack of trust. Professionals working within newly merged IOCs
(e.g., ExxonMobil, ConocoPhillips, ChevronTexaco, BP, Total), or newly
merged NOCs (e.g., StatoilHydro), or within diversified NOCs and IOCs, all
know too well that peoples’ egos, prejudices, traditions, cultures, conflicting
feelings, goals and their strong differences of opinion may undermine
mutual understanding. Company mergers must integrate people,
technology, processes and workflow across the former company culture. If
people are on opposite sides of an issue, they may not be comfortable

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sharing their knowledge to full effect. Many of these feelings, prejudices
and traditions have their roots in cultural identity. We focus on the
management of Emotional Intelligence and the related emotional risk that
may impair the efficiency of the up- and downstream business cycles.

EXAMPLE OF SOCIO-CULTURAL TENSIONS _

Delivering gas from the world’s major reserves to the future demand
centers will require a major expansion of inter-regional, cross-border gas
transport infrastructures. Europe is no exception, as European natural gas
production, the bulk of which is located in and around the North Sea Basin,
has entered into decline. The imminent gas demand-supply gap in
Northwest Europe will need to be filled by increasing supplies from Norway,
Russia and LNG sources such as Qatar. Of all prospective suppliers ready
to fill Northwest Europe’s gas appetite, Russia is the largest supplier, and
its share in Northwest European supplies is expected to grow steeply in the
coming decades.
Managing the risk of the emotions involved (based on Feeling’s Logic) and
realizing the value of cultural education are crucial stepping stones, if
North-West Europe and the Northwest European gas industry are to realize
a secure energy supply. As Northwest Europe is ready to engage in even
larger scale natural gas trade with Russia, one may ask: “What is the
match between the socio-cultural systems of Northwest Europe and
Russia?”
The Russian and Northwest European cultures vary to a great degree; one
is hierarchical and has a long history of centralized government and the
other is a liberal decentralized “networking” society. Seen from the
perspective of the “Feeling’s Logic” model, the Northwest European social
regulatory systems for natural gas emphasize unbundling and liberalization
along the gas value chain to maximize price and efficiency. Even though
large-scale infrastructural projects are undertaken, with investments and
politics explained, there is a seemingly large difference in the socio-cultural
systems of Europe and Russia. We observe differences in base aspects
such as language and cultural disposition toward authority, differences in
the regulation of gas distribution systems, differences even in the political
ambitions about gas. These differences pose risks to agreements, which
must be reached if NW Europe is to secure supply. Russian regulatory
systems emphasize concentrating all activities along the gas value chain in
a single organization, and creating synergy between state affairs and fuel-
resource affairs. In brief, NW Europe’s ambitions seem to be securing
supply and facilitating open markets, whereas Russian ambitions seem to

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be the growth of export volumes, maximizing revenue and using energy as
a political tool.

THE OTHER CHALLENGES FACED BY THE OIL AND NATURAL GAS

COMPANIES ARE:
Development of new fields.
Expansion of geological exploration.
Searching for new ways of field production.
Reducing the cost of producing, processing and transporting oil and gas
are also becoming increasingly important.

AMITY UNIVERSITY
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 -------NOIDA------

ORGANISATIONAL BEHAVIOUR
ASSIGNMENT

TOPIC: MANAGEMENT CHALLENGES IN CURRENT SCENARIO

SECTOR CHOSEN: (OIL & NATURAL GAS)

SUBMITTED TO: MRS. SHIKHA MISHRA

SUBMITTED BY: MOHD. HARIS KHAN ROLL NO.-61

DENIKA MAHAJAN ROLL NO.-62
MBA GEN SEC. A

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