This document presents a discussion about the production and operations management for an oil company. One of the sides of this document is to analyze how our physical environment can be a challenge for business purposes.
Marathon Oil Corporation is a worldwide oil and natural gas exploration and production company. Principal exploration activities are in the United States, Norway, Equatorial Guinea, Angola and Canada. Principal development activities are in the United States, the United Kingdom, Norway, Equatorial Guinea, and Gabon.
In addition, Marathon operates other businesses that market and transport its own and third-party natural gas, crude oil and products manufactured from natural gas, such as liquefied natural gas and methanol, primarily in the United States, Europe and West Africa.
How to reduce the time involved in the production process?
One key element to speed up the production process would be accelerating the pipeline transport. Pipelines are generally the most economical way to transport large quantities of oil, refined oil products or natural gas over land. Compared to shipping by railroad, they have lower cost per unit and higher capacity.
Although pipelines can be built under the sea, that process is economically and technically demanding, so the majority of oil at sea is transported by tanker ships.
Oil pipelines are made from steel or plastic tubes with inner diameter typically from 4 to 48 inches (100 to 1,200 mm). Most pipelines are buried at a typical depth of about 3 to 6 feet (0.91 to 1.8 m). The oil is kept in motion by pump stations along the pipeline, and usually flows at speed of about 1 to 6 meters per second (3.3 to 20 ft/s).
Multi-product pipelines are used to transport two or more different products in sequence in the same pipeline. Usually in multi-product pipelines there is no physical separation between the different products. Some mixing of adjacent products occurs, producing interface. At the receiving facilities this interface is usually absorbed in one of the product based on pre-calculated absorption rates.
The relationship between the retail price of gasoline and the price of crude oil
When you go to the gas station, and see the prices, you might want to know: Why is it that gasoline prices seem to rise so quickly, but fall so slowly?
When you see the price of Crude Oil sell for $46, that barrel of Oil will not make it to your car as gasoline for as long as 3-6 months. Recall in May 2008, the price of oil pulled back into the high $30s. That is why gas dropped in price by more than a few cents in July.
There is actually a good reason for the phenomena of retail gasoline prices rising quickly, but falling so much more gradually. It is strictly a function of competition in the marketplace.
When crude prices rise, all the gas stations raise their prices accordingly. They have no choice; otherwise they would be losing money on each sale. They all pay (more or less) the same prices for refined gas, and make a relatively small mark up on the fuel they sell. As wholesale prices rise, they pass along the increase.
When the price of Crude eases, however, what forces gasoline prices back down is simply competition. One station lowers prices a few cents, and pulls in more traffic; that forces others to do the same, until prices gradually work their way back down to the earlier prices (assuming crude returns to its prior price).
While the retailers may make a greater profit for a few days, competition eventually forces them back to their original margins.
You may be surprised to learn that gas stations make the bulk of their profits on the quick mart or convenience store, or on automobile repairs, and not on fuel. They are greatly incentivized to keep the prices low enough to draw you in as a customer, where they can make their profits on.
How can Marathon keep the price without losing profits?
There are many strategies to keep the price without losing profits. One of them would be ordering materials in bulk. It is hard for Marathon to price their products competitively if they are buying materials from an expensive vendor. But also, they must be sure not to over buy – having too much money tied up in materials can cause cash flow problems.
Another way to take advantage of bulk discounts without the stress of extra materials is buying co-op. Marathon could join forces with several other oil companies to order similar products to get quantity breaks. Marathon can get a better price than what they would get if they were buying alone. I will suggest reviewing the cost of gas transportation.
Reducing labor time; this is where the old adage, work smarter, not harder comes in. Corporate offices should keep detailed time studies of their processes to see where they can reduce time. Other simple changes, like the layout of their workspace, can create huge time savings in the long run.
It is important to have talented people, but also, Marathon might need to hire employees at a lower hourly rate. If you need to pay $50 an hour, you can find someone to make the same job for you for $10 an hour; this can reduce your costs. But beware; if you hire an employee that works out of your company, you will have to pay additional costs such as taxes and insurance.
Instead, we recommend looking for an independent contractor, someone who can do the work for Marathon from their own plant or facility.
Finally, Marathon should reduce expenses. Take a hard look at their costs and figure out where you can trim. Do you really need the giant corporate office in the high-rent district? Can they share a building or make some employees to work from home? They should look at every aspect of their business and ask themselves if there is a way to trim excess spending.
Strategies for US oil companies to remain competitive in the US market
Only the most fiscally fit companies can survive in the intensely competitive global marketplace for energy. A new study paints a troubling picture of how federal tax rules – and pending tax legislation – are weakening the ability of U.S.-based oil and natural gas companies to compete against international companies. This is putting American jobs in jeopardy at the very time we need to support, not undermine, American-based business.
The new study, “Fiscal Fitness: How Taxes at Home Determine Competitiveness Abroad,” found that American oil and gas companies have faced increasing challenges in competing with their international counterparts since the 1970s largely due to “the interaction between the fiscal arrangements in the home countries of IOCs [investor-owned companies] and the host countries in which they operate, and the home policy objectives.”
Simply put, U.S. oil and gas companies are at a competitive disadvantage because of tax policies in our home country, and we have been losing out to non-U.S.-based companies over the past several decades.
The study evaluated the competitiveness of U.S.-based oil and gas companies (including ExxonMobil, Chevron, and others) on a variety of factors and compared the results to those of our peers throughout Europe, Canada, Russia, and Asia (including BP, Shell, and others). Of the 10 countries studied, the researchers found that the U.S. government takes a larger share of oil and gas profits earned abroad than nearly all other governments, except for France and India.
The study also found that proposed tax legislation would make this already bad situation even worse: “Potential new rules to restrict credits for foreign taxes already paid to a host government, currently under discussion in the United States, would make the United States the least competitive among the analyzed peer group, excepting India.”
The study is referencing the Administration’s 2011 budget proposal to weaken or even eliminate the foreign tax credit only for U.S. oil and gas companies. This tax rule ensures that all U.S. companies can operate in other countries without being taxed twice – once by the host country and again at home. It helps to level the playing field when American businesses compete with non-U.S. companies whose countries have similar rules.
As the study shows, by removing it, the Administration would be imposing double taxation on our industry – and creating an enormous new competitive disadvantage on American companies.
Why does our ability to remain competitive globally matter? And why should the average American care if changing the tax rules for foreign income will disadvantage American companies competing for energy? Because if American companies can’t compete in these key areas, our national interest would be compromised on two fronts: our energy security would be compromised due to constraints on the industry’s ability to develop new supplies; and, we would lose jobs here at home that American companies provide, as there will be less need for American employees and contractors to support international operations.
If we are serious about American jobs and competitiveness, this is something that should concern all of us. Why should our own government offer BP, Shell, Total and many other international companies a head-start over U.S.-based firms?
– Karlgaard Rich. (2004) Peter Drucker on Leadership. Forbes magazine. Retrieved October 17, 2010 from http://www.forbes.com/2004/11/19/cz_rk_1119drucker.html