JK

Refueling Sustainability
A Report on YJ Ltd. Oil and Gas Company

DLSU Manila-Team White

Alejandrino, Camille S. K.
De Armas, Philaine Joie O.
Fernando, Ayra Mae S.
Tanhui, Kimberly K.

De La Salle University – Manila

1
August 1, 2014

THE BOARD OF DIRECTORS

YJ Ltd.

Greetings!

In just a span of seven years, YJ has successfully established its name in the oil and
gas industry. With its rapid growth in sales and profitability, it will certainly achieve far
greater heights of success in the coming years.

However, the challenges in the industry are inevitable and ever changing. As such,
social and technical complexities pressure YJ to continuously improve its position
through the implementation of competitive strategies and employment of effective risk
management measures; while recognizing its relentless pursuit of refueling
sustainability.

Keeping these in mind, as your consultants, we recommend the following measures to

address the current issues that YJ faces:
1. Accept the licenses and acquire equity financing;
2. Accept LG’s farm out offer, with revisions;
3. Reprimand Lee Wang and establish more stringent clauses with DrillIT; and
4. Eventually shift operations to the solar energy industry.

Moreover, with respect to YJ’s long-term future, we recommend the following:

1. Direct investments towards company growth in the natural gas industry; and
2. Focus efforts on developing the market and increasing acceptance of
renewable energy.

Included in this report are the exhaustive analyses of each scenario and issue identified,
and a detailed discussion of our recommendations. Overall, we took into consideration
the strategic vision, operational structure, and financial condition and projections of your
company in formulating alternatives.

Thank you for the opportunity of being able to work with you. We are glad to be of help
to your company.

Kind regards,

DLSU Manila – Team White

2
 TABLE OF CONTENTS

I. Issue prioritization 5

II. Detailed discussion 7

a. Analytical frameworks and tools 7

b. Discussion of issues 7

i. First priority – License application results 7

ii. Second priority – Farm out offer 13

iii. Third priority – Outsourcer – DrillIT 15

iv. Fourth priority – YJ’s long-term future 18

c. Identification of ethical issues 21

d. Implementation plan 23

III. References 25

IV. Appendices

a. Appendix 1: Kaplan and Norton’s balance scorecard 31

b. Appendix 2: SWOT-TOWS analysis 33

c. Appendix 3: Porter’s five forces matrix 36

d. Appendix 4: PESTLE analysis 39

e. Appendix 5: Mendelow’s power-interest grid 42

f. Appendix 6: What-so what analysis 44

g. Appendix 7: Industry key success factors 48

h. Appendix 8: Oil and gas project life cycle 49

i. Appendix 9: Oil and gas industry: Services required 50

j. Appendix 10: Ansoff’s product/market growth matrix 51

3
k. Appendix 11: Oil and gas industry analysis 52

l. Appendix 12: Competitor analysis 54

m. Appendix 13: Summary of ethical framework 56

n. Appendix 14: Fraud triangle 57

o. Appendix 15: Summary of diversity 58

p. Appendix 16: Financial projections 59

q. Appendix 17: Financial computations 63

r. Appendix 18: Summary of financial ratios 70

s. Appendix 19: Projected financial statements post- 71

recommendations

t. Appendix 20: McFarlan’s applications portfolio matrix 73

4
 ISSUE PRIORITIZATION

The central theme of this report is directed towards “refueling sustainability”—

achieving stable growth anchored on sustainability. Four issues have been identified
and prioritized according to their degree of risk and impact, as shown below.

Figure 1. Issue prioritization matrix

First priority – License application results

Failure to make a decision within two weeks would result in forfeiture of the
licenses. Losing them would result in the loss of a significant amount of revenues and
opportunities, which consequently affects share price. The operational and financial
impact on YJ and its urgency, make it a high-risk, high-impact issue, which must be
addressed first.

Second priority – Farm out offer

This issue must be addressed in relation to the first, since accepting LG’s offer
requires acceptance of the GGG license. Accepting the farm out offer transfers the risks

5
to LG and could provide YJ an immediate stream of cash, but waiting for future offers
post-test drilling could present higher farm out offers. Aside from these, a decision must
be made in less than four weeks, making it a medium-risk, high-impact issue.

Third priority – Outsourcer- DrillIT

The lapse involving one of DrillIT’s supervisors poses serious risks to the
company if left unresolved. These include vulnerability to terrorism and susceptibility to
accidents (Appendix 4), which can adversely affect both employee morale and
operations if left unreported. This medium-risk, medium-impact issue must, therefore,
be addressed after the first two issues.

Fourth priority – YJ’s long-term future

Planning YJ’s long-term future is crucial, as this provides direction for the
company, which would in turn, influence its decisions and operations. The issue,
however, is not as urgent as the aforementioned and requires YJ to carefully consider
various factors when deciding the path to take, making this a low-risk, medium-impact
issue.

6
 DETAILED DISCUSSION

Analytical frameworks and tools

Each issue is evaluated using the Balanced Scorecard (Appendix 1) as the central
framework, linking different management frameworks and tools. The following were also utilized
in the analysis:

Table 1. Summary of frameworks and tools used

Framework/Tool Appendix Number

SWOT-TOWS analysis Appendix 2
Porter’s five forces matrix Appendix 3
PESTLE analysis Appendix 4
Mendelow’s power-interest grid Appendix 5
What-so what analysis Appendix 6
Industry Key Success Factors Appendix 7
Ansoff’s product/market growth matrix Appendix 10
Oil and gas industry analysis Appendix 11
Summary of ethical frameworks Appendix 13
Fraud Triangle Appendix 14
McFarlan’s Application Portfolio Matrix Appendix 20

Discussion of issues

The following discussion analyzes and evaluates the available courses of action
for each issue identified. The What-So-What analysis for each issue is found in
Appendix 6.

First priority – License application results

The potential impact of accepting or rejecting the licenses are presented below.

7
 Table 2. Impact of accepting or rejecting the licenses

Action Impact

Operational Financial Strategic

Accept  Acceptance of licenses would require  Would require  Acceptance of

licenses additional financing for test drilling and acquisition of licenses will result to a
production. additional debt larger inventory,
 Additional managerial staff must be or equity to allowing YJ to cater to
hired. finance test more downstream
 YJ must invest in more capital assets or drilling
companies and
technology to support capacity needed consequently gain a
for production larger market share.
 Additional research efforts on sites and  This will enable YJ to
technologies available is needed to test establish its name in
drill and bring these sites into production. the industry as a key
player/improve its
position in the
industry.
 Obtaining licenses to
other oil fields will
expand YJ’s territory,
which may allow it to
establish
relationships with
governments granting
licenses.
 Having more licenses
could open up more
opportunities for YJ,
such as farm outs.

Reject  YJ simply needs to maintain its current  No need to  May project a

licenses level of operations. It does not need to acquire negative image of the
hire more staff nor k out additional additional company regarding
financing. financing its financial and
 Excess idle funds could be invested into managerial
other projects and activities of the capabilities. This may
company. lead to failure to win
 Existing resources and efforts of the licenses in the future
company may be directed towards the due to damaged or
improvement of its existing operations. strained relationships
(AAA, BBB and CCC) with governments
granting licenses.
 Rejecting the licenses
may restrict growth
and expansion of the
company and limit the
amount of oil it can
supply to its market.
 Licenses will be
granted to its
competitors instead.

8
Assessment of YJ’s finance capacity

Table 3. Summary of Financial Data

2014 2015
Assets
Cash 13.6 42.0
% growth 209%
Free cash flows 14.5 33.5
Changes in working capital 27.3 7.0
Required capital expenditure 30.0
Liabilities
Debt-to-equity ratio 279% 211%
Higgin’s SGR1 -536% 212%
Profitability
Return on equity 66% 41%
Sales growth 12.5%

YJ’s financial performance has improved greatly over the years, as evidenced by
its 2013 and 2014 financial ratios (Appendix 18). Its profitability, asset utilization, and
liquidity ratios all experienced growth in 2014. However, while higher financial ratios
indicate improved performance, further support is needed to assess YJ’s financial
capacity to test drill all three sites.

Table 3 summarizes YJ’s 2014 and 2015 financial data (see Appendix 17 for
detailed computations). For 2014, YJ has available cash amounting to US$ 13.6M,
while its overdraft facility can provide another US$ 5M. On the other hand, its 2015 cash
balance is forecasted at US$42M. While the amount indicates a large amount of
available funds, a further analysis, however, shows that its free cash flow available for
investment only amounts to US$ 33.5M. Cash from current operations is, therefore
insufficient to cover the total test drilling costs.

The negative Higgins’ Sustainable Growth Rate (SGR) in 2014 also suggests
that YJ’s current financing is insufficient to support its growth (Table 3). This growth is
further impeded by YJ’s dependence on debt financing, which then increases its debt-

1 Sustainable growth rate. Higgin’s SGR indicates the maximum growth rate YJ can attain given its current financial
leverage. Generally, a higher leverage or a higher net assets would result to faster growth, which adds more reason
why YJ should seek external financing.

9
to-equity ratio. In addition, its return on equity also decreased by 25% in 2015 despite a
growth in revenue.

Table 4. Possible Sources of Financing

Maximum Insufficient/Sufficient
Sources of
financing available (compared with test
financing Advantages Disadvantages
(in US$ millions) drilling costs)
PS1: Cash from + Does not require - May strain 33.52 Insufficient
operations external financing liquidity
+ Less costly - Too risky
PS2: Overdraft + Accessible - More expensive 5 Insufficient
compared to
other alternatives
- Must be repaid
within 1 year
PS3: Bank loans + Finance costs are - Restrictive 124.5 Sufficient
tax-deductible covenants may
+ Can borrow up to be stipulated
three times the - Costly
current net operating - Availability is
income unlikely
- Requires periodic
payment which
may strain
liquidity

PS4: Equity + Increases business - Investors may 1,1903 Sufficient

financing credibility require higher
+ Will stabilize debt- returns
to-equity ratios - Possible dilution
+ Increasing share of shares
prices

Presently, YJ has the ability to secure financing from three sources: cash from
future operations, bank overdraft, bank loans, and from issuance of equity securities.
Maximum cash available, as stated earlier, only amounts to US$ 33.5 million, while its
overdraft facility could provide a further US$ 5 million. Financing from bank loans could
provide a maximum of US$ 124.5, while equity financing could provide a maximum of
US$ 1.19 billion. YJ’s cash is clearly insufficient and additional financing must therefore
be acquired to cover test drilling costs.

2 Refers to 2015 Free Cash Flows

3 Refer to Appendix 17 for supporting computation

10
 Based from the table above, YJ may acquire additional debt or equity financing.
Debt financing, however, requires periodic payment of interest. This is particularly risky
as returns for the new sites may not be realized for at least two to three years. Hence,
this financing could further strain liquidity. Financing through debt may also be more
difficult to acquire since banks are more cautious about lending to E&P businesses,
making this source less accessible.

Equity financing, on the other hand, can be sourced through a cash call and/or a
secondary public offering.4 In issuing new equity securities and in making a cash call,
YJ should consider the demands of their institutional stockholders. In particular, should
YJ make a 4:1, instead of a 2:1 cash call, and offer a 15% discount on market prices, as
these conditions are preferred by the institutional investors. While issuance of new
shares could dilute the 4% director shareholdings, the dilution is not expected to have
any significant impact on the control of the company.

Other factors that YJ must consider before proceeding with all three test drilling
projects are presented below.

1. Shareholders Since shareholders are key players (Appendix 5), YJ must

regularly consult with them when making decisions. With this, the effect on share
price must also be considered. Failure to do so may leave investors dissatisfied,
urging them to withdraw their investments.
2. Technical capabilities. YJ must ensure that is has sufficient equipment and
that these are in compliance with prescribed regulatory requirements. Shell Oil
Co. was not permitted to test drill in Chukchi until it had a compliance order
(Joling, 2012).
3. Managerial capacity. Having a skilled team of managerial staff is necessary
to ensure that test drilling operations are successful and efficient. YJ must hire
additional managerial staffs, which meet the specified set of qualifications, as
needed.
4 This type of financing is preferred, especially since the YJ’s share price had recently risen to US$ 35, which reflects
investors’ confidence.

11
 4. Legal implications. YJ must consider the specific laws and regulatory
requirements applicable. Failure to comply with regulations risks revocation of
licenses granted, such as in the case of Royal Dutch Shell in Nigeria (Platts,
2014).
5. Field area conditions. YJ must also take into consideration the existing
environmental, political, social, and cultural conditions in the fields. Information
about these should be incorporated in YJ’s preparations. Test drilling may be
delayed for areas with unstable political conditions, such as in the case of Arab
Spring (Masters, 2011) or increase security in high-risk areas (Appendix 2 & 4).

Immediate response. YJ must immediately accept the licenses. It must also

acquire additional financing within the next three months to fund its test drilling
operations through a cash call and the issuance of new shares (PS4 in Table 3). Priority
will be given to existing shareholders to prevent dilution of shares and remaining shares
will be issued to outsiders.5 Additional employees must be hired as required.
Challenges in hiring employees (Appendix 2 & 4) may be overcome by providing better
benefits and assuring them security (Appendix 7).

Long-term action. To motivate and retain employees, YJ must appoint an HR

executive and set up an incentive system6. YJ must also decide whether to retain its
fields or to farm them out. Should it select the former, YJ must decide which parts of
operations to outsource (Appendix 11), select an outsourcer according to specified
criteria,7 and negotiate contract terms. Maintaining good relationships with these
companies is crucial to operational success (Appendix 7). Jason Oldman must also
actively communicate with the governments and update the company with changes in
regulatory requirements to avoid issues related to compliance and increase chances of
gaining licenses (Appendices 2, 4 and 7). YJ must also invest in R&D and new
technology to reduce costs and improve operational efficiency (Appendices 2, 7 and
10).

5Equity financing is preferred over debt financing since there is no fixed term, and less costly for the firm.
6Examples include share-based payments and bonuses.
7Criteria for selection may include the outsourcer’s technical ability of the outsourcer, integrity, work ethics, and its

working relationship with the company.

12
Second priority – Farm out offer

The potential impact of accepting or rejecting the farm out offer is presented below.

Table 5. Analysis of proposals for farm out offer

Proposal Impact
(P)
Operational Financial Strategic

P1: Accept  YJ would require  Net benefit of  Experienced YJ executive

LG’s offer* additional financing to test US$ 1.35M could facilitate the farm out
drill GGG offer effectively.
 Constant communication  If successful, the first
with management of LG farm out offer could lead
would be necessary. to more opportunities to
 Management decisions engage in such in the
should consider LG’s future.
interests through its  Strengthened relationship
representation in the with LG could open more
board. opportunities for growth
 Direct efforts towards for YJ.
completion of test drilling  Transfer of risk from YJ
of GGG (priority because to LG thereby managing
of deadline set on March or mitigating the risk that
31, 2016) comes with oil and gas
 Option payment provides exploration.
an additional stream of
cash which could be used
for other projects and
activities.

P2: Reject  Management would be  Net cost of  Opportunity cost of

offer more focused on
directing/supervising YJ’s
operations
 Would not require
additional financing
 Company resources will
be utilized on other
engagements
 YJ can use the reserves
that could possibly be
extracted.
 No cash inflow and only
cash outflows for the test
drill.
US$ (15.35M) rejecting farm out offer by
YJ.
 Higher farm out offers may
be available post-test
drilling.
 YJ may not have enough
capacity to operate GGG
(wasted field)
 Does little to mitigate risks
associated with oil
exploration and
production.
 May strengthen
government’s bargaining
power in the future when
granting production
licenses since YJ will
urgently need to recover
its test drilling costs.

13
 Immediate response. While YJ may be presented with higher farm out offers once
test drilling is completed, farming out provides better opportunities for the company. YJ
must therefore accept LG’s farm out offer (P1 in Table 4).

The following justify this action:

1. Transfers significant risks to LG.
2. Payment received provides an additional stream of cash flow for YJ.
3. It reduces the costs to test drill (Appendix 7).
4. Jason Oldman, an executive, has expertise in farm outs (Appendix 2).
5. When applying for production licenses, YJ may be perceived to be in
urgent need of recovering the costs of test drilling, which strengthens
the government’s bargaining power (Appendix 3). The governments,
once aware of the value of resources, may require terms
disadvantageous to YJ (see Appendix 2).

Prior to finalizing the acceptance of the contract, certain revisions to the

contract must be made, including:

1. Extension of the deadline for the completion of test drilling specified in

the contract terms by six months. While test drilling is expected to last
for a year, certain conditions, such as political instability, social unrest
and environmental conditions (see Appendices 2 and 4), may lead to
inevitable delays.
2. YJ must not be fined for delays when these are caused by fortuitous
events outside the company’s control.
3. Penalty for delays must not be on a monthly basis. Instead, a
prescribed amount must be paid for each period of delay:

14
 Table 6. Prescribed penalty for specified periods of delay
Period of delay following deadline Penalty
1 to 6 months US$ 2 million
7 to 12 months US$ 5 million
12 to 18 months US$ 9 million
18 to 24 months US$ 15 million

4. Increase option payment to US$ 12 million.

The first three revisions aim to protect YJ from being fined unjustly for
delays in test drilling. The fourth revision is to compensate for LG not having to
undertake test drilling operations and the significant probability of the field
containing reserves.8

Third priority – Outsourcer-DrillIT

The incident indicates problems in DrillIT’s internal controls. Failure to address

the issue poses significant threats to the efficiency of YJ’s operations. The following
table identifies YJ’s possible solutions:

Table 7. Analysis of possible solutions for outsourcer-DrillIT

Potential Impact
solutions (PS)
Operational Financial Strategic

PS1: Replace DrillIT  Hire a new service  Cost of dropping  May cause an uproar
provider DrillIT considering the significance
 Operations will be  Government fines of work provided by DrillIT
disrupted since all  Possible litigation  Could also call the attention
production work are costs of government regulators,
outsourced  Cost of additional which may give the
 Would further constrain security company bad publicity.
the current managerial  Strain on DrillIT and YJ’s
capacity of YJ, i.e. relationship
management must also  Loss of customers
supervise operations

8YJ boasts of a good track record, with only 1 out of the 4 fields being unsuccessful. Its survey team has also
become more cautious in determining potential oil fields, thereby reducing the risk of the field being barren.

15
 which was previously
conducted by DrillIT
 Potential litigations
between DrillIT and YJ;
 DrillIT’s good reputation
may be unmatched by
other service providers
 Improve remuneration
schemes to retain
employees/supervisors
 Reprimand Lee Wang
and emphasize stance
on ethics
 Increase safety
measures in AAA

PS2: Drop DrillIT  Inefficient operations
and take on all since production is not
production work by YJ’s expertise
itself  Hire additional
manpower (field
workers), financial and
legal advisors, security
 Company restructuring
to integrate production
 Downtime in operations
due to DrillIT moving out
 Improve remuneration
schemes to retain
employees
 Cost of dropping  Acquire licenses or permits
DrillIT to work from government
 Salaries & wages of  Customer dissatisfaction
field workers and
cost of training
 Cost of new
equipment
 Acquire additional
debt or issue new
equity

PS3: Retain DrillIT  Violation of code of  Government fines  YJ’s reputation will be
ethics will be incurred if tainted, with it being
 Reprimand/sack person incident is involved in unethical
responsible for forging discovered practices
 Risk of situation  Decrease in  YJ can become subject to
recurring, which can revenues if situation employee and
result to shutdown of is exposed environmental protests
operations  Lost revenues  Risk of losing ability to gain
 Threats to safety of licenses
employees
 Possible oil spills in the
future
 Would require more
stringent supervision
protocols with DrillIT

Immediate Response. Considering DrillIT’s good reputation and performance

prior to the incident, YJ must retain DrillIT as its service provider (PS3 in Table 6). At
this point, YJ must not to replace DrillIT since:

16
 1. Switching to another outsourcer would cause delays in operation;
2. The number of service providers in the industry is limited (Appendix
3); and
3. Having good relations with outsourcers are crucial in maintaining a
competitive advantage (Appendix 7). YJ cannot ensure that the same
quality of relationship can be established with a new outsourcer.

The issue must be discussed with Lee Wang, who by attempting to conceal the
incident, exposed the company to the risk of being penalized or even suspended by the
government. YJ must discuss the issue with DrillIT and require that the employee
responsible for the forgery be subject to due process and be reprimanded. More
stringent clauses and penalties to prevent the recurrence of similar incidents must also
be added to the contract with DrillIT. YJ may require DrillIT to provide more incentives to
improve employee retention and establish more effective internal control measures.
Lastly, the YJ supervisor who discovered the fraud must also be commended or
rewarded in order to motivate company employees.

Long-term Action. YJ must improve its Health, Safety and Environment (HSE)
protocols and increase the frequency of its on-site spot-checks and monitoring of its
outsourcers’ performance (Appendix 7). To prevent recurrence of the incident, YJ may
also appoint an executive in charge of overseeing operations of outsourced providers
and incorporate outsourcer management in its IT system (Appendix 20). YJ must also
look for alternative outsourcers to avoid reliance on a single supplier (Appendix 3).

17
Fourth priority – YJ’s long-term future

August 1, 2014

THE BOARD OF DIRECTORS

YJ Ltd.

Background

YJ’s future is in question as its current oil fields are expected to last for around
seven more years only. New fields acquired are also expected not to add significantly to
the numbers. Operating in the oil and gas industry, where reserves are only expected to
last for only around 40 and 60 years, respectively, sustainability remains to be a major
issue plaguing the company. With an increasing rate of consumption of existing
resources and the steady dependence on energy, there is a need to explore viable
alternatives, which can be undertaken as part of YJ’s long-term growth. This then begs
the question, ‘What’s next for YJ?’

Key Considerations

It is evident that the industry’s condition would ultimately lead to companies

exiting the market. However, questions, such as to when and how this should be done,
as well as where YJ should go, need to be answered. The possibilities and opportunities
available are vast. In deciding which option to take, however, careful consideration of
the factors below is necessary.

Sustainability
Sustainability should be the primary consideration. YJ’s goal for the long-
term future should be driven at operating in a market that will benefit the
company and support its growth for hundreds of years.

18
Environmental Impact
With the heightened awareness regarding the adverse effects of fossil
fuels, consumers and companies are shifting towards greener measures. YJ
must shift into an industry where company operations, as well as consumption of
the resource produced, would contribute the least damage to the environment.

Market Potential
Currently, oil prices are declining and such expected to continue for years
2014 to 2019 (Appendix 4). For businesses like YJ, this does not translate well in
terms of profitability. In order for YJ to thrive, it would be best to explore a sector,
where a rising demand is expected and profitability is anticipated.

Shareholder Interests
As key players (Appendix 5), shareholder interests and maximization of
shareholder value must be considered.

Technical Feasibility
YJ must consider its current technology, as well as the available
technology to tap into another industry. Shifting to an industry, which utilizes
technology similar to YJ’s current capital assets would help ease its transition.

Financial Capability
The amount of capital investment necessary and the ability to acquire
additional financing and the availability of such should also be considered.

Timing.
YJ must consider when to implement its plans. Should it choose to shift to
another industry, it must determine when to exit the industry—whether it will
immediately do so after its existing fields run dry, or wait until all the fields
available in the world have been exhausted. Failure to consider this could only

19
 result in unsuccessful operations, as exemplified by Chevron’s sale of its
renewable-energy subsidiary (Elgin, 2014).

Alternatives

At this point, the following alternatives are available to the company (Appendix 10).

1. Exhaust all possibilities in the oil and gas industry

a. Expand reach and not just limit itself in off-shore and shallow waters.
i. Acquire or develop new technology (e.g. to extract contingent resources)
ii. Research on other potential oil and gas fields
b. Merge with another oil or gas E&P company to increase market share
c. Invest in other forms of companies, such as service companies, FPSOs or
major contractors
d. Focus investments on growth as a natural gas company
2. Exit the E&P industry and shift to renewable energy

Table 8. Potential Recommendations for YJ’s Long term Future

Factors Natural Gas Solar Wind Hydropower Biomass
Sustainability  Still expected to  Renewable  Renewable  Renewable  Comes from
last for 60 years resource resource resource resources from the
land, hence these
must be ensured
that they are not
depleted
Environmental  Emits 50-60%  No toxic emissions  No toxic  No toxic emissions  Could increase
Impact less carbon  Possible use of emissions  Disturbance of carbon dioxide,
dioxide than hazardous  Disturbance of aquatic ecosystems such as through
emissions from manufacturing natural habitats burning trees and
coal or oil materials  Too much noise producing corn
brought about by ethanol
the wind turbines
Market Potential  Forecasted the  Projected to  Projected to  Expected slow  Projected to
growing share of contribute 2% of contribute 7% of growth since it experience an
natural gas from global power global power already provides average of 2.8%
21% in 2010 to supply by 2040 supply by 2040 16% of the world’s growth from 2010
25% in 2035 electricity to 2040

Shareholder  Accounts for  In 2012, earned  In 2012, earned  In 2012, earned  In 2012, earned
Interests 41.6% of all $472.4 million $5 billion $2.4 billion $934.6 million
extraction revenues revenues revenues revenues (United
revenue within States Census
the industry (IBIS Bureau, 2014)
World, 2013)
Technical  Requires similar  Technology  More  Lack of experience  Conversion

20
Feasibility technology and needed is currently developments in building and technology currently
expertise being improved are underway operating water being improved
employed by YJ dams  Depends on local
fuel availability
Financial  Private equity to  Very high  Very high  Very high  Very high
Capability finance investment to investment to investment to build investment to
install solar panels install wind water dams maintain
turbines

Recommendations

Considering the key factors mentioned above, it would be best for YJ to enter the
solar energy industry. However, considering that this industry is still at its premature
stage, YJ should properly plan the timing of its shift or its venture may fail. For the near
future, YJ should continue to focus its efforts on the oil and natural gas industry, but
more so on natural gas, given that this is relatively more sustainable compared to oil.
The decision is justified by the following: its extraction and production is similar to oil, it
is more environmentally friendly, and it has a growing demand. Investments into R&D of
the solar energy industry must be made. Furthermore, YJ must ensure that effective risk
management measures are in place.

Identification of ethical issues

Outsourcer-DrillIT

Lee Wang’s plan to conceal the information violates both integrity and objectivity.
As director of the company, he is expected to lead by example, perform his duties
ethically, regardless of its consequences (Appendix 13). His actions would result in a
failed tone at the top, which in turn, leads to lower employee morale.

YJ must therefore disclose the incident to the government to ensure

transparency. The audit committee must also discuss the issue with Lee Wang. YJ
should stand firm that incidents and acts like these are not tolerated. Procedures and
policies relating to disclosure of similar incidents must be established and
communicated to employees. Penalties for violators must also be in place.

21
Protests by the Greenbies party

While YJ has had a good track record thus far, the newly appointed CEO Ullan
Shah’s attitude may pose ethical issues. Ullan Shah appears to be more aggressive and
focused on company growth, without any apparent concern for the environment. As an
E&P company, however, YJ has a duty of care to the environment.

Ullan Shah must be reminded about the importance of corporate social

responsibility, especially towards the environment, in order to establish a good tone at
the top. YJ’s operations must not only be directed towards earning profits, but also
towards promoting sustainability.

License application results

While YJ has not engaged in bribery to win its licenses, the prevalence of bribery
in the industry, as well as pressures to engage in such an act (Appendix 14), may
present ethical dilemmas for the company in the future. Despite the stiff competition and
the need to win licenses, YJ must always proceed with actions that are morally upright,
regardless of its interests (Appendix 13).

Irrespective of the business repercussions, YJ must strengthen its commitment to

anti-bribery. It must:

1. Establish a morally upright tone at the top. YJ‘s values, morals and principles
must be codified and YJ must reinforce its stand against bribery.
2. Establish procedures to discover any acts related and strictly implement
penalties for violators.
3. Communicate the aforementioned across all levels of the company.
Employees must also be trained on how to address such issues.

22
Implementation plan

To conclude, presented below is the consolidated implementation plan for

recommendations.

Table 9. Consolidated implementation plan for recommendations

Issue
Time-frame Action Person Involved/ Responsible
Addressed
Late 2014 Accept licenses granted  Jason Oldman- Director of
IA1
Legal Affairs
Discuss revisions of option deal  Jason Oldman- Director of
terms with LG Legal Affairs IA2

Appoint an HR executive  Ullan Shah- CEO

IA1/IA5
 Board of directors
Hire additional managerial staff  Human Resources executive
for test drilling operations  Adebe Ayrinde-Director of IA1
drilling
Announce cash call and  Ullan Shah-CEO
issuance of new shares  Orit Mynde-Chief financial
officer
IA1
Prepare for test drilling  Milo Purdeen-Director of
IA1/IA2
operations exploration
 Adebe Ayrinde-Director of
drilling operations
 Lee Wang- Director for
Health, Safety and
Environment
Reprimand Lee Wang  Board of directors IA3
 Audit committee
Discuss issue with DrillIT and  Jason Oldman-Director of IA3
establish more stringent Legal Affairs
contract clauses  Ullan Shah-CEO
Early 2015 Appoint executive to monitor  Ullan Shah-CEO IA3
March 2015 outsourcers  Board of directors
Begin test drilling operations for  Adebe Ayrinde-Director for IA2
GGG drilling
 Orit Mynde-Chief Financial
Officer
 Lee Wang- Director for
Health, Safety and
Environment
Commence test drilling for EEE  Adebe Ayrinde-Director for IA1
and FFF drilling
 Orit Mynde-Chief Financial
Officer

23

Communicate constantly with
government officials
Update LG about test drilling
operations for GGG
Mid 2014 Codify and strengthen ethical
stance of the company;
Educate employees about
proper procedures in
addressing ethical dilemmas
Mid 2015 Invest in RnD to expand
company exploration and
operations in the Natural Gas
sector
2014 - 2017 Announce company direction
2016 onwards for long-term future to
2040 stockholders
Invest in RnD of renewable
energy
Shift operations to renewable
energy
24
 Lee Wang- Director for
Health, Safety and
Environment
 Jason Oldman- Director for IA1
Legal Affairs
 Ullan Shah- CEO
 Jason Oldman- Director for IA2
Legal affairs
 Ullan Shah-CEO
 Adebe Ayrinde-Director for
drilling operations
 Ullan Shah- CEO IA1
 Jason Oldman-Director of
Legal affairs
 Orit Mynde- Chief financial IA5
officers
 Milo Purdeen-Director of
exploration
 Adebe Ayrinde-Director of
drilling
 Ullan Shah-CEO IA5
 Orit Mynde-Chief financial
officer
 Lee Wang-Director for health,
safety and environment
 Ullan Shah-CEO IA5
 Orit Mynde-Chief financial
officer
 Jason Oldman-Director of
legal affairs
 Lee Wang- Director of
Health, Safety and
Environment
 Marie Lopp- HR Director IA5
 Stefan Gil- Sales Director
 REFERENCES

Al Jazeera. (2015). Attacks lead Libya’s state oil company to halt activity. Al Jazeera.
Retrieved from http://www.aljazeera.com/news/middleeast/2015/03/libya-attacks-
isil-oil-fields-150304224800443.html

Bamzai, S. (2012, August 25). Long shadow of resource nationalism: Coalgate raises
questions of how governments should handle national resources. Retrieved
March 28, 2015, from Mail Online India:
http://www.dailymail.co.uk/indiahome/indianews/article-2193565/DIS.html

BBC. (2008). Duty-based ethics. Retrieved March 23, 2014 from

http://www.bbc.co.uk/ethics/introduction/duty_1.shtml

Blitek, M. (2013). Oil & Gas Industry Analysis: 2013 is expected to be a hard year for oil
& gas segment due to lower consumption. Marketline. Retrieved from
http://www.marketline.com/blog/oil-gas-industry-analysis-2013-is-expected-to-be-
a-hard-year-for-oil-gas-segment-due-to-lower-
consumption/#sthash.PFzaKp6p.dpuf

Bradley, M. and Faucon, B. (2015). New attacks on Libya’s oil assets shake nation’s
stability, energy markets. The Wall Street Journal. Retrieved from
http://www.wsj.com/articles/new-attacks-on-libyas-oil-assets-shake-nations-
stability-energy-markets-1425840239

Cairn Energy. (2011). Who Are We: Oil and gas project lifecycle. Retrieved March 28,
2015, from Cairn Energy: http://www.cairnenergy.com/index.asp?pageid=324

Carson, B. (2014, October 29). 5 Investing Factors to Consider After a Plunge in Oil
Prices. Retrieved March 27, 2015, from U.S. News & World Report Money:
http://money.usnews.com/money/blogs/the-smarter-mutual-fund-
investor/2014/10/29/5-investing-factors-to-consider-after-a-plunge-in-oil-prices

CCSA [Carbon Capture and Storage Association]. (2012). What is CCS? Retrieved from
http://www.ccsassociation.org/what-is-ccs/

25
Cooper, J. (2003). Price elasticity of demand for crude oil: estimates for 23 countries.
OPEC Review, 1-8.

Denni-Fiberesima, D., & Rani, N. S. (2011). An Evaluation of Critical Success Factors

For Deepwater Oil &. 131-138.

Directorate-General for Energy. European Commission. Renewable energy directive.

Retrieved from http://ec.europa.eu/energy/en/topics/renewable-
energy/renewable-energy-directive

Elgin, B. (2014, September 2). Chevron Makes It Official With Sale of Renewable-
Energy Unit. Retrieved March 30, 2015, from Bloomberg Business:
http://www.bloomberg.com/bw/articles/2014-09-02/chevron-makes-it-official-with-
sale-of-renewable-energy-unit-to-opterra

Ernst & Young Global Limited. (n.d.). LNG demand growth. Retrieved March 28, 2015,
from Global LNG: New pricing ahead?: http://www.ey.com/GL/en/Industries/Oil---
Gas/Global-LNG--New-pricing-ahead---LNG-demand-growth

Greenpeace. (2011). Arctic stand-off: Greenpeace ships confront world’s most

controversial oil rig [Press Release]. Retrieved from
http://www.greenpeace.org/international/en/press/releases/Arctic-Stand-Off-
Greenpeace-ships-confront-worlds-most-controversial-oil-rig/

Gunther, M. (2013). Sustainable Business Have Never Been More Important For
Corporate America. Retrieved from http://www.theguardian.com/sustainable-
business/sustainable-business-important-corporate-america
Hoog, A. (2015). Fossil Fuel’s last stand. Greenpeace International. Retrieved from
http://www.greenpeace.org/international/en/news/Blogs/makingwaves/carbon-
capture-storage/blog/52106/

Hutton, R. (2015). Will Britain Leave the EU? Bloomberg Quick Take. Retrieved from
http://www.bloombergview.com/quicktake/will-uk-leave-eu

IBIS World. (2013, March 18). Natural Gas: Which Industries (and Lenders) Face the
Most Risk? Retrieved March 31, 2015, from IBIS World:

26
 http://media.ibisworld.com/2013/03/18/natural-gas-which-industries-and-lenders-
face-the-most-risk/

Institution of Mechanical Engineers. (2014). When will oil run out? Retrieved March 28,
2015, from Institution of Mechanical Engineers:
http://www.imeche.org/knowledge/themes/energy/energy-supply/fossil-
energy/when-will-oil-run-out

Johnson, R. (2008, April 6). Kant's Moral Philosophy. Retrieved March 27, 2015, from
Stanford Encyclopedia of Philosophy: http://plato.stanford.edu/entries/kant-moral/

Joling, D. (2012, July 24). Shell Arctic Drilling: Alaska Protesters Urge EPA to Reject
Permit Waiver. Retrieved March 20, 2015, from HuffPost Green:
http://www.huffingtonpost.com/2012/07/24/shell-arctic-drilling-
alaska_n_1698288.html

Kenya Oil and Gas Working Group. (2011). Upstream, Midstream & Downstream.
Retrieved March 27, 2015, from Kenya Oil and Gas Working Group:
http://kogwg.org/index.php/kogwg-news/115-oil-and-gas-terminology

KPMG LLP. (2009). Alternative fuels: investment outlook for the automotive industry.
Retrieved from http://www.kpmg.no/arch/_img/9472719.pdf

Lucas, P. (2013). EP vote on ILUC proposal, the (long) road to sustainable biofuels.
European Public Affairs.eu. Retrieved from
http://www.europeanpublicaffairs.eu/ep-vote-on-iluc-proposal-the-long-road-to-
sustainable-biofuels/

MarketLine. (2010). Global Oil, Gas & Consumable Fuels.

MarketLine. (2014a, December). Global Oil and Gas [Indsutry Profile]. Retrieved from
MarketLine Advantage Database.

MarketLine. (2014b, February). Syria, PEST Insights [Country Analysis Report].

Retrieved from MarketLine Advantage Database.

27
Masters, J. (2011, December 12). Issue Guide: One Year of 'Arab Spring' Upheavals.
Retrieved March 30, 2015, from Council on Foreign Relations:
http://www.cfr.org/middle-east-and-north-africa/issue-guide-one-year-arab-
spring-upheavals/p26764

Maugeri, L. (2013, June). The shale oil boom: A U.S. phenomenon. Discussion Paper
2013-05, Belfer Center for Science and International Affairs, Harvard Kennedy
School.Retrieved from
http://belfercenter.ksg.harvard.edu/publication/23191/shale_oil_boom.html

Miller, J. (2014). Are Declining Oil Prices Increasing the Risks to OPEC, U.S. Energy
Security or Clean Fuels Supplies? The Energy Collective. Retrieved from
http://theenergycollective.com/jemillerep/2146151/are-declining-oil-prices-
increasing-risks-opec-us-energy-security-or-clean-fuels-

OffshoreEnergyToday.Com. (2014, May 5). Kosmos: FA-1 well offshore Morocco not
commercial. Retrieved March 20, 2015, from OffshoreEnergyToday.Com:
http://www.offshoreenergytoday.com/kosmos-fa-1-well-offshore-morocco-not-
commercial/

Oil and Gas UK. (2011). Oil and Gas UK. Retrieved March 27, 2015, from
Decommissioning:
http://www.oilandgasuk.co.uk/economic_report/decommissioning.cfm

PetroStrategies, Inc. (2015). Oil and Gas Value Chains. Retrieved March 28, 2015, from
PetroStrategies, Inc.:
http://www.petrostrategies.org/Learning_Center/oil_and_gas_value_chains.htm

Platts, L. (2014, February 20). Nigerian lawmakers recommend revoking Shell, Eni OPL
245 oil block licence. Retrieved March 10, 2015, from Platts McGraw Hill
Financial: http://www.platts.com/latest-news/oil/lagos/nigerian-lawmakers-
recommend-revoking-shell-eni-26730563

PricewaterhouseCoopers. (2013). Driving value in upstream Oil & Gas.

28
PSG Dover. (n.d.). Defining Upstream Oil and Gas. Retrieved March 27, 2015, from
PSG Dover: http://www.psgdover.com/en/oil-and-gas/oil-gas-market-overview/oil-
gas-upstream

Sheikhzadeh, M., Arasti, R., & Kotobzadeh, R. (2012). Identifying key success factors in
upstream sector of. African Journal of Business Management Vol.6, 6156-6165.

The Economist. (2014b, September). The steam from below. Retrieved from
http://www.economist.com/news/science-and-technology/21615488-new-
technologies-are-being-used-extract-bitumen-oil-sands-steam

The Economist. (2014a, December). Why the oil price is falling. Retrieved from
http://www.economist.com/blogs/economist-explains/2014/12/economist-
explains-4?zid=308&ah=e21d923f9b263c5548d5615da3d3

The Oil Graduate. (2013). Oil and Gas in the UK. Retrieved March 10, 2015, from The
Oil Graduate: http://www.theoilgraduate.co.uk/learn-about-oil-gas-industry.html

UNFCC [United Nations Framework Convention on Climate Change] . (n.d.). Kyoto

Protocol. Retrieved from http://unfccc.int/kyoto_protocol/items/2830.php

Union of Concerned Scientists. (n.d.). Environmental Impacts of Natural Gas. Retrieved

March 28, 2015, from Union of Concerned Scientists:
http://www.ucsusa.org/clean_energy/our-energy-choices/coal-and-other-fossil-
fuels/environmental-impacts-of-natural-gas.html#.VRYo4fyUe1Q

United States Census Bureau. (2014, November 8). Census Bureau Economic Data
Show Electric Power Generation Using Renewable Energy Growing. Retrieved
March 31, 2015, from United States Census Bureau:
http://www.census.gov/newsroom/press-releases/2014/cb14-204.html

University of Southern Indiana. (n.d.). What is Fraud? Retrieved March 30, 2015, from
University of Southern Indiana: http://www.usi.edu/internalaudit/what-is-fraud

29
U.S. Energy Information Administration. (2014). U.S. Energy Information Administration.
Retrieved March 12, 2015, from Upstream financial review of the global oil and
natural gas industry: http://www.eia.gov/finance/review/

U.S. Energy Information Administration. (2014). Financial review: Third quarter 2014.
Retrieved March 4, 2015, from U.S. Energy Information Administration:
http://www.eia.gov/finance/review/pdf/financial.pdf

U.S. Energy Information Administration. (n.d.). What is the volume of the world's natural
gas resources. Retrieved March 22, 2015, from U.S. Energy Information
Administration: http://www.eia.gov/tools/faqs/faq.cfm?id=52&t=8

Wall Street Journal. (2013, April 17). The Experts: What Renewable Energy Source Has
the Most Promise? Retrieved March 28, 2015, from The Wall Street Journal:
http://www.wsj.com/articles/SB1000142412788732448500457842462425472353
6

30
 Appendix 1
Kaplan and Norton’s Balanced Scorecard

BSC Business Source of Person/s

Priority Scenario Proposed Actions Target Measures Appendix () Used
Perspective Measurement Funds Responsible
1 License Financial; 1. Accept licenses Increased At last 36% Required  Ullan Shah, (6) What-So-
application Business granted revenues increase in financing: CEO What Analysis
results processes; revenues $63  Orit Mynde, (2) SWOT-
Learning and 2. Acquire additional million Chief TOWS Matrix
growth financing through Operational Lower Financial (3) Porter’s Five
equity efficiency of expenditures Officer Forces Matrix
existing and increased  Adebe (4) PESTLE
3. Long-term: Set up operations profitability Ayrinde, Analysis
incentive system; Director of (5) Mendelow’s
Select outsourcer Drilling Power-Interest
according to specified Compliance with 100% Operations Grid
criteria; Actively regulatory compliance (17) Financial
communicate with requirements with Computations
governments; Invest government (7) Industry Key
in new technology requirements Success Factors
(15) Summary
of diversification

2 Farm out Financial; 1. Accept LG’s offer Contract revisions Acceptance of Cost to  Orit Mynde, (6) What-so-
offer Business revisions by LG test drill Chief What Analysis
processes 2. Discuss revisions $18 Financial (2) SWOT-
prior to acceptance Contract 100% million Offier TOWS Analysis
compliance compliance  Ullan Shah, (3) Porter’s Five
with contract CEO Forces
Timeliness of terms  Jason (10) Ansoff’s
completion Oldman, Matrix
No delays in Director of (5) Mendelow’s
test drilling Legal Affairs Matrix
 Milo (17) Financial
Purdeen, Computations
Director of (15) Summary
Exploration of diversification
Director

31
 BSC Business Source of Person/s
Priority Scenario Proposed Actions Target Measures Appendix () Used
Perspective Measurement Funds Responsible
3 Outsourcer Financial; 1. Reprimand Lee Wang Outsourcer Outsourcers None  Adebe Ayrinde, (13) Summary
-DrillIT Business performance perform required Director of of ethical
processes 2. Reprimand DrillIT and efficiently with Drilling frameworks
establish more no issues Operations (6) What-so
stringent contract what analysis
clauses Recurrence of Similar (2) SWOT-
incident incidents must TOWS analysis
3. Long-term: Appoint not occur in the (5) Mendelow’s
an executive to future Power-Interest
oversee outsourcer Grid
operations; ensure (4) PESTLE
stricter HSE protocols Analysis
and increase (20) McFarlan’s
frequency of spot Applications
checks and Portfolio Matrix
monitoring; seek
alternative suppliers

4 YJ’s long - Financial; 1. Invest in expansion of Sustainability of Industry to last Large  Ullan Shah- (4) PESTLE
term Business operations in the industry indefinitely Capital CEO analysis
future processes; natural gas industry Outlay  Orit Mynde- (5) Mendelow’s
Learning and Industry required Chief financial Power-Interest
growth 2. Long-term: Invest in provides officer Grid
research and Profitability profitable  Milo Purdeen- (6) What-so
development of opportunities Director of what analysis
renewable energy; for the Exploration (2) SWOT-
plan proper timing of company TOWS analysis
transition; gradually Increased annually (15) Summary
shift to a more revenues and of Diversification
sustainable energy growth Increase (10) Ansoff’s
revenues by Matrix
10% annually (20) McFarlan’s
and increased Applications
market share Portfolio Matrix

32

This framework identifies the
internal capabilities (strengths
and weaknesses) of the firm and
external realities (opportunities
and threats) of the industry in
which it plays, in order to
formulate strategies that match
existing capabilities with
actionable realities.
STRENGTHS
1. Relatively good security
measures provided by an
appointed international security
SWOT-TOWS Analysis
OPPORTUNITIES
1. Available farm out opportunities
2. Abundant natural gas resources
3. Development of renewable resources
4. Consumer dependence on oil and gas
5. Availability of outsourcers and other service
companies
6. Rising demand for natural gas
7. Investors more accepting of risk compared
to banks
10. Governments abusing their power by drafting terms
S-O STRATEGIES
 Accept farm out offer and appoint Jason
Oldman as facilitator of agreement (S2,
O1)
33
Appendix 2
THREATS
1. Depleting resources indicating lack of sustainability
2. Prevalent practices of bribery and corruption in
governments
3. Stringent government regulations in countries like
Russia, granting limited access to western
companies (Bamzai, 2012)
4. Political instability and aggressive governments,
leaving only 7% of the remaining reserves in
countries that allow private international companies
to reign free as reported by PFC Energy (Bamzai,
2012)
5. Widespread protests and activists, like the Arab
Spring
6. Health and safety threats brought about by
terrorists and diseases like Ebola
7. Shortage of suitable workforce due to various
threats
8. Complex regulatory requirements
9. Increasing expenditure greater than net cash flows
from operations
disadvantageous to smaller E&P companies
S-T STRATEGIES
 Accept licenses granted due to high chance of field
containing oil resources (S3&S4, T3)
 Proceed with acceptance of farm out offer to
 company
2. Presence of legal executive with
vast experience in the industry,
especially with regulations and
farm outs
3. Skilled research and development
team
4. Available technical capacity for
test drilling
5. Good track record in successfully
exploring oil and gas fields
6. Commendable corporate social
responsibility (CSR) and health,
safety and environment (HSE)
practices
7. Available sources of financing
WEAKNESSES
1. High staff turnover rate
2. Insufficient technical capacity to
bring oil fields into production
3. Current capability restricts
company to engage in offshore
and shallow waters operations
4. Relatively small operations
 Gain more financing to invest in equipment
for shifting to the natural gas industry (S7,
O2&o7)
 Invest in research and development of
renewable resources (S3&S7, O3)
 Utilize research and development to search
for unexplored oil and gas fields as
demand is relatively stable (S3&S7,
O4&O5)
 Bring oil fields into production and fund
projects through acquisition of new
financing (S7, O4)
 Explore possibility of engaging in more
farm out offers in the future (S5, o1)
 Gain additional financing through cash calls
and issuance of new shares as this would
cost less for the company (S7, O8)
W-O STRATEGIES
 Engage in farm out offers to increase
streams of cash flow and use funds to bring
oil fields into production (W2, O1)
 Outsource production services and focus
on core competencies (W2, O6)
 Accept licenses granted and bring fields
into production due to limited areas
34
prevent governments from abusing their power
(S2, T10)
 Set up better security systems in high-risk areas
(S1, T6)
 Appoint a legal executive to maintain good
relations with governments to increase chances of
winning licenses (S2, T2)
 Appoint a legal executive to maintain constant
communication with governments to update the
company with regulatory requirements (S2, T8)
 Invest in research and development to make
operations more efficient to reduce costs and
improve profitability (S3, T9)
 Take advantage of bargaining power and ask for
extension of deadline for test drilling of GGG (E,
T4&T6)
 Invest in research and development to shift to
more sustainable industries (i.e., renewable
resources) (S3, T1)
 Improve publicity involving company’s CSR
activities to entice more individuals to join the
company (S6, T7)
 Improve publicity about company’s CSR activities
to keep protestors satisfied (S7, T5)
W-T STRATEGIES
 Provide better benefits and set up incentive
systems to motivate and retain employees (W1,
T7)
 Accept licenses granted because of restrictions
brought about by limited capacity and government
regulations (W3, T3)
 Maintain good relations with governments granting
 compared to other companies in
the industry
5. Insufficient method of monitoring
its outsourcers
6. Limited finance capacity
available for operations (W3, O4)
 Ensure sustainable growth by entering
more sustainable industries with rising
demand (W4, O2, O7&O3)
 Acquire financing through issuance of new
shares since investors have become more
accepting of risks related to E&P
operations (W6, O8)
35
licenses by appointing an executive to negotiate
and communicate constantly (W4, T2, T3&T10)
 Strengthen ethical stance against bribery. Being a
smaller company, YJ has less resources than
other competitors, and will have less tendencies to
bribe officials (W4, T2)
 Appoint an executive to oversee and monitor
activities of outsourced companies and avoid
issues that may result from lack of monitoring (W5,
T8)
 Appendix 3
Porter’s Five Forces Matrix

This framework is an analysis of the THREAT OF NEW ENTRANTS

firm’s external environment. It is a
thorough analysis of all the forces Capital intensive/ entry barriers
affecting the company’s competitive Competition with established companies
environment, ranging from substitute Regulatory Barriers
products, forward and backward
participants in the value chain, and
potential new entrants.

BUYER
‘ BARGAINING POWER
SUPPLIER BARGAINING POWER INDUSTRY RIVALRY
New potential fields to tap Price Determination
Backward integration of oil Research and development Dependency on oil
and gas companies Homogeneity of products Price sensitivity
Government granting Limited fields Insignificance of brand
licenses Application for Licenses/ Favor loyalty
Limited number of towards larger companies Buyer size
Limited Human Resources
suppliers Financial muscle
Importance of quality and
cost

THREAT OF NEW SUBSTITUTES

LEGEND:
Lack of potential substitutes LOW
Research and development alternatives MEDIUM
Development of new technology HIGH

36
Bargaining Power Of Buyers Medium
Commodities, such as crude oil or natural gas, are
relatively undifferentiated products. Hence, the supply
Price determination Medium
and demand at mercantile exchanges of New York,
London, and Dubai set the price
Consumers are heavily dependent on oil, a relatively
Dependency on oil Low
stable market is available.
Market prices are primarily determined by upstream
Price sensitivity operations (amount of supply); little influence of Low
downstream or distributors on upstream operations
Insignificance of brand Buyers tend to switch to the supplier with the better offer High
loyalty
A large amount of buyers exist driven by the
Buyer size Medium
indispensable need for oil and gas
Various oil and gas company buyers can impose on the
Financial muscle seller to obtain cost advantages due to the enormous High
size of their purchases

Bargaining Power Of Suppliers High

Lessened dependency on suppliers through backward

Backward integration of
integration; outsourced services to support or Medium
oil and gas companies
supplement own operations only
Depending on negotiations and the number of E&P
companies applying for a license, the government which
Government granting owns the oil and gas field is sometimes able to take a High
licenses
large percentage of the profits, often making production
of oil and gas uneconomic for the oil and gas company.
Technology needed to explore and drill oil fields are
Limited number of highly customized; only a few suppliers can provide for High
suppliers
these needs

Importance of quality and Quality and costs are of little consideration to the buyer Low
cost

37
Industry Rivalry
New potential fields to tap
Research and
development
Limited fields
Homogeneity of products
Application for
licenses/Favor towards
larger companies
Limited human resources
Threat Of Substitutes
Lack of potential
substitutes
Research and
development alternatives
Development of new
technology
Threat Of New Entrants
Capital Intensive/Entry
Barriers
Competition with
established companies
Regulatory Barriers
High
Areas, such as those in Asia, being explored have
shown the potential of being rich in oil and gas Medium
resources
Companies in the industry actively pursuing research
High
and development to innovate
Industry players competing for licenses to drill in very
limited area since oil and gas are only available in
High
certain areas, where a huge portion has been depleted
or exhausted
Lack of differentiation in terms of products or resources
High
being tapped
Governments granting licenses tend to grant the right to
drill to companies who would be able to pay more High
(bribery)
Due to security threats in the industry, only a few
High
workers can be hired
Medium
Lack of sustainable or renewable alternatives to the
Low
"roles/functions" of oil and gas
Research efforts are continually conducted towards
developing alternatives to oil and gas as these resources Medium
have been found to be unsustainable
The development of new sources of energy, such as
Medium
hydropower, has been made available but not yet fully
utilized
Low
Nature of industry entails high (physical) capital
requirements, making it more challenging to establish a Low
new company
New entrants must establish scale economies and strong
High
research and development (R&D) capabilities
Complex government regulatory requirements to operate
Low
in the industry
38
 Appendix 4
PESTLE Analysis
This is a framework of macro-environmental factors used for environmental scanning to assess the market
for a business or organizational unit. It is part of the external analysis when conducting a strategic analysis
or doing market research, and gives and overview of the different macro-environmental factors that the
company has to take into consideration.

Political
 YJ’s ability to gain licenses from governments in Asia and Africa
 Different political issues surrounding governments in Asia, Africa and Europe, as well as oil-
rich countries such as Iraq and Saudi Arabia, could affect YJ’s operations.
o Uncertainty exists on whether United Kingdom will remain part of the European Union
(EU). Incumbent Prime Minister David Cameron asserts that a referendum will be in
place in 2017 should he win the general elections (Hutton, 2015).
o Risks of civil and political uprisings; an example of which is the effect the Arab Spring
had on several oil producing countries in Asia and Africa.

Economic
 Demand for oil and gas is highly insensitive, i.e. inelastic, to price changes (Cooper, 2003).
 The market prices of energy are determined by demand and supply, which in turn, is
influenced by economic recessions and booms, policies of international organizations such as
cartels, and the growth of emerging countries.
 The Organisation of Petroleum Exporting Countries (OPEC) holds approximately 40% of the
world market (The Economist, 2014a).
 Oil prices are sent tumbling down after OPEC’s inability to reach an agreement on curbing
production supply (The Economist, 2014a; MarketLine, 2014a).
o Excess supply of crude oil has been attributed to a variety of factors: OPEC’s decision
of maintaining present export levels, declining demand for crude oil, slowing down of
economies of major countries, and increasing U.S. domestic oil production (Miller,
2014).
 The huge decline in oil prices in 2014 is expected to continue in 2015 (MarketLine, 2014a).
Blitek (2013) concurs by forecasting the market value of the global oil and gas industry to
decline for the period 2014 to 2019.

39
 Social
 Currently, social unrest is prevalent in oil-rich countries like Libya and Syria. Operations of YJ
in those areas encounter difficulties in hiring and replacing workers due to growing violent
incidents. Countries with high levels of violence leave workers feeling unsafe and thus, seek
refuge elsewhere.
o The ongoing conflict and human rights abuses in Syria have left a negative impact in
humanitarian efforts (MarketLine, 2014b).
o Libyan civil war has greatly affected oil production in the area, with attacks only getting
worse (Bradley and Faucon, 2015). This prompted Libya’s state –run oil corporation to
cease operations until national security is improved (Al Jazeera, 2015).
 On a report published by KPMG LLP (2009), gasoline and diesel are forecasted to remain as
the main sources of automotive fuels in the short run. However, with the eventual depletion of
exploration sites, high oil prices, and regulations on reduction of carbon footprint, the
automotive industry is leaning towards alternative fuel sources in the long run.

Technological
 Development and popularity of alternative oil extracting methods:
o Use of hydraulic fracturing (also known as fracking) in acquiring shale oil increased
rapidly in the U.S. (Maugeri, 2013).
o Canadian exploration and production companies use steam extraction on the
growing tar sands industry (The Economist, 2014b).

Legal
 In its advocacy for sustainable energy, the European Commission (EC) implemented the
Renewable Energy Directive in 2009. As a result, the European Union (EU) is required to
meet 20% of its overall energy needs using renewable sources, and 10% of its transport
sector fueled by renewable energy by 2020.
 Minimum wage per month:
o United Kingdom: $1,646.45
(£1,105 x $1.49)

o Jakarta, Indonesia: $205.20

(Rp 2,700,000 x $.000076)

o South Africa: $152.36

(R 1,881 x $.081)

40
 Environmental
 Greenpeace International has been active in protesting against oil drilling (Greenpeace,
2011)
 In its commitment to mitigate greenhouse gas emissions, EC is supporting the use of
alternative sources of energy (Lucas, 2013).
 As part of the Kyoto Protocol, the EU is committed to reducing greenhouse gas emissions
(UNFCC, n.d.)
 The fossil fuel industry is struggling to maintain operations as oil fields dry out and
movements toward renewable energy increase. Carbon Capture and Storage (CCS) was
developed to keep carbon dioxide emissions from entering the atmosphere and store it in
exhausted gas and oil fields underground (CCSA, n.d.).
o Hoog (2015) of Greenpeace International argues that CCS actually worsens climate
change by pumping out supposedly unrecoverable oil using captured carbon
dioxide.

41
 Appendix 5
Mendelow’s Power-Interest Grid

This is a framework that can help deal with the stakeholders’ conflicting demands. It provides a way of
mapping the stakeholders based on their power to affect the organization and their interest in doing so.
The framework also helps in establishing political priorities. It identifies the responses that management
needs to make to the stakeholders in different quadrants.

HIGH INTEREST LOW INTEREST

Key Players Keep Satisfied

• Governments granting • Regulatory agencies
licenses • Communities around fields
HIGH POWER • Shareholders and drilling areas
• Financing sources (e.g.
banks)

Keep Informed Minimal Effort or Monitor

• Media • Consumers
• Advocacy groups or
LOW POWER environmentalists
• Employees

42
Key Players:
1. Governments granting licenses- have the power to decide whether a company will be
granted license to operate in their country; could enact laws restricting operations in the
area; Interested in company operations since governments receive revenues from oil
companies
2. Shareholders (for finance)- are highly interested in company operations, especially in
returns on their investment; have the capacity to “pull out” their investment when
dissatisfied with management, which could then lead to lack of financing
Keep Satisfied:
1. Regulatory Agencies (Industry regulators) - have a high level of power as regulatory
agencies could easily stop company operations (e.g. for failure to comply with specific
requirements)
2. Communities around oil fields and drilling areas (operations)- heavily affected by
drilling and operations and therefore are highly interested in companies carrying out its
operations in the respective areas; they however, have, relatively low power or influence
on the conduct of a company’s operations; company must ensure their safety and
wellbeing; may become interested and involved in company operations when troubled by
company operations
3. Financing sources (e.g. banks)- have relatively minimal interest in the company; has a
relatively high level of influence over the company as they provide the sources of
financing for operations; lack of financing could ultimately lead to failure to operate
Keep Informed:
1. Employees (e.g. drillers)- health and safety- interested in continuity of company
operations since it provides them the source of their income; company has the
responsibility to provide a safe working environment for their employees; lack of
(competent) employees would adversely affect operations; interested in company’s
strategy—if such is in line with their career goals and personal values.
2. Media- have relatively low level of interest in company operations (i.e., they are not
directly affected in any way); level of influence can be considered high since it has a
wide scope of audience; able to affect the company’s image— may lead to regulatory
agencies probing into company operations; contributes to the public’s and/or
government’s perception of the company
3. Advocacy Groups/ Environmentalists- relatively high level of influence over the
company since these groups could lobby for the promulgation of new laws; may call the
attention of regulatory authorities when necessary, leading to suspension of operations;
they could therefore influence management’s strategies and operating procedures.
Minimal Effort or Monitor:
1. Consumers- have little interest and power over the company, but are stakeholders
nonetheless, since they are heavily dependent on the resources (e.g. oil) produced;
Their needs must be considered by the company when considering the introduction of a
new product or a shift in industry.

43

What-So What Analysis
Table 10. What-so what analysis for license application results
What
Of the four license applications
applied for earlier in the year, YJ
has won the right to test drill on
three different fields (EEE, FFF
and GGG).
YJ is unsure whether the
company has the financial or
managerial capacity to test drill all
three sites.
No contracts have yet been
signed but the license offers are
open for acceptance for a two-
week period only.
YJ’s CFO, Orit Mynde, is off sick
and could not contribute any
meaningful work on the financing
for the new licenses.
Table 11. What-so what analysis for farm out offer
What
YJ will lack the financial capacity,
and the managerial and
productive capacity to bring all 3
wells into production
LG has already offered an option
payment, payable now, which will
give it the right but not the
Appendix 6
So What
YJ is presented with an opportunity to expand its
operations in terms of exploration and production if an oil
and gas field exists. However, the company is likewise
exposed to the risk of loss if no oil or gas is produced.
One of the critical success factors in the industry is a
company’s financial capacity in respect of the investment
required to bring the oil and gas field into production. YJ
must assess its capability before commencing drilling
operations in order to mitigate risks.
YJ faces time pressure in responding to the approved
license application. The company must decide within the
two-week period on whether to test drill or not.
With their CFO off sick, YJ could not properly assess the
company’s ability to finance operations of all three sites,
and evaluate whether previously established estimates
on financial performance are still applicable.
So What
The company must decide whether it will bring all three
wells into production or engage in farm out deals. Should
it proceed with the former, it must consider the source
for additional financing it will utilize, its ability to hire
capable managers and employees and the technology
needed.
The risk of GGG field being barren or not is shared by
LG through the option deal.
44
obligation to produce oil in field
GGG from Mar. 31, 2016
If GGG has commercial reserves,
then LG can extract them should
they wish, but if GGG proves to be
barren of oil and gas, the option
payment is kept by YJ.
The option payment is US $ 10m
payable 31 August 2014, to be
held in an escrow account and
released in tranches
LG demands a 10% discount on
proven reserves.
LG negotiated the farm out deal
too early, even before GGG is
ready to be farmed out.
Table 12. What-so what analysis for protest by the Greenbies Party
What
Protest about the use of finite
fossil fuels
Lack of interest E&P businesses
have in sustainable development
of renewable energy sources
By accepting the option payment, YJ would be sharing
the risk of GGG being barren with LG. Whether the field
proves to have commercial reserves or not, the option
payment would already be assured and could be used
for other operational activities. Accepting the option,
however, also poses the risk of foregoing a significant
amount of potential income should GGG be brought into
operations.
The money that could be received as initial payment
from the option offer, upon signing of test drilling license
and commencement of actual test drilling, could already
be utilized in other operations of the company, such as
test drilling other sites or as payment of dividends. Any
breach of contract, however, would require repayment of
the amount by YJ.
YJ must decide whether fixing the price at its current
level, less 10% discount will be beneficial to the
company given probable changes in values of gas and
oil. YJ must also decide whether selling proven reserves
is more profitable than operating on such.
YJ has the option whether to enter the option contract
with LG or not. If the company decides to enter the
contract, it must adhere to all the conditions set upon by
LG, or it may propose a counteroffer. However, entering
into a contract this early may pose significant risks. YJ
may also reject the offer, and wait for other propositions
after the site is ready to be farmed out.
So What
Bad publicity for the industry in general. There is a call
for sustainability amongst E&P companies.
More and more people would probably turn to available
renewable sources instead of the traditional use of fossil
fuels due to increasing environmental concerns.
45
Local and national news agencies
picked up the story
Ullan Shah was unimpressed by
the protest (as he couldn’t park his
car in its normal spot), causing
him to express his displeasure.
Table 13. What-so what analysis for outsourcer- DrillIT
What
YJ outsources all of its production
work to others
AAA is off the coast of an African
country that has recently been the
subject of considerable unrest.
One of YJ’s supervisors, whilst on
a spot check control visit, noticed
irregularities with the control log
records.
Since there were no actual
accidents, YJ should accept
DrillT’s assurances that the
controls were carried out properly
and hence focus on the future not
the past.
A routine government check of
procedures is due in three weeks
time when a government official
will visit the field.
The story could negatively affect the industry and the
companies, including YJ. Government legislations
restricting activities in the industry could be drafted as a
result of the protest. YJ must direct efforts into
sustainability of its resources to protect its image in the
public, and its futures operations.
Ullan Shah’s comment may indicate YJ’s stance on
development of renewable energy, and corporate social
responsibility in general. If his statement ever goes out
in public, it may garner negative remarks and result to
bad publicity for the company. His statement may also
suggest YJ’s tone-at-the-top.
So What
“Control of the outsourcers is considered a vital role for
YJ.” When the outsourced company fails to deliver, YJ’s
operations would be severely affected. They should not
limit outsourcing to one company.
DrillIT has started to find it difficult to retain staff and to
recruit replacements. This has put considerable strain on
its systems of control and operations.
A lapse in one of the most important control procedures
can have serious consequences on YJ’s image and
reputation. This also raises questions on DrillIT’s
integrity in terms of operations.
There is no complete assurance that DrillT would not
fool YJ the second time. YJ must be careful in deciding
whether to stick with DrillIT or change to another
company. Should YJ continue to acquire DrillIT’s
services, it must establish more stringent clauses in its
contract.
YJ has limited time to ensure all its procedures and
operations are in place, considering the irregularity that
took place with DrillT. This irregularity could bring
adverse consequences to YJ if the government finds out
about it.
46
YJ should conceal its knowledge
of the past irregularities.
Table 14. What-so what analysis for YJ’s long-term future
What
YJ’s existing reserves from oil
fields already in operation will last
around seven more years
New fields do not look like adding
significantly to that figure
YJ could simply exit the E&P
market once its fields run dry
It could explore the possibility of
becoming an energy company
where it sources energy in a
broader sense from wherever is
viable.
In relation to the aforementioned government check,
ethical issues could be raised. YJ must decide between
coming clean about the forgery or concealing the
incident.
So What
Oil reserves are not expected to last for more than a few
years, indicating the lack of sustainability. YJ must
therefore address this issue immediately by considering
possibilities, such as looking for other oil fields, exiting
the market, or becoming an energy company.
Other alternatives must be explored or YJ might be
forced to exit the markets once its reserves are
exhausted.
YJ must seriously consider its actions regarding this
matter since this would have a significant impact on
various stakeholders, such as its investors, its
employees, and its customers. YJ must, therefore,
engage in the exploration and acquisition of new fields or
consider shifting into another more sustainable industry.
Should YJ consider taking this alternative, it must begin
transitioning into an energy company as soon as
possible. Research must be directed towards
understanding the requirements and the critical success
factors of operating as an energy company. The impact
on of the action on the company’s stakeholders must
also be fully considered.
47
 Appendix 7
Industry Key Success Factors

According to a report published by PricewaterhouseCoopers (2013), three main factors

contributed to the success of top performing companies in the oil and gas upstream
sector. These are as follows:
1. Selectivity, rather than velocity in terms of approaching capital investments,
which means that companies pay more attention to the type of investment
they venture in, rather than how much they spend in it;
2. Commitment to driving capital productivity, which is evidenced by the fact
that top companies are on average, twice as effective as their competitors
in terms of capital productivity; and
3. A strong focus on operating excellence, proven by production costs 10%
lower than the industry average.

Other critical success factors crucial to players in the industry include:

1. Human resources competency and availability;
2. Financial adequacy to support exploration and production projects;
3. Technical or technological capacity, which entails the ability to locat areas
with abundant resources and to bring oil and gas fields into production;
4. Awareness and track record in relation to environmental records;
5. Innovation, or pioneering the development of new technology to maximize
output (e.g. technology for tapping contingent resources);
6. Government relations management, which supports/aids in the company’s
ability to gain new licenses;
7. Management of supplier/outsourcer relations; and
8. Good project formulation, implementation and management.

48
 Appendix 8
Oil and Gas Project Lifecycle

This tool identifies the key lifecycle stages, as well as the average time period for each stage, in the oil and gas industry.

Estimated Timeframe

The six key lifecycle stages in the oil and gas industry are as follows: (1) Exploration Seismic, (2) Site Surveys, (3) Exploration Drilling,
(4) Appraisal Drilling, (5) Development, and (6) Production.
The cycle begins from the grant of a license. After which, oil and gas companies conduct seismic surveys, which utilize sound waves to
map out the sub seabed geology and identify rock formations, which may contain resources. Other techniques, such as gravity, magnetic, and
electro-magnetic may also be used. Companies proceed with the next step, site surveys, when potential hydrocarbon reservoirs are seen to
exist. Site surveys are conducted to gain more in-depth information, such as seabed data, water column and the environment in a potential
location. Companies proceed with exploration drilling when a safe and environmentally viable drilling location is identified. Exploration drilling
extends gathering of data on subsurface conditions by drilling exploration wells in the seabed. When a hydrocarbon reservoir is deemed viable
for production, the operator may proceed to appraisal drilling. If however, a reservoir is proven to be unviable, further drilling is carried out in
the license area as hydrocarbons may exist elsewhere. Should wells prove to be unsuitable, they are sealed below the seabed and fully
secured before being abandoned.
Appraisal drilling, the fourth stage, is conducted to establish the size of the field and determine the most appropriate production
method. This stage, usually taking several years to complete, is done to assess commercial viability of a field. Well logging provides data on
hydrocarbon-bearing rocks; while well testing produces hydrocarbon samples and information on flow rate, temperatures and pressures. When
commercial viability is proven, companies may now proceed to development. The development stage requires a development plan to be
submitted to relevant authorities for approval. Materials, services and equipment, such as an oil and gas transportation system are procured
and installed. “Development drilling is completed and the facility is tested to achieve a stable production level.” The last stage production,
varies depending on the type of resource (i.e., whether oil or gas), location, water depth and environmental conditions. It may be entirely
offshore, or may be connected to a near-shore or onshore facility for processing and export. Production gradually increases until its peak
production, when it is maintained for a number of years, before production eventually declines (Cairn, 2014/2015). When a field finally ceases
production, decommissioning is undertaken. This largely involves plugging and abandonment of wells, cleaning of manifolds and pipelines, and
the removal of topsides and subsea facilities (Oil & Gas UK, 2011).

49
 Appendix 9
Oil and Gas Industry: Services Required

This diagram provides information regarding the various services employed by each sector of the oil
and gas industry. These services may either be produced by the company itself or may be outsourced
from other service suppliers.

50
 Appendix 10
Ansoff’s Product/Market Growth Matrix

This is a marketing planning tool that helps a business determine its product and market growth strategy.
It suggests that a business’ attempts to grow depend on whether it markets new or existing products in
new or existing markets. The output from the Ansoff product/market matrix is a series of suggested
growth strategies that set the direction for the business strategy.

EXISTING PRODUCTS NEW PRODUCTS

Market Penetration Product Development

 Gain new licenses and
explore new fields
 Farm in and farm out
 Gain additional financing to
EXISTING MARKET
operate more fields
 Delve into research and
exploration of other industries
involved in alternative forms of
energy such as solar, hydro
and wind power

 Invest in technology that

would enable venture into
deep waters
 Invest in natural gas industry

Market Development Diversification

 N/A  Engage in other company
types in the oil and gas
industry, such as:
NEW MARKET  Service companies
 Major contractors
 Floating production,
storage and offloading
vessels (FPSOs)

51
 Appendix 11
Oil and Gas Industry Analysis

Proven oil reserves currently approximate 1.3 trillion barrels, two-thirds of which
are in the Middle East.9 While a new field with around 5 to 8 billion barrels of oil was
discovered, such discoveries are rare, and the remaining reserves are only expected to
last for 40 years. Countries like the USA, Russia, and Canada, and UK’s North Sea still
contain substantial reserves and new explorations are being undertaken in Asia and
Africa. By 2040, however, production levels are also expected to decrease to 15 million
barrels per day, which is roughly only 20% of the current consumption level (IMechE,
2014). On the other hand, an estimated 6,973 trillion cubic feet of proven natural gas
(EIA, 2014) and is expected to last for over 60 years. Natural gas proves great potential
as evidenced by the rising demand, the largely unexplored areas, including the sub-
Arctic Area, and the development of new technology to explore these.

Figure 2. Diagram of various sectors in the oil and gas industry

The extensive oil and gas industry is primarily subdivided into three main sectors,
namely, the upstream, midstream, and downstream sectors. The upstream sector,
commonly referred to as the exploration and production (E&P) sector, is involved with
the exploration and production of oil and gas. These resources are then transported by
the midstream operations to the downstream operations, where they are processed and

9 Saudi Arabia owns 261.8 billions of barrels. Iraq, United Arab Emirates, Kuwait, and Iran own 112.5,97.8, 96.5 and
89.7 billions of barrels, respectively (IMechE, 2014).

52
refined into finished products and finally distributed to consumers. However, as YJ is
principally involved in upstream operations, our analysis, from here on, will focus on the
specific sector.

During 2013, around 28 million barrels of oil, while around 20 million barrels of
natural gas were produced daily. However, despite this, the manufacturing sector has
outperformed the upstream industry during both 2012 and 2013.10 Net cash from
operations have also declined to $ 515 billion in 2013 from approximately $ 530 billion in
2012, following the decrease in crude oil prices (EIA, 2014b). Furthermore, cash
outflows related to upstream expenditures have consistently outpaced net cash flows
from operations from 2009 to 2013. Majority of these expenditures are attributable to
exploration and development, which has grown sharply over the years and amounted to
approximately $ 370 billion in 2013. The upstream industry experienced a decrease in
profits, in contrast with the downstream industry, which experienced an increase. Aside
from these, the consistent annual growth in long-term debts in the industry since 2006
must also be noted (EIA, 2014a).11

In summary, resources in the oil industry are not expected to last for a long time
and trends in the industry also indicate decreasing profitability due to increasing
expenditures. While the gas industry is expected to last longer, it is still not sustainable.
It is therefore, best for YJ to seek out other more sustainable industries to enter and
operate in in the future.

10 2012 Return on equity (ROE) is around 14% for the upstream industry and 16% for the manufacturing sector.
2013 ROE is around 12.5% for the upstream industry and 15.5% for the manufacturing sector (EIA, 2014).
11 The study conducted focused on the analysis of 42 global oil and natural gas producing companies in the industry.

53
 Appendix 12
Competitor Analysis

We analyzed YJ’s industry position against large and similarly-sized companies facing the same economic
circumstances.
Table 15. Global Industry Ratios
Global Industry YJ Ecopetrol Statoil Total ENI PTT Shell Global
average
Total assets - 2013 192.70 64,521 140,515 227,125 184,578 53,747 350,294 170,131
Operating margin 30% 55% 63% 66% 54% 87% 57% 64%
Return of capital expenditure 22% 71% 57% 55% 47% 46% 42% 53%
Capital productivity 0.74 1.30 0.90 0.84 0.88 0.53 0.75 0.87

Table 16. Comparable Companies

Comparable Companies YJ Drillsearch Stuart Mari Otkrytoe Maurel Comparable
Average
Total assets - 2013 192.70 643 33 345 126 2,608 751
Operating margin 30% 47% 33% 44% 32% 56% 42%
Return of capital expenditure 22% 33% 31% 28% 27% 25% 29%
Capital productivity 0.74 0.70 0.92 0.64 0.85 0.44 0.71

Table 17. Industry Comparisons

Comparable Companies YJ Drillsearch Stuart Mari Otkrytoe Maurel Comparable
Average
Current ratio 0.54 2.64 0.82 1.34 0.13 0.86 1.158
Debt-to-equity ratio 831% 88% 26% 60% 67% 60% 60%
Operating return on assets 10% 28% 26% 16% 8% 17% 19%
Total assets turnover 0.61 0.60 0.79 0.35 0.31 0.31 0.47
Dividend payout NA 0% 10% 0% 0% 0% 2%

54
 YJ is a small fish in the global E&P industry. This is evident in their financial
performance as measured by operating margin and return on capital expenditure.
Compared to large E&P companies such as Ecopetrol and Statoil, YJ’s return on capital
expenditure (ROCE) and capital expenditure are diminutive, representing only a fraction
of former companies’ performances. Average operating margin of large E&P companies
is about 64%, whereas YJ’s operating margin is only 30%.

Looking closer in the industry, it can be seen that YJ is at par with companies of
similar size. In terms of ROCE, YJ is 2% behind with the average ROCE of comparable
companies. Meanwhile, YJ’s capital productivity is far better than average of
comparable companies, leading by at least 15%. In fact, YJ ranks third in terms of
capital productivity.

Based on this analysis, YJ clearly trails behind its close competitors in terms of
profitability and asset maximization. As such, it has to continue its effort in maximizing
its resources and focus its efforts on acquiring future licenses to improve profitability.

55
 Appendix 13
Summary of Ethical Frameworks

A. Deontological Framework

This principle believes that an act cannot be justified by its consequences.

Rather, this principle distinguishes right or wrong based on the duty of the
individual to act accordingly, regardless of the consequences it may produce
(BBC, 2008).

B. Kant’s Moral Philosophy: Categorical Imperative

A categorical imperative requires one to obey a particular action,

regardless of one’s desires and interest. These are based on reason and are
thus morally binding upon each individual. No one is excused from a categorical
imperative since no one can be excused from being a rational agent. An
individual, therefore, cannot lie even if doing so would in his interest (Johnson,
2008).

56
 Appendix 14
The Fraud Triangle

Source: University of Southern Indiana

The opportunity for YJ to commit fraud lies in being involved in the oil and gas
industry itself. Companies in this industry are exposed to bribery or ‘facilitation of
payments’ depending on how corrupt the government they are working with. On the
other hand, the pressure to commit bribery exists because of the challenge of gaining
licenses. Lastly, the rationale behind committing fraud may be due to the fact that other
companies are also doing it; it is not unusual for an E&P company to engage in such
activity.

57
 Appendix 15
Summary of Diversity
License application results
A. Shell Oil Co. was not permitted to proceed with test drilling in Chukchi until its drilling
ship tested within the permitted levels of ammonia and nitrous oxide. In order to
proceed with its test drilling operations, Shell will need to obtain a compliance order
(Joling, 2012).
B. Nigerian lawmakers recommended the revocation of the license granted to the Royal
Dutch Shell, claiming that the agreement drafted back in 2012, was contrary to
Nigerian laws. Shell also faces sanctions due to a “lack of transparency in its bid to
acquire” (Platts, 2014).
C. Year-long protests in the Middle East cause political instability in the region,
jeopardizing its industry growth. Peaceful conditions are still beyond reach
considering its current situation. Therefore, these pose a threat to the oil and gas
industry (Council on Foreign Relations, 2011).

Farm out offer

D. The first quarter of 2014 financial and operating results of Kosmos Energy Ltd.
included a net income of $75 million, basic share of $0.20 and diluted share of
$0.19, which are significantly higher than its 2013 first quarter results of $20 million
net income, and $0.05 basic and diluted share. $24 million of the results is
attributable to the farm-out of “a portion of the company’s interest in three
exploration licenses in Morocco’s Agadir Basin.” (OffshoreEnergy.ComToday, 2014)

YJ’s long-term future

E. Chevron finalizes the sale of Chevron Energy Solutions, its renewable-energy
subsidiary, after a decade of managing it. The August 29 sale was the company’s
latest action of a series of moves away from renewables. Chevron stated that “the
sale ‘is part of an internal strategic focus on supporting Chevron’s Upstream and
Downstream businesses’” (Elgin, 2014).

58
 Appendix 16
Financial Projections

Table 18. Test drilling costs for EEE, FFF and GGG (facts from the case)

Test drilling costs (amounts in US$M)

EEE 25.0
FFF 20.0
GGG 18.0
Debt 63.0

Table 19. YJ’s Expected Cash Outlays

Description (in US$M) 2015 2016 2017 2018 2019 Total

Annual payment of interest 15.60 15.60 15.60 15.60 - 62.40
Income tax12 0.50 13.42 15.54 19.49 24.63 108.20
Distribution and administrative expenses 22.60 22.60 22.60 22.60 22.60 113.00
Payment of loan - - - 140.00 - 140.00
Total expected outlays 81.62 53.74 57.69 202.83 57.72 453.60

This table summarizes all expected cash outlays for years 2015 to 2019. These cash outlays include settlement of
income taxes (payable 9 months after year-end), payment of interests, distribution and administrative expenses, and
settlement of long-term debt. Periodic interest payments is assumed to be at constant value, while income taxes are
computed using 24% effective tax rate multiplied by forecasted profit. YJ’s long term debt is expected to be settled in
2018, as stipulated in the loan contract.

12 Based on 5-year forecast

59
 Table 20. 5-Year Production Forecast
Production 2015 2016 2017 2018 2019
Oil AAA BBB CCC AAA BBB CCC AAA BBB CCC AAA BBB CCC AAA BBB CCC
Bopd 1500 1200 1040 1500 1200 1352 1500 1200 1758 1500 1200 2285 1500 1200 2970
Mmbl 0.55 0.44 0.38 0.55 0.44 0.49 0.55 0.44 0.64 0.55 0.44 0.83 0.55 0.44 1.08
Total oil 60.30 48.20 43.46 60.30 48.20 59.33 60.30 48.20 80.98 60.30 48.20 110.54 60.30 48.20 150.89
Gas
Boepd 1500 2000 1950 1500 2000 2535 1500 2000 3296 1500 2000 4284.15 1500 2000 5569
Mmble 0.55 0.73 0.72 0.55 0.73 0.93 0.55 0.73 1.21 0.55 0.73 1.57 0.55 0.73 2.04
Total gas 10.00 13.40 13.70 10.00 13.40 18.70 10.00 13.40 25.53 10.00 13.40 34.85 10.00 13.40 47.57
Total oil and gas 70.30 61.60 57.17 70.30 61.60 78.03 70.30 61.60 106.51 70.30 61.60 145.39 70.30 61.60 198.46

Effective prices: Oil Gas Oil Gas Oil Gas

(per mmbl) (per mmble) (per mmbl) (per mmble) (per mmbl) (per mmble)
2015 115.3 19.2 2017 127.1 21.1 2019 140.1 23.3
2016 121.1 20.1 2018 133.5 22.2

YJ’s 5-year production forecast is based on the predicted values of Ullan Shah and Orit Mynde. It is expected that
AAA and BBB volumes will remain at 2014 levels, while CCC will grow at a constant rate of 30%. Furthermore, oil and gas
prices are expected to grow by 5% every year. The results of this forecast will then be used in forecasting 5-year sales
and profit.

60
 Table 21. 5-Year Sales-Profit Forecast

Description (in US$M) 2015 2016 2017 2018 2019

Revenue 195.83 223.63 259.39 305.91 367.00
Less: Cost of Goods Sold 101.83 120.76 140.07 165.19 198.18
Gross Profit 94.00 102.87 119.32 140.72 168.82
Less: Distribution Costs 0.50 0.50 0.50 0.50 0.50
Administrative Expenses 22.10 22.10 22.10 22.10 22.10
Operating Profit 71.40 80.27 96.72 118.12 146.22
Add: Net Finance Costs (15.50) (15.50) (15.50) (15.50) (15.50)
Profit before tax 55.90 64.77 81.22 102.62 146.32
Income tax 13.42 15.54 19.49 24.63 35.12
Profit for the period 42.48 49.22 61.73 77.99 111.20

Gross profit for the 5-year period is assumed to be stable at 48% of sales. Distribution costs and administrative
expenses are constant at 2014 levels. As deferred tax assets were used up in 2014, it is expected that YJ will pay income
taxes in the upcoming years at an effective tax rate of 24%. This forecast shows that YJ will have a slow, but constant
profit growth. During the first three years, YJ will grow at an average rate of 21% then this will escalate to an average of
34% in the succeeding years.

61
 Table 22. 5-Year Cash Forecast

2015 2016 2017 2018 2019

Profit before tax 55.90 64.77 81.22 102.62 146.32
Depreciation & amortization 28.00 28.00 28.00 28.00 28.00
Net finance cost 15.50 15.50 15.50 15.50 (0.10)
Less: Change in inventory levels13 (10.00) 2.25 2.59 2.98 3.42
Change in trade receivables 2.00 1.28 1.46 1.69 1.94
Change in deferred tax asset - - - - -
Change in trade payables (5.00) (5.54) (6.37) (7.32) (8.42)
Net finance cost paid 15.50 15.50 15.50 15.50 (0.10)
Tax paid 0.50 13.42 15.54 19.49 24.63
Cash from operating activities 96.40 81.36 96.00 113.78 152.75
Purchase of non-current assets (30.00) - - - -
Capitalization of E&P costs (28.00) (28.00) (28.00) (28.00) (28.00)
Cash from investing activities (58.00) (28.00) (28.00) (28.00) (28.00)
Dividends paid (10.00) - - - -
Payment of loan - - - (140.00) -
Cash from financing activities (10.00) - - (140.00) -
Net increase (decrease) in cash 28.40 53.36 68.00 (54.22) 124.75
Cash and cash equivalents, beginning 13.60 42.00 95.36 163.36 109.14
Cash and cash equivalents, ending 42.00 95.36 163.36 109.14 233.89

This forecast uses the indirect method of reporting cash flows. Using the forecasted profit in Table 21 and changes
in level of working capital, cash flows for years 2015 to 2019 are predicted. 2015 cash balance is at US$42M. While this
amount shows a positive leap in cash levels, it is not sufficient to cover test drilling costs of all three licenses. In 2018, it is
expected that cash levels will decrease by US$54.22. The net decrease in cash flows is brought about by settlement of
YJ’s long-term debt. This forecast does not provide conclusive evidences on the financial capability of YJ. As such, a
further analysis of operating cash flow and free cash flow is required (see Table 25).

13 Changes in asset and liability accounts are based on 15% average growth of YJ’s total assets.

62
 Appendix 17

Computation of Sources of Financing

Table 23. Computation of Possible (Maximum) Financing from Equity

Cash Call 4:1 Cash Call 2:1 Cash Call

Without discount With 15% discount Without discount With 15% discount
Number of shares subject to cash call 10.0 10.0 10.0 10.0
Number of shares to be issued 2.5 2.5 5.0 5.0
Market price per share 35.0 29.8 35.0 29.8
Maximum cash from cash call14 87.5 74.4 175.0 148.8
Pre-emptive rights
Secondary public offering (SPO)
Total number of unissued shares15 37.5 37.5 35.0 35.0
Market price per share 35.0 29.8 35.0 29.8
Maximum cash from SPOf 1,312.5 1,115.6 1,225.0 1,041.3
Maximum cash from equity financing 1,400.0 1,190.0 1,400.0 1,190.0

14 Expressed in US$ M
15 Excludes shares to be issued from cash call

63
 Table 24. Summary of YJ’s Possible (Recommended) Source of Financing

(amounts in US$M)
Cash
Maximum cash available to YJ 33.5
Maximum cash from overdraft facility 5.00
Debt
Maximum cash from debt financing16 124.50
Equity
Maximum cash from 4:1 cash call17 74.40
Maximum cash from SPO 1,115.60
Maximum cash from recommended 1,333.10
source of financing

16 𝑀𝑎𝑥𝑖𝑚𝑢𝑚 𝑐𝑎𝑠ℎ 𝑎𝑣𝑎𝑖𝑙𝑎𝑏𝑙𝑒 𝑓𝑟𝑜𝑚 𝑑𝑒𝑏𝑡 𝑓𝑖𝑛𝑎𝑛𝑐𝑖𝑛𝑔 = (3 𝑥 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑝𝑟𝑜𝑓𝑖𝑡, 2014); This equation is based from the
Article in Appendix 1 of the Scenario.
17This amount represents the total possible cash that can be generated from the 4:1 cash call after considering a
15% discount on market price. Refer to Table H (Computation of cash from equity financing) for the supporting
computation.

64
 Computation of Cash Flows
Table 25. YJ’s Operating Cash Flow and Free Cash Flow

2014 2015
Earnings before interests and taxes 57.0 71.4
Depreciation 24.0 28.0
Taxes (0.50) (13.4)
Operating Cash Flow 80.5 86.0
Changes in Working Capital (27.3) (7.0)
Capital Expenditures (23.2) (30.0)
Net Finance Costs (15.5) (15.5)
Free Cash Flow 14.5 33.5

Although the forecasted cash flow shows that YJ has US$42M of cash, only 80%
of this amount is available for additional investment and/or payment to investors and
lenders. This amount barely meets the US$63M required cash flow. Thus, further
financing from both external and internal equities may be required.
Financial assessment
Indeed, the YJ’s financial performance has increased over the years as evident
in the comparison of their 2013-2014 financial ratios, where a general increase/growth
in their profitability ratios, asset utilization, and liquidity ratios is seen. Although this
increase has indicated improving performance and more efficient operations, YJ’s
performance in 2014 provide insufficient support that YJ has the financial capacity to
test drill the said sites.
Glossing over the 2014 financials, cash and cash equivalents amounts to
US$13.6M while their overdraft facility can provide a maximum of US$5M, however
these sources are still insufficient to cover test drilling costs and YJ’s present
obligations. An analysis of the company’s free cash flow for 2014 yields US$14.5M (see
Table 25), which is beyond their current cash balance. An analysis of Higgins’ SGR also
suggests that YJ’s current financial policy is insufficient to support its growth (see Table
28). Hence, further financing is required to cover test drilling costs of all three licenses.
Presently, YJ has the ability to secure financing from three sources: (1) cash
from future operations, (2) overdraft facility, (3) bank loans, and (4) from issuance of
equity securities. After considering YJ’s current obligations (refer to Table 18) and
assuming that YJ’s production and sales-profit are accurately predicted, the company
will have sufficient cash from future operations to cover its operating expenses and to
settle its current and future obligations (Table 21). As such, YJ may exhaust its current
cash balance to cover for test drilling expenses. This type of financing, however, is risky
as there is no guarantee that YJ will meet its forecast, hence affecting their future
liquidity.

65
 Securing finances from bank loans is also a possibility for YJ. This type of
financing would yield a maximum of US$124.5, which is thrice the amount of their
current operating profit. Debt financing, however, requires periodic payment of interest
which could further strain YJ’s already poor liquidity. Financing through debt may also
prove to be difficult as banks are wary of lending to E&P businesses.
Equity financing, on the other hand, may be carried out through a cash call
and/or by a secondary public offering. This type of financing is favourable, especially
since the current stock prices of YJ has rose to US$35. In issuing new equity securities
and in making a cash call, YJ should consider the demands of their institutional
stockholders. In particular, should YJ make a cash call, it must announce a 4:1 call
(instead of 2:1) and stipulate a 15% discount on market prices as these are much
preferred by their institutional investors. YJ should also consider the current
stockholdings of their executive directors, pre-emptive rights of existing shareholders
and the possible dilution of their shares. The maximum possible financing from equity
ranges from US$1,190M to US$1,400M.
In summary, YJ may exhaust its present cash balance to cover test drilling costs.
Additional financing from banks and equity issuances may also be sought. The
maximum possible financing from all these sources amounts to US$1,333.1M (Table
23), which is more than enough to cover test drilling costs of all three sites.

66
 Computation of Weighted Average Cost of Capital

Table 26. Computation of Weighted Average Cost of Capital

Weighted Average Cost of Capital 2014

Powershares DWA Beta 0.9915
Risk-free rate (Rf)18 0.24%
Return on market (Rm)19 6.14%
Relative weight of equity 6.11%
Cost of equity 4.08%
Cost of short-term debt 0.56%
Cost of long-term debt 2.24%
Weighted average cost of capital 6.88%

In computing for YJ’s weighted average cost of capital, Powershares DWA

Momentum Portfolio (Powershares DWA) 2014 Beta was used as a proxy. Powershares
DWA was used because:
a) Both are being traded in the UK.
b) Powershares’ profitability and returns are similar with YJ’s.

18 Based on 3-month LIBOR rate as of August 2014

19 Estimated using CDS spreads and country risk premiums.

67
 Computation of Net Benefit of Farm-out Offer
Table 27. Computation of Net Benefit (Cost) of LG’s Farm-out Offer
Accept farm-out offer
Successful drilling 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Option payment 2.00 2.00 6.00 - - - - - - - - -
Test drilling costs - (18.00) - - - - - - - - - -
CF from proven - - 1.3522 1.80 1.80 1.80 1.80 1.80 1.80 1.80 1.80 1.80
reserves20,21
Total 2.00 (16.00) 7.35 1.80 1.80 1.80 1.80 1.80 1.80 1.80 1.80 1.80

Successful drilling 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 Total
Option payment - - - - - - - - - - - 10.00
Test drilling costs - - - - - - - - - - - (18.00)
CF from proven reserves 1.80 1.80 1.80 1.80 1.80 1.80 1.80 1.80 1.80 1.80 0.45 23 36.01
Total 1.80 1.80 1.80 1.80 1.80 1.80 1.80 1.80 1.80 1.80 0.45 28.01

WACC 6.88%
NPV – 9.31
accept/successful

Unsuccessful drilling 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
(Dry well)
Option payment 2.00 2.00 6.00 - - - - - - - - -
Test drilling costs - (18.00) - - - - - - - - - -
Total 2.00 (16.00) 7.35

Unsuccessful drilling 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 Total
(dry well)
Option payment - - - - - - - - - - - 10.00
Test drilling costs - - - - - - - - - - - (18.00)
Total (8.00)

WACC 6.88%

20 Computed based on 5% rate of production.

21 A trade discount of 10% was applied.
22 represents 9-month production
23 represents 3-month production

68
NPV – (7.96)
accept/successful
Net Benefit 1.35
Reject farm-out offer
Successful drilling 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Test drilling costs - (18.00) - - - - - - - - - -
CF from proven reserves - - 1.50 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00
Total (18.00) 1.50 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00

Successful drilling 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 Total
Test drilling costs - - - - - - - - - - - (18.00)
CF from proven reserves 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 0.50 40.02
Total 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 0.50 22.02

WACC 6.88%
NPV – 1.92
accept/successful
Unsuccessful drilling 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
(Dry well)
Test drilling costs - (18.00) - - - - - - - - - -
Total (18.00)

Unsuccessful drilling 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 Total
(dry well)
Test drilling costs - - - - - - - - - - - (18.00)
Total (18.00)

WACC 6.88%
NPV – (17.27)
accept/successful
Net Loss (15.35)

69
 Appendix 18
Summary of Financial Ratios
Table 28. Summary of financial ratios

2013 2014 2015

Liquidity
Current ratio 0.54 1.39 0.46
Quick ratio 0.11 0.62 0.27
Cash ratio 0.01 0.42 0.16
Interval measure 382.59 728.38 583.0
Capital structure
Debt ratio 89% 89% 86%
Debt-to-equity ratio 831% 279% 211%
Equity multiple 9.31 3.79 2.45
Times interest earned ratio 2.26 3.58 4.58
Asset Management Efficiency
Total assets turnover 0.61 0.74 0.77
Fixed assets turnover 0.71 0.92 0.89
Capital intensity 1.63 1.35 1.31
Capital productivity 0.74 0.86 1.12
Return on capital expenditure 22% 28% 41%
Profitability
Gross profit margin 44% 46% 48%
Operating profit margin 17% 24% 36%
Net profit margin 17% 24% 22%
Return on assets 0.10 0.18 0.17
Basic earnings power 0.19 0.24 0.28
Operating return on assets 0.10 0.18 0.22
Return on common equity 97% 66% 41%
Market Value
Price-earnings ratio 13.40 6.54 8.24
Market to book ratio 12.95 4.34 3.36
Book value per share 2.07 6.17 10.42
Dividend yield NA NA 3%
Du-Pont Model
Profit margin 17% 24% 22%
Total asset turnover 0.61 0.74 0.77
Equity multiple 9.31 3.79 2.45
Du-Pont Return on equity 97% 67% 42%
External financing
Sustainable growth rate (Higgin’s SGR) -163% -536% 212%

70
 Appendix 19
Projected Financial Statements Post-recommendations

Table 29. YJ Post-recommendations income Statement, 2015-2018

Income statement (post-recommendation)

For the Years ending March 31 2015 2016 2017 2018
Sales 195.83 224.98 261.19 307.71
Less: Cost of Goods Sold 101.83 116.99 135.82 160.01
Gross Profit 94.00 107.99 125.37 147.70
Less: Distribution costs 0.50 0.50 0.50 0.50
Administrative expenses 22.10 22.10 22.10 22.10
Operating profit 71.40 85.39 102.77 125.10
Less: Net finance cost 15.50 15.50 15.50 15.50
Profit before tax 55.90 69.89 87.27 109.60
Tax expense 13.42 16.77 20.94 26.30
Net income 42.48 53.12 66.33 83.30
% Growth 3.61% 25.04% 24.86% 25.58%
Dividend 10 - - -
Dividend pay-out ratio 23.54% - - -

71
 Table 30. YJ Post-recommendations statement of financial position, 2015-2018

Statement of Financial Position

As of March 31 2015 2016 2017 2018
ASSETS
Current Assets
Cash and cash equivalents 1,232.0 1,273.3 1,326.3 1,252.9
Trade receivables 8.5 9.8 11.2 12.9
Inventory 15.0 17.3 19.8 22.8
Total current assets 1,255.5 1,300.4 1,357.3 1,288.6
Non-current assets
Deferred taxes - - - -
Other non-current assets 191.0 163.0 135.0 107.0
Total Assets 1,446.5 1,463.4 1,492.3 1,395.6

LIABILITIES AND EQUITY

Current Liabilities
Trade payables 36.9 42.4 48.8 56.1
Bank overdraft - - - -
Tax payable 13.4 16.8 20.9 26.3
Total current liabilities 50.3 59.2 69.7 82.4
Non-current liabilities
12% long term loans, payable on 2018 140.0 140.0 140.0 -
Total liabilities 190.3 199.2 209.7 82.4
Shareholders’ Equity
Issued share capital 50.0 50.0 50.0 50.0
Share premium 1,200.0 1,200.0 1,200.0 1,200.0
Retained earnings 6.2 14.2 32.6 63.2
Total Liabilities and Shareholder’s
Equity 1,446.5 1,473.3 1,492.3 1,395.6

72
 Appendix 20
McFarlan’s Applications Portfolio Matrix

DEFENSIVE OFFENSIVE

Strategic Turnaround

 3D survey and scanning software  Survey software specialized for natural

packages gas exploration and extraction

Factory Support

 Health, safety and environment for  Employee management system

monitoring and reporting on incidents  Outsourcers relations management
for risk management
 Production of Environmental Impact
Statements

Legend
Proposed IT
Blue Text
systems
Red Text Current IT system

73