Continuity and Crisis Management in Oil and Gas Sector

Subject: Industry
Pages: 8
Words: 2262
Reading time:
8 min
Study level: PhD

Introduction

Oil and gas sector is among the most important industries in the world. The industrial activities in the sector have a direct effect on economic, political and social aspects of the society. Therefore, firms within the oil and gas sector face sharp criticism from all angles most of the time. These include governments, non-governmental organizations, public and private sectors. A simple criticism can easily turn into a major crisis and a threat to a firm’s reputation. Customers can complain about increased prices of fuel products. Environmental groups constantly protest because of the environmental effects of a new project. Catastrophic events such as oil spillage and natural disasters can result in public protests. All these occurrences can cause major crises in a company at any time. To deal with such crises, firms in the industry need to establish an effective strategy for crisis management.

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Problem Statement

Oil and gas industry is the highest producer of energy used all sectors of an economy. All major manufacturing firms rely on the petroleum products as their energy source. These products are unfriendly to the natural environment. In addition, disasters such as oil spillage and natural catastrophes can create major crises in the sector. Increase in the prices of oil and gas products have direct effects on the prices of consumer goods and economic status of a country (Nojoumi, Givehchi, and Zadeh 1966). The direct link between the sector and the society makes companies vulnerable to the criticism and crisis. For a company to maintain a good reputation, it must develop an effective strategy for the continuity and crisis management. An effective approach would help in addressing criticisms that emerge in the oil and gas industry.

Nature and Purpose of the Study

The oil and gas sector is a complex environment and it has dynamic activities. Governments, people, and organizations from all sectors have varied interests in the industry. Fluctuation in the global supply of products and unstable prices of oil and gas products affect everyone. On the other hand, activities of the major international corporations in the sector have direct influence in the environment and pricing of products distributed to consumers. A company could easily fall a victim of criticism from any angle if it fails to handle its operations effectively. For that reason, this study proposes a framework for continuity and management of companies operating in the industry.

Research Questions

  1. To what extent does the management strategy influence operations of companies in the oil and gas sector?
  2. In what ways can the company activities cause criticism and crisis upon itself?
  3. To what extent does pricing as a factor cause crisis in oil and gas sector?
  4. How can a firm respond effectively to the internal and external crisis?

Significance of the Study

Companies in the oil sector are prone to challenges, which are motivated by various factors. These include the government policies, fluctuation in global prices of oil, spillage of oil and environmental issues. A company might want to expand its projects in other countries or venture in new markets. Its activities can be viewed as environmentally unfriendly. The responses of customers, government, and other stakeholders to the firms’ activities have direct effects on their operations. The study is aimed at providing vital information on the crisis management. The information is essential in helping companies within the industry to develop a crisis management strategy as an integral part of their operational management systems (Nojoumi, Givehchi, and Zadeh 1968). Developing a crisis management strategy that is integrated into all departments of the organization would help in dealing with all crises. Such an approach would help to stop the disruption of the company’s normal operations.

Motivation and Justification

The structure of the world’s oil and gas industry is characters by fluctuations in prices because of technical developments. Currently, there is an increase in supply and reduction of oil demand in the transport sector of the developed countries (Laura et al. 27). Consequently, the oil prices have gone down in the major world markets. In the developing countries where oil and gas products play a significant in manufacturing, building and transport, environmental groups have raised several issues concerning pollution effects. Because of the reduced prices, many firms enter the industry and create stiff competition to the existing firms (Nojoumi, Givehchi, and Zadeh 1969).

Even with the current low prices of crude oil, speculations of the increased prices are still witnessed. As a result, a situation of uncertainty arises and this causes crisis among the major players. Production machinery and equipment in many countries use oil and gas products. Transport sector also relies on gas and oil as the main source of energy. When prices increase, the costs of production and supply also increase. Increase in the cost of consumer products can create a major crisis in the oil sector (TalkWalker 6). Consequently, oil and gas companies in such economies may face challenges that result from speculation. In addition, companies face serious challenges with their pipeline systems and other modes of transportation. Oil and gas spillages cause major crises such as direct losses, environmental effects, destruction of property, deaths and injuries. Accidents of such kind can cause crises and disrupt normal operations.

In the current environment, global warming and climate changes pose a serious threat to natural life and humanity. Environmental activists have been protesting against activities that deplete natural life and resources. Extraction, manufacturing, distribution and consumption of oil and gas related products contribute significantly to the environment. Throughout the world, governments and organizations recommend the use of clean renewable energy for domestic and commercial purposes. The situation has caused major crises in the sector as stakeholders switch to alternative sources of energy. The search for energy alternatives in developed countries such as the United States, Canada, and European countries are the major reasons for the reduction in prices of oil and gas products (Laura et al. 28).

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Organization of the Proposal

The proposal is organized into the introduction, literature review, and methodology. The introductory chapter provides the fundamental information about the study topic. It provides an overview of the oil and gas sector, and the nature of the crises in the industry. It also provides a brief explanation of the continuity and crisis management among companies industries in the sector. The chapter highlights the significance of integrating a continuity and crisis management strategy into the business management model to address arising crises in the oil and gas sector. The second chapter is the literature review of the previous studies on the same topic. The methodology part explains the qualitative study methods and approaches used.

Literature Review

Introduction

The study of crisis management in the oil and gas sector is important in understanding the benefits and issues in the industry. Before developing a continuity and crisis management model, it is important to understand the external and specific internal factors that might cause crises. The main external factors that cause these crises include fluctuation in the global prices of the oil, natural disasters, environmental pollution policies and oil spillage. The internal causes are corporate social responsibilities, competition, brand reputation, pricing and emergency response failure among others. The development of a strategic model for a crisis management requires an understanding of the stakeholders’ interests (Laura et al. 29). Consequently, the company would develop a brand name that serves the interest of customers and other stakeholders.

Benefits of the Topic

The main benefit of the continuity and crisis management approach to a company dealing in oil and gas products is the improved communication. An effective strategy integrated with the management system will enhance coordination within the business organization. Therefore, it is easier to respond effectively during an emergency or crisis. The crisis management plan helps in maintaining production while the firm gives relevant authorities enough time to deal with the problem (Mejri 67). It is important to note that crises are dynamic in nature and predicting a type of crisis could be a challenge. Through the crisis management model, a firm is able to deal with any kind of problem that arises.

The model should be developed with the key principles to direct responses during the crisis. The management procedures must be designed to provide appropriate solutions during the crisis. For instance, a single catastrophic can cause a great loss to the firms involved (Watters 184). Civil protests and threats such as the strike by the fuel tanker drivers can also cause crises. Other sources of the crisis include pandemic outbreaks and fear, disruption in the transportation sector, severe weather, a commercial failure in significant industries and international events. Certain crises could have sudden impacts and cause serious damages because they happen instantly. Such crises need an immediate response (TalkWalker 8). Others do not have an immediate impact but have long-term effects. An established crisis management model helps in differentiating the nature of the crises before applying response procedures.

Factors Affecting the Topic

Crisis in oil and gas sector causes several issues with negative effects on companies. One of the factors influencing the creation of a continuity and crisis model is the increased debt default. Currently, the low prices of oil affect organizations involved in the extraction of oil and gas products. Because of the low prices, it becomes difficult to counter the high costs of productions. As a result, many firms are unable to pay workers adequately. It is also difficult for the companies from emerging markets such as Brazil, Russia, and South Africa to repay debts in US dollars (Mejri 77). The low prices of the oil make it difficult for the companies in failing economies such as Venezuela and Greece to repay their debts and maintain production costs.

Rising interest rates is a common phenomenon in the oil and gas sector. When the prices of oil and gas products are low, the rate of debt defaults increase. As a result, the interest rates of the debts also increase. These accumulated problems can build into a crisis (Nojoumi, Givehchi, and Zadeh 1970). Companies that are unable to repay their debts retrench employees because of reduced capacity.

On the other hand, companies establish new projects as a way of expanding their operations to new market segments. Such decisions are recommended but they might carry with them several problems. Oil and gas extraction firms face resistance from environmental groups and government policies in many countries. Companies that produce petroleum products may face stiff laws related to tariffs in foreign markets. Therefore, they might run at a loss as they try to compete with domestic firms. Such problems cause can cause a crisis in a company (Mejri 79). It is important to develop initiatives to respond to such crises.

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War and terrorist activities can also disrupt operations in the oil producing countries. Military activities can create a rift in the international relations among oil producing countries. Such crises can have negative effects on firms in the oil and gas sector if appropriate mechanism is not established (Laura et al. 30). Many of these issues occur unexpected, although others are speculated earlier.

Research Design and Methodology

Research Strategy

The research employs a qualitative approach to collect and analyze secondary data. The main objective is to gain insights in the crisis management of firms within the oil and gas sector. The selected model of the crisis management is analyzed using the previous studies of the same topic.

Instrument and Measurement

The study applies the 3-Phase Model as the instrument and measurement tool for the crisis management strategy in the oil and gas sector. The model establishes three fundamental steps to address internal and external factors that cause crisis among oil and gas firms (TalkWalker 3). The first step is called the pre-crisis step in which the company monitors its communication system with the aim of gathering crisis-related information. The second step is the crisis response in which the organization tailors communication and corresponding actions to control the crisis. The third step is post-crisis responses in which the organization evaluates the effectiveness of the crisis response.

Data Collection Method

The study applies qualitative approach as the data collection method. It relies on secondary resources to gather information. The information gathered is reviewed using qualitative methods. It relies on journals and articles with previous research works about the same topic. Through the qualitative methods, the study suggests an improvement in the 3-Phase model as the crisis management approach.

Data Processing and Analysis

The study is based on literature and research works from the previous studies as well as the current issues in the oil and gas sector. These include tables and statistics from official reports. The information gathered from these resources is integrated and related to the various qualitative approaches of research studies. Tables and graphs are adopted in the results section and discussions to improve and support the arguments presented in the study.

Reliability

The information used to compile the research study came from approved publications and journals. BP, which is one of the major players in the industry, had used the 3-phase model proposed in the study. Therefore, improving the model would be an appropriate improvement to the crisis management. The crisis in oil and gas sector is real and it affects both private and public sectors. It is necessary to develop a model of the crisis management for companies in the sector.

Schedule Budget

Table 1.

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A table showing a schedule budget for writing the research proposal and the final project.

Activity Timeframe (days)
  1. Developing a topic
2 days
  1. Writing a proposal
7 days
  1. Collecting data
14 days
  1. Writing the research
14 days

Works Cited

Granville, King. “Crisis Management & Team Effectiveness: A Closer Examination.” Journal of Business Ethics, 4.1 (2002): 235–249. Print.

Laura, Militello, Emily Patterson, Lynn Bowman and Robert Wears. “Information flow during crisis management: Challenges to coordination in the emergency operations centre.” Cognitive Technical Work 9.1 (2007): 25–31. Print.

Mejri, Mohamed. “Crisis Management: Lessons Learnt from the BP Deepwater Horizon spill oil.” Business Management and Strategy 4.2 (2013): 67-93. Print.

Nojoumi, Ali, Givehchi Saeid and Amir Zadeh. “Crisis Management Arising from Technological Risks and its Models in South Pars: A Systematic Review.” Journal of Material Environment Science 6.7 (2015): 1965-1974. Print.

TalkWalker. Global Crisis Tracking: 3-Steps to Better Crisis Management in the Oil & gas Industry. Oil and Gas, Public Relations, 2015. Web.

Watters, Jamie. “Crisis Management Exercising.” Disaster Recovery, Crisis Response, and Business Continuity (2013): 177-90. Print.