The oil and gas exploration industry is characterised by four features. They are dependence on professionals, high technology and large machinery, it's acceptance and adjustment to high risk in it's ventures, the fragmented and interdependent nature of companies in the industry, and the seasonality and cyclicity of the industry as a whole.
This report looks at the way some of these features impact upon the industry, the problems they engender, and discusses some ways in which management can address these problems.
Motivation of professionals and the importance and development of corporate culture are discussed in depth. Three well known theories of motivation and their impact on the motivation of professionals are considered. The culture of the exploration industry as a whole shows itself as a strong commitment to professional technical excellence and a relatively common lack of commitment to integrity by companies. There appears to be a stronger commitment by the professionals to the industry itself, rather than to companies. Reasons for this are discussed along with their impact on the companies.
In such a fragmented, interdependent industry, vertical integration to improve competitive advantage is tempting. The major advantage is in the cost savings which are possible. Disadvantages include lack of flexibility in the tendering process, difficulties in keeping abreast of technological advances, the volatility of the industry and the capital investment required.
Analysis of Australian onshore seismic and drilling since 1978 show that two factors affect the volatility of the industry. They are the seasonal nature of the work and the cyclicity of the industry. Adjustments for the season can be made, but attempts to produce a predictive model for the amount of seismic and drilling using the price of oil and the strength of the stock market were not particularly successful.
One part of the industry, that of Palynology and Geochemistry was looked at in detail, as an example of the appraisal required if integration of such a facility into the exploration company was contemplated. The steps of analysis, market research and strategy formulation are considered in depth.
It was found that some parts of the industry lend themselves to integration into the exploration company. For example, owning a drilling rig or rigs can, in certain circumstances, be an advantage for the exploration company. However, in most cases, the added economic risks that owning such a facility enjoin outweigh any potential advantages their ownership may bestow.