Category: Petroleum

Introduction

This business research is on improving operations and business performance in the petroleum industry through quality management. The aim of this paper was to examine the effects of practices associated with quality management. This was in terms of operations and business performance, theory substantiation and development in quality management. The study also fixes the key success factors that affect the operations and business performance in the petroleum industry. This paper advances the literature on the practice of quality management in the petroleum industry.

Research Problem

Previous research in quality management has given valuable information on the effect of quality management on operations and business performance. However, less focus has been achieved with a specific industry (Parast et al, 2009). Because of the significant differences in construction development and research method, research in quality management has produced mixed results. These mixed results is because of researchers utilizing different theoretical frameworks for understanding the effect of quality management on firm performance. Besides, there is less consistency in selecting industries as the research context. While some have concentrated on manufacturing firms (Parast et al, 2009), there are some studies where firms in different industries have been mixed.

Very little industry-specific research has been done in quality management. Considering the mentioned limitation, more industry-specific research in quality management is needed to validate the effect of quality management on firm performance (Hill, 2008). This research therefore focuses on the petroleum industry and seeks to answer the following questions

1. Do quality management practices affect performance?
2. If yes, how does quality management affect firm performance?

This research tries to uncover some of the above drawbacks in the literature, addressing the practice of quality management and its result on operations and business performance in the petroleum industry.

Data collection methods used in this research

Survey instrument

A survey quality management instrument was used to collect information on quality management practices (Parast et al, 2009). Participants were asked to give information about their opinion of quality management practices. A five-point Likert scale where 1 ¼ very low, 2 ¼ low, 3 ¼ medium, 4 ¼ high, and 5 ¼ very high, 1 strongly disagree and 5 strongly disagree from strongly disagree, was used on the instrument

Instrument development and validation

A questionnaire to measure was developed after a conceptualizing the theoretical dimensions underlying quality practice. Data was collected in several countries and the sample divided randomly into half. On one half, testing and purification of the constructs were done. The other half was used as a handout sample to confirm the authenticity of the constructs (Parast et al, 2009). Structural equation modeling (LISREL) was then used to analyze.

Sample

Because of the major role it plays in the petroleum industry in the world, Iran was selected as the representative country. With help from the ministry of Petroleum, a list of organizations in the production and exploration section of the petroleum industry was solicited. 61 managers from the industry were identified and 32 surveys were received and used.

Result and conclusion

After multiple regression analysis, results showed that employee training and involvement were statistically significant thus explaining 46% of the variability in the internal quality results. This analysis also showed that only top management support was statistically significant.

It was concluded that Management support, employee involvement and employee training significantly contribute to performance results. Since top management plays a huge role in implementing quality practices, its support affects performance results though employee training and involvement.

Reference List

Hill, D. A. (2008). What Makes Total Quality Management Work: A Study of obstacles and Outcomes. Michigan: ProQuest Publishers.

Parast, M.M., Adams, G.S., and Jones, E.C. (2009). Improving Operational and Business Performance in the petroleum Industry through Quality Management. IJQRM, 28, 426 -450.

Any company strives to enjoy the trust of its investors and customers. Companies may face circumstances that will put their reputation in decline due to several factors, called reputational risks. Knowing these, some steps can be taken to prevent potential harm to the company. The purpose of this article is to apply the project risk management theory to a case study using the example of the reputational decline of British Petroleum.

The efficiency of a company is determined not only by the set strategic objectives. Business success is impossible without the trust of clients and partners, and it is not so easy to maintain an impeccable reputation. Reputational risks of the organization are potential losses due to the negative attitude of clients, partners, and investors to the company (Franklin, 2019). There are many possible reasons to reduce the reputation of the company, but in general, all potential reputational threats can be divided into three categories: technical, human, and economic risks.

Furthermore, the effectiveness of the decisions made directly depends on the developed system of critical success factors. For clarity’s sake, it’s best to start by noting what is being invested in identifying the essential factors of success. These are the strategic objectives and performance results that a company should strive to achieve to increase its competitiveness and achieve success in the marketplace (Netland, 2016). According to the classical approach, CFIs are selected from a company’s strategic objectives as critical factors in its success, and this happens after the company’s mission is defined. CSFs can be about introducing new technologies, strengthening brand and reputation, improving product quality, and so on. When developing critical success factors, it is necessary to observe the rule of necessity and sufficiency, according to which each significant success factor included in the list is necessary to achieve the company’s mission, and altogether the elements should be sufficient to make it.

As a result of a careless mistake, the activities of the world’s leading refiner, British Petroleum, resulted in the deaths of 15 employees. This has caused the company substantial reputational damage, and it has lost the trust of investors and customers. The company had to solve a significant problem in regaining the previous reputation of trust among investors (Franklin, 2019). The current issue with the lack of security measures at a potentially hazardous facility should be addressed through the prism of critical success factors. However, it should be noted that the presence of essential elements does not provide a 100% guarantee of project performance. Still, their absence significantly reduces the possibility of obtaining the desired result. The case study mentions several critical success factors at once, and they include improving the safe technological infrastructure, ensuring compliance with international quality standards, and changing the current leadership.

The company coped with the last task in 2007 when CEO Brown announced his departure, two years after the tragic situation. A well-respected UK CEO, John Brown, while still a CEO, thought about the concept of transition from an oil to an energy refinery (Bryant & Hunter, 2019). Moreover, taking some significant steps to address safety issues would help to ensure compliance with global quality standards and would correlate with the CSFs’ employee stewardship program (Netland, 2016). In addition, the firm made significant efforts in those years to demonstrate itself as an environmentally-friendly enterprise.

As we know, risk management culture is a vital aspect of any project management. All the efforts of the project team will be in vain in case of implementation of risks for which the unit is not ready (Kliem & Ludin, 2016). The situation showed the opposite ideology with the company British Petroleum. Within the framework of another critical success factor, independent experts from Telos Group consulting firm were invited to the company’s plants. According to a report by an independent company, Telos Group, plant safety was severely compromised, and there were frequent failures in the warning system (Bryant & Hunter, 2019). The refinery director, Parus, asks why people continue to come to interviews for new jobs if the plant has faced problems such as fires, explosions, and sudden deaths almost every week. However, the situation did not change after the inspection and led to a series of additional explosions due to safety concerns.

The advantages of the risk management project include attempts to invite independent third-party experts to assess the situation and to move in the direction of change in profile. The organizational readiness of the company is not supported by any real changes in the management policy. To quickly return to the category of world leaders trusted by investors, the company needs to take some modernization measures (Franklin, 2019). Except for the transformation of management and invitation of experts, no additional steps to restore the reputation have been taken.

It makes sense to develop some recommendations to minimize risks within the framework of the case study. Based on the already established problem of ensuring the safety of people’s health and the environmental situation of the company, it is proposed to organize an additional department in charge of security issues. The practice has shown that such a department is not sufficient or that employees have not performed their work in a proper manner (Bryant & Hunter, 2019). Such a department will have a positive impact on the company’s reputation and will show investors the directors’ interest in safe production.

To address potential risks in the future, it is recommended that British Petroleum’s senior management reorganize the entire business based on the safety report received from Telos Group. In order to raise the reputation of the company, it is recommended to create an enlightenment department to ensure that British Petroleum has a positive global reputation. The firm announced itself as a leader in alternative energy in 2006, and this should be a new direction for the company (Bryant & Hunter, 2019). The advertising and enlightenment departments will inform investors and interested citizens about the security measures taken, provide descriptive statistics, and conduct frequent discussions on environmental topics. One of the last recommended steps may be to engage an external audit company to assess the changes made as part of the modernization process. The independent firm’s report will help eliminate possible conflicts of interest. Identification of existing risks is intended to help in organizing their elimination (Kliem & Ludin, 2016). According to the case study, the company has several initial risk categories. These include external risks (force majeure and political changes in management), management risks (in particular, reputational decline), and technical risks (site security breaches).

For companies, there are many risks that can lead to reputational damage. To prevent this, companies usually organize design work on risk management. This work was based on a case study of the decline in the reputation of British Petroleum. It assessed the critical success factors, the available advantages of the project on risk management, and some recommendations were given to address possible threats to the investment and customer attractiveness of British Petroleum.

References

Bryant, M. J., and Hunter, T. (2019). British Petroleum (PLC) and John Browne: A culture of risk beyond petroleum (A). BUS 519: Project Risk Management, 13-26.

Franklin, A. (2019). Reputational risks: A practical perspective. Web.

Kliem, R. L., & Ludin, I. S. (2019). Reducing project risk. Oxfordshire, England: Routledge.

Netland, T. H. (2016). Critical success factors for implementing lean production: The effect of contingencies. International Journal of Production Research, 54(8), 2433-2448.

Pre-Workshop Activities

Pre-workshop activities in the presented case should aim at enhancing the understanding the company’s staff has about the issues a workshop will address. British Petroleum (PLC) should host a pre-brief workshop, discussing the questions that will be raised during the event. Moreover, as one of the pre-workshop activities, the company should prepare and agree on the list of attendees and design an agenda for the workshop (Hillson & Simon, 2012). Such an approach will ensure that the workshop will be well-organized and beneficial for the participants.

Agenda for the Workshop

Figure 1. Agenda for a two-day risk workshop (Hillson & Simon, 2012).

Figure 1 presents a risk workshop agenda for British Petroleum (PLC). Day 1 activities are focused on identifying and outlining the possible risks, while day 2 ones aim at developing strategies that can help the company to mitigate possible adverse outcomes. The purpose of the introduction is important because it is helpful for starting the workshop and communicating with the participants. Addressing the objectives of the workshop and presenting the project background are crucial parts of the agenda, too, because they help to educate the company’s staff about the significance of prevention and mitigation measures. The explanation of the risk management process is also relevant for the case because, currently, there seems to be a lack of preventive strategies, and the number of incidents is high (Hunter, 2008).

Day 2 will start from the recap, which will help to summarize the facts and significant data discussed on day 1. The assessment of probability and possible impacts is highly relevant for the case. It is vital to address what incidents, such as an explosion, can occur in the future and what effect they may have. Risk categorization is important for the case, too, because it is crucial to remove the ones described wrongly or do not refer to incidents or a lack of safety measures. The identification of risk on day 1 should be followed by the development of initial responses since it may help the company to address possible problems and incidents timely and minimize the number of victims. The nomination of risk owners is relevant, too, because this way, British Petroleum (PLC) can assign prevention and mitigation tasks to particular individuals.

Threats

Figure 2. Risk register (Hillson & Simon, 2012).

Figure 2 presents the possible threats arising from the case of British Petroleum (PLC). The first threat is associated with equipment malfunction due to the lack of regular inspection. For instance, the case reports that the pipes workers use are thinned, but no one has fixed this problem yet (Hunter, 2008). The second threat is explosions due to poor safety measures, which can be considered significant, as it already happened in 2005, harming 180 individuals and killing 15 (Hunter, 2008). The third threat is the withdrawal of resources from safety-related assets caused by the lack of control over the management personnel. The case study reveals that this problem was already identified in the past, which means that it can occur again (Hunter, 2008).

Next, the pressure of the management personnel and the lack of communication between the company’s leaders and its employees, resulting in a poor reporting process, is another crucial threat. In the company, workers are forced not to report injuries and safety violations, which prevents British Petroleum (PLC) from ensuring a safe environment for them (Hunter, 2008). The fifth threat is the lack of sources aiming at ensuring safety as a result of failure to invest in safety measures. The presented case reveals that this threat is crucial because the safety of the workers is already compromised since the company strives to save money.

Probability and Impacts

The probability and impacts of the third threat are set in a way that shows the significance of timely preventive measures and appropriate responses. For instance, the case of equipment malfunction may result in both financial losses and staff injuries (Kadhim & Ali, 2017). Regular assessment of equipment is more feasible and cost-effective than the mitigation of the outcomes of its failure. The same reasoning is applicable to the cases of poor safety measures and explosions. The withdrawal of sources can be mitigated by the timely establishment of a committee controlling the use of finances, which has higher effectiveness than the measures aimed at helping the people already affected by an incident. The establishment of effective communication is vital to reduce the pressure the company places on its employees. Post-response probability, in this case, is to implement educational training sessions aimed at teaching workers and management personnel to discuss challenging issues with each other. The impact of the problem is already adverse; however, it is possible to mitigate it before it becomes more severe. Finally, the establishment of funds for safety measures can cost the company much money; however, if British Petroleum (PLC) fails to do so, it may have to ask investors for support and mitigate the outcomes of poor safety programs. As a result, it may be more significant for the organization to establish the funds timely.

Opportunities

The case reveals three significant opportunities the company may utilize to enhance safety for its employees. The first one is establishing appropriate safety guidelines and using checklists to assess the level of safety for the firm’s workers. The employees report safety violations, which means that the guidelines do not exist or are not followed properly, and they are not the company’s priority. The second opportunity is developing effective communication between the employees and the employers. The company needs to ensure that the management personnel does not put pressure on workers and that all individuals are allowed to report possible injuries and safety violations. Currently, the organization does not seem concerned about the challenges its employees’ encounter, which results in the increased number of small injuries (Hunter, 2008). Third, the organization should allocate sources for designing appropriate safety and preventive measures, as, currently, it tries to save money by reducing its funding of such causes (Hunter, 2008).

References

Bryant, M. J., & Hunter, T. (2008). British Petroleum (PLC) and John Browne: A culture of risk beyond petroleum (A). Ontario, Canada: Ivey Publishing.

Hillson, D., & Simon, P. (2012). Practical project risk management: The ATOM methodology (2nd ed.). Oakland, CA: Berrett-Koehler Publishers.

Kadhim, M. G., & Ali, M. T. (2017). A critical review on corrosion and its prevention in the oilfield equipment. Journal of Petroleum Research & Studies, (14), 162-189.

BP Business Strategy

The strategy employed by British Petroleum is balancing the interest of the company to those of the community where the company is operating. BP believes in mutual benefits for investors, government and local people in developing resources in the more than 100 countries where it operates. In Colombia, the strategy is to “balance the requirements for extracting up to 500,000 barrels of oil a day with local environmental and social considerations” (Marsden, 1998). As part of strategy, BP holds a joint venture with the Colombian government and other companies in development of oil resources in the region of Casanare. This strategy has seen BP provide direct jobs to over 1000 people local people. The company has invested millions of dollars to protect the environment while it continually spends 10 million dollars annually to improve the lives of local people through social-economical programmes like education, health and general infrastructure.

Inherent Risk

While BP business strategy in Colombia seems as success, there are inherent problems arising from the company operations in Casanare and its association with government forces in safeguarding the company’s staff and assets. As the economy of Casanare improves, there is rapid development which has led to increased population. This has further caused insufficient governance, prostitution and poor infrastructure like sewer and road networks. The development of Casanare has also seen local people and immigrants to the area frustrated as “their over-inflated expectations dashed” (Marsden, 1998). BP makes use of both the Colombian army and private defence companies to secure its assets and foreign workers. In using the military, the company is in direct war with guerrilla operating in the area. This guerrilla has been sabotaging the company by blowing up oil pipelines.

Issues that BP got involved in and how it approached the controversy

BP controversies stem from the 1995 inter-institutional Commission on human rights which mentioned the company in two instances. “The first concerned an unfulfilled commitment to a community group and the second damage to a forestry reserve” (Marsden, 1998). BP acknowledged this concern and committed itself to address the issues. The matter resurfaced when a Member of European parliament, Richard Howitt, visited Colombia on a fact finding mission. Although Howitt held a meeting with BP official in Bogota, he never visited Casanare where the company was operating. A report would later be presented to European Parliament accusing BP of severe human rights abuse and environmental damage. This report caused anger and shock to BP leadership because the company had committed to address the issue presented in the first report. The company denied all criticism and accusations.

What the Company Should Learn

BP should learn that issues regarding human rights and environment have a unique place in both political and public arena. How the public weigh this issues can mean death or success of a company. Any report regarding human rights issues must be given precedence and cannot be tucked away for future consideration.

What Should BP Change

BP might want to make use of both independent and public report to review its performance in community where it’s operating especially in regards to human rights and environmental issues. The recommendations and commitment to resolve any issue should be made public. The Company must weigh the cost of implementing recommendations against its interest to avoid making unrealistic commitments.

Works Cited

Beder, S. (2002). BP: Beyond Petroleum? Retrieved January 10, 2010, from University of Wollongong. Web.

Marsden, C. (1998). British Petroleum in Colombia. A case study of Business and Human Rights.

The Upstream Petroleum Exploration Project

This project focuses on the CovOil multinational Oil and Gas Company.

The company is in need to recover from the past financial losses.

The disaster claimed the lives of 8 personnel with other damages being incurred by the company’s extensive offshore platforms.

As a result, the company had to cover for the disaster damages and still be able to carry out normal business operations.

Some of the measures the company undertook after the damage involved the acquiring of additional oil reserves (Kerzner 2013).

Acceptance criteria for the project

There is need to have Seismic survey for reserve identification, 3 deviated well and vertical poles that can act as petroleum reservoir (Hillson 2003).

Block stations that incorporate the procurement, delivery and installation fields.

3 Storage terminals and access roads. Other project requirements include field camps and meeting with the stakeholders.

Project milestones

The license of the president’s approval has mandated project execution without any delay, current favourable oil price and the organization CEO; Mark Jason has showed a positive response to the project materialization.

To avoid any social dispute that may arise in the future, specifically once the project has been practically and fully initiated (Meredith & Mantel 2006).

The vertical wells are important for POD calculation, which is the point of deviation.

The storage terminal serves as crude oil storage facilities. The access roads to allow for easy site accessibility and products transportation.

Projects Assumptions and constraints

The disaster’s impact that occurred has greatly affected the financial status and limits the projects investment capabilities on the company’s side.

The government is likely to be involved in additional cost sharing to actualize the project. Large lucrative projects that entail financial gain require the full participation and inclusion of the involved counties (Aven & Vinnem 2005).

The net cost of the project has affected both time and material price fluctuations. The cost calculations of majority of the materials have been calculated for one year duration and are approximately 90 million dollars.

Reference List

Aven, T & Vinnem, JE 2005, ‘On the use of risk acceptance criteria in the offshore oil and gas industry’, Reliability Engineering & System Safety, vol.90, no.1, pp.15-24.

Hillson, D 2003, ‘Using a risk breakdown structure in project management’, Journal of Facilities Management, vol.2, no.1, pp.85-97.

Kerzner, HR 2013, Project management: A systems approach to planning, scheduling, and controlling, John Wiley & Sons, New York.

Meredith, JR & Mantel, SJ 2006, Project Management: A Managerial Approach, 6th edn, John Wiley & Sons, New York, NY.

Background

In reservoir simulation, the goal is to infer an actual reservoir’s behavior from its physical or mathematical model’s performance. While the physical model is to the scale of the original reservoir’s dimensions, a mathematical model is different. It is a set of differential equations with the proper arrangement of boundary conditions that appropriately describe the essential physical processes occurring in the modeled system (Peaceman, 1977). The mathematical model allows one to learn the fluid flow equation without having to develop a laboratory model of the entire system.

Fluid flow and mass transfer are the main processes occurring in petroleum reservoirs. On the one hand, there are up to three immiscible phases in terms of fluid flow, comprising simultaneous water, oil, and gas movement (Peaceman, 1977). On the other hand, mass transfer often happens primarily between the oil and gas phases (Peaceman, 1977). Other factors playing a role in the fluid flow process include gravitational pull, capillary rise, and viscosity.

Mathematical equations account for these forces and consider the physical system’s arbitrary description regarding its geometry and heterogeneity. Thus, one obtains the differential equation by combining Darcy’s law with a straightforward differential material balance for each phase (Heinemann, 2013). One can get solutions by the mathematical physics’ classical methods if the case is simple, namely, it involves regularly-shaped boundaries, such as a circular one about a single well. A numerical model, being in its essence a computer program, is highly effective for obtaining solutions for complex reservoir situations.

Darcy’s Law

According to Darcy’s law, the volumetric flow rate (Q) through a horizontal system’s porous material sample of L length and A cross-sectional area is given by:

Here, K is the medium’s absolute permeability, the fluid’s viscosity, and the applied pressure drop across the sample. The differential form of Darcy’s law for a flow parallel to the x axis is given by a superficial flow velocity of the form:

Here, is x-direction’s pressure gradient while the negative sign denotes a declining pressure in the flow’s direction. However, this equation does not consider gravitational pull. Assuming the depth D to be an arbitrary function of v’s coordinates (x, y, or z), differential Darcy’s law accounting for gravity will contain new factors p, representing the fluid’s density and g, representing the acceleration due to gravity, becoming:

Mass Conservation

The mathematical model of the simultaneous fluid flow in a porous medium often considers two immiscible fluids (oil and water) where no mass transfer exists between them. In this case, water is the wetting phase because it wets the porous medium more than oil, which is now the non-wetting phase (Chen, 2007). The wetting and non-wetting fluids are denoted by the subscripts _w and _o respectively. Here, mass conservation is obtained by understanding the fact that two fluids jointly fill the voids of the porous medium, that is, S_w + S_o = 1, where S_w + S_o represent the wetting and non-wetting phase saturation, respectively.

Notably, the pressure in the non-wetting phase is greater than the wetting one’s because of the two phases’ curvature and surface tensions. The two phases’ pressure difference is given by Pc = P_o – P_w, where P_o and P_w, are the non-wetting and wetting phases’ respective pressures (Chen, 2007). Mass accumulation per unit time in a differential volume will be given by:

Here, the porous medium’s porosity is given by and the density of each phase is given by The cube’s length in the x_i –direction is given by

Taking this equation, if there is no mass transfer between the two immiscible phases, mass is conserved in each fluid (Chen, 2007). Still, α is either the wetting or the non-wetting phase. The equation for mass conservation is:

Reference List

Chen, Z. (2007). ‘Chapter 5: Two-phase flow and numerical solution’, in Chen, Z. (ed.). Reservoir Simulation Mathematical Techniques in Oil Recovery. Philadelphia: Society for Industrial and Applied Mathematics, pp. 83-99.

Heinemann, Z. (2013) Systematic of reservoir flow equation. Leoben: Association for Promotion of Scientific Work in Reservoir Characterization and Simulation.

Peaceman, D. W. (1977). ‘Chapter 1: Differential equations for flow in reservoirs’, in Peaceman. D. W. (ed.). Fundamentals of Numerical Reservoir Simulation. New York: Elsevier Scientific Publishing Company, pp. 1-34.

The oil industry has seen several huge mergers the past years. These developments are crucial in streamlining the industry and maintaining the distribution of oil supply. Mergers are critical because it allows struggling firms to recovers and continue to operate. In addition, such corporate event provides companies opportunities to expand their operations in other regions. The merger being proposed by BP to its investors is a common instance in the industry. It is presented as a strategy that will allow BP to compete with the bigwigs of the industry. Moreover, BP is in the position to cover the markets being controlled by Amoco in the United States.

The management presented the problem by providing a lucrative option. It is a style that posits optimism. BP CEO Sir John Browne was clever in showing the investors the right approach to solve their financial necessities. The strategy of Browne was to make a merger more appealing. Instead of focusing on the possible problems, Browne showed the benefits of such event. A merger according to Browne is a necessity for BP to grow. The growth as viewed by Browne pertains to the expansion of operations and possible increase in oil production and exploration.

Another part of Browne presentation that is noticeable is the supposed reorganization that will happen to BP. Browne deviated from the negative aspect of restructuring and presented the positive effects of such strategy. It was mentioned that BP will save at least $2 billion. More important, Browne stated that BP is on the verge of upping its efficiency level. This means that resources will be optimized and wastes will be reduced.

It is evident that Browne was effective by presenting the solution as the problems. As expected, critics and analysts pointed arguments contradicting Browne’s claims. Accordingly, such transaction can become costly in the long run and create differences in views. For instance, Amoco has stated that their understanding of the foreign oil markets is weak. In addition, cultural differences will hinder the rapport that is needed in mergers. Browne was indeed successful in creating a positive picture in what was perceived as an unpredictable event. Posing the problems directly can possibly make the situation straightforward. But for Browne, using the solution as the problem will make the deal move forward.

The criteria for determining sound mergers range from company fundamentals to market opportunities. Some analysts also consider the presence of threats and internal weaknesses from the companies planning to merge. Company fundamentals are considered as the most vital criterion in making investment decisions. Investors usually study the company that is being merged. In this situation, Amoco has to be evaluated from its financial capabilities to its future contributions. The details provided by company fundamentals will allow investors to gauge the possible directions the merging companies will take.

Another basic criterion normally studied by investors is the savings. As Browne commented, such transaction will provide sufficient tax savings for BP. Savings from mergers is critical in influencing decisions. For investors, savings while expanding is a good bargain. Instead of settling for their usual investments, investors can recover some of the tax spent for its earnings. This is a situation where investors have more gains than sacrifices.

Mergers are being doubted because some companies agree on such arrangement to avoid its debts. Some companies also agree to merge to push the burden to its new partner. For investors, it is important to evaluate the debts of the company that it plans to merge with. Aside from debts, investors have to determine the extent of liabilities in the balance sheet of the merging company. It is hard to convince investors to shoulder the debts of a company for the sake of the merger. The most common strategy to avoid such problem is to perform restructuring. As discussed earlier, Browne stated in the presentation that reorganization is a necessity.

Finally, outside threats are part of the overall criteria being used by investors to assess the value of the merger. There are several external threats that can hamper such transaction. Political threats are the most common. Several oil producing states have started nationalizing their oil supply. This translates to commercial oil firms barred from making explorations. The unending economic uncertainties are also possible threats. Because markets are unpredictable, having consistent returns from investment is also a difficult task especially for oil companies.

It is undeniable that Browne made a good presentation of the problem. At the same time, Browne was able to capture the attention of the investors by presenting facts and numbers. The strategy of Browne was designed to make the event positive. This was done despite analysts doubting the feasibility of Browne’s projects. In making a decision it is best for investors to focus of company fundamentals and other valuable aspects.

Knowledge management has gained tremendous popularity in the recent past (Edwards, Collier & Shaw, 2003). Its widespread popularity is largely attributable to British Petroleum’s (BP) successful implementation of the concept. Consequently, BP has been acknowledged as a global leader in knowledge management (Gorelick, Milton & April 2004). Against this backdrop, the present paper examines the main issues that emerged during BP’s knowledge management journey. In so doing, the author seeks to show that BP deserves the attention its knowledge management endeavors have elicited because it came as a result of due diligence and hard work by the organization.

Overview of Bp’s Knowledge Management Journey

BP’s recognition as a global leader in knowledge management was as a result of the robust and systematic knowledge management framework developed by the organization between 1997 and 2000 (Gorelick, Milton & April, 2004). The process began as a move to catalyze the continuous change process that had been initiated at BP in 1990 and entailed several key success factors.

To begin with, the BP leadership recognized the need for a change and initiated the change process. The change process entailed numerous adjustments and alterations, which were carried out under the auspices of a knowledge management team (KMT). The first major adjustment was the strengthening of cohesion among employees (Gorelick, Milton & April, 2004). It sought to improve performance through teamwork and open behavior. It led to the restructuring of BP into a federal entity with a central core and semi-autonomous business units at its periphery.

The KMT monitored its objectives through quarterly reviews, which were meetings that involved senior members of the team. The meetings culminated in a knowledge management model that guided the project. Smaller projects such as the Japan retail market entry project and the European retail project were identified to serve as the pilots (Gorelick, Milton & April, 2004). The success was phenomenal. Consequently, the KMT concluded that the successful implementation of knowledge management requires an organization to prepare adequately. In addition to the conclusion by the KMT, it is apparent that BP expended a lot of effort and resources to bring the project to successful completion.

Evaluation of BP’s Knowledge Management Journey

The above summary identifies the major processes that characterized BP’s knowledge management journey. Careful consideration of the processes reveals that they followed Kotter’s eight-stage change management model. Thus, it was a deliberate and well-orchestrated move to change BP.

Kotter’s change management model begins with the creation of urgency (Kotter, 2012). This stage was undertaken at BP before the KMT was constituted. Thus, it preceded and facilitated the formation of the KMT. The second stage, the formation of a powerful coalition that supports the change process, took place at BP both before and after the formation of the KMT (Kotter, 2012). The KMT was, therefore, formed to strengthen the change efforts that were ongoing in the organization. However, even after the formation of the KMT, the process of forming a strong pro-knowledge management caucus continued through the creation of awareness and enlightening employees about the possible benefits of the concept. The third and fourth stages of Kotter’s change model entail the creation and dissemination of an organizational vision, respectively (Kotter, 2012). These were done successfully by the KMT. It also removed the remaining obstacles by ensuring that every stakeholder had a clear understanding of the potential benefits of knowledge management. It then proceeded to create short-term wins by selecting a few strategic projects and using them as pilots (Gorelick, Milton & April, 2004). Their success led to the extension of the concept to the entire organization. Considering that the change process involved a total overhaul of every element of BP, at the end of the implementation of the knowledge management project, the organization was ready to retain the concept permanently. What remained was the assessment of areas of weakness for purposes of improvement.

The fact that the introduction of knowledge management at BP followed a well-known change model makes it apparent that this kind of process requires a model for successful implementation. It is important to note that the KMT developed its own model to facilitate the process. However, a close look at the model shows that it heavily borrows from Kotter’s change model. Nevertheless, the decision to develop a custom-made model that was suitable for BP made the introduction of knowledge management at the organization an authentic engagement. Consequently, the KMT did not over depend on outside knowledge to facilitate the process. Arguably, this approach is the reason behind the continued success of the knowledge management framework operated by BP. As such, the organization deserves every element of attention and acknowledgment it has received insofar as its knowledge management endeavors are concerned because it championed the use of a concept that is currently benefiting numerous organizations across the world.

Conclusion

Apparently, BP’s journey to the successful implementation of knowledge management was not easy. As such, any organization seeking to go down the same path must prepare adequately. The first key requirement insofar as the preparation is concerned is technological readiness. Knowledge sharing and reuse across large organizations require a technological platform that can support it. Secondly, the support of an organization’s senior management is critical to the success of knowledge management. An organization’s senior management provides it with leadership. As such, once the management’s support is enlisted, the remaining members can easily be brought on board. Failure to make these preparations can lead to longer implementation periods, higher project costs, or complete project failure. Therefore, organizations should ensure that they are well prepared to avoid such pitfalls because knowledge management, as demonstrated by the BP case, brings massive benefits to the organizations that adopt it.

References

Edwards, J., Collier, P., & Shaw, D. (2003). Making a journey in knowledge management strategy.Journal Of Information & Knowledge Management, 2(02), 135-151.

Gorelick, C., Milton, N., & April, K. (2004). Performance through learning: Knowledge management in practice (1st ed.). Amsterdam: Elsevier Butterworth-Heinemann.

Kotter, J. (2012). Leading change (1st ed.). Boston, MA: Harvard Business Review Press.

British Petroleum (BP) is among the world’s leading gas and oil companies that operate in seventy countries worldwide. With headquarters in London, Great Britain, it produces and sources oil and gas both offshore and on land, which makes it possible for the company to have a wide scope of operations. The manufactured and marketed fuel and raw materials provided by BP are used in multiple products of everyday use. Founded in 1909 by William Knox D’Arcy, BP is a public limited company that made it to the list of the world’s oil and gas giants.

Corporate governance plays an exceptionally large role in the operations of such companies as BP because it represents a system of rules and guidelines by which a company is controlled and managed. In cases of a corporate governance failure, the trust of the public and stakeholders decreases, leading to potentially harmful consequences for the overall success of an organization. BP had an issue with its lack of corporate governance in 2010 when an explosion and fire took place in the oil rig in the Gulf of Mexico and killed eleven workers as well as set off one of the largest oil spills in the history of US operations (“The Oil Spill by the Numbers”). According to the estimates, the Deepwater Horizon incident resulted in “about 4.9 million barrels of oil gushed into the Gulf waters, destroying hundreds of miles of fragile coastline and threatening the livelihood of the local population” (“The High Cost of BP’s Lack of Corporate Governance”). The impact of such a disaster on the company was vast. The company pleaded guilty to eleven counts of felony manslaughter and agreed to pay a pre-tax toll of $40.9 billion to cover the consequences of the spill (“The High Cost of BP’s Lack of Corporate Governance”). To this day, the deal is considered one of the largest resolutions in the history of the United States court system. In addition to this, three dividend payments to the company’s shareholders were canceled while BP also initiated some significant shifts in the board of members.

The main contributing factors to the failure in corporate governance referred to BP’s inability to ensure the appropriate safety of its workers and prevent environmental disasters that are a risk during oil and gas-related operations. The company’s board put the lives of employees in danger by not giving safety the required level of rigor in terms of planning and implementation. During the investigation, it was revealed that the BP oil well was sealed after eighty-seven days of leakage, which also points to the lack of consideration of the corporation for environmental issues and the well-being of residents affected by the disaster.

From the described case of British Petroleum failing to establish cohesive corporate governance, it can be learned that companies that deal with dangerous products should be more aware of their impact on the environment. Corporate governance efforts should not be solely based on catering to the interests of stakeholders or suppliers but also account for workplace risks. A better system of internal controls should be put in place to ensure that dangerous situations do not escalate and result in an adverse impact on workers, the environment, and the community. Transparency can be an effective tool for managing corporate governance efforts as it provides companies with greater accountability.

Works Cited

“The High Cost of BP’s Lack of Corporate Governance.”RGRD Law. 2012, Web.

“The Oil Spill by the Numbers.”YouTube, uploaded by Time. 2010, Web.

Background

• Powder River Petroleum International, Inc. is a company incorporated in Oklahoma.
• The sector of operation is energy.
• The company primarily markets, acquires, and produces natural gas and crude oil properties.
• The company was founded in 2000 and started by registering securities for small and medium businesses.
• A PCAOB-registered audit firm auditing Powder River Petroleum International, Inc. is Chisholm, Bierwolf, Nilson & Morrill, LLC.
• The firm failed to conduct the company’s audit according to PCAOB Standards and Rules.

Expectations

• Powder River Petroleum International, Inc. promised its Asian working interest investors a guaranteed return on their initial investments.
• The company was expected to properly account for its conveyances.
• In addition, the company was expected to conduct its financial activities in accordance with general accounting principles by correctly recording its assets.
• Chisholm, Bierwolf, Nilson & Morrill, LLC was expected to exercise professional skepticism and care, and gather sufficient evidence for its conclusions.

Violations

• Since 2004 until 2008 Powder River Petroleum International failed to properly account for approximately $43 million to its Asian investors.
• The company promised a guaranteed return on the investments, but immediately recognized revenues, and thus, dismissing their own promise.
• The financial statements did not properly present cash flows, operating results, and company’s financial position.
• The auditing primarily overstated the company’s assets, pre-tax income, and revenues by a significant margin.

Risk Factors and Working Interests

• One of the main risk factors is fraudulent revenue reporting.
• Major liabilities were omitted.
• Assets and revenues were inflated.
• Revenue values were assessed without recognizing the guaranteed payments in working interests.
• Working interests needs to be reported according to Schedule C, which focuses on depletion, expenses, and receipts.
• Working interests and guaranteed payments need to be accounted in conjunction with the company’s direct and indirect operating expenses.
• Working interests are directly tied to net revenue, which means that inflated revenue will change the former value.

Management Assertions

U.S. auditing standards identify the principal “management assertions” that underline a set of financial statements. What management assertions were particularly relevant to the “sales” of working interest and the guaranteed payments made annually by Power River to the purchasers of those working interests?

The management assertions are:

• Accuracy, Classification, Completeness, Cutoff, Existence, Occurrence, Rights and Obligations, Valuation, Understandability.
• In case of the working interests, the Accuracy management assertion is particularly relevant, because the fact that revenues were inaccurately reported changed the value of these interests.
• In case of guaranteed payments, the Right and Obligations assertion is relevant, because the company was obliged to fully disclose these correct amounts to the investors.

Fraud

• CBN failed to correctly report the assets owned by Powder River Petroleum International.
• The assets that were not owned by the company were reported as owned ones.
• The given oversight constitutes to fraud, because there is a high probability that the auditing firm knew about these particular assets, but still reported them as owned.
• This would be considered as negligence if the case did not involve a number of other fraudulent activities, which implies that there was an intent to deceive the investors.

The identification of fraud and its prevention is a paramount task, which is set by the owners of the organization to internal and external auditors. This is due to the fact that in conditions of uncertainty and risk, internal audit in the corporate governance system of the company is an effective tool for identifying fraud, according to which internal auditors can interactively respond to risks that affect the return on equity, as well as develop draft decisions to prevent fraud in key business processes. It is important to highlight the main tasks that are set before auditors in the process of identifying corporate fraud. This is a definition of corporate fraud status; analysis of types of fraud; determination of the most significant factors causing fraudulent actions, and the establishment of their causes; analysis of sources of fraud; and identifying the most effective methods to combat corporate fraud.

U.S. Auditing Standards

• The primary standard that was dismissed is PCAOB Auditing Standard No. 3, which is called Audit Documentation. The firm failed to correctly prepare the documentations of auditing procedures.
• The PCAOB standard of AU 326 Audit Evidence was not followed, where there was an insufficient amount of evidence regarding revenue and assets.
• The PCAOB standard AU 230 Due Professional Care in the Performance of Work was not followed, because the “red flags” were not recognized.
• The PCAOB standard AU 336 Using the Work of a Specialist was not followed, where the competence and qualification of petroleum engineers were not assessed regarding their validity as an audit evidence.

For the successful implementation of the process of identifying signs of fraud in the corporate governance system, methods have been identified and the features of their application by internal auditors have been clarified, namely: mathematical methods; statistical methods; analytical methods; documentary methods; control methods; computer methods; psychological methods; expert or informal methods; control of behavioral reaction. Using these methods will allow internal auditors to identify fraud and investigate the causes of its occurrence in the organization’s corporate governance system, taking into account the factors affecting the external and internal environment on the subjects of fraud.

Quality Control

• The primary issues of the quality control system regarding public companies are ethical requirements for the leadership, risk assessment, proper documentation, engagement performance, and monitoring.
• CBN failed to correctly document the auditing process by providing inflated revenue values.
• Risk assessment was not properly conducted, where unowned assets were included and liabilities were omitted.
• CBN also failed to monitor the company’s quality control policies regarding ethical standards.

The presence of an internal audit in the corporate governance system, if properly organized and carried out in accordance with the approved mission and development strategy, enables internal auditors to: timely identify signs of fraud and further develop draft decisions on its prevention; create anti-fraud projects at different levels of the organization’s corporate governance system; provide top management of the company with guarantees that the decision-making process and business operations do not contain signs of fraud.