Occidental Petroleum Corporation (Oxy) is an oil and gas company based in California with production and exploration interests and operations in North Africa, South America, Middle East and the United States. The company is the fourth-largest oil and gas company in the United States. Occidental Petroleum Company has subsidiaries which include Occidental Chemical Corporation (OxyChem), OxyVinyls, and INDSPEC Chemical Corporation for chemical manufacture. Oxy also owns Armand Products Company jointly with Church & Dwight Co., Inc. In Brazil, the company also owns Carbocloro S.A. Indústrias Químicas, jointly with UNIPAR.
Effects of the General Environment
Like all corporations, the general environment has enormous effects on the general operations of the corporation as well as its profitability. The oil industry in which the corporation mainly operates is largely affected by the political environment. Oxy has not been spared. In 1986, the corporation was forced to close its operations in Libya, which were its biggest in Africa following economic sanctions imposed upon the Libyan government by the then U S president Ronald Reagan. The closer was a large setback and the corporation’s profit fell by 26%. On the lifting of the sanctions in 2004, Oxy became the first American company to re-establish its operations in Libya, proving just how important its Libyan operations were. At the beginning of 2011, civil unrest in Libya, following the so-called pro-democracy protests and sanctions imposed by the American government, forced Oxy to stop its exploration and production in the country but resumed its operations once the sanctions were lifted.
Thirty eight percent of Oxy’s worldwide production (287 500 barrels in 2010) come from North Africa and Middle East. Major areas of operation include Iraq, Yemen, Qatar, Bahrain, Oman and Libya. Most of these areas are politically unstable which hinders the corporation’s full operations. The achievement of lasting peace in the Middle East would be a big plus for the operations of Oxy. Until such peace is obtained, however, its operations must remain highly dependent on the prevailing conditions in these areas. In the United States, the company has sought to have a larger say in the political arena by financing candidates from both the Democratic and Republican parties. The former Tennessee Senator Albert Gore, Sr. and former US vice president Albert Gore, Jr. were prominent shareholders in the corporation (White, 2009). Having the political elite involved in its daily operation has earned the corporation political security that has seen it survive public outrage which resulted from its poor chemical waste disposal policies.
The legal segment has also had a large effect on the operations of the corporation. Being an international company, Oxy has been forced to formulate different policies if operation due to inconsistency in the legal environment in its various countries of operation. Many times the corporation got involved in legal tussles that not only had a negative impact on the corporation’s social image but also lost it millions of dollars in payment of damages and legal fees. In 1978, the company was forced to pay 129 million dollars in to the residents of the Love Canal region in restitution for health problems they suffered, which resulted in their evacuation due to massive chemical deposits made in the area between 1942 and 1952 by Hooker Chemicals Limited which Oxy purchased in 1968.
After taking over power in Libya, Colonel Muammar Gaddafi passed legislation demanding that foreign oil exploration companies pay 79% of their oil revenues up from 50% to the government. Occidental petroleum was the biggest loser from the law since it was the biggest foreign company in Libya. In Peru, a lobby group of environmentists sued the company for the harm it caused to the environment during its 30 years of operation in the country. The case is currently in progress. In Colombia, the company has been accused of complicating in the murder of seventeen civilians. A case filed on the same and has been dismissed but the plaintiffs lodged an appeal.
Other than its external environment, the corporation has to worry about competition. One issue that is giving the corporation sleepless nights is its diminishing market base. In many of its countries of operation, its customers are coming up with alternative sources of energy, owing to the shortcomings of fossil fuels. The loss of its Argentina and Ecuador market, owing largely to Argentina’s renewable energy program, saw the company’s income before tax drop from 11.371 billion US dollars in 2008 to 4.669 billion dollars in 2009 and culminated in selling of its branch in Argentina to Sinopec in 2010.
Competitive rivalry is another aspect of competition that Oxy has to deal with. The encroachment by other corporations in areas where Oxy used to have a monopoly of market has been evident in recent times. In Libya, for instance, ExxonMobil is aiming to overtake Oxy as the most dominant oil company in the country within the next five years. The increased operations of China Petrochemical Corporation in South America have lost Oxy a significant share in the South American market which it previously controlled. This has significantly reduced the firm’s growth rate in the recent years.
To counter these challenges, the corporation needs to go on an aggressive offensive to look for new markets in areas whose full market potential has not been tapped. Many countries in Central, Eastern and Southern Africa lack a preferred oil supplier. This is a good market for Oxy to tap as many of these countries are still growing and their demand for oil is growing day by day. Kenya, being is the most rapidly growing country in this region, for instance, has increased its petroleum consumption by 43% over the last four years (Clayton, 2007). No corporation has a monopoly of oil supply in the country.
The corporation also needs to diversify its products in the energy sector to remain competitive in business. This is due to the campaign against fossil fuels by conservationists. Occidental management and policy makers seem to have realized the need for diversification and, under Dr. Ray Irani as CEO, the corporation increased its petroleum products as opposed to his predecessor’s policy of acquisition of unrelated businesses. Dr. Irani propelled the corporation to great heights with its market capitalization increasing from 5.4 billion dollars to 80 billion dollars. This may partially be due to the fact that he led the corporation at a time that demand for petroleum was on a vertical rise. However, it may be time for the current corporation president Stephen Chazen to rethink of Dr. Irani’s policy of all oil-centered business to a more inclusive business that includes other sources energy.
One of the major external threats facing Occidental is the continued depletion of oil reserves in many of its countries of operation. In the United Arab Emirates, where Occidental is the second largest company, oil reserves are expected to run out in the coming 75 years (Clayton, 2007). The depletion of oil reserves is a global concern but for Occident it is the difference between staying in or out of business. The Corporation has to cross its fingers and hope that new oilfields are discovered elsewhere.
Despite being rated as one of the safest workplaces in the United States and having some of the best incentives for its employees, the corporation faces negative publicity due to its failure to lay emphasis on sustainable development. The corporation has been accused of failing to uphold the dignity of human life. Critics blame Oxy for the deaths of seventeen civilians Caño Limón, the health problems and deaths that occurred in the Love Canal, the spill of oleum in Pennsylvania that led to evacuation of thousands and untold damage to the environment. The July 6, 1988, Piper Alpha incidence, where a gas pipe leak caused a fire that resulted in the demise of at least 167 workers, has been blamed to Oxy’s laxity (White, 2009).
Oxy’s carbon dioxide injection that serves in storing carbon dioxide geologically and by extension reducing greenhouse gases’ emission into the atmosphere has done little in appeasing conservationists who demand that Oxy takes responsibility for the environmental degradation it has caused in the cause of its operations in the last several decades. This negative publicity makes many countries wary of granting the corporation exploration rights in new countries. Oxy also has to spend millions of dollars in programs aimed at improving its image.
Other threats that face the corporation include the global rise in fossil fuel prices as many oil producing countries aim at maximizing their income from oil revenues. This, coupled with crippling taxation, has made Oxy’s profit margins go on a steady decline, notwithstanding the corporation’s expansion efforts. The increased technology employed by some oil exploration companies is another factor that threatens to keep Oxy out of business. China Petrochemical Corporation through its subsidiary, Sinopec, employs new technology in the oil-drilling process that cuts the normal drilling expenditure by up to 30%. The corporation can, therefore, afford to sell its oil at a price much lower than the market price without reducing its profit margins. The technology that also involves reduction in the cost of labor is rapidly being adopted by other petroleum companies (Martin, 1995). Occidental has to embrace similar technological inventions in order to remain competitive in business.
Solutions to Threats
The only way Occidental can deal with many of these threats is through diversification of its energy products. With increasing demand for energy and decreasing global demand for fossil fuel, the corporation can use its existing network and technology to start provision of nuclear energy as well as other alternative sources of energy such as harnessing wind power in the country it operates. The corporation should also aim at expanding its chemical business as this has not been fully exploited. This is because the network Oxy has been able to create remains its biggest strength.
The company is involved with mining crude oil and adding value to it through purification and production of various petroleum products. This can be enhanced by production of cleaner petroleum products that are lower in sulfur and are more suited for use. The company should aim at obtaining products that are in bigger use in the market. The corporation should, for instance, make more of jet fuel from its hexane (C6H14), as opposed to kerosene for domestic use, since the former is in higher demand. The corporation should, likewise, produce products that are in higher demand and that will ensure continuity from all its choices.
Occidental Petroleum Corporation is facing many external and internal threats. The corporation can, however, overcome these through radical changes and effective management. It is how well the corporation tackles these challenges that will ensure the company’s very existence and profitability in future.