Competitive Analysis of Murphy Oil Company

Murphy Oil Company is among the leading organizations in the oil industry in the United States. The company, however, seeks to venture into the Indonesian oil markets as a strategy of expanding its operations across the globe. The expansion goals require a comprehensive market analysis to understand the trends and strategic measures useful for enhanced performance in Indonesia. One of the significant factors that will affect the company is the accounting standards. It is evident that the GAAP and IFRS accounting standards vary between Indonesia and the United States. As a result, Murphy Oil Company will face a challenge when reporting its financial statements. Besides, understanding competitors in the Indonesian oil markets are critical for the enhancement of competitive advantage for the Murphy Oil Company. Relocating to Indonesia requires huge investments estimated at $2.4 billion that will be used for advertising, refurbishing and payment of bills among other operations. This report shows that the implementation of a strategic plan for Murphy Oil Company in Indonesia requires consideration of different elements associated with the four components of a balanced scorecard such as financial and customer perspectives. Furthermore, monitoring and reporting issues in the joint venture are critical to facilitate performance evaluation. Weekly and monthly reporting should be done between the stakeholders and management to ensure that effective performance practices are maintained. Also, issues of conduct and accountability including the code of conduct and ethical practices are essential in creating a conducive environment for Murphy Oil Company to thrive in the new Indonesian market.

Introduction

The development of comparative industrial analysis is essential to understand the industrial trends. It is a crucial step that assists Murphy Oil Corporation to establish strategic measures for its expansion in Indonesia. Furthermore, it is one way through which Murphy Oil Corporation understands the oil market dynamics in Indonesia by addressing such factors as the size of the oil production as well as the exploration industry. Moreover, it will help in the identification of the driving forces in the oil markets, the manner in which the organization can compete efficiently and how different components could contribute towards the enhancement of competitive advantage for Murphy Oil Corporation in the Indonesian oil market. The purpose of this essay is to provide a comprehensive discussion of the elements that will influence the performance of Murphy Oil Corporation in Indonesia. The essay provides a business plan for the company which highlights market size, pricing strategy and the unit sales in Indonesia. Besides, the essay provides details on the estimated time of relocating from the United States to Indonesia and an estimate of the financial investments needed for the new venture. In addition, challenges related to accounting standards in the country are listed as well as the financial statements of major rivals in Indonesia. The paper also discusses the financial projections and cites the reason behind those projections.

Evaluation of Financial Requirements and Investment Opportunities

Analysis of Competitor Financial Statement

The Indonesian oil market comprises of five major corporations that produce an overall of 567,623 barrels daily in the first three quarters of the financial year 2018. The overall oil production for the three quarters is estimated to the 773,923 barrels daily which is below the 800,000 barrels that were projected by the Indonesian government in the 2018 financial year budget (Hall & Klitgaard, 2018). Pertamina Oil Company is the main oil rival in the Indonesian oil industry whose financial projections declined significantly in the first quarter of 2018 due to increased oil costs, inflation and changes in government policies concerning the oil industry. The company attained a net profit of fewer than 5 trillion rupiahs in the first half of 2018 (Hall & Klitgaard, 2018). Reduced profit margin was fundamentally linked to rising oil prices.

There is projected growth in the energy industry in the coming decades. However, the existence of a large number of oil competitors in the Indonesian markets forces the companies to scramble for a market share. The oil industry competitiveness is becoming more intensive due to changes in the oil prices in the global markets. Changes in government policies in the oil and gas industry in Indonesia poses a great financial risk for many companies due to constant price fluctuations (Florou, Kosi & Pope, 2017). The competitors in Indonesia displays some variations regarding the language used to address the customers. Moreover, currency differences in Indonesia and Rupiah pose a major competitive threat for Murphy Oil Company due to inflation and currency instability which most of the local companies are well conversant with. The adoption of similar accounting standards in the United States and Indonesia is critical for Murphy Oil Company in eliminating informational barriers that would inhibit the organization’s investments in the Indonesian equity markets (Florou, Kosi & Pope, 2017). States with more substantial similarities in accounting standards show higher merger and accounting activities which is critical for foreign investments.

Challenges that Murphy Oil Company will face in Indonesia

One of the main problem that Murphy Oil Company will face in Indonesia due to its accounting standards concerns the determination of how to account for income at the date of implementation and moving forward. It will determine the time in which Murphy recognizes revenue which is an essential number in financial statements since it is a driver of returns. Differences in accounting standards between the U.S and Indonesia implies changes in rules to apply in accounting judgment. Therefore, the company may experience a significant shift in how it currently realizes its profits. Besides, Murphy Oil Company may face the challenge of disclose needs. The organization may be required to provide comprehensive data on contract portions that they may be opposed to including in their financial statements due to market sensitivity.

Required Relocation Investment for Years 1, 2 and 3

Relocating an organization requires huge financial investments for the promotion of the company in the new markets, the establishment of premises and payments of different bills before the company gets to the breakeven point. Murphy Oil Company’s relocation from the United States to Indonesia is projected to cost $ 2.4 billion. The company will secure the relocation investments to assist in relocating to better premises. The projected investment will be used as follows;

Expansion: $ 700 million

Advertising: $ 200 million

Paying bills: $ 800 million

Purchase of stock and equipment: $ 400 million

Refurbishment: $ 300 million

Revenue Projections for Year 1, 2 and 3

The table below shows the projected revenue for the Murphy Oil Company in the first three years of relocation into the Indonesian oil industry.

Financial Operations

Year 1

Year 2

Year 3

Estimated Sales

$1.2 billion

$ 1.3 billion

$ 1.5 billion

Loan Payments

$ 120 million

$ 150 million

$ 190 million

Earnings on Investments

$ 100 million

$ 130 million

$ 150 million

Salaries and Wages

$ 78.6 million

$ 79 million

$ 80 million

Payroll Expenses

$ 85 million

$ 87 million

$ 89 million

Rent

$ 28 million

$ 29 million

$ 30 million

Utilities

$ 1 million

$1.5 million

$ 2 million

Strategy Implementation Plan

The strategy effectiveness will be tracked using the main scorecard elements including the growth perspective, financial perspective, customer perspective, and process perspective. Financial perspective will track the financial execution measures including net revenue and income from investments. The financial perspective is critical as it is the basis on which evaluation and comparison of organizations are done. Customer perspective will consider factors like market and customer segments in which the business will compete. Also, customer perspective will consider generic factors like customer satisfaction, customer acquisition, customer retention, and market share in the targeted segments across Indonesia and profitability (Keyes, 2016). The internal business processes are critical in the enhancement of Murphy Oil Company success in Indonesia. Fundamentally, the business process will consider inputs, outputs, processing systems, results and realization of organizational goals. Furthermore, business process perspective will examine the product and service quality. On the other hand, the learning and growth perspective will evaluate factors like employee satisfaction, employee retention as well as employee productivity.

Monitoring and Reporting Issues on Joint-ventures

Murphy Oil Company will integrate three main reporting strategies on joint ventures including co-development monthly operations report, weekly one pager and the copy of management level reports. The co-development monthly operations reports are monthly reports regarding JV operations done by Murphy Oil Corporation shareholders responsible for the alignment of calculation methodologies, exhibits, tables, and report format. This will enhance easier access of information from the different stakeholders in the joint-ventures. Besides, weekly one-pager will involve short emails and memos written by Murphy Oil CEO and board at every end of the week. It will mainly summarize critical undertakings in the previous weeks and highlight the priorities as well as events for the coming week. The copy of management will be provided to the board members with CEO’s weekly and monthly management reports of performance and other critical metrics. Moreover, they will offer customer and pricing information if deemed necessary.

Governance and accountability issues

The governance and accountability strategies of Murphy Oil Company manifest measures employed by the company to ensure the progression of progress with adherence to the ethics and codes of governance. The codes of Murphy have specific stipulations that help in the management and control of the various aspects of the company. The organizational structure of the company details critical structure that elaborates the different functions of the elements represented in the company. The overseeing of the operations and management of the company’s assets falls under the preview of the board of directors (Leipziger, 2017). They ensure that the interests of the stockholders are achieved through strategic implementation of the operational measures.

The board of director roles and responsibilities include compensating and reviewing of succession events. The process ensures the proper selection process of managers with the necessary qualifications and ethical background to champion the development process of the company. The review of the financial details and monitoring of the business strategies helps in the evaluation of the progress of the company. The evaluation process entails constant auditing a situation that leads to better management of finances thereby reducing the instances of bribery and corruption. According to transparency perception index, Indonesian has a long way to go to curb the incidences associated with high levels of corruption in government and corporate offices. The independent nature of the board of director provides Murphy is a unique opportunity that guarantees accountability in governances and financial management (Leipziger, 2017). The guidelines of the board mitigate cases of corruption because of the in-depth evaluation process employed by the boards in its overseeing functions. Also, the codes of ethics and accountability of Murphy and Indonesia are similar to a situation that limits regulations clash between the company and the government. Such as situation, necessitate stringent auditing measures that further curbs instances of international corruption cases.

Murphy corporate social responsibility acts as a critical aspect of the operation and sustainability of the company’s operations. The corporate social responsibility of the company stems from its need to increase the levels of education in the community they operate. Through training of its workforce on diverse skills and empowerment program, the company creates a community that is aware of the environment, the relevance of its sustainability and the relations it has to their health situation. Health education is a critical factor in the contemporary society. Murphy health programs assist in maintaining a healthy society notably in the local areas where their company operates.

The responsibilities to the stakeholders include constant communication of the financial situation of the company and an analysis of the risk taken by the management. The company has a significant relationship with its suppliers as illustrated in the nature of the production process (Leipziger, 2017). The recommendation for the improvement of the corporate social responsibility lies with the changes in the programs that address the issues of the environment. The concerns about environment population notably due to oil explorations warrant technological improvement make the process safe for communities and the natural environment as well.

References

Florou, A., Kosi, U., & Pope, P. F. (2017). Are international accounting standards more credit relevant than domestic standards?. Accounting and Business Research, 47(1), 1-29.

Hall, C. A., & Klitgaard, K. (2018). The Petroleum Revolution and the First Half of the Age of Oil. In Energy and the Wealth of Nations (pp. 183-207). Springer, Cham.

Keyes, J. (2016). Implementing the IT balanced scorecard: Aligning IT with corporate strategy. Auerbach Publications.

Leipziger, D. (2017). The corporate responsibility codebook. Routledge.