Oil Industry Case of Suncor Energy Case Study (Case Study Sample)

Oil industry case-case of Suncor energy
Introduction
Globalization has resulted in the rise in the information and communication all over the world through cutting down the boundaries between various countries. This in turn helped in the growth of international business through the emergence of many opportunities to industries. At the same time, the technological developments and the globalization activities like mergers and strategic alliances have created many challenges also to various industries. This includes the environmental impacts created by the advanced technologies in many industries and the ethical issues associated with these. However, detailed case studies are needed to examine the effects of globalization and the associated technological developments on the performance of specific industries.
Oil industry is considered as one industry, which is significantly affected by the technological developments, and the other activities associated with globalization (Idachaba, 2012). Given this background, this essay examines the effect of globalization activities on the oil industry in Canada, taking the case of Suncor Energy. There are five sections in this essay. In the second and third sections, the trends in global oil industry and Canadian oil industry in the context of globalization are discussed. In the fourth section, the globalization activities occurring in Suncor energy and its effects are discussed. The fifth section concludes the essay.
Oil Industry
Oil is one among the primary fuels accounting for a majority of the energy consumption in the world (Howard et al, 2007).The four main players in the oil and industry are the international oil companies, independent oil companies, service companies and research institutions(Idachaba,2012). The majority of world oil reserves are owned by Government regulated oil companies. The two different phases in the oil industry development are the growth phase and the maturity phase (Idachaba, 2012). In the growth phase, the main features include startegic alliance formation, mergers and acquisitions, high investment in technology and high onshore production while in the maturity phase; the main features include low investment in technology, reduction in offshore production etc (Howard et al, 2007). The top ten oil producing countries in the world include Saudi Arabia, Russia, USA, Iran, China, Canada, Mexico, UAE and Nigeria in their respective orders(CIA World Fact Book,2012). The top ten oil-consuming countries in the world include USA, China, Japan, India, Saudi Arabia, Germany, Canada, Russia, South Korea and Mexico (CIA World Fact Book, 2012). The following figure shows the world crude oil production and crude oil consumption from 2003 to 2012.
Figure1: World Crude Oil Production and Consumption from 2003 to 2012


Source: FCCQ (2013)
Globalization has created both opportunities and challenges to the oil industry, as shown by different studies (Yergin, 2011; Mitchell et al, 2012). It is one of the major industries which is significantly influenced by the technological developments, as shown by reports(Idachaba,2012).Mergers and acquisition activities had been one major globalization activities taking place in the global oil industry(Deolitte,2010).
Figure 2: Region wise Number of Concluded M&A deals in global oil and gas industry


Source: Deolitte (2010).
The figure above shows that North America had the highest number of concluded deals in mergers and acquisition activities in global oil and gas market in the period 2008 to 2010.This was followed by Middle East and Europe. Asia reported the least number of concluded deals in mergers and acquisition activities in global oil and gas market in the period 2008 to 2010, based on the figure above.
Canadian Oil Industry
Canada is reported to be the sixth largest producer of oil in the world (Collyer, 2012). Western Canada accounts for 52 percent of the drilling rig count in Canada where Alberta Province constitutes 46 percent of the drilling rig count in Western Canada (Alberta Government, 2013). 65 percent of the oil production in Canada is dominated by the top ten companies, which include Suncor Energy Inc, Canadian Natural Resources Limited, Imperial Oil Limited, Husky Energy Inc, Shell Canada, Conocp Philips Canada and Devon Canada Corporation (FCCQ, 2013).
The main developments determining the shape of oil and gas market in North America especially Canadian market include the oil sands development, shale gas growth and the tight oil productive capacity (Price Water Coopers, 2013). Majority of the largest oil and gas companies owned by government are listed in the stock exchanges of Canada (Carey, 2012). Reports show significant effects of technological advancements in the Canadian oil industry including finding the crude oil with very high precision, waste reduction in crude oil production and reduction in the environmental effects from the crude oil production (Bott, 2012). The decline of conventional production areas and the rise in unconventional production areas like oil sands is the main feature of the Canadian oil industry (Carey, 2012). This domination of oil sands is reported to continue here for many years. Reports show this domination of oil sands putting Canada among the top five nations in the world in the countries with proved oil reserves (Carey, 2012).The following figure illustrates the significant position of the oil sands in Canada in the global crude oil reserves.
Figure3: World Crude Oil Reserves


Source: FCCQ (2013)
The foreign direct investment in the oil and gas industry in Canada showed significant growth rate of 3 percent from 2005 to 2012 in Canada with USA dominating the foreign direct investment in this sector (FCCQ, 2013). However, the share of European nations and Asia-Oceania nations in the foreign direct investment in this sector started increasing significantly in the recent years resulting in the decline of share of USA.
USA and Canada were reported to have accounted for the majority of the global M&A deals with 32.5 % and 17.92% respectively (Deolitte, 2010). However, with the recent approval of two takeover bids by the State owned enterprises in the oil and gas market, which had become controversial, the mergers and acquisition deals are subject to strict scrutiny in the oil sands sector in Canada by the government. The targets for outbound M&A deals by the oil and gas companies in Canada are Latin America, North America and Middle East-North Africa (Torry's LLp,2013).The main risks for foreign targets include delay costs in negotiations due to the distorted valuation metrics in countries like USA, political issues and the regulatory risks(Torrys LLP,2013).
Table 1: Direct and Indirect Economic Impacts of Oil Industry in Western Canada (In Canadian Dollar Million except for jobs)


Source: FCCQ (2013)
Note: BC= British Columbia; AB=Alberta; SK= Saskatchewan; ON=Ontario, QC=Quebec.
The table above shows the direct and indirect economic impacts of the Western Canada's Oil Industry. It shows the significant role played by this sector in Western Canada.
The next section discusses the globalization activities occurring in Suncor energy and its effects.
Suncor Energy and Globalization
Suncor Energy is the company, which dominates the Canadian oil production, accounting for 14.2 percent of production in 2011(FCCQ, 2013). It is an integrated energy company specialized in the crude oil production from oil sands, located in Calgary, Alberta. The three operating segments of Suncor are oil sands, natural gas and refining and marketing. Suncor transformed from a company, which was not profitable in the 1980s to one of the largest energy companies in the world at present. In the 1980s, there was very high government regulation of the oil industry in Canada together with tremendous decline in crude oil prices, natural disasters, labour problems and political uncertainties all resulted in a tough time for Suncor energy (Suncor.com, 2013a). In the 1990s, this situation changed and the company became one of the most successful and sustainable companies through numerous changes. These include technological developments like truck and shovel mining replacing bucket wheel excavators and change in the tax royalties by the government for risk reduction in oil capital investments (Suncor.com, 2013b). The operating cost reduced considerably due to these developments. This also began the transition of the company from an un successful one in the 1980s to one of the most profitable energy companies in the world (Suncor.com, 2013b).Studies showed Suncor energy as the company with third highest growth in R&D spending(Research InfosourceInc,2010). The technologies used in Suncor for the oil sands tailings include regular tailings, densified tailings, consolidated tailings and tailings reduction operations.
One main globalization activity occurred in the Suncor company was the $20 billion stock for stock merger of the company with Petro Canada (RBC capital markets, 2009).This was supposed to solve the capital issues in both the companies and achieving the long-term growth objective. The expectations of both the companies was operating cost saving of Canadian dollar 300 million and annual capital efficiency of Canadian dollar 1 billion (Click et al, 2010). Studies showed positive implications for the shareholders of both the companies due to this deal supported by three factors namely increased diversification opportunities, balance sheet improvements and rise in financial flexibility as well as enhanced growth prospects (RBC capital markets, 2009). Ever since the merger of Suncor company $20 billion stock for stock merger of the company with Petro Canada, all the debt ratios of Suncor started consistently reducing (Weeden& Co,2012).Along with these, the other merger synergies in...