cima gbc 作品.docx

case report for yjcima global business challenge 2015cima 2015商業(yè)精英國際挑戰(zhàn)賽team members:lan zhang yingying xie haoxuan di liyang zhu molly_777guided by chunlei huthis report is prepared by team banyan from northeastern university at qinhuangdaocontent1. introduction 2. terms of reference 3. identification and prioritization of issues 4. discussion of issues 4.1 license application results-yjs financial condition 4.2 lg farm out offer 4.3 outsourcer-drillt 4.4 yjs long time future5. recommendations 5.1 license application results-yjs financial condition 5.2 lg farm out offer 5.3 outsourcer-drillt 5.4 yjs long time future6. ethical issues 7. other issues8. conclusions appendixappendix1 pest analysisappendix2 swot analysisappendix3 porter five forces analysisappendix4 yjs oil and gas production with aaa, bbb and ccc in year to 31 march 2015appendix5 yjs profit or loss statement, statement of financial position and statement of changes in equityappendix6 statement of cash flows1. introductionyj is a uk company which was listed on aim in january 2007 with an initial public offering (ipo) of us$60 million. the companys strategy is to explore, appraise and develop into production its licensed oil and gas fields both safely and responsibly. to date, yj has been successful in identifying and bringing into production three oil and gas fields. corporate social responsibility (csr) is central to the way in which yj operates. health, safety and environmental (hse) issues are firmly placed at the top of yjs objectives. yj wishes to ensure that it actively prepares for and manages the risks it faces in the hostile and difficult environments in which it operates. to date, yj has not participated in either of the farm-in or farm-out possibilities. alternatively, yj may need to consider a farm-out arrangement for part of one or more licenses that it may be granted in the future.2. teams of referencethis report is to show the results of our analyses, to provide several solutions to the problems the company is facing and to give assessments on the proposals presented in the scenario.3. identification and prioritization of issuespriority1 license application results-yjs financial conditionyj company lacks money to test well eee, fff, and ggg itself, according to the predicted cash needs. after all the survey works and explorations have been proceeded, giving up any potential license of the wells is not wise and yj needs to raise fund in three ways, which refers to bank loans, right issues and lg farm out offer. priority2 farm out offerlg offer a farm-out plan of ggg to yj with a total 10 million assistance progressively. in return, yj will sell ggg products with a 10% discount to the current oil price, at the price of us$9.9 million per mmbbl (or mmble for gas). for the less possibilities of bank loaning and right issues, yjs best option is to accept this offer.priority3 outsourcer-drillt to reduce yjs margin, yj has to cooperate with outsourcers. but in the aaa field, the outsourcer drillt faced management problems recently. its stuff stole the companys money, but his employer concealed the truth until yjs supervisor disclosed it. yj concerns about the accident and carries out several solutions. priority4 yjs long time futurethe inherent lack of fossil fuels sustainability and fierce competition in the oil industry compress yjs future profit and survival space. yj needs an enterprise transformation while taking few key factors into account.ethical issuesthe greenbies protest against the oil industry makes people concern about their long-term future. additionally, yj tempts to conceal the drillt accident contracts its csr promise.4. discussion of main issues4.1 license application results-yjs financial condition4.1.1 financial analysisliquidity of short-term assetratios20152014industry averagequick ratio1.620.622.8current ratio1.911.393.6cash ratio1.450.42-the figures of year 2015 dont have reference meaning, because they are calculated around the premise that yj doesnt make any fixed investments. so we compare the figures of year 2014 with the industry average level. as we can see, yjs quick ratio, current ratio and cash ratio all much lower than the industry average level. this indicates that yj has a bad short-term debt-paying ability and at a not so good liquidity position.profitabilityratios20152014industry averagereturn on investment(roi)0.350.310.33return on total equity0.951.38-the roi in year 2015 increases 13% and is higher than the industry average level. this shows yjs good profitability. however the return on total equity decreases 31%, which is a significant bad trend.long-term debt-paying abilityratios20152014industry averagetimes interest earning4.873.657(non-financial business)debt ratio0.660.740.34debt/equity ratio1.962.790.68yjs times interest earning of year 2015 increases 33.4%, which is a good trend. however, it is still much lower than the standard of non-financial business. the debt ratio and debt/equity ratio of yj in year 2015 are both better than that in 2014 but still much higher than the industry average level. these indicate that yj holds too much long-term liability and under a heavy interest payable. yjs long-term debt-paying ability isnt good.4.1.2 license application resultsaccording to the statement of cash flows that we prepared, the cash and cash equivalents at 31 march 2015 is about $74.6 million while predicted cash needs for eee, fff and gggs text drill costs are $63 million. an amount of cash and cash equivalents yj needs to meet the demand of day-to-day running of the business and keep the cash ratio at the same level with year 2014(0.42 see above) is at least $20 million. thus, the cash that yj can used to test drill will be about $54.6million which cant cover all the test drill cost of wells eee, fff and ggg.if yj give up one offer in view of lack of financial or managerial capacity, yj may lose a good opportunity as the test drilling licenses are very hard to receive. and the costs yj paid previously for survey work and exploration will be for naught.so, yj must gain some extra capital to commence those three teat drills, ensure there would be enough money to make the test drills running smoothly and take the fields into production afterward. at present, there are three ways to raise fund. the first is getting more loan form banks. the second is right issue. and the third is accepting the farm out offer form lg. ullan shah has done a little research and found two newspaper article and found two newspaper articles.4.1.3 possibility of the right issuethe article 1 said that a gas fracking companys shareholders are unpleasant with its cash call and unwilling to provide extra investment. although yjs shareholders are content with yjs current operations, we think that they would not willing to invest more because yj hasnt give any dividends to shareholders to date. yj is a small company, the interests of shareholders should be firstly considered. the return in total equity has a significant decrease in 2015 comparing with figure in 2014 which is even not very good. if yj continues to increase the equity through right issue, the return on total equity will be lower. we believe this will make shareholders very unhappy. thus, we think the right issue is inappropriate at this situation.4.1.4 possibility of the bank loanthe article 2 said that the major bank are short of funds and coming under increasing pressure not to take extreme risks. accordingly the bank of england has issued guidelines on the maximum loans that lend to e&p companies. the maximum level will no more than three times the operating profits of companies published accounts. yjs operating profit in 2014 is us$57 million, and it now secured loans totaling us$140 million. and as we can see above, yj holding too much long-term liability and under a heavy interest payable. if yj get more bank loan, there will be a great risk of unable to pay its debt. we think its inappropriate for yj to get more loan from bank when in view of yjs debt paying ability and what the article 2 indicated.4.2 farm out offeras yj cant raise from right issue and from loan, the rest of method is to consider the farm out offer. according to the farm out offer, yj can get us$4 million (us$2m + us$2m) which can help commencing test drilling and us$6 million which can help yj take the field into production when the test drilling is completed and the extent of any reserves is established. the interest that lg want to get from the us$10 million it gives is the right to produce the oil field ggg and buy gggs proven reserves for the prices of us$9.9 million per mmbbl (or mmbble for gas)(a 10% discount of the current average normal price). the geologist reports indicated that the ggg field can have between 8 and 10 mmbbl/mmbble of oil and gas. it means that yj will give a total discount between us$8.8 million and us$11 million which is equal to the money that lg give to yj. of course, yj can earn much more if it produce the oil and gas and retail the oil and gas to sole traders. however, yj lack capital to take the field into production. so we suggest yj to accept the farm out offer from lg.4.3 outsourcer drillitdrillts former stuff stole money from the company and gone. drillt concealed the accident and showed negative attitude to change the current system. the mismanagement of the drillt brought damage both on the drillt and yj. yj needs to ensure its outsourcers operate well and have the ability to complete the contract, in order to guarantee its profit.4.4 yjs long-term futureas we all know, a clear and long-term strategy is very important for a company, particularly for those startup companies like yj. just as the board suggested, as an e&p company, yj is forced to face the inherent lack of sustainability of fossil fuels. according to the overview analysis, we know that there is fierce competition within the e&p industry. those big e&p companies control most of the fields which have abundant reserves of oil and gas and the core production techniques. it will be more and more difficult to discover rich reserves in conventional oil and gas fields since most of conventional oil field have entered the later development period. these mean that yj have to make an enterprise transformation, or it will face the risk to dissolute the company once its fields run dry. after discussion, we summarize four factors that yj should seriously consider when making the transformation decision:l possibilities of the fall of the oil priceunder the influence of the weak demand, the strong dollar, and the rapid growth of the american oil production the oil price will drop in the future, according to the newly released iea report.american oil companies focus on the new shale gas industry and make efforts to bring the hi-technology into huge profit. but it also results in the fall of the oil price and less capital invested into the industry itself. yj needs to pay attention to complex situation and be aware of the possible fall the oil price and the decline of its margin.l the trend of energy using in the futureoil and gas are non-renewable resources. and the use of oil and gas has caused some environmental problems such as global warming. thus the trend of energy using in the future is clean and renewable resources such as wind energy, solar energy, geothermal energy and hydroenergy. governments around the world are going to increasing policy support and spending to support the development of new energy. so if yj want to transfer to an energy company, new energy will be a good direction.l the cost of transformationmaking a transformation will cost much. the cost include explicit cost and opportunity cost. the explicit cost include purchase equipment and recruit employees that the new business need. the opportunity cost is the foregone from giving up the alternative use of a scarce resource when a decision arise. yj should pay much attention to the opportunity cost when making the decision.l yjs technical capacityyj should also consider its technical capacity. the premise of enterprise transformation is that yj must have the technical capacity to run this new business.l risk and loss if fail in transformationevery transformation decision has its risk of failure. failure of transformation may let yj face a great loss even go bankrupt. so before making the decision, yj need a rigorous risk analysis. there are methods yjs directors can use such as decision tree, minimax regret, expected value and so on.5. ethical issues5.1 overview-yjs stakeholdershighlowhighinterestpowerkeep satisfiedgovernmentgreenbies partykey playersoutsourcersminimal effort (ignore)keep informedemployees(a) key players: key players are those who have great influence on the company and are great influenced by the company. as for yj, outsourcers are its keep players. yj should develop mutually beneficial and win-win relationship with its keep players.(b) keep satisfied: these stakeholders are those who have great influence on the company but are hardly influenced by the company such as government and greenbies party. these stakeholders must be treated with care. what yj should pay special attention to is that yj should avoid bribery when deal with government.(c) keep informed: these stakeholders are those who have little influence on the company but are great influenced by the company. yjs employees are in this category as its very dangerous to work on the sea. to achieve high csr, yj should consciously provide employees with a variety of kinds of opportunities.(d) minimal effort: these stakeholders are those who have little influence on the company and are hardly influenced by the company. they can be reasonably ignored.5.2 protest by the greenbies partythe oil, regarded as the non-renewable main energy source today, which is literally a comprehensive issue involving all the political, economic and social aspects. meanwhile, the protestors highlight people concerns of environmental protection and our future of limit resource of oil. it is a csr problem to yj and the corporation always pays attention to csr problems and sticks to foster good relationships with both stakeholders and environmental protection organizations with great sense of social responsibility.yj needs to stand out and explain to the society with sheer heart that the companys intention is to make a better world, with easier life and more convenient communication, by extracting the oil from oil fields. it will stabilize shareholders and comfort the government which shares profit from yjs oil and gas field. also yj is required to promise there will be improvements on extracting efficiency and saving the energy while drilling or extracting.5.3 drilltthe mess happened in the aaa field is not just simply an absence of management, but a csr problem as well. now yj faces a hard choice between concealing the so-called accident and disclosing the crude truth to the public. yjs corporation aspires to do business with integrity and honesty, in accordance of the business ethics in the csr policy.take the drillt accident as the chance to improve the present managing system, and release the whole process to the government group and the public with an amendment. the positive and frank attitude yj corporation holds will definitely help itself to overcome both the managing and csr the challenge smoothly. an advanced amendment make the government, shareholders, and stakeholders believe and trust the capability of yjs corporation and its firm future.6. other issues6.1 replacement of ceooliver penn retired because of the very serious ill health. ullan shah take his place and has taken over the company for a period of time. as we can see in the case, ullan shah has a quite different management style with oliver penn. ullan shah is much more radical. he think yj should accelerate the rate of identifying and bringing new oil and gas field into operation. this indicate ullan shah much like a risk lover and will make risky decisions.the replacement of ceo also make yj bear an option. yj should pay oliver penn the amount of money when he dispose his shares and gives ullan shah a stock option as he want.6.2 health, safety and environmental issueanalysis:hse problems always bring e&p industries catastrophic results so yj should take them severely. we debate these problems in three respects.method:for it systemyj has an integrated software to operate itself. it not only includes the ledgers of company and register of staff but also could survey and scan to share data for geologists. the most potent for it system is health, safety and environment (hse) problems. for yj, insufficient workforce is one of the most troublesome problems and if it cant retain talent who is essential yj will be hard to develop itself even sustain its wells. so whether yj utilizes the system well or not is significant. i think yj needs to do some things to perfect managing of hse problems. the system needs a stage such as moment or forum for staff to submit thoughts to headquarter and communicate with each other. actually the latter one is more vital, because in harsh working environment colleagues will comprehend what others thoughts and complaints are more than family. it is necessary for yj to revise the leak in the system. and it will raise safety factors to strengthen sta