Perform an external and internal environmental analysis for your Learning Team’s company.
Write a summary of about 2,000 words that does the following:
Identifies and analyzes the most important external environmental factor in the remote, industry, and operating environments
Identifies and analyzes the most important internal strengths and weaknesses of your organization: Include an assessment of the organization’s resources.
Format your paper consistent with APA guidelines
External and Internal Environmental Analysis
External and Internal Environmental Analysis
U.S. Energy Corporation (USEC) provides service in the production and development of natural gas and oil in the United States. Founded in 1966 in Wyoming and focusing on “the development of natural resource assets — acquiring properties on favorable terms, adding value through the application of its expertise in the natural resources sector, and seeking joint venture partners to assist in the development of its projects”. USEC is an independent exploration and production company that has large and diverse prospects through North Dakota and Montana as well as Texas and the Gulf of Mexico. Team B will be identifying and analyzing the external environmental factor in the remote, industry, and operating environments in addition to the internal strengths and weaknesses of USEC.Included will be an assessment of the company’s resources.
USEC economic remote factors can have a huge effect on the company. The market is one of the largest factors because this can affect the prices of natural gas and oil. The demand for natural gas and oil as well as geothermal, and molybdenum are also another factor.USECkeeps constant trends and motoring on these factors because it can affect the production. The company so far has maintained the financial part of the business without outsourcing for capital. Other economic factors are the contracts in developing and mining and the commodity derivative contracts. The commodity derivative contract, also called “economic hedges” objective is to reduce the effect of price changes on a portion of future oil production; achieve more predictable cash flows in an environment of volatile oil and gas prices, and to manage exposure to commodity price risk. The use of these derivative instruments limits the downside risk of adverse price movements. The commodity derivative prices can effect the changes in the market
Demand, pipeline capacity constraints, weather, and the economic activities, and other factors.
The USEC has built a strong culture that has made it possible for the company “to create opportunities which we can then convert into positive return for shareholders”. The company does not deal directly with the consumer but the company does have stockholders and intermediates bonded by contracts to sell the company’s products. The company as of 2011 has employed 19 full-time well trained professionals dedicated in following the company’s code of ethics. USECis a company with an excellent cultural environment, and values. The company has very low employee turnover with exceptional work ethics.
USEC is affected by political factors.As Pearce and Robison, 2011 states “political factors define the legal and regulatory parameters within which firms must operate”. USEC is obligated to follow the rules and regulation of local, state and federal law requirements. Other laws that apply are NEPA, Federal Water Pollution Control Act of 1972 and the Clean Air Act.The company is follows the tax laws for assets and liabilities, security laws for real estate, and environmental laws for quality and pollution laws.
Technological and ecological factor
The technological factor involves the technological changes. USEC has adopted all technological changes, including the purchase of new equipment and improving machinery to improve the drilling and the production. The ecological factors are air pollution, land pollution, and water pollution. These factors are extremely important because they can affect the living conditions natural life. The company constructs fully functional water pipelines on sites that dischargein compliance with permit requirements. USEC may generate “solid” and “hazardous” wastes subject to regulation under RCRA and comparable state statutes, although certain mining and oil and natural gas exploration and production wastes currently are exempt from regulation as hazardous wastes under RCRA. Other operations like drilling that releases restrict substances into the environment, USEChas remedial work to mitigate pollution from operations by closing and covering disposal pits, and plugging abandoned wells.
USEC has made a name for itself in the market place with the oil and gas exploration; includingproduction, geothermal energy, and molybdenum mining projects. The gas and oil wells operate along the coast of the Gulf of Mexico and Texas. The entry into the oil market is highly competitive. USEC competes with public and private exploration and development companies. The company also competes with gas and oil operators to acquire acreage positions. The competitors are small to mid-size companies that have in-house petroleum exploration and drilling.Some companies do have the personal resources, technology, and financialsmuch greater than USEC. The elevated barriers to entry consist of resource ownership, government licenses, and a high start-up cost. The oil and gas industry is a monopolist market.“Theoil industry was prone to a natural monopoly because of the rarity of the deposits”.
Execution of a business plan for the company requires the ability to generate cash to satisfy planned operating requirements for the next six to eight months.USEC entered into an agreement as a participant with a private entity of two counties in Texas. Under the terms of the agreement, USEC will earn 19.6% net revenue interest in approximately 1,274 net acres to USEC through a cash payment of $1.7 million. The promoted amount will cover USEC’s portion of the costs for land, geological, and geophysical work, in addition to all dry hole costs for an initial test well in each of the seven prospects. Upon payout of USEC’s initial well costs in each unit, USEC’s interest is reduced to 14.7% net revenue interest. Future infill drilling will be on an as needed basis, and USEC’s interest will be 14.7% net revenue interest.
USEC is incessantly in quest of additional capital through different alternatives, and particularly with respect to procuring working capital ample for the development of natural gas and energy projects to cause positive cash flow to sustain operations. USEC continue to pursue numerous opportunities their business as it relates to the oil and gas industry. USEC’s participation with private entities has been mutually favorable demonstrating a $1.6 million, a 24% increase in revenue; produced an OE/D from 13.65 producing wells; received an average of $2.8 million per month from producing wells with an average operating cost of $431,000 per month (excluding work-over costs), and production taxes of $294,000 before non-cash depletion expense, for an average cash flow of $2.1 million per month from oil and gas production.
USEC’s objective to generate capital for investors includes the commitment amount for our senior credit facility with Wells Fargo, NA increased from $75 million to $100 million, and the borrowing base increased from $28 million to $30 million and did not have any borrowings under this facility; however, borrowed $5 million to funddrilling programs. The company has $7.8 million in cash and cash equivalents on hand with working capital of $11.8 million. During the quarter ended March 31, 2012 we recorded a net loss after taxes of $381,000 as compared to a net loss after taxes of $2.2 million during the same period of 2011. Currently in 2012, USEC sold an undivided 75% of undeveloped acres in its Yellowstone and SE HR Zavanna leasehold interests for $16.7 million and $1.4 million in reimbursed well costs. The Company retained the remaining 25% interest in the undeveloped acreage and its original working interest and production in ten gross or two point three wells.
Internal strength and weakness
To improve the quality of decisions and choices by management USEC must identify its strengths that arise from the resources and competencies available.It must also identify its weaknesses that limit its capabilities and creating disadvantages related to its competition.The following SWOT analysis identifies the strengths and weaknesses related to the future of USEC.
The most important strengthsare assets including property acreage and low liabilities. In the First Quarter of 2012 USEChad combined assets worth 148.22 million and total liabilities worth 21.68 million. This is a huge asset for the company because minimal risk is assumed with obligation for liabilities. The company continues to keep its balance sheet clean by selling acreage at a premium to original cost. Acquiring favorable assets allow the company to reinvest in itself by exploring new technologies and other forms of producing environment friendly efficient energy.
In an interview Keith Larson the CEO of USECsaid, “the company is looking forward to continuing to work with Crimson in the Eagle Ford programs to identify the best practices to economically develop the acreage. Reports 2011 Highlights and Selected Financial Results. This is an indication of the value of acreage held by the company as an asset.
USEC’s strength also lies in possible future revenues from Uranium properties and the royalties held on Uranium claims. “It currently holds a 4% net profits interest on unpatented mining claims on Rio Tinto’s Jackpot uranium property located on Green Mountain in
USEC’s internal weaknesses include drilling operations, equipment, and key personnel. Currently the company does not operate most of its drilling locations and therefore cannot control the timing of exploration and development efforts, associated costs, or the production rate of these non-operational assets. This is challenging for the company because it poses uncertainties with timing, selection of suitable technology and the required capital expenditures.
The price fluctuation of oil and gas industry can often cause periodic shortages in equipment. This can severely affect the activity levels in many operating regions. Williston Basin says, “These types of shortages can significantly decrease the profit margin, cash flow and operating results or delay the ability to drill those wells and conduct those operations that the company currently has planned and budgeted, causing to miss forecasts and projections.”
Equipment is essential to any project and USEC must plan better to secure equipment.It can either buy its own equipment or enter into contract agreements to use the equipment that will give the company access to the equipment regardless of the competition.
The last internal weakness of the USECis that it has limited technical staff and executive group. Often the company has to reach out to third party consultants for professional geophysical and geological advice in oil and gas matters. The loss of any key employee can force business operations temporarily immobile and replacements can be difficult because of competitive hiring of experienced personnel in the minerals industry. USEC must invest in employee growth and explore opening its own research department rather than hiring third party consultants. This may help to strengthen employee retention and continually grow a qualified staff of personnel.
Assessment of U.S. Energy Corporation resources
In general, a company’s resources are all assets, capabilities, competencies, organizational processes, attributes, information, and knowledgeable that is controlled and enabled to conceive and implement strategies designed to improve its efficiency and effectiveness. A firm’s attributes that may be thought of as resources are generally divided into four categories: financial, physical, human, and organizational capital.
Financial capital is all the different money sources a company uses to implement strategies. USEC is very financially sound as described in the operating factors section. In its current financial situation U.S. Energy Corp. is in a very advantageous position to continue to support its oil and gas exploration and investments into other markets. Physical capital that is any non-human asset-made by humans and used in production. This usually includes all facilities, equipment, access to raw materials, and geographic location with an affluence of drilling ventures and a diverse portfolio of prospects.
Human capital includes all the attributes of experience, training, intelligence, leadership, and insight of managers and workers within a corporation. USEC has a wealth of human capital within its organization. The company is led by Keith Larsen, the acting CEO. Keith has over 25 years of experience in the natural resource sector that includes project development in oil and gas and mineral markets. Mark Larsen, COO, Steven Youngbauer, Secretary, and Bryon Mowry, Director of Accounting, round out the rest of the senior management team that has a total of over 106 years of experience within this sector.
Organizational capital is a term used to describe the efficiency with which a business or other type of organization can utilize resources in a manner, making it possible to implement and sustain some type of strategy. This process often involves identifying ways to use existing resources in new ways, or to allocate a portion of those resources to a new project without creating hardship for other strategies that must continue to function, the ability to assess and use organizational capital is important to the ongoing growth of the company. USEC has a corporate governance strategymade of several committees that provide oversight and direction for the company. These committees include the Audit Committee, to provide direction and review of fiscal matters; the Compensation Committee that reviews and recommends compensation packages for the officers of the company; the Executive Committee, and the Nominating Committee, who considers and recommends who may be suitable to serve as directors.
USEChas a long-standing reputation as the industry leader with a long-term orientation. Disciplined management, a nationally valued source for gas, oil, energy, and operational excellence in natural resources and environmental cultivating; USEC is poised to take on the challenges of the world energy sources. The magnitude of its reserves, strong technology orientation, and its financial strength gives it a commanding position in the industry.
For USEC to extend the competitive advantage, a well-balanced strategy that caters to
the short-term and long-term is critical. USEC recent move of focusing on seven projects with a private company is well aligned with its energy outlook and long-term investments in relatively
high-growth areas of energy sources.
The oil andgas industry is cyclical and its profits are highly correlated to supply and
demand dynamics and political stability in major oil producing nations. Nevertheless, improving
global economic growth prospects and ever increasing energy demand goes well for the company’s profit outlook. With an nationally diversified business portfolio, the company’s leading oil and gas reserves, envious financial strength and solid dividend yields, USEC is one of
the best long-term investment plays in the energy sector and integrated oil and as an industry.
2011 Annual Report. (2011). U. S. Energy Corporation. Retrieved from http://files.shareholder.
Beattie, A. (2010). A history of U. S. Monopolies. Retrieved from http://www.investopedia.com/
Pearce, J. A., II, Robinson, R. B. (2011). Strategic management: Formulation, implementation,
and control (12th ed.). Boston, MA: McGraw-Hill/Irwin.
U.S. Energy Corp. Reports 2011 Highlights and Selected Financial Results. (2012). Retrievedfromhttp://investor.usnrg.com/releasedetail.cfm?ReleaseID=657392
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