Academic journal article Journal of the International Academy for Case Studies

Tom Brown Inc.: Surviving in the Oil and Gas industry.(Instructor's Note)

Academic journal article Journal of the International Academy for Case Studies

Tom Brown Inc.: Surviving in the Oil and Gas industry.(Instructor's Note)

Article excerpt

CASE DESCRIPTION

This case was developed through the use of secondary research material. The case has a difficulty level of five and is appropriate to be analyzed and discussed by advanced undergraduate and graduate students in a strategic management class.

The case allows the instructor the flexibility of concentrating on one strategic issue, or as a means of examining the entire strategic management process. The major focus within the strategic analysis as well as excellent stand alone modules is in the area of legal/political influence, economic, and as a means of discussing owner succession.

The instructor should allow approximately one class period for each element addressed. Using a cooperative learning method, student groups should require about two hours of outside research on each element researched. The case also provides an impetus to explore a critical industry in our world economy, yet one that has received minimal attention in most course coverage.

CASE SYNOPSIS

This case is a library, popular press and internet case which examines Tom Brown Inc. The review of annual reports, trade journals, government documents and proposed and enacted regulations must be accomplished carefully. While most students have a general understanding of the oil and gas industry, few have the current knowledge to compare this industry against more traditional production operations. A review of these resources should lead students in determining the future of the company and the current CEO, Tom Brown.

INSTRUCTOR'S NOTES

Company Mission

"Tom Brown, Inc. is an independent energy company engaged in the exploration for, and the development, acquisition, production, and marketing of natural gas, natural gas liquids, and crude oil primarily in the gas-prone basins of the North American Rocky Mountains and Texas."

The corporate mission of TBI should be located by the students on the corporation's website. A review of the mission clearly demonstrates that the company has a well focused mission statement. Further investigation of TBI's direction within that document allows the identification of several internal goals and directions. Each of the below goals reinforces the company's desire to build value per share:

* Exploring undiscovered reserves

* Acquiring and exploiting oil and gas properties

* Enhancing value by optimizing production, actively marketing and processing natural gas and focusing on cost containment

* Aggressively managing and holding a dominant land position in its core areas

* Maintaining a strong balance sheet

Review of these goals should provide discussion on consistency with the mission. Knowledge of the actual results indicates, for the most part, that TBI has created a well developed direction for the company. Some discussion may arise regarding whether the above goals are truly goals or are they strategies the company is pursuing.

INDUSTRY ANALYSIS

Threats to Entry

The natural gas production industry sells a relatively undifferentiated commodity. There is no proprietary product difference or brand identity associated with natural gas. Many projects have fairly low capital requirements for domestic natural gas production. In addition, there are no switching costs for purchasers of natural gas.

One barrier that a new start-up would encounter could be access to distribution channels in certain gas rich areas--the Rocky Mountains for example. Not only is there a lack of pipeline capacity existing in the region, but individual gathering systems within that region also lack abundance. Individual operators can build gathering systems, but these systems make project economics much less attractive.

Perhaps the biggest deterrent for potential competitors within the natural gas industry is the fact that existing firms have absolute cost advantages with respect to the exploration and development of new reserves. …

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