Petroleum, Industry, and Governments: United Arab Emirates - Case Study Example

Essay: Big Four ADCO ADCO is Abu Dhabi Company for Onshore Oil Operations. It operates in the coast of Abu Dhabi in the UAE (United Arab Emirates), in shallow waters and on onshore. The company’s original business agreement was made with Petroleum Developments(Trucial coast) ltd. But the geological work started after the Second World War. On February 1950, exploratory drilling started in Abu Dhabi. The company’s 1st commercial oil discovery was made in 1960 at Bab but it was in December 14th 1963 that exportation from Jebel Dhanna started. The company was renamed Abu Dhabi Petroleum Company (ADPC) in 1962.On 1st of January 1973 Abu Dhabi’s government obtained interest of 25% in the company which was later increased to 60% as at January 1974. Later on, ADCO got itself finally incorporated under law No. 14 in 1978, and on October 8th, 1978, ADCO undertook the responsibility of all the operations in concession regions, which covers more than 21000 square kilometers after relinquishments. The organization drills mainly from six oil fields: Shah, Sahil, Asab, Bab, North-East Bab (Dabbiya, Rumaitha and Shanayel) and Buhasa. ADCO is responsible for the operation of Jebel Dhana and Buhasa Airports. Drilling on Hudariat and Dabbi’ya commenced in 1982, both being man-made islands, while the company discovered Khuff gas at Hail. In 1990 the company broke the world record twice for horizontal drilling. In Jebel Dhanna the organization commissioned three more storage tanks in 1993, with the capacity of each barrel at one million. This is also was the 30th Anniversary of the first crude shipment. In 1996 ADCO finished their fourth main oil pipeline and in 1998 they completed construction of their new Headquarters. In 2002 the organization completed gas injection in Asab Zone A/B, Bab infrastructure was upgraded and an additional manifold, while Bu Hasa got two additional manifolds and Huwaila received multiphase pump installation projects. The below projects were completed in 2003: New RDS Manifolds in Asab. Vapor Recovery and Minimized Flaring in Asab/Sahil. Water injection Enhancement in Sahil. Vapor Recovery and Zero Flaring Pilot in Bab. Water Injection Power Skid Replacement in Bu Hasa field completed for Onshore Power Generation Integration in Fields General. Female employees started working in ADCO field locations and an agreement was reached to undertake CO2 EOR pilot, first in the GCC region. The following are the locations of their Global branches: ADCO Global, Inc. - World Headquarters in Lincolnshire, IL, ADCO Products, Inc. - Michigan Center, MI, ADCO Products, Inc. -Chagrin Falls, OH, Mundelein, IL, Germany - Pirmasens and Langelsheim,.Moscow, Russia,UK Limited - Uxbridge, Middlesex England, China -Nanjing, Beijing, and Hong Kong The Council of Supply Chain Management Professionals(CSCMP) defines logistics management as ‘that part of supply-chain management that plans, implements and controls the efficient, effective forward and reverse flow and storage of goods, services and related information between the point of origin and the point of consumption in order to meet customers’ requirements’(Council of Supply Chain Management Professionals,2010).There are 3 crucial sources of petroleum products include crude-oil wells in areas of production, coal mines and gas fields. There are 3 primary types of petroleum pipeline transport systems which include; crude-oil trunk pipeline systems, refined-products pipeline systems and gathering pipeline systems. Together, these systems usually give a constant link between mining, processing, distribution and wholesalers’ storehouse in regions of consumption. Apart from the physical features –tanks, pipes and pumps-the pipeline’s fundamental design consists of control centres using up to date computer systems, electronic control mechanisms and communications devices. Thus the system is linked together via radio, electronic and telephone communication and these controls help in maintenance of high degree of automation, time and cost savings and various other built-in safeguards. This therefore means that together all these technologies allow a few other individuals in a centralized location to constantly keep the whole system functioning effectively and efficiently. These technologies also allow quick and precise pipeline accounting. Pipeline operations controllers (dispatchers) by use of computers remotely run the pumps and together with other features of pipeline operations. Rooms that are used for controlling pipelines usually make use of Data Acquisition (SCADA) and Supervisory Control that give instantaneous information about the pressure, speed, rate of flow and any other relevant information that is crucial to product quality maintenance, for instance the particular gravity, temperature, flashpoint and also density for the product being pumped. Management of inventory is a very important issue for ADCO. The requirements of both the marketing and manufacturing functions have to be continuously met. However huge volumes of inventory mostly take a lot of warehouse space that is capital intensive apart from draining of financial resources by virtue of possessing the inventory. ADCO have got only crude oil as their raw material and the levels of the stocks that they have are monitored by use of remote controlled computers. Once the stocks are down, there is an automatic indication of the same, which allows for re-ordering at the right time. This is because the expense incurred on the warehouse space and the inventory’s value both has got an opportunity cost. As a result a trade-off that is optimal is arrived at between the given opportunity cost and adverse effects that would take place in case of a stock-out situation. Inventory is property that is tangible and is held for sale in the normal course of doing business, Inventory is mostly made up of raw materials, finished goods, stores, work-in-progress, loose tools and spare parts. ADCO has got crude oil as its main inventory. It also has got storage tanks, trailers, pipelines, pumps and pipelines. ADCO classifies its inventory into merchandise. Thus merchandise stock refers strictly to inventory essentially possessed by the merchant. Inventory control specialists are responsible for the inventory management of ADCO and ADNOC stores. In petrochemical industry the company has a few fixed set of customers and a set of temporary customers. So as to maintain service quality, it is essential to maintain constant availability of service to both parties. To succeed in this, the company maintains in-house stock in equal proportion for temporary and permanent employees. The company maintains the inventory for these customers before the placement of orders. They store the inventory in a hired warehouse whose rent is deposited in proportion to the inventory stored in the warehouse. This ensures that products are always available to the customers whenever they need it. So this adds to the effectiveness of the system better service standards and quality perception. The products are diversified; the company produces both oil and finished oil products according to their customers’ needs. The product here stands out and the demand keeps hiking to extremes. ADCO have a high level of stock since it has subsidiary oil production fields. In order for the company to determine when to reorder stock, they review stock levels to determine appropriate reordering activities. The ADCO Company reviews Stock Replenishment Report (SRR) and determines appropriate action to be taken on replenishment, transfer and adjustment of stock levels. Economic order quantity (EOQ) is usually the order quantity that decreases entire inventory expenses and ordering expenses. It ranks as one of the very old conventional production scheduling representations. The framework that is used in the determination of this order quantity is also referred to as Wilson EOQ model or better still Wilson Formula. Ford W.Harris is charged with the development of the EOQ in 1913.However it is a consultant by the name of Wilson R.H, who is credited for applying it extensively and due also to his in-depth analysis. Thus the economic order quantity as the name suggests is the formula that gives the company with the exact order quantity that is required. This specific order quantity is a figure that denotes where both the ordering costs and record holding costs are minimized. Companies are able by the use of this model to minimize the expenses that are associated with the inventory holding and ordering. Thus EOQ can be defined as a model that is utilized in the calculation of the optimal quantity that can be bought or rather produced so as to minimize the expense of both the carrying inventory as well as the handing out of purchase orders or production set-ups. The formula for EOQ is as follows; Q= square root of 2DS divided by H, whereby; Q represents optimal order quantity, D=annual units demanded, S=the cost that is incurred while placing a single order or setup and H is the carrying cost per unit. The above formula is usually derived from the cost function as below; Total cost=purchase cost+ holding cost + ordering cost. The examples that are applicable to ADCO include the quantity (Q) demanded, D is the annual units demanded and S which is the cost incurred (Daves,Brigham,2013).This model has got such limitations as the necessity for the application of EOQ order that requires demand remains steady throughout the year. The other necessity is that the inventory should be delivered in full every time the inventory level reaches zero.There are also several principal assumptions of this model without which the model cannot function well. They include; the assumption that ordering remains steady,that the annual demand rate is known and should be evenly spread throughout the year,there is no flactuation in lead time,there is no availability of settlememnt discounts or cash ,and that purchase price is steady for every item,that optimal plan is determined for a single product only,that there is no delay at all in the replenishment of the stock and that the order is transported in the exact quantity demanded that is in full batch. They monitor stock levels and ensure that recommended levels are maintained. ADCO carries number types of inventories; GHG inventory being one of them aims to identify and quantify the GHG emissions and removals from sources and sinks. All distributors maintain a built to stack inventory to ensure a constant and emergency supply of stacks. The economic order quantity model considers the tradeoff between ordering cost and storage in choosing the quantity to use in replenishing item inventories. A larger order-quantity reduces ordering frequency, and, hence ordering cost per month, but requires holding a larger average inventory, which increases storage (holding) cost per month. On the other hand, a smaller order-quantity reduces average inventory but requires more frequent ordering and higher ordering cost per month. ADCO uses mostly trucks to transport its merchandise. It also uses pipelines to transport oil to various destinations whereby it is pumped into oil tankers and transported through the sea. This therefore means those terminals, pipeline and oil/gas movements’ operations asset is ADCO’s gateway to the international Oil Export Market whereby crude oil is shipped to different markets globally. ADCO’s first shipment was shipped overseas from Jebel Dhanna Terminal in Abu Dhabi ,on December 14th 1963.TPO Asset functioning as a central unit in ADCO so as to coordinate with OPCO and ADNOC’s and other industry shareholders related to oil off take ,related gas demand, lifting commitments, operating and technical matters for oil and related gas activities. Thus TPO Asset is charged with operating and managing Jebel Dhanna Terminal as well as the Main Oil Lines (MOLs) Network which is made up of approximately 704 KMs of pipelines and four Offsite Valving sites, delivering evened out Crude Oil from ADCO oil fields to Jebel Dhanna oil terminal. In the year 2012, the new Abu Dhabi Crude Oil Pipeline (ADCOP) project facilities comprising Fujairah Export Terminal were commissioned and ADCO were nominated by ADNOC to aid in the maintenance and operation of this terminal. Thus this 48 inch diameter pipeline was designed to transport ADCO’s oil to this main oil terminal (MOT) in Fujairah for exportation via the offshore loading facilities (Omair,2010). In March 2011,KG Logistics via the ABJ Engineering and Contracting Co. succeded in winning (ADCO) project that comprises of transportation by use of sea and road freight including clearance by customs services of over 52 units of dealers and pressure vessels from Kuwait to Abu Dhabi.Thus the total project’s volume was 20,588 cbm with an entire weight of 2,0307 tons.This whole exercise was subdivided into 4 phases,the 1st and 2nd phases comprised the transportation by use of road whereas the 3rd and 4th phases was transportation by sea. For the sea freight transportation ,the units were mostly loaded by RoRo operations by use of a hydraulic trailer of around 40 metres in length with a special barge of 95 metres long and 35 metres wide. Since ADCO mostly uses road for most of its transportation, it has also been involved in various road safety management projects due to several fatalities witnessed on the roads. Road safety goes on to be one of the greatest challenges that is facing downstream/upstream gas and oil companies. Thus globally, the scene is no different and over 3000 lives continue to be lost daily because of traffic and road crashes, amongst young people between the ages 15-29 years. Road crashes are the 2nd leading cause of death globally according to a WHO world report concerning road traffic injuries prevention. ADCO has not been left behind, and has also bore its own brunt of losing several employees. This prompted companywide efforts aimed at improving management of road safety both for ADCO and her contactors. This necessitated the formation of a joint taskforce of ADCO and main contractors were appointed to carry out an in depth-analysis of existing deficiencies and come up with proposals of potential solutions. After the adoption and implementation of the recommendations, ADCO and other contractors experienced no fatalities for about 3 years and in addition, ADCO had a considerable decrease in violation of road traffic by employees. Through its branches, ADCO operates in several airports; some examples are Buhasa Airport and Jebel Dhana Airport. Fast Transport: The Corporation maintains an effective transport system from engineering plant to delivery Centre and then advance from distribution to retail outlets. Presently hired transportationis used to reduce the cost of vehicles. Use of road and sea transport is much cheaper and convenient in transportation of oil more than any other mode. And this is the main reason why most oil companies, including ADCO prefer it. ADCO’s oil distribution site is fixed, constructed facility which is key in the transportation or shifting of oil from the point of extraction to the point of selling. It mostly comprises of a stopping point in a distribution network or the whole pipeline or actually a similar distribution channel. ADCO’s Jebel Dhanna Terminal is the main storage and exporting terminal for its crude oil that it produces. This site of oil tanker filling terminal was selected due to its closeness to the deep-sea water and also the fact that Jebel being the most suitable elevated rock structure alongside the coast which provides the required altitude for oil gravity supply emanating from the tank to shore and also outwards to the three sea berths. The terminal at Jebel Dhanna has got sixteen storage tanks for crude oil. Plans are underway for the construction of new 48 inch pipeline from the core pump station in Habshan area with a tie-in to the current ADCO pipeline network to the Fujairah export terminal. This core pump is fitted with custody metering equipment, storage/buffer cum reprieve tanks, electrically powered main oil transfer booster pumps and pumps. The main oil terminal (MOT) is situated at Fujairah north will also be fitted with crude oil storage tanks, metering system, pumps, utilities, pressure control systems plus other exporting and operating facilities. The Main Oil Lines (MOL) network is made up of approximately 564 kms long of pipelines and four other offsite valving stations that mostly transport crude oil that is stabilized, from South East, Bu, Bab, NEB and Hasa fields to the terminal at Jebel Dhanna Oil. There are several loading facilities available to ADCO.Thus the crude oil coming from the tank farm situated at Jebel Dhanna Terminal is transported via three 48 inch gravity lines to measuring devices for every of the 3 sea berths consisting of three Single Point Mooring buoys. The intelligence/automation control system is usually housed in the controlling room, usually incorporates the crude oil measurement system and operates all motorized valves electronically. The other facilities include; proving sequencers, loading pump controls and remote tank level indicators. ADCO has got a global distribution network with a representation in over 125 nations. They are always looking for opportunities to expand their reach into new territories with the right channels and talents in place. All ADCO orders done via their website and are shipped through tankers. There is full insurance for all orders. ADCO provides seamless transportation service to customers in all the main markets it operates in. ADCO believes that efficient, friendly and responsive customer service is key and paramount to the success of any enterprise. To meet the needs of their distributors and customers, ADCO have designed a skilled and effective service center that provides customer care. Customer care center is open 24/7and clients can call anytime and customer care managers respond to the protest in record fixed time. ADCO is investing in technical infrastructure by improving their phone system, website, internal network, CRM and report structure so as to better their services to their customers (Abed, Hellyer, Vine, 2006). References Abed Ibrahim, Hellyer Peter,Vine Peter. United Arab Emirates. Abu Dhabi: Trident Press Ltd, 2006. Bernard, Taverne. Petroleum,Industry,and Governments:A Study of the Involvement of Industry and Governments in the Production and Use of Petroleum. New York: Kluwer International, 2008. Daves Phillip, Brigham Eugene. Intermediate Financial Management. New York: South-Western Cengage Learning, 2013. Desheng, Wu Dash. Modelling Risk Mangement in Sustainable Construction. New York: Springer, 2011. Group, Oxford Business. The Report:Abu Dhabi. Economic. Abu Dhabi: Oxford Business Group, 2009. Omair, Yousef. The Oil & Gas Year Abu Dhabi 2010. Abu Dhabi: Wildcat Publishing, 2010. Read More