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BÀI TẬP LỚN PHÂN TÍCH HOẠT ĐỘNG KINH DOANH 9,6 ĐIỂM. 1. How many major sectors in the oil and gas industry? What is a ''''LNG’? Use PESTEL/ FIVE FORCE or any technical models to analyze the and explain why YJ share price could immediately rose after got four license applications? There are three major sectors in the oil and gas industry. These are: Upstream – this involves the exploration, drilling of exploratory wells, subsequent drilling and production of crude oil and natural gas; Midstream – this involves the transportation of oil by tankers (Liquefied Natural Gas – called LNG) around the world and the refining of crude oil; Downstream – The by-products include gasoline, diesel and a variety of other products. Liquefied natural gas (LNG) is natural gas that has been converted to a liquid form for the ease and safety of natural gas transport. Natural gas is cooled to approximately -260 F, creating a clear, colorless, and non-toxic liquid that can be transported from areas with a large supply of natural gas to areas that demand more natural gas. In its liquid state, natural gas takes up 1/600th of the space, meaning that natural gas is shrunk 600 times, making it much easier to ship and store when pipeline transport is not feasible. As world energy consumption increases, experts anticipate that the LNG trade will grow in importance.

UNIVERSITY OF ECONOMICS AND BUSINESSFACULTY OF ACCOUNTING AND AUDITING

THANK YOU LETTER 2

LIST OF TABLES AND FIGURES 3

1 How many major sectors in the oil and gas industry? What is a 'LNG’?Use PESTEL/ FIVE FORCE or any technical models to analyze the andexplain why YJ share price could immediately rose after got four licenseapplications? 4

2 Which competitive strategy does the YJ’s applied (cost leadership,differentiation or focus strategy)? Give the reasons for your answer? 11

3 Base on your analyses above, please choosing the method of growthYJ’s should apply in the case? Explain? 15

4 Based on the GAAP accounting concept, how is YJ’ oil and gasexploration cost presented in financial statements? Please explain indetail? 18

5 Cost management plays an important role in the implementation ofcorporate competitive strategy Figure out the cost structure of YJ, itstwo competitors and the industry average (in any country) during theperiod 2015-2016 Make relevant comparisons and evaluate the costcontrol of YJ? 20

5.1 Expenses ratio analysis 20

5.2 Expense analysis 22

5.3 Evaluate the cost control of YJ Ltd 32

REFERENCES 37

LIST OF TABLES AND FIGURE

Figure 1 Major sectors in oil and gas industry 4

Figure 2 LNG Process 5

Figure 3 Pestel Analysis 6

Figure 4 Porter's generic strategies 11

Figure 5 Ansoff Matrix 15

YTable 1 Expenses ratio analysis in 2016 20

Table 2 Expenses ratio analysis in 2015 21

Table 3 Cost structure of YJ Ltd 23

Table 4 Cost structure of Chevron 25

Table 5 Cost structure of ExxonMobil 29

1.How many major sectors in the oil and gas industry? What is a'LNG’? Use PESTEL/ FIVE FORCE or any technical models to analyze theand explain why YJ share price could immediately rose after got fourlicense applications?

There are three major sectors in the oil and gas industry These are:Upstream – this involves the exploration, drilling of exploratory wells,subsequent drilling and production of crude oil and natural gas; Midstream –

this involves the transportation of oil by tankers (Liquefied Natural Gas – called

LNG) around the world and the refining of crude oil; Downstream – The

by-products include gasoline, diesel and a variety of other by-products.

Figure 1 Major sectors in oil and gas industry

Liquefied natural gas (LNG) is natural gas that has been converted to a

liquid form for the ease and safety of natural gas transport Natural gas is cooledto approximately -260 F, creating a clear, colorless, and non-toxic liquid that canbe transported from areas with a large supply of natural gas to areas that demandmore natural gas In its liquid state, natural gas takes up 1/600th of the space,meaning that natural gas is shrunk 600 times, making it much easier to ship andstore when pipeline transport is not feasible As world energy consumptionincreases, experts anticipate that the LNG trade will grow in importance.

Figure 2 LNG Process

According to the information in the article, the author will use PESTEL

to analyze and monitor the macro-environmental (external marketingenvironment) factors that have an impact on YJ Ltd It examines the Political,Economic, Social, Technological, Environmental, and Legal factors in theexternal environment.

Figure 3 Pestel Analysis

1 Political factors

The political environment of a country affects the way an organizationoperates in that region It also carries implications for the strategic directionadopted by the management as the external forces exert pressure on thecompany to respond in an effective manner One of the main components thatare a part of the political domain is the stability of the government, as a stablegovernment creates a positive business environment with minimum economicuncertainty for organizations.

- As an exploration and production (E&P) business, YJ is required to obtain

a "Product Sharing Agreement" (PSA) license Currently, YJ has PSAlicenses from the respective governments for three oil and gas fieldsAAA, BBB and CCC, whereby governments receive part of the profitafter deducting royalties and production costs.

- YJ has three oil and gas fields in Asia and Africa, each region has its own

set of regulations and management policies for the oil and gas industry.Therefore, changes in the regulations in that region will affect YJ'sbusiness and profits.

- Each country where YJ operates may not be immune to political turmoil.

For example, violence, war This may disrupt YJ Ltd's operations andsupply chain.

- The international entities that regulate transactions between different

countries also have an impact on the market access of YJ Ltd.

2 Economic factors

The economic conditions of a country affect the way businesses performin that particular region

- Even though YJ is listed in the UK, it prepares its accounts in US Dollars,

as is usual in the oil and gas industry All revenues from the sale of oiland gas are priced in US Dollars Its operating expenses are incurred in arange of European, African and Asian currencies, and therefore it isexposed to the impact of currency fluctuations In addition, exchange ratefluctuations can affect its financial results when converting revenues andcosts.

- Following the identification of YJ’s first two oil and gas fields in 2011, it

secured loans totaling US$ 140 million to help to finance productiondrilling These loans are repayable in 2021 and are at an interest rate of11% per year Therefore, changes in interest rates are also a notableeconomic factor for the company.

- Moreover, fluctuations in global oil prices can directly impact YJ's

revenue and profitability.

- YJ has three oil and gas fields in Asia and Africa; as a result, economic

downturns or growth in regions where YJ operates can impact demand foroil and gas.

3 Social factors

- The social factors such as demographic variables as well as consumer

likes and preferences direct the business decisions as organizations try toalign the consumer needs and their products to maintain steady sales andrevenue For example, consumers are now more inclined to use electricvehicles to protect the environment, so switching to fuel-free vehiclescould lead to lower oil sales.

- Currently, the YJ share price immediately rose on the news to a new

record level after it is rumored that the license was awarded to anindependent E&P business with a very relaxed attitude to “facilitationpayments” This helps to increase YJ's good reputation and increase trustfrom customers.

4 Technological factors

- According to the topic information, the author does not mention the

technological elements of YJ If the company does not apply advancedtechnologies, it will be slow to develop and lag behind other companies inthe same industry.

- Some solutions that YJ can apply are innovations in drilling technology,

data analysis, and remote sensing that can impact YJ's efficiency indiscovering and extracting oil and gas reserves Besides, adoption ofenvironmentally-friendly practices and technologies can influence itsimage, regulatory compliance, and operational costs.

5 Legal factors

- The legal factors for the oil and gas sector are related to the Acts,

gas companies YJ and other oil companies are bound by the PetroleumAct which defines the areas where oil production processes can be carriedout after obtaining the relevant licenses YJ is required to obtain anindividual oil and gas field operating license, a drilling license, and a"Product Sharing Agreement" (PSA) license In 2011, YJ obtained thelicense after successful test drilling and independent reporting of provenoil and gas reserves at these two sites.

6 Environmental factors

- The concern about the environmental implications of coal based energy

sources has fueled the shift towards more eco - friendly energy sources.YJ can gain benefits from this trend as the company is producing oil andgas, which are likely to be 50% higher in demand by 2050.

- In the article, the author did not mention much about environmental

factors However, YJ should invest in developing sustainable solutionsthat can help reduce carbon emissions, reduce waste and improve waterresource management One initiative is the advanced recycling unit for thetreatment of plastic waste.

The reason why YJ share price could immediately rose after got fourlicense applications is that:

- Firstly, YJ has obtained PSA licenses issued by respective governments

for its operations in the three oil and gas fields This significantachievement underscores YJ's pivotal role within the oil exploration andproduction industry The company boasts an extensive reservoir ofindustry knowledge, complemented by a proficient workforce equippedwith the necessary expertise to meticulously research and identifypromising oil and gas prospects Furthermore, their adeptness intransitioning these prospects into active production solidifies theircredibility As a result, investor confidence in YJ is likely to soar, leading

to heightened share purchases and subsequently driving an upswing inYJ's stock price.

- Secondly, it is rumored that the license was awarded to an independentE&P business with a very relaxed attitude to “facilitation payments”.

This rumor has raised doubts about the capabilities of that company anddamaged its reputation As a result, investors have become wary ofinvesting in exploration and production companies Instead, they'returning to companies known for ethical practices and transparency, likeYJ Company YJ's strong commitment to ethical behavior makes it atrusted choice for investors seeking reliability In a market seekingstability, this trust leads to more people buying YJ's shares, which in turnraises its stock price.

- Lastly, despite encountering operational challenges, YJ has displayed

commendable resilience by successfully securing the rights to conductdrilling tests across three distinct areas This notable accomplishmentunderscores the tenacity and diligence inherent in the company'sapproach Investors keenly observe these determined efforts, discerningthe immense growth potential that lies ahead Their optimism about YJ'sfuture prospects compels them to invest further in the company's shares,thereby contributing to a positive trajectory in YJ's stock price.

2.Which competitive strategy does the YJ’s applied (cost leadership,differentiation or focus strategy)? Give the reasons for your answer?

Figure 4 Porter's generic strategies

Porter’s Generic Strategies establish approaches for gaining a

competitive advantage While businesses can choose to explore anynumber of these processes, by employing all three of themsimultaneously, the organization makes best use of their time andresources The power of Porter’s Generic Strategies is the focus they lendto your business-level strategy They ensure that your activities and goalsare aligned with the realities of the marketplace.

- Cost Leadership Strategy: striving to be the lowest-cost producer in the

industry while maintaining the same level of quality.

- Differentiation Strategy: creating a unique product or service that is

perceived as being better than those offered by competitors.

- Focus Strategy: targeting a specific market segment or niche and

tailoring the product or service to meet the needs of that segment.

The competitive strategy that YJ has applied is DifferentiationStrategy for some reasons:

First and foremost, the company's strategy focuses on customersafety and responsibility when exploiting oil and gas fields Unlike some

other companies in the industry that may solely focus on maximizingquantity and profit, YJ places a strong emphasis on maintaining thehighest quality standards in all aspects of its operations YJ's customer-centric, quality-focused strategy has not only earned the company a strongreputation within the industry but also cultivated a loyal customer base.Clients often choose YJ as their preferred energy partner due to thecompany's unwavering dedication to safety, environmental stewardship,and consistent delivery of high-quality products and services.

Next, in the oil and gas industry, the classification of oil and gas

fields is typically based on the purpose of drilling and the type of wells

drilled YJ, as a forward-thinking company, recognizes the significanceof both exploratory wells and production wells in its overall strategy.

While some other companies might solely focus on drilling productionwells to expedite the commercialization of oil and gas reserves, YJunderstands the value of exploratory wells in gathering crucialinformation and ensuring responsible resource management Exploratorywells serve a vital role in the early stages of oil and gas fielddevelopment YJ invests in exploratory wells to assess the geological

characteristics of potential reserves, estimate the quantity and quality ofhydrocarbons, and identify potential risks and challenges associated withextraction These wells are exploratory in nature, and their primaryobjective is to gather valuable data and insights to inform the company'sfuture decision-making processes By conducting exploratory drilling, YJdemonstrates its commitment to a comprehensive and well-informedapproach to resource exploration Even though exploratory wells may notimmediately yield commercial quantities of oil and gas, they play acrucial role in reducing uncertainty and mitigating the risks associatedwith large-scale production YJ's dedication to information gatheringthrough exploratory drilling showcases its long-term vision andresponsible resource management practices.

In contrast, some other companies may prioritize quicker returns oninvestment and opt to drill only production wells These companies aremore inclined to focus on rapidly bringing oil and gas to market forimmediate commercialization and financial gain While this approachmay yield quicker profits in the short term, it may also lead to aninadequate understanding of the subsurface reservoirs, which can result ininefficiencies and potential environmental consequences in the long run.YJ's integrated approach, combining exploratory wells with productionwells, allows the company to strike a balance between short-termfinancial gains and long-term sustainable growth By investing inexploratory wells, YJ ensures that it makes informed decisions,maximizes resource recovery, and adopts environmentally responsiblepractices throughout the entire lifecycle of its oil and gas fields.

Finally, although YJ is listed in the UK, it prepares its accountsin US Dollars This decision underscores the company's ambitious vision

to compete on a global scale and demonstrates its determination toestablish itself as a prominent player in the international oil and gas

industry By adopting the US Dollar as its reporting currency, YJ aims toenhance its competitive edge and facilitate seamless financialcomparisons with other global companies operating in the sector Thechoice of the US Dollar as the reporting currency aligns with YJ'soverarching goal of expanding its presence and influence across diverseregions of the world As a multinational corporation with operationsspanning various continents, YJ recognizes the importance of presentingits financial information in a universally recognized currency The USDollar, being one of the world's primary reserve currencies and widelyused in international trade and finance, allows YJ to transcendgeographical boundaries and connect with stakeholders worldwide in acoherent and standardized manner.

Despite adopting the US Dollar as the reporting currency, YJ'soperational costs are incurred in a diverse array of currencies,including those from European, African, and Asian countries This

reflects the truly global nature of the company's operations and highlightsits courage in navigating the currency risks and complexities associatedwith conducting business in multiple regions YJ's ability to manage andmitigate currency-related challenges showcases its determination tooperate efficiently and sustainably on a worldwide scale.

3.Base on your analyses above, please choosing the method of growthYJ’s should apply in the case? Explain?

To analyze the method of growth of YJ Ltd, the author will use the

Ansoff Matrix to develop effective strategies for the growth of the companyand should consider two strategic avenues: Product development andDiversification.

Figure 5 Ansoff Matrix

YJ Ltd currently operates three oil and gas fields offshore in Africa andAsia The company's strong financial performance further attests to its positivemarket development, with a significant 47% revenue growth to US$174 millionin 2015/16 compared to US$118.4 million in the previous fiscal year Thisimpressive financial achievement is complemented by a record after-tax profit ofUS$41 million, signaling the company's proficiency in optimizing its operationsand capitalizing on market opportunities.

To sustain and accelerate its growth trajectory, YJ should consider two

strategic avenues: Product Development and Diversification.

In terms of Product Development, YJ should explore investment

opportunities in renewable and sustainable energy sources One compellingavenue is to establish a strategic partnership with a company engaged in theresearch and development of bioethanol Bioethanol, a fuel derived from cornstalks, hay, and agricultural waste, offers significant potential as anenvironmentally friendly alternative to traditional fossil fuels By aligning with aresearch partner, YJ can expedite the commercialization of bioethanol,capitalizing on a growing customer base seeking eco-friendly fuel options Thismove not only addresses the lack of distribution networks for alternative fuelsbut also positions YJ at the forefront of fuel source control for the future, pavingthe way for a competitive advantage in the evolving energy landscape.

Forecasts indicate that renewable energy will account for 50% of globalenergy demand by 2050, making YJ's green fuel technology endeavor apromising pathway for long-term growth and sustainability By successfullyembracing renewable energy options, YJ can position itself as anenvironmentally responsible company, meeting the evolving demands ofenvironmentally conscious customers and investors.

In addition to product development, Diversification offers YJ an

opportunity to broaden its core business beyond oil, gas, and chemicals.Exploring alternative energy resources such as solar power, wind power,hydrogen, or forestry presents potential avenues for diversification For instance,venturing into solar power projects would not only harness clean and renewableenergy but also contribute to reducing the carbon footprint associated withtraditional energy sources Additionally, YJ could explore opportunities inhydrogen product development, tapping into the growing interest in hydrogen asa clean and versatile energy carrier.

Diversification mitigates the risks associated with over-reliance on asingle sector and positions YJ to leverage its expertise and market presence innew and emerging industries By proactively embracing innovative andsustainable technologies, YJ can proactively adapt to changing market dynamicsand regulatory environments, thereby ensuring continued economic growth andresilience.

4.Based on the GAAP accounting concept, how is YJ’ oil and gasexploration cost presented in financial statements? Please explain in detail? Based on GAAP accounting concept, YJ’ oil and gas exploration costs

are presented in Consolidated Statement of Income In detail, they are presented

in the “Costs and Other Deductions” section because they are considered

operational expenses directly associated with the company's core businessactivity, which is the exploration and production of oil and gas reserves.

The "Costs and Other Deductions" section includes various expenses

that directly impact the company's revenue generation and profitability Theseexpenses are subtracted from the company's total revenue to calculate itsoperating income or earnings before interest and taxes (EBIT) Some of thecommon items included in this section are:

- Purchased crude oil and products: This represents the cost of purchasing

crude oil and other products that the company may need for its operations,such as refining or resale.

- Operating expenses: These are day-to-day operational costs incurred to

maintain and run the company's facilities and assets It includes costsrelated to labor, maintenance, transportation, and other operationalaspects.

- Selling, general, and administrative expenses (SG&A): This category

includes various non-production expenses necessary for the company'soverall operation and management It covers items like marketing,administrative salaries, office expenses, and other overhead costs.

- Exploration expenses: This is where oil and gas exploration costs are

accounted for These expenses are associated with searching for andevaluating potential oil and gas reserves, including the costs of drillingexploratory wells, conducting geological and geophysical surveys, andother exploration activities.