Harvard Case - Enerplus Corporation: Assessing the Board Invitation
"Enerplus Corporation: Assessing the Board Invitation" Harvard business case study is written by Malcolm Munro, Michael Maher. It deals with the challenges in the field of General Management. The case study is 11 page(s) long and it was first published on : Sep 18, 2012
At Fern Fort University, we recommend that Enerplus Corporation decline the board invitation from the Canadian Oil Sands (COS) company. While the opportunity presents potential for growth and diversification, the risks associated with the current state of the oil industry, COS's financial performance, and the potential for conflicts of interest outweigh the potential benefits. This decision aligns with Enerplus's long-term strategy of focusing on sustainable and profitable growth in its core areas of expertise.
2. Background
This case study focuses on Enerplus Corporation, a Canadian oil and gas exploration and production company, facing a decision regarding a board invitation from Canadian Oil Sands (COS). COS, a major player in the Canadian oil sands industry, is seeking to diversify its board with expertise from other sectors. Enerplus, with its experience in conventional oil and gas production, is seen as a valuable addition. The case study highlights the complexities of the decision, including:
- The evolving oil and gas industry: The industry is facing significant challenges due to declining oil prices, environmental concerns, and increasing regulatory scrutiny.
- COS's financial performance: COS has been struggling financially, with declining production and profitability.
- Potential conflicts of interest: Enerplus's involvement with COS could create conflicts of interest, particularly in areas such as resource allocation and strategic decision-making.
The main protagonists of the case study are the Enerplus board of directors, who must weigh the potential benefits and risks of accepting the board invitation.
3. Analysis of the Case Study
To analyze the situation, we can utilize a framework combining Porter's Five Forces and SWOT Analysis to understand the competitive landscape and Enerplus's internal strengths and weaknesses:
Porter's Five Forces:
- Threat of New Entrants: The oil and gas industry is capital-intensive and requires significant expertise. However, the presence of new technologies and the emergence of renewable energy sources could pose a threat.
- Bargaining Power of Buyers: Buyers, primarily oil refineries and consumers, have moderate bargaining power, as they can switch suppliers. However, the increasing demand for oil in emerging markets could strengthen their position.
- Bargaining Power of Suppliers: Suppliers, such as equipment manufacturers and service providers, have moderate bargaining power. Enerplus can leverage its size and volume to negotiate favorable terms.
- Threat of Substitutes: Renewable energy sources and alternative fuels pose a significant threat to the oil and gas industry.
- Competitive Rivalry: Competition within the oil and gas industry is intense, with numerous players vying for market share.
SWOT Analysis:
- Strengths: Enerplus has a strong track record of exploration and production, a diversified portfolio, and a solid financial position.
- Weaknesses: Enerplus's operations are concentrated in North America, exposing it to regional economic fluctuations.
- Opportunities: Enerplus can leverage its expertise to expand into new markets, explore new technologies, and develop sustainable energy solutions.
- Threats: The declining oil prices, environmental regulations, and competition from renewable energy sources pose significant threats to Enerplus's business.
Financial Analysis:
- COS's financial performance is a major concern. The company has been experiencing declining production and profitability, raising questions about its long-term viability.
- Enerplus's involvement with COS could expose it to financial risks, particularly if COS's financial performance deteriorates further.
Ethical Considerations:
- The potential for conflicts of interest is a significant ethical concern. Enerplus's involvement with COS could compromise its ability to make objective decisions regarding its own operations and those of COS.
4. Recommendations
Based on the analysis, we recommend that Enerplus Corporation decline the board invitation from COS. This decision is driven by the following considerations:
- High Risk Profile: COS's financial performance and the volatile nature of the oil and gas industry create a high-risk environment for Enerplus.
- Potential for Conflicts of Interest: Enerplus's involvement with COS could create conflicts of interest, compromising its ability to act in its own best interests.
- Focus on Core Competencies: Enerplus should focus on its core competencies in conventional oil and gas exploration and production, where it has a proven track record of success.
5. Basis of Recommendations
This recommendation aligns with Enerplus's long-term strategy of focusing on sustainable and profitable growth in its core areas of expertise. It takes into account the following:
- Core Competencies: Enerplus's core competencies lie in conventional oil and gas exploration and production. Diversifying into the oil sands industry would require significant investment and expertise that may not be aligned with its core strengths.
- External Customers and Internal Clients: Enerplus's customers and stakeholders expect the company to prioritize its own profitability and sustainability. Involvement with COS could potentially jeopardize this commitment.
- Competitors: Enerplus needs to focus on competing effectively in its existing markets rather than venturing into new and potentially risky areas.
- Attractiveness: The financial performance of COS and the potential for conflicts of interest make the board invitation unattractive from a financial and ethical perspective.
6. Conclusion
Enerplus Corporation should decline the board invitation from COS. This decision aligns with its long-term strategy, mitigates potential risks, and allows the company to focus on its core competencies.
7. Discussion
Other alternatives not selected include:
- Accepting the board invitation with conditions: Enerplus could accept the invitation but negotiate specific conditions to mitigate risks, such as a limited term of involvement or a clear separation of responsibilities. However, this approach could still lead to conflicts of interest and expose Enerplus to financial risks.
- Investing in COS: Instead of joining the board, Enerplus could invest in COS. This option would provide some exposure to the oil sands industry without the direct involvement of its board members. However, it would still expose Enerplus to the risks associated with COS's financial performance.
Key risks and assumptions associated with our recommendation:
- Risk: The oil and gas industry could experience a rebound in prices, making the oil sands industry more attractive.
- Assumption: Enerplus can maintain its profitability and growth in its core areas of expertise.
8. Next Steps
Enerplus should:
- Communicate its decision to COS: This should be done respectfully and professionally, explaining the rationale behind the decision.
- Review its long-term strategy: This should include a reassessment of its growth plans and a focus on its core competencies.
- Monitor the oil and gas industry: Enerplus should continue to monitor industry trends and developments to identify potential opportunities and threats.
By following these steps, Enerplus can ensure that it is making informed decisions that align with its long-term goals and minimize its exposure to risk.
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Case Description
Enerplus Corporation was a company transitioning from being a buy-and-sell energy trust to one engaged in exploration and exploitation. The company required two new board members and Sue MacKenzie's name was proposed to the CEO by the Enerplus vice president of corporate services. While MacKenzie was intrigued with the idea, she had never actively considered board service as a career step and she now had a new career direction at the Banff Centre. She undertook a thorough assessment of this board opportunity with attention to the career benefits, personal benefits, potential risks, impact on her personal life, and "match" with her new career. Following a series of meetings, MacKenzie was invited to serve on the board and she now had to make a decision: should she accept or decline the invitation?
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