Reference no: EM132837530

CASE

George Storey went over his company's 2020 first quarter revenue projection numbers. Already by the end of February, revenues were forecasted to be some 20% less than the 2020 Budget projections which were produced in early December 2019. George was concerned. It seemed that no matter what, his team of Professional Accountants never seemed to get the forecasts correct for his company Storey Energy Inc., who provided inspection and constructions services to the Canadian Pipeline Industry. Each year the company would estimate revenues at a certain level and each year the company would miss its targets, sometimes by as much as 30%. The good news was that the company was always able to remain very profitable despite declines in revenue. The reason for this was that the company's services were considered to be the best quality in the industry. This was due to the fact that George insisted on recruiting only the best, most qualified personnel to work as pipeline inspectors. Their primary objective is to ensure new pipelines are constructed according to very rigorous standards (both engineering and Canadian Federal regulations) and that existing pipelines are operating in the safest manner (as measured against those same federal regulations). Every year, pipeline and energy companies would ask for proposals for inspection work and they often waited for Storey Energy to submit before making any final decisions. Inspection Services contracts ranged in value from $200,000 to over $750,000 and took up to 10 months to complete. Most of the personnel recruited by George are former pipeline employees with skills training and up to 15 years of industry experience. In other words, they know their stuff. ~~~~~~~~ George had asked Storey Energy's internal accounting department for a report on operational costs and the status of approved marketing programs. Specifically, he wanted the report to assess the specific reason why the company was consistently missing its annual revenue projections. The accounting department found that although the company's operational costs were on-budget, the marketing department did not spend all of its resources allocated to the approved marketing strategy. George felt that this caused two major issues for Storey Energy: First, competitors were able to get their submissions to the major pipeline companies earlier than Storey Energy and usually at a lower price. By submitting a lower price, and with no discussion on issues of quality or safety standards, George felt the competition was able to create the impression that pipeline inspection services were merely a commodity. Second, there was no mention by the accounting department's report of the second type of service 3 provided by Storey Energy: that is the list of construction services and trades offered by Storey Energy to pipeline construction companies with new or ongoing pipeline projects.. This was an issue because it impacted revenues from "new sources". As a result, George called in his management team for a general discussion of the issues. At the management meeting, George took his chair at Storey's large board room table. Cautiously, he listened to what each of his team had to say and then told his staff: The CMO stated "Our quality must not suffer, but we need to become faster in our response to both existing pipeline customers and potential new ones in pipeline construction." Storey responded "This is important to us since the USMCA region is entering a new phase of infrastructure expansion. The Biden Administration has announced a "Buy America" policy which could hurt our revenues from the US. As well, Biden has cancelled the Keystone XL Pipeline project outright, impacting our work here in Canada." The COO noted "There may also be an opportunity with the Trans-Mountain Pipeline expansion project from Alberta to BC.", to which Storey noted "True, but we are also hearing that the German company Richtige Oleoduc GmbH is entering the Canadian market in 2021 to compete for that project." . George concluded that he had to come up with a professional report on what to do, not an actual implementation plan itself. He thought about all of the things that he had to do on a day-by-day basis related to normal company operations and realized that he would not be able to make a report as quickly as required without help. He also knew that he, along with his staff, had a bias to how his company worked and felt that he might not be able to assess the overall picture fairly. Therefore, he needed to get some outside help and called his Legal services firm who said they would get back to him. The Legal Services firm then contacted your firm, Pipeline Industry Consultants (PICs), and told you about George.

ASSIGNMENT

What are the future risks facing Storey Energy Inc? Explain in detail and by name using terms from the course. Support your answer using online sources discussed in class.