CASE ANALYSIS : TNK BP (RUSSIA) 2008

PART II Situational Analysis A. General External Environment

CASE ANALYSIS : TNK BP (RUSSIA) 2008

Situational Analysis - General External Environment

POLITICAL/LEGAL SOCIO-CULTURAL TECHNOLOGICAL

Centralized Power by
President Putin Energy Policy of Russia -energy superpower Russias Relation with European Union -diversify export market

General Rule: Russian

language is a MUST Russians took duality to greater extremes than other nationalities Loose hierarchical structure in Russia

Fossil oil technologies

Renewable energy technologies -Oil Drilling Using Floating Nuclear Power Plants -Use of ISOJET Perforation Technology

and favorable customers

Russian Tax Policy -tax exemption on Greenfield provinces

Environmental concern
(Green): -Hybrid Car

Building up capacity to
deliver a new generation of Greenfield projects

CASE ANALYSIS : TNK BP (RUSSIA) 2008 DEMOGRAPHIC Russia ranks 178th in population density ECONOMIC Global economic crisis and resulting recession in 2008 GLOBAL Russia had 20% worlds large reserves of : oil

2008: Average real

wages and real disposable incomes increasing by 13.1% and 11.8% respectively Fastest-growing income and consumption [growth]

-Rapid decline in world oil

prices Rising inflation and fuel prices Russian Economy and Oil Price Volatility Impact of Fluctuating

production and natural gas

Russia industrialized and inherited most of the defence industry from Soviet Union Major contributor to global ozone depletion

rates

Exchange Rates
-decline in Russian Rubble

Corruption remained
serious issue

PHYSICAL

-Oil :limited supply -Natural conditions -Infrastructure

-Transportation

CASE ANALYSIS : TNK BP (RUSSIA) 2008

PART II Situational Analysis B. Industry Analysis

CASE ANALYSIS : TNK BP (RUSSIA) 2008

Situational Analysis - Industry Analysis

THREATS OF NEW ENTRANTS/ BARRIERS TO ENTRY
Low - Number of main oil companies that can explore and mine oil field are limited - BP, worlds thirdlargest oil and gas supermajor. -High Capital Requirement - High level of technical knowledge & technology requirement

BARGAINING POWER OF SUPPLIERS

High -Suppliers for BP are countries that have oil reservoirs and oil fields (Russia) and other countries (Arab, Norway, Iran, Iraq) - OPEC controls 40% of worlds supply of oil and, thus, has a strong influence on the price of oil.

BARGAINING POWER OF BUYERS

Low - Buyers of crude oil, market price is determined by the demand - Buyers do not have other alternatives (high demand)

PRODUCT SUBSTITUTES
Low - Minimal substitute for natural resources (petroleum/ gas)

INTENSITY OF RIVALRY AMONG COMPETITORS

High - Competition from local oil producers/miners in Russia and globally Gazprom, Rosneft, Surgutneftegaz, Tatneft (Russia) Exxon Mobil, Shell, Petronas, Arab Oil Companies, National Iranian Oil Company (NIOC) (Global)

Crude oil cannot be substituted

- Other sources : Biogas /biodiesel/ synthetic oil/solar energy/nuclear energy ( not cost effective)

CASE ANALYSIS : TNK BP (RUSSIA) 2008

PART II Situational Analysis C. Competitive Environment Analysis

CASE ANALYSIS : TNK BP (RUSSIA) 2008

Situational Analysis - Competitive Environment Analysis

TNK- BP
TNK-BP Holding OAO (TNK-BP Holding OJSC) is a Russia-based vertically integrated oil company. The Company is involved in the exploration and production of crude oil, as well as distribution and marketing of oil and petroleum products. TNK-BP Holding OAO is active on the territory of various Russia's hydrocarbon regions in the West Siberia, Volga-Urals, East Siberia and the Far East. The Company operates through five refineries and has a retail network of approximately 1,400 sites spread across Central region of the Russian Federation, as well as Ukraine.

LUKOIL
Neftyanaya Kompaniya LUKOIL OAO (NK LUKOIL OJSC or Lukoil OAO) is a Russiabased integrated oil and gas company. The Company is engaged in the business of oil exploration, production, refining, marketing and distribution. It is an owner of refineries, gas processing, petrochemical plants and gas stations network located in Russia, Eastern and Western Europe. The Companys petroleum products are sold in the Russian Federation, the Commonwealth of Independent States (CIS) countries, Eastern and Western Europe and United States. Lukoil OAO operates through numerous subsidiaries and affiliated companies in eight business segments: Oil and Gas Production, Petrochemicals, Oil and Gas Refining, Petroleum Products Marketing, Services and Others, Financial Activity, Electric Power Generation and Banking. As of May 7, 2010, the Companys major shareholder was The Bank of New York International Nominees.

GAZPROM
OAO Gazprom, and its subsidiaries, operate gas pipeline systems. The Company is also a supplier of gas to European countries. The Company is engaged in oil production, refining activities, electric and heat energy generation. The Company and its subsidiaries are involved in exploration and production of gas, transportation of gas, sale of gas within Russian Federation and abroad, gas storage, production of crude oil and gas condensate, processing of oil, gas condensate and other hydrocarbons, and sales of refined products, and electric and heat energy generation and sales.

The Company sells its products, on the domestic market, as well as exports them to Europe and the Commonwealth of Independent States (CIS) countries.

CASE ANALYSIS : TNK BP (RUSSIA) 2008

Situational Analysis - Competitive Environment Analysis

ROSNEFT
Open Joint Stock Company (OJSC) Oil Company Rosneft is engaged in exploration, development, production and sale of crude oil and gas, and refining, transportation and sale of petroleum products in the Russian Federation and in certain international markets. It has three business segments.

The exploration and production segment is engaged in field exploration and development, and production of crude oil and natural gas.
The refining, marketing and distribution segment is engaged in processing crude oil and other hydrocarbons into petroleum products, as well as the purchase, sale and transportation of crude oil and petroleum products. Its primary investment in production sharing agreements (PSA) is through the Sakhalin-1 project (PSA 1).

CASE ANALYSIS : TNK BP (RUSSIA) 2008

PART II Situational Analysis D & E. Environmental Trends & Attractiveness of External Environment

CASE ANALYSIS : TNK BP (RUSSIA) 2008

Environmental Trends
Globalization BPs joint-venture with TNK in Russia to accommodate increasing oil and gas production and replacing reserves

Outsourcing Russia, worlds largest natural gas producer and second-largest crude oil producer
Expansion Russias proven reserves ranked number seven in the world, huge opportunities for further exploration

Strategic Alliance BP and AAR combine their interests in Russia to create the countrys third largest oil and gas business, in which both parties have a 50% stake (TNK-BP)
Expatriation Globalization created a global market for skilled professionals and levelled the income of skilled professionals relative to cost of living

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CASE ANALYSIS : TNK BP (RUSSIA) 2008

Summary : Attractiveness of External Environment

Globalization and outsourcing trends by customers have created boundless opportunities for a company like BP : Expansion Global networking Strategic alliance with local partner Expatriation The Mining/Crude-Oil industry, Petroleum Refining, and Chemicals industries as a group are very attractive because the : Threat of new entrants is low Buyer power is low Supplier power is high (which is good because most of the big industry players are both suppliers and buyers) The threat of substitutes is low The attractiveness of the industry is reduced because business rivalry is high

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