Bp in Russia Case Solution
Introduction:
BP has been operating in Russia since the early 1990s. In 1997, it purchased a 10 per cent stake in Sidanco, the Russia’s 4th largest oil company. The stake was subsequently increased to 25 per cent plus one share in 2002.
In 2003, BP merged its interests in Russia with those of TNK to create TNK-BP, a hugely successful joint venture employing around 50,000 people and operating in nearly all of Russia’s major hydrocarbon regions. Since its formation, TNK-BP went on to become Russia’s third biggest vertically integrated oil and Gas Company.
In 2005, TNK –BP became the second largest oil producer in the Russian market with an average of 1.58 million barrels of oil produced per day. TNK –BP maintained production growth above the industry average through the consistent application of world class technology, a continuing renewal and reserve replacement in excess of production. The company was moved into Russia’s gas sector by an agreement on major terms of cooperation with Gazprom in June 2005. Over the history of TNK-BP, the joint venture generated around $19 billion of net dividends for BP's shareholders, while paying more than $190 billion in taxes and duties to the Russian Federation.
TNK –BP at a Glance: INDUSTRY | ENERGY | PREDECESSOR | TNK- BP | FOUNDED | In 2003 | KEY PERSON | ROBERT DUDLEY (CEO) | EMPLOYEES | 50,000 | PRODUCTS | OIL AND GAS | REVENUES | US$ 24.7 Billion (2006) | NET INCOME | US$(6.6) Billion (2006) |
Problems:
1. The cultural differences between Western and Russian national cultures, TNK-BP founders appointed Westerners to top positions including CEO, COO and CFO; foreigners from heritage companies were in charge of finance, marketing, planning and environmental protection; and Russians managed extraction, legal support, security, and government relations.
2. The country’s oil export tax was unstable and rising continuously.
External Environmental Scanning:
One of the critical determinants of a firm’s strategy
BP has been operating in Russia since the early 1990s. In 1997, it purchased a 10 per cent stake in Sidanco, the Russia’s 4th largest oil company. The stake was subsequently increased to 25 per cent plus one share in 2002.
In 2003, BP merged its interests in Russia with those of TNK to create TNK-BP, a hugely successful joint venture employing around 50,000 people and operating in nearly all of Russia’s major hydrocarbon regions. Since its formation, TNK-BP went on to become Russia’s third biggest vertically integrated oil and Gas Company.
In 2005, TNK –BP became the second largest oil producer in the Russian market with an average of 1.58 million barrels of oil produced per day. TNK –BP maintained production growth above the industry average through the consistent application of world class technology, a continuing renewal and reserve replacement in excess of production. The company was moved into Russia’s gas sector by an agreement on major terms of cooperation with Gazprom in June 2005. Over the history of TNK-BP, the joint venture generated around $19 billion of net dividends for BP's shareholders, while paying more than $190 billion in taxes and duties to the Russian Federation.
TNK –BP at a Glance: INDUSTRY | ENERGY | PREDECESSOR | TNK- BP | FOUNDED | In 2003 | KEY PERSON | ROBERT DUDLEY (CEO) | EMPLOYEES | 50,000 | PRODUCTS | OIL AND GAS | REVENUES | US$ 24.7 Billion (2006) | NET INCOME | US$(6.6) Billion (2006) |
Problems:
1. The cultural differences between Western and Russian national cultures, TNK-BP founders appointed Westerners to top positions including CEO, COO and CFO; foreigners from heritage companies were in charge of finance, marketing, planning and environmental protection; and Russians managed extraction, legal support, security, and government relations.
2. The country’s oil export tax was unstable and rising continuously.
External Environmental Scanning:
One of the critical determinants of a firm’s strategy