Oil and gas company “Rosneft” in the Russian Federation

P: The oil and gas industry is extremely important for development national economy and the world economy, and often the government share in the capital of the companies of this industry is fixed and has a high level (for example, government share in Rosneft is about 75 %) that allows the government to make essential impact on industry development. The active government intervention led to stability of development of this industry. Even in case of change in legislation or other possible types of regulations, the enterprises operating in this industry, will not have threatens, because it is not have special  difficulties to adapt to arising changes.

E: the economic situation in the some countries and in the world can make considerable impact on development of petroleum and gas industry. Episodically arising crises can lead to emergence of new risks which can threaten of abilities to survive for a number of the oil and gas companies. In view of that the economy develops cyclically, it is possible to assume that in the next some years the global crises aren't planned (last were in 2008). From this it is possible to draw a conclusion that soon the situation in this industry can improve, or remain in a stable condition. But even the crisis period not always harmful effects on the organization: «crisis forced the company to analyse very carefully available problems, to estimate risks, to reveal weaknesses and look for the ways of their elimination. And a lot of things were done successfully».  (Rosneft report 2010)

S: In general, the oil and gas companies fully realize the importance of the human capital. Value of human life — the main priority at interaction of the companies with workers therefore labour protection, industrial safety, health safety have a primary attention for the company. Rosneft follows national law for protection environment. In future Rosneft can improve the social policy to promote social and economic development of regions, and also will give more attention for creation optimum working conditions.

T: The success of the growth oil and gas industry depends on level of the development technological innovations. Nowadays, development proceeds have moderate rate, so development doesn't stop. From time to time new technologies are developed therefore it can be as some kind of guarantee of stable development of this industry.

Therefore results of PEST analyse and discussed scenarios show that oil and gas industry has low level of turbulence which means that occurring changes can be predicted. Moreover Rosneft has 75% government shares that allow government to influent on many factors of environment surrounding the organisation.

 

 

4. Porter’s Five Forces Model

Nowadays there are about twenty petroleum companies in Russia, but the largest of them are "Lukoil", "Gazprom Neft", "Surgutneftegas", "Rosneft". (http://www.ngfr.ru/)

Oil and gas dimensions of the largest oil and gas companies of Russia (2011)

Company	Dimension of gas	Dimension of oil
Rosneft	14500 mln. cubic meters	110,1 mln. tonnes
Lukoil	17020 mln. cubic meters	95240,0 thousand tonnes
Gazprom Neft	3200 mln. cubic meters	30,8 mln. tonnes
Surgutneftegaz	14100 mln. cubic meters	64500 thousand tonnes

 
In order to develop competitive advantage of Rosneft it is necessary to use Porter’s Five Forces Model (competitive strategic analysis). 

 

 

 

 

 

 

 

 

The threat of potential new entrance. Threat of potential new entrance of new competitors into petroleum industry is smallest, because to exist in this industry needs huge capital investments (on purchase and development of expensive new technologies, development of new fields and so on). Besides, there is a certain consumer’s commitment to production of already functioning companies. Also existing companies in this industry have already worked out sales channel that needs considerable expenses (difficulties to make traders interest to new players, so anybody yet known and unchecked companies let prevent new entrance of potential competitors).

Competitive strength of suppliers. The structure of Rosneft includes a large number of the oil and gas extraction enterprises (for example, Yuganskneftegaz plc., Rosneft-Purneftegaz Oil Company, Severnaya Neft and others), the relations with which are already enough well worked out that provides uninterrupted and timely delivery of raw materials. Existence of the long, well regulated communications reduces possibility of threat from suppliers.

Goods substitutes. There is a possibility of appear and a wide use of alternative power sources in long-term prospect that will reduce need for gasoline use for cars and other technical devices. But speed of development and development of these sources isn't so great, so now the oil companies don’t have problems with sale. So in general companies and this industry threaten nothing.

Competitive strength of consumers. Production of the company is standardized, consumers are well informed, and costs of transition to other supplier are low but that generally doesn't prevent consumers to choose production of other company. But as well as in any other industry the quality of production is very important also consumers commitment to production of any concrete company is important as well.

 

 

 

 

5. Strategic group analysis

Sign           Company	Share of the market	Gas and petrolium production, mln.tonnes	Scale of activity	Number of sales companies in Russia	Oil proved reserves mln. barrel	Vertical integration	Sales volume   mln. dollars	Number of gas service stations
1.LUKOIL	15,3	92,2	International	44	17504	Holding	68025,00	2170
2.ROSNEFT	14,8	116,3		45	17694	Holding	33802,00	1762
3.TNK-VR	14,4	70,2		14	10252	Holding	25539,00	700
4.GAZPROMNEFT	17,9	29,9		26	4847	Holding	94293,00	950
5.SURGUTNEFTEGAZ	12,8	59,6		5	977	Holding	16601,80	303
6.TATNEFT	9,2	26,1		13	6139	Holding	12000,00	520

                        Market share

           

                                    17,9 4

                    

                                    15,3 1

                           14,8    2

14,4                             3

                                    

12,8    5

  9,2 6

                                                 

                                                  12000   25000             68000     94000  sales volume

 

 

                  Oil production

               116,3  2

                                    92,2 1

                                    70,2 3

                                     

                           59,6 5   

                             

                                    

29,9     4

26,1  6

                                                   

                                                  977          4847  6139    10252    17504 17694       proved oil reserve

 

 

 

 

   Number of gas service

      stations                 2170 1

                                    1760 2

 

                                     

                            950      4

                            

                                      700   3

  520       6

303       5 

                                                 

                                                   5        13 14                26                 44 45 sales companies

 

 

According to strategic groups analysis 6 large oil companies make 4 strategic groups. In one group are Tatneft and Surgutneftegaz, in another – Rosneft and TNK-VR, and the in third and in fourth groups are Lukoil and Gazprom Neft companies. According to this analyse we can see existence of direct dependence between sales volume of the company and company’s market share. It is obvious that Gazprom Neft is in the leader, on second place is Lukoil, and on the third position is Rosneft.

The strategic group analysis based on such indicators as number of the sales companies as a part of the company and number of gas service stations, also there is existence of direct dependence between two specified indicators. Therefore as many sales companies have company (as company’s part), as more number of gas service station company will have. Lukoil and Rosneft are leaders in this area and they incorporated in one strategic group. Gazpromneft is second. TNK-VR and Tatneft companies which are included also into one strategic group are third and Surgutneftegas has the smallest number of sales companies.

According to group analyse based on such indicators as oil production and proved reserves leaders are Rosneft and Lukoil companies. Also one group includes Gazpromneft and Tatneft. And separate groups make TNK-VR and Surgutneftegas which has the smallest amount of proved reserves.

The main competitive advantages of Rosneft are:

1.A huge number of consumers in Russia and in the world – until number of consumers will remain at stable level or grow, the industry will remain attractive and highly remunerative;

2. Government regulation – the problems arising in industry, can have the enormous size and solve such problems can only the government. Only the government can influent on actions of different economic player, follow the law, protect of the government and public interests. Implementation of these functions possibly can be made by realization of scientific and technical, tax, budgetary and price policy, and also participation in the international organizations and agreements. Government regulation provides stability for such kind of companies;

3. Technology, innovation –as more developed technologies of company as more competitive advantages company have. It will give opportunities to develop techniques of oil production and raw materials processing more effectively. As a result it will give to company considerable incomes and improved competitive position of the company;

4. Capital investments – oil and gas industry needs very considerable volumes of investment for successful development. All large projects connected with development of new fields, development and introduction of new technologies would be impracticable without support of investors. The large number of strategic investors this or that company, the bigger number of projects it possesses, and consequently can become more successful;

5. Developed infrastructure – directly depends on it success of the company. If company can provide own production, independent sale the production, without help of mediators, brokers, agents or competing companies company will save money on these processes. Therefore it is so important for companies in this industry to think over carefully all aspects of the activity, everything in details put in a plan and follow the plan.

 

 

Porter’s Value Chain

 

 

Value chain of the company allows us to define the main activities that create value for consumers, and at the same time is an important tool for strategic analysis of the expanses of the company. Also, the elements of the value chain can become a competitive advantage. In the company Rosneft identifies five key processes that create the value of the finished product.

 

7. Strategic resources of Rosneft

To make assessment of strategic resources of the company it necessary to use mark system, in which:

5-the highest position, very high probability of implementation of possibility of using of the necessary type of resources;

4–high possibilities;

3–average possibilities or difficulty of realization of possibility of using resources of available quality and quantity;

2–weak or low possibilities;

1–the weakest position means lack of necessary resources for implementation of possibility.

 

Possibilities that make the strategic potential of company	Ресурсы
	Financial	HR	Informational	Technical	Technological	Management	Administrative
Opportunities for macroeconomic analysis in the country and abroad	4	4	4			4	4
Ability to identify potential  consumers needs	5	4	4			5	4
Ability to respond to market conditions and decision making	5	4	4	5	5	5	5
The interests of stakeholders	4	5	5		4	4	4
Flexibility of production	4	4	4	5	5	4	4
Product update	4	4	4	5	5	4	4
Flexibility of management	5	5	5			4	4
Competitiveness of the company	5	5	4	5	5	5	5
Market share	5	5		5	5	5	5
Investment opportunities	5		4			4	4

 

Strategic resources analyse shows that the company is provided with sufficient resources for implementation of operational activity, achievement goals, and also for effective functioning in the conditions of changes. The strongest positions have financial, technical and technological resources. These resources are present at the company in that quantity and quality which is necessary for implementation of a production activity in the conditions of instability, changes of demand and other factors. Also strong position has HR that gets huge attention in the company (programs of a HR, training etc.). Development of other resources should have also attention in order that the company always can have a possibility to invest own funds, to make the policy adequate to developed conditions and to justify trust of consumers.

 

 

 

8. Portfolio analyse. Boston Matrix (BCG BOX)

 

Portfolio analysis is based on the premise that resource allocation should be in accordance with the optimal structure of the activities (in terms of the maximum potential income of the enterprise as a whole). The advantages of portfolio analysis may include visibility, emphasis on qualitative advantages, and ease of processing.

Type of product	Year	Market capacity thnd. tonne	Rosneft sales thnd. tonne	Rosneft sales %	Lukoil sales thnd. tonne
Gasoline production	2010 2011	23 408,2 23 455,0	6 640,2 6 554,5	28,4 28,0	2 663,9 2 605,3
Production of diesel fuel	2010 2011	44 248,8 45 576,3	14 430,4 14 719,0	32,6 32,3	8 189,0 7 881,8
Production of liquefied hydrocarbon gases	2010 2011	6154,8 6 653,3	450,6 370,4	7,3 5,6	1 328,7 1 368,6
Production of fuel oil	2010 2011	40 618,4 42 040,0	14 250,4 14 706,4	35,0 34,9	7 386,9 7 032,4

 

 

 

 

 

 

 

 

 

 

 

BCG matrix, which is listed below is based on this data. The size of the circles indicating the products depends on the market share. From the matrix shows that liquefied hydrocarbon gases are the least profitable products, they are in the lower right quadrant of the matrix. In this quadrant are the "Dogs." They have weak growth prospects, lagging position in the market and finding the back of the leaders on the experience curve limits the size of their profits.

Diesel and gasoline production are one of the best positions in the matrix. They are in the quadrant of "cash cows". While “cash cows” are less attractive in terms of growth prospects, this is a very valuable business unit. Additional inflow of funds from them can be used to pay dividends, finance acquisitions and to ensure investments in developing stars and problem children, from which future stars may grow. All the efforts of corporations should be directed to the maintenance of “cash cows” in arising level as long as possible to use their ability to generate financial flows. It should be the goal of promoting and protecting the market position of “cash cows” during the period when they are able to earn money to be spent on the development of other units. Fuel oil, having a higher rate of growth of demand than the gasoline and diesel fuel has moved higher and is in the quadrant "cash cow" and the "Stars." This type of product should be given more attention, since it may be moving in any of the right-hand quadrant. If fuel oil goes into the category of "Stars", he could make big profits and growth prospects. From these productions depends the general condition of the economic portfolio of the corporation. "Stars" are usually needs of significant investment to expand production capacity and increase working capital.