TNK-BP (Russia) 2008

Business Strategy & Enterprise Modeling

Aditya Ismoyo 29113065
Lea Shaula 2911126
Fitria Rizki 29113462
Kuspratama 29113021
Wendy Suganda 29113010

BP point of view
BP was aggressively looking for new reserves,
and the stake in TNK-BP was a major part of
expected production growth
The Oil and Gas Industry in Rusia
Russia was the worlds largest NG producer and
second largest crude oil producer
TNK-BP Joint Venture
British Petroleum cooperate with Russian
shareholder (consist of oligarch) to run their
business in Russia
The proportion of ownership of the new
company is 50:50, named TNK-BP
Oil Players in Russia
Companies Capitalization
(Mio USD)
P/E ROE ROA ROIC
Gazprom 305,152 12.06 21.28% 12.7% 16.51%
Rosneft 86,799 7.66 24.11% 9.2% 14.82%
Lukoil 64,090 8.5 25.07% 16.9% 21.97%
Surgutneftg
as
38,076 10.2 9.83% 9.15% 9.71%
TNK-BP 29,634 4.38 73.96% 31.86% 60.87%
Gazpromne
ft
27,794 7.5 41.63% 29.59% 36.09%
June 2003
Vekselberg (TNK) accuse the Expat are paid too
high
May 2004
Russian Partner (TNK) Want the Deal Changed
They want the dividend to be paid earlier than
previously agreed
April 2005
TNK-BP Faces Huge Tax Bill
Russian tax authorities announced $ 1 bio tax
claim for their 2001 earnings which was reduced
later on
October 2005
TNK-BP and later on all foreign companies are
forbidden to Bid for New Oil Fields
March 2006
The Natural Resource Ministry Accused TNK-BP to produce to
little in Kovykta (field developed for Asian market), less than the
agreed 9 bio cpm stipulated from in the license
Meanwhile, Gazprom (Russian government owned company)
blocked the gas pipeline construction to China
October 2006
TNK-BP chief engineer was shot dead in Siberia
June 2007
TNK-BP sells its 62.98% of their Stake in Kovykta Gas Field to
Gazprom for only $800 mio, less than a third of its real value.
Early 2008
Russian government limit issuance of working
visa of BP expat
May 2008
Gazprom approaches BP
about a possible alliance
back on 2007, the deal
collapsed on May 2008
Issue Summarized
CEO TNK-BP, Robert Dudley asked to resign by
Russian shareholder.
AAR-TNK and BP have different type of point of
view for running business.
TNK-BP is difficult to develop because of
government policy which is not support their
business
Expatriate visa problems for BP

1. SWOT Analysis
2. Situational Analysis (External Environment)
3. Situational Analysis (Internal Environment)
4. Porter 5 Forces Model
5. Risk Analysis
6. Joint Venture Phase Model
1. SWOT Analysis

Strength
Vertically integrated business
Strong production and oil refining
technological capabilities
Continuous increase in its reserves
enables
TNK-BP to have a stable production
growth

Weaknesses
Resource concentration
Heavy dependence upon Transnefts
pipeline system
Opportunities
Investment to catalyze TNK-BPs global
energy market growth
Expansion of retail presence into new
regions
Construction of a combined cycle gas
turbine plant

Threat
Fluctuations in crude oil and natural gas
prices
Increasing importance of renewable energy


2. Situational Analysis (External
Environment)
Social Forces
There are currently over 100 million people in the working age
range of 15-64, the vast majority of whom are well educated,
hardworking and have access to specialist training, generating a
stable workforce and incentive for BP investment.

Technological Forces
Though Russian technology is relatively advanced, most of the
equipment used in the oil rigs hail from the Soviet Era, and
therefore need extensive upgrading and investment. A significant
cost when also considering the $200-300 million already written off
in previous ventures (Sidanco)


Environmental Forces
Russia is very rich in natural resources, which is a substantial incentive for
future exploration, however this incentive must be balanced with the need for
environmentally safe operations to avoid costly mistakes such as oil spills.

Economical Forces
Contributing to over 50% of Russias national GDP, the oil and gas industry is
the corner stone of the Russian economy, and though loss of national control
due to foreign investment will mean a definite reduction in production and
revenue, it is not a situation that the Russian government, people and
shareholders find favorable.

Political Forces
Politics is as prominent a force in Russian business as economic market
movements, and as Russia seeks a greater footing in world politics and a more
substantial role in the oncoming global world. As such any resources that can
be exploited to achieve this will be, and unfortunately this factor computes into
a play for control over the worlds most scarce resource, oil, highly
circumventing BPs ability to maintain and profit from day to day operations.

3. Situational Analysis (Internal
Environment)

Is the resources
or Capability
Valuable
Is the Resources
or Capability
Rare?
Is the Resource
or Capability
Costly to Imitate
Is the Resource or
Capability Non-
substitutable?
Yes Crude oil
is limited
resources


Yes Only a
few country has
an oil reservoirs
Yes The
energy sources
for replacing oil
still developed
and also cost a
lot of capital to
invented it.
Example :
Liquid Nitrogen
No - Other sources
exist like : Biogas
/biodiesel/ synthetic
oil/solar
energy/nuclear energy
4. Risk Analysis

Currency Risk Dissemination Risk Policital Risk
This type of risk is critical to BP
because it would have required
a lot of money to commit to
50% ownership in the joint
venture.
The risk associated to the
leaking of information and
operational practices to
unauthorised personnel
political risk would be its
major concern as the rules
of the game in Russia,
This constant change of
legal issues have coursed
the management staff of
BP to take drastic actions
in order to defend against
all of the above risks
There are 3 main risk when conducting doing Joint Venture with the
foreign company which is :

5. Porter 5 Forces Analysis
Elements BPs Power
Bargaining Power of Buyer Low (Market price is determined by demand)
Bargaining Power of Supplier High (Only a few countries that have oil
reservoirs & fields)
Threat of New Entrants Low (Number of main oil companies are
limited due required high capital)

Threat of Substitute Products Low (Minimal option of oil substitute; biogas,
nuclear energey)
Competitive Rivalry High, due to severe interference from
Gazprom in alliance with Russian government



Planning Phase Formation Phase Operation Phase Termination Phase
6
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J
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V
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P
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M
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A
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Strategic Match :
Both the companies
has an interested in
their oil assets. BP
wants TNK`s oil
assets in Russia, TNK
wants BP`s oil assets
outside Russia.
Strategic Plan :
Sharing the assets
that both owned in
Russia will make a
bigger production
output
Technologies and
knowledge transfer
will improving the
quality of assets`s
maintenances and
also reducing the
production costs
Organizational
Arrangement :
The business
focused will be
only for oil in
Russia & Ukraine
Management is
particularly
focused on certain
actions to
improves safety,
focusing on
reducing high risk
practices and
improving
planning &
forecasting
Internal Driver :
Russian shareholders
think the expratiate
wages are very high
Russian shareholders
want to change the deal
for the payments term
Russian shareholders
forces Bob Dudley to
leave his position as CEO
because they think he run
the business just for the
BP`s interests only
P
o
l
i
t
i
c
a
l

Stakeholder Support :
The three oligarchs
which owned TNK
welcoming BP to
making strategic
alliance for become
the largest oil
producers in Russia

Internal Support
The Russian
shareholders have
management control
over government
relations, legal affairs,
and security
HRM & MCS :
AAR nominates
the chairman
BP nominates the
vice chariman and
CEO
Ten-member
board with equal
representation
from BP and TNK
External Driver :
New rules for bidding
new oil fields are
prohibited for the
companies who has a
high foreign dominant
stake.
Gazprom
TNK-BP
BP
TNK
Partial Withdrawal
Even though the business in Russia is very
attractive for BP, the political situation and
competition from Gazprom is too severe since
they collaborate tightly with Russian
Government
Thus, we recommend BP to avoid direct
involvement on operational basis
Sell TNK-BP Share
The decision to have 50:50 share is not a viable
option since there will dispute in who will be the
decision maker
Therefore we recommend BP to sell ~40% of its
TNK-BP share to Gazprom

Invest as Venture Capital for Kovykta
Project
We consider Kovykta project as a very promising
project
However, to avoid disturbance and interference
from Russian government and their oligarchs,
BP should renegotiate to create Joint Venture
with Gazprom as passive shareholder that
demand steady return in term of profit sharing
Law enhancement
BP should pay extreme attention when they
make shareholder agreement contract with
Gazprom. They should also choose Lex Arbitrary
place in neutral country.
Thank you!