LUKOIL //// DRAFT //// FORMATTING AND PICTURES PENDING
COMPANY NAME, WEBSITE, and INDUSTRY
www.lukoil.com
www.lukoil.ru
Public Joint Stock Company Oil
Company LUKOIL or simply LUKOIL operates as an oil and gas company. Beyond
these operations the company’s Exploration and Production segment explores for,
develops, and produces crude oil. Its Refining, Marketing, and Distribution
segment processes crude oil into refined products; and purchases, sells, and
transports crude oil and refined petroleum products. The company’s Chemicals
segment refines and sells chemical products. Its power generation segment
produces and distributes steam and electricity; and provides related services.
The company also owns several fuel filling stations.
BACKGROUND and HISTORY
On November 25, 1991, the Russian Federation
issued the initial decree so that three Siberian oil companies, subsequently named
after the towns they were located; Langepasneftegaz, Urayneftegaz, and Kogalymneftegaz,
could establish the petroleum corporation which transformed into the Open
Joint-stock Company LUKOIL Oil Company.
The
name Lukoil was built from the initial letters of the names of the cities. The
key figure of the formation of this venture was then Russian Minister of Oil
Production and current Lukoil President Vagit Alekperov. His philosophy was
that the only way Russian oil companies could compete with those in the West
was to mimic their business models. The Western method of efficient oil
production involved a vertically integrated approach that brought exploration,
refining, and distribution together rather than continuing with the old Soviet industrial
system that kept each process separate.
September 1, 1995 Lukoil extended the corporate brand and
assets by assuming controlling ownership of nine oil-producing, distribution
and service companies of Western Siberia, the Urals and the Volga region. In
the same year Lukoil also became international by extending its geographic
reach by entering into oil-producing projects in Egypt and Kazakhstan. In 1999
Lukoil acquired several companies and enterprises, including oil refinery in
Odessa. In 2000, the company entered the downstream and end user petroleum
products market by purchasing Getty Petroleum Marketing Company and their
corresponding fueling station network. In 2004, American oil company
ConocoPhillips purchased state 7.59% ownership ($2 billion in value) in Lukoil
with the intent of increasing that ownership percentage to 20%. Lukoil is
currently exploiting the West Qurna Oilfield in Iraq, one of the nation’s
largest.
Lukoil
owns 1.1% of global oil reserves and 2.3% of global oil production. It is the
largest oil producer in Russia. The annual turnover of the company is over US$
105.97 billion. While profit data is difficult to locate the last reported net
profit income was well over US$ 9.1 billion. Lukoil is the largest taxpayer of
the Russian Federation, the total amount of taxes in 2008 was over US$ 38
billion.
(Yahoo Finance, 2016)
ANALYSIS VIA PORTER’S FIVE FORCES MODEL
Porter’s Five Forces Analysis Model:
1. Threat of new entrants:
The threat of new entrants in Russia
is low given that the oil and gas market is dominated by Lukoil. Globally, the
competition is fierce as American oil companies and OPEC are already
established in the market.
2. The bargaining power of buyers:
Buyers have medium bargaining power;
there is a large group of buyers and this product is easily influenced by
inflation and market prices but fuel oil and other petroleum products have some
level of inelasticity. The bargaining power of buyers is medium.
3. The bargaining power of suppliers:
3. The bargaining power of suppliers:
The suppliers associated the oil and
gas industry have a strong influence over their bargaining power. Many
production fields and OPEC have a death grip on the oil supplier market. They
have a heavy influence on the prices paid for raw crude oil. Global reach, supplier
diversity, alternatives, and options differentiate products amongst
competitors. Lukoil has had a subsidiary is almost every oil producing country
on Earth.
4. The threat of substitute products:
This threat of substitutes with the coffee
industry or more specifically with the single cup system is relatively high for
Lukoil in the global market. However, in Russia the homegrown company is seen
as a state hero.
5. The Intensity of Rivalry among
Competitors:
Rivalry amongst is very high. Customer
loyalty is high for each manufacturer and there as each company produces a new
feature or innovating option the others must follow suit to maintain that
repeat customer base.
STRATEGY USED
Lukoil has done a wonderful job of growing
from a small, regional oil producer into a billion dollar global oil and gas
leader in a relatively short 20 year period. The president Vagit
Alekperov was extremely prudent and important in strategically moving the
company into a premier market leadership role. This was accomplished by maintaining a stringent desire to adapt
a lumbering Soviet era business model into a pro-Western agile organization.
Entrepreneurial Strategy
Each member of the Lukoil alliance
was already a proven regional oil leader but under the watchful and intelligent
strategy of Vagit Alekperov what was destined to be
limited to the Russian oil market exploded into a world-wide energy superpower.
Leadership
As I have mentioned several times throughout this analysis Vagit
Alekperov was critical to the initial formation and direction of this company
into global recognition. In keeping with that tradition Mr. Alekperov has
maintained his presidency since the company’s inception. Under his tutelage,
General Directors have gone on to lead the company throughout mergers with
ConocoPhillips, Saudi Aramco, and many other global oil companies.
Strategic
Alliances and Joint Ventures
The very nature of Lukoil was and still is their desire and
willingness to effectively utilize the power of joint ventures and alliances.
The L, U, and K in the very name were formed by three regional oil companies.
This concept has gone on to spur growth in regions such as Iraq and French
Algeria through the ability to manage local business partners and other key
strategic alliances.
Entry Model
At the time of entry into the oil and gas industry Russia
was known for an ineffective, compartmentalized system that separated each
process; refining, exploration, and distribution. The entire business model for
Lukoil was based on a Western approach of vertically integrating the three and
the results are obvious.
The
willingness of business minded persons to adapt their traditional thinking and
even deviate from a comfort zone led to this success story.
Achieving
Competitive Advantage
Lukoil was able to achieve competitive advantage by bringing
every profitable aspect of the oil and gas exploration, refining, and
distribution functions under one organization. This allowed strict quality
control, profit management, and overall overhead reduction as Lukoil
Exploration is going to provide services to Lukoil Refining at much cheaper
costs than sub-contracting to another market leader. The enables Lukoil to
cheaply provide support to client nations for all three functions while still
maintain an investor friendly profit margin.
Ensuring Coherence in Strategic Direction
Lukoil
is quick to identify itself as a Russian owned, controlled, and operated
organization. This serves one strategic goal, the coherence of everyone
employed in key management positions. With this sense of national identity and
pride throughout the general entirety of Lukoil is working toward the best
interest of the company especially as it relates to the growth of the Russian
oil industry and market leadership.
COURSE OF ACTION RECOMMENDED
If poised to assist Lukoil in their
global expansion and their competitive advantage I would personally ask the
board members and leadership to expand and invest further into the development
of interests in Texas, specifically the Eagle Ford Shale, as well as the state
itself. This would benefit both the people and State of Texas as it strives for
energy innovation and economic independence from federal influence as well as
provide a Russian company with a key ally in the US oil and gas markets.
OPINION
This story is fascinating as the idea
of regional to global industry leader in less than 20 years is amazing. I
attribute this to a strong sense of national solidarity and an excellent
management team. If you have pride in your country and its industry and
encourage intelligent, capable leadership in business this is the end result.
References
Dess, G., Lumpkin, G., & Eisner, A.
(2012). Strategic Management (6e). Boston: McGraw-Hill Irwin.
Company History. (n.d.). Retrieved
February 27, 2016, from http://www.lukoil.com/new/history/1995
LUKOIL: Alexander Leyfrid Appointed
General Director of LUKOIL-Komi - ROGTEC. (2015, March 17). Retrieved February
27, 2016, from
https://rogtecmagazine.com/lukoil-alexander-leyfrid-appointed-general-director-of-lukoil-komi/
Asif, A. (2014, April 23).
Kochoperdim5: GAZPROM. Retrieved February 27, 2016, from
http://kochhoperdim5.blogspot.com/2014/04/gazprom_23.html
Frontline World: Russia's Rich.
(2003, October). Retrieved February 27, 2016, from
http://www.pbs.org/frontlineworld/stories/moscow/alekperov.html
