Oil & Gas Industry Analysis and Strategy

This assignment delves into the complexities of the oil and gas industry, analyzing key factors influencing its success. It emphasizes supply chain management strategies, highlighting the benefits of integrated operations with manufacturing firms in the target country. The analysis also underscores the importance of flexible pricing strategies to mitigate price volatility risks. Furthermore, it draws upon industry trends, case studies, and academic research to provide a comprehensive understanding of the sector's challenges and opportunities.

BUSINESS
ORGANISATION

Table of Contents
INTRODUCTION...........................................................................................................................1
BACKGROUND INFORMATION OF THE ORGANISATION..................................................1
Market entry strategy..................................................................................................................1
Market share of the company......................................................................................................2
Relevant information of the business such as competitors and turnover....................................3
BACKGROUND INFORMATION ON BUSINESS ENVIRONMENT IN THE SELECTED
COUNTRY......................................................................................................................................4
PESTLE analysis.........................................................................................................................4
ANALYSIS SCENARIO OF THE ENTERPRISE.........................................................................6
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Business organisation consists with group of members and individual who collaborate to
accomplish goals of the enterprise. It includes commercial activities that are used for some
specific purposes that need to be accomplished to create culture within the enterprise (Gilje and
Taillard, 2016). Different enterprises follow distinctive policies, work flows and objectives to
accomplish effective results. In this context, report is based on Lukoil which is public sector
organisation and deals in oil and gas industry. It provides several types of products such as
petroleum natural gas in the market to develop effective results in business unit. For gaining
insight knowledge of the enterprise, report covers background information of the business and
country where it wants to expand operations. Furthermore, it discusses about SWOT analysis to
assess company position in market.
In the present report, Lukoil enterprise have been taken which is the largest oil company
of Russia and deals in petroleum, natural gas and petrochemical products. Project aim is to
establish operations of the present company in Belgium through using exporting method. In this
context, report covers internal and external analysis to produce effective results in the chosen
country.
BACKGROUND INFORMATION OF THE ORGANISATION
Lukoil is one of the Russia's largest oil company. They are producing the highest oil in
the market. In the 2012, the enterprise produced 89.856 million tons oil per day. The company
operate functions and operations in more than 40 nations. Now they want to expanding
operations in Belgium to develop more profits and revenue at workplace (Popli, Rodgers and
Eveloy, 2013). In respect to ascertain effective results following elements need to be included for
increasing their functions:
Market entry strategy
Market entry strategy defines as the planned method which used to deliver goods and
services for target market and distributing it at new place. In respect to make effective decisions,
Lukoil need to enter an overseas market. They have variety of options to cater their functions and
operations (Kilian, 2016). There are several types of strategies exist in front of the selected
business to enter in Belgium such as exporting, licensing, franchising, joint venture, contract
manufacturing, merger and acquisition, etc. From the above methods, the enterprise can use
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exporting which is the traditional and well-established form to operate functions in foreign place.
It can be determining as the marketing of goods produced in one nation to other country (Revie,
2015). In this strategy, the cited firm has following advantages and disadvantages to operate
functions and operations in Belgium:
With using exporting method, Lukoil has advantages to produce home based products
which is less risky to enhance outcomes in market. Furthermore, it diminishes potential risk to
operate overseas and determines the best opportunity to invest bricks and mortar. However,
exporting also create negative impact which has lack of control in market. High cost also needed
to operate effective functions and operations. For example, Lukoil can started their operations
and functions to cater their functions with exporting in different country.
Market share of the company
Oil and gas are important primary assets in Russia to gain revenue by the governments
and generates stable economic growth for social development. Foreign trade, capital inflow from
international market, budget execute, etc. (Perrons and Hems, 2013). Beside this, there is high
investment required to revolve production and revenue. Oil market of Russia has been relatively
decentralised with ownership structure evolve dramatically over the past twenty years. In Russia,
mainly four companies produce oil such as Lukoil, TNK-BP, Rosneft and Surgutneftegas.
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From the above diagram, it can be stated that Lukoil is the second largest industry that
produce oil in market. However, Rosneft became the leading oil mining company in Russian
market. From the above diagram, it has been seen that Lukoil has 2nd position to produce oil.
Furthermore, Roseneft earning more amount to perform better functions in the industry.
Therefore, it will be beneficial to make target in positive aspect. There are various other
businesses also compete to the chosen enterprise to perform several activities.
Relevant information of the business such as competitors and turnover
In the market, there are several competitors exist who provide same products and services
as Lukoil such as Distrigas, Euronav, Fluxys, Nafta, Petrofina, etc. In this context, Distrigas
founded in 1929 by the imperial continental gas association which traded natural gases in
different market. This organisation turnover rises around 32.4 % and enhance energy prices.
Their turnover is around 1.74 billion every year (Belgium's Distrigas Q1 turnover rises 32.4 pct,
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Illustration 1: Companies produce oil
Source: (Trend Towards Centralisation in the Russian Oil Market as Rosneft Acquires TNK-BP,
2017)

2017). In addition to this, Euronav has low performances as compare to Lukoil in 2017. This is
because, there total inventories are around 0 in June 2017. Hence, the chosen enterprise has the
big opportunity to expand their operations in new market. Legal form of the organisation is very
creative so that it would be beneficial to enhance operations in different areas. Financial
performances of the company very strong so that it would be better to develop more effective
results in systematic way. For next three years 2018 to 2021, the chosen organisation has
opportunities to enhance their profits around 18 to 20%. It will be beneficial to arrange more
effective results.
BACKGROUND INFORMATION ON BUSINESS ENVIRONMENT IN
THE SELECTED COUNTRY
Belgium is the federal monarchy within the Western Europe. This is found in EU as their
member to operate functions and operations in successful aspect. This country covers around
11,787 square miles and its capital is the largest in term of oil and gas industry. In respect to
enter in this market, Lukoil need to analysis their functions and operations to implement in the
area (Allen and Kraakman, 2016). In this aspect, following analysis can be determines:
PESTLE analysis
To expand operations and functions in new market, firstly business has responsibility to
assess place in which they want to enter (Dhillon, 2016). In this way, PESTLE analysis is the
best way to establish operations in external environment:
 Political factors: In Belgium, political institution are very complex and there is power of
political party is very high which is organised to represent main culture of communities.
From 1970, political parties also split with distinctive components that mainly present to
make linguistic interest in the communities (Rees and Smith, 2017). Due to changes in
economic policies, social policies and foreign policies, country has advantages to make
good momentum and place at global stages. It creates positive impact on the operations
and functions of the Lukoil to make their activities in this place. In addition to this,
country has high demand of oil and gas products due to enhancement of updated products
and services in the market (Popli, Rodgers and Eveloy, 2013). Further, rising in corporate
profitability and improvements in labour market perceive significant results to boost
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domestic investment and consumption. On the other hand, economic growth of the nation
is moderate.
 Economic factors: Belgium has the strongest globalization economy which has effective
transport infrastructure and it is integrated with different part of the nation. Location of
this country is highly effective so that it is the best opportunity towards Lukoil to enhance
their operations in this country. This country face high stagflation due to high inflation
rate and low economic and GDP growth (Perrons and Hems, 2013). Therefore, it creates
significant challenge in Belgian economy. Due to strong domestic demand, Belgium has
the effective economy to make effective results in market. From past year analysis, it has
been seen that GDP of the country is around 28.5% which increase continuously over the
year around 29.4%. Now company trying to show their profits almost 2% increasing
every year.
 Social factors: Social factors includes changes in customer demand and perception
towards product and services in market. Due to demographic dividend, Belgium economy
affected through more than 50% population in age group of 20-60 years. In the country
population also increasing continuously. It assists to enhance operations and functions in
systematic way for business development and also cater for ascertain more effective
results. It can be demonstrated opportunity to foster the economic development and
create disadvantage which lead in social problems such as unemployment (Allen and
Kraakman, 2016). Therefore, it could be creating negative impact on the Lukoil
operations. Further, social factors also indicate sustain and boost to the current rate of
domestic consumption in the corporate sector. It also helps in providing employment
opportunity in the rural areas. It is concern with keen sense of community in backward
areas.
 Technological factors: Belgium has the effective and proper national science and
technology in different aspects. There are several laboratories that assists to make
research and development for oil and gas manufacturing (Popli, Rodgers and Eveloy,
2013). Thus, Lukoil has effective advantages to coordinate and decide priorities to
implement societies concerned with agriculture and many other technological aspects.
The selected business has also opportunity to get high amount and effective technology to
conduct research in areas. This analysis also helps in to understand the organisation to
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make effective functions and operations in market to grow potential (Rees and Smith,
2017).
 Legal factors: This factor create impact on both aspect such as internal and external
environment. This is because, Belgium consists several laws and policies that assists to
maintain operations and functions in successful aspects. With the help of legal analysis,
Lukoil can easily make strategies to operate functions and operations in the country.
Further, the chosen business has also responsibility to follow rules and regulations to
maintain effective results in business unit. For example, consumer laws, labour laws,
safety standards and many other laws which need to be followed by the business unit
(Perrons and Hems, 2013).
 Environment factors: These factors include all those aspects that are determined
through surrounding the business unit. In other words, it can be stated that environment
factors create crucial impact on the operations and functions of oil and gas industry such
as climate, weather, global changes, etc. To operate functions and operations in Belgium,
Lukoil has responsibility to make sure their operations never harm to surrounding
environment where they operate. With the help of following all rules regulations, the
chosen organisation has opportunity to increase their operations in new market to develop
their outcomes in successful manner (Urciuoli, Mohanty and Gerine Boekesteijn, 2014).
From the above PESTLE analysis, it has been shown that it widely create impact on the
performances of Lukoil to operate functions in marketing and distribution system. With the help
of economic factors, it has been analysis that technological factors are more effective to operate
effective results at workplace. In this way, legal factors includes several laws that need to be
followed by the selected business for developing results in business.
ANALYSIS SCENARIO OF THE ENTERPRISE
In respect to analysis the scenario of the organisation, Lukoil need to use strategic tool
that assists to evaluate potential opportunities and assess risk exists in market in oil and gas
industry of Belgium (Popli, Rodgers and Eveloy, 2013). In this aspect, Porter five forces analysis
can be used which includes following elements to assess the market environment:
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Competitive rivalry (HIGH): In the Belgium, there is high competitive rivalry because
there are more businesses exist who operate in same sector of operations and functions in the
market. Therefore, it can be creating high impact on the operations and functions of Lukoil.
Large size of the company and its market capitalization has the biggest impact to the firm
operations and functions of oil and gas industry. Large group of company has control more than
90% so that it can also create major threat to the business unit. In the Belgium, there is Rosneft is
the biggest competitive rivalry in market (Popli, Rodgers and Eveloy, 2013).
Threat of new entrants (MODERATE): Further, in Belgium there are several sources
of energy can replace high amount of oil and gas in industry. This strategy required as the big
amount of investment in research and development to produce effective results. In the country,
Lukoil has the major threat from nuclear energy, hydrogen, coal, etc. (Rees and Smith, 2017).
Threat of substitute (HIGH): In the Belgium market, there are many alternative
resources can be used to produce energy such as biofuel, renewable resources, heating,
transportation, etc. These alternative elements can be replacing high amount of hydrocarbon that
used by business to compete with Lukoils. However, this strategy required high investment in
research and development to produce procedure in systematic way so that it is possible to make
substitute products and services (Perrons and Hems, 2013).
Bargaining power of buyers (LOW): Bargaining power of buyers in oil and gas
industry comparative low because qualitative products and services demanded. Buyers interested
to purchase products and services at any price with effective quality. Thus, in Belgium, Lukoil
has opportunity to make global oil benchmark to develop their functions and operations. There
are diverse types of oil and gas products can be produces in term of refineries, national oil
companies, international oil and gas enterprises, etc. Thus, it can be stated that buyers power
never affects to the oil price (Urciuoli, Mohanty and Gerine Boekesteijn, 2014). Customers have
low bargaining power because they have no choice to purchase products instead of the chosen
enterprise.
Bargaining power of suppliers (MODERATE): In Belgium, there are several suppliers
exists in oil and gas industry which is fully integrated to make active whole chain to produce
effective results. Therefore, the oil and gas companies of the market have chances to produce
effective results and attract many customers towards them. Ability of the company also make
involvement to ascertain effective segmentation of oil and gas industry. Further, Lukoil has also
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chanced to produce more and effective results in business unit to grow outcomes in sustainable
operations (Popli, Rodgers and Eveloy, 2013).
From the above porter five forces analysis, it has been seen that competitive rivalry is
very high so that Lukoil need to add unique features in it. Therefore, it will assist to make
competitive results in the business. Furthermore, threat of substitute products has moderate
because in Belgium there is no option in respect to alternative source for oil and gas. Bargaining
power of customer is low because so many customer demanding for high quality and effective
results in it.
CONCLUSION
By conducting various analysis such as PESTLE analysis we can conclude that the
company must make its strategic plan work more effective on changing environment. Through
PESTLE analysis it has been evaluated that the company can expand its business by entry into
international market and increase its profitability by exporting its oil and gas produces by them.
These studies also conclude that the firm can conduct smooth operation and can extend its
growth by using technology for research and development purpose as well as for innovation
purpose. The company can survive long by framing operations policies according to the legal
environment of country.
The study of scenario analysis has concluded that the company must face stiff competition
in international market. The entry of new entrant may cause of threat for LUKOIL company.
Through this study it has been also evaluated that the firm can make use of its opportunity to
build oil benchmark globally. This can be concluded that the company has potential to increase
its production, quality as well as can increase its efficiency by integrated their business with the
firm manufacturing oil and gas in that country, the company can use this for expanding its supply
chain. This is concluded by swot analysis that the firm must make flexible pricing strategy or can
avoid threat of wave in prices by timely reviewing and rectifying the pricing strategy according
to the need.
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REFERENCES
Books and Journals
Allen, W.T. and Kraakman, R., 2016. Commentaries and cases on the law of business
organization. Wolters Kluwer law & business.
Dhillon, B.S., 2016. Safety and Reliability in the Oil and Gas Industry: A Practical Approach.
CRC Press.
Gilje, E. P. and Taillard, J. P., 2016. Do private firms invest differently than public firms? taking
cues from the natural gas industry. The Journal of Finance. 71(4). pp.1733-1778.
Kilian, L., 2016. The impact of the shale oil revolution on US oil and gasoline prices. Review of
Environmental Economics and Policy. 10(2). pp.185-205.
Perrons, R.K. and Hems, A., 2013. Cloud computing in the upstream oil & gas industry: A
proposed way forward. Energy Policy. 56. pp.732-737.
Popli, S., Rodgers, P. and Eveloy, V., 2013. Gas turbine efficiency enhancement using waste
heat powered absorption chillers in the oil and gas industry. Applied Thermal
Engineering. 50(1). pp.918-931.
Rees, G. and Smith, P. eds., 2017. Strategic human resource management: An international
perspective. Sage.
Revie, R.W., 2015. Oil and Gas Pipelines: Integrity and Safety Handbook. John Wiley & Sons.
Urciuoli, L., Mohanty, S. and Gerine Boekesteijn, E., 2014. The resilience of energy supply
chains: a multiple case study approach on oil and gas supply chains to Europe. Supply
Chain Management: An International Journal. 19(1). pp.46-63.
Online
Belgium's Distrigas Q1 turnover rises 32.4 pct, 2017. [Online] Available through:
<http://in.reuters.com/article/distrigas-idINL1342434320080513>. [Accessed on 16th
August 2017].
Trend Towards Centralisation in the Russian Oil Market as Rosneft Acquires TNK-BP, 2017.
[Online] Available through: <https://www.ceicdata.com/en/blog/trend-towards-
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