International Strategy in Terms of Oil and Hydrocarbons - Assignment Example

1) International strategy in terms of oil and hydrocarbons?  International strategy for oil and hydrocarbons never remains the same, be it any company of the world. Petronas and Pertamina both have been looking for better and long term contracts from providers for quite some time. Back in 2011, Petronas entered into a contract with GMR Infrastructure (Singapore), a subsidiary of GMR Group India, in the hopes of acquiring 30% stake in GMRE (Petronas 2011). Back when Petronas was formed in the 70s, their vision was “To be a Leading Oil and Gas Multinational Company of Choice” and in the pursuit of this vision they have entered into many global projects and partnerships. Their global network extends from Middle East to Soviet Union to Asia Pacific (Hussain 1999). And it all makes sense; Oil wealth varies, the companies like Petronas and Pertamina need to always keep digging and looking for profitable oil reserves. Sooner or later they realize that they are not the only one is the world doing the same thing, looking for black gold. It’s a cut throat competition out there and who gets it earlier is usually more profitable than the one who follows, which is why both these companies are constantly looking for concrete deals with the African countries that are said to possess much of oil wealth, an untapped market. Many companies have already sunk their teeth (or fangs, depending on the power of the jaw) into African countries sucking out oil and gas but the world is not dependent on the Dark Continent’s oil reserves, YET. Probably things will move there soon enough as Petronas has made deals with oil rich countries like Libya, Algeria and South Africa (Hussain 1999). Asian countries such as Turkmenistan and Kazakhstan are also on Petronas’ list of ‘Dig here!’, and that’s not it. The Middle East is known for its huge oil reserves, almost two third of the world’s oil comes from Arabian deserts. And Petronas have made investments in that region with the help of oil rich countries like Syria, Iran and Iraq (Hussain 1999). Going to Asia Pacific, Petronas’ portfolio includes countries like Vietnam, Myanmar, Australia and China, and this exploration involves both Upstream and Downstream oil exploration (Hussain 1999). Pertamina is older than Petronas and they have a more mature strategy when it comes to hydrocarbons. Pertamina has 7 Focus Points in terms of business strategy for hydrocarbons; their primary focus is on increasing production (as is with 99% of businesses) and they are doing this by cementing their hold in the main oil reserves that they are already pumping gas from (Pertamina EP 2013). Quite recently Pertamina has started running its gas pumping operation with all engines engaged; they call it the ‘enhanced oil recovery program’, where they are putting almost $100 million into their existing oil wells and pumping out more oil, in fact the figure is around 30,000 additional barrels per day (Ayuningtyas 2013). Talking about historic business strategy of Pertamina, they have been in contract driven collaboration with many countries since the seventies. Contract driven is important to understand the international strategy of this company. First of all, this is an Indonesian Government owned company and the contract they had with international players were termed as Production Sharing Contract (PSC) (Hertzmark 2007). This was, in mind of company think tank, the contract that would leave them as the real puppet masters of the oil game at least in their region of influence. Algeria was their partner in this game. According to this contract the split of the “profit” was between the government (represented by Pertamina) and the contractor. Now at one glance it becomes evident that there is in fact only one party that is playing it all along but they appear as they are two parties. So who makes the policies for digging oil in Indonesia? The Indonesian government of course, so what would stop them in making polices that are more Pertamina friendly and not contractor friendly? Apparently no one! This scheme might sound lucrative when in fact it was too lucrative. Too much that digging for oil in Indonesia became one of the most expensive oil exploration ventures that anyone would want to invest in. The Indonesian government would keep 85% of the oil produced after the contractor has recovered their costs. (2)How large a stake does the Indon/Malaysian government have in it, and who are its other owners (or is it 100% government owned)?  Pertamina is government owned corporation in Indonesia, headquartered in Jakarta. The company was founded in 1957 (to be precise it was a merge between two companies; Permina and Pertamin in 1968 for synergies of oil and gas businesses) and at the moment it is headed by Karen Agustiawan as its president and CEO. It has made production sharing agreements with foreign companies but it is owned in whole by the Indonesian government. Petronas is also 100% government owned and there are no partners in its functioning, and enjoys its position as the most profitable company in Asia, ranked in Fortune Global 500’s biggest global companies (Fortune, 2008). In the beginning when the company was being formed, talks were Malaysian government will have to follow the norm; involve as many companies as possible in the making of Petronas or leave everything to Shell Corporation who will keep digging oil in Malaysia and making rich profits. The Malaysian government took the bold decision to fully own the Petronas and prevent any foreigners to start a monopoly at least in that region of the world. (3) Are they collaborating with any Chinese companies, or other companies?  Without collaboration no company ever gets ahead of a certain predictable level. The major giants like Shell Corporation and Mobil have all been in collaboration throughout their corporate history; however they do it in such a profitable way that is simply remarkable. Companies like Shell make contracts that give scraps to the contractor or a lump sum for a short while when in fact they are aiming for acquiring the cash cows that they can milk for all their lifetime. Petronas has collaborated with Chinese as well as other companies. They have collaborated for extracting oil but always remained loyal to the motto on which Petronas was built; never let any foreign company get such a great share in the company that they would start making decisions for them, and as a result start their involvement in Malaysian state affairs. Needless to say, the importance of Petronas for Malaysia is paramount. Back in 2009, Petronas collaborated with OAO Gazprom, the Russian oil giant (Petronas 2009). This collaboration was focused on opportunities linked with LNG terminal Milford Haven. This is a terminal capable of supplying six billion cubic meters of LNG, which is sufficient to satisfy 5% of UK’s gas needs on an annual basis (Petronas 2009). This collaboration is not only for drilling for gas and exploration, it involves towards the soft business areas such as marketing of gas and trade, the scope is to explore the collaboration beyond the UK market. As explained in the politics section of the paper, Pertamina is more inclined towards stabilizing the country’s economic situation and selling at an affordable rate to the country consumers, which have earned the company the title of being reclusive. But now it is moving towards international markets and is determined to be the first one from the Asia Pacific region to enter into Myanmar for oil exploration (Azwar 2013). This venture will be focused towards upstream oil exploration. The reason for moving into Myanmar is the possible oil pumping of 3.2 billion barrels of oil on annual basis (Azwar 2013). This overseas exploration is not new, Pertamina, since its inception, has had eight subsidiaries and 17 joint ventures (Off-Shore Mag 2003). At this moment the company is more focused on breaking lucrative deals more than ever, this involves new ventures like Myanmar and investment in their old oil wells to pump out more of the black gold. (4) Political connections - who is the Pertamina and Petronas leadership close to?  The leadership of Petronas is more close to certain countries, oil rich countries and there is a certain favoritism that plays a part in when it comes to decision such as where does Petronas next dig for oil? Lately they have been suffering due to this decision as now the contracts they had been eying upon or predicted they would pay off are not as much lucrative as they had hoped for. So surprisingly they have turned to Canada (Yong 2013), which sounds absurd as Petronas represents Malaysia which is far less in terms of what a person makes in terms of US dollars (around $10,000 per person) compared to Canada (where an average person makes over $40,000) (Yong 2013). The deal might materialize in future and it might pay off, making history but speaking of history such deals have been less successful when it comes to real practice of digging oil. To understand the politics of the two oil companies, it is suffice to say that both companies represent the independence and liberty of the two countries that they are part of. Nationalism plays a huge role in their business advertisements and strategies. These companies have their own vision and mission statements but the real reason for these two was not to be the example among oil companies but to reduce poverty in their respective countries. After the oil crisis of the seventies, the two companies became more determined in gaining the control of their oil reserves rather than handing them out to foreign companies that would throw them scraps. Certain measures were taken in this regards such as directed credit for pribumi businesses at a smaller level. An example would be to have a minimum of 51% equity share at a domestic level on foreign investments (Mosley, Chiripanhura & Grugel 2012, 292). This is meant to deepen the industrial strength of the country (especially in Indonesia). For instance, the poverty reduction program in Indonesia was funded mainly out of Pertamina’s oil reserves, this explains how the company’s politics revolves around the country’s situation. The company needs to have the consent of the Indonesian Military; the national army is the real protection of the company (Mosley, Chiripanhura & Grugel 2012, 292). It might all seem a gloomy scenario for a company but Pertamina is a victim of circumstance, it was the way and the vision with which it was built with. Many people don’t consider it real company; a real company is always looking for expansion and growth and making profitable deals, they are not necessarily concerned with the long term national interests but Pertamina is. The company is more focused on strengthening their political connection at a more domestic level than at an international level, which makes sense as they need to have the consent of the majority to be able to have an influence over the country’s economics. An example of this is the fact that Pertamina’s debts were the primary beneficiary of the state credit than pribumi (Mosley, Chiripanhura & Grugel 2012, 292). Sources Azwar, Amahl, 2013. “Pertamina Sets Sight on Myanmar’s Opening Market”, March 8. http://www.thejakartapost.com/news/2013/03/05/pertamina-sets-sights-myanmar-s-opening-market.html Fortune, 2008. “Global 500: 2008”, Last modified July 16. http://money.cnn.com/magazines/fortune/global500/2008/snapshots/6418.html Hertzmark, Donald, 2007. “Pertamina: Indonesia’s State Owned Oil Company”. Research report., Rice University. http://www.bakerinstitute.org/programs/energy-forum/publications/energy-studies/docs/NOCs/Papers/NOC_Pertamina_Hertzmark.pdf Hussain, Ahmed, 1999. “A Case Study on Petronas Globalization a Strategic Management Decision.” MBA diss., Universiti Putra Malaysia. Mosley, Paul., Blessing Chiripanhura & Jean Grugel, 2012. The Politics of Poverty Reduction. Oxford University Press. Off-Shore Mag. 2003. “Pertamina Moves Forward with a New Strategy”, Last modified November 5. http://www.offshore-mag.com/articles/2003/11/pertamina-moves-forward-with-a-new-strategy.html Petronas, 2011. “Petronas Makes Strategic Entry Into International Power Business”, Last modified Sep 28. http://www.petronas.com.my/media-relations/media-releases/Pages/article/PETRONAS-MAKES-STRATEGIC-ENTRY-INTO-INTERNATIONAL-POWER-BUSINESS--------.aspx Petronas, 2009. “Petronas Announces Collaboration with Gazprom”, Last modified October 8. http://www.petronas.com.my/media-relations/media-releases/Pages/article/PETRONAS-ANNOUNCES-COLLABORATION-WITH-GAZPROM.aspx Pertamins EP. 2013. “Business Strategy”. http://www.pertamina-ep.com/en/our-business/business-strategy Yong, Lawrence, 2013. “The Petronas Dilemma”. KiniBiz. March 8. http://www.kinibiz.com/story/corporate/7500/selangor-mulls-acquiring-syabas-first.html Read More