Bp In Russia

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Case Write Up for Case – BP in Russia At the time of writing this case TNK-BP, a 50/50 joint venture (JV) company between British Petroleum (BP) and a group of Russian investors, known as AAR, is on the verge of a split. There is severe discord between TNK-BP’s shareholders on multiple issues. TNK-BP is a very profitable venture and is creating value for both AAR and BP. If the current crisis is not resolved amicably, both parties stand to lose. BP has 3 options to settle the dispute: 1. buy AAR’s stake and operate as a majority owned business 2. terminate JV by selling its own stake 3. resolve the current crisis and continue with the JV My analysis shows that option #3 is the best alternative for BP. Hereunder I also list my recommendations for successful implementation of this alternative. Analysis: Industry Attractiveness: The Russian oil industry is very attractive to existing players. Entry barriers are high mainly because of very high capital investment requirements for establishing infrastructure and acquiring oil/gas fields . Since 1999, oil prices have been going up amidst strong consumer demand largely because of growth in world economy, particularly in the higher-growth economies such as India and China. The demand has largely been inelastic. Competition among the players is modest – in fact there is an oligopoly of a dozen vertically integrated oil companies (VIOC). Oil production of top 5 Russian companies grew more than 9% from 2001 to 2004. On top of that, Russian oil reserves are increasing. Overall it is a very attractive market for oil companies . Alternatives for BP: To deal with the current crisis, BP has 3 main options: 1. Buy AAR’s stake – BP can buy either partial or full stakes of AAR, giving BP the power and authority to make its own decisions. However, this option requires high additional capital investment, on top of $7.7
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