Russian Oil

1. How important is the acquisition of Russian oil to a Western oil firm?

In short, extremely. There is the potential for significant advantage for any firm with investment in the Russian oil industry. The resurgence of Russia’s economy is due in large part to the revitalization of energy production, making it among the largest oil producers of the world and the top producer of natural gas. Additionally, geographically, Russia is situated ideally. With its existing network of pipelines and refineries, Russia has the ability to readily serve the lucrative European and Japanese markets. Another important consideration is that US crude production continues to decline while consumption steadily rises year after year. This alone makes access to Russian oil of great importance to Western firms. In the face of exhausted domestic reservoirs, constraints of land access, and increasing decline curves, Russian oil offers tremendous opportunity.

2. Evaluate the strategies undertaken by Phibro, Mobile, and Conoco.

In entering the Russian market, Phibro’s strategy was to capitalize on being a first mover. This was certainly a risky strategy but, as a relatively new player in the global oil industry, Phibro’s move was necessary in order to gain a foothold and favorable position within the Russian market. Through its joint venture with VNG, Phibro sought access to a significant source of crude petroleum. While Phibro had considerable capital to contribute to this venture, it lacked any substantive expertise in the oil industry.

Its lack of experience soon became abundantly clear. To begin with, rather than doing their own research, Phibro relied on statistics and estimates provided by the Russian government. This trust proved to be a quite costly as the government estimates of available crude had been grossly exaggerated. Phibro’s next mistake was to enter into a contract that left it precariously reliant on its foreign partner. Unfortunately for Phibro, VNG was legally...