White Nights Polar Lights Investing in the Russian Oil Industry
BUSI 281 Strategic Management
Dr. Dara Szyliowicz
Case Write-Up:
White Nights, Polar Lights: Investing in the Russian Oil Industry In the latter half of the 1980s, the fallen of the Soviet Union opened a great opportunity for Western firms to do business in Russian Oil industry. According to the article, Russia was still the world’s largest single producer of crude petroleum. Its reserves of petroleum were the seventh largest in the world, and its reserves of natural gas the largest. Moreover, Russia was located directly next to the two of the largest markets, the European and Japanese markets. However, the economy in Russia was messes, the political was not stable, and the government applied super high tax on foreign company. Those conditions made Russia Oil Industry a hard decision to make for foreign companies. Oil companies faced three major choices:
Should they take the risk and enter the market early to gain advantage over the companies that came in later or wait for others to discover the risk, then they came in to minimize the risk?
If they decide to enter early, what deal should they make to minimize the risk?
Once the deal was structured, how could they bind their various partners to the necessary contracts and commitments?
The case examines how three companies (Phibro Energy, Mobil, and Conoco) have evaluated the risks of Russia and formulated a strategy for investment.
Phibro Energy:
Philo Energy was a recent entrant into the oil industry with the purchased of refineries in Louisiana and Texas in late 1982. In 1990, seeing the opening in Russian Oil Industry, they decided to enter early to gain a significant source of crude petroleum and a key advantage over its larger rivals. Thus in November 1990, they formed the White Nights Joint Enterprise, a 50/50 Russian/ American joint venture. Phibro committed $40 million in cash and VNG contributed $40 million in wells and infrastructure to White Nights venture.
Soon, the White Nights had to face with
Dr. Dara Szyliowicz
Case Write-Up:
White Nights, Polar Lights: Investing in the Russian Oil Industry In the latter half of the 1980s, the fallen of the Soviet Union opened a great opportunity for Western firms to do business in Russian Oil industry. According to the article, Russia was still the world’s largest single producer of crude petroleum. Its reserves of petroleum were the seventh largest in the world, and its reserves of natural gas the largest. Moreover, Russia was located directly next to the two of the largest markets, the European and Japanese markets. However, the economy in Russia was messes, the political was not stable, and the government applied super high tax on foreign company. Those conditions made Russia Oil Industry a hard decision to make for foreign companies. Oil companies faced three major choices:
Should they take the risk and enter the market early to gain advantage over the companies that came in later or wait for others to discover the risk, then they came in to minimize the risk?
If they decide to enter early, what deal should they make to minimize the risk?
Once the deal was structured, how could they bind their various partners to the necessary contracts and commitments?
The case examines how three companies (Phibro Energy, Mobil, and Conoco) have evaluated the risks of Russia and formulated a strategy for investment.
Phibro Energy:
Philo Energy was a recent entrant into the oil industry with the purchased of refineries in Louisiana and Texas in late 1982. In 1990, seeing the opening in Russian Oil Industry, they decided to enter early to gain a significant source of crude petroleum and a key advantage over its larger rivals. Thus in November 1990, they formed the White Nights Joint Enterprise, a 50/50 Russian/ American joint venture. Phibro committed $40 million in cash and VNG contributed $40 million in wells and infrastructure to White Nights venture.
Soon, the White Nights had to face with