Eastern Macedonia and Thrace Institute of Technology

Department of Petroleum & Natural Gas Technology

MSc in Oil and Gas Technology

Strategic Management Analysis for an

organization in the oil and gas Industry

Course Assignment: Strategic Management Prof.: G. Theriou

Group Members:
Banou Christi-Monika
Demiris George
Kastidou Despina
Maurin Aurlie
Trevezas Simon

Table of Contents
Introduction .................................................................................................................. 6
Strategy Formulation................................................................................................. 10
Vision & Mission Statements................................................................................... 10
Vision.................................................................................................................... 10
Mission ................................................................................................................. 11
Strategy Implementation .......................................................................................... 12
External Audit ............................................................................................................ 13
PEST Analysis.......................................................................................................... 13
Political Environment ........................................................................................... 13
Economic environment ......................................................................................... 14
Socio-Cultural Environment ................................................................................. 16
Technological environment .................................................................................. 17
Five Forces Model .................................................................................................... 18
Threats of new entrants......................................................................................... 19
Threats of substitutes ............................................................................................ 20
Bargaining power of buyers ................................................................................. 21
Bargaining power of suppliers .............................................................................. 22
Rivalry .................................................................................................................. 22
Top Competitors for Statoil ..................................................................................... 24
Exxon Mobil ......................................................................................................... 24
Royal Dutch Shell ................................................................................................. 24
BP ......................................................................................................................... 25
CPM Matrix .......................................................................................................... 26
EFE Matrix-Upstream .............................................................................................. 27
Opportunities: ....................................................................................................... 28
Threats .................................................................................................................. 29
EFE Matrix Downstream ......................................................................................... 31
Opportunities ........................................................................................................ 32
Threats .................................................................................................................. 33
Internal Audit ............................................................................................................. 34
Value Chain Analysis ............................................................................................... 34
IFE Matrix - Upstream ............................................................................................. 35
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IFE Matrix - Downstream ........................................................................................ 36

Strengths ............................................................................................................... 37
Weaknesses ........................................................................................................... 38
Strategy Formulation................................................................................................. 39
SWOT Matrix........................................................................................................... 39
SWOT Analysis........................................................................................................ 39
Strengths - Opportunities ...................................................................................... 41
Weaknesses - Opportunities: ................................................................................ 41
Strength Threats:................................................................................................ 42
Weakness Threats: ............................................................................................. 42
Internal-External Matrix ........................................................................................... 43
IE Matrix-Upstream .............................................................................................. 43
IE Matrix-Downstream ......................................................................................... 44
Grand Strategy Matrix .............................................................................................. 45
Unrelated Diversification Strategy ........................................................................... 46
Decision Stage ............................................................................................................. 47
Simplified Methodology .......................................................................................... 47
QSPM Matrix ........................................................................................................... 48
Conclusions ................................................................................................................. 50
References ....................................................................... Error! Bookmark not defined.

Table of Figures
Figure 1 EIA forecast of gas demand ......................................................................... 15
Figure 2 IEO 2013 Total World and Energy mix consumption Forecast .................... 16
Figure 3PEST Analysis ................................................................................................ 18
Figure 4 Five Forces .................................................................................................... 23
Figure 5 SWOT Matrix ................................................................................................ 39
Figure 6 IE Matrix Upstream ....................................................................................... 43
Figure 7 IE Matrix Downstream .................................................................................. 44
Figure 8 Grand Strategy Matrix ................................................................................... 45

Table 1 CPM Matrix .................................................................................................... 26

Table 2 EFE Downstream Matrix ................................................................................ 27
Table 3EFE Downstream Matrix ................................................................................. 31
Table 4 IFE Upstream Matrix ...................................................................................... 35
Table 5 IFE Downstream Matrix ................................................................................. 36
Table 6 SWOT Analysis .............................................................................................. 40
Table 7 Simplified Methodology Matrix ..................................................................... 47
Table 8 QSPM Matrix .................................................................................................. 49

Introduction
By demonstrating a case analysis, we seek to present a clear view of the companys
strategies, revealing all possible aspects which affect the overall performance. The main
goal is to evaluate the industrys background and illustrate efficient and effective
solutions in order to accomplish its primary objectives. Moreover to prepare a review
of the competitors performance and compare it with our current position. The report
also contributes to express criticism on our strengths and weaknesses but also to
opportunities and threats. The outcome of the report is a recommendation of possible
and logic actions through scientific and supported evidence. Additionally, through this
analysis there will be an extend overview of the competitors strategies, advantages and
disadvantages. Furthermore, based to financial data, there will be a demonstration of
where the company is leading and where it should be, what actions is needed and how
sustainable or in long-term situation profitable can be.
It will be useful to talk about Oil and Gas Industry, in order to understand how things
work. The world relies on 90% of its energy resources at oil reserves and petroleum
makes up to 40% of the total energy consumption. Also, oil products are the basic
ingredients to produce other form of sustainable resources and they are the core
ingredient of all chemical industry. As a conclusion, oil and its products are the dense
energy source powering global industry, transportation and generally the global
economy and that makes it one of the world's most important commodities.
Overall, oil industries are quite sensitive to external factors because they are influenced
by elements such as technology innovation, prices and politics. Moreover, there is no
much space for differentiation among competitors based on petroleum products.
Nowadays the oil reserves are being decreased and the companies are pushed to spend
tremendous amounts of money in order to find new promising wells. Another fact is
that our new discoveries are not as productive as they were and also they do not share
the same quality as it used to be. The above mention data push the companies to develop
new technologies. Innovation technology is the key feature for the industry survival due
to the fact that year after year the exploitation will be taking place into more hazard
environments. Drilling into those places was cost ineffective, however, now it is

profitable and the industry will have to upgrade their technologies in order to make this
happen with safety and environmental integrity.
Finally, the renewable energy provides new opportunity for the global social-economic
growth. In 2010 UN conference decided to decrease the environmental impacts of the
planet by reducing the fossil fuel consumption. That came into conflict with the
constant growth of population and their needs for energy. Renewable energy or new
forms of energy will occupy the worlds economy. This aspect is a new asset for the
energy companies that must take advantage as they know the energy market, they own
experienced personnel and huge distribution channels.
The report hopefully aims to create the best financial strategic and competitive moves
that will provide prosperity to our company and sustainability. Implementing logical
techniques will help us to approach cross functional decisions and mitigate the financial
risks. It is crucial to prepare constant evaluations of the overall objectives and strategies
of the company, in order to improve them on time or change them based on the
customers needs.
History
At the very beginning, Statoil (Den Norske Stats Oljeselskap AS) was created as a state
corporation in the city of Stavanger in Norway in 1972. This government initiative was
taken in order to be sure to have energy resources for its country and controlling it.
Statoil is the biggest company of Norway with 29000 employees and accounts on the
Norwegian continental shelf (NCS) for 35 years of work in the oil and gas field. This
international company is a part of the Stock Exchange in Oslo and New York (2010).
Today, Statoil Fuel & Retail is operating in 34 countries, having 100 years of job
experience/ and 20 years in Western Europe. It was called Statoil from the State Oil.
It

is

an

integrated

company

operating

from

exploration/production

to

refining/distribution. For fulfilling this purpose, many administrations such as Minister

of Industry, Minister of Petroleum & Energy, and the parliament have been consulted
for exchanging important information. In 2009, its yielding/production were 1.96
million barrels of oil equivalent (boe) per (equity production). In 2013, the total equity
was 356.0 in NOK billion. Statoil is being part of the greatest suppliers in crude oil, and
one of the biggest operators in deep water superior to 100 meters. Also, leader in carbon

storage. Finally and last note, Statoil operates with exportations to Europe in second
place of all the oil and gas companies.
History of Statoil with dates:

After 1965, licenses were first given from the government to exploit in Norway
North Sea.

In 1968 first finding in Cod field.

In 1973 beginning to have a part in the petrochemical industry.

In 1975 becoming net exporter. First subsea oil pipeline and first explorations
(the Norpipe line from Ekofisk to Teesside in the United Kingdom).

In 1979 starting production in Statfjord.

In the mid-1980s, expansion in other countries than Norway.

In 1981, beginning of operations to a Norwegian society at Gullfaks (North

Sea).

In 1987 production Gullfaks + Statpipe from the Statfjord, Gullfaks, and

Heimdal.

In 1992, operations for gas in Ireland from British Petroleum (BP)

In 1993, was established fuel station operations in Murmansk, Russia.

In 2001, Statoil became a public limited company (privatized) and was listed on
Stock exchange. Before it was called Statoil Energy & Retail AS. After
changing of name, was renamed Statoil Fuel & Retail ASA (18 May 2010)
(transportation fuel, stationary energy, marine fuel, lubricants, chemicals and
aviation fuels, it has been closed on 12 July 2012.

Governments shares 67%.

In 2002-2003 there was some corruption with Horton investments of $15.2 million
(Iran) in order to be sure to have oil contracts over there. In 2003, CEO and chairman
decided to resign because of this Bribery in Iran country. At the end of the year 2003,
Statoil made a joint venture for pipeline from Ormen Lange, second largest gas field in
Norway, to the United Kingdom. Langeled. In 2006, Statoil Fuel & Retail decided to
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review its strategy for concentrating again on its core activity fuel transport business
and non-core selling activities (wood pellets, home electricity, bitumen and LPG
bottling). In 2007, firstly Statoil acquired North American Oil Sands Corporation ($2.2
billion), then Athabasca oil sand field (Canada). Moreover, another event this year,
Statoil and Norsk Hydro merged together. In 2008, there were in Russia an expansion
of the company in St. Petersburg Leningrad and Pskov regions (fuel stations and
lubricants).
Today:

In Norway, Statoil Fuel & Retail comprise/possess more than 8,100 stations and
70,000 passionate retailers.

In Scandinavia: Statoil owns some automated fuel stations (Sweden/

Denmark).

Energy efficiency:
Statoil put great effort in its productions stage on reducing CO2 and Nitrogen oxides
emitted in the atmosphere. Furthermore, to put emphasizes on promising renewable
energy. For example: is the fourth largest in offshore wind power (Sheringham Shoal,
UK). Statoil is leader in CO2 storage operator. According NCS 60% more carbon
efficient than the other global industry.

Strategy Formulation
Vision & Mission Statements
Vision
Vision is the first step of strategic planning and the first process that a manager has to
fulfill. Usually it is not more than a sentence but it defines what do we want to
become. It is crucial to be specific and clear because it gives a sense of inspiration to
all members of the company but also attracts new shareholders funds.
Statoil clarifies its existence and influence the employees through the below vision
statement:
According to annual report of 2013, vision refers as :
Crossing Energy Frontiers
It guides our long term strategy as an upstream- oriented & technology based energy
company. Represents both past achievements and the challenges we have to solve, to
continue developing our great company.
Vision and mission are the fundamental actions after the establishment of the company.
The mission of the company is the statement that replies to the question what is our
business. Furthermore mission is basically the outcome of vision and also outcome of
our strategic actions. Specifically it identifies the scope of the firms operations in
product and market shares and also distinguishes one business from another similar.
Proposed Vision Statement
Provide innovative energy solutions for every humankind activities worldwide.
As the vision statement answers to the question What do we want to become? we
believe that by this proposed vision, company can inspire its employees to accomplish
the following objectives:

Spread the firms brand name worldwide by gaining larger market share
globally and become more competitive within the oil and gas industry.
(..activities worldwide )

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Keep and improve companys competitive advantages which are the innovative
technology that engages in its operations and the anthropocentric character that
has. (...innovative energy solutions for every humankind activities)

Get leading position in every segment of the oil industry; upstream, midstream
and downstream. (for every humankind)

Mission
Unfortunately, based on the most resent information for Statoil, there is no update for
the mission statement for 2013. Despite the fact of lack of official statement, there is
still plenty of evidence through the annual report that gives a sense of mission. The
statement refers as:
Our mission is to accommodate the world energy needs in a responsible manner. We
are determined to develop resources responsibly with zero harm to people and
environment. This lasting values orients our worldwide operations and delivers
profitable growth and prudent redistribution of capital to shareholders
A good mission statement generates a range of feasible alternative objectives and
moreover needs to be broad in order to appeal to the organizations stakeholders. Based
to theory Statoil tries to explain the purpose of its existence and the importance of their
values which will always be faith. Statoil confirms all terms of the mission through its
actions.
Proposed mission statement
In addition to the above mentioned we have proceeded on developing a new inspiring
mission of the company:
Statoil is a world leading Energy Company determined to deliver to our customers
responsibly oil, gas and petrochemical solutions with zero harm to people and to
environment. Our values distinguish us within the global market delivering profitable
growth and financial rewards to our shareholders. Innovating technology is the key
feature for achieving our everlasting values providing sustainable societies and also is
our major advantage for exploring worldwide. Finally we believe that the employees
reveal the whole image of the company and illustrate a live example of our ethics, thats
why we reward our people on the basis of their performance, giving equal emphasis to
delivery and behavior.

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The vision and mission, is written on present tense which reveals that the company
schedule is to maintain its current advantage position in the market and concurrently to
increase productivity and financial growth.

Strategy Implementation
Statoil Strategic points:

To succeed going forward we continue to focus strategically on the following:

Sustaining leading exploration company performance

Take out the full value potential of the Norwegian Continental Shelf (NCS)

Strengthen global offshore positions

Maximize the value of our onshore positions

Creating value from a superior gas position

Continuing portfolio management to enhance value creation

Utilizing oil and gas expertise and technology to open new renewable energy
opportunities

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External Audit

PEST Analysis
In order to analyze and evaluate Statoils operation environment, we have to use
external audit frameworks. One of these frameworks is PEST analysis in which we are
investigating closely Political, Economic, Social-Culture and Technological
environment in which an oil and gas company operates.

Political Environment
Political decisions by governments around the world are highly influencing the oil and
gas industry. The threats for an oil and gas industry that comes through political
decisions, political instability, geopolitical relationships etc. are called political risks.
These political risks must be taken in a consideration from the firms as an impact on
their profitability and effectiveness.
First of all, we have to consider that government primarily are the owners of the proven
oil and gas reserves around the world. In this way, governments can sell concessions
and give access to their resources in different companies as they prefer. Moreover,
National Oil Companies (NOCs) control more than 90 percent of the existed oil reserves
and over 75 percent of global oil and gas production. These companies are fully or in
the majority owned by national governments, and their main strategies and
administrative decisions comes through political decisions. In many cases, NOCs are
exploring these oil reserves and IOCs are undertaking the most complex projects,
where high technological and financial assets are required.
On the other hand, many of oil-rich companies seems to be geopolitical instable and
often acts of war, acts of terrorism and civil conflicts take place there. That is obviously
a barrier for foreign companies big investments.
The political instability also affects the supply of oil and as a result the oil and gas
industry. In a same way, in many cases, oil-rich countries face a lack of effective laws
and regulations and consequently companies exposed to corruption.

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Finally, is a common practice for oil production governments to increase taxes imposed
on foreign companies, as they want to control their own resources on tight fiscal terms.

OPEC
OPEC (Organization of the Petroleum Exporting Countries) is an intergovernmental
organization and economic cartel whose aim is to coordinate and unify the petroleum
policies of its member countries. The role of OPEC is to determine the amounts of oil
production and supply of member countries according to their oil reserves. OPEC
coordinates the oil supply in order to control oil prices. For example, OPEC might cut
their supplies for a long time period to maintain a high price level. OPEC will strive to
keep prices above $100/bbl. to meet its budget commitments as the independent
producers increase their production. Cohesion of the group is a key oil market
uncertainty.

Economic environment
Global economy and petroleum industry are heavily interact each other as the global
oil supply is substantial for economic growth and also the progress of international
economy has a great impact on oil and gas industry. In every aspect, economic growth
based on transportation, industries, infrastructure development etc., where every one of
these activities need energy consumption to be carried out. In a same way, the
development of oil and gas industry is driven by economic growth around the world.
As an example, the currently financial crisis has influenced considerably the
development and growth of oil industry.
The oil price level is a factor which on the merits is determined by oil and gas supply
and demand, as every other commodity. Demand of oil and gas seems to be more stable
than the supply in the recent past years. Traditionally, oil demand is affected by
petroleum process, economic growth and weather conditions. Through the last years an
increase of oil demand have been occurred, and the reason is the increasing energy
consumption of developing countries such as china and India, where growth of
population, industrialization and urbanization demand big amounts of energy resources.

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The predictions show that an increase of 62 percent in energy demand would appear in
the next 20 years.
Oil supply, on the other hand, is used to be much more fluctuated than oil demand, as
it depends on how easy utilizable the oil resources are, the geopolitical risks and the
weather conditions.
Another crucial economic factor of oil and gas industry is the value of U.S. dollar that
is the currency of oil trading internationally. As a rule, dollar depreciation leads to
growth in oil prices, while dollar appreciation does the opposite. The reason of this is
that host governments postulate the same profits of oil exploration after the exchange
of U.S.D. into their currencies. After all, a stable U.S. economy could provide a stable
oil industry environment with bigger potential profitability for oil firms.

Figure 1 EIA forecast of gas demand

15

Figure 2 IEO 2013 Total World and Energy mix consumption Forecast

Socio-Cultural Environment
The social environment consisted by culture, values, religion and language. This sociocultural factors determine whether a company enter in a foreign market and the way
what will enter. Other social forces that could influence an oil company may be the
population of a country, the income distribution, the gender equality etc..
All these forces affect much more the downstream/retail segment than the upstream/oil
production, as there are crucial on customers preferences and consuming habits, so
they must be identified in order to have profitable sales in a foreign country.
Worth to mention that there is a turn on consumers preference on most environmentally
friendly energy resources (wind and solar energy, biofuels, hydro etc.). As people
adopted fears according to the global warming problem and they concern more about
air quality, living surrounding quality and natural environment. This turn maybe affect
in a negative way the oil producing companies. For instance, a reduction on oil
consumption through the last decades and a potential for more natural consumption
have been noticed.

16

Firms, in order to communicate their environment responsibility and concern with

citizens and local stakeholders, publicize annual reports and sustainability reports and
also make investments in education and financing programs that stimulate local
suppliers.

Technological environment
Technology has been always played an important role in oil and gas industry due to its
high involvement into every segment of an oil company (upstream, midstream,
downstream), and as a result it affects the profitability and the financial growth of a
firm.
In upstream section, technology has a great impact as it is responsible whether an oil
reservoir will be exploit and how efficient this exploration will be. The technological
development in oil exploration gave the advantage on oil production companies to
explore old reservoirs that were considered as exhausted and gain profits from them,
but also to take under control more difficult extractions, for example in ultra-deep-water
reservoirs.
Technology in oil production field in combination with the current each time oil price,
determine whether an exploration would begin or the oil reservoir will be characterized
as an empty hole.
Technology is a crucial factor also for the midstream and downstream of industrys
domains. Technology in these industrys segments refer to the infrastructure of a
country to oil and gas transportation and refinery methods.
The infrastructure of a host country are roads, ports, railroads etc., which are important
for effective oil and gas transportation it is also an essential factor in order to determine
if an investment in a new region will be profitable or not. Also the location of existent
transportation pipelines is related to the potential returns of a new investment as there
are necessary for the financial exploitation of oil and gas recoveries.
Finally, the optimization of refining processes has been a reason for an increase on oil
companies returns.

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Political Environment

Economic Environment

OPEC
Geopolitical instability in oil-rich countries-Terrorism, acts of war
Governmental ownership of oil reserves
Lack of Effective Regulations and laws in oil-rich governmentsCorruption

Economic Growth in Asia

Financial crisis in OECD countries
U.S. Dollar
Oil prices- Supply and Demand

Oil and Gas Industry

Language, Ethics, Religion of host counties

Environmental Sensitive Customers
Annual reports

Exploration in ultra deep waters

Infrastructure of host country (Roads, road trails etc.)
Transporting Pipelines
Optimizing refinery methods

Socio-Cultural Environment

Technological Environment
Figure 3PEST Analysis

Five Forces Model

Another useful tool to analyze an industrys environment and plan a competitive
strategy, is the Five Forces Porters framework. Regarding to this framework, M.
Porter suggests that there are five crucial forces which determine the attractiveness of
an industry and reveal the roots of its current profitability, anticipate future trends and
competition among players. These competitive forces are:

threats of new entrants

threats of substitutes

bargaining power of buyers

bargaining power of suppliers

Rivalry among Industrys firm.

A successful company depends on the relations and the structure of the industry
according to these five forces. Those frameworks factors determine the attractiveness
of the industry along with its opportunities and threats.
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Threats of new entrants

New companies compete to win a part of the market. The new entrants can be traditional
integrated oil companies (IOCs), independents, service and equipment suppliers and
the national companies NOCs. The fluctuation of oil prices are an extra barrier for new
entrances in this industry as they must invest such an amount of money with long term
profitability.
Supplies and distributions of the big players have had the time to become innovative
and to create close relations with governments.
For the new competitors it is very important to be capable of accessing new resources
owned by the government.
Nowadays, independent companies (and services providers) compete with the
international companies (IOCs). The independent ones become more attractive for
creating partnership with NOC thanks to their market share growing and as a result this
allows them, to survive with less money and to reach economies of scale.
On the other hand, independent suppliers companies have already all the new material
and money to do some investments by limiting some risks.
Another remark about national companies NOCs, is that they decide to expand
internationally for acquiring the energy they need. This is a threat for IOCs because the
resources are well controlled by NOCs, which are able to pay for them and produce at
lower costs.

There are some barriers that prevent new competitors to enter the market:
First, only big companies in oil and gas with a lot of capital can perform/invest in
activities such as to explore, to develop fields, to install facilities, material, services,
researches, inventories etc. (upstream, midstream, downstream).
Secondly, economy of scale (reduce unit cost by its large production quickly) can
also be used only by the major players because exploration and production became
costly so they cannot be accessible by everyone. For instance, it is difficult and most
of the times not possible to explore new reserves because these reserves do not
belong to the companys country. Only major oil and gas industries can put a certain
amount of money in what they dont have.
Third, those big companies have the ability to protect the access to their channels of
distribution, preventing new ones that would try to enter in this competition.

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 Fourth, in order to be able to reduce the prices, industries can concentrate on

innovative technologies, specialized in know-how and patents. With the resulting
profit, oil and gas companies can use this intangible assets for new purposes in
production. All this assets can be difficult to be accessed by new companies entering
the market.
Fifth, governments sometimes can prevent companies to perform certain types of
activities with their regulatory policies. As a result new entrant competitors cannot
access these countries reserves.
Sixth, because oil is a commodity product we cannot differentiate it and new entrants
cannot use differentiation strategies that could help them to enter the market. On the
other hand, the customers cannot find other prices if they turn to a new supplier.
Seventh, cartels have the power to compete thanks to their own governments. All the
big players are reunite under OPECs umbrella that decides rules that influence the
prices.
Eight, ownership of resources in oil and gas that already belong to the societies are
a real advantage if compared with potential new competitor who does not possess it.
Consequently, new companies that would like to entry have the difficulty to offer
the same costs and the same quality of the firms that operate for a long-time period
in a specific field / area. To be able to fight those barriers the new entrants should
have very good quality, pricing and marketing which is very difficult in order not to
constitute big threats. Nevertheless, it constitutes higher threats for services
suppliers, independent companies, national companies and new market companies.

Threats of substitutes
Here substitutes replace the need and function of petroleum for purposes such as
accommodation, electricity, transportation etc.
Substitutes examples are coal, nuclear energy, hydrogen, biofuels and other renewable
energy sources.
Alternative products can affect what makes an industry attractive and profitable.
Two important things to see if there is a threat:
Performance and quality of the substitutes
The cost is important too because if too low it will be easy for other buyers to replace
it, except if the customers dont want to change its product because he is used to it.

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Regarding the energy market, the largest share goes to hydrocarbons as the existent
technology is founded in internal or external consumption engines (car engines,
industrial machinery, electrical production etc.). These engines are strictly oriented to
the oil or gas consumption. In order to substitute the hydrocarbon consumption with
new energy sources, huge investments must be done in every economic and production
procedure.
As can been seen, oil substitutes could represent a threat but there is no serious
competition in this case.

Bargaining power of buyers

Buyers are: refiners, major international companies, national oil companies, marketers,
distributors and traders.
Other buyers can be countries such as: US, European Union, China and Japan.
Customers who usually depend on the oil and gas industries have the power on prices
and quality because they are responsible for the demand to the suppliers/sellers.
So, when they have specific needs they can ask different specific companies the same
type of product or service and can be able then to choose the costs and if they desire it,
they can even change the supplier. Generally, the bigger the oil and gas industries are,
the more customers they have.
If there is just a few dominant customers then they can negotiate in a better way. Those
buyers spend lots of money to acquire large quantities of the industries products in this
case they have the bigger bargaining power so they affect the prices.
Customers can also have this power if they know the costs information.
Finally, buyers also might be capable of being a threat to oil and gas companies if they
are vertically integrated backwards.

An idea of the oil and gas company in order to exploit international fields of resources
is to buy a part of, or merge with a company that operates on the same territory they
want to explore. Finally, in this way, companies have at the end more customers, less
risks and more information.

21

Bargaining power of suppliers

Suppliers in oil firms consist of pipeline constructors, raw material and special
equipment suppliers, engineers, and even scientific researchers. All these suppliers are
strongly related to the oil production procedure where oil firms have a strong network
of suppliers as also are backward integrated, so many of these services can be
undertaken by the same oil companies without the contribution of third parties.

Except for the equipment and the services regarding to the oil production, the main
supply an oil firm needs to operate is the oil reserves. The hydrocarbon resource holders
are countries and as a consequence their governments. From this aspect OPEC country
members have the main bargaining power against oil companies as they own almost
the 70% of the total proven oil and gas reserves. Another point to mention is that OPEC
oil reserves are the most low cost fields in terms of oil production. That gives them the
power to control oil prices and control as a sequence the profitability and sustainability
of independents and IOCs.

Rivalry
The oil and gas industry is characterized by the existence of a few large companies and
several small ones. Large firms are either IOCs with very strong assets on know-how
in oil production field and NOCs with the ownership of oil resources and the
accessibility on these resources. As a simple rule, the biggest ones are the strongest
ones. Those corporations have the same problems, such as the difficulties to meet new
natural resources and to produce wells.
In order to be sustainable, oil companies have to reach economies of scale and try to
keep the same fixed costs by increasing their productivity. This makes the competition
for accessing new oil fields and replacing drying oil resources very intensive.
When fixed costs cannot be changed a lot and the differentiation of the product is
practically impossible, the only way oil companies to be more profitable is to be more
productive.

22

Moreover, the oil industry have high exit barriers because of the huge capital that is
being invested by oil corporations in order to obtain the special equipment that is
needed for oil exploration and production. These exit barriers make oil companies to
stay operative even with low returns.
A solution to this rivalry is to create a Joint Venture in order to result in an alliance that
could solve economic issues and performances.

Threats of new entrants

(very low)
Huge capital requirements
Economies of scale
Channels of distribution
Access in oil fields

Bargaining Power of
Suppliers
(high)
Pipeline constructors, raw
material, special equipment
suppliers, engineers

OPEC
Need for strong political
connections

Competitive Rivalry
(high)
Large IOCs & NOCs
High exit barriers

High competition for

new oil fields

Bargaining Power of
Buyers
(low)
Countries(US, EU, India,
China)
Refineries
Major international
companies

Threat by Substitutes
(low)
Existent technology
oriented towards oil &gas
consumption
Cost of substitutes

Figure 4 Five Forces

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Top Competitors for Statoil

The status of Statoil is that it is Norway's top integrated oil and gas company. Statoil
operates in 40 countries, focusing its upstream activities in more than 10 of
them, primarily on the Norwegian continental shelf, the North Sea, the Caspian Sea,
Western Africa, North America, and South America. In 2010 Statoil reported proved
reserves of 5.3 billion barrels of oil equivalent. It indirectly operates a network of more
than 2,280 gas stations in Russia, Scandinavia, Poland, and the Baltic States. (77% of
these stations are in Scandinavia). Statoil also operates natural gas pipelines, supplies
electricity in Norway and Sweden and is engaged in green energy development (wind
and biofuels).

Exxon Mobil
Exxon Mobil is the largest integrated oil firm globally. These American colossus
branches are spreading in every sector of oil and gas production worldwide. These
sectors are oil and gas exploration, production, supply, transportation, and marketing
worldwide. According to the 2013 annual report, the proved reserves of company are
25.2 billion barrels of oil equivalent, including its major holdings in oil sands
through Imperial Oil. In the downstream, Exxon Mobil's 31 refineries in 17 countries
have a throughput capacity of 5.3 million barrels per day. The company supplies refined
products to more than 19,000 gas stations worldwide (including almost 10,000 in the
US). Exxon Mobil is also a major petrochemical producer.

Royal Dutch Shell

Royal Dutch Shell is the second bigger oil company in the world. The proved reserves
are equal to 13.9 billion barrels of oil equivalent. The upstream sector operates most in
Nigeria, Oman, UK, and the US. Shell has the largest retail network in the world with
more than 44.000 gas stations worldwide. The refining capacity is 3.3 million barrels
of crude oil per day. Shell also operates in transports of natural gas, trades of gas and
electricity, and develops renewable energy.

24

BP
The third in the row of the worlds largest oil companies is BP. BPs oil proven reserves
are up to 17 billion barrels of oil equivalent and explores in 30 countries. It is the largest
oil and gas producer in the US and a top refiner, with 15 plants processing more than 2
million barrels of crude oil per day. BP operates about 20.000 gas stations
worldwide. The company took a major hit in 2010 when a Gulf of Mexico oil rig
exploded and killed 11 workers. Millions of gallons of crude spilled into the Gulf and
BP was forced to set aside $20 billion to pay for related damages in 2011 and 2012.

25

CPM Matrix
STATOIL ASA
CRITICAL SUCCESS FACTORWEIGHT RATING

ADVERTISING
PRODUCT QUALITY
PRICE COMPETITIVENESS
MANAGEMENT
FINANCIAL POSITION
CUSTOMER LOYALTY
GLOBAL EXPANSION
MARKET SHARE
PRODUCTION CAPACITY
TOTAL

Table 1 CPM Matrix

0.15
0.1
0.1
0.06
0.15
0.1
0.2
0.1
0.04
1

SCORE

2
4
4
4
2
3
2
2
2

0.3
0.4
0.4
0.24
0.3
0.3
0.4
0.2
0.08
2.62

EXXON MOBIL

SHELL PLC

RATING SCORE

RATING

2
4
4
3
4
4
4
3
4

0.3
0.4
0.4
0.18
0.6
0.4
0.8
0.3
0.16
3.54

BP PLC
SCORE

2
4
4
3
3
4
4
3
3

0.3
0.4
0.4
0.18
0.45
0.4
0.8
0.3
0.12
3.35

RATING SCORE

2
4
4
3
3
4
3
3
3

0.3
0.4
0.4
0.18
0.45
0.4
0.6
0.3
0.12
3.15

EFE Matrix-Upstream

EFE MATRIX-UPSTREAM
Opportunities
1. Annual growth in oil demand 1.3 mb/d for the next 5-10 years.
2. Global expanding/acquisitions, merges.
3. Increase in Gas demand by 1% in Europe, 2% n. America & 5% Asia
4. NGL production from unconventional is anticipated from 1.8 mmbl/d this year
to 3.8 mmbl/d by 2020.
5. Conventional reserves in challenging areas (Artic, far north).
6. Cross-sector strategic partnerships/investment in renewables (wind, solar,
hydro).
7. Increase in oil and gas production/new large fields after 2015.
8. NOC-IOC partnerships.
Threats
1. Energy and climate policies. EU declare a 20% reduction of emissions until
2020.
2. Unstable political environment in international operations, such as Libya, Egypt
and Syria.(Terrorist attack at the In Amenas facility)
3. Health/safety accidents.
4. Environmental risks. Exploratory drilling risks.
6. NOCs control at about 90% of the world oil proven reserves.
7. 18% average decrease of oil prices over the last four months. IEA forecasts
present an overall decrease of oil prices since 2015.
8. Government regulations/ bureaucracy. Host-governments tend to increase taxes
imposed on foreign companies.
9. 22% of oil and gas respondents indicate lack of qualified personnel.
10. High competition among companies. (justification)
Total Weighted Score

Weight Rating Weighted

score
0.11
3
0.33
0.07
2
0.14
0.09
3
0.27
0.05
0.05

2
3

0.1
0.15

0.03
0.07
0.07

4
3
2

0.12
0.21
0.14

0.04

0.16

0.08
0.03
0.03
0.06

1
3
3
2

0.08
0.09
0.09
0.12

0.09

0.09

0.05
0.01
0.07
100%

1
3
2

0.05
0.03
0.14

2.25

Table 2 EFE Downstream Matrix

27

Opportunities:
1. In IEAs New Policies scenario the energy intensity of the global economy
declines by an average of 1.8% annually between 2010 and 2035. This scenario
is thus not a conservative view of the future by historical standards. IEAs
economic growth assumptions and this intensity forecast yield an average
annual growth of 1.3% in world oil demand.
2. Global Strategy and Business Development (GSB) sets the corporate strategy,
business development and merger and acquisition (M&A) activities for Statoil.
The ambition of the GSB business area is to closely link corporate strategy,
business development and M&A activities to actively drive Statoil's corporate
development.
3. Gas demand is seen to grow particularly fast in China, with India, the Middle
East and Africa in the next places. In sector terms, demand for gas for power
generation is seen to grow by 2.1% p.a. while industrial gas use is forecast to
increase by 1.2% p.a.
4.

After decades of relatively flat production, unconventional activity has

unleashed rapid growth in domestic NGL production over the past five years
(up 29 percent since 2008). Going forward, NGL production from
unconventional plays is anticipated to more than double, from 1.8 MMbbl/d this
year to 3.8 MMbbl/d by 2020.

5. The petroleum reserves located at water depths of between 250 and 500 meters.
The reserves are partly under high pressure and at high temperatures. The
Norwegian Sea region is characterized by petroleum reserves located at water
depths between 340 and 380 meters.
6. Growing demand for clean energy is creating new renewable and low-carbon
technology business opportunities. Statoils capabilities and expertise lead it in
a position to seize these opportunities in two specific areas: offshore wind and
carbon capture and storage (CCS). In 2013, the commercial operation of the
offshore wind-farm Sheringham Shoal in the UK took place. The same
happened to mature our Dudgeon wind farm development offshore UK. In
addition, work is continuing on developing the proprietary Hywind floating
offshore wind concept. The companys ambition is to play an active role in

28

reducing costs and making offshore wind profitable, ultimately without

government subsidies or support.
7. Statoil will continue to mature the large portfolio of exploration assets and
expects to complete around 50 wells in 2014 with a total exploration
expenditure level at around USD 3.5 billion, excluding signature bonuses.
8. In a number of resource-rich countries, national oil companies control a
significant proportion of oil and gas reserves that remain to be developed. To
the extent that national oil companies choose to develop their oil and gas
resources without the participation of international oil companies, or if we are
unable to develop partnerships with national oil companies, our ability to find
and acquire or develop additional reserves will be limited.

Threats
1. The EU's strategy for tackling climate change focuses on three targets for 2020:
slashing greenhouse emissions by 20%, drawing 20% of energy from renewable
sources and cutting energy use by 20%.
2. Operations located in politically, socially and economically diverse regions
around the world, including North Africa, the Middle East and Russia, where
potential developments such as war, terrorism (as at the In Amenas joint venture
in Algeria), border disputes, guerrilla activities, expropriation, nationalization of
property, civil strife, strikes, political unrest, insurrections, piracy and the
imposition of international sanctions could occur. Security threats require
continuous monitoring.
3. Compliance with health, safety and environmental laws and regulations that apply
to Statoil's operations could materially increase the costs. The enactment of such
laws and regulations in the future is uncertain.
4. Exploration for, and the production, processing and transportation of oil and
natural gas - including shale oil and gas - can be hazardous, and technical integrity
failure, operator error, natural disasters or other occurrences can result in: oil
spills, gas leaks, loss of containment of hazardous materials, water fracturing,
blowouts, cratering, fires, equipment failure and loss of well control, among other
things.

29

5. National oil companies (NOCs) control approximately 90 percent of the worlds

oil reserves and 75 percent of production (similar numbers apply to gas), as well
as many of the major oil and gas infrastructure systems. Of the top 25 oil and gas
reserves holders and producers, 18 are NOCs.
6. As oil prices keep plunging, projections of short-term supply and demand
balances stay the same - more or less - in the wake of OPEC's decision last month
to leave its production target unchanged. Since the last Report, futures benchmark
prices fell by another $15/barrel, with Brent last trading near $65/barrel and WTI
in the low $60s, 40% below their June highs.
7. Government regulations and bureaucracy may influence the effectiveness of the
operations. Host-governments tend to increase taxes imposed on foreign
companies, such polices create an unstable economic environment and in some
cases might exploitation become cost ineffective.
8. Twenty-two percent of oil and gas respondents indicated a lack of qualified
personnel was impacting their operations.
9. The dynamics of the gas markets in Europe are changing. There is a development
towards a more liberalized market with new players and increased competition.
Key factors affecting competition in the oil and gas industry are oil and gas supply
and demand, exploration and production costs, global production levels,
alternative fuels, and environmental and governmental regulations

30

EFE Matrix Downstream

EFE MATRIX-DOWNSTREAM
Opportunities

Weighted
score

Weight Rating

1. Increase in Gas demand by 1% in Europe, 2% n. America & 5% Asia.

0.12
2. Cross-sector strategic partnership/investment in renewables (wind, solar,
0.06
hydro).
3.
Annual growth in oil demand 1.3 mb/d for the next 5-10 years.
0.09
4. New markets (India, China)/sales exports. (find a justification)
0.1
5. Stable home market/geopolitical stability in Norway.
0.07
6. Norways continually growth economy. Annual growth rate 2.8%.
0.08
Threats
1. Energy and climate policies, EU declare a reduction of emissions 20% until
0.07
2.Unsteable
political
environment
in
international
operations,
such
as
Libya,
2020.jus
Egypt and Syria
0.05
3. Health/safety accidents.
0.05
4. Environmental risks.
0.06
5. High competition among companies.
0.08
6. Renewables gain market share, from 2% to 7% next 15 years.
0.06
7. Fuel economy enhancements of new cars, 23% of full hybrids and 44%
0.06
8.
Fluctuation
prices.
Unstable industry environment.
mild-hybrid
inin
theoilnext
15 years.
0.06
100%
Total Weighted Score

2
2
2
1
2
4

0.52
0.12
0.12
0.3
0.16
0.18

0.28

1
4
4
1
2
1
1

0.1
0.2
0.24
0.08
0.12
0.06
0.21

2.23

Table 3EFE Downstream Matrix

31

Opportunities
1. Statoil's research suggests that gas demand will increase by 1% and 2% in
Europe and in North America, respectively, during the rest of the current
decade, whereas Asia will see a growth of 5% in the same period.
2. Already mentioned on the upstream opportunities.
3. Already mentioned on the upstream opportunities.
4. With a GDP of USD 1,825 billion in 2012, India is the third-largest economy in
Asia, after China and Japan. Historically, India has been one of the fastest
growing major economies. However, since 2010, the economic growth rate has
successively dropped from 9.3% in 20102011 to about 5.3% in 20132014.
All the evidence, from news desk analysis about oil and gas in China to the
incredible growth that China has experienced in the ten years from 1990 to
2000, points to a Chinese energy scene that is already global With a daily
production of 3.3 million barrels of oil (bpd) and a consumption of 5.45 million
bpd, in 2003 China was the sixth biggest producer and the second biggest oil
consumer in the world. Its fast-growing and unequalled demand for massive
imports makes China an important actor.
5. Norway has always been known as a stable welfare state, with hydrocarbon
wealth allowing for generous socio-economic benefits. Norway remains an
interventionist state, relying on hydrocarbon wealth rather than a structural
focus on globalizing its business interests and becoming a competitive actor of
international markets
6. The Gross Domestic Product (GDP) in Norway expanded 2.10 percent in the
third quarter of 2014 over the same quarter of the previous year. GDP Annual
Growth Rate in Norway averaged 2.8%.

32

Threats
1. Already mentioned.
2. Already mentioned.
3. Already mentioned.
4. Already mentioned.
5. Already mentioned.
6. New renewable energy is expected to grow substantially faster than total energy
demand, increasing its market share from just above 1% to almost 8% in 2040
7. By 2035, sales of conventional vehicles fall to a quarter of total sales, while
hybrids dominate (full hybrids 23%, mild hybrids 44%). Plug-in vehicles,
including full battery electric vehicles (BEVs), are forecast to make up 7% of
sales in 2035. Plug-ins have the capability to switch to oil for longer distances
and are likely to be preferred to BEVs, based on current economics and
consumer attitudes towards range limitations.
8. The tenuous balance between supply and demand is even more of a concern
when you consider that most of the world's oil is located in some of the more
politically unstable parts of the world. As such, supply disruptions, whether real
or perceived, can have dramatic effects on the price of crude oil.

33

Internal Audit
Value Chain Analysis
In this chapter we briefly present these activities through which a petroleum company
generate value for the final product that is delivered to the market. By understanding
every step of a companys value chain we can identify all these activities that help the
company to develop competitive advantages among competitors and also can help as
for a better examination of firms internal environment and to recognize all these
strengths and weaknesses that are significant for an effective strategy formulation.
As the activities that taking place for the oil production differ from those of gas
production, consequently there are respectively two different value chains.

Exploration: Using technology to find new resources.

Production: Bringing oil or gas to the surface using natural and artificial
methods.

Transportation: Moving oil to refineries and consumers with tankers, trucks and
pipelines and gas with pipelines and tankers.

Refining: Converting crude oil into finished products.

Processing: Treating gas to be sent to markets.

Marketing: Distributing and selling refined products or natural gas.

34

IFE Matrix - Upstream

IFE MATRIX-UPSTREAM
Strengths
1. Ranked No1 in 2014 of the worlds most sustainable energy
companies. (flaring, CO2 reduce emissions)
2. 2nd in gas supplies in Europe.
3. Gas reserves close to EU.
4. New entry in offshore renewable energy. (Wind farms Shenghan
shoal, UK).
5. Financial total assets increased from 784.4 bnNOK to 885.6 bnNOK
in 2013.
6. Current ratio is higher compared with competitors. (justify)
7. Statoil expect to invest around USD 20 billion on average per year
2014-2016 Maintain ROCE.
8. Equity production for 2014 is estimated to grow for 2%.
9. Expect 50 wells to be complete in 2014 with expenditure USD 35
billion.
10. Innovative technology upstream driven company. (justify)
11. Strong network of transportation pipelines in Norway region and
N. Dakota.
12. Best exploration results in the industry, in 2013. Added 1.25
billion of barrels of oil equivalent.
13. Norways continually growth economy. Annual growth rate 2.8%.
14. Liquidity. Balance sheet. Long term objectives.
Weaknesses
1. Financial Net income decrease 39.2 2013 from 69.5 to 2012.
2. Oil and gas production (mboe/day) decreased, 1.940 in 2013 from
2004 in 2014.
3. LNG imported in Europe fell at 23%.
4. 52% increase of long term debt.
6. A net loss of 4.8 bn NOK to the end of September, compared with
net income the same period last year.
7. Political, social and economic instability in regions where Statoil
operates, N. Africa, Russia, Mid. East.
8. Lack of effective regulations and legislation in operational regions.
Corruption.
9. Host governments tend to increase taxes imposed on foreign
companies.
10. Intense competition with other players in the market which are
more resourceful in
terms of finances, and operations may erode its
market share.
11. 63% of oil production in Norways region. Old fields.
12. High dependence in EU market.
Total Weighted Score

Weight

Rating

Weighted score

0.04
0.06
0.06

4
3
4

0.16
0.18
0.24

0.03

0.09

0.02

0.06

0.03

0.12

0.03

0.09

0.04

0.12

0.03
0.04

3
4

0.09
0.16

0.01

0.04

0.05
0.01
0.03

4
4
3

0.2
0.04
0.09

0.04

0.08

0.03
0.08
0.02

2
1
2

0.06
0.08
0.04

0.03

0.06

0.05

0.1

0.03

0.06

0.03

0.06

0.08
0.05
0.06
100%

1
1
2

0.08
0.05
0.12

2.49

Table 4 IFE Upstream Matrix

35

IFE Matrix - Downstream

IFE MATRIX-DOWNSTREAM
Strengths
1. 2nd in gas supplies in Europe.
2. Gas reserves close to EU.
3. Financial total assets increased from 784.4 bnNOK to 885.6 bnNOK in 2013
4. Current ratio is higher compared with competitors.
5. Statoil expect to invest around USD 20 billion on average per year 2014-2016
Maintain ROCE
6. Strong network of transportation pipelines in Norway region.
7. Norways continually growth economy. Annual growth rate 2.8%.
Weaknesses
1. Financial Net income decrease 39.2 2013 from 69.5 to 2012.
2. LNG imported in Europe fell at 23%.
3. 52% increase of long term dept.
4. Lack of effective regulations and legislation in operational regions.
5. Small Europe market share. Concentration most in Russia and Scandinavian
countries.
6. Political, social and economic instability in regions where Statoil operates, N.
Africa, Russia, Mid. East.
7. A net loss of NOK 4.8 bn to the end of September, compared with net income
the same period last year.
Total Weighted Score

Weight

Rating

0.14
0.12
0.06

Weighted
score
4
0.56
3
0.36
3
0.18

0.06

0.24

0.07
0.04
0.05

3
3
3

0.21
0.12
0.15

0.06
0.1
0.06
0.06

2
2
1
1

0.12
0.2
0.06
0.06

0.03

0.06

0.1

0.1

0.05
100%

0.05

2.47

Table 5 IFE Downstream Matrix

36

Strengths
1. Growing demand for clean energy is creating new renewable and low-carbon
technology business opportunities. Our core capabilities and expertise put us in a
position to seize these opportunities in two specific areas: offshore wind and carbon
capture and storage (CCS).
2. Statoil is the second largest supplier of natural gas to the European market, with a
market share in the EU market of approx. 15 per cent.
3. For more than 35 years, Norwegian gas has been delivered to Europe, transported
through an extensive and flexible pipeline system with terminals located in the UK,
Germany, Belgium and France. Statoil also markets liquefied natural gas (LNG)
from the Snhvit field in the Barents Sea. The gas is transported in purpose-built
ships to customers globally.
4. The Sheringham Shoal wind farm, located off the coast of Norfolk, UK, was
formally opened in September 2012. The wind farm is now in full production with
88 turbines and an installed capacity of 317 megawatt (MW). The windfarm's
estimated annual production is 1.1 teraw att hours (TWh) and it will provide power
for approximately 220,000 households.
5. Based to Statoils balance sheet.
6. Calculation of Current Ratio and compared with competitors.
7. Statoil will invest around USD 20 billion on average per year 2014-16. This is a
reduction of 8% from previous estimates, mainly due to strict prioritization and
increased capital efficiency.
8. Equity production for 2014 is estimated to grow by around 2% Compound Annual
Growth Rate (CAGR) from a 2013 level rebased for divestments and
redeterminations.
9. Already mentioned.
10. In addition to new technologies for exploration and production, the sector is
impacted by broader technological advancements, such as alternative power
generation and the electrification of energy delivery.
11. Statoil is technical service-provider for about 8,000 kilometres of pipeline from the
Norwegian continental shelf to Europe. Operator Gassco and the Petroleum Safety
Authority Norway (Ptil) receive regular reports on the condition of pipelines.

37

12. In 2013 Statoil delivered the best exploration results in the industry, measured by
conventional discovered volume. The company added 1.25 billion barrels of oil
equivalent from exploration. The reserve replacement ratio (RRR) was 128%.
Organic RRR was 147%, which is a record since1999.
13. Already mentioned.
14. Outcome from the balance sheet.

Weaknesses
1. Based on consolidate financial statement of Statoil through annual report.
2. Statoil delivered equity production of 1,940 mboe per day in 2013, compared to
2,004 mboe per day in 2012. The decrease is mainly a result of divestments and
redetermination. Statoil increased its annual equity production outside Norway to
a record high 723 mboe in 2013, driven by start-up and ramp-up of new fields.
3. The consultancy highlighted the continued growth of the LNG carrier fleet, to 56m
cum as of June 2014, versus lapsing demand. In 2013, imports to Europe fell 23%
due to increasing reliance on pipelines for gas, and demand in Canada and the US
were met by ramping-up of domestic production, with imports falling by 42% and
45% respectively.
4. Based on Statoils balance sheet.
5. Based on Statoils 4th quarter financial report
6. Already mentioned.
7. Already mentioned.
8. Already mentioned.
9. Already mentioned.
10. Statoil's equity and entitlement production on the NCS was 1,217 mboe per day in
2013. That was about 71% of Statoil's total entitlement production and 63% of
Statoil's equity production. In 2013, our daily production of oil and natural gas
liquids (NGL) on the NCS was 591 mboe, and our average daily gas production
on the NCS was 99 mmcm (4.0 bcf). Acting as operator, Statoil is responsible for
approximately 69% of all oil and gas production on the NCS.
11. 2nd largest supplier in Europe.

38

Strategy Formulation
SWOT Matrix
In SWOT matrix we concentrate the main strengths and weaknesses which are most
important for the evolution of the firm through this industrial environment, and also
the main opportunities and threats that every oil company faces currently in the
market.

HELPFULL

HARMFULL
Weaknesses

INTERNAL

Strengths

2nd in gas supply in Europe.

Added 1.25 bbr of oil equivalent.
Current ratio is higher than
competitors.
Gas reserves close to E.U.
Innovative technology in upstream.
Expect to complete 50 wells in
2014.

LNG imported in Europe fell at 23%.

Political instability in regions where
operates
High dependence in EU market.
Financial net income decrease 39.2
bnNOK from 69.5 bnNOK in 2012.
Intense competition with other more
powerful players.

SWOT
EXTERNAL

Opportunities

Annual growth in oil demand

1.3brd every year.

Increase gas demand, 1% Europe,
2% N. America, 5% Asia.
New large fields after 2015.
NOC-IOC partnerships.
Increase liquidity.

Threats

Unstable political
environment in operational regions.
E.U. policies to decrease CO2
emissions.
Decrease in oil prices in 2015.
Environmental risks/exploration
drilling risks.
NOC s control at about 90% of the
world oil proven reserves

Figure 5 SWOT Matrix

SWOT Analysis
One of the most common tools for strategy formulation is the SWOT analysis. By this
method we propose strategies by which the firm can take advantage of one of its
strengths in order to catch an opportunity or to avoid a threat and strategies that
company must eliminate as much as possible a weakness for the same reasons.

39

Strengths
1. 2nd in gas supply in Europe.
2. Added 1.25 bbr of oil equivalent.
3. Current ratio is higher than competitors.
4. Gas reserves close to E.U.
5. Innovative technology in upstream.
6. Expect to complete 50 wells in 2014.
7. New entry in offshore renewable energy.

Weaknesses
1. Political instability in regions where operates
2. High dependence in EU market (upstream).
3. Financial net income decrease 39.2 bnNOK from
69.5 bnNOK in 2012.
4. Intense competition with other more powerful
players.
5. Small downstream market share in EU and Asia.

Opportunities
1. Annual growth in oil demand 1.3brd every year.
2. Increase gas demand, 1% Europe, 2% N.America,
5% Asia.
3. New large fields after 2015, Artic, far north.
4. NOC-IOC partnerships.
5. Increase liquidity.

SO Strategies
Increase gas exports in Europe through agreements
EU members. (S1, O2).
Invest in R&D in renewable technology. (S7, O5)

WO Strategies
Invest in expanding pipeline network in EU. (W2,
O5)
Expand retail network in Asia. (W2, W5, O2)
Partnerships with strong NOCs. (W4, O4)

Threats
1. Unstable political environment in operational
regions.
2. E.U. policies to decrease CO2 emissions.
3. Decrease in oil prices in 2015.
4. Environmental risks/exploration drilling risks.
5.LNG imported in Europe fell at 23%.
6. NOCs control at about 90% of the world oil
proven reserves

ST Strategies

WT strategies

Invest in R&D for new sustainable environmental

technologies (upstream). (S3, S7, T2, T4)
Invest in new environmentally friendly technologies.
(S3, T2)

Expand retail network in Asia. ( W2, W5, T5)

Table 6 SWOT Analysis

40

The company is vertically integrated business controlling the upstream sector

(exploration and production), the midstream (transportation and trading) and finally the
downstream sector (refining and processing). The drilling innovative technology has
strengthened the companys business operations and must seek new strong NOC
partnerships. Statoils must take advantage of the current position on supplying Europe
with natural gas, in comparison with the increasing demand for petroleum products,
could provide the company with various new growth opportunities. However, volatility
in oil and gas prices, water contamination concerns, and advancement in vehicle
technology could affect the companys operations. In addition, EU policies concerning
environmental impacts and CO2 emission will become tighter. For that reason the
company has already given strict directions for developing renewable energy and
illustrating a new carbon capture and storage program. Unfortunately, the company has
a very poor performance concerning the retail sector but the new uprising market in
Asia gives a great opportunity for expansion and financial growth.

Strengths - Opportunities
Statoil should use its experience and technological capabilities derived from its
domestic operations and the ownership advantage that could pursue in its quest for
further international economic growth. Specifically, it is an opportunity to use its
geographical position and the ability of producing huge amount of natural gas from
North Sea, in order to make Europe first buyer. This strategy will provide the ability
for the company to maintain their position as world leading gas supplier and increase
the profits. Moreover, the technological superiority of Statoil, concerning the renewable
energy in comparison with the increased liquidity, creates the ability of an extent use
of the development in alternative sources of energy.

Weaknesses - Opportunities:
Due to its geographical position the company is economical oriented in European
markets which means that depends strongly on Europes funds. Nonetheless Statoil,
based on the last balance sheet, appears to own a liquidity ability enough to fund actions
such as pipeline expansion in order to reinsure the immediate supply of oil and gas in
Europe. Furthermore, the company strangles on keeping a descent image on the retail
sector with some acquisitions of fuel stations by Exxon in Sweden. It is vital for the

company to invest on the retail sector with more mergers and market integration in Asia
which is the new promising market. Statoil lacks the size and financial and operational
strength to better compete with the competitors in the industry as well as to access to
international reserves. Nevertheless, this alternative might lead on a new role as a
technology partner for the NOCs rather than resource holder.

Strength Threats:
One of the most important issues for the EU political agenda is energy policy. The UN
has agreed to reduce the CO2 emissions and EU takes into serious consideration
everything involves environmental impacts. Following this guidelines the company is
obligated to find new alternative energy sources, renewable energy is a market with an
8% annual growth and estimating 20% growth until 2020. The above mentioned
confirm the already mentioned strategy of investing on renewable energy.

Weakness Threats:
Statoils biggest disadvantage is that is upstream oriented rather than downstream. In
order to become sustainable must provide solutions also to downstream section. The
high dependence in Europes markets provides a financial stability and predicted
growth due to its stable economies and political situations. Another positive point of
the company is the efficiency to supply natural gas but the fact that LNG imported in
Europe has decreased to 23% creates doubts concerning the continuing economic
growth. As a conclusion the company must seek new markets to enter or distinguish
from the competition. Asia is the new promising market due to its increased demands
and Statoil must take advantage and invest on fuel stations.

42

Internal-External Matrix
Another strategic management tool is the internal external matrix. We use the total
scores that came up from IFE & EFE matrices for both upstream and downstream sector
and we can find in this way the firms position in the market for each sector and propose
strategies according in this position .On x-axis we plotted the total score of IFE matrix
and on y-axis the total score of EFE matrix.
According to the position of the point, of these two coordinates, in the matrix three
major strategy implications can be suggested:

grow and build strategy

hold and maintain strategy

harvest or exit strategy

IE Matrix-Upstream

Figure 6 IE Matrix Upstream

43

IE Matrix-Downstream

Figure 7 IE Matrix Downstream

According to Statoils position on IE Matrix, on the V cell, on average position (IFE

2.49, EFE 2.25 Upstream) (IFE 2.47, EFE 2.23 Downstream) the result is translated on
hold & maintain category -to the market penetration& -the product development.

44

Grand Strategy Matrix

This matrix consists of 4 quadrants. The position according to a specific company
comes from markets annual growth combined with the current competitive position of
the company. The annual growth of the industry for the year 2014 is 6.10%
(http://finance.yahoo.com/) and the competitive position as we noticed in the CPM
matrix is considered weak.

Figure 8 Grand Strategy Matrix

Statoils position according to the Grand Strategy Matrix, is resulted in the Quadrant
II which translated as a quite good strategic position and a medium competitive
position with few weaknesses with a keenly need to remain for improvements &
changes.

45

Unrelated Diversification Strategy

Except for the strategies that have been proposed above after the implementation of the
SWOT analysis method, we would like here to propose an unrelated diversification
strategy.
Unrelated diversification strategies seems to be the most challenging strategies among
every strategy that can be proposed. Challenges are faced both in the formulation and
the implementation stage of the strategy.
The main prerequisites are innovative thinking and daredevilry in the implementation
phase; traits that define great leaders with flexible and open mind. Despite the
challenges that are being foreboded by the adoption of these strategies, we believe that
can be also adopted by a large vertical integrated company such as an oil and gas
company.
The proposed market that Statoil could penetrate is the small tools and accessories
market. This markets products are drilling machines, drilling bits or even monkey
wrenches and box spanners.
Why this market?

This market has a high annual growth rate in sales comparing with other markets
10.60% (http://finance.yahoo.com/, 2014). That gives the chance to gain great
profitability for the firm.

A small number of companies trade in this business. This gives to the firm the
opportunity to gain large market share with relatively low rivalry among
competitors.

Through the production of every-day used tools, there will be an opportunity

for spreading the firms brand name globally.

What is the Statoils asset that can be used for this diversification?
The asset that Statoil can use for this strategy is nothing more than the firms brand
name. As an oil and gas company, Statoils brand name is closely related to difficult
operations under extreme situations which need high precision and reliability.

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Decision Stage
Simplified Methodology
After the implementation of the strategic management tools that have been quoted
above, we should come into the best decision by choosing the most effective strategy
in terms of the firms profitability and sustainability.
In this direction the first step is to gather all the proposed strategies in a matrix and
consider whether there is a possible combination of the strategic management tools or
not, more specifically the simplified methodology is followed and applied.

InternalExternal Matrix
Invest in R&D in renewable
technology.
Expand retail network in Asia.
Partnerships with strong NOCs

SWOT Matrix

X
X

Divestiture/Liquidation
Expand pipeline network in
EU.
Unrelated
Diversification/Small tools &
accessories

Grand Strategy Matrix

X
X

X
X

Table 7 Simplified Methodology Matrix

By noticing the matrix above, it is obvious that just three of the strategies are comply
with the results of the strategic tools that have been quoted.

47

QSPM Matrix
With the Quantitative Strategic Planning Matrix we compare similar strategies,
expand retail network in Asia and expand pipeline network in EU, and evaluate their
efficiency by considering the main strengths, weaknesses, opportunities and threats
from IFE and EFE matrices.

Strategic Alternatives

1
2
3
4

1
2

3
4

Key Factors
Opportunities
Annual growth in oil
Demand
Increasing Gas Demand
5% in Asia
New Markets (India China)
Cross-sector strategic
partnerships
Threats
High Competition among
companies
Unstable political
environment in host
countries
Strict energy policies in EU
about emissions
NOCs control the 90% of
proven reserves
Total

Expand Retail Network

in Asia
Weight AS
TAS

Expand Pipeline Network in

EU
AS
TAS

0.15

0.6

0.30

0.12

0.48

0.12

0.16
0.09

4
2

0.64
0.18

1
1

0.16
0.09

0.15

0.3

0.3

0.12

0.12

0.12

0.1

0.3

0.1

0.11

0.11

0.22

100%

48

1
2
3
4

1
2
3
4

Strengths
Gas reserves close to EU
Expect 50 wells to be
completed in 2014
Liquidity/Higher current
ratio from competitors
Innovative technology in
Upstream sector
Weaknesses
LNG imported in EU fell at
23%
52% increase of long-term
debt.
High dependence in
Europe market
Small EU market share in
retails
Total

0.15
0.12

1
2

0.15
0.24

4
3

0.60
0.36

0.12

0.36

0.24

0.11

0.11

0.33

0.12

0.36

0.12

0.13

0.13

0.13

0.13

0.39

0.26

0.12

0.12

0.36

100%

TOTAL SCORE

4.59

3.81

Table 8 QSPM Matrix

49

Conclusions
As a company we are in knowledge of the fact that all kind of assumptions can be
challenged- a right thing to happen - because the purpose of all the steps to our strategy
followed is not to predict how the future energy markets will develop; for example
towards a low carbon world, but to show how they possibly could develop.
By taking in consideration the variety of uncertainties, opportunities, and the possible
future context for long-term oriented companies and policy makers, we concluded in
what decisions may be needed to be taken for reaching a more sustainable energy
system. Based on a short- medium forecasting of our economic activity & a long term
approach for the production potential of individual economies we conclude that Statoil
must use its experience, the ownership advantage and its technological superiority that
deriving from its domestic operations& its internalisation advantages to undertake
foreign production.
Our growth framework is based on a production efficiency function until all potential
extensions to the companys economic output growth.
On one hand capital accumulation is a stock variable capturing changes to capital
investments & on the other hand capital efficiency is an attribute describing how
effective capital markets will support channelling of savings to productive investments.
As a result the company needs to increase its capital to be able to acquire and merge
with other strategic oil and gas companies that will allow the company to compete.
Also other important data that our company is taking into consideration to plan the
strategic analysis , are globalization, conguity between emerging countries, laws and
their reformation, research and development (R&D) and technological innovation for
translating all the forecasts to a growth economic prospect & fast rate growth. So in
order to become sustainable Statoil must provide solutions also to downstream section
by seeking new markets to enter & be individualized against competition
Asia is major player to be the global growth engine key with already a current oil and
gas demand on high levels. This future oil and gas demand by gas imports in Asia is
the tribune for economic growth in China, India and other emerging markets, with
governments support.
50

Underlying that the demand growth is strong, and reflecting the strength of emerging
Asian economies, penetration into these new areas is a big chance. For example we
observe the rising concern for air quality environment in China that comes from the
extensive coal burning policy, so by replacing coal and oil with gas will be easy to enter
the market with a flexible LNG market and low procurement costs.
So, Asia seems to be the most desirable alternative by 2020 as being a new promising
market because of its increased demands and Statoil should be present there by
investing for example on fuel stations.

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