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White Nights and Polar Lights: Investing in the Russian Oil Industry

Decent Essays

1. The valuation process firms undergo when looking to acquire a company is very complex, but when a company, especially a foreign one, makes the conscious decision to enter another foreign market is even more complex and tricky. In this case three western oil firms the neophyte Philbro; the legacy Mobil; and, the middle weight Conoco all have to determine if and how they want to enter the newly open Russian Oil market. The Russian oil market is characterized as high risk for potentially high rewards. High risks include but are not limited to obsolete and poor infrastructure; murky and opaque governmental (and subsequently economic) policies; unreliable Russian geologic surveys; and, etc. Furthermore, Russian inflation is soaring and the …show more content…

Conoco elected to be the most strategic of the three, not as big as Mobil, but having more technical know-how and more industry expertise than Philbro, Conoco was willing to take on some risk in Russian oil. It focused on sequential investment, which gave Conoco time to ascertain the Russian state of oil; as not all the money is invested up front, this provides an incentive for Russia and Russian partners to help ensure project success. Conoco also sought multiple investors (OPIC and EBRD) and US backed organization which could help apply political pressure when necessary. Conoco also elected to build a lot of the infrastructure which gave them more control, but was also more expensive.

Conoco has the best strategy. They have mitigated a lot of the risk and have gotten into the Russian Oil game. With their financial structure, partnering agreements and political backing Conoco may see some losses and volatility in the near term (e.g. I think all companies will suffer the effects and volatility of the Russian Tax code), but by being there and working with the Russian government their long-term outlook for value has them well positioned.

3. Philbro and Conoco have adopted joint venture strategies with Russian firms to mitigate some risk; however, Conoco has also diversified and included other firms/organizations that can bring political pressure. Also, Conoco took small incremental steps such as sequential investments and brought aspects of control by

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