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Case study for Statoil ASA

Case study for Statoil ASA

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Case study for Statoil ASA

  1. 1. Eastern Macedonia & Thrace Institute of Technology Dept. of Petroleum & Natural Gas Engineering M.Sc. in Oil & Gas Technology Course Assignment for Strategic Management: "Case Study: Statoil ASA" Team Members: F. Zachopoulos, S. Kosteroglou, S. Kyriakidis E. Michailidi, A. Mitsis Kavala, November 2014
  2. 2. TABLE OF CONTENTS INTRODUCTION................................................................................................................ 6 THE BUSINESS VISION & MISSION...................................................................................... 7 EXTERNAL ASSESSEMENT..................................................................................................9 External Audit Process...................................................................................................9 Economical Factors....................................................................................................9 Technological factors............................................................................................... 11 Competitive............................................................................................................ 11 Social, Environmental Factors .................................................................................. 13 Governmental factors.............................................................................................. 13 Construction of EFE matrix .......................................................................................... 15 Construction of CPM................................................................................................... 16 Porter’s Five Forces..................................................................................................... 16 INTERNAL ASSESSEMENT................................................................................................ 18 Internal Audit Process................................................................................................. 18 Culture ................................................................................................................... 19 Management.......................................................................................................... 20 Marketing............................................................................................................... 21 Finance & Accounting.............................................................................................. 22 Liquidity, Growth and Financial Health ..................................................................... 24 Production & operations.......................................................................................... 29 Reasearch & Development....................................................................................... 30 Information Systems Management........................................................................... 31 Value ChainAnalysis ................................................................................................... 31 Upstream Activities................................................................................................. 33 Downstream Activities............................................................................................. 35 Summarized Activities............................................................................................. 36
  3. 3. Construction of IFE matrix........................................................................................... 36 STRATEGY FORMULATION............................................................................................... 38 Construction of SWOT matrix ...................................................................................... 39 SWOT Matrix Results............................................................................................... 41 Strategy Analysis......................................................................................................... 42 Construction of Grand Strategy Matrix......................................................................... 44 Construction of IE Matrix............................................................................................. 45 Decision Stage: Simplified Methodology....................................................................... 46 CONCLUSION.................................................................................................................. 46 REFERENCES................................................................................................................... 47
  4. 4. TABLE OF FIGURES Figure 1: Map Statoil’s international exploration and production areas........................6 Figure 2: Porter's Five Forces ......................................................................................17 Figure 3: Statoil's Upstream Net Operation Income ....................................................34 Figure 4: Statoil's Upstream Total Revenues...............................................................34 Figure 5: Statoil's Downstream Total Revenues..........................................................35 Figure 6: Statoil's Summarized Activities....................................................................36 Figure 7: Grand Strategy Matrix..................................................................................44 Figure 8: IE Matrix ......................................................................................................45 TABLE OF TABLES Table 1: EFE Matrix for Statoil ...................................................................................15 Table 2: Competitive Profile Matrix............................................................................16 Table 3: Liquidity & Financial Health.........................................................................24 Table 4: Growth...........................................................................................................25 Table 5: Statoil ASA Exploration And Production Statistics FAS69 Upstream Data.26 Table 6: Reconciliation Of Statoil ASA Reported Amounts With Standard & Poor's Adjusted Amounts (Mil. NOK) ...................................................................................27 Table 7: Statoil ASA - Financial Summary.................................................................28 Table 8: Norwegian State Upstream Section Income Statement .................................33 Table 9: International Upstream Section Income Statement .......................................33 Table 10: Downstream Section Income Statement......................................................35 Table 11: IFE Matrix....................................................................................................37 Table 12: SWOT Matrix ..............................................................................................40 Table 13: Decision Stage - Simplified Methodology ..................................................46
  5. 5. Case Study: Statoil ASA | INTRODUCTION 6 INTRODUCTION Norwegian company Statoil was established in 1972 operating today in 34 countries while also having exploration and production activities in 15 of them. The company is one of the world's leaders in upstream, downstream and midstream although the bulk of its revenues derives from upstream sector activities. Holding a strong position in the supply chain of Natural Gas in the European market, Statoil followed a sustainable development strategy several years ago and is well known for its environmental awareness. Its main objectives are to ''create value for their owners through profitable and safe operations and sustainable business development without causing harm to people or the environment'' (Statoil ASA 2007a).[1] Figure 1: Map Statoil’s international exploration and production areas.
  6. 6. Case Study: Statoil ASA | THE BUSINESS VISION & MISSION 7 THE BUSINESS VISION & MISSION Declaring a properly defined vision statement is of vital importance for providing the foundation to answer the question “What we want to become?” and visualize the company’s long term goals.[2] The declared vision statement of Statoil ASA, is according to the company, the following: “Imagine we’re on a journey. Our vision tells us where we are heading. It reminds us what we’re aiming to achieve. It brings us together. It motivates us and drives change. Our vision tells the story of a trusted pioneer.” “Crossing energy frontiers” [1] Based on the detailed study of the company’s strategic plans, priorities, goals and actions, the following mission statement is proposed: We generate and serve a guide for people who seek to cross new borders. We are crossing energy frontiers, providing a sustainable well-being for future generations. According to Drucker, the question “What is our business” is synonymous to the question “What is our mission”. The mission statement’s purpose is the declaration of the organization’s existence reasons. A business mission is the foundation for priorities, strategies, plans, and work assignments. It is extremely important for the designing of managerial jobs and managerial structures. [2] The declared mission statement of Statoil ASA, is according to the company, the following:
  7. 7. Case Study: Statoil ASA | THE BUSINESS VISION & MISSION 8 “Our mission is the reason why we exist as a company. It’s why we go to work every day. It’s what we have to do to achieve our vision: To accommodate the world’s energy needs in a responsible manner, we apply technology and create innovative business solutions. Our approach is founded in a values- based performance culture, a belief in cooperation and a striving for continuous operational improvement.” [1] Based on the detailed study of the company’s strategic plans, priorities, goals and actions, the following mission statement is proposed: Our mission is to keep a strong position within the global energy market, concurrently incorporating our values and ethical codes. We are considered to be the pioneers on the Norwegian continental shelf and contribute significantly to the global market. The innovative technology we use epitomizes our philosophy for cost effective and environmentally-friendly operations. We shed light on issues which are important for the company’s future, concerning both financial stability and social awareness. Our company strives to ensure safe operations that protect people, environment and material assets. We emphasize on the psychosocial aspects of the working environment and promote the well-being of all our employees by making systematic efforts to design and improve the working environment, aiming to prevent occupational accidents and work related diseases. Statoil thrives to be the global leader in energy supply, crossing frontiers while visualizing a sustainability, concerning the environment protection for the future generations.
  8. 8. Case Study: Statoil ASA | EXTERNAL ASSESSEMENT 9 EXTERNAL ASSESSEMENT External auditing aims to underline the macro-environment, identifying potential opportunities and threats. By assessing the external environment, the company is able to proceed to the declaration of the most appropriate strategies. [2] EXTERNAL AUDIT PROCESS Through external audit, the company is able to evaluate, examine and recover several threats coming from the macro environment, as well as benefit from opportunities arising. The key external factors can be divided into the following categories:  Economic  Social/ cultural/ environmental  Political  Technological  Competitive Each of the above forces can be recognized in both opportunities and threats, facilitating the adoption of an efficient strategy for the company’s sustainable development. [2] ECONOMICAL FACTORS Economic factors play a substantial role in the assessment of the external environment. They include facts regarding among others, availability of credit, propensity of people to spend, and market trends indicating possible opportunities or threats. [2] In the examined case, the following facts were identified: [3]  Growing population in emerging economies represent a strong long- term driver of economic development and energy demand. Global oil demand grew
  9. 9. Case Study: Statoil ASA | EXTERNAL ASSESSEMENT 10 by 1.2 million barrels/ day in 2013 while natural gas is expected to grow faster than total energy demand.  Russian oil and gas majors have allowed access to western companies like Statoil enabling the company to derive up to 5% of the global sales of the Russian market..  The development of offshore oil field ‘’Gina Krog’’ is estimated to give 225 million barrels of oil and gas. It is considered to be a major new development for Statoil and a giant opportunity economically- wise.  Statoil has a significant position in the Azerbaijani gas industry through its 15.5 per cent interest in the Shah Deniz gas field and in the South Caucasus Pipeline. Gas sales agreements with Turkish and EU buyers and gas transportation agreements with SCP(South Caucasus Pipeline), TANAP and TAP have been concluded and entered into force following Final Investment Decision for Shah Deniz Stage 2 in December 2013.  Gas demand to power, is expected to recover due to tight European climate policies  Statoil's strong position in unconventional sources of energy, like in Alberta Canada oil sands. Alberta's oil sands has proven reserves of about 168 billion barrels-the third-largest proven crude oil reserve in the world, after Saudi Arabia and Venezuela. Every dollar invested in the oil sands creates about $8 worth of economic activity; with one-third of that economic value generated outside Alberta - in Canada, the U.S. and around the world.  Tight fiscal conditions and taxes on both CO2 emissions and NOx emissions. Tax rates are as high as 78%.  Lowering prices of oil due to OPECS demand to accommodate Iraq’s supplies.  High operating cost due to exceeding salaries compared to average industrial salaries.  Increase gas supply in Northeast Asia could be considered as an opportunity but general, political, social uncertainty in the region provides a quite strong threatening environment. Statoil process a substantial amount of oil production there.  Global social instability as house – hold and banks weak balance sheets, and unemployment put pressure on governments.
  10. 10. Case Study: Statoil ASA | EXTERNAL ASSESSEMENT 11  Natural benefit in regional oil and gas reserves had initially boosted capital, but in the following years, reliance on capital expenditure for the replacement of depleted reserves has brought a “Financial risk’’ and is regarded to be a wide challenge.  High costs have cut down the potential return from new projects and management has proceeded in delaying long- term production target. TECHNOLOGICAL FACTORS Technological factors play an important role in the whole assessment case, as innovations along with current and efficient ''know-how'', can establish company's position. [2] In the examined case, the following facts were identified: [3]  Participating in projects that focus on other forms of energy such as offshore wind and carbon capture and storage. All the above, in a time when unconventional energy demand is expected to grow faster than total energy demand.  Statoil is the world’s largest off shore oil and gas operator naturally leaning towards offshore wind power. At Norfolk Coast (south- east of England), Statoil has its first full- scale commercial offshore wind development. It is considered to be the first stepwise growth in development as it is owned 50% by Statoil and 50% by Norwegian energy producer.  Statoil oil sands operations is one of the largest oil reserves in the world, even with the small share that can be developed with today’s technology. Specifically, Statoil and the partners in Johan Sverdrup field have decided on a concept for the first developed phase. The partners have agreed on a field center consisting of four installations and power from shore. COMPETITIVE FACTORS A very important part of the macro-environment is the examining of one's competitive positioning. By taking into advantage competitive opportunities or rivalry among the
  11. 11. Case Study: Statoil ASA | EXTERNAL ASSESSEMENT 12 industry, the company is able to perform and strengthen an oriented, well-positioned strategy. [2] In the examined case, the following facts were identified: [3,4]  In 2001 Statoil entered the NY stock exchange and rose its value by 6.4 times. Although the global economic crisis and depletion, Statoil maintained its values up to 5 times. This strong brand name results in easy access to capital market, making the company extremely competitive.  Statoil is planning an oil terminal at Veidnes which consists a development project for the Skrugard field in the Barrents Sea. The decision to bring Skrugard oil ashore at Veidnes, is a key element of the further development of Norwegian oil and gas industry aiming to make Northern Norway the country’s net big petroleum region.  The supply of shale gas continues to surprise both in terms of volume and marginal cost.  Unopened acreage on the Norwegian Continental shelf in the far north is a corporative initiative to establish sustainable Petroleum activities in Arctic regions.  Over the next three years, the company will invest around 54 billion annually on the continental shelf which is the main field of action in Statoil’s biggest project portfolio ever.  Statoil, Statkraft, UK and Germany electricity providers are partners at Forewind consortium. The consortium is seeking consent for the DoggerBank projects located at UK an potentially make the world’s biggest offshore wind development. This project can supply 9gw of power and it is considered to be a significant contribution to the UK’s electricity needs.  Environmental policies are expected to improve the competitiveness of gas compared to coal and because Statoil has a strong position in gas and oil exploitation and this will be a great opportunity for market penetration.  The Johan Sverdrup field, estimated to hold at least 1.8 billion barrels of oil, will produce between 315,000 barrels a day and 380,000 barrels a day in the first phase, and could produce between 550,000 barrels a day and 650,000 barrels a day in later development stages.
  12. 12. Case Study: Statoil ASA | EXTERNAL ASSESSEMENT 13  Norway has saved much of its oil and gas revenues in a sovereign-wealth fund, the world’s biggest, currently valued at around $840 billion. Statoil is 67% owned by the government. “This will be a gigantic project that will secure energy supply and jobs and result in substantial spin offs and value for Norwegian society, the industry and the partnership behind the development'' said Arne Sigve Nylund, a Statoil executive vice president. SOCIAL, ENVIRONMENTAL FACTORS Social and environmental factors include policies, trends, instabilities, or boundaries that may influence or restrict the company's growth rates. [2]  Gas demand to power, is expected to recover due to tight European climate policies. The European Commission and a number of Member States have developed adaptation strategies to help strengthen Europe's resilience to the inevitable impacts of climate change.  Emerging demand in renewable forms of energy stands as a social and environmental opportunity for the company to maintain sustainability.  Fishery in the far North is a major threat, due to the fact that the continental shelf is narrow and the waters are particularly important.  Environmentalists have denounced Norway’s push to exploit Arctic waters for oil. [1,3] GOVERNMENTAL FACTORS In an industry such as the O&G, governments have a significant influence to decision- making. Strategic alliances, agreements and commitments can be beneficial and facilitate the growth of the company. [2] In the examined case, the following facts were identified: [1,3]  Statoil’s partnership with Wintershall (German) results in total supply reliability between Norway and Germany. The two countries share similar political and economic beliefs and enjoy close relations. Corresponding technologies for maximizing the exploitation rate of existing production sites
  13. 13. Case Study: Statoil ASA | EXTERNAL ASSESSEMENT 14 as the development of new oil fields has become very difficult. Statoil hold 49% stakes in two onshore shale exploitation licenses in Germany.  Statoil has signed an agreement to sell gas to Ukraine gas firm Naftogaz, due to Russia's cut of supply.  Governments are pressured due to global social instability resulting from house – hold and banks weak balance sheets, and unemployment.  Political instability on international operations. Specifically in North Africa and South America, where Statoil has wide operations, unstable political and condition result in an existing threat.  8/5/2014 ‘’Reuters’’- Norway’s energy boom has caved in years ahead of expectation threatening the long- term viability of the world’s most generous welfare model.  Although Arctic Barrent Sea is believed to contain 40% of the country’s undiscovered resources, operating there is expensive. Even before the lowering prices, Statoil’s project in the area was delayed twice.  Rival competition. Due to economic development in China, which depend exclusively on import, competition will rise for scarce resources.
  14. 14. Case Study: Statoil ASA | EXTERNAL ASSESSEMENT 15 CONSTRUCTION OF EFE MATRIX The summary step in conducting an internal strategic management audit is the constructing of the Internal Factor Evaluation (EFE) Matrix. This strategy formulation tool summarizes and evaluates the major opportunities and threats in the functional areas of a business and it also provides a basis for identifying and evaluating relationships among those areas. The External Factor Evaluation Matrix is presented below: [2] Table 1: EFE Matrix for Statoil EFE Matrix for Statoil Key external factors Weight Rating Weighted Score Opportunities Growing population in emerging economies 0.13 1 0.13 ''Gina Krog'' offshore oil field development 0.04 4 0.16 Increase in gas demand 0.08 3 0.24 Other forms of energy 0.05 4 0.2 Acreage on the Norwegian continental shelf 0.07 3 0.21 Partnership with U.K and Germany 0.05 3 0.15 Planned oil terminal at Veidnes making Northern Norway a strong petroleum margin 0.04 2 0.08 Easy access to capital market due to Brand name 0.01 2 0.02 Threats Fishery and environmental organizations 0.05 1 0.05 Tight fiscal conditions 0.11 1 0.11 Rival competition 0.01 3 0.03 Instability in oil prices 0.11 3 0.33 Delayed projects in Arctic Barrel sea 0.03 2 0.06 Global social instability 0.06 1 0.06 Total 1 1.83
  15. 15. Case Study: Statoil ASA | EXTERNAL ASSESSEMENT 16 CONSTRUCTION OF CPM The Competitive Profile Matrix (CPM) is a tool used to identify the company’s major competitors as well as their particular threats and weaknesses. Critical success factors include internal and external issues. [2] The CP Matrix is presented below: Table 2: Competitive Profile Matrix Competitive Profile Matrix Statoil BP Chevron Total SA Critical Success factors Weight Rating Score Rating Score Rating Score Rating Score Brand Name 0.12 2 0.24 4 0.48 3 0.36 3 0.36 Sustainability 0.13 3 0.39 2 0.26 2 0.26 3 0.39 Frequency of accidents 0.05 2 0.10 1 0.05 3 0.15 3 0.15 Global expansion 0.12 2 0.24 4 0.48 3 0.36 3 0.36 Market Share 0.18 2 0.36 3 0.54 3 0.54 2 0.36 Technology 0.16 1 0.16 4 0.64 3 0.48 4 0.64 Acquisition / Partnership 0.15 3 0.45 3 0.45 2 0.30 2 0.30 Total 1 1.94 2.90 2.45 2.56 PORTER’S FIVE FORCES In Oil and Gas industry, companies are competing with their direct competitors also they are in a constant fight for profit. Porter’s 5 forces is a holistic way to look into any industry and understanding the structure, underlying drivers of profitability and competition. Those forces apply to every industry even if there is a different set of economic and fundamentals. Five forces help’s somebody to understand what really causing profitability, what are the trends that are most likely to be significant in changing the ‘’game’’ in the industry and where are the constrains which an enterprise relax, relay and find a strong competitive position. The five forces give you the tools to understand the company’s dynamics. How the threats of new entrants, the threats of substitute products or services, the bargaining power of customers (buyers), the bargaining power of suppliers and the intensity of competitive rivalry, involving and what are the implications for company’s strategy.
  16. 16. Case Study: Statoil ASA | EXTERNAL ASSESSEMENT 17 Furthermore shows how an enterprise positions itself to find spot in the industry that it can really command a profit. And finally how somebody or something can ‘’maybe’’ re-shape the nature of the industry structure. [2] Figure 2: Porter's Five Forces Examining the attractiveness from the profit point of view is essential to analyze Porter's five forces. [1,2,3,5,6] Bargaining power of consumers  It is considered to be rather low, because of the large number of consumers compared to the small number of O&G firms within the industry. Threats of substitute products  It is known that there are few alternatives in the O&G industry. Nuclear energy presents a high risk regarding safety and waste disposal. Hydrogen and solar energy have not been developed yet and in contrast to oil they cannot be stored or transported. Due to that fact, we can estimate that there will be no significant modification in the oil and gas demand.  However, a small percentage of substitutes is obtained by biofuels although they are not rather threatening for the O&G company because of their low efficiency. Bargaining power of suppliers
  17. 17. Case Study: Statoil ASA | INTERNAL ASSESSEMENT 18  Low bargaining power of suppliers attributes the whole industry. In particular, Statoil is vertically integrated and controls areas from production to markets and retail through the distribution and refining activities, weakening the power of suppliers. New entries  Proceeding to the analysis of new entries we take into account environmental regulations, political factors and technological demand considering them high barriers for the O&G industry. Competition  Lastly, Statoil, efforts to maintain its sustainability and proceed in the race of success within the O&G industry. Climbing up the industry's ladder of success, Statoil aims to achieve a dominant role. As a result of these facts and from all the other four forces, we can easily conclude that rival competition among competitive firms, is one of the main aspects of this race. INTERNAL ASSESSEMENT Internal auditing is implemented for a company to assess its micro- environment. It is an important activity as it evaluates strengths and weaknesses within the company, providing independent advice for senior managers and improving risk management and management control procedures. [2] INTERNAL AUDIT PROCESS Performing an internal audit requires a gathering, assimilating and evaluating information about the firm’s operations. Critical success factors, consisting of both strengths and weaknesses will be discussed over the following aspects: [2]  Culture  Management  Marketing  Finance/Accounting  Research & Development  Production/Operations  Information Systems Management
  18. 18. Case Study: Statoil ASA | INTERNAL ASSESSEMENT 19 After inspecting the above factors, the Internal Factor Evaluation (IFE) Matrix will be constructed. CULTURE Relationships among a firm’s functional business activities can be exemplified by focusing on organization culture and internal phenomenon that permeates all departments and divisions of an organization. Organizational culture can be defined as “a pattern of behavior that has been developed by an organization as it learns to cope with its problem of external adaption and internal integration, and that has worked well enough to be considered valid and be taught to new members as the correct way to perceive, think and feel”. This definition emphasizes the importance of matching external with internal factors in making strategic decisions. [2] In the examined case, the following cultural facts were identified: [3,5]  Statoil expects high ethical standards of everyone who acts on their behalf and will maintain an open dialogue on ethical issues, internally and externally.  Encouraging Statoil’s business partners to implement standards for business ethics compatible with their own.  The Statoil Ethics Code of Conduct describes the requirements in terms of business ethics applying to Statoil’s business activities.  Statoil’s values embody the spirit and energy of the company. They are at the core of the management system, driving the company’s performance and guide it in how the act in business, work together and towards external stakeholders.  In September 2011 Statoil launched a new e-learning program on business ethics and anti-corruption compliance. The new e-learning program consists of an introduction by Helge Lund, CEO and President of Statoil ASA, an introduction to the Norwegian and US anti-corruption legislation, as well as “We treat ethics as an integral part of our business activities. We are determined to make Statoil known for its high standards with respect to business ethics.”
  19. 19. Case Study: Statoil ASA | INTERNAL ASSESSEMENT 20 nine interactive cases built upon Statoil’s Ethical Code of Conduct. The program is mandatory for the Statoil's employees.  A strong safety culture, as engendered and required by North Sea regulatory and licensing authorities. MANAGEMENT The functions of management consist of five basic activities: planning, organizing, motivating, staffing, and controlling. These activities are important to assess in strategic planning because an organization should continually capitalize on its management strengths and improve on its management weaknesses. [2] Regarding Statoil’s case, the following facts were considered important: Promotes a stimulating work environment guided by the company’s values and a commitment to the employee’s personal and professional development. [3,5]  Provides a good match between the employee’s professional interests and goals and challenging and meaningful job opportunities.  Builds a high-performing environment, and gives direct feedback on the employee’s performance.  Recognizes and rewards the employee’s performance based equally on what the employee delivers.  Values diversity and provides equal opportunities. Management and employees are jointly responsible for “Our management system has three main objectives: 1. Contribute to safe, reliable and efficient operations and enable us to comply with external and internal requirements 2 Help us to incorporate our values, our people and our leadership principles in everything we do. 3. Support our business performance through high-quality decision- making, fast and precise execution, and continuous learning Commitment to and compliance with our management system are a requirement.”
  20. 20. Case Study: Statoil ASA | INTERNAL ASSESSEMENT 21 initiating and actively supporting and contributing to collaboration. It is essential to have a good and confidence-based relationship between the employees and the company.  Maintaining a strong relationship with high-quality suppliers in order to achieve a sustainable competitive edge.  Have inner drive to enhance the performance of self, others and the business.  Know how others perceive the company and how the company can best influence others.  Understand external forces, create business opportunities, manage risks and adapt to reality.  Collaborate with stakeholders to strengthen business and create innovative solutions.  Have a commercial mind-set, drive competitiveness and be cost conscious.  An established and growing international position. Management's drive for a greater international presence has taken the form of several acquisitions since 2004.  Limited vertical integration in manufacturing, meaning refining and marketing. Statoil's integration into refining is fairly limited, with two directly operated refineries: Mongstad in Norway (79%-owned) and Kalundborg in Denmark (fully owned). These refineries have a combined capacity of almost 300,000 boepd and, in our view, are of average complexity by European standards. MARKETING Marketing can be described as the process of defining, anticipating, creating and fulfilling customer’s needs and wants for products and services. [2] The following key factors were perceived for the case of Statoil ASA: [3,5]  Builds the company’s brand consistently, using an integrated brand strategy across all media channels which is applied by dedicated marketing personnel with clearly defined responsibilities.
  21. 21. Case Study: Statoil ASA | INTERNAL ASSESSEMENT 22  Statoil is a long-term, reliable natural gas supplier with a strong position in some of the world's most attractive markets. The company is the second largest gas supplier to Europe.  Marketing, Processing and Renewable Energy (MPR's) strategy is to maximize corporate value through safe, reliable and efficient operations, and through the development of profitable midstream, downstream and renewable energy business opportunities. FINANCE & ACCOUNTING Financial condition is often considered the single best measure of a firm’s competitive position and overall attractiveness to investors. Determining an organization’s financial strengths and weaknesses is essential to effectively formulating strategies. A firm’s liquidity leverage, working capital, profitability, asset utilization, cash flow and equity can eliminate some strategies as being feasible alternatives. According to James Van Horne, the functions of finance accounting comprise tree decisions: the investment decision, the financing decision, and dividend decision. [2]  In accordance with our criteria for GREs, we see a "moderately high" likelihood that the Norwegian government would provide timely and sufficient extraordinary support to Statoil in the event of financial distress. Statoil’s view of a "moderate" likelihood of extraordinary government support is based on the following: o Important" role for the Norwegian government, which reflects the group's dominant position in the Norwegian oil and gas production industry and its substantial tax and dividend payments to the state; and o "Strong" link with the Norwegian government, mostly reflecting the state's majority ownership, even if the state is not directly involved in operational decisions.  Statoil has access to vast hydrocarbon reserves on the Norwegian continental shelf, the group's increasing levels of international upstream diversity, resilient upstream profitability, and conservative balance sheet management.  Cash and cash equivalents of NOK36 billion as of June 30, 2012, of which Statoil treats NOK2 billion as tied to operations. This was boosted by the
  22. 22. Case Study: Statoil ASA | INTERNAL ASSESSEMENT 23 recent proceeds from the sale of Statoil's stake in Statoil Fuel & Retail ASA for NOK8.3 billion.  Statoil's marketable securities of NOK45 billion. According to management those are predominantly very highly rated investments and liquid government bonds.  Funds from operations over the next year of NOK120 billion–130 billion.  An undrawn committed $3 billion bank facility maturing in December 2016.  Manageable short-term debt of NOK17 billion.  Capital investment of up to NOK105 billion in both 2012 and 2013.  Dividends of about NOK21 billion, normally paid in the second quarter each year.  Profitability measures among the highest in its peer group. This is partly because it has less downstream exposure than most peers. Statoil's strong profitability is underpinned by its low-cost, concentrated, and highly profitable E&P operations. In 2011, strong hydrocarbon prices improved the group's net income to about $16 per boe, despite the negative impact by Norway's very high, but stable, upstream tax rate of 78%. Over time, Statoil's future profitability should benefit from its rising proportion of international production, which incurs a lower tax rate of about 40%-45%.  Its conservative financial policies. Management targets a strong 'A' rating from S&P, on a standalone basis, but does not explicitly state credit ratio targets. Financial flexibility, notably Statoil's access to the capital markets, benefits from state ownership.  Demonstrated commitment to keep high flexibility. It is noticed that management has made several large disposals in recent years, to offset the negative affect for acquisitions, among other reasons. Disposals include the fuel and retail segment, the Gassled pipeline and 50% of the Peregrino field. Total disposals earned over $6 billion over the past two years.  Financial flexibility. Statoil has over time built up a sizable investment portfolio of highly rated government bonds worth about NOK45 billion as of Sept.30, 2012.  State ownership. This facilitates a stronger long-term focus on investment and results in less shareholder pressure than Statoil's peers experience, for
  23. 23. Case Study: Statoil ASA | INTERNAL ASSESSEMENT 24 example, to carry out large share buybacks. In addition, there is a lower risk of Statoil undertaking sizable debt-financed mergers or acquisitions, and the group has the potential to access additional state shareholder funding, if required.  The group's fairly aggressive capital expenditure (capex) and acquisition strategies. Capex, in 2012 and beyond, could also impair free operating cash flow (FOCF). Furthermore, further bolt-on acquisitions are not fully excluded, like the acquisition of Brigham Exploration for $4.7 billion in 2011.  Persistent negative discretionary cash flow and weak free operating cash flow. Dividends usually increase in line with underlying earnings. However, in practice Statoil's dividends have not been funded by FOCF and therefore have increased debt if they were not covered by disposal proceeds.  The group's modest leverage. However, it can be noticed as a risk, that the group's high share of asset retirement obligations and deferred tax liabilities. The company's debt maturity profile is long term and fairly even. A large share of Statoil's gross debt is U.S. dollar-denominated. Most of Statoil's non- U.S. dollar-denominated debt has U.S. dollar exposure, and the group uses derivative instruments to hedge U.S. dollar-denominated oil and gas revenue streams. [1,3,4,5,6] LIQUIDITY, GROWTH AND FINANCIAL HEALTH Examining Statoil’s Liquidity and Financial Health, through the following table we can come to some important conclusions: [6] Table 3: Liquidity & Financial Health Liquidity Financial Health 2010 2011 2012 2013 Current Ratio 1.09 1.16 1.12 1.43 Quick Ratio 0.87 0.92 0.93 1.22 Financial Leverage 2.93 2.76 2.46 2.49
  24. 24. Case Study: Statoil ASA | INTERNAL ASSESSEMENT 25  Current & Quick Ratio have an increased trend, that means Statoil can easily pay back its liabilities.  Financial Leverage has a stable trend, that means Statoil is in a good position in transactions and can easy continues the investments. Through the following table we can come to some important conclusions: [6] Table 4: Growth Growth 2011 2012 2013 Total Revenues 670.0 722.0 637.4 Net Operating Income 211.8 206.6 155.5 Net Income 78.4 69.5 39.2  If we take as an example the year 2013, the 75% of Statoil’s Net Operating Income is the Taxes,  While only the 25% is the Net Profit.  The taxation has increased through year 2011 to 2013 from 63% to 75% !
  25. 25. Case Study: Statoil ASA | INTERNAL ASSESSEMENT 26 STATISTICS TABLES OF STATOIL Table 5: Statoil ASA Exploration And Production Statistics FAS69 Upstream Data [5 ] Statoil ASA Exploration And Production Statistics FAS69 Upstream Data --Year ended Dec. 31-- 2011 2010 2009 2008 2007 Reserves Provedreserves (mmboe) 5427 5325 5305 5456 6010 of which oil reserves (% of total) 41.9 40 39 38 40 of which developed reserves (% oftotal) 69.9 74 77 77 72 Proved reserve volumes breakdown by region ( %) Norway 70 74 82 83 83 Rest of world 30 26 18 17 17 Production Production (mmboe perday) 1650 1706 1807 1751 1724 of which equity affiliates (mmboe per day) 14 14 14 0 0 of which oil production(% of total) 57 56 58 59 62 Annual productiongrowth(%) (3) (6) 3 2 1 Norway 1316 1374 1450 1461 1417 Angola (Block 15+17) 69 88 119 117 109
  26. 26. Case Study: Statoil ASA | INTERNAL ASSESSEMENT 27 Table 6: Reconciliation Of Statoil ASA Reported Amounts With Standard & Poor's Adjusted Amounts (Mil. NOK) [5 ] Reconciliation Of Statoil ASA Reported Amounts With Standard & Poor's Adjusted Amounts (Mil. NOK) --Fiscal year ended Dec. 31, 2011-- Statoil ASA reported amounts Shareholders' Debt equity Revenues EBITDA Operating income Interest expense Cash flow from operations Cash flow from operations Dividends paid Capex Reported131458.00278916.00 670205.00 263134.00 211784.00 3745.00 111463.00 111463.00 19891.00 92227.00 Standard & Poor's adjustments Operatingleases 63251.66 -- -- 3311.62 3311.62 3311.62 13712.88 13712.88 -- 29829.00 Postretirement benefit obligations 16433.00 -- -- (134.00) (134.00) -- 414.48 414.48 -- -- Surplus cash and near cash investments (38596.00) -- -- -- -- -- -- -- -- -- Capitalized interest -- -- -- -- -- 869.00 (869.00) (869.00) -- (869.00) Share-based compensation expense -- -- -- 451.00 -- -- -- -- -- -- Asset retirement obligations 24423.39 -- -- 2813.00 2813.00 2813.00 (1333.85) (1333.85) -- -- Explorationcosts -- -- -- 13839.00 -- -- -- -- -- -- Reclassification of nonoperating income ( expenses ) -- -- -- -- 2604.00 -- -- -- -- -- Reclassification of working- capital cash flow changes -- -- -- -- -- -- -- 19121.00 -- -- Minorityinterests -- 6239.00 -- -- -- -- -- -- -- -- Debt - Other (1800.00) -- -- -- -- -- -- -- -- -- Total adjustments 63712.05 6239.00 0.00 20280.62 8594.62 6993.62 11924.51 31045.51 0.00 28960.00 Standard & Poor's adjusted amounts Adjusted 195170.05285155.00 670205.00 283414.62 220378.62 10738.62 123387.51 142508.51 19891.00 121187.00
  27. 27. Case Study: Statoil ASA | INTERNAL ASSESSEMENT 28 Table 7: Statoil ASA - Financial Summary[5 ] Statoil ASA -- Financial Summary Industry Sector: Integrated Oil & Gas --Fiscal year ended Dec. 31-- 2011 2010 2009 2008 2007 Ratinghistory AA-/Stable/A-1+ AA-/Stable/A-1+ AA-/Stable/A-1+ AA-/Stable/A-1+ AA-/Stable/A-1+ (Mil. NOK) Revenues 670,205.0 529,915.0 465,433.0 656,020.0 522,797.0 EBITDA 283,414.6 209,330.0 190,942.6 257,839.0 199,592.0 Net incomefromcontinuingoperations 78,787.0 38,082.0 18,313.0 43,265.0 44,096.0 Funds from operations (FFO) 142,508.5 106,537.6 91,526.2 108,187.9 98,529.5 Capital expenditures 121,187.0 107,860.0 75,365.5 83,657.5 91,250.7 Free operatingcash flow 2,200.5 (17,018.4) 7,704.8 26,793.5 7,897.7 Discretionarycash flow (17,690.5) (36,113.4) (15,380.2) (288.5) (17,796.3) Cash andshort-term investments 2,000.0 2,184.0 2,000.0 2,038.0 2,000.0 Debt 195,170.1 155,044.2 140,434.3 129,261.9 91,019.6 Equity 285,155.0 226,395.0 200,118.0 216,055.0 179,067.0 Adjusted ratios EBITDA margin (%) 42.3 39.5 41.0 39.3 38.2 EBITDA interest coverage (x) 26.4 26.8 18.8 33.0 20.9 EBIT interest coverage (x) 20.5 18.6 12.8 27.0 16.0 Return on capital(%) 43.1 33.1 31.2 56.2 46.1 FFO/debt (%) 73.0 68.7 65.2 83.7 108.3 Free operatingcash flow/debt (%) 1.1 (11.0) 5.5 20.7 8.7 Debt/EBITDA (x) 0.7 0.7 0.7 0.5 0.5 Debt/debt andequity (%) 40.6 40.6 41.2 37.4 33.7
  28. 28. Case Study: Statoil ASA | INTERNAL ASSESSEMENT 29 PRODUCTION & OPERATIONS The production/operations function of a business consists of all those activities that transform inputs into goods and services. Production/operations management deals with inputs, transformations and outputs that vary across industries and markets. A manufacturing operation transforms or converts inputs such as raw materials, labor, capital, machines and facilities into finished goods and services. [2] For the case of Statoil ASA, the following facts were recognized: [1,3,4,5]  Develops and operates subsea technologies in order to increase production and recovery and pave the way for Statoil's future "subsea factory".  Industry leader in seismic imaging and interpretation based on proprietary technology in order to increase discovery rates.  Achieves breakthrough performance on reservoir characterization and recovery to maximize value.  While cost levels could fall through Statoil's focus on cost improvement, this is less likely for deep offshore projects in harsh environments.  Low reserve-replacement rate, averaging only about 86% organically over the past three years. Statoil is trying to improve its reserve replacement ratio, particularly by adding unconventional oil and gas reserves.  Producing technology and knowledge which will strengthen our positions in important exploration areas.  Improved reservoir models and new drilling and well solutions at reduced costs, and maturing of resources into profitable reserves for development.  Competitive and sustainable technology for heavy oil, refining and gas value chain.  Gulf of Mexico: Develop new technologies quickly and cost effective.  Statoil has applied for three patents related to 3C technology. The patent applications were published in January. 3C technology is based on the capture of CO2 from exhaust gas, known as post-combustion removal, using an amino solution in a compact capturing facility.
  29. 29. Case Study: Statoil ASA | INTERNAL ASSESSEMENT 30 REASEARCH & DEVELOPMENT The fifth major area of internal operations that should be examined for specific strengths and weaknesses is Research & Development. For the case of Statoil ASA, the following factors were examined: [2]  Innovative development and the application of strong technology. Statoil executes complex offshore and onshore field development projects and has improved its knowledge of oil recovery. These factors put Statoil in a good position as a global operator and partner. The group intends to use its expertise in areas such as deep water, heavy oil, harsh environments, and gas value chains to exploit new opportunities and develop high-quality projects which it can use as part of its international diversification strategy.  Ability to build on competitive advantages, stimulates innovation and takes a long-term view on selected potentially high-impact technology ventures. o Specifies asset-specific requirements and execution plans to introduce new solutions. o Provides incentives for and reward those ventures that solve complex technical problems through innovative solutions, particularly when combined with prudent risk management. o Continuously adapt our collaborative way of working with partners and suppliers on a global basis.  Developing and implementing energy-efficient and environmentally sustainable solutions.  Technology development activities aim to reduce field development, drilling and operating costs in order to increase capital efficiency.  Building and profiling the group's leading technology positions through internationally recognized R&D results.  Establishing and executing the R&D project portfolio reflecting the corporate technology strategy.  Developing the group’s R&D competence.  Pushing and positioning the group for the future’s big technology leaps by looking beyond the current business.  Operate and further develop world-class laboratories and experimental rigs. [4]
  30. 30. Case Study: Statoil ASA | INTERNAL ASSESSEMENT 31 INFORMATION SYSTEMS MANAGEMENT Information ties all business functions together and provides the basis for all managerial decisions. It is the corner stone of all organizations. Information represents a major source of competitive management advantage or disadvantage. Assessing a firm’s internal strengths and weaknesses in information systems is a critical dimension of performing an internal audit. A management information system’s purpose is to improve the performance of an enterprise by improving the quality of managerial decisions. An effective information system thus collects codes, stores, synthesizes and presents information in such a manner that it answers important operating and strategic questions. The hard of an information system is a database containing the kinds of records and data important to managers. A management information system receives raw material for both external and internal evaluation of an organization. [2] For the case of Statoil the following facts were detected: [5]  Prioritizing the management of business critical information.  Managing information in accordance with risk exposure.  Sharing information to ensure efficient use and experience transfer  Making information available for future needs  Ensuring information quality VALUE CHAIN ANALYSIS The Value chain was introduced by Porter and represents an approach to looking at the development of the competitive advantage within an organization. All organizations consist of activities which ‘’link’’ together to develop the value of a business. Together these activities represent the value chain. The chain gives an overview of an organization and how the various activities are structure together. It divided to primary activities that related with production and the support activities which represent the effectiveness of an organization. Succinctly the value chain represents a series of activities that create and build value. Combined, they represent the total value delivered by an organization.[2]
  31. 31. Case Study: Statoil ASA | INTERNAL ASSESSEMENT 32 Primary functions:  Inbound logistic: How does the organization get their raw-materials into the organization.  Operations: Converting the raw materials to the output.  Outbound logistics: Getting the products to the costumers.  Marketing and sales.  Service. Support functions:  Firm infrastructure.  Human resource Management.  Technological development.  Procurement. All of them cover the primary functions.[2] Due to the lack of information a summarized Value Chain Analysis is presented:
  32. 32. Case Study: Statoil ASA | INTERNAL ASSESSEMENT 33 UPSTREAM ACTIVITIES In the Upstream section, the three major activities are Exploration, Development and Production. Statoil’s upstream section can be divided into two subsections. The International and the Norwegian’s State Upstream Section. Table 8 and Table 9 provide some economic factors: [3,6] Table 8: Norwegian State Upstream Section Income Statement Income statement under IFRS (in NOK billion) For the year ended 31 December 2013 2012 2011 13-12 change 12-11 change Total revenues and other income 202,2 220,8 212,1 (8%) 4% Operatingexpenses and selling, general and administrative expenses (27,4) (25,8) (24,7) 6% 4% Depreciation, amortization and net impairmentlosses (32,2) (29,8) (29,6) 8% 1% Exploration expenses (5,5) (3,5) (5,1) 54% (31%) Net operating income 137,1 161,7 152,7 (15%) 6% Table 9: International Upstream Section Income Statement Income statement under IFRS (in NOK billion) For the year ended 31 December 2013 2012 2011 13-12 change 12-11 change Total revenues and other income 81,9 80,1 70,2 2% 14% Purchases [net of inventory variation] (0,1) (1,3) (0,7) (95%) 91% Operatingexpense and selling, general and administrative expenses (21,0) (16,5) (14,2) 28% 16% Depreciation, amortization and net impairmentlosses (31,9) (26,2) (13,8) 22% 90% Exploration expenses (12,5) (14,6) (8,7) (14%) 67% Net operating income 16,4 21,5 32,8 (24%) (35%)
  33. 33. Case Study: Statoil ASA | INTERNAL ASSESSEMENT 34 Analyzing Table 8and Table 9coming to the following conclusions:  The 73% of Statoil’s Net Operating Income, is earned from the International Upstream Section while the 27% is earned from the Norwegian’s State Upstream Section. Figure 3: Statoil's Upstream Net Operation Income  The 54% of Statoil’s Total Revenues is the Net operation Income while the 46% is Statoil’s expenses. Figure 4: Statoil's Upstream Total Revenues 73% 27% Norway International 54% 46% Net Operation Income
  34. 34. Case Study: Statoil ASA | INTERNAL ASSESSEMENT 35 DOWNSTREAM ACTIVITIES In the Downstream section, the two major activities are Refining and Marketing. Table 10 provides some economic factors for the Downstream Section: [3,6] Table 10: Downstream Section Income Statement Income statement under IFRS (in NOK billion) For the year ended 31 December 2013 2012 2011 13-12 change 12-11 change Total revenues and other income 611,4 669,5 610,0 (9%) 10% Purchases [net of inventory variation] (565,8) (620,3) (550,5) (9%) 13% Operatingexpense and selling, general and administrative expenses (36,0) (30,6) (28,8) 17% 6% Depreciation, amortisation and net impairment losses (7,0) (3,0) (6,0) >100% (50%) Net operating income 2,6 15,5 24,7 (83%) (37%) From the above table we conclude the following:  From Statoil’s Total Revenues only 2% is the Net Operating Income while the 98% is expenses. Figure 5: Statoil's Downstream Total Revenues 2% 98% Net Operating Income Expenses
  35. 35. Case Study: Statoil ASA | INTERNAL ASSESSEMENT 36 SUMMARIZED ACTIVITIES To summarize the whole activities the next chart shows each section’s Net Operation Income. Figure 6: Statoil's Summarized Activities At this point we come to the following conclusions:  The 88% of Statoil’s Net Operation Income is earned from the Upstream Section concluding that Statoil is upstream- oriented.  The 8% of Statoil’s Net Operation Income is earned from the Downstream Section.  Only a 3% of Statoil’s Net Operation Income is earned from Fuel & Retail Activities. CONSTRUCTION OF IFE MATRIX The summary step in conducting an internal strategic management audit is the constructing of the Internal Factor Evaluation (IFE) Matrix. This strategy formulation tool summarizes and evaluates the major strengths and weaknesses in the functional areas of a business and it also provides a basis for identifying and evaluating relationships among those areas. Intuitive judgments are required in developing an IFE Matrix, so the appearance of a scientific approach should not be interpreted to 88% 8% 3% 1% Upstream Downstream Fuel & Retail Other
  36. 36. Case Study: Statoil ASA | INTERNAL ASSESSEMENT 37 mean this is an all-powerful technique. The Internal Factor Evaluation Matrix ( [2] ) is presented below. [2] Table 11: IFE Matrix Key Internal Factors Weight Rating Weighted Score Strengths 1. Strong safety culture 0.02 3 0.06 2. Established and growing international position 0.08 3 0.24 3. Financial distress due to government support 0.06 4 0.24 4. Funds from operations over the year of NOK120 billion–130 billion. 0.05 3 0.15 5. Manageable short-term debt of NOK17 billion 0.03 3 0.09 6. Profitability measures among the highest in its peer group 0.08 3 0.24 7. Develops and operates subsea technologies in order to increase production and recovery 0.08 4 0.32 8. Industry leader in seismic imaging and interpretation 0.05 4 0.20 9. Ability to build on competitive advantages and stimulates innovation 0.04 3 0.12 10. Internationally recognized R&D results 0.06 3 0.18 11. Reliable natural gas supplier with a strong position 0.07 3 0.21 12. e-learning program on business ethics and anti- corruption compliance 0.01 3 0.03 Weaknesses 1. High capital expenditure and resulting weak free cash generation 0.07 2 0.14 2. Limited vertical integration in manufacturing, meaning refining and marketing. 0.06 1 0.06 3. Persistent negative discretionary cash flow and weak free operating cash flow 0.05 2 0.10 4. Group's modest leverage. 0.07 2 0.14 5. Low reserve-replacement rate, averaging only about 86% organically over the past three years 0.05 1 0.05 6. Exposure to volatile and capital-intensive exploration and production sector, with near-term risk of falling oil prices. 0.07 2 0.14 Total 1.00 2.71
  37. 37. Case Study: Statoil ASA | STRATEGY FORMULATION 38 STRATEGY FORMULATION Strategy formulation is a process which involves subjective decision making based on the analysis of criteria that derive from objective inputs. Statoil existing strategy is upstream-oriented, based on technology innovations. The company’s growth strategy is reflected in merger and acquisition activities as well as in long-term partnerships. Statoil, although an NOC, strives to build its size and economic growth following a long-term strategy towards a more international profile. The company currently seeks to diversify both geographical, through market development and in terms of product varieties. However, after taking into consideration the data derived from the internal and external evaluation as well as the matrices a number of alternative strategies is proposed. In order to recommend and implement feasible alternative strategies, the use of specific tools is of critical importance. [2] The following tools which are used in the current study: [2]  SWOT Matrix is a matching tool which is used in order to develop different type of strategies, by combining the firm’s strengths, weaknesses, opportunities and threats.  Grand Strategy Matrix is a tool for formulating alternative strategies. The Matrix is divided in four quadrants which describe the strategic position of the company. Appropriate strategies which should be considered by the organization are listed in sequential order in each quadrant of the matrix.  The Internal-External Matrix is a schematic plotting diagram which combines the Total Weighted Scores from IFE and EFE matrices in order to define the company’s position and thus recommend the most appropriate strategies.  In the current case, in order to proceed with the decision stage the simplify methodology was considered more appropriate to follow than QSPM technique.
  38. 38. Case Study: Statoil ASA | STRATEGY FORMULATION 39 After taking all the above into consideration, the final step of strategy formulation is recommending specific alternative strategies and long-term objectives and comparing them to actual strategies planned by the company. CONSTRUCTION OF SWOT MATRIX The Strengths -Weaknesses – Opportunities - Threats (SWOT) Matrix, is matching tool which is essential to develop four types of strategies: [2]  SO Strategies, which are strategies that use company’s internal strengths in order to take advantage of external opportunities.  WO Strategies, which are strategies aiming to improve internal weaknesses by taking advantages of external opportunities.  ST Strategies are strategies which use a firm’s strengths in order to avoid or reduce the impact of external threats.  WT Strategies, which are defensive tactics directed at reducing internal weaknesses and avoid external threats. The SWOT Matrix for Statoil was constructed and presented below.
  39. 39. Case Study: Statoil ASA | STRATEGY FORMULATION 40 Table 12: SWOT Matrix Strengths-(S) Weaknesses-(W) 1. Strong safety culture 1. High capital expenditure and resulting weak free cash generation 2. Established and growing international position 2. Limited vertical integration in manufacturing, meaning refining and marketing. 3. Financial distress due to government support 3. Persistent negative discretionary cash flow and weak free operating cash flow 4. Funds from operations over the year of NOK120 billion–130 billion 4. Group's modest leverage. 5. Manageable short-term debt of NOK17 billion 5. Low reserve-replacement rate, averaging only about 86% organically over the past three years 6. Profitability measures among the highest in its peer group 6. Exposure to volatile and capital- intensive exploration and production sector, with near-term risk of falling oil prices. 7. Develops and operates subsea technologies in order to increase production and recovery 8. Industry leader in seismic imaging and interpretation 9. Ability to build on competitive advantages and stimulates innovation 10. Internationally recognized R&D results 11. Reliable natural gas supplier with a strong position 12. e-learning program on business ethics and anti-corruption compliance Opportunities (O) SO Strategies WO-Strategies 1. Growing population in emerging economies o 8-3 o 4-4 o 11-1.3 o 7-5 o 2-4 o 1-6 2. ''Gina Krog'' offshore oil field development 3. Increase in gas demand 4. Other forms of energy 5. Acreage on the Norwegian continental shelf 6. Partnership with U.K and Germany 7. Planned oil terminal at Veidnes making Northern Norway a strong petroleum margin Threats (T) ST-Strategies WT-Strategies 1. Fishery and environmental organizations o 1-1 o 7.8.9-3 o 11-3 o 3-6 o 6.1-4 o 2-3 o 1-2.52. Tight fiscal conditions 3. Rival competition 4. Instability in oil prices 5. Delayed projects in Arctic Barrel sea 6. Global social instability
  40. 40. Case Study: Statoil ASA | STRATEGY FORMULATION 41 SWOT MATRIX RESULTS The proposed strategies, derived from the SWOT Matrix, are analyzed below.  SO (Strengths – Opportunities) strategies SO (8, 3): As a strong industry leader in seismic imaging and interpretation, Statoil can benefit from the increasing gas demand and use wisely its strong position. SO (4, 4): The funds coming from operations are up to 130 billion NOK and can be invested in other forms of energy SO (11, 1-3): Statoil is considered to be a reliable natural gas supplier. Emerging economies in addition to global gas demand provides Statoil a chance to expand its market share. SO (7, 5): Norwegian’s natural resources and acreage can be explored and exploited with the development of subsea technologies. SO (2, 4): Other forms of energy demand are a great opportunity for Statoil to establish its existing growing international position.  ST (Strengths – Treats) strategies ST (1, 1): Fishery and environmental organization are considered to be a great threat specifically in the northern seas but Statoil’s strong safety culture allows the company to take relevant matters into consideration. ST (7-8-9,3): Rival competition is the main aspect in the O&G Company but Statoil’s efficient technologies and innovative capabilities allows the company to play a rather dominant role. ST (11, 3): In addition to the previous, Statoil can also “hit” competition from its strong gas- supply position. ST (3, 6): Social instability is an important factor influencing the O&G Company, but Statoil’s governmental support can be seen as an ability to react effectively.
  41. 41. Case Study: Statoil ASA | STRATEGY FORMULATION 42  WO (Weaknesses – Opportunities) strategies WO (1, 6): Statoil’s partnership with UK and Germany is of great significance and can be implemented to avoid a high expenditure cost. The companies have faced rising expenditure costs in the production area, but through partnership, cost and risk can be divided.  WT (Weaknesses – Treats) strategies WT (2, 3): Competition as mentioned above is rival. Statoil has weak integration activities, mainly in manufacturing and refining so we conclude that it is very essential for the company to succeed full integration, gradually, in order to keep up the pace. WT (1, 2-5): Statoil spends an enormous amount in exploration activities. This fact, in relation to the delayed projects and the tight fiscal conditions can be considered to be highly risky for the company’s sustainable development. A possible strategy we introduce is a tight- expenditure strategy along with share selling to interested parties. STRATEGY ANALYSIS Examining all the above potential combinations we come to believe that through Market Penetration / Market Development Strategy, Statoil can significantly benefit from the emerging economies in Eastern Asia. China, India and neighboring industrial- developing countries, attract major international O&G companies, therefore, Statoil can proceed to penetrate in order not only to maintain, but also improve, its global financial sustainability. This strategy is in the form of an offensive attitude if we take into account Statoil’s major strengths and opportunities. On the other hand, we have recognized, several weaknesses which in relation with the threats mentioned above, lead to a tighter strategy through partnerships. Existing partnerships with Germany and the UK can benefit Statoil in the alternative – energy sector. With an ‘’alliance’’ of this size, the company can easily establish its brand
  42. 42. Case Study: Statoil ASA | STRATEGY FORMULATION 43 name, learn from its partners’ ‘’know- how’’, share technological advantages and expand in Europe and Asia with less expenditure costs. Related diversification, Market Development/ Market Penetration, are the strategies we suggest bearing all the above, in mind. Considering the combination ‘’Weaknesses- Threats’’, the strategy we insist is defensive. Divestiture, is a strategy that enables the specific company which is by 60% national, to increase its size in the private sector. By selling a small percent of its shares to private stakeholders, Statoil can increase its cash flow and therefore strengthen its integration activities. From the above matrix we come to conclude that the prevalent strategy proposed, is ‘’Market Penetration’’. The second best seems to be ‘’Related Diversification’’.
  43. 43. Case Study: Statoil ASA | STRATEGY FORMULATION 44 CONSTRUCTION OF GRAND STRATEGY MATRIX The Grand Strategy Matrix (GSM) is a tool for formulating alternative strategies in which all organizations can positioned in one of the four strategy quadrants. The GSM is based on two evaluating dimensions competitive position and market growth. Firms located in quadrant I, are in excellent strategic position. In quadrant II firms which are unable to compete effectively are located. In quadrant III represents company’s which compete in slow growth market and have weak competitive positions. Finally, quadrant IV businesses have a strong competitive position but in a slow growth industry. [2] Its quadrant comprises different type of strategies. From Statoil’s annual report of 2013, we underline a decrease in sale volumes both in crude oil and natural gas. Total annual sale volumes in crude oil fell from 905 (mmbbls) in 2012 to 805(mmbbls) in 2013 and a significant reduction in natural gas volume sales has also been realized. 3523 bcf of gas fell down to 3419. Considering the decrease in annual sales and the fact that the firm’s competitive position is strong, Statoil is positioned at quadrant IV of the GSM Matrix. Therefore, it is proposed that joint ventures and related diversification strategies should be Quadrant II 1.Market Development 2. Market Penetration 3. Product Development 4. HorizontalIntegration 5. Divestiture 6. Liquidation Quadrant I 1.Market Development 2. Market Penetration 3. Product Development 4. Forward Integration 5. Backward Integration 6. HorizontalIntegration 7. Related Diversification Quadrant III 1. Retrenchment 2. Related Diversification 3. Unrelated Diversification 4. Divestiture 5. Liquidation Quadrant IV 1.Joint Ventures 2. Related Diversification 3. Unrelated Diversification RAPID MARKET GROWTH SLOW MARKET GROWTH STRONGCOMPETITIVEPOSITION WEAKCOMPETITIVEPOSITION Figure 7: Grand Strategy Matrix
  44. 44. Case Study: Statoil ASA | STRATEGY FORMULATION 45 followed by the company. Contemplating the global financial crisis and Statoil’s existing tight-expenditure strategy, through joint ventures the company can accomplish market penetration and sustainability by dividing cost and risk. CONSTRUCTION OF IE MATRIX The Internal-External (IE) Matrix combines the Total Weighted Scores from IFE and EFE matrices in order to define the company’s position on the plot and thus recommend the most appropriate strategies. The IE Matrix is divided into three regions which include different strategy types. In the first region (cells I, II and IV ) the implemented strategies are the backward, forward or horizontal integration, market penetration, market development and product development. The second region (cells III, V, VII) includes market penetration and product development strategies. Finally, the third region (cells VI, VII and IX) includes defensive strategies like retrenchment and divestiture. [2] As it eventuates from the IFE and EFE scores, the company is placed on the V division. Therefore, the proposed strategy is market penetration. I II V VIII III VI IX IV VII Strong 3.00 to 4.00 Average 2.00 to 2.99 Weak 1.00 to 1.99 High 3.00 to 4.00 Medium 2.00 to 2.99 Low 1.00 to 1.99 I II V VIII III VI IX IV VII Strong 3.00 to 4.00 Average 2.00 to 2.99 Weak 1.00 to 1.99 High 3.00 to 4.00 Medium 2.00 to 2.99 Figure 8: IE Matrix
  45. 45. Case Study: Statoil ASA | CONCLUSION 46 DECISION STAGE: SIMPLIFIED METHODOLOGY As a final step it is vital to proceed a methodology which indicates the optimal alternative strategies that should be followed. In the current study, the technique of “Simplified Methodology” is used. Table 13: Decision Stage - Simplified Methodology As it derives from the above table, the proposed strategies are Market Penetration, Market Development and Related Diversification. CONCLUSION Following the detailed study of Statoil and analyzing the profile, the internal/external environment along with matrices results. We come to conclude that our best suggested strategies for the company’s growth are market penetration, marketing development and related diversification. Company’s existing strong position in Northern Europe in line with its natural advantage and strategic partnerships with the United Kingdom and Germany can facilitate the access to new markets and establish company’s brand name. Geographically, current expansion, rival competition demands in China, in order to maximize its supply chain. Also taking into consideration the emerging trend in unconventional sources, Statoil can benefit via partnership mergers and acquisitions and claim a dominant role as a new entrant in a challenging market. Proposed Strategic Options Internal – External (IE) Matrix Hold and Maintain SWOT Matrix Grant Strategy Matrix Market Penetration x x x Market development x Product development Horizontal integration Relateddiversification x x Unrelated diversification Divestiture x
  46. 46. Case Study: Statoil ASA | REFERENCES 47 REFERENCES 1. [Online] / auth. Statoil // Statoil Official Website. - 11 2014. - http://www.statoil.com. 2. Strategic Management : Concepts & Cases 14th Edition [Book] / auth. David Fred R.. - 2013. 3. Annual Report [Report] / auth. Statoil. - [s.l.] : Statoil, 2013. 4. Technology & Innovation [Online] / auth. Statoil. - 11 2014. - http://www.statoil.com. 5. Ratings Direct - Statoil ASA [Report] / auth. Standard & Poors's Rating Services. - 2014. 6. Reports archive [Online] / auth. Statoil. - 11 2014. - http://www.statoil.com.
  • StanleyEzeorah1

    Jan. 24, 2019

Case study for Statoil ASA =============== gr.linkedin.com/in/fotiszachopoulos

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