Bhp Billitin Report

Topics: Petroleum, Russia, Investment Pages: 23 (7882 words) Published: September 17, 2013
Investing in the Petroleum Industry|
International Investment and Economic Development |
|

Evaluation of the investment opportunities for BHP Billiton within Russia and United Arab Emirates|

Executive Summary
This report is an evaluation of investment opportunities in the petroleum industry. The investing company is chosen to be BHP Billiton, an Australian resource company with global operations. The scope of this report is to evaluate if BHP Billiton should invest in UAE or Russia to refine and distribute petroleum. After choosing the more interesting country the report analyses the international and domestic regulatory environment, the investment options, the choice of entry mode and ethical issues to consider in the selected country. The selection of the country is executed with a comparison table analysing relevant data like oil export, FDI inflow, currency, and GDP growth in both countries. Also important factors of the oil industry are considered. After the country assessment the regulatory environment is identified. First the regulatory environment is considered in global, regional, bilateral and on country level and after the overview the most relevant trade, investment and industry regulations are analysed in more detail. After the regulatory framework the possible entry mode choices are identified and justified based on the strategy and specific features of the company including country specific business environment. The last part of this report provides an analysis of ethical operations utilising the ethical conduct framework, which considers environmental corruption, labour practices and human right issues. The chosen country for the investment is Russia. The main reasons were that Russia has more available resources and labour force. Also considering the cultural distance the legal system (civil law) and religion (orthodox or non-religious) were important factors, because they make the social interactions easier. At the moment the exchange rate for profit margin is also more favourable for Russia. In the regulatory environment was an interesting finding that Russia is not yet a member of WTO, but the membership is processing. Other regulations in the trade field are ARF, PCA and a treaty between Australia and Russia, which reduces the double taxation. Important investment regulations to notify are IMF, APEC. In the industry related regulations an interesting finding was that Russia is not a member of OPEC and apparently not in need to get a member. Also Russia has a Product Sharing Agreement (PSA) and a government regulated oil pipeline. The affects of these regulations need to be invested carefully in the industry field. Other important industry related regulations are ECT and CES. In the entry mode assessment merger was considered as the most interesting way to invest for the company because it gives the possibility to expand to Europe and diversification in quarrying other raw materials. Also BHP strategy is to own and operate companies and it already has experience in global operations. The advantages of a merger are that it is less costly and it is easier for BHP to integrate into the Russian market to learn and adapt the local practices. The ethical conduct framework revealed that the most important issues to consider when operating in Russia are environmental pollution and corruption. The oil industry is one of the biggest producers of greenhouse gases and it also uses the world’s non-renewable resources. BHP Billiton is aware of the environmental problems and is already providing a sustainability report. When starting to operate in Russia the recommendation is to increase the usage of environmentally friendly technologies, implement life cycle thinking and integrate environmental policies into business strategies. Russia is highly corrupted at all operation levels, so it is really important for the company to be aware of it and plan carefully the operations. At the moment BHP Billiton...

References: List
* Asia-Pacific Economic Cooperation, 2011, Committee on Trade and Investment, Investments Experts’ Group, viewed 14 Oct 2011, <http://www.apec.org/en/Groups/Committee-on-Trade-and-Investment/Investment-Experts-Group.aspx>
* Sels, A., 2006, Foreign direct investment as an entry mode An application in emerging economies, viewed 30th September 2011
<http://arno.uvt.nl/show.cgi?fid=50213>
Russia | Indicator explanation for Petroleum/Company | Which one is better? |
GDP (per capita) | $49,600(US dollars) | $15,900 (2010 est.) | Individuals in the UAE have more purchasing power
Currency | 1AUD = 3.58955 AED | 1AUD = 31.5490 Rub | The AUD is more valued in Russia than in UAE | Russia |
Population | 5,148,664 (July 2011) | 138,739,892 (July 2011) | Russia has a larger market and a higher supply in labour force | Russia |
Unemployment rate | 2,4% (2010) | 7.6% (2010 est.) | There is more available labour force in Russia due to its bigger population. | Russia |
Literacy | 77,9% | 99,4% | Russia has more available educated labour force
(Source : Sakhalin Energy 2006)
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