DIVERSIFICATION OF RUSSIAN OIL AND GAS UPSTREAM COMPANIES

Olga S. Kirichenko,Natalya S. Shcherbakova,Alexey A. Komzolov,Tatiana V. Kirichenko,Yulia A. Nazarova

doi:10.32479/ijeep.9194

Abstract

The quantitative assessment of the degree of company's diversification as the basis of strategic planning becomes relevant in the context of instability of world oil prices. The largest companies of the oil and gas industry develop their strategies taking into account diversification of both activities and sales markets. The need for diversification is confirmed by the carried-on qualitative analysis of the activities of Russian and foreign companies in the oil and gas industry. The authors propose indicators of quantitative assessment of the degree of diversification, which can be applicable for companies of the energy sector: entropy index and indicator of geographical diversification. The study concluded that it is advisable to use the entropy indicator of diversification for strategic planning due to the need to optimize activities; focus on the production of high value-added products; relevance of risk reduction in case of instability of world energy prices volatility; strengthening the position of a multi-industry company. An indicator of geographic diversification may be used when there is a necessity of market control; access to new markets; strengthening positions in current markets. The practical application of the results of this study is possible in the field of strategic planning for oil and gas upstream companies.Keywords: Russian Oil and Gas Upstream Companies, Diversification, Indicators of Diversification, Geographical Diversification, Energy Companies, Entropy IndexJEL Classifications: Q32, L25, Q35DOI: https://doi.org/10.32479/ijeep.9194

Highlights

The company PJSC LUKOIL was chosen as an example of calculating diversification indicators
The calculation of the entropy index is insufficient to assess the degree of diversification of the company and should be accompanied by detailed benchmarking with a reasonable choice of peer companies in terms of revenue, company size, and main business
One of the main advantages of diversification for oil and gas companies is the increase of the competitiveness of business and the efficiency of the company through the rational redistribution of financial and production resources, and the conquest of new market segments

Summary

Introduction

3. New technologies in the energy sector. The different companies including oil and gas, gradually exhaust the opportunities of development of production. There comes the moment when it is necessary to think both of performance improvement of the available production factors, and of extensive development in order to form the competitive advantages. There are following threats from new players: 1. The desire of residents of the United States and China to increase the energy independence of the economy 2. Economic support of the development of new technologies and a gradual increase in their economic efficiency

Methods

Results

Discussion

Conclusion