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Suncor Energy: Expand Its Investment In Kazakhstan?

Macro Environment Of Oil & Gas Sector For Kazakhstan

Introduction to Suncor Energy

Over the years, I have developed a large interest about every aspect of the oil industry. In the past year, my interests grew significantly due to clear understanding of the oil market from exploration and production, to the marketing of automotive petroleum. I chose to undergo the BA in Global Business Management at Regents Business School, to broaden my knowledge on the globalization and international strategy aspect, which correlates with the different aspects of this dissertation. Over a year ago, I have also dedicated time to start a new venture with two other university colleagues, involved in oil trading based in Kazakhstan. Ever since i have started the company under the name of CBX Trading; it allowed me to recognize the impact of Kazakhstani oil on the rest of the world. In terms of oil production.Kazakhstan remains in the shadow of the Middle Eastern countries such as Iran, Iraq, and most importantly, Saudi Arabia. Some would argue that Kazakhstan is the new aspiring “oil nation” as world oil reserve is depleting. Kazakhstan oil production has been on the rise since their independence from the Former Soviet Union in 1991.

  • Kazakhstan;s Macro-Environment (Political & Economical) and Kazakhstan Oil System (Supply Chain)
  • Potential advantages and potential threats for Suncor Energy; s successful expansion strategy in Kazakhstan

Understanding the different factors of growth within an emerging market is crucial to a better understanding of the investment decision process for Suncor. The intent is to scrutinize different investment factors, such as oil production/exportation data, country perceptions, manager;s perception, and country stability, are examples where such factors could influence an investment decision-making process for a foreign investor. It is important to also consider the oil market environment since Suncor is not considered a first mover in Kazakhstan compared to its rival Chevron. In this context researcher has designed some of the research objectives to be accomplished during the study.Kazakhstan has been able to attract large E&P investment, but is still seeking to attract more companies that are whiling to operate in a new geographical location. Although most oil companies operate on a global level, a company like Suncor Energy will definitely align their expansion strategy by mitigating risks and defining benefits to enter into a new market. However, will Kazakhstan be able to sustain growth over time, and compete with “oil nations” in the near future? On the other hand, would a company like Suncor Energy based as far as Canada would be an aspiring candidate to expand and take part in the Kazak oil boom.

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Literature Review

Suncor Energy

Founded in 1967, Suncor is known around the world to be a pioneer in exploring Canadian oil sands. Although the methods of E&P within the oil sand sector, Suncor also takes part in low costs, profitable, and reliable growth opportunities. Suncor also operate in what is called conventional E&P whether onshore or offshore. They have proven track records to provide adequate technologies and capital to invest in conventional E&P Suncor also holds an International division for conventional E&P, to compensate for oil sand price volatility within their oil sand sector (Petruic, 2012).Suncor Energy;s mission is to compete to a global level with low-cost, reliable operations, and excellent suite of growth projects (Suncor, 2012). Suncor embarked in conventional E&P in stable environment such as in the UK, and also riskier investments in Libya and Syria. Yet, operations in Libya and in Syria have not been resumed due to crisis in both nations. The project in Libya, and in Syria is proven to be long-term for the next 25 years (Suncor, 2012). International investment trends dictate that Suncor is taking part in long-term investments.

Suncor has reported net earnings of $4.304 billion in 2011, which is a significant increase compared to 2010 earnings of $3.829 billion. In 2011, Suncor spend $1.1 billion on International and Offshore conventional growth, which can make Kazakhstan a potential candidate for conventional E&P investment (Suncor, 2012). Forbes; financial analysis suggests that a key positive argument for Suncor is the growth opportunities due its large inflow of capital (Forbes, 2012). Suncor is a global competitor, ranking the company the largest energy company in Canada (Forbes, 2012).

Macro-Environment

The researcher applies the macro-environment analysis, which is best suitable to evaluate Kazakhstan. The theory is a management framework to evaluate four different aspects that forms the business environment.Macro-Environment is a commonly used technique to examine business climates relating to a particular company for further investment. The most commonly used model in analyzing the Macro Environment of a nation, not an organization, is the PEST model. PEST covers different areas such as; Political, Economical, Social, Technological (Oxford University Press, 2007). The PEST model is used to strengthen an argument over a plausible investment within a sector. The data obtained by the macro-environment analysis, bring about a clear understanding as to whether a large E&P investment is feasible or not.

Foreign Direct Investment

A suggested definition of FDI is : An investment made by a company or entity based in one country, into a company, or entity based in another country. (Investopedia, NA). In the case of Suncor, a potential expansion through a joint venture or acquisition of percentage equity on an oil field is considered to be a foreign direct investment. FDI is known to be an important source of capital for emerging economies, however it does not suggest that the benefits acquired by the host country is equally shared (ODI, 2002).This theory of FDI agrees that Suncor in this case should posses competitive advantages in their respective countries, while sustaining a local competitive advantage against other local oil majors such as Chevron and BP(ODI, 2002) .Andrew Kramer a journalist of the New York times specializing in Central Asian news, regards FDI in Kazakhstan to be a global competitiveness in the oil and gas sector. Mr Kramer, also confirms a theory of Tatoglu and Gaister (1998), that countries with natural resource endowments are not the most appealing to do business.

Foreign direct investment is of rising significance in the global economic era and it is mainly essential for developing and emerging nations. It has many benefits for both the recipient and investors. One of the main advantage that it offers is that it gives a chance to money to freely float form whatever business has the best prospects for growth in anywhere in the world. It is because investors massively acquiring the best outcome of their money with the least amount of risk. With the help of FDI the chances the impact of politics, bribery and fraud can be reduced and money goes to the bets business all around the world.Kazakhstan can also attain much of benefit with the help of FDI as in many oversea nations are planning to invest in this country especially in the oil industry, that means money will be floated to the nation from foreign countries and it will also create much of employment opportunities in the country. Here, in focus is given that investing nation can make investment in overseas in numerous ways either by setting up of subsidiary unit or associate company in the foreign nation by attaining much of shares with the help of mergers or acquisition or joint ventures.

Kazakhstan Economical Outlook

During the global credit crunch, significantly affected Kazakhstan;s economy as capital inflows slowed down. The credit crisis mainly affected the levels of FDI in Kazakhstan as multinationals had considerably less boring capabilities to finance such large projects. The unstable financial and commodities market had a negative impact on the Kazakh economic growth rates. The downturn in the Kazakh was not as drastic, since unemployment rate was still reduced by 6.6% during peak crises periods (Sayat Zholshy & Partners, NA). Inflation rates stabilized during from 2008 to 2009 at 7% due to reduced oil price pressures (Racobank, 2011). However, the Government tries to develop alternatives to diversify the Kazakhstani economy to avoid dependency on oil and gas sector (OECD, 2003).

Kazakhstan Oil Production

After taking a detailed analysis it could be stated that Kazakhstan has been developing massively with its natural resources and many of the corporation have made large amount of investment in order to acquire the benefits. In this regard it has been observed that some of the foreign corporations which has set up its operations in this nation have been using the resources in an unethical manner and in other form they are exploiting the resources of Kazakhstan. Many of the industries have been set up in Kazakhstan to acquire benefits from crude oil especially, but it has been seen that many of the companies are exploiting the natural resources in a illegal form and the country is suffering from it adequately.The findings show a growing production of crude oil, which proves that there are lots of opportunities in Kazakhstan in current time or even in the future. ;
Tengri News reports that more oil field are being discovered outside the oil rich western region of Kazakhstan. A new oil field with over 200 million tons of oil reserve was discovered in the Pre-Caspian Basin (Tengri News, 2011). Statistics shows that Kazakhstan currently holds 172 oil reserve blocks and only 80 of which are operated (KBCC, 2009).

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MethodologyPurpose of Research

There are 2 different methods of research employed: exploratory research, and descriptive research. The research question, have never been research previously, therefore, there is very little about the subject that is concise and clear. It is the primary reason why the research is carried out using the exploratory research process to allow certain flexibility the answer the research question. As there are several agencies involved in accumulating data in the oil industry, political analysis, and economical analysis, it is imperative that the descriptive research process is crucial to approach the research question in terms of statistics, and previous factual information. Previous research has shown that most of the data collection process requires third party information on the topic. It is vital for the study to be discussed with individuals that are closely associated with the oil and gas industry in Kazakhstan, which are information that are not precisely shared through a media streams. It allows the research to gain more insight and actual practices that are not found in current articles.

Conclusion

In order to acquire information about the knowhow and chance for investment the author outlined to significance of investigating the macro environment of oil and gas sector within Kazakhstan. When looking at the diverse attributes must consider a series of information about different economical, political and oil supply group to understand the full potential for future investment.The data acquired from the assessment depicts that it does not consider a border of error due to managerial skills defect applied in the research process.; The data represented as such as vast natural resources specifically explains and validate the oil boom in Kazakhstan is offered with vast amount of natural resources and it has been benefitted with advent of new approach of FDI inflow over the years. This will be seen as resources that are capable enough to sustain growth over the next decades.Kazakhstan has gigantically enhanced in both the manner economical and political environment since the outcome from Soviet Union in year 1991. The main focus is given on oil sector of Kazakh which is fueled with economical growth during the time of de-privatization of govt.; Various experts such as The World Bank, situates Kazakhstan as a key competitor amongst emerging markets. The country is benefitted with much of natural resources and holds vast amount of crude oil reserves as compared to the actual amount exported on daily basis.

Since long time Kazakhstan has managed to enhance its production facilities with minimum 1 million barrel every day. The rate of growth in oil production is tremendous and the major indicator for growth is in E&P sector that holds around the exponential growth rate of oil production, versus the oil reserve. It has been found that in such conditions the oil production of Kazakhstan is having potential for further expansion and from out of the several oil companies Kazakhstan remains the most attractive. The economic position depicts that attractiveness with the level of Kazakh oil and gas sector has been rising and a significant amount of drop has been found in FDI due to flexibility in price and this sector has been able to maintain a steady growth in its GDP. Other than this the reduction in FDI during the economic crisis was not catastrophic.

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References

  • Arkhipov, S . (2010). Kazakhstan Oil & Gas Sector. Harvard Business School Project. 1 (2), p3-14.
  • Balckburn, s (2005). Truth: A Guide. London: Oxford University Press. p188.
  • Euler Hermes. (2011). Country Review: Kazakhstan. NA. 1 (1), 1-6
  • Kalyuzhnova, Y (2008). Economics of The Caspian Oil And Gas Wealth. New York: Palgrave Macmillan. p95-175.
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