Petrolera Zuata, Petrozuata C.A. Harvard Case Solution & Analysis

Size-up of the case:
In order to attract the foreign companies to invest in Venezuela, the government owned entity Petroleos de Venezuela is starting ajoint venture with one of the biggest oil companies in the world Conoco Inc. The joint venture would be named as Petrolera Zuata, Petrozuata C.A. (Petrozuata). The joint venture appears to be quite important and significant for the Venezuelan economy and for the petroleum industry of Venezuela as well. Substantial oil reserves were identified in the Orinoco Belt in Venezuela.The aim of this joint venture is to capitalize the oil reserves available in the Orinoco belt.
Key Firms involved in the case:
The main parties involved in the project are Petroleos de Venezuela and Conoco Inc. The Petroleos de Venezuela is one of the largest oil extracting and refining companies.It is ahead ofRoyal Dutch Shell both in terms of profitability and revenues. Furthermore, the Petroleos de Venezuela (PDVSA) is one of the best managed companies in the global energy sector, no considerable event regarding the breach of any environmental and labor law is reported in the history of the company. Since the incorporation of the PDVSA, the management have pursued many strategies which had led to the substantial growth of the company.The growth strategies include both the organic and inorganic growth. The PDVSA acquired many companies within the sector which are one of the most crucial factors which gives the company sustainable competitive advantage.
The second primary company involved in the joint venture is the Conoco Inc. Conoco Inc. was an integrated global petroleum company and is the subsidiary of DuPont one of the biggest chemical producing companies in the world with operations in more than 70 countries. Conoco solely have more than 15000 employees and it operates in almost 40 countries. The management of Conoco is very keen to improve the efficiency of the operations.In the past, Conoco invested heavily in the plants and machineries used in the extraction and refining of oil. Their innovations and developments are greatly highlighted and appreciated by various performance assessment institutes.
Key Issues:
There are many issues presented in the case some of which are in control of the PDVSA and some are beyond the control of the company. The main issue which are in the control of the company are financing arrangement, the selection of the project and the selection of partner. It can be said that the financing arrangement is one of the most critical issues in the case.The finance could be raised from various sources but there are some costs and benefits of each source. If the entire finance is raised from the internal sources such as retained reserves, the cost would be minimal but this could have negative impacts on the other projects and operations of the company. On the other hand, if the entire finance is raised from equity, the control of the current shareholders i.e. government of Venezuela will be diluted.
The issues which are outside the control of Venezuela are the economic environment and the oil prices...............

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