Lukoil

 

                                                                
 
 
 
 

                                                                     Lukoil

                                                                               
 
 
 
 
 

Saba Dzhimsheleishvili

     22168         

Principles of Management    

                          History and General Information 

                        OAO LUKOIL is one of Russia's most successful efforts at capitalism following the breakup of the Soviet Union in 1991. An integrated oil company, involved from the exploration stage to the gas pump, LUKOIL was created when the oil and gas industry was chosen to be Russia's first attempt at privatization. The state-run, western Siberian companies of Langepasneftegaz, Uraineftegaz, and Kogalymneftegaz were merged together to form LUKOIL, with the initials of the three combined to coin the name for the new giant company. LUKOIL, although not the largest of Russia's new private oil companies, is unquestionably the most advanced, attracting foreign investors and partnerships, and trading on the New York Stock Exchange. Russia's oil and gas reserves are sizeable, with eastern Siberia seen as the world's last great unexplored territory that could add greatly to the country's wealth. LUKOIL, which produces about 24 percent of Russia's crude, also operates in 25 other countries. It has a presence in the United States through its purchase of Getty gas stations.

             LUKOIL is one of the world’s leading vertically integrated oil & gas companies. Main activities of the Company are exploration and production of oil & gas, production of petroleum products and petrochemicals, and marketing of these outputs. Most of the Company's exploration and production activity is located in Russia, and its main resource base is in Western Siberia. LUKOIL owns modern refineries, gas processing and petrochemical plants located in Russia, Eastern and Western Europe, near-abroad countries. Most of the Company's production is sold on the international market. LUKOIL petroleum products are sold in Russia, Eastern and Western Europe, near-abroad countries and the USA. 
                       LUKOIL is the second largest private oil Company worldwide by proven hydrocarbon reserves. The Company has around 1.1% of global oil reserves and 2.3% of global oil production. LUKOIL dominates the Russian energy sector, with 18% of total Russian oil production and 19% of total Russian oil refining. LUKOIL proven reserves at the beginning of 2009 were 14,458 millions barrels of crude oil and 29,253 bcf of natural gas, totaling 19,334 millions boe. 
 

  
 
 
 
 
 
 
 

    
 

                     

                              Management (theories and policy)

                From one point of view, nowadays big companies use not only one kind of management, but actually they try to mix. And from this point LUKOIL is one of the biggest companies who uses different two types of theories to create its best way to achieve efficiency and effectiveness. These two types are known as: Behavioral Management theory and Scientific Management theory. To start with, it should be mentioned that LUKOIL’s workforce counts nearly 150,000 specialists who work in more than 60 regions of Russia and 30 countries of the world on four continents. According to my research, I assume that employees' professionalism and their satisfaction with their work are considered a basis of the Company's prosperity, based on what in May 2003 LUKOIL adopted a Personnel Management Policy, which is a comprehensive document in the area of human resources management. The Personnel Management Policy relies on the fundamental principles of the Company's activities and mission to be one of the leaders among the largest energy companies in the world. The Personnel Management Policy is a policy of an integrated company, having a strong and stable corporate culture and a well-shaped system of corporate values.  
 
               The basis of the Personnel Management Policy is creation of a system providing for specific measures:  
I.    To provide incentives for each employee to achieve objectives stipulated by the Company's strategy. 
II.   To define criteria for results evaluation. 

III. To reward and provide incentives for employees.  
 

The main goal of the Personnel Management Policy resides in the creation of such human resources management system, which would enable LUKOIL to have a stable status of the "preferable employer" in the labor market. 

Improvement of management Systems

Increasing Efficiency of Control

The corporate supervision system is one of the most effective mechanisms within the Health and Safety system. Special complex inspections involving trained auditors (Company's employees), experts and trade union representatives are conducted for monitoring purposes.

The large number of HS breaches identified is a result of the highly professional work by the corporate supervision. 

Human Resources Management

Basic principles of the LUKOIL Group Intensive Growth Strategy for 2007-2016 were established in 2006 and include the following:

1. Develop a corporate standard for the human resources management system;
2. Train new type managers;
3. Develop a personnel reserve;
4. Implement a system for the continuous training of employees, including distance learning.

 
 
 

Plans for 2009 – 2010 years

Human Resource will have the following goals:

1. maintain and build the Company's talent pool through the improvement of the long-term incentives system, the professional development of key managers and highly qualified employees;
2. transfer human resources operations to subsidiaries;
3. develop a new attitude in managers, especially those of the middle level, who should treat their reports as a strategic Company resource;
4. prepare a new generation of management to organize efficient work in the economic growth period;
5. audit the existing human resources management system, and develop new technologies in this sphere;
6. continue the development of a corporate standard of human resources management system as well as the development of methodological procedures;
7. continue implementation of the “Personnel” Corporate

ICS project;

8. develop and implement practices on the rotation of

executive officers. 
 
 
 
 
 

            Employees (motivation, personal, pension,                         

                               social policy)

Social policy

As in any country economic performance of any modern company does not only depend on its technological potential, but also on its human resources. An effective social policy is one of the most important aspects of the Company’s strategic development. Priorities and prospective objectives of the social policy are described in the Social Code of OAO LUKOIL and in major strategic documents. This once again proves that the ongoing attention given to the issue by the management of the Company, its subsidiaries and corresponding departments. The main areas include: Health and Safety, social assistance, opportunities for increasing competencies, and the formation of a common corporate culture. 

1.        Constantly improve health & Safety conditions, ensure performance of obligations.
2.       Maintain a high level of working conditions for employees in accordance with Russian law and corporate standards.
3.        Increase performance of production control over compliance with Safety regulations.
4.        Develop efficient procedures for the preparation and implementation of programs in the sphere of health and Safety.

 

                           

            LUKIOL has one of the most fair treatment to employee because, as I  made my research of other oil and gas’ companies the way how they motivate employees had no conditions to achieve any success. In the company of LUKOIL it can be seen that the condition which it provides by their employees are quiet fair and employees trust theirs company.   
 

Why employees feel trust to LUKOIL:

      I.         Certification of workplaces by working condition.

      II.        Provision of personal protective equipment.

      III.        Training and testing in the sphere of Health & Safety.

4. Organizing training sessions.
5. Developed a “safety” culture.
6. Increasing responsibility of managers in the sphere of health and safety.
7. Equipping plants with automated management systems and emergency control systems.
8. Construction of new, and the reconstruction of old processing facilities.

 

Also we can see in an effort to establish unified approaches to providing employees with overalls and personal protective equipment, LUKOIL adopted regulations that help to do the following:

1. identify technical requirements to personal protective equipment;
2. identify the procedure for the provision and monitoring of personal protective equipment;
3. supplement the model range with a collection of LUKOIL corporate overalls for the offshore oil and gas production facilities;
4. create a common supplier registry.

 
 

Employee Training

               In 2008 the number of the Company’s personnel employed at hazardous production facilities, reached over 50 thousand people. The number of employees who have received HS training and obtained HS certification for the same year amounted to 30 thousand people. 

Compensation System, Social benefits and guarantees

             The system of compensation, as well as social benefits and guarantees, is one of the most effective motivational factors in raising the efficiency of employee work. The Company uses an

efficiency management system aimed at achieving the business objectives of the Company. The

System suggests a differentiated approach to motivating employees based on their contribution to achieving key indicators, the assessment of their work, and achievement of assigned objectives. In order to maintain the compensation of employees on a competitive level, the Company conducts regular monitoring of salaries within the appropriate segments of the labor

market in the regions of its operation including those made by participating in salary and compensation reviews.

                 LUKOIL also created a social package containing:

1. Health protection and medical care for employees, including voluntary health insurance.
2. Opportunities for recreation and the health improvement of personnel and their family members, together with the organization of sports and fitness events.
3. Assistance to employees in acquiring their own housing.
4. Social assistance to women and families with children.
5. Social support of young professionals.
6. Non-state pensions.

                    From these points I can say that LUKOIL supports employees high-level of treatment and it has a good motivational strategy.

Corporate Retirement

            Actuarial evaluation is a performance analysis of the Corporate Retirement Plan and Non-Governmental Pension Fund and is aimed at identifying the extent to which the assumed obligations to the participants can be performed.

System of the pension Funds

            The average non-state pension, as of 2008, amounts to RUR 1,453. If compared to the basic component of the old-age work pension (RUR 1,794 as of August, 2008), the corporate nonstate pension amounted to 81%.  

Personnel Training and Development System

               The level of personnel qualifications significantly affects the quality of management and business performance, which is exactly why investment into personnel training is just as important for the Company as are investments in other areas. The volume of investment in training and development is increasing each year. The Company commenced the development of its “Petroleum Products Production” Standard in order to assist industry-specific educational institutions in improving the quality of specialist training(by modifying outdated educational standards and bringing education closer to real business processes). The Standard is based on the model proposed by RUIE. In 2008, over 77 thousand employees received further vocational

training, including:

1. Extended higher education training programs – 273 Individuals.
2. Refining-sector personnel - "Petroleum Products and Refining Processes", “Refining Economics and Management” workshops held by IFP Training and attended by 40 individuals.
3. 32 employees of LUKOIL Overseas Holding Ltd. took the course “Country Studies – Columbia, Venezuela, Cote d’Ivoire, and Saudi Arabia” at the Diplomatic Academy of Russian MFA.

 

Ethics( charity and social activities)

1.1Environment treatment.

               In 2008, LUKOIL Group performed its regular activities aimed at the ensuring of industrial and environmental safety, prevention of and recovery from emergencies. 

         LUKOIL’s priorities are defined by the HSE Policy in the 21^st century. The document formulates a strategic goal of the Company, i.e. to provide sustainable development by means of a balanced solution of social and economic challenges along with preservation of a positive environment. In order to implement the Policy, a HSE Management System has been elaborated. During supervisory audits, which were carried out in June of 2008, the Company successfully confirmed its compliance with the international standards ISO 14001 and OHSAS 18001.  

           Environmental protection activities of LUKOIL were highly appraised by the Russian Federation Ministry of Natural Resources and Environment. LUKOIL received two Ministerial awards in the nomination The Best Environmental Project of 2008. 

              The Company also joined the Global Compact, a voluntary UN initiative aimed at better sustainable development and stronger corporate social responsibility. The Policy implementation mechanism is mainly through mid-term environmental safety programs based on long-term LUKOIL Group Strategic Development Programs. 

            In 2008, the Company completed the LUKOIL Group 2004 – 2008 Environment Safety Program. The cost of implementation was, in Russian currency 32.2 billion rubles. The Program results show that the objectives set in the Company’s Policy have been successfully accomplished. Most of the environmental impact factors were getting better and better over years allowing per unit environmental impact factors of LUKOIL Group companies to be lower compared with Russia’s industry average.  

            The LUKOIL has developed and adopted yet another Environment Safety Program, for 2009 – 2013. The new Program envisages 483 measures, totaling 58.5 billion rubles. In November and December of 2008, the Program draft was presented to governmental and public organizations in the course of public consultations. According to the Program, the Company’s commitments are to:

1. Dispose of accumulated and newly generated wastes.
2. Ensure that up to 95% of associated gas is utilized by 2012.
3. Implement Kyoto Protocol mechanisms.
4. Increase production volumes of environment -friendly Euro-4 and Euro-5 fuel.
5. Ensure that environmental impact produced by LUKOIL Group, both in Russia and abroad, is within the standards established by national and international legislations.

 
 

1.2 Charity

Social investment programs: 

1. Support for Orphanages and Educational Institutions for Children
2. Educational Programs
3. Scholarship Programs
4. Teaching Staff for children
5. Development of material and technical base of higher education
6. Support for Healthcare Institutions
7. Social Projects Contest
8. Sponsorship and Charity Programs
9. Preserving Cultural and Historical Heritage
10. Support for Museums and Theaters 
11. Publishing Projects
12. Support of Religious Confessions
13. Support to Veterans of War and Labor, Disabled Persons, Socially Unprotected People
14. Revival of the Crafts of Small Nations
15. Support for the people of the Far North

 

  
 
 
 

Mission statement

                 LUKOIL sets itself the objectives to create new value, maintain business stability and provide shareholders with high return on their investments through asset value appreciation and cash dividends. LUKOIL will use all available means to achieve these objectives, including further efforts to reduce costs, operating efficiency increases, improvement of product and service quality, and application of the latest technologies Also LUKOIL’ purpose is to harness natural energy resources for human benefit. It aims to support long-term economic growth, social stability, prosperity and progress in the regions where LUKOIL operates, as well as caring for the environment and ensuring sustainable use of natural resources. LUKOIL wants to achieve consistent and long-term growth of business, transforming LUKOIL into a leading global energy company. They want to be a reliable supplier of hydrocarbons on the international energy market