Cenovus Energy Inc. Case Study

Cenovus Energy Inc. is an oil and gas firm with operations in North America specializing in oil and gas refining, marketing, and the Oil Sands (Marketline, 2016a). Cenovus’s strategic focus is to create value through executional excellence, premium asset quality, focused innovation, value-added integration, and a trusted reputation (Cenovus, 2017). Cenovus competes mainly in the oil and gas extraction industry where a successful strategy is one that can respond to volatile price changes, high-risk industry growth and decline, and intensive capital requirement (Kalyani, 2017). The nature of oil and gas exploration and development requires Cenovus to acquire significant capital equipment, extraction machinery, and offshore platforms to compete

Cenovus believes that a functional model can help the firm achieve efficiencies across the firm as a whole and improve value-added integration as well as providing sustainable reductions to costs (Cenovus Our People, 2015). A functional organizational structure allows Cenovus to drive consistency and expertise to improve productivity and reliability to increase shareholder value. In terms of value chain proposition, Cenovus mainly focuses on production development and transportation of oil to refineries to be made into products such as gasoline, diesel, and jet fuel (Marketline, 2016b). Cenovus’s core activities include crude oil and natural gas marketing for the firm’s upstream operations as well as selling to other producers (Marketline, 2016b). Cenovus also focuses on developing its transport systems, such as pipelines, to increase access to high-value markets and future markets. Cenovus core activities also include production and development of the oil sands for conventional and heavy oil and natural gas extractions which includes Christina Lake, Narrows Kale, Pelican Lake, Weyburn, and Alberta’s Deep Basins (Marketline, 2016a). From SWOT analysis (see Appendix Table 1), Cenovus mainly derives its competitive advantage with its use of innovative technologies and integrated refining

Higher oil price pushes revenue up and reduces costs, whereas declining prices causes revenue decline and increase in costs. This is reflected in the bargaining power of suppliers and buyers where supply disruption or large surges in demand raises these prices and favors suppliers with low shipping costs (Kalyani, 2017). Cenovus’s ability to diversify sources of supply to reduce risk can create competitive advantage over its peers. The threat of new entrants and substitutes are low because barriers to entry are high. This is due to the competitive advantage given by Cenovus’s vertical integration structure which focuses on downstream operations such as petroleum refining and marketing (Kalyani, 2017). However, industry rivalry is high due to low market share concentration where smaller competitors are likely to be acquired by major competitors (Kalyani, 2017). In 2017, Suncor and Canada Natural Resources alone will generate 30.6% of Canadian industry revenue (Kalyani,