American International University-Bangladesh (AIUB) A RESEARCH REPORT ON “PETRONAS” Submitted To: Prof. Dr. Md. Mahmodul Hasan Faculty of Business Administration American International University – Bangladesh (AIUB)
Submitted By:
GOLAPER KATA
Date of Submission: 7th December, 2014
American International University-Bangladesh (AIUB)
A RESEARCH REPORT ON “PETRONAS”
Submitted To: Prof. Dr. Md. Mahmodul Hasan Faculty of Business Administration American International University – Bangladesh (AIUB)
Submitted By: GOLAPER KATA Serial
Name
ID
1.
Hasan, Md. Galib
14-97566-1
2.
Prentice, Dora
14-97612-1
3.
Morshed, KH. Rahat
14-97558-1
4.
Sadat, Aminus
13-97336-3
A RESEARCH REPORT ON “PETRONAS”
Letter of Transmittal 4th December, 2014 Prof. Dr. Md. Mahmodul Hasan Faculty of Business Administration American International University Bangladesh (AIUB) Banani, Dhaka – 1213. Subject: Submission of Term Paper on PETRONAS Dear Sir, First and foremost, we would like to thank our honorable faculty Prof. Dr. Md. Mahmodul Hasan to encourage and influence us to prepare such a wonderful report on one of the best multinational company in the globe “PETRONAS”. However After a long period of hard work we combined both our theoretical and practical knowledge we tried to make the report as best as possible with the best guidance of our faculty. We are thankful to you to giving us such a challenging opportunity which actually help us a lot to enhance International Standardized Academic knowledge and prove our practical and theoretical capabilities. This opportunity has also helped us to achieve knowledge about the modern corporate boniness environment and their applied strategies. Therefore, we firmly believe that, this report will be able to meet your approval. We would genuinely appreciate to make further corrections where it seems necessary by you. Finally we are fervently requesting and hope that you would be kind enough to accept our Term Paper and oblige thereby. Yours sincerely, Serial
Name
ID
1.
Hasan, Md. Galib
14-97566-1
2.
Prentice, Dora
14-97612-1
3.
Morshed, KH. Rahat
14-97558-1
4.
Sadat, Aminus
13-97336-3
Signature
Acknowledgement First of all we would like to thanks Almighty Allah for helping us to complete this term paper properly and on time. We are also especially grateful to our honorable faculty Prof. Dr. Md. Mahmodul Hasan for his kind and sincere guidance throughout these endeavors and to make our report better and much more knowledgeable. We would like to express our sincere gratitude and cordial thanks to our parents, friends and other classmate for their crucial support and providing needed information about our term paper despite of their enormous workload. It would have been quite impossible to carry on the term paper and give it a final shape without their help. Although, we had to face some difficulties due to the lack of time while preparing this term paper, and at one moment of time, we thought we would not be able to complete this, but thanks go to the Almighty once again for making us prepare this paper and submit in time. Finally we would like to say that this report is a subject to error or mistakes that are inherent in human endeavor. We therefore request every reader of this paper to forgive us for any kind of mistake.
Table of Content: Sl. No.
Topics
Page No.
Letter of Transmittal Acknowledgement Executive Summary
i-ii
1.
Chapter – 1 Introduction of the Term Paper
(1-12)
1.1.
Definition of Strategic Management
2-3
1.2.
Most Strategic Management Model
(4-12)
1.2.1.
PESTEL Analysis of PETRONAS
4-5
1.2.2.
Porter’s Five Forces Model of PETRONAS
5-7
1.2.3.
Strategic Group Map of PETRONAS
7-9
1.2.4.
Blue Ocean Strategy of PETRONAS
9
1.2.5.
Open Innovation of PETRONAS
9-10
1.2.6.
SWOT Analysis of PETRONAS
10
1.2.7.
McKinsey Seven - S model of PETRONAS
10-12
2.
Chapter – 2 Strategic Model Analysis
(13-20)
2.1.
SWAN Analysis of PETRONAS
14
2.2.
Value Chain Analysis of PETRONAS
15-16
2.3.
ViSA Model of PETRONAS
16-17
2.4.
SMARTER Model of PETRONAS
17-18
2.5.
BCG Matrix of PETRONAS
18
2.6.
PURE Objective Model of PETRONAS
19
2.7.
GREAT Model of PETRONAS
20
3.
Chapter – 3 Current Situation Analysis and Discussions
(21-33)
3.1.
Market Analysis including Market Segmentation
22
3.2.
23
3.3.
EFE Matrix of PETRONAS CPM Analysis of PETRONAS
24
3.4.
TOWS Analysis of PETRONAS
25
3.5.
QSPM Analysis of PETRONAS
26
3.6.
Financial Analysis of PETRONAS
27
3.7.
Break Even Analysis of PETRONAS
27
3.8.
Competitors Analysis of PETRONAS
28-29
3.9.
KSF’s Analysis of PETRONAS
29-30
3.10.
Strategy Evaluation and Contingency Plan of PETRONAS
31-32
4.
Chapter – 4 Concluding Statement
(33-36)
4.1.
Recommendation
34
4.2.
Conclusion
34-35
5.
Chapter – 5
(36-39)
5.1.
References
37
5.2.
www.golaperkata4.com
38
5.3.
www.academia.edu
39
Executive summary: PETRONAS, short for Petroliam Nasional Berhad, is a Malaysian oil and gas company that was founded on 17 August 1974. Wholly owned by the Government of Malaysia, the corporation is vested with the entire oil and gas resources in Malaysia and is entrusted with the responsibility of developing and adding value to these resources. PETRONAS is ranked among Fortune Global 500's largest corporations in the world. Fortune ranks PETRONAS as the 75th largest company in the world in 2013. It also ranks PETRONAS as the 12th most profitable company in the world and the most profitable in Asia. The company is headquartered at the PETRONAS Towers which was officially opened on Malaysia’s 42nd National Day, 31 August 1998 – in the corporation’s 24th Anniversary year. PETRONAS has grown to be an integrated international oil and gas company with business interests in 50 countries. The group is engaged in a wide spectrum of petroleum activities, including upstream exploration and production of oil and gas to downstream oil refining; marketing and distribution of petroleum products; trading; gas processing and liquefaction; gas transmission pipeline network operations; marketing of liquefied natural gas; petrochemical manufacturing and marketing; shipping; automotive engineering and property investment. PETRONAS provides a substantial source of income for the Malaysian government, with 45% of the government’s budget dependent on PETRONAS' dividend, moreover in 2011 government actual balance has 5 percent deficit of Gross Domestic Product. PETRONAS' goals would be to safeguard national sovereignty over oil and gas reserves, to plan for both present and future national need for oil and gas, to take part in distributing and marketing petroleum and petrochemical products at reasonable prices, to encourage provision of plant, equipment, and services by Malaysian companies, to produce nitrogenous fertilizers, and to spread the benefits of the petroleum industry throughout the nation. PETRONAS, with its policies of promoting self-reliance, helping to develop associated industries, and varying the sources and uses of oil and gas, played an important role in the Malaysian economy. The PETRONAS unit that is responsible for handling education matters is called the Sponsorship & Talent Sourcing Unit (STS). PETRONAS has its own university, University Teknologi PETRONAS (UTP). In 1995, a subsidiary was created to import, store, and distribute Liquefied Petroleum Gas (LPG). In addition, the company’s polyethylene plant in Kerteh began operations. We have made some analysis on PETRONAS. From our analysis we
found that now-a-days PETRONAS in CASH COW, it has high market share but have low market growth. It competed with Chevron from many days, their score from CPM is 3.35 and for PETRONAS it is 3.30. After analysis over EFE we got 3.25 so we can say that it is the most influential state owned national oil and gas company in Malaysia. With two alternatives we made QSPM for PETRONAS and the score for expanding in exporting gas is 5.15 and for expanding in exporting oil is 5.45. Prime Minister Mahathir Mohamad commented on the achievement in Bernama News Agency article, claiming that “the PETRONAS LNG complex now serves as another shining example of a vision realized of a national aspiration, transformed into reality by the same belief among Malaysians that ‘we can do it’”. Indeed, PETRONAS had transformed itself into a global oil company over the previous decade, becoming a national symbol for success. The company realized, however, that it would have to continue its aggressive growth strategy to insure its survival in the years to come.
Chapter - 1 Introduction of the Term Paper
PETRONAS 1.1. Definition of Strategic Management Strategic Management Theory (Theory: 2000-2010)
Strategic Management can be defined as (1) the art and science of formulating, (2) implementing, and (3) evaluating cross-functional decisions that enable an organization to achieve its objectives.
Strategic
Management
focuses
on
integrating
management,
marketing,
finance/accounting, production/operation, research and development (R&D) and computer information systems to achieve organizational success.
Strategic Management (Theory: 2011 – 2015 ±) Strategic management involves strategy development, which is comprised of five stages: 1. Discovery, 2. Strategic thinking, 3. Strategic planning, 4. Strategy roll-out, 5. Strategy tune-up/Adjustments. PETRONAS follows Strategic Management (Theory: 2011 – 2015 ±) because:
1. Discovery: PETRONAS is a Malaysian Oil and Gas company that was founded on 17th august 1974 and now has grown to be an integrated international oil and gas company with business interests in 50 countries.
2. Strategic thinking: PETRONAS is ranked among fortune global 500’s largest corporations in the world. Fortune ranks PETRONAS as the 75th largest company in the world in 2013. It also ranks PETRONAS as the 12th most profitable company in the world and most profitable in Asia.
Vision Statement To be a Leading Oil and Gas Multinational of Choice. Mission Statement
We are a business entity
Petroleum is our core business
Our primary responsibility is to develop and add value to this national resource
Our objective is to contribute to the well-being of the people and the nation.
3. Strategic planning: PETRONAS has pursued an effective strategy of to become a leading lubricants and functional fluids company with a global market share amongst the top competitors.
4. Strategy roll-out: They have a very good strategic planning as a result of which just within a period of 10 years they were able to expand their business globally.
5. Strategy tune-up/Adjustments: They also maintain strategy tune up by publishing annual report every year and organized yearly meeting.
1.2. Most Strategic Management Model: 1.2.1. PESTEL Analysis of PETRONAS Political
Wholly owned by the Govt. of
Economical
Malaysia.
It is an international oil and gas
It is the most profitable company in the world.
45% of the Govt. budget
exploration company with
dependent on PETRONAS’
business interests in 50 countries.
dividend.
It’s played an important role in the
PETRONAS policy is self-reliance
Malaysian economy as a whole.
and helps to develop associated
It is the 75th largest company in
industries.
the world.
PETRONAS is one of the main sponsors of the BMW Sauber Formula One team.
Social/Socio-Culture
They concern about health and
Technological
safety issues.
PETRONAS brings
gas exploration.
underprivileged children to watch the race.
They find first onshore oil discovery in Malaysia.
They use their own tank for export oil.
PETRONAS awards education sponsorships.
Use latest technology for oil and
They have their own refinery plan.
PETRONAS have their own universities.
Ecological/Environmental
Malaysian geographical condition
Legal/Regulatory
PETRONAS have joint ventures with Aromatics Malaysia Sdn Bhd, China National Offshore Oil Corporation and Chevron Overseas Petroleum ltd.
It is a state owned company.
It has more than 100 subsidiaries and around 40 joint ventures
making oil and gas exploration relatively easier.
PETRONAS also concern about environmental control.
It goals would be to safeguard national sovereignty over oil and gas reserves.
companies.
Malaysia is in a good geographic position for oil and gas.
Students can work for two years for every one year they are sponsored.
1.2.2. Five Forces Analysis of PETRONAS
Bargaining Power of Supplier
Threats of New Entrants
Rivalry
Threats of Substitute
Bargaining Power of Buyer
Bargaining Power of Suppliers: High competition among suppliers: High levels of competition among suppliers acts to reduce prices to producers. This is a positive for PETRONAS Corporation. High competition among suppliers PETRONAS" will have a long-term negative impact on this entity, which subtracts from the entity's value.
Diverse distribution channel: The more diverse distribution channels become the less bargaining power a single distributor will have. This positively affects PETRONAS. "Diverse distribution channel (PETRONAS)" will have a long term positive impact on this entity, which adds to its value. Volume is critical to suppliers: When suppliers are reliant on high volumes, they have less bargaining power, because a producer can threaten to cut volumes and hurt the supplier’s profits. This can positively affect PETRONAS.
Bargaining Power of Buyers: Low buyer price sensitivity: When buyers are less sensitive to prices, prices can increase and buyers will still buy the product. Inelastic demand positively affects on PETRONAS. Product is important to customer: When customers cherish particular products they end up paying more for that one product. This positively affects on PETRONAS. Large number of customers: When there are large numbers of customers, no one customer tends to have bargaining leverage. Limited bargaining leverage helps PETRONAS.
Rivalry: Government limits competition: Government policies and regulations can order the level of competition within the industry. When they limit competition, this is a positive for PETRONAS. Large industry size: Large industries allow multiple firms and produces to prosper without having to steal market share from each other. Large industry size is a positive for PETRONAS. Exit barriers are low: When exit barriers are low, weak firms are more likely to leave the market, which will increase the profits for the remaining firms. Low exit barriers are a positive for PETRONAS.
Threat of Substitutes: Substitute is lower quality: A lower quality product means a customer is less likely to switch from PETRONAS to another product or service.
Substitute has lower performance: A lower performance product means a customer is less likely to switch from PETRONAS to another product or service. Substitute product is inferior: An inferior product means a customer is less likely to switch from PETRONAS to another product or service. High cost of switching to substitute: Limited number of substitutes means that customers cannot easily switch to other products or services of similar price and still receive the same benefits. High switching costs positively affect PETRONAS.
Threat of New Entrants: Strong distribution network required: Weak distribution networks mean goods are more expensive to move around and some goods don’t get to the end customer. The expense of building a strong distribution network positively affects PETRONAS. Strong brand names: If strong brands are critical to compete, then new competitors will have to improve their brand value in order to effectively compete. Strong brands positively affect PETRONAS. High learning curve: When the learning curve is high, new competitors must spend time and money studying the market before they can effectively compete. High learning curves positively affect profits for PETRONAS. Entry barriers are high: When barriers are high, it is more difficult for new competitors to enter the market. High entry barriers positively affect profits for PETRONAS.
1.2.3. Strategic Group Map Extent of product (or service) diversity: The group is engaged in a wide spectrum of petroleum activities, including upstream exploration and production of oil and gas to downstream oil refining, marketing and distribution of petroleum products, trading, gas processing and liquefaction, gas transmission pipeline network operations, marketing of liquefied natural gas, petrochemical manufacturing and marketing, shipping, automotive engineering, and property investment.
Extent of geographic coverage:
Number of market segments served: Exploration and production of oil and gas to downstream oil refining, marketing and distribution of petroleum products, trading, gas processing and liquefaction, gas transmission pipeline network operations, marketing of liquefied natural gas, petrochemical manufacturing and marketing, shipping, automotive engineering, and property investment.
Distribution channel used: They distribute their product by ship and lorry. Extent of branding: PETRONAS uses various means for branding such as TV, media and web-site media to cover the global era. PETRONAS marketing department adopted innovative digital marketing strategies, by developing a pioneering and integrated websites. They sponsor and sports and cultural events globally such as BMW Sauber Formula One Team, TOYOTA Team, Fiat Yamaha Moto GP team, Mercedes Grand Prix team.
Marketing effort: PETRONAS uses the 7p model for its marketing which includes Product, Price, Place, Promotion, People, Process and Physical evidence.
Product (or service) quality:
They have world class product.
Pricing policy: PETROANS uses penetration pricing strategy by offering lower prices compared to competitors in order to gain more market share and at the same time providing similar services or even better than competitors.
1.2.4. Blue Ocean Strategy PETRONAS has head to head with Chevron in this industry.
1.2.5. Open Innovation: Billions of dollars go into creating innovative products from the energy that PETRONAS harness in their exploration activities. PETRONAS is constantly staying ahead of the evolving energy needs by seeking opportunities to work with global innovators to drive industrial growth and to improve their capabilities. One of the ways they are asserting their value to stakeholders is their involvement in
motorsports, most notably Formula 1 (F1). More than a sponsorship programme, they have expanded their fuel and lubricant products through the intensive research and development (R&D) that goes into every race. In the latest F1 developments, they have partnered with AMG to bring technical excellence and innovation to the world of oil and gas, which serves to strengthen our fluid technology with PETRONAS Lubricants International.
1.2.6. SWOT Analysis of PETRONAS Strength 1. One of the world's strongest brand names.
Weakness 1. Cost of environmental hazards. 2. Legal issues.
2. Diverse and huge operations.
3. Employment scam.
3. PETRONAS has grown to be an
4. Rising investment requirement.
integrated international oil and gas company with business interests in 50 countries. 4. Sponsored education to Malaysian students.
Opportunity
Threats
1. Increasing fuel/oil prices.
1. Government regulations.
2. Increasing natural gas market.
2. High Competition.
3. More oil well discoveries.
3. Long-term falls in domestic oil
4. Expand export market.
production. 4. Competition in regional LNG supply.
1.2.7. McKinsey – Seven S – Model of PETRONAS Business Environment/Strategy: PETRONAS promotes a healthy workforce and mitigates significant workplace health risks. PETRONAS Operate with industry-leading asset integrity and reliability
efficiently use natural resources and assets. The legal department oversees all the legal issues related to the company’s operation in Malaysia. This department consists of top performing lawyers, paralegals, land persons and staff.
Shared Values: PETRONAS conducts business in a socially responsible and ethical manner. PETRONAS respects the law, support universal human rights, protect the environment, and benefit the communities where they work.
Structure: There are 9 functional departments in PETRONAS. Those are External Affairs, Human Resource, Finance, Planning and Commercial, Asset Development, Information, Communication and Technology (IC&T), OE/HES (OE stands for Operational Excellence and HES stands for Health Environment and Safety), Legal and Operation.
Organogram:
Staff: PETRONAS ensure enhance stakeholder communications and involvement to ensure strategic alignment all aspects of day to day operations also enhance organizational capability to provide the right people with the right skills in the right place with the right responsibilities at the right time in the right numbers.
System/Infrastructure: Service awards are given to PETRONAS employees for accomplishing time related milestones in their career with the corporation. Service awards are given to an employee after their first year, 5th year and every succeeding year. When an employee is eligible for a service award, s/he selects a preference from an available range on the PETRONAS website for that particular award.
Skill: PETRONAS Execute with excellence through rigorous application of our operational excellence and capital stewardship systems and disciplined cost management through rigorous application of our operational excellence and capital stewardship systems and disciplined cost management.
Style: PETRONAS is committed to superior product performance and quality. Over more than 40 years, they have grown into one of the leading marketers of refined products, including gasoline, diesel and aviation fuels and lubricants.
Chapter – 2 Strategic Model Analysis
2.1. SWAN Analysis Strengths 1. One of the world's strongest brand names. 2. Diverse and huge operations. 3. PETRONAS has grown to be an integrated international oil and gas company with business interests in 50 countries. 4. Sponsored education to Malaysian students. Weaknesses 1. Cost of environmental hazards. 2. Legal issues. 3. Employment scam. 4. Rising investment requirement. Achievements 1. Wholly owned by the Govt. of Malaysia. 2. Fortune ranks PETRONAS as the 75th largest company in the world in 2013. 3. It also ranks PETRONAS as the 12th most profitable company in the world. 4. The most profitable company in Asia. Next Step 1. Want to be a largest in Southeast Asia oil producing nations and its state-run energy. 2. Focusing on the quality on their assets and high grading their international portfolio. 3. Enforcing market discipline. 4. Focusing on North America.
2.2. Value Chain Analysis of PETRONAS 1. Primary Activities:
Supply Chain Management & Operations Distribution
Sales and Marketing & Service
Fuel, raw materials, inventory management & Production, assembly Shipping, delivery, network
Advertising, market research and planning, dealer & Consumer service, support and complaint and dispute resolution
Supply Chain Management: PETRONAS extract fuel, oil, gas as raw materials and keeps that as inventory as delivers those goods with maintaining strong supply chain management. Operations: After production of oil and gas it is required to assemble those with maintaining proper packaging for further operation. Distribution: PETRONAS maintain a strong distribution channel by using shipping, proper delivery of goods and keeping good relationship network with its local supplies and distributors always. Sales and Marketing: PETRONAS uses a vast advertising policy by giving advertisement through TV, Newspaper, and Journals etc. It also emphasis on market research and planning activities. Service: PETRONAS is very much concerned about installation, providing spare parts delivery, repair of any defect of goods and machinery, complaints with due care, maintenance of all the installed parts.
2. Support Activities:
Product R&D, Technology and Systems development
Equipment design, software, telecommunication
Human Resource Management
Recruiting, hiring, training General management, finance, legal and regulatory affairs, safety & security, overhead functions.
General Administration
Product R&D, Technology and Systems development: PETRONAS always provides emphasis on equipment design, maintaining software for right extraction and telecommunication facilities for the wellbeing of the supplier. Human Resource Management: PETRONAS recruiting policy is an important factor. They hire the best graduate from the different corners with due care and provide training for becoming the skilled and proficient employee. General Administration: PETRONAS has a strong general management system. The finance department works with care, legal and regulatory affairs follow the rules and regulations of the authority, safety & security measures of the people are taken as a serious matter and looks after the overhead functions carefully.
2.3.ViSA Model Analysis Vision: To Be A Leading Oil and Gas Multinational of Choice.
Strategy: PETRONAS,
through
wholly
owned
subsidiary
PETRONAS
International
Corporation Ltd, has entered into an agreement with GMR Infrastructure (Singapore) Pte Ltd and GMR Infrastructure Ltd – both subsidiaries of GMR Group,
India – to acquire a 30% stake in GMR Energy Singapore Pte Ltd (GMRE). The proposed acquisition marks PETRONAS’ maiden venture into the international power market, and is a major step in its effort to extend its existing integrated presence further along the energy value chain as part of its future growth strategy.
Action Plan: Want to be a largest in Southeast Asia oil producing nations and its state-run energy. Focusing on the quality on their assets and high grading their international portfolio. Enforcing the market discipline. Focusing on North America.
2.4. SMARTER Model Analysis Specific: They are offering their product direct to the customer by their refuelling station.
Measurable: We would suggest that PETRONAS should open their operation in North America.
Achievable: This will be achievable as they are making profit each year. So, they have enough financial support to buy resources and expand their business.
Realistic: As PETRONAS has a good branding image which will help them to gain popularity in petrochemical business.
Time: They set a plan for 2 years in their onshore project.
Encompassing: PETRONAS should continually evaluate the performance of their budgeted cost and actual cost to maintain low cost they can.
Reviewed: PETRONAS should monitor their performance regularly so that it can be completed within the time frame of 3 years.
2.5. The BCG Matrix of PETRONAS
Market Growth Rate
HIGH
PETRONAS LOW LOW
HIGH
Relative Market share Here PETRONAS is in Cash Cow position on BCG Matrix. Reasons are given below: PETRONAS is one of Asia's most profitable companies. PETRONAS have huge market potential with high market share. PETRONAS has grown to be an integrated international oil and gas company with business interests in only 50 countries. But they have low market growth.
2.6. PURE Objectives of PATRONAS Positive: PETRONAS takes its responsibility to measure, manage and minimize its impact on the environment seriously and will continue to look at innovative ways in which it can do that.
Understood: a. Performance: PETRONAS is ranked among Fortune Global 500's largest corporations in the world. Fortune ranks PETRONAS as the 75th largest company in the world in 2013. It also ranks PETRONAS as the 12th most profitable company in the world and the most profitable in Asia.
Recorded: According to the annual report, the following three years Revenue, Profit and EBIT was recorded as: Year
Revenue(Billion)
Profit(Billion)
EBIT(Billion)
2013
317.30
65.6
94.30
2012
391.20
59.5
89.70
2011
241.20
63
90.50
Ethical: PETRONAS expects all suppliers to comply with its Supplier Ethics and Code of Conduct, regardless of local and international business practices. PETRONAS desires to operate in an environment that is free from influence due to unethical business practices. Therefore, suppliers are requested to conduct business with PETRONAS in a manner that would not in any way compromise the PETRONAS Supplier Ethics Code of Conduct.
2.7. GREAT Model of PETRONAS Goals: PETRONAS' goals would be to safeguard national sovereignty over oil and gas reserves, to plan for both present and future national need for oil and gas, to take part in distributing and marketing petroleum and petrochemical products at reasonable prices, to encourage provision of plant, equipment, and services by Malaysian companies, to produce nitrogenous fertilizers, and to spread the benefits of the petroleum industry throughout the nation. Roles: A high- quality portfolio of existing assets, promising major projects under development worldwide, and investment in numerous new emerging businesses, combined with employees who make a difference, ensures an opportunity- rich future for PETRONAS. Expectations: Want to be a largest in Southeast Asia oil producing nations and its state-run energy. Focusing on the quality on their assets and high grading their international portfolio. Enforcing the market discipline. Focusing on North America. Accountabilities: PETRONAS believes it is their responsibility to seek to understand and be understood by their stakeholders – a diverse group of individuals and organizations who can impact or be impacted by their business. Timing: They set a plan for 5 years in their onshore project. PETRONAS is one of the successful companies. It always maintains good time management system. By taking personal responsibility and pride in their work to deliver timely, quality results that benefit PETRONAS and help achieve their vision and strategy.
Chapter – 3 Current Situation Analysis and Discussions
3.1. Market Analysis with Market Segmentation: Market Analysis: Since Malaysia’s national oil company was incorporated in 1974, its initial upstream activities of exploration and production have moved steadily downstream. PETRONAS now ranks as one of the Fortune Global 500 largest corporations in the world, operating as an integrated oil and gas business that encompasses refining, marketing, trading and retail operations within a global marketplace. PETRONAS has long integrated value-adding business initiatives to maximise synergies and returns. Five years ago, a multi-million dollar investment resulted in a new base oil refinery being added to complement and enhance the existing Melaka Refinery complex. As a fully integrated company, PETRONAS has all the pieces in place to market its base oils successfully—from the reliability of supply from its upstream operations to its world-class refining complex, to a global marketing and distribution network supported by logistics and technology capability. As global demand for better, cleaner lubricants grows, engine and equipment manufacturers are increasingly convinced of the technical, economical and logistical advantages that PETRONAS base oils can provide for their businesses. PETRONAS is well on its way to becoming the preferred high quality base oil.
Market Segmentation: PETRONAS Dagangan Berhad (PDB) is a provider of petroleum products in Malaysia. The Company operates in three segments: Retail segment, commercial segment and other segment. If offers a range of products and services in all its four core businesses of retail, commercial, liquefied petroleum gas (LPG) and lubricants. The Company offers a range of petroleum products, including motor gasoline, aviation fuel, kerosene, diesel, fuel oil, LPG cylinders and asphalt. The retail Business Division (Retail) is responsible for the marketing and distribution of petroleum products to the consumer market through its network of over 973 PETRONAS Service Stations. On May 30, 2012, the Company incorporated PDB (Netherlands) B.V. On September 5, 2012, it acquired PETRONAS Aviation Sdn Bhd. On November 8, 2012, the Company acquired PETRONAS International Marketing (Thailand) Co. Ltd. On December 31, 2012, the Company acquired PETRONAS (Vietnam) Co. Ltd. and Thang Long LPG Co. Limited.
3.2. EFE Matrix of PETRONAS Key External Factors
Weight
Rating
Weighted Score
Opportunities 1. Increasing fuel/oil prices.
0.20
4
0.80
2. Increasing natural gas market.
0.15
3
0.45
3. More oil well discoveries.
0.05
2
0.10
4. Expand export market.
0.10
2
0.20
1. Government regulations.
0.10
3
0.30
2. High Competition.
0.05
4
0.20
3. Long-term falls in domestic oil production.
0.15
4
0.60
4. Competition in regional LNG supply.
0.20
3
0.60
Threats
4= The response is superior
Rating
3= The response is above average 2= The response is average 1= The response is poor TOTAL
1.00 0
3.25
3.3. CPM Analysis of International Petroleum Industry Critical Success Factors
PETRONAS
CHEVRON
NEXEN
Weight 0.10
Rating
Score
Rating
Score
Rating
Score
3
0.30
3
0.30
3
0.30
Quality of Services
0.20
4
0.80
4
0.80
4
0.80
Price Competitiveness
0.10
3
0.30
3
0.30
3
0.30
Management
0.10
4
0.40
4
0.30
4
0.40
Financial Expansion
0.15
3
0.45
4
0.45
3
0.45
Global Expansion
0.20
3
0.60
3
0.60
3
0.60
Customer Loyalty
0.05
3
0.15
4
0.20
2
0.10
Market Share
0.10
3
0.30
4
0.40
3
0.30
Advertising
1.00 TOTAL 4=Major Strength 3=Minor Strength 2=Minor Weakness 1=Major Weakness
3.30
3.35
3.25
3.4. TWOS Matrix It is a combination assessment technique of EFE and CPM Matrix Analysis-
INTERNAL FACTORS (CPM Matrix) Strengths:
SCORE
Weaknesses:
1. One of the world's strongest brand names.
1. Cost of environmental hazards.
2. Diverse and huge operations.
2. Legal issues.
3. PETRONAS has grown to be an
3. Employment scam.
integrated international oil and gas company with business
3.30 (CPM)
4. Rising investment requirement.
interests in 50 countries. 4. Sponsored education to Malaysian students.
Opportunities:
Threats:
1. Increasing fuel/oil prices.
1. Government regulations.
2. Increasing natural gas market.
2. High Competition.
3. More oil well discoveries.
3. Long-term falls in domestic
4. Expand export market.
oil production. 4. Competition in regional LNG supply.
EXTERNAL FACTORS (EFE Matrix)
3.25 (EFE)
3.5. QSPM (Quantitative Strategic Planning Matrix) For PETRONAS Alternative 1
Alternative 2
Exploring natural gas in Asia
Exploring oil in North America
Weight
Weight
Attractive
Total
ness
Attractiven
Score
ess Score
0.15
2
0.30
0.10
2
0.20
0.10
3
0.30
0.15
2
0.30
0.20
4
0.80
0.20
3
0.60
0.05
1
0.05
0.05
1
0.05
0.20
3
0.60
0.15
3
0.45
2. Legal issues.
0.15
2
0.30
0.10
2
0.20
3. Employment scam.
0.05
2
0.10
0.05
1
0.05
4. Rising investment requirement.
0.10
2
0.20
0.20
3
0.60
Sum Weights
1.00
Key Factors
Attractiven
Total
ess Score
Attractiven ess Score
Strengths 1.
One of the world's strongest brand names.
2. Diverse and huge operations. 3. PETRONAS has grown to be an integrated international oil and gas company with business interests in 35 countries. 4. Sponsored education to Malaysian students.
Weaknesses 1.
Cost of environmental hazards.
1.00
Opportunities Increasing fuel/oil prices
0.20
3
0.60
0.15
3
0.45
2. Increasing natural gas market
0.15
3
0.45
0.20
3
0.60
3. More oil well discoveries
0.05
2
0.10
0.10
4
0.40
4. Expand export market
0.10
3
0.30
0.05
3
0.15
0.10
2
0.20
0.05
1
0.05
2. High Competition
0.05
3
0.15
0.20
3
0.60
3. Long-term falls in domestic oil
0.15
2
0.30
0.15
3
0.45
4. Competition in regional LNG supply.
0.20
2
0.40
0.10
3
0.30
Sum Weights
1.00
1.
Threats 1.
Government regulations
production.
Sum Total Attractiveness Score
1.00
5.15
<
5.45
3.6. Financial Analysis Financial Year Earnings Per Share Return on Revenue Return on Assets Return on Equity Return on Investment
2010-11
2011-12
2012-13
0.66% 37.5% 17.80% 13.60% 11.22%
0.84% 30.80% 18.30% 17.33% 14.95%
0.82% 29.70% 20.70% 16.93% 15.28%
3.7. Breakeven Analysis of PETRONAS To calculate the breakeven point unit, fixed expenses are to be by the contribution margin. Contribution margin is sales per units minus all variable expenses. And to calculate breakeven point dollar per unit price should be multiplied by the breakeven units. Break Even Point for PETRONAS in three years: Year Fixed Cost Total Revenue Variable cost
2011 44.050 =175.497 billion 241.20 =949.70 billion 55.199 =230.687 billion
Fixed Cost/ (Revenue-Variable cost)
2012 63.588
2013 68.859
391.20
317.30
73.049
102.439
= {175.497/ (949.70-230.687)} = 0.2441 billion
0.2441 Billion
3.8. Competitor Analysis PETRONAS is the monopoly energy production company of Malaysia. This means they have no direct competitors in the DOMESTIC (Malaysian) market. On the other hand, energy is a global commodity. As such, they have numerous competitors on a global scale. Competitors include everyone who produces and distributes oil and gas. This means every "oil major" company in the world is their competitor, from ExxonMobil, Chevron, BP, Lukoil, Shell, Total Fina, Pertamina, Saudi Aramco, Gazprom, et cetera, et cetera is their competitor.
Chevron: Chevron is an American multinational energy corporation. Headquartered in San Ramon, California and active in more than 180 countries, it is engaged in every aspect of the oil, gas, and geothermal energy industries, including exploration and production, refining, marketing and transport, chemicals manufacturing and sales, and power generation. Chevron is one of the world's largest oil companies as of 2013. It ranked third in the Fortune Global 500-2014 list of the world's largest companies Chevron's downstream operations manufacture and sell products such as fuels, lubricants, additives and petrochemicals. The company's most significant areas of operations are the west coast of North America, the U.S. Gulf Coast, Southeast Asia, South Korea, Australia and South Africa. In 2010, Chevron sold an average 3.1 million barrels per day (490×103 m3/d) of refined products like gasoline, diesel and jet fuel. Chevron's alternative energy operations include geothermal, solar, wind, bio-fuel, fuel cells, and hydrogen. In 2011–2013, the company plans to spend at least $2 billion on research and acquisition of renewable power ventures. Chevron has claimed to be the world's largest producer of geothermal energy. In October 2011, Chevron launched a 29-MW thermal solar-to-steam facility in the Coalinga Field to produce the steam for enhanced oil recovery. The project is the largest of its kind in the world.
NEXEN: Nexen is a Canadian oil and gas company based in Calgary, Alberta. On February 25, 2013, Nexen became a wholly owned subsidiary of Beijing-based CNOOC Limited. It
has three growth strategies: oil sands and shale gas in western Canada as well as conventional
exploration
and
development
primarily
in
the North
Sea, offshore in West Africa, and deepwater exploration in the Gulf of Mexico. Nexen started in 1969 as Canadian Occidental Petroleum Ltd. (CanOxy), and was 80% owned by Occidental Petroleum, an oil company based in Los Angeles. In the first decade of its existence, CanOxy was fairly Canadian-oriented. During the 1980s and 1990s they increased their international holdings, first in the Gulf of Mexico, then into places like Yemen and the North Sea. Further Canadian assets were also acquired. Nexen has interests in Canada (including the Athabasca oil sands through a 7.23% ownership of Sync rude and the Long Lake project), the UK North Sea, the United States, and offshore West Africa. Beginning in February 2013, Nexen took accountability for managing approximately $8 billion in CNOOC Limited assets located throughout North and Central America. The Long Lake project in the Athabasca Oil Sands was initiated in 2001. It was started in order to develop the Long Lake site using steam-assisted gravity drainage and the Or Crude process for on-site upgrading. Production capacity at Long Lake is 72,000 barrels of bitumen per day which, when upgraded, is capable of generating approximately 58,500 barrels per day. The proved reserves at the Long Lake site are 310,000,000 bbls.
3.9. KSF Analysis of PETRONAS Climate change and the protection of the environment continue to be among key sustainable development issues in the oil and gas industry. The industry is focused on efficient use of natural resources, the reduction of carbon emissions, and mitigating the impact on the environment while meeting the world’s growing energy needs. PETRONAS endeavours to use resources such as energy and water responsibly in all our operations and we aim to reduce our carbon footprint through new and ongoing initiatives.
a.
Technology-related KSFs
Expertise in a Particular technology
Ability to improve production processes
b.
Manufacturing-related KSFs
Quality Control Know-How
Low-cost product design and engineering
Access to attractive supplies of skilled labor
c.
Distribution-related KSFs
A strong network of wholesale/dealers
Direct Sales via internet – retail products
d.
Marketing-related KSFs
Brand Name
Fast, accurate technical assistance
Clever Advertising
e.
Skills & Capability-related KSFs
A talented and young workforce
Short-delivery-time capability
Supply Chain Management Capabilities
Strong e-commerce
f.
Other types of KSFs
Overall low costs
A strong balance sheet and access to financial capital
Patent Protection
3.10. Strategy Evaluation External Factor Evaluation Matrix
Cumulative Profile Matrix
Quantitative Strategic Planning Matrix
In the case of PETRONAS the Out of the 3 companies, the total weighted score is 3.25 CPM which
are
above
which
indicates
analysis
reveals
that
average, PETRONAS is the stronger
that
their player in the industry with the
strategies are effective and the score of 3.30. The sore also company is taking advantage indicates that they are meeting of existing opportunities along the
average
with minimizing the potential industry adverse threats.
effects
of
standard
for
performance.
external PETRONAS can use the score as their competitive advantages and use this information in their strategic planning, while
Out of the two alternatives the 2nd alternative i.e. expanding in exporting oil has higher scores that
indicate
attractive
it
has
more
strategies,
considering all the relevant external and internal factors that could affect the strategic decisions. The score of the 2nd alternative indicates that it is more feasible than
the 1st
alternative.
also identifying their weakness to
target
for
process
improvement.
Contingency plan There are Prime key areas: PETRONAS Progressive development of oil resources. PETRONAS proposes to develop its gas and oil reserves PETRONAS have numerous development and exploration opportunities that PETRONAS believe can sustain their growth. PETRONAS announced a goal to sell enlarged in assets by 2014 and have made significant progress. PETRONAS expects to grow production on a continuing operations basis. This will come mostly in the form of higher-value
liquids and from areas with lower effective tax rates. This mix shift, combined with the divestiture of several lower-margin properties, should improve overall company margins within a few years at a flat price.
Chapter – 4 Concluding Statement
4.1. Recommendation PETRONAS is the monopoly energy production company of Malaysia. This means they have no direct competitors in the DOMESTIC (Malaysian) market. On the other hand, energy is a global commodity. As such, they have numerous competitors on a global scale. Competitors include everyone who produces and distributes oil and gas. This means every "oil major" company in the world is their competitor, from ExxonMobil, Chevron, BP, Lukoil, Shell, Total Fina, Pertamina, Saudi Aramco, Gazprom, et cetera, et cetera is their competitors.
4.2. Conclusion In long lasting business a company should develop a strong strategy to survive in the market competing with other competitors and achieved it goodwill from customers as well as shareholders, stakeholders. PETRONAS should manage those things in its long lasting business. Bangladesh is a pace for good business facilities because there are lots of area and place to where they can get wells for digging and exploring natural gas for their long lasting sustainable business growth. They should look after continuously about the matter of political situation which can affect their business growth. There are few environment conscious groups who are activated in environmental problem and they should take care about this matter and not work such a way so sea creature fall in danger. As their selling become higher they should increase their supply of oil and gas continuously. They should search new wells for increase of production and brand employee for attracting perfect employee in their company for better output. Then they can develop themselves and make them top supplier of oil and gas in Asia and North America. PETRONAS has completed a biodiversity risk assessment at all areas of operation, and they have taken the necessary measures to mitigate the impact of their activities on surrounding areas. As they operate in mega-bio diverse countries, they take a risk-based approach and have completed a desktop assessment to identify high risk areas. They endeavor to minimize the effect of our activities on biodiversity at all our operational sites. We are a fully integrated energy company with a leading portfolio and wide network of operations around the world. With growing demand for energy, we challenge
ourselves to redefine the future of energy with innovative approaches to technology and engineering in order to maximize and deliver sustainable energy for tomorrow.
Chapter – 5 References
5.1. References: Fred. R David, Strategic Management: Concepts and Cases (12/e) Pearson Prentice Hall http://www.petronas.com.my/Pages/default.aspx http://en.wikipedia.org/wiki/Petronas http://financials.morningstar.com http://financials.morningstar.com/ratios/r.html?t=PNADF “Global 500 2008:Petronas”. Fortune. Retrieved 16 July 2008. “Global 500 2008: Top Performers – Most Profitable”. Fortune Magazine. Retrieved 16 July 2008. “Global 500 2009: Full List”. Fortune. Retrieved 21 July 2009. “PETRONAS signs $418-million deal for Mauritania assets”. Offshore Magazine. 27 August 2007. Retrieved 15 July 2008. “PETRONAS and partners strike oil and gas in Mauritania”. The Star. 8 May 2008. Retrieved 15 July 2008. Joseph Chin (15 July 2008). “PETRONAS posts record profit, declares RM6b dividend to govt”. The Star. Retrieved 15 July 2008. “Petronas agrees to renew bid for Canada’s Progress: sources”. Reuters. 29 October 2012. “Rich oil deposits discovered in Sarawak”. Investvine. com. 19 January 2013. Retrieved 19 January 2013. “Brands of The World”. "Petronas unveils refreshed version of logo". Business Times. 11 June 2013. joe remaks “Petronas to mull possibility of listing units”. Business Times. 10 August 2009. Petronas Dagangan capex at RM500mil Petronas teams up with Maybank, CIMB “Petronas Chemicals shares open up 13pc on debut”. The Malaysian Insider. 26 December 2010.
