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STRATEGIC MANAGEMENT GROUP PROJECT CASE STUDY PETROM S.A.
Prof. Ivona Orzea
Students: Madalina Buhos (132) Diaconescu Ilinca (134) Diana Ciobanu (132)
03 Jan 2011
2. with extraction fields. Petrom has proved oil and gas reserves of 823 mn boe.A. if are there any barriers and in the same time the external environment or what competitive advantage has the company. In 1997 the Romanian Oil Company. Petrom is the largest oil and gas producer in South Eastern Europe. the Romanian Oil Company was established as a joint stock company. the rest falling assets owned National Company Petroleum (SNP) Board. They initiate the first phase of the privatization process. how the strategy is implemented. in order to get familiarized with it. which were merged and have stopped working.9% is acquisitioned. employees are submitting offers. Petrom S. OMV Romania. With activities in the business segments of Exploration and Production. warehouses and petrol stations. warehouses and petrol stations(1996). In 2004. OMV. Introduction The purpose of this paper is to present an overall view of the strategic and operational management of the Romanian company. they are taken up by SC Petrom Service SA. a maximum refining capacity of 8 million tons per year. which owned all ten refineries in Romania.000 people in up-stream sector. In 1999 it achieved the first stage of organizational restructuring by releasing a number of 13. We were also provided with various documents and presentation brochures of the company.1. was divided between the eight refineries functioning on their own. Romanian Oil Company owned all the ten refineries in Romania. PECO and PETROTRANS. The transaction was completed in In 2006 a package of 99. Refining. 12 investment banks submitted expressions of interest are selected in July. Signing the agreement with EBRD for $ 150 million syndicated loan representing a pre-privatization. The privatization process begins by publishing in the international press and Romania announced the selection of the consultant. approximately 550 filling stations in Romania and over 260 filling stations in Moldova. together with all related personnel. At the same time it launched the first phase of privatization of the company through a capital action. OMV acquired 51% stake in Petrom. Marketing as well as Gas. The research for this paper was conducted through a detailed information gathering concerning the company’s activity. formed by the reorganization RAFIROM. with extraction fields. In 2002 mechanical-energy activities within the branch Petromar Constanta branch outsourced to PETROSERV. OMV Bulgaria and OMV Serbia and has 30 gas stations and 95% of MOL Aviation Petroleum. Our purpose is to analyze the mission and vision of the company. Bulgaria and Serbia. Occidental and MOL are selected for negotiations. On 23 July 2004. General description of the company Short history After in 1991 Petroleum Petrom SA Autonomous was established. .
we move. Vision. the three essential values which form part of the foundation of their business are: Professionalism.. It must define its mission and vision based on understanding the relationship it has with its customers. “We explore. we grow” . They concentrate on their goals and find synergies to ensure they are among the front-runners in the market. In 2008 Petrom has signed a contract to build a power plant in Brazi along with General Electric and Metka. which will run on natural gas.Petrom acquired a 74. as well as the risks and opportunities identified in its competition environment. the organization must establish strategic objectives for development taking into consideration its current and future capabilities. The consortium will be build and deliver by September 2011.professional excellence ensures lasting success. “We learn. suppliers. customers. produce and process oil and gas and distribute fuels and other oil products in order to provide Romania and neighboring regions with energy and mobility. having a plant for producing electricity and steam combined cycle. their aim is to foster professional development to generate long-term profitability. on its characteristics and own competencies. Moreover. The company’s vision is to consolidate its position as the leading oil and gas company in South-Eastern Europe. the organization should cultivate a fair and complete system of values and principles shared by all its members. In their daily work they are guided by values they believe in. The sustainable and profitable growth of the company is of benefit to its shareholders. They strive to achieve excellence in expertise. high performance and personal commitment are the sources for their professional excellence.spirit of change for continuous development. a company that holds a portfolio of eight exploration licenses and one exploration and production license in Russia. mission and corporate values Each organization must have a well defined purpose within its social and economic environment. partners and other interested parties. being the operational centre for the marketing activity of OMV Goup in this region and having the role to explore and produce in Romania and the Caspian region. 3. In 2009.9% stake in Ring Oil Holding & Trading Ltd. employees and the Romanian economy in general and is therefore at the focus of all their activities. we perform. The mission. vision and values The mission of Petrom is to discover. At the same time. Pioneering. we succeed” Continuous learning. Petrom has started production of crude oil from western Kazakhstan Komsomolskoe field. processes and leadership.
.responsible relationships for mutual benefit. Partnership. stockholders. successful technologies and profitable growth. reliability and successful intercultural cooperation. employees. “We respect. We seek lasting relationships and gain trust through open communication. we connect.Pro-active mobility and openness to change are the basis of their strength. and society in general. responsibility and respect are the core of their relationships with all their stakeholders: customers. Their focus is the combination of economic success with the best energy solutions for today and tomorrow. Their aim is to create an environment of mutual benefit through social and economic partnerships respecting the ecological issues of our times. we care” Fairness. They explore development potential and take courageous decisions to create business opportunities in their selected markets through new ideas.
commercial operations to start in 2011 Sustainable development through financial discipline Sound corporate governance principle and sustainable business practices High standards of CSR Industry “best practice” health and safety business practices Modern human resources practices to support the modernization process and enhance employees performance and satisfaction Corporate Sustainability .2mn l in 2015) Middle distillates: 30% ~45% STRATEGIC OBJECTIVES Re-develop key fields with different recovery schemes Explore deepwater offshore Optimize and ensure long-term production. including partnerships Modernize production facilities and infrastructure in selected fields Develop upstream activities in the Caspian Region Increase energy efficiency of operations De-bottleneck gas system Petrobrazi Refinery: maximized value of Romanian upstream integrated refinery Improve yield structure and improve energy efficiency Finalize restructuring Maintain strong market position with two-brand strategy in marketing E&P R&M G&P Grow gas sales volume in Romania and neighboring countries ~10% market share on Romanian power market Increase sustainability rating to Prime mid range Establish an electricity sales and trade concept within Petrom Evaluate gas storage business opportunities Develop a power generation portfolio (Brazi and wind power plants).4. Strategic Objectives Petrom Group Strategic Directions TARGETS Unlock E&P potential and aim to largely offset the natural decline Caspian Region to become core market Process 100% domestic crude Crude oil consumption for energy and loss: 14% 10% Divest/close Arpechim by 2012 Increase throughput/filling station in Romania(4.9mn l in 2009/5.
. The internal production is taken care of by Petrom but in the refinery part Petrom has several competitors. $ 283 million in a comprehensive process of modernization of the refinery "Petrotel" Ploiesti. is one of the largest oil refineries in Romania and Eastern Europe with an annual total refining capacity of 3. $ 230 million were directly investments in equipment and processing facilities. LUKOIL Oil Company is the first private company from Russia that in 1998.S. LUKOIL (Petrotel). RAFO Oneşti (BVB: RAF).5 million tonnes of oil. has opened the road for investments in Romania by acquiring stake in the refinery "Petrotel" Ploiesti. being thus the first company to significantly expand in EU originating from Romania. Here. Rompetrol Group NV. Rompetrol is the quintessence of Romanian and corporate success. transportation etc. the remaining U. and additional operations . Analysis of external competitive business environment (Porter’s model) The Romanian oil market has a few important players. refined and adapted to new global economic realities. LUKOIL is an integrated oil company with activities in exploration. operating in 12 countries and with most of the assets and operations in France. Rompetrol Group is engaged in refining. Over U. with a market share of 4%. In 2005. The Group intends to become one of the most important oil companies in Europe and obtain a consolidated position in the Black Sea and Mediterranean Sea.S.. oil service. The contract was signed in December 2005. marketing and trading. ROMPETROL Group is now counted among the top 20 oil companies in Europe. Rompetrol Group's growth strategy signaled the maturation of Romanian capital. RAFO. extraction and refining of crude oil and the wholesale and retail petroleum products.S. Spain and South-Eastern Europe. headquartered in Amsterdam. $ 53 million represented the sum LUKOIL paid to Romanian Government when it acquired the package of shares of Petrotel. The investment made in Romania in a period of 11 years reached over half a billion dollars. Romania. the Netherlands. one of the oldest refineries in Romania. LUKOIL Management has adopted a proactive attitude by adopting a comprehensive investment program in the fields of oil processing and distribution of petroleum products. is a multinational oil company. ROMPETROM Group expanded making significant steps to become the first multinational company to have a home base in Romania. the Company being an important representative of Romania in the golobal business environment and one of the most important refinery company in the country. LUKOIL has invested over U. we can talk about the imports which are numerous but we can also talk about the internal production.exploration and production. In this regard the Company made the largest acquisition in its history by signing the purchase of the French company Dyneff Group. EPCM. the largest independent petroleum products distributor in France. Vega). like ROMPETROL (petromidia.5.
PEST Analysis SWOT Analysis is a strategic planning technique used to assess the internal and external environment in which a company operates and competes. while external environmental factors are classified into opportunities and threats. 6. The British company Balkan Petroleum bought the refinery from these companies in 2003. The company also operates a chain of 290 gas stations.A bought the refinery and paid all it's debts to the state budget.5 million. SWOT Analysis. The refinery is currently shut down for maintenance and installation upgrading until 2009 at a total cost of US$ 520 million.The refinery was privatized in 2001 with the major stock of 60 % being sold to Imperial Oil and Canyon Servicos for around US$ 7. Until November 2007 the company paid debts worth around US$ 380 million and increased the capital by US$ 860 million. In November 2006 Calder . MOL and AGIP have in Romania only gas stations and products from their brand but do not have a market share in the refineries in Romania. STRENGTH Leader in the Southeast European upstream market Strict cost management and focused investment program Large scale application of proven and new technologies High degree of integration with domestic crude resources and regional distribution outlets High product and service quality and environmental standards Strong brand and leading position in the Romanian market WEAKNESSES High refining costs The decrease of production in the last 4 years Old transport capacity (piping) High costs for product manufacturing taking into consideration that the distribution prices are among the lowest on the market Strong network of filling stations and terminals One of the leading producers and marketers in Romania Professional integration of IT and business processes . the rest being business associations. Internal environmental factors are classified into strengths and weaknesses. of which it owns 45.
they direct their efforts into optimization of the business by upgrading and improving Petrobrazi performance to maximize Petrom integration value and enable the processing of 100% of Romanian crude production. Gas and Energy-. Refining and Marketing. Petrom through its economic performance plays an essential role in delivering concrete economic results in one of the three growing markets of OMV. Enter new foreign markets of distribution Improving technology in refineries to reduce production costs Increase market share Make new investments Consolidate the relationship between the company and client Lack of idle money in the economy The increase of oil imports Fast development of other producers High taxation OPPORTUNITIES 7. especially through re-development projects of deposits as well as by focusing on optimization of the organization to reduce complexity and integrating E&P Services department into E&P. The Arpechim bulk refinery – depending on the prevailing margin and supply conditions – will operate solely on an ‘as needed’ basis until 2011. which distinguishes them from their competitors and consolidates their competitive advantage in technical and commercial activities. In Marketing. Moreover Petrom focuses on the three values of OMV Group mentioned above: Professionalism-Pioneering-Partnership-. Thus the capacity of the Petrobrazi refinery was adjusted to 4. Central Europe. between 2010 and 2014 in modernizing and maintaining the facility. The principal object of the company is represented by its three segments: Exploration and Production. they focus on the harmonization of organizational structure within Petrom Group R&M activities towards the OMV R&M standard. their permanent development is always taken into consideration in the evolution of its activities. Petrom has incorporated in its activities the” 3 plus” strategy. This is aimed at . In Refining. Strategy description THREATS As member of OMV Group.2 mn t per year by investing approximately EUR 750 mill. In Exploration and Production their main objective is to unlock full E&P potential by increasing recovery rates and by minimizing the impact of the natural decline on production. As the regional centre for south-eastern Europe within the OMV Group. South-eastern Europe and Turkey.
As part of this process. they are expanding their value chain to increase the value of the natural gas by developing their own power generation business and they are positioning themselves to enter the renewable energy market. boosting profitability and the marketing terminals modernization completion. Capitalize on leading position as oil and gas producer in SEE to become a key energy player They are committed to transforming themselves from a leading integrated oil and gas company in Southeastern Europe to a key energy player by expanding into power generation. investing selectively in power generation and renewable energy sources. they continue to strengthen their role as the OMV Group operational centre for marketing in Southeastern Europe and for exploration and production in Romania and the Caspian region. with a focus on wind projects in order to reduce carbon intensity. For this purpose they plan to develop a portfolio of projects covering energy from both conventional and renewable sources. Strategy implementation Enhance value integration. Thus they concentrate on restructuring measures. Therefore they are committed to developing a power generation portfolio in order to leverage the value of natural gas while pursuing relevant opportunities in the renewable energy field. They also pursue gas infrastructure modernization and setting a sizeable gas business in the neighbouring countries.a key element in creating value The value of Petrom derives from the integrated activity of the company and from constantly trying to identify and make the most of the synergies along their value chain. they are committed to sustainable development based on good corporate governance. focusing on opening the Brazi gas-fired power plant in 2011. they adjusted their asset portfolio by consolidating the Exploration & Production and Gas& Energy activities. Sustainable development through diversification of energy sources The extension of their activities in the energy sector is a significant component for the sustainable development of the company. In order to adapt Petrom’s value chain and adjusting it to reflect the radical change of the supply and demand fundamentals. clearly defined corporate values and their internal code of conduct.consolidating market position. high standards of corporate social responsibility. Thus the primary goal of refining is to process only domestic production and they also decided to exit the chemical market by the end of 2010. they changed the scope of their original investment plan in refining. they aim to increase gas potential and achieve sustainable growth in power and renewable sources area. with extensive market knowledge and experience. applying at the same time a financial discipline and a strict cost management to maximize operational efficiency and profit consolidation. 8. Meanwhile.Furthermore. . which is their core priority. Moreover. As an integrated oil and gas company accounting for approximately half of the Romanian gas production. In Gas and Power. Petrom is best positioned to seize the opportunities in both oil and gas as well as in power markets.
the lack of trust in the actual leaders and the positive outcomes for employees. In addition. employees had to accept it. Petrom’s objective regarding sustainability consists of improving the company’s rating at prime mid range. and there was almost no room for comments from the employees: “Employees’ response to change was acceptance. Change requires for employees to learn a new set of rules. E&P: Aim to largely offset natural decline and unlock exploration and production potential R&M: Maximize integration value and strengthen position on fuels market G&P: Market leader on Romanian gas market and important power generation supplier 9. Therefore. and new sets of regulations. corporate governance and business practices. In reality. Resistance is an inevitable response to any major change. investments of more than EUR 1 bn per year are needed. when the old rules may have suited them just fine. starting from growth and diversification principles. financial discipline. fear of economic loss. triggered by the failures of past change processes. we intend to pursue gas price convergence and seek further access to credit markets whilst maintaining our prudent financial management. there was no other choice” (level 3 manager . Kotter and Schlesinger state that many managers do not take the necessary time to evaluate who might resist the change and for what reasons. new systems. Once the privatization contract was signed and OMV Austria acquired Petrom. operational and energy efficiency and strict cost management. there was a well-defined line of how the new procedures were supposed to be implemented in the old company. The changes that fallowed the acquisition were planned changes. a situation that can be observed in the case of OMV Petrom. up to employees’ development and CSR. allowed OMV to ensure the management of Petrom in conformity with the vision and decisions of Petrom shareholders. loosing job status and changes in the work relationship. The main causes of employees’ resistance to organizational change in our case include fear of dismissal and layoffs. Petrom will continue to grant special attention to HSEQ activities. It is human nature to resist what we see as different. In order to support the company’s sustainable development and growth potential. Employees who opposed vehemently to the change left the company by their choice.Sizeable investments for business sustainability and growth Sustainability represents the foundation of all projects and activities at Petrom. R&M BU Procurement). as well as a low tolerance for change. circumstances outside of people‘s control may occur and force them to adapt to new policies. Possible resistances analysis and methods of overpassing resistances The acquisition of 51% of the share capital of Petrom by OMV Austria in December 2004. .Asset Administration Write-Off. but that did not mean they were necessarily satisfied with it or did not resist the change process. the company will focus on securing financing sources through a combination of strict cost management and optimization initiatives as well as a share capital increase of up to EUR 600 mn according to the authorization received from our shareholders.
Superiors listened to what the first group had to say. it is important for employees to perceive they have a good relationship with their managers and to feel they can communicate openly. employees have become more and more negative towards the change. as well as the employees who disapproved the change to such an extent that they decided to resign. At OMV Petrom these symptoms of resistance include the employees who were negative towards the change from the start and expressed their opinions openly to colleagues and. Furthermore. . nothing was done in order to keep them in the company. and increase the employees’ knowledge about what the change will bring. in order to create a positive atmosphere. Conclusions Against the background of major economic and environmental challenges Petrom continues to invest in key projects to maximize performance. In order to do so. “Following the acquisition. due to failed expectations. managers should try to get to know their subalterns better and communicate in a more informal way. Training the employees in new areas can create understanding and minimize resistance. and listen to their opinions. Hence. at EU quality specifications for their customers. During the change process. their previous positive feelings turned into negative ones. the employees will feel they are involved in the process and commit to the change. The company’s mistake at that point was that many specialists were lost that way. Managers should try to transmit information continuously and invite employees to ask questions. At the same time. they secure sustainable growth and ensure a diversified portfolio of energy products. but as the process went along. sometimes. This kind of subtle resistance can be managed from the beginning of the process. Thereby. before decisions are taken. it is not important only when one communicates. According to what employees’ state. 10. but only occasionally took into consideration their opinions or tried to change their views through non-persuasive methods. everybody knew there were going to be layoffs so managers thought it was better to let people resign than dismiss them. Management has to communicate with the employees. from fuels to gas and power.” (Head of Filing Stations Administrator. management level 2). In this way. but also how and what one communicates. the relationship between the manager and his subordinates lies at the heart of resistance management. The task of preventing resistance starts long before a change is to be implemented. As the employees are informed about the change.Resistance has been discussed previously in the form of active and open/direct attacks. Regarding the employees from the second group. and preferable prior to the change implementation. management should present the benefits of the change. establish credibility for the change. the employees need information about changes at the earliest possible moment. Marketing. to superiors. just as it is important in many other situations. Another important measure is to train the employees about the new procedures and programs in the company. To sum up. they were mainly positive towards the change. At the beginning of the process. it is crucial for managers to be able to communicate with employees. Managers must not forget to include any negative features of the change.
financial discipline. Petrom is adapting to its regional and international interests. Concrete. corporate governance and business practices.Sustainability represents the foundation of all projects and activities at Petrom. on the foreign market Petrom is primarily involved into activities of obtaining raw materials while at the regional and local level it is focused on the production. Petrom will continue to grant special attention to HSEQ activities. The “Enterprise” application had great results in the process of monitoring the conditions of work and the ability of the company to intervene and repair further errors. We can state that Petrom is a leader on the oil and gas market and maintaining the highest levels of the key performance indicators is essential for the company. processing and the distribution of oil products. up to employees’ development and CSR. operational and energy efficiency and strict cost management. and on the domestic market it implements the strategy conceived in order to compete the other key players on the domestic oil market. starting from growth and diversification principles. . Implementing Exploration and Production Services was an important step for Petrom which resulted in high revenues and improved programs for future projects. Petrom’s objective regarding sustainability consists of improving the company’s rating at Prime mid range.
P.. Choosing strategies for change. & Schlesinger.References Kotter. J. 1979 Kotter.A. L.P. 1995 . March-April. Harvard Business Review. 73(2). No. Harvard Business Review. Leading change: why transformation efforts fail.. J.
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