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PETROBRAS, a history of success and a future of glories. 2. TABLE OF CONTENTS

1. TITLE ................................................................................................................................................. 1 2. TABLE OF CONTENTS ..................................................................................................................... 1 3. EXECUTIVE SUMMARY .................................................................................................................. 2 4. INTRODUCTION ............................................................................................................................... 2 4.1 The history of petroleum ................................................................................................................ 3 5. COMPANY ANALYSIS .................................................................................................................... 3 5.1 SWOT Analysis ............................................................................................................................. 4 5.2 PESTEL Analysis .......................................................................................................................... 5 5.2.1 Political Factors....................................................................................................................... 5 5.2.2 Economic Factors .................................................................................................................... 5 5.2.3 Social Factors .......................................................................................................................... 6 5.2.4 Technological Factors ............................................................................................................. 6 5.2.5 Environmental Factors............................................................................................................. 6 5.2.6 Legal Factors........................................................................................................................... 7 5.3 Porter Five Forces .......................................................................................................................... 7 5.3.1 Bargaining Power of Suppliers ................................................................................................ 8 5.3.2 Threat of New Entrants............................................................................................................ 8 5.3.3 Bargaining Power of the Buyers .............................................................................................. 9 5.3.4 Threat of Substitute Products or Service .................................................................................. 9 5.3.5 Rivalry among Existing Competitors ....................................................................................... 9 5.4 Red and Blue Ocean Strategy ......................................................................................................... 9 6. RECOMENDATIONS....................................................................................................................... 10 7. CONCLUSION ................................................................................................................................. 11 8. REFERENCES ...................................................................................................................................... 11

3. EXECUTIVE SUMMARY

This paper treat itself with the analysis tools of the environment factors for Petróleo Brasileiro S/A ± PETROBRAS, a Brazilian oil company. The researcher utilized four kinds of tools to analyse the company¶s environment, SWOT, PESTEL, Porter Fiver Forces Framework and the Blue Ocean Method. It was found that the company is doing very well in managing the environmental threats but the natural risk of ending the oil reserves haunts the company, forcing the company to find new sources of fuel and new sites of oil. 4. INTRODUCTION

This paper was made with the intention to describe and evaluate the changing business environment of Petróleo Brasileiro S/A ± PETROBRAS over the last five years, using theories shown at class with models and relevant examples. PETROBRAS is a Brazilian company focused on oil exploration and production operation, it also deals with other connected activities as natural gas and derivates. The company was founded in October 3rd of 1953, by then president Getúlio Vargas with the intent of executing oil activities in the country. The initiative to create the company started in 1946 with a people¶s campaign to protect Brazil¶s oil with the slogan ³The oil is ours´. PETROBRAS held the market¶s monopoly from over 40 years (1954-1997), been awarded in 1992 by the Offshore Technology Conference (OTC), the most important award in the oil sector, been awarded again in 2001. The company has been helping Brazil to do an effective manage of its natural resources, in 1997 the country was able to enter in the select group of 16 countries that produced more than a million barrels of oil per day. The monopoly was broken on August of the same year (1997) increasing the eager of the company to extend its market, several new oil locations was found in Brazil¶s basins. Having this growth in oil production in 2003, PETROBRAS was able to double its daily oil & natural gas production, surpassing the two million barrels per day. With public and private associations, in April of 2006 the P-50 platform lead Brazil to its oil self-sufficiency. Nowadays, the company is present in 27 countries, been in 2007 rated as world¶s 7th biggest oil company with shares traded at stock exchanges, data by Petroleum Intelligence Weekly (PIW), also in this year the company was insert at DJSI (Down Jones Global Sustainability Index), this index been considerate the most important global sustainability index.

PETROBRAS has dedicated time and efforts to be a sustainable oil company, in early 2008 the company was acknowledged by a Management & Excellence survey (M&E) as the world¶s most sustainable oil company, becoming then, world¶s reference. 4.1 The history of petroleum

The use of petroleum is dated from behind the beginning of the extract industry, there are records that the Egyptians after coated their mummies, used to sealed them in their pyramids with pitch; a use in the street was also found by the Babylonians, Assyrians and Persians. Even the Bible claim that Noah used petroleum to make his Ark seaworthy. In the beginning of its modern use, the oil was used to produce kerosene, in order to light lamps. Seen the oil as a new market and expecting it to grows more, in 1854, George Bissell, an American lawyer, opened the first oil company in the history, but they weren¶t successful, trying again in 1858 with some other business man, founding the Seneca Oil Company, been able to found oil at 69 ½ feet deep. The commerce of oil starts to grow, the United States of America leading it, but just extracting it wasn¶t enough, they found necessary to refine the oil to find more market. So the process began, by 1860 in the USA there were around 15 refineries producing 1 to 100 barrels a day. Seen the oil as a viable option to earn money, a young bookkeeper named John D. Rockefeller financed his first oil refinery. He was able to control all steps of his refinery and capable of use the disorder and instability of other refineries on his favour, and in 1870 he controlled more than 10% of US refining capacity, making deals with rail companies and lowering his prices, buying competitors, in 1890 his companies controlled 90% of US refining capacity, making him the richest person in the world. 5. COMPANY ANALYSIS

In this part of the work, the researcher is going to use some analysis tools to allocate the company in the actual market, to indentify its weakness and strengths, and find points for the company to grow and become more competitive.

5.1 SWOT Analysis

The SWOT Analysis is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project. The intention here is to find where the company is strong and find his weakness as well, internal and externally, this way becoming more competitive. The Framework 1 Shows the SWOT analysis of PETROBRAS Framework 1 ± SWOT Helpful SWOT (to achieve the objective) (attributes of the organization) Harmful (to achieve objective)

the

*Dominant position in extraction, refine and *Nationalism transport of refined and brute oil; *The new project is always expansive then the previous one

*Logistic *Know-How in techniques and technologies for perforation, development and production at deep water and ultra-deep water *Reserve base and comparatively long life reserves, which will provide sustain and enhance growth of production and control costs in a large saving of scale *Strong position in natural gas market in Brazil, with great potential growth. *Attracting international partners in all activities Source: Author. (attributes of the organization)

Internal Origin

*The oil is found more and more at difficult areas of reaching

External Origin

*The natural reserves finishing

oil are

When looking at the SWOT analysis of PETROBRAS, is possible to see that the company build in the last five years a huge Know-How of techniques and systems to perform its business in Brazil, and also are capable of collect fast amount of money for new projects, with a cost although. The logistic is one if its great strong attributes when working in Brazil, the actual

conditions of roads and the missing alternative ways of transport the oil make difficult for new entrant and competitors to achieve the same price. High cost of raising resources for new projects is a preoccupation for the company. It is possible to see the that natural resources are finishing, almost leading the company to an dead end, in terms of oil extraction, so foreseeing it, the company started 4 years ago, projects with the Brazil¶s government to find new sources of fuel.

5.2 PESTEL Analysis

The PESTEL analysis is a manager tool to analyse the macro-environment of the company. The macro-environment is what surrounds the company, the external forces such as governments, financial market, laws, social factors, economic factors, environment factors, etc. The point in doing this analysis is that this forces are not controlled by the company itself, the company are passive in receive this forces and have to adapt itself to them. That¶s why the PESTEL analysis is a great tool to measure the impact of macro forces of the company. It consists in analysing six ways of macro impacts (Political Factors; Economic Factors; Social Factors; Technological Factors; Environmental Factors; Legal Factors) 5.2.1 Political Factors There are the factors that refer to the government policy, and the way that this policy affects the company and the economy. Does the government provide any kind of goods and services; does him subsidies? Etc. With the findings in the pre-salt, PETROBRAS oil production in the next few years is going to increase its productions to top-ranking global levels, and nowadays a big discussion about royalties for this exploration in happening. The government says that PETROBRAS will have the exclusivity for this kind of oil extractions, but this future is uncertain. 5.2.2 Economic Factors An economic factor affects the company on its interest rates, taxation changes, economic growth and exchange rates. The company will only be affected in this factor if: -Occur some change in the actual tax system; -The government seeking more profit change the way of taxing foreign trade; -Seeking take the control of the inflation, change taxes.

5.2.3 Social Factors Any change in the social trends can impact on the demand of the company¶s product and the availability and willingness of individuals to work at the company. Nowadays PETROBAS is one the most targeted company for recent graduate and specialized workers in Brazil, the company leads more than 5 social programs to help families and its workers. The company is seen by its investors and workers as an excellent place t work and invest. This Factor is not a threat to the company. 5.2.4 Technological Factors New technologies can create new products or change the way of making old products. These new technologies can benefit consumers and the company as well. This is a critical factor for the company, with the advance of technology; the company is always seeking new way to realize its processes, and researches. With better resources the company is able to increase its chances to find new oil sites in deep waters and ultra-deep waters; this discovery implies high-complex projects, great investments as well and qualified workers and researchers. In the past five years, huge changes in the available technologies have changed the way that the company deals with its corporate secrets and do investments in new methods to discover oil sites. To be able to do a fast response to changes in the market the company needs to always been investing in new technologies and find a way to retain crucial workers that have this knowledge, and also find ways to disseminate this knowledge. 5.2.5 Environmental Factors These factors are related to climate and weather changes, how the changes on the temperature will affect the company, can a storm prejudice the company¶s production? These are the kind of answers that is looked for when analysing this factor. PETROBRAS has several of its oil platforms on sea, and basins. The company has a team of researchers that observe the weather of the site where the oil is been explored, because any great storm or strong winds can affect the safety and the quality of the oil extracted, doing a damage to the company¶s image. In the past, happened to occur some accidents with PETROBRAS¶s ship caring oil on Guanabara¶s basil, and it has compromised the company¶s image and provoked a huge loss of money due to indenisation to the people whose life was affected by the incident.

There are also the preoccupations related to the environment, since the company are dealing with a product with high degree of pollution, they have to strict in following the law and preventing accidents; any kind of accident with this product is prejudicial not only for the company¶s image but for the environment itself. 5.2.6 Legal Factors These factors are related to the legal environment in which firms operate, for example the laws that are applied in the company, and the market that the company operate. There are some factors that may interfere in PETROBRAS¶s business, for example, this year (2010) Brazil is going to have presidential elections, and the history shown that some times when there is a change of president, some laws that impacts directly on the company¶s production are changed, affecting all of their plans and strategies. New environmental laws can affect the way of extraction and transport of the oil, meaning that the company will have to spend money to change the way that these things are been done.

5.3 Porter Five Forces

The Porter Five Forces framework is used to analyse the forces that act upon the company, with this analysis is possible for us to find new opportunities of market, and prevent been caught on surprise by new entrants. Framework 2 ± Porter Five Forces Diagram

5.3.1 Bargaining Power of Suppliers PETROBRAS is one of the biggest oil companies in the world; so the power exercised by the suppliers over the company is limited. The company¶s ³worries´ with them is the fact that the level of complexity in the projects is so high that the company needs suppliers able to fast respond to the needs of each project and each new situation. 5.3.2 Threat of New Entrants The company holds the expertise in deep waters and ultra-deep waters in the oil extract market, making almost impossible to a new entrant threat the company, but some vertical integration may be a threat but the cost to high. PETROBRAS experienced a threat from REPSOL, when in the end of 2009 the company announced to invest US$12 bi in the Brazilian oil sector, up to 2012. This threat was minimized by the pre-salt discovery and the new legislation that came with it.

5.3.3 Bargaining Power of the Buyers The biggest buyer from the company is PETROBRAS itself. The other branch of the company that produce gas, and other forms of fuel. This is useful in terms of logistic and the injection of capital in new investments. Around the world, the price of the oil is negotiated in the electronic market and only the big cartels in the Middle East can change its price drastically. 5.3.4 Threat of Substitute Products or Service The oil is said to be extinguished from the earth¶s surface in more or less fifty years. This is a big problem for the company, as well the alternative forms of fuel like the biofuels and in the future, Hydrogen is pointed as a viable substitute. The global warming is a plus to the biofuels issue, and to deal with this, PETROBRAS is doing partnership with the government to find alternatives to its own product, with the intention in not losing market share. 5.3.5 Rivalry among Existing Competitors Petroleum is a derivative needed in all countries around the world, and PETROBRAS helped Brazil to achieve its oil self-sufficiency, so most of the barrels produced by the company are bought by Brazil and the rest is sold around the world at market price. The rivalry will be tougher when the pre-salt extractions starts, because it will increase the number of barrels produced and the company will need to sell more quantity overseas. Long-Term contracts will be an option to avoid has unsold barrels in stock. 5.4 Red and Blue Ocean Strategy

This theory of analysis is based on the Bloody ocean strategy; whether a company finds itself confined in an existing market fighting against each other¶s trying to steal costumers. The Red and blue ocean strategy were created by Chan Kim and Renée Mauborgne suggesting that the company don¶t always have to fight among the others to find its space and costumers, the company can develop an uncontested market space that make the competition irrelevant, by creating an competitive advantage and sustaining it. To create the blue ocean there are 2 ways: * Create a completely new market, as eBay did; or * From within a red ocean when a company expands the boundaries of an existing industry.

Red Ocean Strategy
Compete in an existing market space.

Blue Ocean Strategy
Create an uncontested market space.

You have to beat the competition. Make competition irrelevant. Share the existing demand. Create and caputre new demand.

Been profitable as the same time Break the value/cost trade-off as competitive. Create a differentiation. Create a system to pursuit differentiation and low cost.

Source: http://www.valuebasedmanagement.net/methods_kim_blue_ocean_strategy.html

By looking at the strategy shown above, we can see that PETROBRAS finds itself in a red ocean right now. Facing huge competitors and watching the main product (crude oil) to fade away. In order to achieve a blue ocean the company needs to find a new strategy or as said in theory above, company expands the boundaries of the existing industry.

6. RECOMENDATIONS

It was possible to see that PETROBRAS have already consolidated its position in Brazilian¶s market, and now needs to get more space overseas. With the SWOT analysis it is perceptive that the difficulty to find new oil sites it¶s getting harder and harder. More often the company is been able to find oil sites in the bottom of the ocean but it is getting more and more expensive to put this projects to work, and the amount of oil to be found in the oil site not always correspond to the expectations of the company and its investors. To solve this problem the company should keep looking for new sources of oil and new kinds of fuel as well, to maintain its top position at the domestic market. For been a Brazilian company created with the intention to protect the country¶s oil the PESTEL analysis shown that the company have a good past and future perspectives in the social factor, but what is a source of preoccupation is the technologic factor, because the company retains the top researches and technologies in deep and ultra-deep water¶s oil extraction, so it is a concern to retain this technology and always keep growing. To deal with this possible threat it is advisable for the company to keep always improving its techniques to retain talents and find news; and also insert confidentiality policy at higher levels. With Porter five forces framework it is possible to realize that the threat of substitute products or service is the principal for the company in its actual stage. The awareness of global

warming are madding people to more and more find non pollution sources of fuel, and oil is not one of these. To fight this the company needs to keep doing what is already doing and if possible begin to participate in new projects overseas, to shown that the company is preoccupied with this issue, for the investors and the buyers, and are working as hard as possible to make its product not a threat for the environment, but a good thing for all living things. 7. CONCLUSION

Petróleo Brasileiro S/A ± PETROBRAS, is one of the biggest oil companies in the world and is making a good job to improve its international position, they had some environmental issues over the last five years, but with a good public relations work the managed to overcome the negative issue and keep consolidating its position year after year. PETROBRAS have partnerships with the Brazilian government to avoid unexpected legal changes and the company keep always improving its social relation with workers and investors.

8. REFERENCES
PETROBRAS S/A, [Online], Available fro Pafko. [Online], Available fro URL http://www.petrobras.co .br [Accessed 15 April 2010]

http://www.pafko.co /history/h_petro.ht l [Accessed 22 April 2010]

PORTER, Michael. Competitive strategy). New York: Free Press, 1980
Blue Ocean Strategy [Online], Available fro http://www.valuebased anage ent.net/ ethods_ki _blue_ocean_strategy.ht l [Accessed 23 April 2010]

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