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CASE STUDY
PETROM S.A.
03 Jan 2011
1. Introduction
The purpose of this paper is to present an overall view of the strategic and
operational management of the Romanian company, Petrom S.A. Our purpose is to
analyze the mission and vision of the company, how the strategy is implemented, if are
there any barriers and in the same time the external environment or what competitive
advantage has the company.
The research for this paper was conducted through a detailed information gathering
concerning the company’s activity. We were also provided with various documents and
presentation brochures of the company, in order to get familiarized with it.
Petrom is the largest oil and gas producer in South Eastern Europe. With activities in the
business segments of Exploration and Production, Refining, Marketing as well as Gas,
Petrom has proved oil and gas reserves of 823 mn boe, a maximum refining capacity of 8
million tons per year, approximately 550 filling stations in Romania and over 260 filling
stations in Moldova, Bulgaria and Serbia.
Fairness, responsibility and respect are the core of their relationships with all their
stakeholders: customers, employees, stockholders, and society in general. We seek lasting
relationships and gain trust through open communication, reliability and successful
intercultural cooperation. Their aim is to create an environment of mutual benefit through
social and economic partnerships respecting the ecological issues of our times.
4. Strategic Objectives
LUKOIL Oil Company is the first private company from Russia that in 1998, has opened
the road for investments in Romania by acquiring stake in the refinery "Petrotel" Ploiesti,
one of the oldest refineries in Romania.
RAFO Oneşti (BVB: RAF), is one of the largest oil refineries in Romania and Eastern
Europe with an annual total refining capacity of 3.5 million tonnes of oil.
The refinery was privatized in 2001 with the major stock of 60 % being sold to Imperial
Oil and Canyon Servicos for around US$ 7.5 million. The British company Balkan
Petroleum bought the refinery from these companies in 2003.
In November 2006 Calder - A bought the refinery and paid all it's debts to the state
budget. Until November 2007 the company paid debts worth around US$ 380 million and
increased the capital by US$ 860 million.
The company also operates a chain of 290 gas stations, of which it owns 45, the rest
being business associations.
The refinery is currently shut down for maintenance and installation upgrading until 2009
at a total cost of US$ 520 million.
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.
SWOT Analysis is a strategic planning technique used to assess the internal and external
environment in which a company operates and competes. Internal environmental factors
are classified into strengths and weaknesses, while external environmental factors are
classified into opportunities and threats.
STRENGTH WEAKNESSES
Leader in the Southeast European High refining costs
upstream market
The decrease of production in the
Strict cost management and focused
investment program last 4 years
Large scale application of proven and Old transport capacity (piping)
new technologies High costs for product
High degree of integration with domestic manufacturing taking into
crude resources and regional distribution consideration that the distribution
outlets prices are among the lowest on the
High product and service quality and market
environmental standards
Strong brand and leading position in the
Romanian market
Strong network of filling stations and
terminals
One of the leading producers and
marketers in Romania
Professional integration of IT and
business processes
Enter new foreign markets of Lack of idle money in the economy
distribution The increase of oil imports
Improving technology in Fast development of other
refineries to reduce production producers
costs High taxation
Increase market share
Make new investments
Consolidate the relationship
between the company and client
OPPORTUNITIES THREATS
7. Strategy description
As member of OMV Group, Petrom has incorporated in its activities the” 3 plus”
strategy. The principal object of the company is represented by its three segments:
Exploration and Production, Refining and Marketing, Gas and Energy-, their permanent
development is always taken into consideration in the evolution of its activities. As the
regional centre for south-eastern Europe within the OMV Group, Petrom through its
economic performance plays an essential role in delivering concrete economic results in
one of the three growing markets of OMV, Central Europe, South-eastern Europe and
Turkey. Moreover Petrom focuses on the three values of OMV Group mentioned above:
Professionalism-Pioneering-Partnership-, which distinguishes them from their
competitors and consolidates their competitive advantage in technical and commercial
activities.
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, 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.
In Refining, 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. Thus the capacity of the Petrobrazi
refinery was adjusted to 4.2 mn t per year by investing approximately EUR 750 mill.
between 2010 and 2014 in modernizing and maintaining the facility. The Arpechim bulk
refinery – depending on the prevailing margin and supply conditions – will operate solely
on an ‘as needed’ basis until 2011.
In Marketing, they focus on the harmonization of organizational structure within
Petrom Group R&M activities towards the OMV R&M standard. This is aimed at
consolidating market position, boosting profitability and the marketing terminals
modernization completion.
In Gas and Power, they aim to increase gas potential and achieve sustainable growth in
power and renewable sources area, focusing on opening the Brazi gas-fired power plant
in 2011. They also pursue gas infrastructure modernization and setting a sizeable gas
business in the neighbouring countries.
8. Strategy implementation
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. As an integrated oil and gas company accounting for approximately half of
the Romanian gas production, with extensive market knowledge and experience, Petrom
is best positioned to seize the opportunities in both oil and gas as well as in power
markets. 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. Meanwhile, 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, which is their core priority.
The extension of their activities in the energy sector is a significant component for
the sustainable development of the company. For this purpose they plan to develop a
portfolio of projects covering energy from both conventional and renewable sources. 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, with a focus on wind projects in order
to reduce carbon intensity. Moreover, they are committed to sustainable development
based on good corporate governance, high standards of corporate social responsibility,
clearly defined corporate values and their internal code of conduct.
Sizeable investments for business sustainability and growth
Sustainability represents the foundation of all projects and activities at Petrom, starting
from growth and diversification principles, financial discipline, corporate governance and
business practices, up to employees’ development and CSR. Petrom will continue to
grant special attention to HSEQ activities, operational and energy efficiency and strict
cost management. Petrom’s objective regarding sustainability consists of improving the
company’s rating at prime mid range.
In order to support the company’s sustainable development and growth potential,
investments of more than EUR 1 bn per year are needed. Therefore, 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. In addition, we intend to pursue gas
price convergence and seek further access to credit markets whilst maintaining our
prudent financial management.
E&P: Aim to largely offset natural decline and unlock exploration and production
potential
G&P: Market leader on Romanian gas market and important power generation supplier
The acquisition of 51% of the share capital of Petrom by OMV Austria in December 2004,
allowed OMV to ensure the management of Petrom in conformity with the vision and decisions
of Petrom shareholders.
The changes that fallowed the acquisition were planned changes, there was a well-defined line of
how the new procedures were supposed to be implemented in the old company, and there was
almost no room for comments from the employees: “Employees’ response to change was
acceptance, there was no other choice” (level 3 manager - Asset Administration Write-Off, R&M
BU Procurement). Employees who opposed vehemently to the change left the company by their
choice.
Once the privatization contract was signed and OMV Austria acquired Petrom, employees had to
accept it, but that did not mean they were necessarily satisfied with it or did not resist the change
process. Resistance is an inevitable response to any major change. It is human nature to
resist what we see as different. Change requires for employees to learn a new set of rules,
when the old rules may have suited them just fine. In reality, circumstances outside of
people‘s control may occur and force them to adapt to new policies, new systems, and
new sets of regulations. Kotter and Schlesinger state that many managers do not take the
necessary time to evaluate who might resist the change and for what reasons, a situation
that can be observed in the case of OMV Petrom.
The main causes of employees’ resistance to organizational change in our case include
fear of dismissal and layoffs, fear of economic loss, loosing job status and changes in the
work relationship, the lack of trust in the actual leaders and the positive outcomes for
employees, as well as a low tolerance for change, triggered by the failures of past change
processes.
Resistance has been discussed previously in the form of active and open/direct attacks. 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,
sometimes, to superiors, as well as the employees who disapproved the change to such an
extent that they decided to resign.
Superiors listened to what the first group had to say, but only occasionally took into
consideration their opinions or tried to change their views through non-persuasive
methods. Regarding the employees from the second group, nothing was done in order to
keep them in the company. “Following the acquisition, everybody knew there were going
to be layoffs so managers thought it was better to let people resign than dismiss them.”
(Head of Filing Stations Administrator, Marketing, management level 2). The company’s
mistake at that point was that many specialists were lost that way.
This kind of subtle resistance can be managed from the beginning of the process.
Managers should try to transmit information continuously and invite employees to ask
questions. During the change process, employees have become more and more negative
towards the change, due to failed expectations. At the beginning of the process, they were
mainly positive towards the change, but as the process went along, their previous positive
feelings turned into negative ones.
According to what employees’ state, it is crucial for managers to be able to communicate
with employees. In order to do so, it is important for employees to perceive they have a
good relationship with their managers and to feel they can communicate openly. Hence,
managers should try to get to know their subalterns better and communicate in a more
informal way. Furthermore, the employees need information about changes at the earliest
possible moment, and preferable prior to the change implementation. Management has to
communicate with the employees, and listen to their opinions, before decisions are taken.
Thereby, the employees will feel they are involved in the process and commit to the
change.
At the same time, it is not important only when one communicates, but also how and
what one communicates. As the employees are informed about the change, management
should present the benefits of the change, in order to create a positive atmosphere,
establish credibility for the change, and increase the employees’ knowledge about what
the change will bring. Managers must not forget to include any negative features of the
change. Another important measure is to train the employees about the new procedures
and programs in the company. Training the employees in new areas can create
understanding and minimize resistance.
To sum up, the relationship between the manager and his subordinates lies at the heart of
resistance management, just as it is important in many other situations. The task of
preventing resistance starts long before a change is to be implemented.
10. Conclusions
Kotter, J.P. & Schlesinger, L.A., Choosing strategies for change, Harvard Business Review,
March-April, 1979
Kotter, J.P., Leading change: why transformation efforts fail, Harvard Business Review, No.
73(2), 1995