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• Over 75% of an integrated oil company’s net margins are in the upstream • 2013-2020: 80% of Galp’s projects will focus on Exploration and Production • Return rate: Upstream (risky) 10%, Downstream (less risky) 5% • Brazil → Lula → Joint Venture with Petrobras
11
Source: www.worldoil.com
12
Source: internal source
Cultural
and
political
afilliation
BUSINESS MODEL
Value proposition
1. File for data 2. Bid/Accept proposal 3. Geological field
Surveys 4. Apply for licenses (ANP) 5. Installation of facilities
6. Drilling tests 7. Beginning of production
Political &
legislations
(Ibama)
Accomplish
Env. rules
Start the
extraction
process
Low Cost: 15% R&D, Field search, profitability analysis, labor
Medium Cost: 15% Storage, transportation,
external logistics High Cost: 70% Production (drilling, extraction)
Petrobras: 65% GB Group : 25% Petrogalp: 10%
Technology force & Local Experience
Accomplish Quantitve Strategies
Exploration
in Brasil
(Lula field)
Oil Raw
materials
sales
Operational model
Com
petitive
Assessm
ent
Competitive
Assessment
Type of
company
Publicly listed Private Private
# of blocks in
Brazil up to
now
20 9 4+13
Partnership Yes Yes Yes
Expansion
prospective
Medium High Medium
Acquisition of
information
Low Medium Low
Level of
investments
Low High Low
Team
Experience
High Medium Medium
Ranking #2 #1 #3
13
Source: www.galp.com
www.queirozgalvao.com
www.maersk.com
Port
er
Analy
sis
Porter’s Five Forces 14
Threat of entry
Port
er’s F
ive F
orc
es
Ana
lysis
• Huge capital requirements; • Enormous fixed up-front investments for the development of oil fields; • Economies of scale to reach a decrease in unit costs in the exploration and production of oil; • The need to secure access to distribution channels; • Government policies that favour national companies.
Source: internal source
15
Threat of substitutes
Port
er’s F
ive F
orc
es
Ana
lysis
• Different substitutes that will become a threat
once the crude oil price will increase
significantly;
• Governments around the world are changing
their attitude towards fossil fuels.
16
Source: internal source
Bargaining power of
suppliers
Port
er’s F
ive F
orc
es
Ana
lysis
• Main suppliers of oil fields have significant
bargaining power;
• Many conventional suppliers from supporting
industries have low bargaining power.
Source: internal source
17
Bargaining power
of buyers
Port
er’s F
ive F
orc
es
Ana
lysis
•Different degree of bargaining power, through different volumes of demand; •Given world oil price buyers have low bargaining power; •Big-country consumers may affect global demand with an increase in bargaining power.
18
Competitive Rivalry
Port
er’s F
ive F
orc
es
Ana
lysis
•The oil industry can be described as having few major and strong players and several smaller players with less power; •The rivalry is getting increasingly fierce among big producers; •The slow industry growth also intensifies rivalry among competitors; •High exit barriers and fixed costs keep the firms in a highly competitive industry.
19
Industr
y M
appin
g
Galp Community
Competitors
Partners Clients
Suppliers
Regulator
Employees
20 Industry mapping
Employees
•Galp in Brazil- around 70 employees
•Business sectors:
–exploration and development of raw materials;
•Galp continues to run training and research programmes:
–the GeoEr programmes - Geo-Engineering of carbonate reservoirs,
–the EngIQ- a PhD programme in refining engineering in cooperation
with the prestigious Heriot-Watt university
–Petroleum and Gas institute (isPG) in partnership with seven of the
Palm oil production (with Petrobras) in State of Pará
o One of the poorest regions in Brazil
o Palm oil is sustainable (plants can last for more than 40 years)
o Objective: make families self sustainable
o Petrogal & Petrobras buy oil from the families
o Decrease in the usage of fossel fuel
o Creation of 9.000 jobs (directly and indirectly)
Industr
y M
appin
g
24
Clients & suppliers
Costumers
Undisclosed customers
Can have bargaining power
Suppliers
Upstream business is different
Galp works in joint ventures
Bulk of technology is provided by the partners
Undifferentiated commodities
Industr
y M
appin
g
25
SW
OT
Analy
sis
SWOT Analysis
STRENGTHS
•Reliability, good negotiation
partner
•Language and cultural
affiliation
•Previous experience;
technological know-how
WEAKNESSES
•Small size
•Lack of financial power
•Share of total control with
Sinopec
•Lack of R&D in Brazilian
subsidiary
OPPORTUNITIES
•Enhance relationship with
Petrobras
•Learning opportunities for
GALP and its employees
•Achieving the target market
SO Strategy
•Participation in future bids for
drilling projects
•Use of technical experience
in deepwater exploration in
other projects
WO-Strategies
•Creation of R&D division with
Petrobras
THREATS
•Risky environment
•Corruption
•Accidents •Licenses restrictions
ST-Strategies
•Intensification of exploration
with seismic testing and test
wells
WT-Strategies
•Prevention of some accidents
by forecasting the risks in
close cooperation with the
partners
26
VRIO Analysis V
RIO
Analy
sis
27
MODE OF ENTRY
Joint Venture with Local & International partners
Depends on type of license
There are two ways Petrogal can enter Brazil:
o Operator
o Regular Partner
Mode o
f E
ntr
y
28
Entry barriers
High strategic entry barriers due to:
Collusion by incumbent firms
High structural entry barriers due to:
Cost structure (fixed costs)
Initial investment (high)
Strict regulations (legal and environmental)
Knowledge
Entr
y B
arr
iers
29
Types of Licenses
Type A
→ Allows for deep-water exploration
Type B (Galp)
→ Allows for off-shore exploration
Type C
→ Allows for on-shore exploration only
Types o
f Lic
enses
30
Joint Venture
Risk minimization/Cost sharing
Preferred mode of entry in Brazil
How does it work?
o One operator, multiple partners
o Established previously in contract (standard)
o Equity share
o Transparent process
Join
t V
entu
re
31
Operator
In charge of operations/processes
Only legitimate communicator in the venture
Must handle everything:
Personnel
Exploration
Explotation
Communication with regulator and partners
Communication with suppliers and clients
Opera
tor
32
Regular Partner
Direct communication with operator
Takes decisions together with operator
Other responsabilities in the venture:
o Financial backing
o Monitoring (KPIs, daily reports)
o Advising
Regula
r P
art
ner
33
Issues in the venture
OPERATOR CAN BE A MINORITY
Partners can move alone in some occasions
Contracts specify resolution of conflicts
Everything is contractualized
KPIs set by the venture
Disclosed information to partners
Financing needs
Issues in t
he V
entu
re
34
Corp
ora
tive R
ela
tion
Com
mu
nic
ations
Organizational Communication
Facilitate stakeholders‘ decision making + fulfillment of legal duties + Inform about current activities + Assistance with issues regarding Galp´s status + Mantain a good public image
35
Corp
ora
tive R
ela
tion
Com
mu
nic
ations
Dividends for the 3rd
Quarter 2013
Shareholders Actively Participate in Corporate
Decisions.
National Meeting in Brazil
Investors Communications 36
Sale
s S
trate
gy &
Tactics
SALES STRATEGY IN IBERIAN
PENINSULA AND AFRICA:
B2C & B2B Business2Consumer:
•around 1,500 service stations in Portugal, Spain and Africa. Retail is
6% In Africa, Galp Energia owns around 100 service stations.
Business2Business:
•oil products to the transportation, aviation, industry subsegments, contractors
and marine.
•Spain is a strong growht market. Galp enjoys a leading position in spanish
market.
37
Sale
s S
trate
gy &
Tactics
OIL PRODUCTS’ SALES APPROACH IN BRAZIL:
B2B & B2C Business2Business: • Who are Galp’s clients in Brazil? Clients are fixed in contracts
and the operator signs all the contracts.
• If Galp is not the operator, Galp knows their clients only if the operator wishes (unless Galp Energia is a client itself).
• However, the biggest client of Galp in Brazil is Petrobras. Galp’s expertise, cultural and political aspects foster the relationship between the companies.
How do things work in Brazil? 38
CS
F/C
ore
pro
cesses
39
Source: internal source
Critical
Success
Factors
Implications
Strategies
KPI’s
Oil price
• Profit
• Contract
fullfillment
N/A • Fluctuations
Drilling time
Development of new
technologies
• Number of oil barrels
produced per day
Highly qualified
Employees
• Maintain
reliability and
recognition for
future deals
• Advanced training
• Distance learning
• Master and executive
programs
• Investment in Education
• Balanced Score Card
Contract
Management
• Profit
• Efficiency
Establishment of closer
links with partners and
regulatory agency
• Equity share of contract
CS
F/C
ore
pro
cesses
OIL PRICE 40
Source: internal source
CS
F/C
ore
pro
cesses
DRILLING TIME 41
Source: internal source
KPI’s Objectives
Drilling time reduced by 5%
KPI’s
Number of oil barrels produced per day
Core Processes
Operations
Strategic Objectives
Decrease of the drilling time
Critical Success Factor
Drilling Time
CS
F/C
ore
pro
cesses
HIGH QUALIFIED EMPLOYEES 42
Source: internal source
KPI’s Objectives
Efficiency increase
KPI’s
Balanced Score Card Investment in education
Core Processes
Human Resources Management
Strategic Objectives
Train and maintain the best junior and senior engineers
Clear definition of roles and responsibilities
Critical Success Factor
Highly qualified employees
CS
F/C
ore
pro
cesses
CONTRACT MANAGEMENT 43
Source: internal source
KPI’s Objectives
Increase of number and share in the contract
KPI’s
Equity share of contract
Core Processes
Procurement
Strategic Objectives
Improvement of flow of information
Critical Sucess Factor
Contract Management
4 M
‘s -
Men
The 4 M’s - MEN
Local Human Resources Task
Geologists
Study seismic tests, blocks’ measurement
and consulting to operators. Report to both
the operator and project management team
Technicians
Handle geological machinery and field work
(survey). Report to both the operator and
project management team
Project Management Team (liaison)
Monitors the operation (representative of the
partner). Consults with technical team to
provide advice to operator. Reports to head
of E&E - Petrogal
Head of exploitation & exploration
Coordinates operations in Brazil.
Decision maker
• Head of E&E reports directly to Galp Energia’s HQ in Lisbon • No need for a single project manager per project when Petrogal is not the operator (waste of
resources) • Better to have a team to oversee all projects • Team is permanently in Brazil • Reporting to operator & team is simultaneous • Terms of reporting are pre-contractualized
44
4 M
‘s -
Money
Position Monthly Salary
Geologists 4.000€ - 9.500€
Technicians 4.000€ - 8.500€
Project Management Team 5.000€ - 9.000€
Head of Exploitation & Exploration 10.000€ - 15.000€
The 4 M’s - MONEY
Salaries have great variations depending on:
✓National vs. Expatriate
✓Junior vs. Senior
✓Differences in compensation schemes Source: Hays Global Report 2012
45
4 M
‘s -
Money
The 4 M’s - MONEY
Programme Section Fee Description
Executive education
Undisclosed Academic training at
international
universities. Tailored
specifically for oil
industry. Can be
taken individually or
together with other oil
companies
Master Degree
Programmes
800£ - 1.000£
(per course)
Distance learning
program at Heriot-
Watt University
(Edinburgh)
▪ No need for language training (Portoguese and English skills are acquired) ▪ Courses depend on actual needs at the moment