ACADEMY OF ECONOMIC STUDIES

FACULTY OF BUSINESS ADMINISTRATION

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
 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.

2. General description of the company

Short history
After in 1991 Petroleum Petrom SA Autonomous was established, the Romanian
Oil Company was established as a joint stock company, formed by the reorganization
RAFIROM, PECO and PETROTRANS, which were merged and have stopped working.
Romanian Oil Company owned all the ten refineries in Romania, with extraction fields,
warehouses and petrol stations(1996).
In 1997 the Romanian Oil Company, which owned all ten refineries in Romania,
with extraction fields, warehouses and petrol stations, was divided between the eight
refineries functioning on their own, the rest falling assets owned National Company
Petroleum (SNP) Board. In 1999 it achieved the first stage of organizational restructuring
by releasing a number of 13,000 people in up-stream sector. At the same time it launched
the first phase of privatization of the company through a capital action.
In 2002 mechanical-energy activities within the branch Petromar Constanta
branch outsourced to PETROSERV, they are taken up by SC Petrom Service SA,
together with all related personnel. The privatization process begins by publishing in the
international press and Romania announced the selection of the consultant. 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. They initiate
the first phase of the privatization process. In 2004, employees are submitting offers.
OMV, Occidental and MOL are selected for negotiations.
On 23 July 2004, OMV acquired 51% stake in Petrom. The transaction was
completed in In 2006 a package of 99.9% is acquisitioned, OMV Romania, OMV
Bulgaria and OMV Serbia and has 30 gas stations and 95% of MOL Aviation Petroleum.
Petrom acquired a 74.9% stake in Ring Oil Holding & Trading Ltd., a company that
holds a portfolio of eight exploration licenses and one exploration and production license
in Russia.
In 2008 Petrom has signed a contract to build a power plant in Brazi along with
General Electric and Metka. The consortium will be build and deliver by September
2011, having a plant for producing electricity and steam combined cycle, which will run
on natural gas. In 2009, Petrom has started production of crude oil from western
Kazakhstan Komsomolskoe field.

3. Vision, mission and corporate values

Each organization must have a well defined purpose within its social and
economic environment. It must define its mission and vision based on understanding the
relationship it has with its customers, suppliers, partners and other interested parties; on
its characteristics and own competencies. Moreover, the organization must establish
strategic objectives for development taking into consideration its current and future
capabilities, as well as the risks and opportunities identified in its competition
environment. At the same time, the organization should cultivate a fair and complete
system of values and principles shared by all its members.

The mission, vision and values

The mission of Petrom is to discover, 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. The sustainable and profitable growth of the company
is of benefit to its shareholders, customers, employees and the Romanian economy in
general and is therefore at the focus of all their activities.
The company’s vision is to consolidate its position as the leading oil and gas company in
South-Eastern Europe, 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.
In their daily work they are guided by values they believe in, the three essential
values which form part of the foundation of their business are:
 Professionalism- professional excellence ensures lasting success.
“We learn, we perform, we succeed”
Continuous learning, high performance and personal commitment are the sources for
their professional excellence. They strive to achieve excellence in expertise, processes
and leadership. They concentrate on their goals and find synergies to ensure they are
among the front-runners in the market; their aim is to foster professional development to
generate long-term profitability.
 Pioneering- spirit of change for continuous development.
“We explore, we move, we grow”
Pro-active mobility and openness to change are the basis of their strength. They explore
development potential and take courageous decisions to create business opportunities in
their selected markets through new ideas, successful technologies and profitable growth.
Their focus is the combination of economic success with the best energy solutions for
today and tomorrow.
 Partnership- responsible relationships for mutual benefit.
“We respect, we connect, we care”

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

Petrom Group Strategic Directions

TARGETS STRATEGIC OBJECTIVES

 Re-develop key fields with different recovery schemes

 Unlock E&P potential and aim to
E&P largely offset the natural decline
 Caspian Region to become core market
 Process 100% domestic crude
 Crude oil consumption for energy and loss:
14% 10%
R&M 

Divest/close Arpechim by 2012
Increase throughput/filling station in
Romania(4.9mn l in 2009/5.2mn l in 2015)
 Middle distillates: 30% ~45%
 Grow gas sales volume in Romania and
neighboring countries
G&P  ~10% market share on Romanian
power market
 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
 Establish an electricity sales and trade concept within
Petrom
 Evaluate gas storage business opportunities
 Develop a power generation portfolio (Brazi and wind
power plants); commercial operations to start in 2011

 Increase sustainability rating to Prime  Sustainable development through financial discipline

Corporate mid range  Sound corporate governance principle and sustainable business
Sustainability 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
 5. Analysis of external competitive business environment (Porter’s model)

The Romanian oil market has a few important players.

Here, we can talk about the imports which are numerous but we can also talk about the
internal production. The internal production is taken care of by Petrom but in the refinery
part Petrom has several competitors, like ROMPETROL (petromidia, Vega), LUKOIL
(Petrotel), RAFO.

Rompetrol Group NV. is a multinational oil company, headquartered in Amsterdam,

the Netherlands, operating in 12 countries and with most of the assets and operations in
France, Romania, Spain and South-Eastern Europe. Rompetrol Group is engaged in
refining, marketing and trading, and additional operations - exploration and production,
oil service, EPCM, transportation etc.. 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.
Rompetrol is the quintessence of Romanian and corporate success, refined and adapted to
new global economic realities. Rompetrol Group's growth strategy signaled the
maturation of Romanian capital, the Company being an important representative of
Romania in the golobal business environment and one of the most important refinery
company in the country.
In 2005, ROMPETROM Group expanded making significant steps to become the first
multinational company to have a home base in Romania. In this regard the Company
made the largest acquisition in its history by signing the purchase of the French company
Dyneff Group, the largest independent petroleum products distributor in France, with a
market share of 4%. The contract was signed in December 2005.
ROMPETROL Group is now counted among the top 20 oil companies in Europe, being
thus the first company to significantly expand in EU originating from Romania.

LUKOIL is an integrated oil company with activities in exploration, extraction and

refining of crude oil and the wholesale and retail petroleum products. The investment
made in Romania in a period of 11 years reached over half a billion dollars.

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.

LUKOIL Management has adopted a proactive attitude by adopting a comprehensive

investment program in the fields of oil processing and distribution of petroleum products.
LUKOIL has invested over U.S. $ 283 million in a comprehensive process of
modernization of the refinery "Petrotel" Ploiesti. Over U.S. $ 230 million were directly
investments in equipment and processing facilities, the remaining U.S. $ 53 million
represented the sum LUKOIL paid to Romanian Government when it acquired the
package of shares of Petrotel.

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.

6. SWOT Analysis, PEST Analysis

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

Enhance value integration- 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.
Thus they concentrate on restructuring measures, applying at the same time a financial
discipline and a strict cost management to maximize operational efficiency and profit
consolidation. In order to adapt Petrom’s value chain and adjusting it to reflect the radical
change of the supply and demand fundamentals, they changed the scope of their original
investment plan in refining. 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.Furthermore, they adjusted their asset portfolio by consolidating the Exploration &
Production and Gas& Energy activities, investing selectively in power generation and
renewable energy sources.

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.

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. 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

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. Possible resistances analysis and methods of overpassing resistances

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

Against the background of major economic and environmental challenges Petrom

continues to invest in key projects to maximize performance. In this way, they secure
sustainable growth and ensure a diversified portfolio of energy products, from fuels to
gas and power, at EU quality specifications for their customers.
 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.
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.
Implementing Exploration and Production Services was an important step for Petrom
which resulted in high revenues and improved programs for future projects. 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.
Petrom is adapting to its regional and international interests, and on the domestic
market it implements the strategy conceived in order to compete the other key players on
the domestic oil market. Concrete, 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, processing and the distribution of oil products.
 References

 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