final presentation galp energia_brazil_internationalization
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✧Agnieszka Machala - 1841 ✧André Alves - 1554 ✧Daniela Zerpa - 1834 ✧Nicola Loffredo - 1569 ✧Pietro Barindelli - 1530 ✧Stefany Agredo Martin - 1649
Team D
❖ Agnieszka Machała - 1841
❖ André Alves - 1554
❖ Daniela Gonzalez - 1834
❖ Pietro Barindelli - 1530
❖ Nicola Loffredo - 1569
❖ Stefany Agredo - 1649
TEAM D
Galp Energia is an energy company specialized in finding and extracting oil and natural gas from sites across four continents to deliver energy to
millions of customers every day.
1
Source: www.galp.com
Com
pany´s
Pro
file
Market capitalisation: €9.752 million
Turnover: €18.507 million
Net profit RCA: €360 million
Number of employees: 7,241
Reserves 3P: 783 mboe
Refineries: 2
Service stations: 1,486
Sales of natural gas: 6.253 mm³
Presence in four continents:
Europe: Portugal and Spain.
South America Brazil, Uruguay Venezuela.
Africa:
Asia:
Angola, Mozambique, Cape Verde, Guinea-
Bissau, Swaziland, Gambia, Equatorial
Guinea, Morocco and Namibia.
East-Timor
*Data from the end of 2012
2
Source: www.galp.com
His
torical B
ackgro
und
in B
razil
1999
Galp starts extraction
operations as Petrogal
2000
The first important extraction block was
awarded to the consortium for oil exploratory rights in
Santos
2005
With 20% participation the block ES-M-592 was awarded to the
consortium in Espirito Santo and 10% participation in blocks: POT-17, M-665, POT-M-853 and POT-M-855
in Portiguar
2007
Exploration right was awarded for blocks C-M-593, and BM-C-44 with 15.5% participation in
Campos
2006 Exploration in three
ultradeep water blocks in Pernanbuco
Revenues were about 7.6 million
Brazilian reais The Declaration of
Commerciality is issued to the Dó-Ré-Mi field in
Serguipe
2008
With 40% participation, 27,5 million Brazilian Reais were collected
from Amazonas
2012 With 10%
participation Lula Camp is awarded
2013
Currently Galp Energia participates in more than
20 projects in Brazil, where it is in partnership with oil
operator Petrobras Attempt to approach the midstream and downstream
markets. Analysis did not go as expected.
3
Source: www.galp.com
Pro
ducts
As PetroGal is only on the upstream
business PURE OIL is the core and unique product
4
Source: www.galp.com
Busin
ess
Oppo
rtunity
BRAZIL
Indicators:
- 190 million inhabitants
- Strong growth rates
- Vast natural resources (biggest oil discovery in decade)
Opportunity:
- Cultural & Political Affiliations
- Increasing Liberalization of Markets
- Petrogal has past experience
- Portfolio diversification
- Learning opportunity
- Gateway to other markets
5
Mis
sio
n
Creation of value for its shareholders taking into
account the economic, social, environmental backgrounds
6
Source: www.galp.com
Vis
ion
Participation in future rounds of bids to
increase Galp‘s presence in Brazil
7
Source: www.galp.com
Quantified S
trate
gic
Obje
ctives
8
Source: internal source
Increase production in Brasil to 100000 barrels per day by
2020
With 25% higher cash flow the company will
increase its participation in future
contracts
With more participation Petrogal plans to strengthen its relationship with local
partners
With higher financial power, specilized
operations and good recognition for the last
decades on the market, Galp wants to become an integrated operator, recognised
for its exploration successes
Targ
et M
ark
et
LULA Field Project, BRAZIL 9
Source: www.galp.com
Exploration and Production (upstream)
• The largest oil and natural gas reservoirs discovered in the last 30 years located in the Santos basin, off the Brazilan Coast.
• Exploration, appraisal and developlment of ultra deep-water field
Valu
e c
ha
in a
naly
sis
As the value chain is a process where raws materials are transformed
in diferent steps that add value, in the oil industry this transition is
divided into three parts:
•UPSTREAM → process of finding and extracting crude oil from the
ground.
•MIDSTREAM → process of refining crude oil into its various sub-
products that can be used for many functions.
•DOWNSTREAM → process of marketing and distributing refined
products to consumers.
→ GAS → OIL
10
Source: www.galp.com
Valu
e c
ha
in a
naly
sis
Operation Cost Gross margin Net Margin Percent
Exploration 2.97 16.33 13.36 36%
Production 17.78 32.67 14.89 41%
Transportation 1.00 2.96 1.96 5%
Refining 3.70 8.50 4.80 13%
Distribution 1.90 3.23 1.33 4%
Marketing 0.80 1.16 0.36 1%
Pump taxes 19.15 0.00 0.00 0%
36.70 100%
Oil and Gas Economics
(data are expressed in $cents/gallon)
• 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
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
most prestigious portuguese Universities
Industr
y M
appin
g
Sources: www.galpenergia.com/EN/Investidor/Relatorios-e-resultados/relatorios-anuais/Documents/Sustainability_report_2012.pdf
21
Regulators ●Brazilian federal constitution
●Petroleum investment law:
○Legal and regulatory framework
○Liberalization of oil production
○Creation of ANP- sector regulator
The resuming of ANP bidding rounds:
Industr
y M
appin
g
Source: www.brazil.org.uk/commercial/anproadshow_files/anproadshow2013.pdf
22
Partners Galp Energia invests in onshore,
shallow water and deepwater blocks in cooperation with:
Petrobras.
BG Group,
BP
Oil block locations in Brasil:
Parnaíba, Barreirinhas Potiguar and Santos Basin
Oil field Lula in Santos Basin:
65% Petrobras ,25% BG Group, 10% Galp Energia
Reasons for cooperation:
1.Increasing capital by cofinancing the investments
2.Political impositions
3.Large-scaling oil projects Industr
y M
appin
g
Sources: www.galpenergia.com/EN/Investidor/Relatorios-e-resultados/relatorios-anuais/Documents/Sustainability_report_2012.pdf
23
Community
Galp has strong community links
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
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
responsible for 30% of sales to direct customers.
•market share: portuguese retail market → 30% and spanish retail market →
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
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
46
4 M
‘s -
Money
The 4 M’s - MONEY
Type of Expenditure Value
Geologists 4.000€ - 9.500€*
Technicians 4.000€ - 8.500€*
Project Management Team 5.000€ - 9.000€*
Head of E&E 10.000€ - 15.000€*
Training > 1.000£**
Housing 10.000€ - 20.000€*
Travel Expenses 300€ - 700€***
Oil Rig 1.000.000€****
•* Indicates monthly expenses •** Indicates punctual expenses (pre-established fees) •*** Indicates punctual expenses (determined by variable market prices) •**** Indicates daily expense
47
4 M
‘s -
Min
ute
The 4 M’s - MINUTE
Before entering the Market Dependency of other Activities
1. File for data pertaining blocks of
interest
-
2. Contact potential partners -
3. Bid/accept oil blocks -
4. Contracts with partners Activity 3
5. Geological field surveys Activities 3 & 4
6. Apply for comercialization license Activity 5
7. Installation of production facilities Activity 4
48
4 M
‘s -
Min
ute
The 4 M’s - MINUTE
Before entering the Market Dependency of other Activities
1. File for data pertaining blocks of
interest
-
2. Contact potential partners -
3. Bid/accept oil blocks -
4. Contracts with partners Activity 3
5. Geological field surveys Activities 3 & 4
6. Apply for comercialization license Activity 5
7. Installation of production facilities Activity 4
After entering the Market Dependency of other Activities
8. Establishing Working Teams Activity 4
9. Testing of Equipment -
10. Begin Production Activities 4 & 9
• Monitoring takes place throughout every step of the process
• Partners receive information simultaneously from the operator
• Partners communicate with each other and advise the operator
49
4 M
‘s -
Mem
o
The 4 M’s - MEMO
Strategic
theme
Objectives Measurement Target Initiative
PRODUCTION Increase
portfolio of
production
Number of
drilling
activities in
Brazil
Increase
in the
number
of
operating
fields*
Partnerships
contacts with
potential
clients
INTERNAL
Training in
E&E
Number of
workers &
level of
training
Depends
on needs
Contacts
with
universities
& partners
EXTERNAL Gain
visibility as
a reliable
partner
Increase in
the number of
offers
Increase
in the
number
of
operating
fields*
Roadshows
& contacts
with partners
*Indicates that quantifiable targets are hard (Petrogal cannot create its own demand – it is dependant on sites offered by the State)
50
Chro
nogra
m
54 CONTINGENCY PLAN IN CASE OF OIL SPILL
Petrobras (the operator) will take care of this event when it happens; GALP does not have neither the responsability nor the structure to do it
Source: http://www.ipieca.org/publication/guide-contingency-planning-oil-spills-water
Ris
k a
ssessm
ent
RISK ASSESSMENT 55
Risk type Prob.ty (Scale 1-5)
Implication Impact (Scale 1-5)
Total
Risk
Price risk 3 Loss of Revenues 4 High
Supply and
demand
2 Shocks in the market 4 Medium
Operational
costs
3 Failure of machinery 5 High
Political
instability
2 Loss of Production 5 High
New
technologies
1 More Competition 4 Medium
Geological risk 1 Difficulty to extract and
find crude oil
4 Medium
Human capital
deficit
1 Unable to seize
opportunities
2 Low
Accidents 3 Loss of Production 5 High
1. Approach the downstream market
2. R&D to sustain Camp Lula (and
others)
3. Diversify portfolio (long-term)
Reccom
endations
56 RECCOMENDATIONS
1) Downstream market
Galp Energia should re-evaluate Brazil
Conditions have changed since last try
o Large investment in infrastructure
o More openness towards international firms
o Great relationship with Petrobras
There are variables to be considered
KEY DECISION VARIABLES: 1) financial power 2) partners 3) market
size 4) previous experience
ANALYSIS:
Joint venture as preferred mode of entry (Brazil is a vast market,
enormous investment is needed, Galp does not have the financial power,cost
sharing is key)
Key partner: Petrobras (key player in the downstream, it has financial power
and local knowledge)
Reccom
endations
57
2) Focus on R&D
a) Main challenge in Camp Lula
Unsure about lifetime of the machinery
Source of great potential costs
Need to mitigate risks
b) Joint efforts between partners
Petrogal can lead
Bring in Universities
Reccom
endations
58
c) Galp has worked with universities before
Contact network in researchers’ community
Petrogal can bring that advantage
d) Petrogal should be coordinating R&D
Increase importance in the venture
Knowledge spillovers
3) Diversify portfolio
Galp is mainly in the Oil&Gas business
Fossil fuels have a finite lifetime
i. Resources are getting scarce
ii. Short-run: good as prices increase
iii. Long-run: bad if there is no diversification
Galp Energia must prepare new solutions
Reccom
endations
59
BIOFUELS
already in Brazil: palm oil production in Pará state,
community work & sustainability
should intensify investment: upstream in Brazil can finance
this project, partnership with Petrobras is a possibility
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