Petron refines its vision

Petron Corp.’s mission statement starts: "We are a petroleum-based business enterprise in pursuit of growth and opportunities that are in the best interests of our shareholders."

Two months before its annual stockholders meeting in July, Petron’s two largest shareholders are not in entire agreement on whether their best interests will allow the oil company to continue growing in a deregulated market.

Aramco Overseas Co. BV, which holds a 40% stake, wants to increase its investor’s value in Petron by raising profits. "Petron is the only downstream investment of Saudi Aramco and they weren’t happy about Petron’s P1.039 billion loss last year," said an industry analyst. "The estimated seven percent drop in local demand affected not only Petron but the other industry players as well."

The Philippine National Oil Co., which also holds a 40% stake, wants to temper profits with lower prices. "Petron should always consider the interest of the Filipino people," said Sergio Apostol, who was appointed early this year as PNOC chairman. "If Petron is focused on profit alone, then it should have made 10% to 20% more than the P348 million it reported in the first three months of this year."

Short-term strategy

Since assuming Petron’s top post last September, Motassim Al-Ma’ashouq has zeroed in on the export market, which accounted for 18% of total sales last year, to shore up the company’s finances. This year, exports will account for 22 percent.

The decision to export is partly dictated by refinery capacity. Actual refinery capacity utilization is currently at 75% of total capacity of 180,000 barrels per day. Historical utilization hovers at 90 percent.

"Our mindset before was that capacity was destined for the local market. Right now, the local market is facing slower growth and more competition. The export market offers better margins and mitigate our foreign exchange risk," said Ma’ashouq.

Petron’s export thrust, however, comes at a price. For 24 of its 30 years in business, it has been market leader. Petron lost its market leadership in the first quarter of this year.

"The shift in market leadership is not taken lightly. Market leadership and profit are not mutually exclusive and they will meet again," said Ma’ashouq.

As a stop-gap measure, Petron has aggressively cornered 66% of the volume requirements of the National Power Corp. for April 2001 to March 2002, reversing a corporate strategy initiated three years ago to reduce its reliance on Napocor sales and to develop other markets. The strategy assumed two factors: one, that Napocor’s oil requirement will drop as it pursues its long-term strategy to retire its old oil-based plants; (which is happening) and two, that the growth areas in the local market will mainly come from the transport and residential sectors.

In 1999, Napocor sales accounted for 15% of total Petron sales, down from Napocor’s historical one-third contribution. Last year, Napocor’s contribution to total sales further went down to 11% even as the economy registered minimal growth.

Spotting opportunities Ma’ashouq is unfazed. "It is important that we spot and respond to pportunities as quickly as possible. This is where our consumer intimacy or closeness to our markets is an advantage," he said.

In place is a technology platform that connects the 1,153 resellers or service stations nationwide to the Petron head office. Using an SAP (systems, applications and products in data processing) structure, Ma’ashouq and his senior management team gets a three-dimensional picture of the market place. "It provides an analyses of the business by product, location and market segment in real time. This enables us to evaluate such factors as risk and inventory and to come up with better decisions which affect profit margins and cash flow," he said.

Forty-five percent of Petron’s service stations are company owned. Not all service stations, however, generate non-fuel revenues from the company convenience store chain called "Treats". Petron’s policy is to concentrate non-fuel revenues on resellers which can deliver the highest returns such as the Petron property along the national highway which is host to fastfood businesses that bring additional business to the service station.

"We want to optimize our supply chain. In the past, we have looked at our asset base with the end-view of serving sales. Now, we want to employ our assets better. We’re looking at a distribution chain," said Ma’ashouq.

In the longer term, Petron intends to upgrade its refinery to meet the demand for white products such as gas and diesel. Within the industry, the strategy is called the "lightening of the barrel". Within Petron, the strategy could well be Petron’s savior in an increasingly competitive market.