Petrochina Organizationalanalysis

Executive Summary

PetroChina is one of the largest oil and gas suppliers in the world, and is engaged in activities related to petroleum and natural gas. The China National Petroleum Corporation (CNPC) controls PetroChina[I assume you will talking about who controls CNPC in the body of this report] as they currently have an 86% ownership of the equity interest. Though the company primarily operates in the northern and southern provinces of China, PetroChina had established a wholly owned subsidiary called PetroChina International. This subsidiary focuses on international oil and gas exploration in order to further their long-term objective in creating sustainable growth.

The company operates in five business avenues, which include exploration and production, refining and chemicals and marketing. As the company is still faced with threats of competition from both the domestic and international regions, PetroChina has begun to re-evaluate their internal processes with regards to improving efficiency with fuel output. However, due to the price constraints enforced by Chinese government, the company hopes to expand its presence in overseas operations such as Central Asia, East Africa, Australia and Canada.

As the company moves forward into acquiring foreign assets, they have observed its own [This doesn’t sound quite right]external threats with regards to heightened competition, concentrated share ownership, government regulation, and overexpansion. Main competitors in their domestic environment include Sinopec and China National Offshore Oil Corporation, which have also adopted an aggressive strategy in acquiring overseas operations[Including bullying everyone is Southeast Asia].

PetroChina is also faced with government regulation having a direct effect on their operating profits due to major operations being in their domestic region. Over expansion has been another consideration, given the expected growth rate from these investments not being realized until a later period, which would expose them to a higher level of risk.

PetroChina has strong core competency in their operational performance in adapting to the changing industry and ensuring a steady level of production in their operations. The company has been able to take on a dominant market position due to their sustained leadership, management practices, and integrated systems.

The organizational culture has also been a key aspect in PetroChina's development, as corporate leadership and objectives needs to be reflected upon their own internal operations. The work philosophy of the company observes that employees are the key drivers in the company’s operations and work environments have a direct impact on PetroChina's level of output. This includes providing stringent regulations to hold the management to a higher level of accountability with respects to ensuring work safety and career opportunities.

Furthermore, PetroChina has begun to adopt new technologies in response to the changing attitudes of society. This includes their research into biofuel technology as an alternative fuel source and even developing new pipelines in order to improve transportation and reduce costs in their value chain. New forms of innovation in the oil and gas industry have become a new trend in these old markets in hopes to creating a sustainable fuel source while being able to be a positive impact on the world environment.

Company Overview

PetroChina is regarded as one of the largest oil and gas producers and sellers in the People's Republic of China[ PetroChina. 2012 Interim Report. PetroChina Official Website. Retrieved from http://www.petrochina.com.cn/Resource/pdf/xwygg/2012interimreportEn.pdf]. The company itself "was established in 1999 as a joint stock company with limited liability as part of the restructuring of China National Petroleum Corporation (CNPC)"[ PetroChina Company Limited.

Company Profiles. Retrieved from EBSCOHost on September 24, 2012.]. This transfer of assets, liabilities, and interests had been made related towards exploration and production, refining and marketing, chemicals, and natural gas businesses[ PetroChina Company Limited. Company Profiles. Retrieved from EBSCOHost on September 24, 2012.].[You really need to disclose the real owners of PetroChine early on in your analysis] PetroChina developed a new strategy by establishing PetroChina International, which focuses on oil and gas exploration in other regions of the world[ PetroChina Company Limited.

Company Profiles. Retrieved from EBSCOHost on September 24, 2012.]. Other acquisitions had been made to increase their market share such as Devon Energy Indonesia, Newco's oil and Jinzhou Petrochemical Company[ PetroChina Company Limited. Company Profiles. Retrieved from EBSCOHost on September 24, 2012.]. PetroChina has also engaged in numerous joint development projects in the early 21st century and is expanding its own refinement and petrochemical businesses[ PetroChina Company Limited. Company Profiles. Retrieved from EBSCOHost on September 24, 2012.].

This expansion would extend the company into other processes and create higher quality products and services. By collaborating with other major oil and gas companies, the company was able to extend its branches into other entities and manage a sustainable growth to embark on achieving the company’s long-term objectives in global diversification. The company currently employs 552,810 [That seems like a huge number, especially compared to Exxon’s 82,000 employees.

Why so many?]people and had recorded revenue of $310,515.5 million US, as of December 2011[ PetroChina Company Limited. Company Profiles. Retrieved from EBSCOHost on September 24, 2012.]. Operating profit generated was $28,592.8 million though this was a 4.4% decrease from the previous year[ PetroChina Company Limited. Company Profiles. Retrieved from EBSCOHost on September 24, 2012.].

Organizational Strategy

The PetroChina strategy has been refined in accordance with the global changes of oil and gas demand and the relation to the company's current level of operations. Based on the company's price controls enacted by the Chinese government, the primary objective for the company has been made "towards maximization, diversification and orderly replacement of hydrocarbon resources"[ PetroChina. Business Strategy. PetroChina Official Website.

Retrieved from http://www.petrochina.com.cn/Ptr/About_PetroChina/Business_Strategy/].[So what do they mean by maximization?] This is strongly correlated with their previous strategies in acquiring companies in their domestic regions and how it has expanded their level of operations.

PetroChina has developed a strong competitive two-phase system. In the first Phase, the company would focus on developing key energy businesses, maintaining leading roles in comprehensive strength in China and striving to become an international energy organization[ PetroChina. Business Strategy. PetroChina Official Website. Retrieved from http://www.petrochina.com.cn/Ptr/About_PetroChina/Business_Strategy/].

This strategy involves taking a more aggressive approach by acquiring other assets that would cover another range of products related to the oil and gas industry whether it is natural gas or petrochemical products. Through this vertical integration along with increasing efficiency in their current processes the company hopes to promote its profit growth and return on investment while improving its presence on the transnationality index[ PetroChina. Business Strategy. PetroChina Official Website. Retrieved from http://www.petrochina.com.cn/Ptr/About_PetroChina/Business_Strategy/].

This global competitiveness has been recognized, as PetroChina was able to surpass Exxon Mobil in total oil production, in 2012. PetroChina's "buy drive" [What is this?]has been an active measure in seeking new opportunities in Central Asia, East Africa, Australia and Canada[ Tao, L. (2012). PetroChina on 'buy' drive. China Daily. Retrieved from http://www.chinadaily.com.cn/china/2012-08/24/content_15703729.htm].

Specifically, the company has interests in onshore projects and several types of unconventional energy such as tight gas, coal bed methane and shale gas[ Tao, L. (2012). PetroChina on 'buy' drive. China Daily. Retrieved from http://www.chinadaily.com.cn/china/2012-08/24/content_15703729.htm]. At the same time, PetroChina has advanced into exploring alternatives as a means to becoming environmentally friendly and internationally sustainable through coordinating domestic and imported gas production and improving development for both conventional and non-conventional gas[ PetroChina.

Business Strategy. PetroChina Official Website. Retrieved from http://www.petrochina.com.cn/Ptr/About_PetroChina/Business_Strategy/]. This development towards green strategy has been directed at the utilization of traditional fossil energy[ PetroChina. Research and Development. PetroChina Official Website. Retrieved from http://www.petrochina.com.cn/Ptr/About_PetroChina/Research_and_Development/?COLLCC=2294270649&].

Previous Challenges

In the past, PetroChina has faced numerous economic challenges, such as maintaining business operations amidst the global financial crisis[ Hitchings, M. (2009). PetroChina: Bracing for Economic Challenges. Global Refining & Fuels Reports, 13(13), 31.]. Though there have been other challenges with price regulations enacted by the Chinese government, PetroChina has understood the importance of refining their operations towards improving efficiency and aligning "product mix with the changing market demands"[ Hitchings, M. (2009). PetroChina: Bracing for Economic Challenges. Global Refining & Fuels Reports, 13(13), 31.].

This would later translate to a new objective for the company by taking an integrated approach in increasing production and expects "to serve the fuels and petrochemicals market that will continue growing at a faster pace relative to other regions"[ Hitchings, M. (2009). PetroChina: Bracing for Economic Challenges.

Global Refining & Fuels Reports, 13(13), 31.]. Their assumptions had been right as PetroChina recognized the increased demand in emerging countries and would surpass Exxon Mobil by 0.1 million barrels of crude oil per day as announced on March 2012[ Pasquali, V. (2012). PetroChina Surpasses Exxon In Oil Production. Global Finance, 26(5). 11.]. Some of this success originates from its strict adherence to a vertical integration for product transport and refinement.

By developing realistic long-term objectives, analysts realized that the company was not "an overnight success story", and that the company had organized corporate holdings structures and based the allocation on geographic location[ Pasquali, V. (2012). PetroChina Surpasses Exxon In Oil Production. Global Finance, 26(5). 11.].

Overall, the company's goal towards diversification and refining their internal operations has yielded long-term successes, and that this strategy will continue to ensure PetroChina's level of competitiveness is sustained and continually improved. With a more open mind towards new problems based on the challenges they had faced prior, PetroChina hopes to utilize new systems and adapt itself to becoming more sustainable in their current market.

Corporate Structure

As PetroChina diversifies itself in all avenues of oil and gas production, the company has reviewed its corporate structure and refined it in accordance with the applicable laws and regulations including the Company Law, and the "Mandatory Provisions for the Articles of Associations of Companies to be Listed Overseas and the Articles of Association"[ PetroChina. PetroChina Company Profile. PetroChina Official Website. Retrieved from http://www.petrochina.com.cn/Ptr/About_PetroChina/Company_Profile/].

Based on Figure I, PetroChina's structure is divided up into separate departments that handle different subjects related to the company such as legal affairs, finance, internal control, and enterprise culture. This shows compliance to the regulations imposed by the CNPC and their control over all aspects of the organization whether it is management or internal operations. Despite the level of division into other markets, the shareholders, namely the CNPC, have direct control. This delegation of tasks has also created a higher level of organization given the immense size of the company and what aspects are monitored and improved.

In addition, PetroChina has begun to set priorities in areas that would foster future sustainable growth. This links directly with the company's concentration in green innovation and that research and development is key to advancing current operations and the connection with the overall efficiency of the company.

The hierarchy is especially important considering the level of foreign investment in other nations and creating new operations in activities such as exploration, development, production, marketing, refining, and transportation[ PetroChina. Core Business. PetroChina Official Website. Retrieved from http://www.petrochina.com.cn/Ptr/About_PetroChina/Core_Business/]. From Figure II, the company has a wide array of petrochemical facilities and must deal with their distribution given the level of industry concentration with other competitors primarily in the southern and western provinces of the Chinese market.

Opportunities in their Domestic Environment

PetroChina's growth opportunity and long-term strategy strongly revolves around them taking advantage of the domestic markets in the People's Republic of China. As they are the largest oil and gas producer and seller, PetroChina aims towards achieving a 1.3 million barrel production output by 2012[ PetroChina Company Limited. Company Profiles. Retrieved from EBSCOHost on September 24, 2012.]. In fact, the Chinese government has implemented internally devised "fiscal policies and prudent currency policies"[ PetroChina Company Limited. Company Profiles. Retrieved from EBSCOHost on September 24, 2012.] to which can benefit the company.

[They may benefit the company, but how will they be viewed by other countries China is trying to do business with?]These new policies will "optimize energy structure, promote energy conservation and emission reduction, as well as encourage the clean use of conventional energy resources"[ PetroChina Company Limited. Company Profiles. Retrieved from EBSCOHost on September 24, 2012.]. This of course coincides with PetroChina's investment into unconventional fuels in order to improve efficiency and reduce carbon emissions.

The Chinese government has created these policies as a means to accelerate PetroChina's growth during their stage of increased production and operations in their ongoing strategic development[ PetroChina Company

Limited. Company Profiles. Retrieved from EBSCOHost on September 24, 2012.]. With current external conditions becoming favourable, PetroChina strategy has focused "on large basins, key regions, and new oilfields"[ PetroChina Company Limited. Company Profiles. Retrieved from EBSCOHost on September 24, 2012.] to reach their ideal output levels. Part of this includes deepening its "comprehensive geological studies that will continue to consolidate its dominance in China in upstream operations"[ PetroChina Company Limited.

Company Profiles. Retrieved from EBSCOHost on September 24, 2012.]. Planning involves the company building its level of production capacity and investing in new technologies and their applications[ PetroChina Company Limited. Company Profiles. Retrieved from EBSCOHost on September 24, 2012.]. Specific improvements would involve promoting fine water injection in oilfields to "lower natural declining rate" and abiding by environmental protection regulations.

PetroChina has not given up future prospects of further expansion in their overseas sector. As the company does face strict regulations and controls that can potentially damage their operations, ventures in other regions has been key to sustaining its current growth despite the increased competitive environment in China and abroad.

New Overseas Acquisitions

Despite the concentrated investment in crude oil refinement and petrochemical facilities in PetroChina's domestic region, the company has begun to recognize the opportunities overseas and has taken pre-emptive measures to boost its refining and marketing capabilities in other countries[ PetroChina Company Limited. Company Profiles. Retrieved from EBSCOHost on September 24, 2012.]. New investment opportunities include projects in Asia, East Africa, Australia and Canada[ Tao, L. (2012). PetroChina on 'buy' drive. China Daily.

Retrieved from http://www.chinadaily.com.cn/china/2012-08/24/content_15703729.htm]. This has been part of the company's long-term scope towards improving competitiveness with other firms such as Exxon Mobil, and domestic competitors including Sinopec and China National Offshore Oil Corporation (CNOOC) [ PetroChina Company Limited. Company Profiles. Retrieved from EBSCOHost on September 24, 2012.].

The overall objective is to improve their global presence for competitiveness in global markets and achieve their production goal in producing and trading capabilities. Some of the more recent activities with PetroChina include their joint ventures with refineries in Scotland and France being made, which allowed the processing of a combined 420,000 barrels of crude oil per day[ PetroChina Company Limited. Company Profiles.

Retrieved from EBSCOHost on September 24, 2012.]. Valero Energy has also been another opportunity where PetroChina was able to acquire 235,000 barrels per day from an Aruba plant as new technological developments have been developed "to handle the heavy Venezuelan crude as well as recently upgraded hydro-treating capability"[ PetroChina Company Limited. Company Profiles. Retrieved from EBSCOHost on September 24, 2012.].

In addition to potential prospects in Europe, PetroChina has also ventured into the North America region. The company has formed an agreement with Royal Dutch Shell by collaborating in exploring "unconventional gas resources" to tap into shale reserves[ Anonymous (2012). PetroChina, Shell Deepen Ties for 'Powerful' Shale Potential. Bloomberg Sustainability. Retrieved from http://www.bloomberg.com/news/2012-02-02/petrochina-to-buy-20-stake-in-shell-s-canada-shale-gas-project.html]. PetroChina had already purchased a 20% stake in Shell's Groundbirch shale-gas project in British Columbia with plans to drill 20 to 25 wells by the end of 2012[ Anonymous (2012).

PetroChina, Shell Deepen Ties for 'Powerful' Shale Potential. Bloomberg Sustainability. Retrieved from http://www.bloomberg.com/news/2012-02-02/petrochina-to-buy-20-stake-in-shell-s-canada-shale-gas-project.html]. It has been observed that "China's shale gas potential" could be quite substantial in the long-term[ Anonymous (2012). PetroChina, Shell Deepen Ties for 'Powerful' Shale Potential. Bloomberg Sustainability. Retrieved from http://www.bloomberg.com/news/2012-02-02/petrochina-to-buy-20-stake-in-shell-s-canada-shale-gas-project.html].

PetroChina has explored options with the Alberta oil sands project. In fact, PetroChina had exercised their option in acquiring 40% interest in the MacKay River oil sands project for an estimated $680 million US[ CBC Staff (2012). PetroChina buys entire Alberta oilsands project. CBC News Business.

Retrieved from http://www.cbc.ca/news/business/story/2012/01/03/athabasca-petrochina-mackay-oil.html]. Athabasca had already sold their 60% stake in the project a year prior. Once the project has been approved, PetroChina expects to reach a production rate of 35,000 barrels per day and with expansion to 150,000 barrels by 2014[ CBC Staff (2012). PetroChina buys entire Alberta oilsands project. CBC News Business. Retrieved from http://www.cbc.ca/news/business/story/2012/01/03/athabasca-petrochina-mackay-oil.html].

Based on the joint ventures and acquisitions made over the 2011 and 2012 period, PetroChina hopes to reach an 8 million barrel output by 2015[ PetroChina Company Limited. Company Profiles.

Retrieved from EBSCOHost on September 24, 2012.]. This would mean boosting its global trading and marketing of oil by nearly double[ PetroChina Company Limited. Company Profiles. Retrieved from EBSCOHost on September 24, 2012.]. Essentially, this would offer a more diverse range of output that would not be under the same stringent pricing regulations imposed by their domestic region.[What is their long term oil needs? Do you have projections?]

Threats of Competition

As PetroChina expands its global framework, there still is the consideration of the company's current competitors both in the international and domestic sectors. Main competitors in the domestic environment include Sinopec and China National Offshore Oil Corporation (CNOOC) [ PetroChina Company Limited. Company Profiles. Retrieved from EBSCOHost on September 24, 2012.]. Sinopec Shanghai is a petrochemical company that "processes crude oil into synthetic fibres, resins and plastics, intermediate