Diversification Strategy for Petromasila

Executive Summary

PetroMasila now is the largest oil production company in Yemen, so the challenges for increasing profitability and seeking for proficiency are been enlarged through day to day pioneering in oil and gas production. The global decline in crude oil price force oil producers to research for better alternatives of crude oil marketing. on the other side, scarcity of fuel in Yemen and soaring of domestic demand for petroleum products promote for better future in petroleum refinery investment. Furthermore, Diversification, product-development, market-development, and market penetration strategies are crucial factors for company to persist, grow, and keep pace of the growth in petroleum product's market. From social responsibility point of view, making fuel products available for Yemeni consumers and industries, during this crisis and after, with less price than imported fuel grant the company to acquire favorable positioning for company brand and dominating Yemen fuel market.  furthermore, this decision will better alternative than fuel subsidies, which was consume about one-third of the state budget.

Table of Contents

1. Company background

 PetroMasila had established on 17 DEC 2011, shifted from the previous operator of block 14, CANADIAN NEXEN, to be operated by Yemeni management and workforce. Lately at the end of 2015 TOTAL E &P YEMEN, which had the franchise of operation and production in block 10 east shabwa, handed over block 10 to PetroMasila due to time expiry of the operation's contract. after that block 51 and block 53 also shifted to PetroMasila. These additional blocks increased the potential capacity of crude oil production to about 100,000 bbd, and not commercial amount of petroleum gas about 43 million cubic meter/day from block 10.

During the current crisis in Yemen, oil production industry forced to shut-down due to security issues and political instability. But at the end of war any new government have to secure this crucial sector for getting revenue, since revenues from hydrocarbon exports still make up two-third of state revenues and nearly 90% of the government's exports income. As a national company PetroMasila should take its social and economic responsibility to face the challenges faced the country and community as well, by producing the oil products to community with cheaper prices, increasing its revenue to government, and secure the availability of fuel to Yemen market.

2. Situation analysis

  nowadays petromasila is the largest oil company in Yemen operated and managed by high qualified Yemeni stuff who's carried the operational and social responsibility during hard times faced the company. though they have many obstacles counter them in their daily missions such as the dynamic change in their business environment, they have high potential capabilities to lead company to success. Strength of the company absolutely depends on creativity, cooperation, integration, and ability of all stuff to work as one family.

although the largest capacity of production & the professional stuff that petromasila have, it faced an economic recession during the last few years and it revenue sharply decreased due to international decrease in crude oil prices. that makes the company struggling to cover production costs - including the capital investment and interest for the existing facilities that were handed over to petomasila by the previous foreign companies whose had government franchise for operation and construction of all blocks inherited to petromasila - and producing enough revenue to the government, since most of the country income depends on crude oil marketing.

For the coming years, with international oil prices expected to be at a low, Yemen will keep running structural deficits and will struggle servicing its international debts. The country’s already limited foreign currency reserves are likely to drop further, risking a balance of payments crisis and exacerbating the difficulties faced regarding financing of imports and social protection mechanisms. Over the past decades, Gulf neighbors have regularly mitigated economic shocks through donations of oil and cash injections. (Dr. S.v. Genugten article, March 2016). so the real need for creating and developing new ideas to increase the government revenue is insistent in present and future of Yemen.

2.1 market summery

the important of petroleum products as commodity goods, make the demand soaring with the growth of population. this increase of demand encountered with shortage in supply, the reason caused scarcity of fuel. during the past years the price of oil products are soaring to the level which out of reach of most segments in community resulting a sharp decrease in quantity demanded of fuel and LPG. the consumers start buying less quantity than they really need due to higher price. Yemen fuel market is crucial sector due to its important connection with the daily life of people and it's important for economic cycle of the country. in 2014 Yemeni people depressed by the act of abolishing fuel subsidies and raising of fuel price, that caused population riot and deteriorate the political situation. producing petroleum products with lower and affordable prices will assist liquidate some of the economic and political problems. in other side it is an opportunity for the company to produce new products satisfied the domestic market with high probability of success in the current situation for some reasons like; the available fuel covers only 12-16% of the consumers' needs, imported fuel is associated with high price due to foreign manufacturer taxes and transportation costs, the urgent need of the government to increase its revenue and decreasing foreign exchange transfer that caused by the imported fuel, and the importance of fuel for development in post-war period.