I.

Company Profile

Phoenix Petroleum Philippines, Inc. (PNX), a

home-grown company, headquartered in Lanang,
Davao City is recognized as the fastest-growing
and leading independent oil company in the
Philippines. Recognizing the high potential of
growth in the oil industry, entrepreneur Dennis Uy,
established an oil company with a goal to gain
fourth of the market share in Davao and Mindanao (Phoenix Petroleum Philippines, 2018)

From its foundation in 2002, they entered a

joint venture to incorporate Oilink Mindanao
Distribution, Inc., however with rising
differences between partners, the company
was renamed as Davao Oil Terminal
Services Corporation (DOTSCO) in 2004.
In the company’s early stages, Cebu Pacific
became its first major account and has been the exclusive logistic provider for their
refueling requirements in all its Mindanao destinations (Business World Online, 2012).
To date, they expanded their service offering by providing into-plane services, fuel
storage expansion and bridging services to two domestic airports (Rivera, 2018).

In order to grow the business, the company opened their first 5 retail stations in Davao
and Mindanao under the “Phoenix Fuels Life” brand in 2005 and officially renaming it to
Phoenix Petroleum Philippines, Inc. in 2006 (Phoenix Petroleum Philippines Inc., 2018).

Phoenix is the first company in Davao City to be publicly listed on the Philippine Stock
Exchange since July 2007 after the Oil Deregulation Law was passed in 1998 (Phoenix
Petroleum Philippines, 2018). Confronted with tight competition in the industry with a
homogeneous product offering, they recognized the importance of differentiating their
own from the rest through their wide array of products that service a number of industries

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including agriculture, construction, manufacturing, marine, mining, mass and commercial
transportation, and even individual motorists and households. While continually
expanding its network nationwide, they established a presence beyond the confines of
their home base by putting up in 2008 their first station in Marikina, their 75th station. To
support the expansion, they acquired a 60-hectare industrial park in Batangas, wherein
they established the Phoenix Petroterminals and Industrial Park, a subsidiary housing the
company’s largest terminal facility. Following such success, they continued to expand
their retail network by opening their first Visayas station in Cebu and 100 th station in
General Santos City.

To sustain its growth, the company launched its flagship fuel, the Phoenix Premium 98,
which restores lost engine power. Moreover, the company continued to widen its range
of quality petroleum products which now includes Biodiesel, Super Regular 91 Gasoline,
Premium 95 Gasoline. All meet Euro 4 specifications and standards to produce cleaner
fuel (Phoenix Petroleum Philippines, 2018).

With high regard for recognizing and empowering Filipino drivers, the company launched
its Pinoy Tsuper Hero in 2014, which advocates safe driving, safe roads, and better travel
environment for the public. This advocacy drives Phoenix to even work harder, be more

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persistent, and determined in enhancing their products and services. In the following year,
they launched a revitalized line of lubricants for automotive, commercial, and industrial
uses that boost speed, power, oil and engine life, and protection (Phoenix Petroleum
Philippines, 2018).

Phoenix Petroleum, Inc. Petroleum Products:

Premium 98 Gasoline w/ Phoenix Pulse Technology
Premium 95 Gasoline w/ Phoenix Pulse Technology
For Motorists
Super Regular 91 Gasoline w/ Phoenix Pulse Technology
Biodiesel w/ Phoenix Pulse Technology
Premium Plus 97 Gasoline
Premium 95 Gasoline
Super Regular 91 Gasoline
For Commercial and
Biodiesel
Industrial
Jet A1
IFO (bunker oil)
SFO 60-100

Driven by several developments and increasing

competition in the market, they introduced yet
another innovation in the form of the Phoenix
PULSE Technology, a specially formulated blend
with advanced cleaning and protection properties
for enhanced power and acceleration that can
improve every customer’s journey (Phoenix
Petroleum Philippines Inc., 2018).

Apart from its recent acquisition of Petronas as a means to include in their product line
liquefied petroleum gas (LPG) last August 2017, Phoenix has also ventured into the
operation of oil depots, storage (of petroleum products, mainly refined gasoline, diesel,
and other petrochemical products), transport services, and integrated logistics services

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like hauling, or the transport and provision of fuel to industrial customers, and into-plane
services of Jet-A1 fuels for airports and airlines (Phoenix Petroleum Philippines, 2018).

From the initial five retail stations, their network continues to grow to over 500 stations
and serving more and more companies from different industries. Only recently, it
established the PNX Petroleum Singapore Pte Ltd. which trades and supplies a wide
range of refined products to various businesses and just this 2018 acquired the Philippine
FamilyMart CVS, Inc. which is the third largest convenience store chain in the country
(Phoenix Petroleum Philippines Inc., 2018)

The company has been recognized by various award-giving bodies for their leadership,
management, brand, marketing, and social responsibility and along with their partner
communities and organizations, they are proud to have touched thousands of lives in
meaningful ways. Given the solid growth of the Philippine economy and the country’s
remarkable governance, there are countless of business opportunities that await them,
more products to introduce, stations to open, and regions to reach (Phoenix Petroleum
Philippines Inc., 2018). With its passion to do excellent work and strong commitment to
deliver world-class services, empower people, and inspire every Filipino’s entrepreneurial
spirit, they will bring to life their vision, which is to be an indispensable partner in the
journey of everyone whose lives they touch. Indeed, the company has come a long way
and the road ahead is filled with much more exciting journeys that Phoenix Petroleum
and their partners will experience together.

II. Industry Where the Company Operates and Industry Future Outlook

The petroleum industry is one of the largest industries in the world. In fact, the demand
for oil which is solidly entrenched among countries across Africa, Central and South
America and in Asia and still rising by up to 1.5% a year, with a consumption globally that
will reach to almost 100 million barrels of oils consumed daily, according to (Independent,
2018). It is undeniable that petroleum or oil is one of the vital sources of energy in the
Philippines which contributes approximately 90% of the country’s total energy
requirement. The Philippine oil and gas industry is witnessing active transformation during

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2017 and 2018 driven by local and global industry dynamics. The country is planning to
intensify its growth opportunities and attract new investments in domestic oil and gas
sectors. Just as in the Business Monitor International’s (BMI) latest Philippines Oil and
Gas Report, the country accounts for 1.26% of Asia Pacific regional oil demand last 2015
(TWA Editors Asif Zafar, Anindito Satrio Baskoro, & Nur Suriani Mamat, 2018).
Furthermore, the Philippines’ oil production was forecasted to rise by 7.8% between 2010
and 2020 making the country the sixth in BMI’s composite Business Environment (BE)
league table.

The country’s three major oil companies, namely: Petron Corporation, Pilipinas Shell
Petroleum, and Chevron Philippines has been dominating the industry with a combined
market share of 54.6% leaving the 45.6% market share to the independent players. With
the 6.2% of the market, Phoenix Petroleum ranks as the leading independent oil firm
followed by Sea Oil with market share of 5.1%. Phoenix Petroleum is said to have
performed at its best in 2017 in terms of its sales volumes, income, and revenue. With
this, Phoenix Petroleum is committed in serving their customers’ needs and growing the
business by realizing the value of its expanded network of business including fuel,
lubricants, LPG, convenience store retailing, and asphalt production.

Despite increasing oil prices alongside a steady economic growth, the oil and gas markets
in Southeast Asia can anticipate positive prospects. Improvement in this market is due to
the supply constraints led by a group of producers around the Organization of the
Petroleum Exporting Countries (OPEC) and Russia. Moreover, oil demand is expected to
rise by an average of 1.4% per year which would make up to around 36.5% of the world
energy mix by 2030 according to the OPEC reference scenario. Generally speaking, we
can say that the future outlook of the petroleum industry is rather bright.

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III. Competition in the Industry and Position of the Company

Phoenix Petroleum Philippines Inc. currently holds the fourth spot in the most successful
petroleum companies in the Philippines holding a total of 6.2% market share (Velasco,
2018). The company is still considered as one of the minor players in the industry, but
they are steadily rising in rank. Sooner or later, Phoenix Petroleum Philippines will be at
a sizeable level competing with the top three major petroleum companies. To discuss the
current position of Phoenix Petroleum Philippines Inc. in the industry, below is the
analysis of the company using Porter’s Five Forces Model:

COMPETITIVE RIVALRY

The competitive rivalry in the oil and gas industry is considered high. As of December
2018, Department of Energy reported that there are 32 Petroleum Companies that are
actively operating in the Philippines (Department of Energy, 2018). Major oil and gas
companies are relatively equal in size, power, and capabilities. Given this, companies are
prone to price wars if a competitor tries to influence prices. Rivalry in the oil and gas
industry in the Philippines becomes intense especially if the goal is to go beyond
economic performance.

When it comes to product differentiation, most of the oil and gas companies in the
Philippines offer the same type of products and these products are mostly sourced from
international suppliers (Santiago, 2017). To make the brand more well known, the
companies innovate their services to guarantee customer satisfaction, if not exceed
expectations. Oil companies try to offer competitive pricing, offer the best services to
respond to customers’ needs, come up with the best marketing and branding campaigns,
and find the best strategic locations (Flores, 2016).

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THREAT OF NEW ENTRANTS

Threat of new entrants in the oil and gas industry in the Philippines is low to moderate.
The process of starting an oil and gas company is more complicated and takes relatively
longer strategic planning compared to other industries. This is because the oil and gas
industry is strictly regulated locally and internationally. Also, getting the required startup
funding could take time (Profitable Venture, 2018).

New entrants bring with them new capacity and the desire to gain market share. This
desire puts pressure on costs, prices, and the rate of investment that is necessary to
compete. In terms of knowledge in crude refinery, there are only few people who
specializes in this profession, hence the reason why there are only few businessmen who
can start an oil and gas company (Daugherty, 2017).

Having low threats of new entrants to the oil and gas industry may also imply that the
barriers to entry are high. This may arise from government regulation which influences
the competitive strategies of the oil and gas companies. For instance, local and foreign
governments mandate companies within the industry to closely comply with
environmental regulations. These regulations often require capital to comply, forcing
smaller companies out of the sector (Investopedia, 2018).

THREAT OF SUBSTITUTE

The threat of substitute in this industry is considered moderate. There are alternative
sources of energy other than oil and gas such as nuclear energy, coal, hydrogen and
biofuels, and other renewable sources such as solar and wind energy. As of today, Coal
is already well established in the market. However, there are still other alternative
technologies that are currently being developed to replace oil and gas (R. Dhawle, P.
Kamdar & J. Pan, 2011).

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In the Philippines, the Senate created the Biofuel Act of 2006 which directs the use of
biofuels in the country (RA 93657, 2016). Despite the implementation of this act, Filipinos
still use oil and gas on a regular basis.

BARGAINING POWER OF SUPPLIER

The bargaining power of suppliers can be considered high. Most of the suppliers in the
oil and gas industry are active in the whole value chain of oil and gas sector. Therefore,
companies who are selling crude oil are dependent to their suppliers. This leaves the
buyer no choice but to buy the products based on the selling price of the supplier.

Also, the switching costs for crude suppliers are small. Therefore, they can easily switch
from one petroleum company to the other unless there have long term agreements. This
puts them in an advantage

BARGAINING POWER OF BUYERS

The bargaining power of buyers can be considered low. Buyers are interested in the price
and the quality of the product. But it is a well-known fact that the global oil price indexes
determine the oil price since the Philippines is importing oil products. Therefore, the
buyers cannot affect the oil prices, except in countries that consume large quantities of
oil and gas.

Switching costs for the retail buyer is low as substitute petroleum products from
competing firms are readily available in the open market and in the Philippines, most of
the oil and gas products are sold within a price range that do not vary much from each
other.

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IV. Profile of Stockholders

Phoenix had its initial public offering in the Philippines Stock Exchange in 2007 with ticker
symbol PNX. Since then, the company has become active in trading their products both
in wholesale and retail. As of September 2018, Phoenix Petroleum’s stockholder profile
is over 90% (1.332B) comprised of shares of PCD Nominee Corporation – Filipino and
Non-Filipino—a company based in Makati City, Philippines and which is a “subsidiary of
the Philippine Central Depository, Inc.” (PCD), “a corporation established to improve
operations in securities transactions and to provide a fast, safe and highly efficient system
for securities settlement in the Philippines” (Delos Angeles, 2011). The remaining 101M
shares, aside from Phoenix Petroleum Holdings Inc. (81M shares) are a mix of mostly
Filipino private individuals (except one British national) including several BOD members
like founder/current CEO Dennis Uy (3.9M shares), Consuelo Santiago, J.V. Emmanuel
De Dios, and Romeo De Guzman, each with 1 share.

V. Company’s Financial Management Policies and Procedures

Financial management policies and procedures serves as a framework in achieving

overall business growth. These convey non-negotiable regulations which must be
observed at all times and with which the financial management and administration of the
company can maintain the accuracy and reliability of its financial accounts comprised of
assets, liabilities, and equity, and to enforce accountability among its stockholders.

Having its humble beginnings in year 2005 in Davao City, the management of Phoenix
Petroleum Philippines, Inc. and its subsidiaries has always believed in conducting its
business activities in accordance with standards and key principles that can generate
error-free financial statements and report the same guided by the prescribed framework
and schedule. These measures result in statements with accurate and reliable information
on the financial position, financial performance, and cash flows of the company that aids
in optimal short- and long-term business decisions (Phoenix Petroleum Philippines,
2018).

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Corporate governance rest on the hands of the Board of the Directors, and is executed
by its committees. The financial statements and relevant schedules are then reviewed
and approved by the Board of Directors. The people behind the consolidation of the
company's financial statements are the trusted independent auditors appointed by the
stockholders. They make sure that they are following the standards provided by the
Philippines Standards on Auditing. After their thorough audit, they submit their findings to
the stockholders. A policy was created to make sure that the stockholders are receiving
timely and accurate details of the transactions of the company (Phoenix Petroleum
Philippines, 2018).

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Latest Financial Statement

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VI. Financial Statement Analysis

Liquidity Ratios

Liquidity Ratios are used as an analysis for a company’s ability to meet its financial
obligations as they come due or used to measure a company’s ability to pay its short-
term debts (Folger, 2018). In Phoenix, it can be viewed that the company improved its
liquidity since it is 0.05% more solvent than the previous year (2016), and can meet its
current debt obligations.

The overall increase in Phoenix Petroleum’s current assets which affects the liquidity
ratios was brought about by the increase in its inventories. Inventories increased to
₱12.970 billion as of December 30, 2016 from ₱2.999 billion as of December 31,

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2016.The increase is brought about by the confluence of the following factors: 1) to
address requirements of new businesses, such as LPG with the purchase of PEPI, the
operation of Singapore Trading, and serving volume of new accounts; 2) higher price of
imported petroleum products, mainly because of the increase in crude prices, and 3) the
continued decrease in demand for IFO by the power sectors which also contributed to the
higher inventory levels (Phoenix Petroleum Philippines, Inc. , 2017).

Asset Management Ratios

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Asset management ratios measure how effectively Phoenix is managing its assets. If a
company has excessive investments in assets, then its operating capital will be unduly
high, which will reduce its free cash flow and ultimately its stock price. On the other hand,
if Phoenix does not have enough assets then it will lose sales, which will hurt profitability,
free cash flow, and the stock price. Therefore, it is important to have the right amount
invested in assets (Brigham & Ehrhardt, 2011). These ratios can provide insight into the
success of the Phoenix’s credit policy and inventory management (Business Finance
Online, 2018).

Total Assets Turnover measures the efficiency with which a company uses its assets to
generate sales (Investopedia, 2018). Phoenix in 2016 with 1.15 total assets turnover
operates more efficiently than in 2017 when assets turnover at the rate .998.

In 2016, with 105 days sales outstanding shows that Phoenix is selling its products to
customers on credit and taking longer to collect money than that in 2017 which just took
them 62 days.

Asset management ratios measure how effectively Phoenix is managing its assets. If a
company has excessive investments in assets, then its operating capital will be unduly
high, which will reduce its free cash flow and ultimately its stock price. On the other hand,
if Phoenix does not have enough assets then it will lose sales, which will hurt profitability,
free cash flow, and the stock price. Therefore, it is important to have the right amount
invested in assets (Brigham & Ehrhardt, 2011). These ratios can provide insight into the
success of the Phoenix’s credit policy and inventory management (Business Finance
Online, 2018).

In 2016, with 105 days outstanding shows that a Phoenix is selling its product to
customers on credit and taking longer to collect money than that in 2017 which just took
them 62 days. The days of sale outstanding has greatly improved because receivables
from related parties decreased to ₱518 million as of December 2017 from ₱1.507 billion
as of December 2016. The receivable balance from UDENNA Development Corporation

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(UDEVCO) amounting to ₱50 million for the sale of PPIPC was settled and reclassification
of the non-trade receivable from Chelsea Shipping Group Corp. amounting to ₱500
million. Also, Trade and other receivables decreased by 15% from ₱8.789 billion as of
December 31, 2016 to ₱7.510 billion as of December 31, 2017, due to the intensified
collection of credit sales and other receivables (Phoenix Petroleum Philippines, Inc. ,
2017).

Total Assets Turnover measures the efficiency with which a company uses its assets to
generate sales (Investopedia, 2018). Phoenix in 2016 with 1.15 operates more efficiently
than that in 2017 with 998.The acquisition of the LPG business affected the overall
decrease of the Total assets turnover as the total asset increased from 26,538,037,921
in2016to 44,470,900,473 in 2017.

Debt Management Ratios

The debt/equity ratio measures a company’s debt relative to the value of its net assets, it
is most often used to gauge the extent to which a company is taking on debt as a means

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of leveraging its assets (Folger, 2018). A high debt/equity ratio is often associated with
high risk; it means that a company has been aggressive in financing its growth with debt
(Folger, 2018). In the case of Phoenix, 2017’s 2.72 debt to equity ratio is noticeably higher
than that in 2016 which is at 1.72. This shows that in 2017, the company is leveraging its
assets.

Profitability Ratios

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Profitability ratios and its analysis are widely used as a tool to reveal much about a
company and its financial status and operations as a whole. It measures the efficiency
with which the company is managing its investment in assets and using them to generate
profit. It also measures the amount of profit earned relative to the firm's level of investment
in total assets (Peavler, 2018).

Relative to the company’s profitability ratios, sales increased in 2017 to P44 billion from
its 2016 mark of P30 billion which is also the result of having new business expansions
made by Phoenix Petroleum and through having a larger scope of assets as well during
2017. The increase in its assets also helped the company to produce more products to
the end users or the customers which can be better reflected through the use of the
DuPont Analysis that will provide an increased for up to 5.72% in terms of its assets
utilization and thus it can be concluded that there is an effective use of its equity.

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VII. How Financial Management Policies and Procedures Help the Company
Achieve its Short- and Long-Term Business Objectives

Recent analysis of the financial condition accessible in Phoenix’s 2017 Annual Report
puts emphasis on the growth contributed by non-recurring gains that is attributed to the
acquisition last August 2017 of formerly Malaysia state-owned oil gas giant Petronas and
renamed Phoenix Super LPG as there is a 52% rise in the overall revenue for 2017 versus
2016 compared to only 45% had the revenue been computed with respect to the pre-
acquisition. Presently, Phoenix represents 5% of the LPG market and the prospects are
bright presently that private and commercial consumers and whole industries transition
to green energy for which Phoenix LPG is known.

On a similar note, revenues from trading and distribution, most likely, in the form of the
Subic Petroleum Trading and Transport Phils. Inc. (SPTT) and can be more recently
attributed to the opening of its trading office in Singapore named PNX Petroleum
Singapore Pte Ltd last September 2017, proved to contribute greatly (growth of 56%) to
the overall revenue. Financial performance of the subsidiaries mentioned seem to be
leading the company to favor these recent ventures. The management could deduce that
they made the right decision to expand their offering to include not only petroleum
products but also services.

Quite different is the story of retail revenue which increased by only 9% in 2017 versus
2016. Due to the price hikes of fuel tied with rising inflation and the inevitable excise tax
instituted by the TRAIN Law, the common motorist might opt more for public
transportation over having to spend for his own vehicle’s fuel. The retail business,
however, remains to be one of Phoenix’s stable sources of revenue. To enhance its sales,
the management has launched in 2017 several promotions such as the PhP 10 per liter
promo, Summer Combo Panalo (a raffle which prized the winners with worth PhP 500,000
cash), Scratch-a-Prize promo which raffled off an array of latest gadgets and
merchandise, and the Phoenix Tsuper Club which rewards loyal customers through the
points they earn.

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The theme of Phoenix’s major strategic decisions for 2017 until the present seem to be
revolving around expansion and diversification, which, although may have short-term cost
implications, all lead to its long-term vision of becoming at par with its major multinational
counterparts. For instance, and a rather obvious move they are currently implementing,
is adding more retail stations which is targeted to be 60 for 2018. Likewise, a new
petroleum depot with an 18-million liter capacity was established in Cebu and storage
tanks were added in the largest terminal in Batangas to cater to the 2.6% increase in
demand for petroleum in 2017, not to mention new key accounts in land transport,
construction, mining power, manufacturing, marine, fishing, and shipping. Moreover,
upon its acquisition of the Family Mart CVS, Inc., Phoenix is “looking at improving the
supply chain, deficiencies, processes and procedures” of the chain, CFO Joseph John
Ong stated in an interview with The Philippine Star (March 2018). This entails an
allocation from the PhP 5B capital expenditure program for 2018. It has also expanded
its fuel storage and into-plane services to Cebu Pacific to a total of 17 domestic airports
in 2018 (Lectura, 2018). Early on, founder Dennis Uy recognized the opportunity in the
home-grown independent oil company. To directly quote, “A look at the market in my
hometown Davao City in Mindanao presented an opportunity to be the fourth player
against the multinational oilplayers. This became the way for us—to tap underserved
markets.” True enough and according to the Department of Energy Report as of first
quarter of 2018, “Phoenix Petroleum now holds the third spot, with 7.12% share” versus
6.2% in 2017 when it ranked fourth among oil players (Power Philippines News, 2018).

Another apparent focus Phoenix has presently is its contribution to the growing national
economy which is the third fastest growing in Asia after China and Vietnam. The proceeds
of the excise tax put on top of per-liter fuel will all stream down to the national
infrastructure, education, and healthcare projects. In addition, its expansion of its
petroleum products so as to include the marketing and distribution of bitumen—a by-
product of crude oil refining which can be utilized for road surfacing and its joint
exploration with the China National Offshore Oil Corporation (CNOOC) to eventually build
a liquefied natural gas (LNG) import facility benefits the country as much as to align its
business with the current administration’s Build Build Build Program as well as its

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campaign for “exploration and development of indigenous gas resources” (Velasco,
2018).

Overall, the implementation of the outstanding financial management policies and

procedures assist in operational as well as strategic decisions of the company. If sound
and reliable financial figures are generated with utmost consideration of these policies,
prospects of growth can be detected with ease, so are erratic patterns which should alarm
them if with stark contrasts in between periods, as well as declining products. These
patterns, which the management has to verify whether temporary or successive, will guide
them in making major decisions including product promotions, phase out’s,
discontinuation for new products if proven unsuccessful, cost saving initiatives, and
capital investments to name a few.

VIII. Addressing Business Challenges

Despite the fact that the oil and gas industry is one with high profit margins, companies
like Phoenix Petroleum Philippines is still no exemption to common business challenges.

CHANGES IN GOVERNMENT POLICIES

The first challenge that Phoenix Petroleum Philippines is trying to overcome are the
regulatory risks that can affect the company’s business. The changes in the government
policies and regulations may restrict the company’s capabilities to pursue their revenue-
generating ventures. One example of this is the newly-implemented RA 10963 or the Tax
Reform for Acceleration and Inclusion (TRAIN) Law that increases the tax on petroleum
products. The TRAIN Law increases the excise tax in petroleum products which has not
been adjusted since 1997. The government’s objective for this change is to address the
environmental and health concerns by calculating the appropriate tax for fuels, petroleum
and oil products. However, there has been an ongoing debate between the government
and the community concerning this. Fuel excise tax is wrongly perceived to be anti-poor
(Department of Finance, 2018). For Filipino car owners, TRAIN Law would mean paying
an extra Php 8.00 tax on top of the fuel’s price. But for business owners, especially in the

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oil and gas industry, this would mean that their products’ prices will increase (Lagare and
Panti, 2018). The Department of Energy mentioned that they will continue to monitor oil
trading in the international market and analyze its effect on domestic prices of petroleum
products. Under the TRAIN LAW, prices of diesel increase at a steady rate for every
succeeding year of the implementation. Under the TRAIN Law, oil companies are required
by the Department of Energy to submit notarized reports declaring their inventories as of
end-December 2017 to ensure that the new taxes will be applied only on new supply.
Retailers are also required to post notices in areas that can be easily seen by the clients.
(Business World, 2018). To ensure transparency to their clients, they are mandated to
put up a notice of the new excise tax implementation under the TRAIN in a signage
measuring 1 by 1 meter in size. This will imply additional overhead costs for the company
especially those who have plenty of retail stores all over the Philippines.

Moreover, there is also a 12% value added tax that is added to the selling price of the
company’s products. Value Added Tax (VAT) is a tax that greatly affects business
transactions in such a way that profit is maximized profits when input VAT is minimal.
Since VAT is a business tax, it is imposed upon those who are engaged in trade,
business, or service providers. Therefore, VAT is based on the amount added to the cost
of purchase. This happens because the input VAT from purchases of VAT-registered
buyers from VAT-registered suppliers are deducted from the output VAT on its sales. The
seller then become taxable based on the markup which greatly affects the trading
business and buy and sell business. Because of this, the price of the company’s products
inflates that will lead to low profit margin.

However, according to the Special Assistant to the President Christopher Lawrence T.

Go the government is seriously considering the suspension of fuel excise tax. This
possible change in the government policy still needs to be studied thoroughly and the
Filipinos are looking forward for the possible decision of the President regarding this
matter (Business Mirror, 2018).

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ADDITIONAL OPERATIONAL EXPENSES

The oil companies have worked hard to improve profitability by operating more efficiently
and reducing costs. However, Phoenix Petroleum Philippines is challenged with the
operational expenses that is rising on a daily basis. For example, the Philippine
government mandated a wage increase through the Republic Act No. 6640 or an act
providing for an increase in the wage of public or government sector employees on a daily
wage basis and in the statutory minimum wage and salary rates of employees and
workers in the private sector and for other purposes. (Republic Act no. 6640, 1987)
According to the recent report of the Department of Labor and Employment, there is a
14.12% average increase in the salary of the employees both in the government and
private sector as of August 31, 2018 (DOLE, 2018). As a result of this, employers foresee
that there is an increase in the cost of doing their business. (J. Yee, R. S. C. Carnival,
2018). Regardless of the company’s financial standing, they have no other choice but to
implement the salary increase since this is an order coming from the government. If the
company’s employees will not be granted such increase, the turnover of employees will
definitely accelerate and will cause an issue in the retention of skills.

SUPPLY CHAIN SYSTEM

The oil and gas industry is involved in a complex global supply-chain that includes
domestic and international transportation, ordering and inventory, visibility and control,
materials handling, import and export facilitation and information technology. Thus, the
industry offers a classic model for implementing supply chain management techniques
which links the Phoenix Petroleum Philippines to its upstream suppliers and downstream
distributors as the products, information, and capital flow through the supply chain.
Phoenix Petroleum Philippines relies on different suppliers for its products. This becomes
a challenge to the company because they may fail to provide the quantity demanded by
customers. For the first half of 2018, the Department of Energy reported that the demand
of petroleum products totaled 83,621 MB. This is 1.6% higher from the 82,277 MB
demanded in the first half of 2017 (Department of Energy, 2018). Therefore, an average
daily oil and gas demand of the Filipinos is 462.0 MB. If this demand will not be met, this

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will compromise the relationship of the company to its clients as well as the trust of the
target market to the company that they can provide the demand.

UNPREDICTABLE PRICE CHANGE IN OIL AND GAS PRODUCTS

The greatest factor in the constant increase or decrease in price of oil and gas every now
and then is the price fluctuation of crude in the world market (Gas Price Explained, 2018).
Times Record News described the movement of the oil and gas price as ‘predictably
unpredictable’ (Ingle, 2017). Because of this, the oil and gas companies want to continue
predicting the movement of crude oil prices. However, their predictions may not be
accurate.

The constant changes of the prices of petroleum products remains as a challenge to

Phoenix Petroleum Philippines. Philstar Global reported that starting December 2, 2018,
fuel prices will have a rollback and Phoenix Petroleum Philippines was the first company
who implemented the price change. They implemented a P2.00 per liter decrease on
gasoline and diesel prices (Rivera, 2018). The oil monitoring body of the Department of
Energy reported that the fuel reduction is caused by the perceived oversupply in the
international market (Department of Energy, 2018). Another factor that caused the price
rollback is the 3.6-million-barrel increase in commercial crude inventories which also
increased the U.S. interest rates and strengthened the U.S. dollar (Romero, 2018).

Low price of oil and gas products may benefit the consumers, but for the company the
changes in foreign exchange, supply of petroleum products, and the rise and fall of the
economy which directly affect the price of petroleum products need to be closely
monitored at all times as these have implications on the profitability of Phoenix’s products
and services.

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HUMAN RESOURCE CONCERNS

The workforce in the oil and gas industry is also becoming a concern nowadays. It is true
that the oil and gas industry is the top industry that is being chosen by applicants.
However, the competition in recruiting young manpower is very strong. The oil and gas
industry is facing a shrinking talent pool for those with specialized expertise. Many oil and
gas companies are undertaking strategic initiatives to attract a new generation of workers
that can promote innovation in the company.

Recruitment, attracting, and retaining talents is one main concern of Phoenix Petroleum
Philippines Inc. As of December 5, 2018, the company needs to fill in 36 positions
(Phoenix Petroleum Philippines Inc., 2018). Interested applicants can either send their
resume to the Davao or Manila HR Office. But the problem with this setup is the screening
process of the applicant takes time especially if the applicant is not from Davao or from
Manila. The company offers exclusive benefits aside from the statutory benefits mandated
by the government such as, free lunch, freebies during events sponsored by the
company, coffee breaks and opportunities to travel nationwide to visit different branches.
However, these benefits may still not be enough for applicants who are seeking other
opportunities offered by other companies.

Another Human Resource Management concern in the oil and gas industry that may
affect the Phoenix Petroleum Philippines is the dynamic requirement of the industry where
the company belongs (Kanason, 2018). The oil and gas industry is highly competitive,
therefore, it requires a dynamic approach. One of the challenges of the HR Team of a
company is to create a long-term framework because of the unpredictable changes that
affects the management strategies of the company. This may not only affect the
implementation of the HR policies but also this will make the employees become
apprehensive about following HR Policies (Kanason, 2018).

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COMPETITION

One great challenge that the company is facing right now is the competition between the
top players of the oil and gas industry. Currently, Phoenix Petroleum Philippines ranks
fifth among petroleum companies in the Philippines (Business World Online, 2018).
However, this spot is still not secure because of the high competition in the market. If the
company will not think of ways to innovate the technology that they are using and
differentiate their products, this could lead to loss of market share or decrease of revenue
and profit.

The top three Philippine Oil Companies - Petron Corp., Pilipinas Shell Petroleum Corp.,
and Chevron Philippines - declined from 77% in 2010 to 55% during the first half of 2017.
The Department of Energy mentioned that the independent marketing companies where
Phoenix Petroleum Philippines is under, doubled their market share from 22.8% up to
44% (Fuels and Lubes, 2017).

Venturing in the oil and gas industry entails big stakes. More than anything else, there is
an utter need to determine the appropriate channel where the company can use their
resources effectively. Sufficient knowledge about the industry, its market and the skills
and technology needed to accomplish the tasks effectively is more than enough to reach
the top rank in the business.

VIII. Addressing the Business Challenge

Over the year, the rising challenges, both external and internal, created a downward
impact to Phoenix Philippines. This requires time and determination from the
management for extensive analysis for these problems to be properly addressed.

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Supposing the proponents are the management people of the company, they would:

 Support the government’s campaign for tax reform because of its overall beneficial
effect on the country. It was acknowledged by the government that the increases
in the prices were mainly due to oil taxes such as diesel, cooking gas, kerosene,
bunker fuel and many more. According to the news, TRAIN’s charged tax was
spread for three years up to 2020 and 2018 is the first year of the instalment of
this tax on various products. In result, companies like Phoenix are expected to
comply with both regulatory bodies while absorbing other costs and meet the
consumers’ needs and striving to reduce the blow to its revenue. As management
people, one of strategies that the group will be focusing on is the non-fuel business
complementing retail stations. Acquiring more properties like houses and leasing,
businesses like repair stores and fast food outlets and many more revenue-
generating sources. A lot of untapped industries in the country are taken for
granted but has a lot of potential in increasing earnings. This would not only cover
increasing operational expenses of the company but also the problem arising from
increasing fuel prices in the country and high rate of competition in the industry.

 It is commonly believed that mandating higher legal minimum wages is needed to

help the poor earn a level of income that would allow them to have healthy and
dignified lives. Since this is mandated by the Philippine Government, weather the
management likes it or not, it should be implemented. The management needs to
stop looking at wage increase as a bad thing that will only raise costs we’ll have
to pass on to the consumer. This also be beneficial to the company since
increasing employee pay will help recruit and retain talents, it improves employee
satisfaction and it also help in improving the company’s brand.

 In order to manage the Supply Chain System and to meet the average daily oil and
gas demand of the Filipinos, the management needs to outsource their logistics
functions for managing their supply chains. In a commodity-type industry such as
oil and petrochemicals, the source of the commodity is often of no interest to the

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 final customer as long as the commodity adheres to its required specifications and
the delivery of that commodity is made by the promised due date. Therefore,
competing oil and petrochemical companies form supply chain alliances when
delivering commodities to customers in order to reduce transportation and
inventory costs and improve customer service. In return, cost savings for
transportation in the overall supply chain are shared among participating
companies. This form of collaboration is referred to as shipment swapping. This
kind of collaboration with competitors creates a shared solution to common supply
chain obstacles and is predicted to be the “Next Big Thing” (Morton, 2003).

 The unending price increase of fuel prices are not heavily affected by domestic
tax impositions but rather on the prices levied by the international market through
the Organization of Petroleum Exporting Countries (OPEC). It has been observed
in Mindanao that gas stations in rural areas are mostly Phoenix, reaching far and
remote areas. As managers, the group would be meticulously looking for prospect
areas in Visayas, some areas in Manila, and most of the Southern part of
Mindanao with minimal to zero coverage by the top 3 players to promote gradual
expansion without significantly increasing distribution cost and consequently
aiming to increase market share.

 Problems with recruitment particularly in attracting and retaining talents seems to

be a common problem in large businesses. Just recently, Davao City has started
to embrace equality and establishments are starting to hire PWD (person with
disabilities) as part of their manpower. The management can consider hiring these
hardworking and skillful individuals as part of their commitment to serve and to
contribute to the community’s growth. This movement will encourage the PWDs
in their continuous skills development that matches their innate capabilities and
work preferences. In addition, this act will also give awareness to the citizens of
the PWDs issues and concerns and finally give an admirable result to the
company since these people are considered very loyal and performs outstandingly
in any task given.

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 With the increasing costs entailed in operating a fuel business, the management’s
energy should be focused in staying cost competitive- paying more attention as to
how the operation costs affect their ability to contend in the long run. As mentioned
earlier, non-fuel business complementing retail stations gives better opportunities
for the company. Pharmacies, convenience stores with food service, and repair
shops beside the gas stations has higher potential in increasing revenue with this
high level of competition. The management can also opt to have top performing
universities subsidiary here in the city to help the company cope with taxation
issues since educational institutions are exempted from taxes and duties
depending on some conditions as mandated in the law. They can also lead the
construction of resorts and other recreational establishments like ocean parks,
adventure parks, sports gym and others to provide other means of income for the
company.

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