Determining the Viability of Putting Up aPetron Bulilit Service Station in Maraouy,Lipa City, Batangas

A Feasibility Study Presented to the Faculty of the College of Business and Accountancy First Asia Institute of Technology and Humanities

In Partial Fulfillment of the Requirements for the Degree of Bachelor of Science in Accountancy

By: Christopher S. Aguilar Janine P. Mendoza Pamela Kris A. Padilla Lester Fiel T.Panopio

December, 2011

CHAPTER I INTRODUCTION

Petroleum has a colorful history filled with colorful people. It has been a cyclical history full of booms and busts; all of them magnified by the huge scale of the fortunes won and lost.

The origins of the petroleum industry in the world commerce can be traced back when Edwin Drake drilled the first commercial oil well in Oil Creek, Pennsylvania in 1859. Years after October 1972, the principal exporting countries in the Middle East had been gaining wealth, power, and expertise from the enormous royalties they had been collecting since the first half of the 1900s. They formed the Organization of Petroleum Exporting Countries (OPEC) and began formally consulting each other on oil prices and policies. The national oil companies of the major exporting countries have been growing more vertically integrated, investing their profits from the upstream segment of exploration and production in expanding into the downstream segment of refining, transportation, and marketing.(http://www.irs.gov/businesses/article/)

In the Philippines, the growth and development of the petroleum industry started in the 1930s when large companies ventured into the industrys downstream segment. Due to favourable market trends and with the passage of Retail Trade Liberalization Act of 2000 that enabled the intensive penetration of incumbents market share by 70 new players in the market, many small and

medium-sized entrepreneurs are becoming interested to be part of the said industry and Petron Corporation used this opportunity as its

advantage.(http://www.mib.com.ph/Others/Petron.pdf)

Petron Corporation, having the largest number of retail outlets in the country with over 1,300 stations and being the biggest local refiner with a capacity to process 180,000 barrels of crude per day, has opened its low-cost micro refilling stations to interested investors called Petron "Bulilit" Service Stations under the Petron Bulilit Dealership Program that capitalizes on the opportunity of providing fuel in areas with untapped volumes. Petron's new concept station offers investors a low cost alternative to develop service station outlets under a major brand. The proposed new stations will have only two to three pumps and are smaller than heretofore Petron stations. The new stations would be put up in areas deemed by the company as "pioneer growth" locations that may have relatively small demand at present but have a great potential for growth.(http://www.petron.com/newsroom)

Since the Filipino government recognize the petroleum industry as vital to the country's economic stability, the researchers opt to establish the feasibility of a gasoline station under the aforementioned Petron Bulilit Dealership Program, the Petron Corporations latest innovation in the industrys downstream segment that assists the interested investors in the site selection and preparation, dealer training and project implementation.(http://www.fundinguniverse.com/companyhistories/Petron-Corporation-Company-History.html)

A. Statement of the Problem This study will determine the feasibility of establishing Petron Bulilit Service Station alongJ. P. Laurel Highway, Barangay Maraouy, Lipa City. Likewise, this study will answer the following questions: Management Aspect 1. What form of business organization will be adopted? 2. What are the initial manpower requirements? 3. What isthe initial number of people required for operation?

Technical Aspect 1. What are the franchising procedures? 2. What is the capacity of the gasoline tanks? 3. Where is the nearest refilling station? 4. Where will be the undertaking situated? 5. What would be the lot plan and construction layout? Marketing Aspect 1. Who is the target market of the undertaking? 2. What are the strategies to be employed to penetrate the target market? 3. Will there be a market gap for the undertaking? Financial Aspect 1. How much is the initial capital needed? 2. What would be the sources of the capital? 3. Are there any cash bond and working capital requirement? 4. Will the undertaking be profitable?

Socio Economic Aspect 1. In what ways can the undertaking benefit the community? 2. In what ways can the undertaking help the government?

B. Objectives of the Study This study aims: Management Aspect 1. To identify the people involved in the operation 2. To know the initial number of people required for operation Technical Aspect 1. To determine the necessary franchising procedures 2. To determine the capacity of the gasoline tanks 3. To ascertain the nearest refilling station 4. To know the location of the undertaking 5. To determine the lot plan and construction layout Marketing Aspect 1. To identify the target market of the undertaking 2. To know the strategies to be used in penetrating the target market 3. To assess if there is any market gap for the undertaking Financial Aspect 1. To determine the initial capital needed 2. To ascertain the sources of the capital 3. To verify if there are any cash bond and working capital requirement 4. To determine the profitability of the undertaking

Socio-Economic Aspect 1. To know the benefits of the product to the members of the community 2. To identify the ways in which the undertaking can help the government.

C. Significance of the Study Apart from contributing to the petroleum industry, the study is expected to benefit the following: y Proprietors The establishment of the gasoline station will open opportunities for other proprietors' future and potentially feasible endeavors (e.g. convenience stores) in the area. y Consumers These include drivers of public utility vehicles such as jeepneys, multicabsand tricycles as well as owners of private vehicles in Barangay Maraouy, Lipa City. Putting up a 'bulilit' station in the area would provide them convenience and attend to their everyday gasoline needs. y Community The establishment of the gasoline station will provide job opportunities especially to the residents in the vicinity. y Local Government The local government of Barangay Maraouy, Lipa City will be able to generate additional revenue through taxes.

Academe and other researchers The study will provide the academe and other researchers information about franchising, especially fuel stations, which may be useful in their undertakings as this may serve as a reference and a source of related literature.

D. Scope and Limitations The study focuses on the establishment of Petron Bulilit Service Station along J. P. Laurel Highway, Barangay Maraouy, Lipa City, Batangas. The researchers shall represent the sole proprietor Violy Olan who wants to expand her real state and farm business into the other field, the retail industry. The study will be conducted to determine the feasibility of the undertaking. The researchers will only give attention to the establishment of the gasoline station, which will operate only as a distributor of Blaze, XCS Plus, XTRA Unleaded, Regular Unleaded and Diesel Max.Expansion, although Petron Bulilit Stations are designed as pre-fabricated models that can start with one to three product pumps to easily expandable stations, is not within the scope of the study. Also, the study will not cover the use of Petron Fleet Card and offering of Petron by-products such as Ultron, Rev-X, and Gasul since these will be dependent upon the discretion of the franchisee as stated in the franchise agreement. The study is limited to registeredjeepney, tricycles and multicabs with franchisein Lipa City and privately owned vehicles (e.g. SUV, Sedan,etc). Bus service operators and trucks will not be within the scope of the study.

CHAPTER II REVIEW OF RELATED LITERATURE

The related literature contains the related readings and studies regarding the petroleum industry and provides the researchers additional information and knowledge in the subject under study. The conceptual literature deals with the published articles while the research literature pertains to the unpublished materials. A. Industry Terms: y Petroleum (crude oil) is a thick, dark oil composed of a complex mixture of organic chemicals, most of which are made up solely of hydrogen and carbon (hydrocarbon).(Mayer, Richard J. Connections in Environmental Science, 1st edition. Singapore: McGraw-Hill Book Co., 2001.) y Franchising is a form of marketing and distribution in which the franchisor grants to an individual or company (the franchisee) the right to run a business selling a product or providing a service under the franchisor's business format and identified by the franchisor's trade mark or brand. A modern franchise includes a format for the conduct of the business, a management system for operating the business and a shared trade identity. Franchising can also be described as a pooling of resources and capabilities; the franchisor contributes the initial capital investment, knowhow and experience; the franchisee contributes the supplementary capital investment, motivated effort and operating experience in a variety of

markets. Franchising is a comprehensive business relationship, not just a buyer-seller relationship. There is considerable interdependence between the franchisor and the franchisee. y Petron Blaze is an ultra-high-performance unleaded gasoline with an extremely high octane rating. With its high octane rating, it prevents knocking and maximizes engine performance at all times. Petron Blaze also contains a special blend of octane booster and multi-functional additive that brings about superior combustion and performance. Petron Blaze is a pure, highly-refined fuel that does not only promise excellent performance during engine start-up but also provides sustained engine power every time. y Petron XCS Plus with ValvemasterTM is a premium alternative to leaded gasoline that has the unique combination of two superior additive systems, XCS and Valvemaster TM. Only Petron XCS Plus offers Valvemaster TM, the superior lead substitute that is adopted in many international markets including the U.S.A., the U.K., New Zealand and Australia. y Petron XTRA Unleaded is an environment-friendly, premium motor gasoline that contains a high performance detergent additive which provides excellent cleaning effect for optimum vehicle power. It also contains a unique gas-saving additive that promotes more efficient combustion and lower fuel consumption.

Petron Regular Unleaded is a motor fuel with controlled volatility for maximum economy, easy starting and good acceleration. It is suitable for low compression gasoline engines.

Petron Diesel Max is a lowsulfur, premium product that contains a unique and robust multifunctional additive that contains smoke reducing agent and lubricity additive to protect fuel injection system. It also has the ability to maintain and improve fuel injection system cleanliness through unsurpassed detergency characteristics.(http://www.petron.com)

B. Conceptual Literature y Discovering Uses of Petroleum According to Connections in Environmental Science (A Case Study Approach, 2001 edition) by J. Richard Mayer, petroleum is a relatively new addition to our energy stores. It was not until 1859 that the worlds first successful oil was drilled at Titusville, Pennsylvania. At that time, coal was the worlds most important energy resource, fueling the steam engines that powered the Industrial Revolution. However, petroleum quickly surpassed coal as the most highly valued energy resource because one of its components, kerosene, could be burned in street lamps and home lanterns instead of whale oil. At first, other petroleum components, such as gasoline, diesel oil, and heating oil, were discarded. However, their importance is soon discovered. Oil was cheaper than coal, burned cleaner and was easier to transport. In the early 1900s, Henry Fords automobile created a demand for gasoline,

further encouraging the emergence of petroleum exploration, drilling and refining as new industries. By 1929, oil supplied one-third of the total U.S. energy demand. Ten years later, almost half of the nations energy needs were being met by burning fuels derived from petroleum (petrofuels). By the end of the World War II, coal was no longer a number one fuel; petroleum and natural gas accounted for two-thirds of all U.S. energy requirements. During World Wars I and II, the United States, Britain, and their allies depended heavily on petroleum to fuel motorized transport vehicles, merchant chips, naval vessels, aircraft, and military armaments. In 1940, the United States and Russia were the worlds largest petroleum producers and consumers, while the rest of the industrial world still depended mainly on coal. But by the end of the second world war, the productivity and economic prosperity of many nations, including the United States, was linked to petroleum. In 1999, U.S. demand for petroleum averaged close to 19 million barrels a day.

Republic Act No. 8762 Republic Act No. 8762, otherwise known as the Retail Trade

Liberalization Act of 2000 is the policy of the State to promote consumer welfare in attracting, promoting and welcoming productive investment that will bring down price for the Filipino consumer, create more jobs, promote tourism, assist small manufacturers, stimulate economic growth and enable

Philippine goods and services to become globally competitive through the liberalization of the retail trade sector. Pursuant to this policy, the Philippine retail industry is hereby liberalized to encourage Filipino and competitive retail trade sector in the interest of empower the Filipino consumer through lower prices, higher quality goods, better services and wider choices.

Republic Act No. 8479 Embodied in the Republic Act No. 8479, otherwise known as the

Downstream Oil Industry Deregulation Act of 1998, is the policy of the state that deregulates the oil industry to foster a truly competitive market which can better achieve the social policy objectives of fair prices and adequate, continuous supply of environmentally-clean and high quality petroleum products (Congress 1998).

With deregulation, government allows market competition. That means government does not interfere with the pricing, exportation, and importation of oil products, even the establishment of retail outlets, storage depots, ocean-receiving facilities, and refineries.

It has been a decade ago since lawmakers made a proposition that deregulation would secure the Philippines from the vulnerability of oil price shocks due to its heavily dependent on imported oil. But it is now increasingly apparent that many are calling to scrap the law as six out of ten Filipinos favor the repeal of RA 8479.(Somosierra 2008).

2009-2030 Philippine Energy Plan As the country faces the realities of growing energy demand, tight

energy supply, limited foreign investments and critical power development issues, the Department of Energy is set to release the Philippine Energy Plan highlighting the plans and programs of the energy sector to fuel support for the economic growth of the country for the period 2009-2030. Specifically, the Plan will deal with the future of energy development which is very vital to the countrys prosperity. The over-arching theme of PEP 2009-2030 is ensuring the best energy choices for a better quality of life. The plans and programs of PEP 2009-2030 are crafted to respond to the challenges that are confronting the energy sector at present and usher the change in the landscape of the countrys energy future. In simple terms, the Plan will see to it that public policies on energy are at par with the changing needs of the energy sector which will ensure energy security, pursue effective implementation of energy sector reforms and implement social mobilization and cross-sector monitoring.

(http://www.doe.gov.ph/PEP/default.htm)

a. Research Literature The study entitled Feasibility on the Establishment of a Fuel Station in Asaba, Delta State made by Nkemdirim, Jennifer may form the basis of an important investment decision and covers various aspects of the business concept development, start-up, production, marketing, finance, and business management. The study also provides sector information, brief government

policies and procedures and international scenarios. The study also highlights the key factors in making the project profitable. The key factors are the location of the project where the daily turnover of motor vehicles is a dependent variable and the other one is the selection of the proper equipment for carrying out the successful operations of the project. Another study conducted by Vignesh, Vinayakaperumal G. (2002) entitled Feasibility Study to Set Up Company-Owned/Company-Operated (COCO) Gas Stations in Metro Manila for Caltex Philippines, Inc. deals in depth the union related issues, the political sensitiveness associated in operating a COCO, loss of existing dealer motivation due to COCO, risk profile, and implementation plans. The study is primarily concerned with the effect of the retail trade liberalization act that gives way to many aspiring Filipino investors to establish their company-owned or company-operated operations. The feasibility of establishing COCO's highlights the competitive positioning strategy based on service differentiation. The strategy revolves around Excellent Service Execution by the service attendants at the point of sale. Taking into account the importance of a gas refilling station in the province of Batangas, the conclusion of the study conducted by Delos Reyes, Leonor B.et. al., (1991) entitled Profile of Caltex Refinery in San Pascual, Batangas (an exploratory study), is that the Caltex refinery plays a vital role in the economic development of Batangas since the oil is the lifeblood of the community. The researchers recommended that the Caltex refinery should

maintain the exemplary performance and the Batangas refinery should expand in order to meet the increasing demand of the province. Moreover, according to the researchers of the study entitled Business Profile and Status of Selected Gasoline Stations in Batangas Province made by Catibog, Lovely M., et. al., (2006), majority of the gasoline stations in Batangas are owned by sole proprietors, operating a service type of business for five years with an initial investment that ranges from P1, 000, 000 to P 3, 000, 000. The researchers recommended that in order to have efficient and effective operations, the owners and managers need to maintain their flexibility and management skills and to keep track of their responsibilities.

CHAPTER III MARKETING STUDY

Research Methodology

This part constitutes the blueprint for the collection, measurement and analysis of data that will aid the researcher in accumulating information relevant to the study. The researchers will use the Descriptive Method which involves the description, recording, analysis and interpretation of the subject matter. This method is primarily concerned with what, where, when, how much, or how a research will be conducted. The descriptive method involves the following: 1. Research Design It refers to the arrangement of conditions and analysis of data in manner that aims to combine relevance to the research purpose with economy in procedures. The subject of the study was limited only to the registered drivers, with franchise of the route or Toda of public utility vehicles and those which have privately-owned vehicles, who, usually go past Gen. Luna St., Brgy. 10, Lipa City. With respect to the jeepney drivers and tricycle operators, stratified sampling technique is employed in selecting the sample. This method of sampling involves the division of a population into smaller groups known as strata. The strata are formed based on members'

shared attributes or characteristics. A random sample from each stratum is taken in a number proportional to the stratum's size when compared to the population. These subsets of the strata are then pooled to form a random sample.The sample calculated will be the researchers target respondents to whom the questionnaires will likewise be distributed. For the drivers of privately-owned vehicles the questionnaires will be distributed randomly to the households residing within the vicinity. The respondent will be selected on a per driver basis notwithstanding the number of vehicles owned from the nearby barangays of Sabang and Latag, Lipa City, Batangas.

2. Data Gathering This is a term used to describe a process of preparing and collecting data. The purpose is to obtain information to make market and financial projections and quantitative and qualitative data analysis. The researchers used the following primary technique in order to obtain information through direct interactions from persons who can provide the information: SurveyStratified? It refers to sampling or partial collection, of facts, figures or opinions taken and used to approximate or indicate what a complete collection and analysis might reveal. The researchers made a questionnaire that embodies questions asked in a standardized manner to each respondent. The questions raised vary according to the

classification of the respondents, namely, the tricycle drivers, jeepney drivers and privately owned vehicles. The total number of respondents in each of the three category (tricycle drivers, jeepney operators and privately owned vehicles) will be calculated using Slovins formula. This formula is used to take into account confidence levels and margins of error. This technique is employed by the researcher to have the desired degree of accuracy. Moreover, it gives the researchers an idea of how large the sample size in order to ensure a reasonable accuracy of results.

Interview
This refers to formal or informal meeting between two people or among a group of people for the purpose of obtaining information about something in particular. The questionnaire is structured in a way that facilitates the gathering of specific information about the technical and financial aspects of the study that will be deemed essential in the course of the study.