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The Turn Around of BP Oil in 2011
Group 6
11/18/2011
Dr. Manish K. Srivastava
YuZhou
WillDuray
HaoQiu
ChaoYang
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BP is one of the worlds leading international oil and gas companies which
headquartered in London, United Kingdom. BP has 22,100 retail sites, upstream active
in 29 countries in the world. It is vertically-integrated and is active in every area of the
oil and gas industry, including exploration and production, refining, distribution and
marketing, petrochemicals, power generation and trading. It also has major renewable
energy activities, including in biofuels, hydrogen, solar and wind power.
The cornerstone of BP oil empire industry had been laid on Standard Oil of Ohio,
which was incorporated in Cleveland reported on January 10, 1870. In 1889, John D
Rockefeller forms Standard Oil of Indians, which will become Amoco. Within a decade
it will dominate oil refining and marketing in the US Midwest.
In 1870, Atlantic got into the business that would fuel its success: refining oil into
usable products. This success attracted the attention of John D Rockefeller added
Atlantic to his growing oil empire in 1874. At this time, Atlantics president at the time
is said to have urged his employees to go find the company some crude, and they
were making significant discoveries in the southwestern USA.
In 1901, English entrepreneur William Knox DArcy got exclusive rights to search
for oil in southwest Persia (Now Iran), and he discovered oil in May 1908. The Burmah
Oil Company joined DArcy with large capital supporting was in a Concessionary OilSyndicate in 1905 and supplied further funds in return for operational control. This was
the first commercially significant find in the Middle East. In April, 1908 the
Anglo-Persian Oil Company (APOC) was incorporated as a subsidiary of Burmah Oil
Company to exploit this. In 1923, APOC employed future Prime Minister, Winston
Churchill as a paid consultant, to lobby the British government to allow Burmah to have
exclusive rights to Persian oil resources, which were successfully granted. In 1935, it
became the Anglo-Iranian Oil Company (AIOC). The AIOC became the British
Petroleum Company in 1954. In 1987 the company obtained an interest control in
Standard Oil of Ohio.
During 1980s and 1990s, BP restructured a new management team. The British
government sold its entire holding in the company in several stages between 1979 and
1987. The sale process was marked by an attempt by the Kuwait Investment Authority,
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the investment arm of the Kuwait government, to acquire control of the company. This
was ultimately blocked by the strong opposition of the British government. In 1987,
British Petroleum negotiated the acquisition of Britoil and the remaining publicly
traded shares of Standard Oil of Ohio. In 1995, John Browne was appointed group chief
executive which responsible for three major acquisitions: Amoco, ARCO and
Burmah-Castrol.
British Petroleum merged with Amoco in December 1998, becoming BP Amoco
plc. In 2000, BP Amoco obtained Arco and Burmah Castrol plc. In 2001, the company
formally renamed itself as BP plc and remains in use today. In 2011, BP had its 60 th
anniversary. The Global energy is facing with breathtaking change in technology,
political and economic systems. Even the environment and culture are changed during
these 60 years.
Milestones
Bp has four steps for global reach, the first one is enhancing European position; the
second one is to be a leading marketer in the US; third one is critical mass in key
markets and bench-heads in high growth markets; and the last step is strengthened
global position. BP extraordinary growth period of the 60 years was clearly reached.(See Exhibit 1)
Redevelop the super-giant field in Southern Iraq by increasing production by more
than 10 per cent above the 1.066 million barrels a day is an initial product aim for The
Rumaila Operating for these years.
Bob Dudley, BPs Chief Executive, said: BP has a long history in Iraq.
Reaching this production milestone is a great achievement and underlines BPs success
in building its presence in the region. Increasing production at Rumalia, the worlds
fourth largest oilfield, has been a massive undertaking.
Ten percents improved production target in Iraqis is a break-through point for BP
to achieve by working in partnership with SOC, BP, PetroChina and the dedication of
their contractors.
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External Environment Analysis
Economics
The oil industry influences all the aspects of national and international economics.
The rising of the oil price means there is potential for U.S. economic growth. There are
three examples of oil and unleaded gasoline and the impact on last 3 years GDP growth
-- most recently forecast by the Federal Reserve to be between 3.4% and 3.9%. In
December of 2010, the price of oil would drop back to $89 a barrel. This would cause
the price of gasoline to decline to $3 a gallon and would lead to GDP growth of 4.1%,
roughly 0.5% increase. Back to very late 2009, the price of oil rising to nearly $100 a
barrel and the price of gasoline climbing to $3.50 a gallon due to ongoing instability in
the Middle East, but with Saudi Arabia is continuing to control its oil supply.
However, the price of oil relates to the U.S. GDP with citizens living level. In the
summer of 2011, the news reported the mass of vehicle owners of Britain did not use
their cars again because the price of gasoline was too high in Britain. As result, the
summer GDP of the U.K. was reduced around 0.3%. The oil industry decides the
energy stock market performance on a high degree. The excellent performance will
attract more investments then leads to a bull market situation. If everything turns to an
opposite situation, just like in late 2008 and early 2009, when the average pricedecreased to about $55 a barrel from $100, the financial crisis soon happened.
Technology
The main goal behind innovation of oil and natural Gas companies is to increase
recoverable reserves in order to increase production and economic benefits. The basic
technology innovation for the oil and natural gas industry can be separated into
exploration, innovation and drill innovation in the last century. The Most important
innovation that helps explore the oil and gas fields is the 3D seismic Technology. The
first time 3D seismic technology was available was 1967, it was much more expensive
than the outdated existing technology.
The Drilling process is also a sophisticated technology used in the oil industry,
because this part of innovation has to consider lots of facts (provided position,
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temperature, pressure, and porosity date while the borehole was being drilled).
Therefore innovations in technology took a long time to go from planning to
completion and implementation. This is seen especially when compared to the vertical
well drilling technology. Although Horizontal Drilling almost cost about 25 to 300
percent more than a vertical well, Horizontal Drilling has a higher production and less
environment footprint than the vertical one. More and more specific drilling systems
have been introduced that help reduce the environmental impact, and increase the
production process level of safety
Political-Legal
When it comes to the global energy/oil industry there are many different political
factors that affect the industry. The first major political institution most people would
associate with this industry is OPEC. OPEC is the organization of the Petroleum
Exporting Countries, and it was founded in 1960. OPEC has twelve member countries:
six in the Middle East, four in Africa, and two in South America. According to the
organization their goals are to to coordinate and unify the petroleum policies of its
Member Countries and ensure the stabilization of oil markets in order to secure an
efficient, economic and regular supply of petroleum to consumers, a steady income toproducers and a fair return on capital for those investing in the petroleum industry.
Many of the countries in this organization are located in the Middle East, and this
organization has helped these countries with political diplomacy with its consumers all
over the world since its inception. This organization has been an integral part of the
world economy because of the huge nature of these corporations, and it most definitely
affects the global oil/energy industry in many huge ways.
On the topic of the American oil industry, there is the American Petroleum Institute,
which is also referred to as API. Organizations goal is to bring together the different oil,
natural gas, gasoline, diesel and other energy related companies across the United
States. To this day, API consists of about 400 corporations. OPEC and API are made up
of many different companies and organizations alike. These all need political
intervention to help keep the world industry regulated and in check. Without political
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measures, these companies would potentially be able to monopolize the industry, create
unfair pricing and at the same time avoid the environmental worries that are associated
with oil and gas industries. In the next few years, the importance of all of these political
aspects will rise to change the way the world looks at oil and gas industries.
Socio cultural
World natural gas consumption grew most rapidly increasing by 7.4% since 1984.
The consumption growth was above equal in all regions except the Middle East. The
US had a new high record which rising by 5.6%; was the largest increasing natural gas
consumption in the world. Russia and China registered large increases-the largest
volumetric raise in the countrys history in each case. Global natural gas trade has risen
by 10.1% in 2010. With more new renewable energy, such as hydroelectric and nuclear
development and using, the increasing demand trend of Oil and Gas have become
slowly than usual.
People concerned more about the environment development and protection. Even
oil and gas still is a necessary energy trend in the global world, people and local
commitment are concern about sustainable and meaningful local resource and
authorities to develop local energy industry.
The bargaining power of suppliers
The supplier power for BP is likely to be high when the supply market is stable,
less out competition threaten, powerful brand, and forward integration provides
economies of scale. Then all of the forward discussions can be evidence to indicate the
bargaining power of suppliers in the Oil and Natural Gas industry is very high.
The threat of the entry of new competitors
The threat of the new entrance competitors is low. An Organization of the
Petroleum Exporting Countries (OPEC) represents a role for stabilizes the oil price in
international oil market. Integrated oil companies, independents oil companies and
National Oil companies are mainly operating oil industrial segments from exploration,
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refining, marketing, and retail. In order to enter the industry, a company needs large
capacities, proprietary technology, or channels of trading and transportation try to
compete with other oil companies. In addition, keeping high fixed cost and good
relationship with upstream, midstream and downstream are important for new entrance.
Thus, it is hard to make new players entry the oil industry not even to compete with
them.
The intensity of competitive rivalry
The competitive rivalry of the oil industry is low. The oil industry always attracts
public attention. However as an un-renewable nature resource, the most oil industry
market segments are occupied by the national government and some international
organizations like OPEC. The product chain is complex and long, each competitor is
hard to compete with rivalry for all chains of product, such as exploitation, refining and
shipping. Each competitor has similar technological level and qualities of oil, it is hard
to large changes without government or organizational limitation.
The main competitors in the oil industry include BP, CVX, CONFO, OPEC, CNPC,
XOM and so on. Most of these companies or organizations implement the production
chain. The process of upper stream with exploitation and exploration, mid-stream oftransportation, and lower stream of retail and service are contained in the whole
business progress of companies running. Besides the great finance supports, the
industry companies running is also need high technologies. The solid entry barriers of
the oil industry decide this industry is more like monopolization. The competitive
intensity is also relatively weak.
Competitor Analysis
In the league of large oil corporations, there are only a few in the same range as BP.
These other corporations, along with BP, are sometimes referred to as the super major
oil companies. They are comprised of large, global and highly specialized companies.
They are BP, Chevron Corporation, ExxonMobil, Royal Dutch Shell, Total S.A. and
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Conoco Phillips. For this analysis we will be reviewing the performance of BP with that
of ExxonMobil (XOM) and Chevron Corporation (CVX). The measures that will be
used are the Debt to Equity percentages, Current Ratios, Gross Profit Ratios and
Earnings per Share for the years of 2006-2010. Also the most current Market
Capitalization figures will be used to assess BPs current financial position.
ExxonMobil as well as Chevron are both American multinational energy
companies that focus mainly on the upstream aspects of oil and petroleum based
products, development and research for finding cleaner and more efficient fuels as well
as fields like natural gas and chemical additives. Being such large companies, these oil
producers have a huge employee base that reaches across the world. According to their
annual reports ExxonMobil, BP and Chevron employ 82,000, 79,700 and 62,000
personnel respectively. Chevron and ExxonMobil both are powerhouses in this industry,
they are competent in many different areas of both upstream, midstream and
downstream production of oil and other associated energy products like natural gas,
chemical additives or alternative fuels to replace petroleum based products. BP is also
strong in many of these areas, but its main weaknesses come from organizational
structure and issues in communication across all of their business units. These issuesresult in potentially dangerous events such as the Texas City refinery explosion or
Deepwater Horizon explosion/ massive contamination of the Gulf of Mexico. If these
structural issues are not straightened out and communication is not improved, BP will
be left behind in the industry with only its accidents to show for itself. These other
companies have had accidents, but nowhere near as many as BP has had to claim
responsibility for. The accidents BP has had have caused deterioration of the view of BP
in the public eye, as well as take a toll on its financial results over the past five years.
When looking at the financial statements for the past five years (all figures come
from the 2010, 2008 and 2007 annual reports for each company) BP is continually at the
bottom of the results, when looking at BP, XOM and CVX. The first area that was
assessed is the liquidity, or current ratio, of the three companies. This measure is a way
to tell how each company is able to meet its short term obligations. BP is the most stable
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of the three, but also the worst performing over the past five years, its current ratio
varies only between .951 and 1.14 meaning that the company usually is hard pressed to
meet its short term liabilities. (See graph below) XOM went from a very liquid state in
2006 to a continual declining state in 2010 with a current ratio of .942. CVX was very
liquid with its assets and saw only a small decline and then a large accent to having a
ratio of 1.683.
Continuing with the financial calculations is the Debt to Equity % which illustrates
what percentages of the companys finances are backed with debt. BP is again the
lowest performing company in this metric. Its finances from 2006-2010 are funded
with between 20 to 23 percent debt. XOM is the lowest continual leveraging percentage
with a slow increase to 9% in 2010. CVX isnt far behind XOM in this category; these
competitors both finance their operations with a lower amount of debt than BP.
This trend continues on to the market standing of BP in relation to XOM and CVX. The
Earnings per Share of XOM and CVX follow roughly the same trend with a large
variation between their 2008 and 2009 financial years, with CVX on top with a peak
EPS of $11.74 and XOM with a peak of $8.7. BPs performance in this category is very
low; it is a declining trend with a high of $1.09 per share in 2006 to a low of $(00.19)
0.600
0.800
1.000
1.200
1.400
1.600
1.800
2010 2009 2008 2007 2006
CurrentRatioXOM
CVX
BP
0.00
5.00
10.00
15.00
20.00
25.00
2010 2009 2008 2007 2006
DebttoEquity(%)XOM
BP
CVX
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per share in 2010. This poor standing among BPs competitors continues, the market
capitalization of BP is the lowest out of the three companies with 134.7B in market
capitalization while XOM currently reports 373.2B and CVX with 199.31B. (See
Exhibit 5)
For the financial year 2010, the only category that BP excels over both of the competingcompanies being referenced is in the gross profit ratio. But if this ratio is viewed for the
past five financial years, BP has the most extreme changes out of the three companies.
It has a range between 1.016 and the high of the three with 1.04. Both XOM and CVX
follow a similar pattern, much like they did with the EPS calculations for those years.
These competing companies had a more stable range between their highs and lows,
which shows that these companies are more stable with their sales and gross profits.
That then shows that BP, if they do not change something with their infrastructure and
communication methods will keep having these large fluctuations between financial
years.
This financial analysis is one large indicator that BP is in a struggling structural state.
With its low performance across the board, when comparing BP with XOM and CVX,
2
0
2
4
6
8
10
12
2010 2009 2008 2007 2006
$/Share
EarningsPerShareXOM
CVX
BP
1.0101.015
1.020
1.025
1.030
1.035
1.040
1.045
2010 2009 2008 2007 2006
GrossProfitRatio
XOM
CVX
BP
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the need for something to be done with the company is very apparent. With an
organizational culture that is aimed at doing everything rapidly, without regard for rules
and regulations, BP is destined to keep reporting sub-par financial figures and also to
keep experiencing large scale accidents that provide major losses to the company.
Internal Environment Analysis
Marketing analysis
The company's present assets are about $200 billion, with the millions of
shareholders. 1.1million employees work for the company all over the world. BP has
production and operation activities in many countries. BPs strategic focus is on
holding a portfolio of quality, integrated, efficient positions and accessing available
market growth in emerging markets. The objective has been to improve our
performance by focusing on achieving safe, reliable and compliant operations,
restoring missing revenues and delivering sustainable competitive returns and cash
flows.
In the 2010 market strategy of BP, the company was going to pay more attention on
the refining products. The group had the strategy which includes stronger refining
margins, strong operational performance in fuels value chains, continued momentum in
international businesses, further cost efficiencies, and loss in supply and trading.
Bps main products are oil relative products include fuel, lube, polish, petroleum
based, and other associated chemical products. The customer group divides to two parts,
individual customers and the commercial groups. Gas station, vehicle owner,
transportation companies, and chemical oil production companies are all the customers
of BP. The product retails are also from multiple channels. Besides they own their gas
stations, BP also cooperates with the governments all around the world, for example,
BP chemical companies support the governments road construction. In addition, the
international trading is also a large part of BPs business. As the one of the Worlds
largest oil companies, BPs crude price always influences the world oil price.
In the past 30 years the price experienced the large scale fluctuation with the
international oil price trend. BPs promotion method is very famous. Because of the oil
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industrys environment issue, BP promotes the environment protection and social
welfare. In the past 10 years, BP helps the third world countries build more than 3000
schools; subsidize poor families children to continue their studies. When disasters
happen, like the Indonesia tsunami in 2004 and Japan Fukushima earthquake in 2011,
BP contributes large amount of material assets to support the peoples temporary
placement and rebuilding. In addition, BP also keeps planting activities for more than
10 years. Because of these activities, BPs reputation in the world is very nice.
Research and Development (R&D)
BP strategy of R&D is growing long-term value by continuing to build a portfolio
of enduring positions in the worlds key hydrocarbon basins, focused on deepwater, gas
and giant fields. This will be enabled by strong relationships built on mutual advantage,
deep knowledge of the basins, technology and the development of capability along the
value chain in exploration, development and production. BPs R&D is moving towards
their promotion ideas environment.
Because of the nature of the oil industry, BPs main research and development
topics are non-carbon and refining. BP has its R&D department, and also cooperates
with labs and universities. BP spends over $1 billion each year on research anddevelopment. Companys Naperville, Illinois Technology Complex in suburban
Chicago is at the heart of our U.S. R&D effort, providing the emerging technologies for
Refining and Marketing operations. The work will involve conducting pilot plant and
laboratory experiments to discover and define new and better chemical processes;
designing experiments and overseeing technical support staff; analyzing results and
discovering ways to make the current and new processes more profitable.
BPs approach to a lower-carbon future is also a very important topic in the R&D.
This topic shows the BPs development orientation in the future. Through the
low-carbon research, BP can increase the energy efficiency within BP operations, and
also reduce their investment of carbon or their cost. In another word, the low-carbon
research is promoting lowest-cost energy pathways. This is a totally new method of oil
processing industry, but if it succeeds, it will bring great revenue to more than BP. The
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technology can be a revolution of the oil industry. Besides the core technologies
assessed above, BPs continual investment in Alternative Energy field includes biofuels,
wind, solar, carbon capture and sequestration (a kind of carbon purification technique).
Finance
BP is strong in its financial operation. It has different size, scope and sheer
importance of finance. Finance isnt a simple support function. Finance is right at the
very heart of our operation, making the rest of the business tick. In BPs finance
framework, its strategies are increasing investment to grow the firm, resumption of the
quarterly dividend, financial flexibility, and the quarterly dividend level.
Under these strategies, BP produced 4 million boe (barrels of oil equivalent) per
day in 2009, an increase of 4 per cent on 2008. In the next two years 24 new major
projects will reach final investment decision. BP intends to start up a total of 42 new
major projects between 2010 and 2015, expected to contribute about 1.0 million to total
production by 2015, more than offsetting the decline from currently producing fields.
From the 2010 annual report, although BP met serious problem in 2010, the company
still earned the income of 447 million dollars in 2010, and the loss in continuing
operations was only 3,324 dollars. In the four years before 2010, BP kept earning profitno least than 16,000 million per year. The information shows BPs risk management
was perfect; it helped the company avoid the large loss and build the base of the
company recovery.
The past two years stock market performance of BP shows that BPs price was
stable until April to September 2010 (See Exhibit 2). After April 2010, the price met a
serious drop and retreated in the September. But the price cannot go back to more than
$60 per share. The attribute after 2010 is good, steady trend refers to a nice performance
in BPs financial field. Now, BP is developing at a fast pace, the new technologies
research will also bring BP to be a more powerful and competitive force in the oil
market.
Human Resource
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Human Resource occupies a key place in BP. It provides a basic daily routine
supports. By improving the organizational capacity, and provide the necessary
resources that can help BP achieve the business goals. BP invented a HR management
method T-management, and the effect is extraordinary. The so-called
T-management refers to the free sharing of knowledge within the company (T
horizontal section) which can share the resource and communicate the ideas to
maximize the resource and technology use and create the knowledge value. And the
vertical section of T focuses on a single business unit performance which can contribute
to enhance the quality of the company component.
BP related "security" into BP's idea, this "security" expressed in their workers life
and health, working environment safety, and relative aspects. Because of the largest
part of BP is exploiting crude, so the job is a high risk job. Small mistakes will take
workers life away. So BP does its best to protect its workers. In addition, for the correct
development of the company, BP allows all employees to talk about the business to get
large verities information to lead the company. Because BP is an international company,
the human resource will include the cultural difference. BP companies in different
location show totally different culture feature. Culture openness make BP executive
level can collect a lot of viewpoints from people all over the world. And also theextension of international market will face less culture barriers. All in all, BP uses the
idea of fair and openness in its human resource management. The open environment
makes the company be the fifth of the Fortune 500 Headquarters.
Current BP Business Model
Cost Lever Analysis
The major costs components of BP Company are research and development cost,
exploration cost, Acquisition cost, and human resource cost. The exploration costs are
including construction, installation and completion of infrastructure facilities such as
platform, pipelines and the drilling of development wells. Research and Development
costs have increased about 33 percent in 2010 compared with the data from 2009.
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There was a rapid growth in expenses because of the Gulf of Mexico oil spill. After
the Gulf of Mexico oil spill, BP established a 10 years and about $500-million
open-research program that looks into the effects of the spill. Also BP invested more
money than usual in the exploration to try to avoid risking the drilling of a well that
wont produce. The Acquisition cost has been decreased, because BP made about
40,858 million dollars for the Mexico oil spill response. Human Resource cost includes
employees salaries, retirement benefits, and etc. As the chart showed the H&R cost is
very stability, which means the BP company is very care about the employee'(See
Exhibit 3).
Revenue Lever
The companys revenue is mainly generated from two business segments. One is
the Exploration and production segment. Through this segment, BP engages in the
search for undeveloped oil and gas reservoirs, the development of reservoirs, and the
production and transportation of oil and natural gas from developed wells. The
upstream and midstream activities in this segment have been expanded in 29 countries
in 2010. The other one is refining and Marketing segment. Through this segment, BP
processed crude oil into refined petroleum products and selling those products towholesalers and retailers located in over 100 countries around the world. Through their
strong dealer network, BPs products have been distributed in 22,400 gas stations in 80
countries.
The company has enough ability in expanding their business and marketing their
products in the world range. With the adequate oil and natural gas reserves, it is easier
for BP to earn market share and compete with the other oil companies. Some
uncontrollable factors might include the demand of the oil and natural gas, the decrease
in fossil fuel prices and some unpredictable accidents.
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The chart above showed the companys revenue change from the last five years. In
2010, the company has lost$40.8 billion because of the Gulf of Mexico exploded.
However, due to the increasing crude oil price, it drives up the sales of 2010 by 24%
compared to the last year. Although the Gulf of Mexico explosion might take many bad
effects on BP, such as the decreasing trusty and bad financial performing, their revenue
lever still has a lot of strength compared to their competitors. They have the big market
share over the world, and they have a good brand image which established for a long
time. That all makes BP becomes more powerful and outstanding in this industry.
Compare the revenue between BP and their competitors, Bp has lead position (See
Exhibit 4).
Innovation lever
As the global expectation of the energy demand from 2011 to 2030 will increase
50%, and 85% of the increasing demand is coming from fossil fuels. Under this
situation BP made several innovations to achieve the demand. For example the seismic
imaging technology which is use the newest seismic technology to research the detail
underground environments. Exploiting digital technologies to improve performance
and optimize production. To ensure the quality of the crude oil, BP Company set up
several researches and development centers in some universities in Naperville, Illinois
in US to increase the safety and reliability of the production. BP also developed many
systems and technologies to help refineries characterize the components of their crude
oil. With those systems BP Company can track their production mixtures, and also
understanding the feedback improved BP Companys brand image.
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BP has a leading technology position on the ultimate oil clean technology. BP
Ultimate can clean up to four times more than conventional fuels, which would
decrease the damage to the customers engine. BP corporate with KBR and licensed
BPs Veba Combi Cracking (VCC) technology for slurry phase upgrading of refinery
residue, coal slurries and heavy oil. BP is also one of the few companies in the world
can provide Fischer Tropsch technology, which is a high efficiency oil and gas
converting system. BP also pays special attention the alternative energy investment like
wind power, solar power and other non petroleum based energy sources
In fact BP is currently providing service for business and home using solar power
systems. BP has a large amount of great innovations; the most dominant one for the
company is still increasing the efficiency of the production of the nature gas and oil.
The investment for the new alternative energy is also trend to increase, because CO2
emissions have become a serious challenge in the world. Also recent investments for
the R&D program are a 500-million open research program in Mexico to monitor the
spill influence. A very great innovation strategy BP current enrolls is to set up the
research programmers with major universities and research institutions around the
world. With this strategy BP not only can keep the technology leading with the continue
innovations, but also help BP rebuild the brand reputation.
Growth Lever
BP is currently in the sixth position among the oil and gas industry. In the upstream,
BP is leading the group cutting the production cost. Compare to the 2009 and 2008,
BPs unit costs is decreased about 12%, and the decreasing trend is still continuing.
From the downstream, with BPs efficiency initiatives, BP has decrease its cash costs
by more than 15% in 2009. The cash cost is basically maintain acquisitions, distribution
channels, R&D investments.
In March 2010, BP successful grows its portfolio of assets through acquisitions
with Devon Energy which enhance its position in core strategic areas. Technology
innovation strategy is accelerating BPs Global growth. With the leading technologies
in some major parts, like production, oil and gas convent technologies, enhance BP
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Companys competitive advantages in the global wide. With high focus on the customer
feedback and tracking services, BP creates a very positive image inside of the
customers mind. Sustainable production, and high environment responsibility also
help BP gain the support of the environmental community.
The key strategy for BP Company is still improving efficiency of the production,
and to also be cost effective. BP Company would focus on four major parts to achieve
this strategy. The first one is planning and execution, the second is turnarounds and
projects, then is the contractor management, finally is to control the sourcing and
energy efficiency. To improve the efficiency, BP is going to improve the manufacturing
efficiency through the R&D. Also BP focuses on the supply management and
procurement to cut the transportation cost. From the acquisition and merges BP
Company also get many well drilling political licensing. The key mergers and
acquisition companies BP has are Veba Oil, Amoco, ARCO, Burmah Castrol, TNK-BP.
All of those are doing a great job in the BP Company. For example BP Amoco lead
United States gasoline retail share with 14% market share in 2010. And also ARCO is
leading US West Coast retail network.
Strategic Alternatives
One of the headquarters of BP is London, which will hold 2012 Olympic and
Paralympics Games. This provides both great opportunity as well as challenge. BPs
London 2012 vision is to use the power of the Games to inspire change and to provide
real solutions for a lower-carbon future.
BP has advocated a proactive approach to climate change and supported action to
curb carbon emissions during these years. However, a diverse energy mix should be
incorporated all available sources in the world from oil sands to solar and leverages
investment in technology. The mixing resources and technologies will be required to
deliver energy security and to lower CO2 emissions.
However, in 2010, BP experienced the Deep-water Horizon oil spill issue, which
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happened on April 20, 2010. A Deepwater Horizon drilling rig was rocked by an
explosion and large fires which sank the rig into the Gulf of Mexico causing the death
of 11 employees. The spill caused extensive damage to marine and wildlife habitats and
to the Gulfs fishing and tourism industries. This event caused a large drop in BPs
stock price and caused BP to lose extensive amounts of money, potential revenues,
resources and also have a heavily damaged reputation.
Because of these recent events like the Deep-water Horizon drilling rig accident,
the current strategy is one that we as the NMG agree with. It is a 10 point plan that is
found in BPs 2011 Investor Update. Seeing as it is so recent, the current plan addresses
many, if not all of the issues that we have presented in this report. The 10 point plan is
as follows.
1. First and most importantly, we will continue to have a relentless focus on safety and riskmanagement.
2. BP will build on its distinctive strengths areas where we have deep-seated experience andproven capability: exploration; deep water; managing giant fields and gas value chains;
operating our world-class downstream business; building relationships and developing
technologies.
3. We will be a stronger and more focused BP with a base of assets which is high graded and highperforming.
4. BP will be simpler. Our organization is already much more standardized. And our internalreward and performance processes are more streamlined.
5. There will be greater visibility of the value we are creating. Beginning next year, we will breakout the numbers of certain parts of our businesses, such as lubricants and petrochemicals in the
downstream.
6. Active portfolio management to build value will continue. In addition to the current $30bndivestment program, we intend to divest a further $15bn of assets by the end of 2013. Planned
divestments will result in a total of $45bn. This includes the sale of two US refineries
announced earlier this year.
7. We have a strong list of upstream projects coming on stream over the next three years. By 2014,unit cash margins on production from this new wave of projects are expected to be around
double our existing average.
8. We will grow our cash flow. You can expect us to generate an increase of around 50% inadditional operating cash flow in 2014 compared to 2011 at an oil price of $100 a barrel
approximately half from ending Gulf of Mexico Trust Fund payments and around half from
operations.
9. BP will use this additional operating cash prudently. We want to use around half for increasedinvestment in our project inventory for growth and around half for other purposes. This would
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include increased distributions to shareholders through dividends and buybacks, as appropriate,
or repayment of debt.
10. The strength of our balance sheet will be enhanced. We will move to the lower half of the 1020%gearing range.
Proposed NMG Business Model
As the new managing group for BP, we propose to use the 10 point plan that is
new this year (2011) and we also believe that this strategy will help BP come out of the
situation it is in and be able to become the leader in the global oil industry. The short
term goals that we have set for the company are to ensure all damages we have caused
from the Deep-water Horizon spill are fixed, to improve our safety and capability to
manage risk in new operations and lastly to restructure the company to allow for better
communication between business units and more stability in decision making and
fiscally. This 10-step plan that was offered by the current BP management places these
goals among the top priorities. For long term goals, we believe that the company should
keep working on many of the short term issues to become the leader in the industry, also
the most important save money when it can and also do as much as possible to raise
their fiscal and market standing. This 10 step plan will allow for more structure and a
simple design, this will help communication in the company and allow the change for
higher safety standards to happen more easily. This more simple structure will also
allow for the company to focus more on making sure its making use of its extensive
asset base to increase the company image as well as cash flows in the years to come.
The issues concerning this new plan come from the company simplification and
restructuring that is planned. This will affect every aspect of the company and will thus
be hard to implement because BP is such a large company. The changes, or 10 step plan,
will be implemented in phases over the next five years. This will make the burden of
such large changes less on the individual business units and allow them to fully make
the changes that are needed to have BP succeed as one of the worlds largest oil
producers.
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Exhibit1a
Exhibit1b
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Source:Companydocument
Exhibit 2
Stock price from 2009 to current
Exhibit 3
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Exhibit 4
Exhibit 5
Exhibit 6
0
5000
10000
15000
20000
Resarchand
Development
cost
exploration
cost
Acquisition
cost
human
resourcecost
2008
2009
2010
0
50
100
150
200
250
300
350
400
Billions
Asof11/17/11
MarketCapitalization
XOM
CVX
BP
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=7036819
Mergers and acquisitionsBurmah Castrol, Burmah Castrol strategy presentation London
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BPCO.(2011).Fieldofthefuture.RetrievedfromBPtechnology:
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