17-08-2012, 10:36 AM
BP PLC
BP CASE STUDY.doc (Size: 39 KB / Downloads: 28)
In 2009 BP was one of the world’s largest international oil and natural gas producers, having grown in the early 2000s through mergers and joint ventures. By its nature it is engaged in international business, with a strong interest in managing the political, economic and technological environments. Some criticize the oil industry for contributing to climate change – though the companies can point out that they are meeting the growing demand that people in all countries have for energy.
BP is a British registered company, but 40 per cent of its assets are in the US, and it is that country‘s largest gas producer. It does 80 per cent of its business outside the UK, and is inevitably involved with political considerations. With so much business in the US, the company is also sensitive to policy on the Middle East.
The search for new supplies
The company is what is termed as an ‘integrated’ oil company, which earns revenue by extracting and by selling refined oil products to end-users. Both parts of the business are becoming more difficult. On the production side, the company faces access problems, as governments are less keen to bring in foreign companies to develop their resources. Countries with large reserves (those with over 30 years’ supply) are members of OPEC, the oil producing countries’ cartel. All accept investment by foreign companies such as BP, but impose strict conditions as a way of supporting their national energy companies.
The company has invested heavily in gaining access to oil reserves not only by explorations but also by acquisitions and joint ventures such as TNK-BP. This was a strategically important deal as it opened the way to redevelop Russia’s large but ageing oil and gas fields. It also fitted a wider political strategy of reducing the West’s dependency on Middle Eastern supplies. Securing more oil reserves continues to be the major strategic challenge facing the company. On a positive note, Thunderhorse, a new production platform in the Gulf of Mexico was, by the end of 2009, exceeding expectations and producing the equivalent of 300,000 barrels a day of oil and gas (but see below). It also has new supplies from oil fields in Azerbaijan, Egypt, Angola and Indonesia. In July 2009 it reached an agreement with Iraq to rehabilitate the giant Rumaila oil field.
The search for new demand
It also faces challenges on the sales side, as demand in the developed countries may have peaked. BP’s former Chief Executive, Tony Hayward believed it unlikely that the company will ever again sell as much conventional petrol in the US as it did in the first half of 2008. Energy efficiency measures such as tighter fuel economy standards, and the growth of biofuels, mean that the total market for oil derived products is likely to shrink. For a company such as BP, which earns about 40 per cent of its revenue in the US, that is a worrying prospect. It will be hard to replace this demand by entering rapidly growing markets such as China and India: they have national oil companies which are keen to protect their position.