British Petroleum is an international company which has its operations in around 100 countries and six continents. The main activities of the company are exploration of crude oil & natural gas, refining, supplying, manufacturing and marketing of petrochemical products. The company originated owing to the efforts of William Knox D' Arcy, who invested his precious time, money and efforts in the belief that valuable deposits of oil could be found in Persia. The company supports all of its business with high quality research and technology.
The company runs its business on the principles of strong corporate governance with a set of polices and values which guide their behavior. The company's turnover in the year 2007 was $284 billion with a replacement cost profit of $17. 3 billion (Bp. com 2009). BP has active explorations in 26 countries, with proven reserves of 18. 3 billion barrels of oil and gas equivalent (as of 31 December 2005). Our daily oil and gas production in 2005 reached 4 million barrels of oil equivalent a day. Over the next three years, we expect to start up a further 24 major projects to develop around 3.
7 billion barrels and add 850 thousand barrels per day to production in 2009. CURRENT STRATEGY AND BUSINESS CHALLENGES "The defining feature of global energy markets remains high and volatile prices, reflecting a tight balance of supply and demand. This has put issues such as energy security, energy trade at the forefront of the political agenda worldwide. " Tony Hayward, Group Chief Executive, June 2008 The CEO of BP has truly spoken of the current market sentiment around the globe. The price of energy is forerunner in any agenda internationally in these times on financial crises.
This has put BP both opportunity to gain from high prices and a threat on production level of oil, especially from OPEC who controls most of the oil supplies. (95 % of oil reserves are controlled by state-owned oil companies). BP survived its Middle East (Iran) disaster in seventies due to its North Sea and Alaska presence. The company now focuses on two core segment unifying all other segment into it. Exploration and Production, and Refining and Marketing. A separate business, Alternative Energy, handles the Company's low-carbon businesses and options outside oil and gas and is referred as Other Businesses and Corporate.
Exploration and Production's activities include oil and natural gas exploration, development and production (upstream activities), together with related pipeline, transportation and processing activities (midstream activities and the natural gas liquids (NGLs), liquefied natural gas (LNG) and gas, and power marketing and trading businesses. The activities of Refining and Marketing include the oil supply and trading, refining, marketing and transportation of crude oil, petroleum and chemical products.
However the vast complexity of its operation is still hampering the outlook as in overall financial position as the strategy has yet to be implemented with various organizational bottlenecks and political and economic reasons related to the operation of BP in all parts of the world. BP has also started procedure of divesting its non-core business and that business which does not compete in its strategic portfolio of profit generating business. BP employs a focused exploration strategy in areas with the potential for large oil and natural gas fields as new profit centres.
It has been unable to get any profitable or stable contract with significant oil-producing nations in recent years as compared with its peer's i. e. Royal Dutch Shell, Chevron Texaco, and Exxon Mobil. However at present times, unforeseen circumstances and events has led BP to change in strategic view of the future of the company. The major reasons and events to be recognised which changed the company outlook over are as: * Global financial meltdown and its effect on company's financial operation. * Recent Strained relation with TNK-BP over labor practices and tax issues.
(TNK-BP in one of the most important strategic venture of BP which provide 25 percent production to BP). * Prudhoe Bay Shutdown in Alaska on 2006 over environment damages. * 2005 Texas City refinery Disaster causing 15 deaths and 500 injuries. * Hurricanes on Gulf of Mexico causing disruption to facilities. * Key Challenges in environmental concern all around the globe about carbon emission. * Maintaining stable sources of supply whilst finding and developing markets for alternative energy. In Particularly the main relevant Business challenges faced by BP right now are:
BP has extensive offshore exploration operations in the North Sea whose reserve potential is declining significantly. The saturation of reserves in this region is a key challenge for BP; especially as newer exploration activity in other parts of the world is far more localized and entails significantly higher investments. With the increase in global warming, environmental regulations have become more rigid in recent years.
he Kyoto protocol calls on industrialized countries to reduce their greenhouse gas emissions level by 5.2% on an annual average during 2008 to 2012, as compared to the emissions level in 1990. BP already has a weak record in environmental matters and a further introduction of these stringent regulations may impose new liabilities or increase operating expenses, either of which could result in a material decline in profitability. BP has exploration and production interests in 29 countries. Many of these regions, including Africa, the Middle East, and South America, are prone to political instability, particularly Middle East which controls 61% percent of world's total oil reserves.
Much of the geo-political risks are outside its control, failure to anticipate some of these events or the inability to mitigate risks in these regions could seriously impair its operations and disrupt the flow of output. 2. Consider the implications and impact of different ways of tackling these Challenges and recommend the most appropriate routes to meet strategic needs. For tackling the challenges currently facing BP, it is imperative to review the strategic need of BP organization as a whole.
"Restoring revenues and reducing complexity The unsatisfactory financial performance was primarily a result of two things: missing revenues, principally from delayed projects and poor reliability in some of our US refineries; and excessive complexity in the way we manage the business, which has added to costs. " Tony Hayward, Feb 22, 2008, CEO Review on Annual Report. BP has various stakeholders, and most important and primary are the shareholders who are primarily concerned about the financial health of the company. BP strategy hence primarily is focused on making more profits with more cost cutting strategy.
However BP has also to take in other stakeholders as Government, Environment and employees in its strategy formulation for a balanced view. Hence various ways to tackle the challenges faced by BP and the implications are: Technology and Re-Organization of its Business Structure BP should invest more in improving its technology in oil technology, particularly from those producing fields whose reserves are saturating. On average, using current techniques, about two-thirds of the oil in an oil field gets left behind, says Richard Sears, a vice president at Shell International Exploration and Production.
Such improved technology will reduce cost and should incorporate decommissioning the saturated fields as well. More investment should be made on research and development in the oil -technology particularly in high cost technology in deep sea. However, such policy would bring redundancy in employees and should incorporate the human cost as well. Such technology should also be environment friendly such that it follows the current pollution guidelines (Kyoto Protocol) in areas that it operates.
However using such newer production technology needs more financial investment and such investment decision would require many factors to consider as making obsolete the existing technology, more depreciation costs, more dent to the Balance sheet in already existing weaker state of financial position. BP should also try to simplify its organizational structure so that it could have greater control on its operation and as a whole on the business process. Its operation and activities are divided into many sub-activities like refining, marketing, producing, exploring, petro-chemicals, fuel aviation, chemicals, trading, transportation, etc.
Its operation covers almost all part of the globe and hence it requires more investment in re-organization and disposing off un-productive assets and investing more resources in profit-making centers. Here, again the various cost should be evaluated in terms of cost-benefit analysis, and bring in all the stakeholders interest into account. Reducing complexity would result in greater control of its operation and would have more quality management of the company.