The Global History Of British Petroleum Business Essay Business Essay

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The story of British petroleum (BP) starts of in a country that is now known as Iran. BP began its reign in the oil industry as the Anglo-Persian Oil Co. BP struck oil, and began to refine it in Iran in 1908. As stated in Time magazine in an article written by Ishaan, Tharoor, The British government became the company's major stakeholder on the eve of World War I thanks to the vociferous prodding of navy chief Winston Churchill, who saw in Persia's wells a source of fuel for Britain's modernizing fleet. In 1951 the Iranian Premier Mohammed Mossadegh decided to nationalize the company's holdings. In 1953 there was a coup that involved a joint operation by the CIA and British intelligence, so this coup destroyed the Iranian Premier. After time passed the company known as Anglo- Iranian became BP. BP needed to reinvent the company by looking for alternative sources of oil production.

BP recognized that they needed to advance their barriers of production in to other parts of the world in order to gain advantage over other emerging oil companies. BP began to create a network of new holdings. In 1965 BP found enough natural gas to power a medium- sized city in the English Channel. The new holdings expanded from Alaska all the way to Indonesia. In the 1980's and 90's the new found diversity of the company lead the company to purchase a vast array of U.S energy companies. After scouring Alaska in search of oil, BP struck it big in 1969 when they tapped into a oil field that would produce 400,000 barrels of crude oil a day. BP encounters a lot of engineering feats in Alaska due to the rough terrain, and the unforgiving North Sea.

BP also developed an understanding of the political and environmental impacts their projects have in the countries they do business in. One of the engineering marvels was the 1,200 kilometer Trans-Atlantic pipeline system that was the largest ever created. BP ensures the state of Alaska that the pipeline wouldn't disturb the natural environment it flowed through. In 1987 BP began to re- focus their core strengths in their business model. The purchase of Standard oil of Ohio ensured the supply and logistics of BP's oil from Alaska to the American consumer market.

The new purchase incorporated into what is called BP America. Shortly after the British government sold of the last of the shares that it held in BP. BP in a series of accelerated sell- offs, strengthen their operating focus by concentrating only on core processes, which were find, refine, transport, and sell fuel. In the late 1990's BP merged with a company called Amoco to form BP Amoco. Than due to stiff competition in the energy industry, Arco would than join the BP portfolio. Among the others to join the BP portfolio are Castrol's motor oil, and Aral's distinctive European operation.

BP started to have a lot momentum, and focused their new found energy on emerging markets like climate change and alternative energy. BP scientists would create new frontiers all around the world in areas like fossil fuels, and low carbon energy. The CEO during this time, Lord Browne says, "We need a balance between the needs of development and the need for the environmental protection." With this proclamation BP's Amoco expanded its solar power business, and join the clean cities campaign in Europe. In 2000 BP began a new image which would include including the whole portfolio in the BP group. The new identifier was a green, yellow and white sunburst, symbolizing energy in all its dynamic forms. This new banner would allow BP to take larger and larger steps to addressing their position in climate change. BP began to contribute their solar technology to developing countries in order to provide inexpensive forms of energy. BP supported the development of hydrogen- fuelled buses in London, and other forms of cleaner motor fuel world- wide. Currently BP created a new business unit called BP alternative energy that is devoted to making new types of low- carbon energy such as, solar, wind, natural gas, and bio fuels, in to a profitable large scale business.

Suppliers

BP supports local, state, and federal supplier diversity. They encourage the use of minority and women business enterprises. All suppliers must be approved by one of the following third party vendors: The National Minority Supplier Development Council (NMSDC), Women Business Enterprise National Council (WBENC), Small Business Administration (SBA), or Central Contractor Registration (CCR) (Global, 2010).

Task Environments

The operating management system (OMS) is the "foundation for a responsible and high-performing BP" (Global, 2010). The OMS has eight dimensions of how people, processes, plant and performance operate within BP. Continuous improvement (CI) is a concept that is incorporated into OMS. CI has been implemented throughout the corporation and provides the tools needed to tackle challenges and ensure that problems are eliminated and operations run at maximum efficiency. By 2009, 80% of the OMS program has been implemented with the last 20% expected to be completed in 2010 (Global, 2010)

Customers

Motorists, consumers, airline executives and shipping administrators are just a few of BP's customers. Anyone who fuels up at ARCO or uses Castrol motor oils and lubricants may consider themselves a customer of BP. Along with ARCO and Castrol, BP has a total of six major brands including BP (the mother company), ARAL fuel stations in Germany, AMPM convenience stations in the western USA and Wild Bean Café, a high concept café with affordable and fresh coffee, foods, and meals. BP supplies 26 mil tons of fuels and lubricants to airlines, airports and small craft owners and they are one of the world's leading suppliers of fuels, lubricants and technical services to the marine industry (Global, 2010)

Competitors

BP is one of the top five oil companies worldwide. Their biggest competitors in the oil industry are Saudi Aramco (Saudi Arabia), Exxon Mobil (US), NIOC (Iran), and PDV (Venezuela). BP is very competitive in the BioFuels industry coming in third only to Dupont Danisco and Solazyme. Solar energy production is another branch of BP with the biggest competitor being GE.

Regulatory Groups

BP operates in more than 80 different countries and is subject to the regulatory provisions in every country. Environmental regulations are enforced at the international, national, state and local levels. In the U.S., the Clean Water Act and the Clean Air Act regulate emissions and effluent discharges from BP's facilities (Global, 2010). Non-government Organizations (NGOs) such as the World Wildlife Fund and the Natural Resources Defense Council also serve to influence and regulate BP's environmental impact (Auditor, 2010).

General Environment

BP is a corporation in that there are Shareholders, a Board of Directors, Chief Executives, Managers and so on. The general environment can be described as 'workforce diversity'. The company considers itself a progressive organization diverse in term of race, gender, sexuality, age, religion, culture, experience, disabilities and other personal characteristics. Their aim is "to create an engaging and inclusive culture" (Global, 2010). BP will engage employees in conversation and seek feedback from them on the company's culture and progress. By practicing diversity in all aspects of the corporation, BP creates an "workforce where people from all backgrounds have the opportunity to make a contribution and advance on merit". BP conducts an annual employee survey to monitor employee attitudes and to identify areas of improvement.

Economic Environment

The economic environment of BP relies heavily on the supply and demand of energy producing materials. Oil is one of their biggest futures. Some have estimated that 30 trillion barrels of oil could be used up in the next 30 years or less (Global, 2010). As the demand for oil grows, so will BP's economic growth. Security of supply concerns will also have an impact on the company's economic future as governments look for ways to source energy from reliable local sources. Worldwide environmental issues, such as global warming, will also affect the world's energy industry. The demand for fossil fuels grows yearly. Currently, about 80% of the world's primary energy is generated with fossil fuels (Global, 2010). As the world's population grows, the demand for energy producing materials will grow with it.

Social/Cultural Environment

BP's code of conduct states their commitment to fair employment and equal employment opportunity. The code of conduct makes a "very explicit statement against the use of child labor and forced or compulsory labor" (Global, 2010). If an assessment identifies potential human rights risks, BP has taken action to embed the Voluntary Principles on Security and Human Rights (Voluntary Principles) within all projects and operations. BP focuses on building relationships with communities. The company will hold open days, neighborhood meetings and information events to explain their work, or to support cultural events and local arts (Global, 2010).

Political Environment

BP is a member of the Extractive industries Transparency Initiative; working together with international agencies, governments, non-governmental organizations and companies to "contribute to sustainable development and poverty reduction by increasing transparency of revenue flows" (Global, 2010). BP is a member of The International Association of Oil and Gas Producers and The World Business Council for Sustainable Development. BP will not participate directly in party political activity or make contributions to political candidates, but rather used lobbying to engage in policy debate. The rights of the employees of BP to participate in the political process are recognized according to the country that they are in. Employees who wish to hold a role in a public office are required to notify their manager in advance (Global, 2010).

Technological Environment

Seismic technology, high performance fuels, bio fuels, and nano solar technology are just a few areas in which BP is striving to become technologically superior. Advanced seismic imaging technology has advanced exploration, reduced cost and enhanced reservoir management. BP, partnered with University of Berkeley and University of Illinois at Urbana-

Champaign and Lawrence Berkeley National Laboratory, has established the Energy Biosciences Institute to advance the biotechnology field. BP has sponsored research by the California Institute of Technology, U.S. to create a new generation of powerful solar cells using nano-technology. BP is leading the way with fuels and Castrol lubricants with BP Ultimate which can "clean up to four times more effectively than conventional fuels" (Global, 2010). Castrol's Elixion SAPS 5W-30 lubricant can deliver 4% fuel savings and reduce oil consumption by 10% (Global, 2010).

Values Statement

BP wants to be recognized as a great company - competitively successful and a force for progress. We have a fundamental belief that we can make a difference in the world.

We help the world meet its growing need for heat, light and mobility. We strive to do that by producing energy that is affordable, secure and doesn't damage the environment.

BP is progressive, responsible, innovative and performance driven.

Progressive: We believe in the principle of mutual advantage and build productive relationships with each other, our partners and our customers.

Responsible: We are committed to the safety and development of our people and the communities and societies in which we operate. We aim for no accidents, no harm to people and no damage to the environment.

Innovative: We push boundaries today and create tomorrow's breakthroughs through our people and technology.

Performance driven: We deliver on our promises through continuous improvement and safe, reliable operations.

These values guide us in the conduct of our business. In all our business we expect high ethical standards and act in accordance with our Code of Conduct (Global, 2010).

Strategy

British Petroleum's strategy for 2010 is to realize the potential of its asset base by improving the efficiency and effectiveness of everything they do while maintaining their priority on safe and reliable operations. (2010 SP, 2010) With safe and reliable operations as their number one priority, BP plans to build a track record that will make them an industry leader in safety. They will continue to improve the leadership team, technical and functional expert through development programs like their Operations Academy and by putting the right people with the right specialties in the right position in the organization. By strengthening the core capabilities of their people in a culture of excellence and continuous improvement, BP will continue to enjoy the benefits of their improved performance flowing through to the bottom line.

BP believes that by 2030, the world will consume 45% more energy with fossil fuels continuing to be the dominant source. (2010 SP, 2010) As a long time advocate to curb carbon emission, BP will continue their proactive approach to climate change through a need for a diverse energy mix of resources and technology. This will minimize the environmental impact on fossil fuels which ensures that they make the best use of the world's energy resources. They will maintain their disciplined approach to Alternative Energy by investing in biofuels, wind, solar, and carbon capture and sequestration technology and continue to improve their corporate efficiency through a culture of continuous improvement. (2010 SP, 2010)

Under Exploration & Production they have a strong list of projects that will deliver an average production growth rate of 1-2% until 2015 and a potential to sustain growth through 2020. (BPSP, 2010) BP has established a new centralized organization with accountability for all major projects to invest in growing production safely, reliably and efficiently. In the upstream there is a focus on reducing production costs through better management of the supply chain. They want to maintain the momentum created on 2009, which saw unit costs that were 12% lower than 2008. (2010 SP, 2010) BP is the strongest deepwater producer and developer. Going forward they will continue to grow their deepwater resources and production in Angola, Egypt, Gulf of Mexico, and Libya. They will continue to develop their gas portfolio with two new projects and continued exploration.

In Refining and Marketing there is an emphasis on driving safety, efficiency, quality and integration as they realize the potential of their refinery network and restructured fuel value chains. (2010 AGM, 2010) In the downstream, BP has a two-to-three year goal to return costs to below the 2004 levels and keeping refining to the 2009 financial level. With modernization of the Whiting refinery, which is currently 15% of their refining capacity, they will be more flexible and able to run at a lower cost per slates of crude. (2010 SP, 2010)

BP will continue to invest at a pace that grows the company while continuing to meet the dividend commitments of their shareholders. Their 2010 capital expenditures are expected to be about $20 billion. By the end of 2011 BP has challenged themselves to close the financial gap versus their peers through a focus on restoring missing revenues, business simplification and repositioning cost efficiency. (2010 SP, 2010) BP will sustain a balanced portfolio of 60% oil and 40% gas which will yield a real advantage with a performance improvement of $1.6 billion per annum. (2010 SP, 2010) In an oversupplied fossil fuel market, BP will focus on quality instead of quantity while improving safety, operational effectiveness and efficiency. This can be achieved by positioning the right quality of assets in specific location and in the right markets.

Organizational Structure

British Petroleum is operating in over 100 countries across six continents. In 2007 their market capitalization was over $225 billion with over 96,000 employees. This market capitalization had a huge declined to $157.13 billion in April 2010. The current organizational structure is similar to the one that BP shows in their January 2007, The Report of the BP U.S. Refineries Independent Safety Review Panel with some significant changes made in the area of safety.

The Shareholders own the company. The organizational structure in the Maps of World Finance (2010) illustrates on top the Chairman and the Board. The Board is made up of Executive Directors, Non-Executive Directors, Board Committees, Chairman's Committee, Nomination Committee, Audit Committee and Ethics & Environment Assurance Committee, and Remuneration Committee (BP, 2010). The Board of Directors, on behalf of shareholders, is responsible for the direction and oversight of BP's business, and to set forth BP's goals. The Board has the role to represent and promote the interests of the shareholders, to actively consider new strategies, monitor the executive action, manage the succession of the board, and executive management. The Board of Directors is elected or re-elected every year from BP executive directors and outside directors (non-executive directors). The Board does not manage BP's business it delegates authority and responsibility to the Group Chief Executives whose performance they monitor (The Report of BP, 2007 p.28).

Delegations and Accountability

Under the BP Management Structure, authority is delegated and accountability cannot be delegated. The delegations of authority move down from the Shareholders to the Board of Directors, to the Group Chief Executive; to Group Executive Officers like Chief Financial Officer, Group General Council, and Group Chief of Staff, down to the lowest appropriate point. Accountability always belongs to one individual (The Report, 2007, p.28). BP Management Structure explains that leadership monitors the business, not supervise; they only supervise the people who report to them directly. This concept is used throughout the organization.

Environment

BP is responsible for making a decision on where to drill for oil. It keeps in consideration the locations and what affect the drilling will have in the environment and on the people. BP's reason to drill for oil is the needs that humans have for the product. This needs to be accomplished with minimum harm to the earth and the people. BP is working toward this goal by using alternative resources and by increasing jobs for the people in the area, while keeping everyone safe. BP takes an integrated approach to identify environmental impact in their new projects and acquisitions. This also applies to projects that are in sensitive areas and international protected areas. BP has a screening process to make sure that all necessary environmental precautions are taken before going into a sensitive area. One sensitive area is the International Union for the Conservation of Nature (Environmental and Social, 2010)

Objectives

BP is one of the largest energy companies in the world. It provides fuel for transportation, energy for light/heat, and other petrochemical products that are used in everyday life. One objective that BP has is to provide what is needed without disturbing any endangered species or habitats, without disturbing any human populations and not to cause any political, environmental, or social problems that could negatively affect the growth of the company. Another objective that BP has is to minimize safety and operational risks. BP is addressing this objective by creating a new safety division that has power to oversee and audit the company's operations all over the world (Environmental and Social, 2010).

Strategy

One of the strategies that BP has is working on addressing the issue of climate change by using Efficient operations (maintaining the effort to manage the greenhouse gases, increase energy efficiency, waste heat recovery, reduction in flaring and venting), Efficient fuels (working with vehicle and equipment manufactures to use products that are efficient in fuel and lubricants), and Low-carbon energy (Solar, Wind, Biofuels, and Hydrogen Energy) (Hayward, 2009).

Organizational Culture

BP is a multi-cultural company; it is known for doing business all over the globe additionally it has acquired numerous companies from around the world to add to its empire. BP's mission statement states "In all our activities we seek to display some unchanging, fundamental qualities - integrity, honest dealing, treating everyone with respect and dignity, striving for mutual advantage and contributing to human progress".

In 1978 BP was acquiring Standard oil of Ohio, and worries were raised between its employees because of the fear of losing their jobs, but BP executives ensured everyone that they are not going to do that, on the extreme, BP was buying Standard oil to cash on the company's pioneer experience in Alaska, also to reinvest and expand work in their North American distribution center. The same executives pointed out that BP had a very human, nonhierarchical culture with full respect for Standard Oil's employees and their way of doing business.

That self-proclaimed values and integrity became unaccounted for; in 2010 that culture seemed to be blundered. The Culture is the path and the vision behind any company's existence; it is the values that everyone abides by. It is the operating system that helps employees, vendors and customers interact. The operating system will forbid connections or decisions that could damage the core values of an organization. It is the safety valve that controls the success of any company.

For BP, the culture did not work the way it was alleged to, and everyone became aware of its failure for not implementing its own philosophy that the company was founded on. It is possible that the wrong doing of some was so recurrent that everyone else chose to disregard. In a good culture, every affiliated person would by far, close all the possible doors to agony and failure. A good culture will always keep its priorities in order to have the system working with integrity and efficiency. What happened with BP was a shift in culture; it was a mixture of greed and arrogance from some executives looking to cut corners in return for corporate profits. Those executives became so confident that they neglected the fact that drilling under 5000 feet of water requires research, resources and using the best men and equipment's?

BP's culture allowed extreme imprudence in pursuit of capital gains at the cost of safety by ignoring environmental and safety regulations. In the Gulf of Mexico, BP chose to use a cheaper casing seal along with using the wrong drilling equipment for that kind of work, which was the main reason contributing to that blow-up. Also, the company purposely started cutting corners on enforcing safety procedures. For example, last June, lots of exceptions to BP safety standards were overlooked and approved by senior executives. In a TV interview to one of the oil rigs survivors on 60 Minutes, he alleged that "BP ordered suppliers and vendors to cut corners because their ludicrously ambitious drill schedule was off by few weeks". Right before the explosion occurred, numerous warnings surfaced, and all were ignored. So much for the principles of Standard Oil and BP. Amazingly, these penny-pinching moves were made in spite of BP record earnings and profits!

Furthermore, the broken valve damage appears to go on and on spilling oil into the ocean, so in an easy attempted to solve that problem, BP started to dissolve oil with Corexit whish is a solvent primarily used as a dispersant for breaking up oil slicks, and had been banned form use for more than 10 years in Europe. This substance is four times more toxic than crude oil and is considered to be one of the most poisonous substances ever developed; it makes the oil to sink under the water surface, where it cannot be seen. It shoves the oil beneath the surface into the ocean pillar where it kills underwater life, and breaks it up into such small bits that it can be absorbed into the crust of the ocean and marsh-dwelling beings. BP disregarded the Environmental Protection Agency's suggestion to stop using Corexit. In response, the EPA unconvincingly called for a "study" of other dispersants and disobeyed all government safety regulations.

This disaster ignited people to express their opinion publicly and some went further by protesting BP's actions by carrying signs and showing pictures of the damage caused by that accident which BP was trying to hide from the public and portraying it as a small accident in spite being one of the biggest disasters in US history. The reports that BP was releasing about the volume of oil flowing from that damaged oil rig were minimum and unreal, they were intentionally trying to hide the right figures. Also the damage caused to fish or other underwater wildlife was never mention in any of BP's press conferences or publications.

Disasters happen, but some can be avoided by using common sense, wisdom and celerity. Avoiding them at any cost would be the right thing to do, solving problems and dealing with unexpected events should be part of any company's culture that admits to problems and set out to correct it without being penny pinchers.

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