BP is the largest oil coporation in the UK. And it is the fourth largest oil producing company in the world. BP oil discovery was started before the world war 1in 1901 and the commercial discovery was in only 1908 the company headquarters is situated London, also to add to that BP is the 3rd largest company energy production in the world. BP is already operating almost in 100 countries and across sis continent. The company produces 3.8 billion barrels of oil per day. Having about 22000 stations worldwide after the recent tragedy occurred in Mexico the 'BP oil spill' the company have faced fatal situations to pay all the compensations to the loss occurred after the incident Bob Dudley took the company as new CEO of BP. BP operates in 3 segments namely;
Exploration- includes Natural Gas and oil
Refining and marketing- consist of refining, marketing, trading and transportation of final products to wholesalers or retailers.
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Gas and power renewable- operates mostly on alternative energy sources, transaction mostly with development & production of solar panels and wind farms.
Since the company is operating worldwide it has abide to countries rules regulations and adhere to that, although the following study has done in accordance to the company to find the potential of the company because to the recent catastrophe the company should plan ahead to achieve it normal position as it was before, So all the facts have been identified in favourable of the company for to focus in the future.
PESTLE Analysis of the oil industry
The oil industry seems to be providing high returns to the economy, but even though there several factors that affect the overall performance of the industry the main factors is political factor which has a great influence over the performance of industry and these strict laid down procedures that a company should follow in and when it comes to oil industry there more regulations have been imposed by the UK government which consists laws, government agencies and pressure groups that influence or limit the oil industry. The licensing and rights to all gas and oil in great Britain and its territorial sea belonged to the crown, also there's petroleum revenue tax is administrated by HM Revenue & Customs Large Business Service- Oil & Gas Sector (LBSOG) -formerly Oil Taxation Office or 'the OTO'. Since BP is operating in 80 countries it is entangled with so many regulations for e.g. it should adhere to the local government, regulatory bodies and trade associates, EU and national government, environmental laws also require BP to remediate of affected areas damaged by accidentally or unauthorized release of hazardous materials.
In accord with the UNFCCC (i.e. United Nation Framework Convention on Climate Change), the Kyoto Protocol which is a Framework Convention on Climate Change with the objective of reducing by 5.2% Greenhouse gases emissions (to the level specified in the treaty) that cause climate change. BP and the other oil companies are adhering to those regulations laid by the government to some extent and playing a significant role of politics of global warming safety measures, the main scope of BP is to emit low emissions to the atmosphere and to stabilize the green house gas emission and prevent dangerous hazard to climate change. Oil industry plays a vital role in mitigating the global warming. Though through research and new invention of technology to reduce the low gases to the atmosphere and implementing efficient energy measures. The recent gulf disaster was due to lack of safety measures that had been carried out in the plant, because an inspector from the department of energy and climate change, the UK government body monitoring compliance with companies' approved emergency plans, also citied that 'BP had not complied with rules on regular training for offshore operators on how to respond to an incident.' (www.ft.com) Therefore the oil industry runs in volatile environment and need to consider every aspect of its business due lots of rules and regulation had been imposed on the business
The oil industry has major role in the economic performance of the nation's economy, of all different sectors transport is most exposed to the effects of global supply and price shocks, because ground transport and air transport mainly rely on the petrol and kerosene, these oil cannot be replaced by any other commodity. Since transport highly depend on oil industry where transport has great impact on all the business operations in UK because of integrated transport system according to IMF, the average price of petroleum tend to rise continuously during the year 2005 the price rose to 50%, where it was 31% in 2004, and late in 2005 the price rose to 65% which shows there is a great demand for oil and the production isn't sufficient to meet the demand. This imbalance was started in 2203 where demand increased on global oil; in addition to this the demand increased due to emerging market like china had an apparent increasing trend in the oil market.
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Prices are mainly determined through the Organization of Petroleum Countries (OPEC), is an intergovernmental organization made of 12 nations. Besides that "The OPEC's missions is to co-ordinate and combine the petroleum policies of Member Countries and guarantee the stabilisation of oil markets in order to secure an efficient, economic and standard supply of petroleum to consumers, a stable income to producers and a reasonable return on capital to those investing in the petroleum industry".
In accordance to the supply-side the OPEC is a major player. They provide about 40% of the world supply and holds about 70% of proven reserves -and non-OPEC producers. It aims to maintain excess mining capacity with a view to influence crude oil prices.
Presently the quantity demanded is close to productive capacity, senses that OPEC has the ability to lower the crude oil prices, although consistent demand has reduced the excess capacity, this limiting the OPEC monopoly power and its influence to global prices. As a result, the current price-output configuration in the crude oil market is essentially a competitive equilibrium in the short run.
There are no. Of key players in the energy market with diverse of group of commercial and non- commercial investors, these investors have increased their energy producing facilities.
The following information is according to BP Annual Report 2009.
Replacement cost profit before interest and tax was $24.8 billion - a 35% decrease compared with the record level in 2008.
As it is a Multi-National Large company BP has a large cash flow which gives it a lot of flexibility in its operations.
Like all major oil companies, BP bases its trade on world reserve currency of the US dollar.
BP always adheres to the business ethics laid down by the government and it confront corporate social responsibility environmentally responsible manner. This has been reflected in the focus group of BP customers. Its maintain it higher quality standards in its all operations and also maintain ethical practices in profit seeking and choosing suppliers, and providing technological facilities to local communities,
Also, BP has an internal code of conduct. According to the BP Annual Report, 2009, this code of conduct is central to sustainability as BP's business. It represents BP's commitment to integrity, defining what is expected of every BP employee in 5 areas: health, safety, security, environment and employees. Even though they had very strict safety measure they have reckless in Deepwater Horizon rig in Gulf of Mexico, where they haven't run any precautionary or safety measure according to the report given by an inspector from climate change authority, these negligence lead high amount of oil spill into the sea, polluting the fisheries in the area, causing extensive damage to wildlife and tourism industry. Due to this negligence the company loss was accumulated total to $10 billion and lost 53000 barrels of oil per day. Therefore it's necessary to concern social factor extensively for company like BP.
The most vital factor for an oil industry, industry always focuses to improve the technology to gain competitive advantage. BP is also looking in alternative energy sources and not only concerning crude oil production it has diversified into several way of producing energy, life windmill energy etc... Appropriate technological advancement has made the company drilled the deepest well in Tiber. In Gulf of Mexico the company has found 30% of all large fields in the past decade. BP has stepped into alternative energy sources such as
The company has been ventured into solar in 1989 with the combine effort of Tata and BP in India and has become the largest solar power energy producer in Asia, with high tech and innovative production facilities. The company employs almost 1000 people in 4 manufacturing unit. Furthermore the company has invested for further solar production facilities in Spain and in US
The wind power business runs in US two wind farms were functioning in South Dakota. The total production was 711 megawatts (1237MW gross) with increase percentage of 65% compared to 2008. BP has acquired Greenlight Energy and Orion Energy, both leading wind developers. There are also plans for continued expansion.
Hydrogen power has been adapted by BP because in order to reduce the carbon emission to the atmosphere and reduce the global warming. In California the company has invested and had secured $318 million in 2009. The company had already stepped in Abu Dhabi in producing 400MW of hydrogen power and which was fully approved by the Abu Dhabi environmental regulator, which is important milestone to BP.
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Gas Power is a produced by gas turbines. They compact air, heat it up and expand it in to a useable energy. The energy is hauling out in the form of shaft power, compressed air and thrust, in any combination and used to power aircraft, trains, ships and electrical generators. The following graph shows the gas production of BP around the world.
(Source: BP annual report 2009)
This ensures that BP is investing in order to produce high natural gas, around the world.
Bio fuel one the most common way where the oil industry and the transport industry is going to venture according to the BP annual report its states that 'Cane harvest at BP Brazilian bio fuels joint venture, which completed its first 12 months of operations in 2009. This was a key milestone in a year when BP's bio fuels business was voted Bio fuels Corporation of the Year by the World Refining Association
According to BP it has been reside to stay on the legal procedures that had been imposed over it process in the oil industry. This has been explained in previously in political as well; therefore the company is adhering to the procedures of every nation that BP is functioning.
BP is more cautious on environmental regulations according to BP annual report 'in the US, the Clean Air Act regulates air emissions, permitting, fuel specifications and other aspects of our production, distribution and marketing activities, while the Clean Water Act regulates wastewater and other effluent discharges from BP's facilities, and BP is required to obtain discharge permits, install control equipment and implement operational controls and preventative measures'. Recently due to oil spill in Gulf of Mexico the company paid huge amount of money to cleanup that damage caused in the sea. This measure shows that BP is trying to safeguard the environment and do its business.
BP is the leading oil producer in UK, and 3rd largest producer in the world operates as petrochemical businesses worldwide through its subsidiary networks such as Castrol, Amoco, ARCO, BP Express, BP Connect, BP Travel Centre, ampm.
The company mainly spends on research and development on long term projects of alternative energy and implementation of those proposed projects. And it has invested millions in prospering new energy sources.
Each year it spends huge amount of money for research and development for instance in 2006 it invested $500,000 for several initiative programs.
Its success in exploration in oil base, recently it dug the deepest well ever in Tiber.
BP Amoco strong brand loyalty for oil.
Strong brand management driven by the 'Beyond Petroleum' slogan.
BO Q3 net profit increase by 83% due to record oil and gas prices. The indicator amounts to $53.43 per share compared to $21.27 during the same period in 2009.
According to FT Texas oil refinery exposure and leaking pipeline in Alaska made a bad reputation about the company's' safety measures
And now it has proven that BP isn't much concern on its health and safety measures. Poor health and safety procedures in oil rigs caused a heavy loss in Mexico killing 11 employees on the spot in April 2010.
Increasing demand for oil, mostly from the developing Chinese and Indian market, generating a challenge to BP. The organisation is preparing to handle with this huge price increase. Draining oil supplies also contributing to its price rises.
In order to avoid future fatalities BP should concern more on Safety measures, other issues such as climate change, sustainability of resources and the safeguards of the environment have become priorities for BP.
Venturing into new energy sources related to Abu Dhabi Hydrogen power plant approval from the environmental body
Investing in bio fuel which had been functioning in Brazil producing bio fuel from sugar cane, this show a new bright future to gas and oil energy industry.
According to FT BP is looking for new refinery plants to begin in Pakistan and Oman.
The advancement of carbon capture and storage has the prospective to help out the world to make change to lower carbon emission. BP is also trying to construct long-term relationships with partners, suppliers, investors, and local communities Government staff, customers.
Societies that live along pipelines passageway could cause problems or make complaints to the BP asking for higher indemnifications. Corrosion in pipelines and environmentally unsafe policies due to oil and toxic spills,
Occasional explosions in oil rigs and in refinery plants this may lead to negative media scrutiny and criticism.
Competition from Shell and Chevron may affect the performance of BP if they continue to have a better safety measures they might lead the oil market
Sale of corporate-owned stations, due these actions the company might lose its shares and also it might lose some of its customers to competitors
$66,71 per barrel creates considerable tensions for running oil business
Further lawsuits considering the company's ecological activities;
'The Ansoff matrix provides the basis for an organisation's objective setting process and sets the foundation of directional policy for its future (Bennett, 1994). The Ansoff matrix is used as a model for setting objectives' the model is used to set future objectives, therefore this analysis will done accordance to BP
Market penetration arises when a company penetrates its current products. It is important that the market penetrations arise within the company's existing product. This process helps to give better value to its existing customers. This what BP is exactly doing to its customers, because to retain its customers throughout its network the company has to satisfy its customers therefore in order to satisfy or give a better value the company can use this strategy for to retain its customers.
Product development means the company introduces a new product to its existing customers. Based on this the company such as BP can also take this into consideration and developed new product to its existing customers. In order to achieve the ultimate goal the company can use product development although the company is into product development such as bio fuel, solar energy, hydrocarbon manufacturing and wind power. Since its has already moved into alternative energy sources the company as identified what the market and environment needs therefore in order to be competitive the company should focus on increasing its capacity of productions to serve better to its customers.
Market development refer that the company uses its existing product to serve a new market. According to BP it can market the emerging market such as India, china and so on these countries are on the stage of developing its country profile therefore it's the right time to company such as BP to invest on these countries and increase its market share. Although they have stepped into Indian market through Castrol which the market leader in automotive lubricant business such as engine oil and brake oil, therefore it's clear that BP can enter emerging countries and develop its services, although it won't be an east procedure to enter into these emerging market, but BP can consider some other ways to enter the market and provide its services such as providing alternative energy sources.
Diversification is totally different from the above terms because this refers that company should introduce a new product to a new market.
Based on the review of PESTLE, SWOT and Ansoff matrix the company such as BP has the potential of growing in the future though there were faults in the management recently where there was disaster in Mexico by spilling huge amount of oil the company has lost its reputation and its valuable assets to pay the compensations that occurred during the oil spill, the company is now focusing on improving its safety procedures, as a result its new CEO Bob Dudley has enforced new unit to enhance its safety measures from this point the company staff need to provide commitment to the company to regain its previous position, these are the several ways that the company can increase its market share and sustain in the volatile market.