Category: Petroleum

There is no use denying the fact that the sphere of petroleum engineering is one of the most topical and important nowadays (Beattie, n.d.). It is possible to say that new investments into this sphere will be made and a great number of different companies will try to obtain benefit and become influential. However, this business is also connected with a great risk as companies, which work in this sphere, can lose their money and even become bankrupts.

To become prosperous and save its funds any company which deals with this sphere should answer several important questions which will help it to obtain the clear image of a new project. First of all, the size and perspectives of a new business should be analyzed. Moreover, it is necessary to determine what potential stakeholders can be involved in the issue and what the expected level of incomes is (Suslick, Schiozer, & Rebelo-Rodriguez, 2009). All these steps are known as risk analysis. A company has to take into account all factors which influence the issue and all potential actors which could either prevent or help a company in the development of a new project (Business pulse: oil and gas n.d).

Taking into account the main conditions of the project, it should be said that the most risky issue will be connected with its financial aspect. That is why, this sphere should be analyzed precisely. The thing is that there are certain uncertainties which make the work of a company more complicated. First of all, oscillations in the price of oil, which are rather hard to predict, are important. The price of the project can become higher than the expected incomes. Additionally, the cost of equipment, its exploitation and delivery should also be taken into account. All these factors influence the process of decision making greatly and should obviously be taken into account. That is why, such remedy as decision tree could be created for a company to be able to analyze all advantages and disadvantages of the issue and make a certain conclusion. The following decision tree can be suggested for the given project.

Having analyzed the given decision tree, it is possible to state the fact that there are some factors which could be taken as the evidence of success and will obviously lead to the further development of the project. At the same time, great financial risks and absence of a certain perspective of the development of the project combined with a strong rivalry and unstable situation on the market can be taken as obvious signs of vague chances of the whole issue and can lead to disastrous results.

Reference List

Beattie, A n.d., 5 Biggest Risks Faced By Oil And Gas Companies. Web.

Business pulse: oil and gas n.d. Web.

Suslick S, Schiozer D, & Rebelo-Rodriguez, M 2009, ‘Uncertainty and Risk Analysis in Petroleum Exploration and Production’. TERRÆ, vol. 6, no.1, pp. 30-41. Web.

BP Company is one of the world’s leading international oil companies selling oil and gas products as the major product. The company provides its clients with energy for heat and light, petrochemical products, retail services, and fuel for transportation. The company has employed more than 83,400 workers worldwide, oil reserves exceeding 17,700 million barrels of oil equivalent, is operational in over 30 countries, refines more than 2,352 thousand barrels daily, and had sales and operating revenues exceeding $375,517 million in the year 2011. BP Company is involved in oil exploration, oil mining, refining of oil, transportation of oil products, and byproducts, generating low carbon energy and social responsibility. The company operates as BP, Amoco, ARCO, Sohio, Castro, and Aral in different parts of the world.

In order to understand the market well, the researchers will employ various market research tools, namely interviews, sampling and statistics, observation, online and web data, face to face, phone calls, central location intercept, and depth interviews. The above tools are broadly categorized as qualitative research tools and quantitative research tools (Bradley 32). The primary research instrument to be employed by the researchers will be interviews and will be carried on consumers, distributors, manufacturers, and competitors. This will enable the researchers to substantially reach their decision without prejudice and favor. The researchers will ensure they reach a considerable number of their audience that truly represents the general market. As mentioned earlier, the researchers are not limited to the use of interviews as the only tool in their research but will also employ other tools and research instruments. Different research tools will cater for different audiences and needs, for instance, online surveys will be used to reach BP products’ consumers throughout the world while observation tool will be used in the local market to enable the researchers to get primary information regarding the response of the market to BP products (Karen & Ian 76).

The researchers will use different methods on different demographic and psychographic groups. For instance, the researchers will use online surveys, web forums, and email to collect data from the youths, whereas they will use interviews and observation to collect data from elderly people. Where the target audience is unavailable physically, the researchers will carry out phone interviews to ensure they collect all necessary information to make the right conclusion and recommendations. In all these methods, there will be questions regarding the competitors, what should be done for BP as a company to compete effectively and ways in which BP management has failed in marketing their product. A deep analysis will be done on BP’s production and sales volumes over the years to determine the trend and the reasons behind the trend. This will help in the better understanding of the BP history, market share and ways to increase the market share.

According to researchers, BP oil products are highly valued and widely used throughout the world. The wide range of products have enabled the company to capture a large market share and if their innovation continues at the same rate, we believe BP Company is headed to be the leading oil company in the world (Joseph 52). The company has an advantage of operating under different names and some of her subsidiaries are located in good geographical locations with large oil reserves, for instance, Aramco, which has the ability to pump 12 million barrels per day and have more than 259 billion barrels of oil reserves.

Works Cited

Adams and Brace. An Introduction to Market and Social Research: Planning and Using Research Tools and Techniques. London: Kogan Page, 2006. Print.

Bradley, Nigel. Marketing Research: Tools and Techniques. 2^nd Ed. New York: Oxford University Press, 2010. Print.

Hair and Wolfinbarger. Essentials of Marketing Research. Boston: McGraw-Hill, 2008. Print.

Introduction

Businesses embrace various approaches to ensure they achieve their objectives without struggling. The importance of strategic positioning enables companies to compete with others and stand high chances of winning a reasonable market size (Ferreira 2011). This paper presents an analysis of British Petroleum’s strategic and competitive position.

Background

British Petroleum was established in 1909, and its origin is linked to the establishment of the Anglo-Persian Oil Company (Dyck 2008). The company expanded its operations through mergers and acquisitions. Its original name was Anglo-Iranian Oil Company to show that it was a merger between two investors. The name British Petroleum was established and became the trademark of this company in 1954. This move enabled this company to be autonomous and start investing in other regions located beyond the Middle East. British Petroleum was the first company to start drilling oil in the North East in 1959 (Frazer 1958). This move enabled it to acquire other companies like Standard Oil-Ohio that had failed to meet their targets.

In addition, it merged with Amoco in 1998 after undergoing privatisation in different stages between 1979 and 1987. It made major strides that expanded its operations and boosted its income by acquiring ARCO and Burmah Castrol in 2000 and established a partnership with TNK to form the TNK-BP joint venture (Hymowitz 2013). This includes exploration, refining, production, distribution, marketing and trading. The 2012 revenues show that this is the fifth-largest company in the world.

BP has branches in more than 80 countries and produces more than 3.2 million barrels per day of oil (British Petroleum, 2013). This company is managed by Carl-Henric Svanberg (Chairman), Bob Dudley (CEO) and Brian Gilvary (CFO) (British Petroleum 2013). It specialises in the drilling, production, distribution and marketing of petroleum, natural gas, motor fuels, aviation fuels and petrochemicals. Its revenue was 396.217 billion (USD) according to the 2013 survey (British Petroleum 2013). Its operating income was 31.310, profit 23.451 billion, total assets 305.69 billion, total equity 129.302 billion (all figures in USD) and it has more than 83, 900 permanent employees working in its branches located in various parts of the globe (British Petroleum 2013).

Strategic and Competitive Position

SWOT Analysis

British Petroleum is a multinational company that specialises in offering oil and gas services and products. Its competitors continue to struggle to regain their operations and statuses, especially after global inflation, but this company finds it easy to navigate through economic turbulence that characterises the international oil industry (British Petroleum 2013). This company has enjoyed a near-monopoly in oil and gas production because of its strength in the following ways.

BP has various strengths that help it to remain relevant in the oil and gas industry. First, it has a long history in this field, and this has equipped this company with the relevant experience in the oil and gas industry. In addition, other companies failed to offer quality services because they did not have adequate experience, and this enabled British Petroleum to merge or acquire them (Garven 1996). The market price of its share remained stable for a period between July 2013 and May 2014, as shown in the figure below (British Petroleum 2013).

This company had control over the operations of this industry, and that is why it never suffered major losses during the Great Economic Depression and 2007-2010 economic crisis. The company knows how to drill, process, distribute and market oil, and that is why it has continued to expand its operations beyond the national borders of its origin.

Therefore, experience gives investors an added advantage in ensuring that they understand the operations of their businesses (Mangena 2007). Other companies struggled to maintain their clients and navigate through the turbulence of inflation and high standards set by international trade organisations. However, this company did not find any hurdle in its operations because of its vast experience.

Secondly, it has a huge capital base that allows it to invest in various aspects that enable it to improve its production processes and boost sales. The huge capital is an asset in ensuring that this company invests in modern technology that will ensure it generates profits under minimal expenses (Stone 2013).

It is necessary to explain that the use of modern technology improves the efficiency of a company’s operations and ensures that investors have high returns on their capital. This capital is important in ensuring that this company pays its worker’s reasonable salaries, and this explains why there have never been any salary-related strikes by its employees.

The use of modern technology by this company ensures that all its operations are managed from a central location. The management can track the performance of its branches without having to travel there (Longstreth 1990). Computerised management and supervisory systems ensure that managers can monitor the performance of all employees without struggling to do so. This has become an effective way of ensuring there are transparency and accountability of all workers.

In addition, it has diversified its capital by investing its operations in many countries (Mishra 2001). This ensures that if a region is affected by natural or human disasters, this company will not stop its operations in other areas. In addition, it enjoys a huge client base offered by customers and companies from different locations. The fact that this is a reputable international organisation enables this company to focus on producing goods and services that aim at availing needs of consumers (Connelly 2007).

It does not have a market preference and gives all markets reasonable attention. Thirdly, British Petroleum has a well developed and effective management style that focuses on ensuring there are improved efficiency, coordination and unity in its branches. First, it ensures that its subsidiaries are managed by people from the host country, and this is an effective way of identifying with local communities and their government (Bamberg 2000). This strategy creates job opportunities and improves the image of this company. Therefore, it becomes very easy to persuade the local population to use its products, and this makes this company stand high chances of winning the trust of consumers.

On the other hand, this company has weaknesses that limit its abilities to empower its branches to maximise on their production potential. First, it has a centralised management structure that ensures all decisions are made by the highest office in the company. This is a multinational company, and thus it has to delegate its key decision-making processes to managers in various branches. It is necessary to explain that some decisions made in the highest offices may not be useful in branches located in different countries (Jeffers 1969).

Nations have different cultural, political and economic practices, and this means that they differ in the ways they manage their affairs. A multinational company should not have rigid policies because of the differences in the practices between developed and developing nations. Therefore, this makes this company to be perceived to be western-based. However, British Petroleum has maintained a centralised management system that ensures decisions made in high offices are implemented in all its branches regardless of the practices of the host nations. The Table below shows the market segmentation of shareholders of this company (British Petroleum 2013).

Another weakness facing this company is that it heavily relies on acquisitions and mergers to expand its operations despite its large capital to do so. It is necessary to explain that this is a dangerous strategy if caution is not taken when making these plans. Some investors may decide to sell their companies because they predict a dark future in their locations. This may be caused by civil wars, political instability or poor reputation. Therefore, British Petroleum will inherit these weaknesses, and this may be transmitted to its other branches and cause inefficiency in its operations.

The opportunities available for this company to improve its performance are many. First, the Arab region, which is a large producer of oil and gas experiences regular conflicts, and this means that companies located in this area do not operate effectively (Hernandez 1998). Therefore, British Petroleum should make use of this opportunity to ensure the clients lost by other companies during political instability are attracted to its products and services. It should ensure that it developed marketing strategies that target clients that seek services and products from the Middle East to ensure they are made part of its clientele.

British Petroleum faces serious threats from different areas. First, critics argue that this company is responsible for a huge percentage of today’s pollution. Cases of oil spillage in water bodies have been reported, and their losses have hampered the performance of this company (Spillane 2014). Spillage on water bodies causes deaths of aquatic life and pollutes this important natural resource. In addition, it endangers the lives of many people that directly or indirectly depend on water for their economic activities like fishing and sports. Moreover, this company has been blamed for releasing dangerous smoke and fumes into the atmosphere, and this has polluted air and depleted the ozone layer.

There are fears that international environmental bodies may soon impose strict measures that will ensure the use of biofuels is prohibited or minimised. This is a serious threat to the operations of this company because it may cause it to close its multi-billion operations (Norburn 2007). Competition from other sources of energy like solar and electricity is giving the management of this company sleepless nights. People have realised the importance of environmental conservation and are working hard to ensure they embrace the use of fuels that do not produce harmful smoke or gases.

The introduction of cars and engines that use electricity or solar will revolutionise the energy sector by reducing over-reliance on fossil fuels. This company should be prepared and invest in alternative economic activities because the future of using fossil fuels to produce energy is bleak (Milzoff 2013). In addition, it is important to explain that oil and gas are non-renewable resources. Therefore, their supply is limited, and this should be a wake-up call for this company to start thinking of other viable investments. Fossil fuels take too long to mature, and this means that this company will have no raw materials if it depletes the existing ones.

Automobile companies have started manufacturing vehicles that do not use fossil fuels because they know that the supply of this energy is limited and may be depleted very soon (Lustgarten 2012). This should challenge this company to realise that its future is not bright and thus it should start to think about what it will do with its infrastructure, employees, clients and capital before it is too late to salvage the situation

PESTEL Analysis

British Petroleum is an international company, and this means that it has to deal with numerous political challenges that affect the operations of companies of this nature. Governments have different ways of managing their affairs and controlling their economic activities. The tax policies of most countries favour the operations of this company, and there are no instances where it has been forced to close its operations due to unfavourable taxation policies.

Most developing countries do not have stringent taxation policies because they are ready and willing to attract foreign investors. In addition, this company has major links with America and other developed countries, and this gives it an upper hand in working with favourable taxation policies. Moreover, this company has a centralised management system that ensures its labour policies reflect the demands of the regulations that govern workers in various countries.

Most labour laws are established to meet global standards stipulated by the International Labour Organisation; therefore, this company does not have difficulties in taking care of its workers (Masulis 2007). However, some aspects of environmental laws do not favour its operations, especially when it comes to pollution. Incidences of water and air pollution have been reported in this company, and this has caused major standoffs between its managers and local authorities. The reputation of this company has been marred by various events that had devastating effects on the environment (Reuer 2011).

The 1965 Sea Gem oil disaster led to the suspension of fishing activities and several bays were declared unfit for vessels. Moreover, the Prudhoe Bay and Texas City refinery explosions and Caspian Sea gas leak and blowout and Texas City chemical leak of 2008 and 2010 led to the establishment of stringent policies to regulate the activities of oil and gas drilling companies (Bianco 2007). The 2007/2008 post-election violence witnessed in Kenya led to the destruction of this company’s stations leading to losses of more than a billion dollars.

In addition, America’s attack on Afghanistan and Iraq were major blows that affected the operations of this company in Iran. There were fears that terrorists would take advantage of the fragile political situation in this region and attack companies that were perceived to have links with America. In addition, tension in the Arab region has never subsided and this means that it has experienced a shortage of raw materials in its production processes.

Economic growth spurred by globalisation and the introduction of modern technology in Africa and some parts of Asia has widened the market for the products of this company. America, France and other developed countries offer foreign aid to developing nations and this has helped them to improve their infrastructure and security (Shulman 2006). This has offered room for foreign investments and this company has maximised on this opportunity to invest in developing countries.

The interest and exchange rates of international currencies favour the operations of this company because it enjoys a good balance of trade when exporting its products to developing countries. Inflation has never affected the operations of this company to an extent that it had to close its operations in some countries. However, the 2007/2008 economic recession reduced the profits it generated from its companies that are located in America.

Some social factors like health concerns and career attitudes have reduced the use of fossil fuels in some countries. Americans are very cautious when it comes to matters of health and thus most of them have abandoned the use of gas and fossil fuels and are using electric and solar powered vehicles and engines. Emphasis on safety has reduced the popularity of this company’s products and people are paying attention to the need to conserve the environment and keep themselves healthy.

Lastly, this company has invested heavily in modern technology to ensure there is efficiency in its processes. The use of automated machines reduces the costs of labour, supervision and training of employees (Gine 2012). In addition, it has focused on acquiring modern machines that will reduce pollution and ensure there is little wastage of raw materials. Supervision and management of staff have become easier because of the use of computerised systems. In addition, it is easy to monitor the drilling, processing, distribution and marketing processes because of improved tracking systems.

Porter’s Five Forces

Michael Porter presented five forces he believed are important in shaping the operations of a company. He argued that the threat of new entrants compels managers to develop defensive strategies that ensure their clients are not attracted to their competitors. Porter believed that new entrants have an advantage over existing ones because they do not have to introduce products. The markets are already established by existing companies. British Petroleum ensures it develops strategies of limiting the impacts of new entrants on its sales. Its managers usually have prior knowledge of any threat posed by new competitors and manage them by regulating the prices and offering incentive packages that will attract and retain its customers.

Secondly, the threat of substitute products and services like electricity and solar energy is a nightmare for this company. However, it has embraced the use of modern technology to ensure its products have less negative impacts on the environment to attract customers that want to embrace environmental conservation initiatives (Morrison 2009). It has introduced modern technology in its drilling, manufacturing and distribution processes to ensure it lowers the amount of pollutants it releases to the atmosphere.

The ability and bargaining power of customers is not totally within the abilities of this company to regulate it. However, it has established measures like price reduction, use of incentives and improving the quality of its services and products to ensure consumers get the value for their money (Akhter 2008). This means that the company has focused on producing high quality products and offering impeccable services to attract consumers. This will ensure they do not trade quality with price and would rather get a good service at a higher value than vice versa.

The bargaining power of suppliers has been a serious headache for this company. The threat posed by new entrants due to liberalised economies in oil producing countries has increased the number of investors in this industry yet there are limited suppliers (Pomeranz 1998). Therefore, suppliers have become reluctant to offer their raw materials to companies that do not meet their standards. Ineffective guidelines that regulate the behaviour of stakeholders in supplying raw materials make this company to face stiff competition from those that enjoy good relations with suppliers.

Lastly, the intensity of competitive rivalry from Shell, Total and Oil Libya are forcing this company to conform to their standards. It is necessary to explain that most clients do not focus on the quality of products or brand names and this means that this company cannot attract their attention if it does not follow the trends exhibited by its rivals. Therefore, it faces stiff competition that arm-twists it to follow practices that may not be considered effective in achieving its objectives.

Income Statement

British Petroleum (2013) shows that the trading period between 2011 and 2013 saw an increase of sales and other operating revenues. The company started registering an increase in these figures from $239,272.00, $ 297,107.00, $375,517.00, $375,580.00 to $379,136.00 in 2009, 2010, 2011, 2012 and 2013 respectively (British Petroleum 2013). The total cost of operating revenues was $186,974.00, $280,826.00, $309,763.00, $327,153.00 and $325,878.00 in 2009, 2010, 2011, 2012 and 2013 respectively (British Petroleum 2013). This means that the company registered an average gross profit of $47,203.30 and it registered its highest gross profit in 2011 by generating $65,754.00 (British Petroleum 2013).

It also registered its highest operating profit of $28,871.00 (2011), interest and other income $1,590.00 (2012) and net profit of $26,097 (2011) (British Petroleum 2013). The decline in BP’s profit between 2011 and 2012 is attributed to shareholders withdrawal even though the number increased in 2013 even though it did not surpass the previous highest revenue generated (British Petroleum 2013). The table below presents a summary of BP’s financial position between 2009 and 2013(British Petroleum 2013).

Balance Sheet

The balance sheet of this company shows an improved performance between 2009 and 2013. The turnover increased from $239,272.00 in 2009 to $379,136.00 in 2013 and this shows an improved investment by shareholders and translated into a $305,690.00 value of tangible and intangible assets (British Petroleum 2013). The stock also improved from $22605.00 in 2009 to $29231.00 in 2013 and it registered a high liability of $180714.00 in 2012 and low of $133855.00 in 2011(British Petroleum 2013). Its 2013 results shows a decrease in creditors and this translated to a total liability of $175283.00 (British Petroleum 2013). Therefore, the results of this company show a positive development from 2009 to 2013 even though the results of 2012 were not good.

Stock Evaluation

British Petroleum (2013) shows that the value of this company’s shares increased steadily between 2009 and 2011 and 2012 and 2013. In addition, the following information is available in www.bp.com. Investors earned $0.88 per share in 2009 and $1.24 in 2013; therefore, they received high dividends of $1.36 per share in 2011(British Petroleum 2013). These figures show that the company’s dividend yield per share was $4.22. 2012 registered a high dividend yield of $4.70 even though 2011 had the highest dividend per share growth of 38% (British Petroleum 2013).

The price per share in 2012 was very high at 12.40 and this attracted investors that in turn led to a low demand that caused the decline of its value to $6.7 in 2013 (British Petroleum 2013).The table below shows the stock valuation of this company between 2009 and 2013 (British Petroleum 2013).

Investment Opportunities

British Petroleum registered an improved performance from 2009 to 2013 even though its 2012 results were not good (British Petroleum 2013). However, there is a high possibility that this company is going to show positive developments in its 2014 results and this means that it is wise to invest in its shares. There are hopes that this company will maintain positive performance because it has established effective monetary policies like buying back shares to ensure they are in steady but reasonable supply (British Petroleum 2013).

This will help to stabilise its value and ensure investors get high dividends. Financial analysts predict that this company may register a high of $1.8 earnings per share in 2014. In addition, the company predicts a dividend yield rate of between $4.7 and $5.0 this year (British Petroleum 2013). Therefore, potential investors should think about investing their money in the shares of this company because it has a bright future.

Conclusion and Recommendations

British Petroleum is a reputable organisation because it makes use of its strengths to enter new markets, expand its operations and improve the quality of its products. It focuses on improving the quality of its products and services by investing in research, technology and training its workers to meet international standards. However, its future is dark because of the ongoing efforts to embrace environmental conservation measures to reduce pollution. In addition, competition from new entrants and other sources of energy lowers the popularity of this company and forces it to invest more money in marketing its products.

Appendices

SWOT Analysis

PESTEL

Porter’s Five Forces

References

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The financial analysis of a company is useful to understand how the business has performed in the last accounting period. Although the analysis is based on historical financial information, it helps in identifying the key areas of high and low performances (Fridson & Alvarez 2011). The financial analysis is relevant to both internal and external stakeholders. It can help internal stakeholders in recognizing the weaknesses of their business and taking steps to improve its position. External shareholders and analysts use financial analysis to ascertain if the company is likely to generate a higher return on their investment in the coming period (Brigham & Daves 2014).

The financial analysis of oil and gas companies involves the determination of various measures of performance. The information provided by companies in the financial statements is specific to the industry, and it is difficult to understand (Javadi, Simkins & Wicker 2013). Therefore, financial analysis enhances users’ understanding of the financial information provided by oil and gas companies. The financial analysis covers “leverage, liquidity, exploration efforts, and size” of oil and gas companies (Abdel-Khalik 1993). The most useful tool of financial analysis is financial ratio analysis. The financial ratio analysis can be used to perform a survival analysis of oil and gas companies. It also allows comparison with industry averages (Johnston & Johnston 2006).

The role of financial analysis in project financing is important. The financial analysis supports the financing decisions of a company (Soyode & Ariyo 2014). The company decides to raise funds from equity or debt-based on the findings of the financial analysis. It could help analysts in ascertaining free cash flows of a project. The analysis determines the cost of capital including the cost of debt and cost of equity that is used for discounting free cash flows of a project. If the project has a positive net present value, then it must be accepted (Brigham & Daves 2014).

Table 1 indicates that the value of the current ratio was 1.62 in 2010 that declined to 1.41 in 2011. The change was due to the significant increase in the company’s current liabilities including accounts payable and accrued expenses.

Table 1: Current Ratio.

The quick ratio does not include inventory in current assets for calculation as it has low liquidity when compared with other current assets. Table 2 indicates that the value of the quick ratio was 1.22 and 1.48 in 2011 and 2010 respectively. The decline was due to the increase in the company’s current liabilities in 2011.

Table 2: Quick Ratio.

Table 3 indicates that the value of the Debt to Equity Ratio increased from 1.40 in 2010 to 1.73 in 2011. It was due to the increase in the company’s long-term borrowing. Furthermore, the company’s retained earnings declined in 2011 that resulted in a higher debt to equity ratio value.

Table 3: Debt to Equity Ratio.

Table 4 indicates that the company’s networking capital decline in 2011 due to the significant increase in its current liabilities.

Table 4: Net Working Capital.

List of References

Abdel-Khalik, AR 1993, ‘Discussion of “Financial Ratios and Corporate Endurance: A Case of the Oil and Gas Industry’, Contemporary Accounting Research, vol 9, no. 2, pp. 695-705.

Brigham, EF & Daves, ‎R 2014, Intermediate Financial Management, Cengage Learning, Boston, MA.

Fridson, ‎S & Alvarez, F 2011, Financial Statement Analysis: A Practitioner’s Guide, John Wiley & Sons, Danvers, MA.

Javadi, S, Simkins, BK & Wicker, ME 2013, ‘Financial Statement Analysis for Oil and Gas Companies and Competitive Benchmarking’, in Energy Finance and Economics: Analysis and Valuation, Risk Management, and the Future of Energy, John Wiley & Sons, Hoboken , NJ.

Johnston, ‎C & Johnston, D 2006, Introduction to Oil Company Financial Analysis, PennWell Books, Tulsa, Oklahoma.

Soyode, A & Ariyo, A 2014, ‘Adequacy or Inadequacy of Accounting Information In Annual Financial Reports: Methodological Analysis’, Journal of Financial Management and Analysis, vol 27, no. 1, pp. 33-40.

Introduction

Strategic directions of publicly-traded energy companies seem to be the paramount determinants of their successful operation as they identify the overall direction of the companies. In this regard, due to the fact that BP plc is an integrated oil company efficiently performing on the global market, I would like to propose it including the peculiarities of the company, its strategy, and the research plan.

Specific Characteristics

The British Petroleum Company ranks the fifth place in the world among energy companies (Rapier 2016). Today the company is the owner of 19 gas and oil refineries and 17, 200 petrol stations while 7, 000 of them are located in the US (BP Global 2016). The company possesses its representatives in more than 100 countries around the world. In the world, there are approximately 80 thousand employees working for BP (BP 2016). The company distinguishes by its active international performance.

Taking into account the specifics of the prospective study, it is essential to pinpoint the company’s strategy in bare outlines. Basically, it focuses on five-year and annual strategic development plans pursuing three focal objectives listed below:

• Promote growth by achieving concrete results, especially in terms of profit amounts that ensure long-term growth (Smith 2015);
• Increase of the dividends per share;
• Return free funds remaining after reinvestment in the business and the payment of dividends to shareholders.

Moreover, the company’s strategy includes the raise of production by finding the largest fields, concentrating on a limited number of the richest oil and gas basins in the world, securing a leading position in occupied regions, providing an effective management, and selling non-competitive assets (Durand 2013). The company pays attention to the oil refinery, where a high level of production quality is provided by the scale and flexibility of the process.

Such a position ensures the competitiveness of BP (Chew 2012) for a long-term operational period. In the field of marketing, the company tends to enlarge the product range. BP continues to invest in those fields, which hold a strong leadership position (Hartung 2010). For instance, it invests in such markets as oil, natural gas, coal, nuclear energy, renewable energy, and others.

A leading position among the world’s largest suppliers of gas by means of developed infrastructure, increasing gross profit, and the supply chain optimization remains the strategic goal of the company (Beale 2012). One might note the establishment of the alternative energy in BP that is engaged in the production and marketing of the low carbon energy (Safina 2011).

In response to the growing demand for more environmentally friendly energy, BP is expanding its presence on the liquefied natural gas (LNG) market and low-carbon types of energy (Skjaerseth & Skodvin 2013). The company works on large deposits of natural gas in the vicinity of major markets, owns large stakes in the gas pipeline network, and takes the stable position in the production of liquefied natural gas in Pacific and Atlantic oceans (Valvi & Fragkos 2013).

Research Plan

Methods of Inquiry

The literature analysis will be used to collect more detailed information about the BP Company. Precisely speaking, such sources as the FTSE 100, New York Stock Exchange, and Financial Times along with the company’s website and official documents are useful and comprehensible tools to create the specific survey and analyze results. For this study, the literature analysis is a cost and time effective way to examine the strategic direction of BP Company.

Study Credibility

In the framework of growing significance of energy industry, it seems appropriate to investigate this field. The operational potential of BP is high. One more argument in support of the company is the fact that the adequate interpretation and modeling of large volumes of information along with data mining might improve the performance of the company. The potential survey will allow determining the possible changes and will either support or refute the anticipated outcomes with nominal evidence that can be discussed with a reasonable degree of reliability.

In order to ensure the confirmability of the research, the data will be collected from credible sources and appropriately analyzed according to the studied course concepts. It is also crucial to pay attention to the transferability of the research that will contribute to the generalization of findings. In this regard, the research will provide reliable information describing the company’s strategic vision that might be generalized for the broader understanding of the issue.

Possible Method of Analyses

Every research needs a study design before starting, because it is an integral part of the research design. Therefore, there is a need to determine the methodology of the possible investigation. Seeing the specifics of the proposed company, it seems appropriate to utilize the qualitative research that would reveal the strategic direction of BP based on their economic indicators. According to Packer (2011), the nature of the qualitative research is richly descriptive and conveys the perception of the organization.

The qualitative method involves the collection of information in a free form; it focuses on the understanding, explanation, and interpretation of empirical data that is the source of speculation and productive ideas (Packer 2011). Therefore, the study will utilize qualitative method approach in order to collect the data for analysis that will allow taking the advantage of the richer data that is expected from qualitative research. The qualitative procedures are necessary as they enable the researcher to interpret facts and make it easy for understanding by interested parties. Finally, applying the identified method of analysis, I would like to interpret and understand the results to make relevant conclusions and potential recommendations.

Conclusion

In conclusion, this paper proposes the study of the BP’s strategic direction. It was stated that the purpose of the proposed research is to scrutinize the strategy of the company in order to suggest possible recommendations to enhance the company’s performance. This paper supposes the methodology of the potential research and justifies its importance in terms of the global context that is reflected in the growth of competitiveness in the energy market and need to improve the strategy of BP.

Reference

Beale, N 2012, Constructive Engagement: Directors and Investors in Action, Gower, Burlington.

BP 2016.

BP Global 2016.

Chew, D 2012, Corporate Risk Management, Columbia University Press, New York.

Durand, R 2013, Organizations, Strategy and Society: The Orgology of Disorganized Worlds, Routledge, New York.

Hartung, A 2010, BP’s Only Hope For Its Future. Web.

Packer, M 2011, The Science of Qualitative Research, Cambridge University Press, New York.

Rapier, R 2016, The 25 Biggest Oil And Gas Companies In The World.

Safina, C 2011, A Sea in Flames: The Deepwater Horizon Oil Blowout, Crown Publishers, New York.

Skjaerseth, J & Skodvin, T 2013, Climate change and the oil industry: Common problems, varying strategies, Manchester University Press, Manchester.

Smith, G 2015, BP’s new strategy depends on oil prices rising 25%. Web.

Valvi, AC &Fragkos, KC 2013, ‘Crisis communication strategies: A case of British Petroleum’, Industrial and Commercial Training, vol. 45, no. 1, pp. 383-391.

Content Analysis

Background

BP has been known as the organisation that has been at the top of the oil and gas industry for quite a while. However, a recent string of scandals related to the environmental damage made by BP’s oil spills has prevented the company from progressing. However, instead of using the available financial assets to improve its reputation among the stakeholders and increase the dividends as the means of promoting corporate loyalty among the shareholders, BP’s leaders seem to have been focusing on catering to their own needs and disregarding the ones of its shareholders, customers, and the general audience. As a result, the firm has been facing a significant decline in its shares value. Therefore, it is desirable that BP should reconsider its current financial policy and introduce the principles of sustainability to maintain the

According to the recent records of the company’s progress in the target environment, BP has been doing comparatively good. However, the changes in the quality of its performance and the associated financial issues have caused the organisation to lose a significant amount of money (Ladd 2012). One must admit, though, that the results of a recent analysis of the organisation’s financial status will show that BP has been experiencing a rather shaky growth (see Fig. 1). As the diagram below shows, the company is not in its peak shape currently, yet it is clearly recovering from the 2008 failure that triggered a rapid and immense drop in the share price.

Furthermore, a recent analysis of the changes in the company’s share value will show that it has dropped by 0.85% ($2.75, i.e., to $456.10). Although the identified change might seem insignificant, it points to the fact that there is a propensity for the company to execute the strategy that does not contribute to a rapid growth in the target market. Moreover, it should be borne in mind that the actual earnings met the estimated ones only in the third quarter of 2016 (BP PLC 2016).

Opportunities and Risks

Despite the obvious issues with the use of resources and with the management of the company’s reputation, BP seems to have a very big potential in the global market. Given the fact that it has already established a strong presence in the environment of the oil and gas industry, it can focus on promoting changes to its quality standards and corporate ethics without fearing that its competitors will take its place. Furthermore, the fact that BP has expanded its services nearly across the globe shows that the organisation is capable of operating in the environment of the global economy and attracting customers from all over the world.

However, BP is also facing a range of risks that it will have to manage in order to maintain its position in the target market and create the environment in which the profit margins can be increased. The firm currently risks losing its reputation and, therefore, disappearing from the global market. Furthermore, BP risks losing the trust of its shareholders. Unless efficient measures for addressing the problems faced by the organisation are introduced, the risk of losing a significant amount of financial assets will become increasingly more tangible. Furthermore, despite the fact that the company has established a strong presence in the target market, it is reaching its maturity. Thus, BP will have to make sure that its competitive advantage remains high enough for other organisations to be unable to surpass it.

Stakeholders

Among the essential stakeholders, investors, customers, and the general audiences affected by the spills need to be mentioned. At present, it is crucial to pay close attention to attracting new customers and retaining the old ones, which can be accomplished with a promotion campaign. However, the company will have to rebrand its image so that it could not be viewed as a threat to the environment anymore.

Speaking of the company’s stakeholders, one must address the obvious problem regarding the dividend payments. Despite BP’s claims about its stellar dividend payment policy and the seemingly positive premises for developing relationships between the shareholders and the organisation, a recent report on the issue shows that a conflict between the organisation and its stakeholders may be brewing. Indeed, as Kent (2016) explains in her recent report, the current policy on dividend payment has raised a few eyebrows in the company and caused an impressively negative response among the shareholders: “Following the company’s annual meeting Thursday, the oil giant said 59% of the votes cast were against the company’s executive compensation decisions for 2015” (Kent 2016, par. 2). Therefore, there is an obvious concern about the allocation of the company’s financial resources, as well as the ethical aspect of the financial choices made by the organisation. Given the fact that the dividend rate has been reduced along with the rise in the benefits obtained by the company’s Chief Executive, there are reasons to assume that BP could use a more ethical policy as far as the allocation of its financial assets is concerned.

Particularly, the focus on the needs of all stakeholders involved, including the shareholders of the organisation, needs to be brought up. Given the recent drop in the firm’s popularity due to the effects that it has had on the environment, it does not need another publicity that will expose the selfishness of the choices made by the leaders of the organisation. In other words, the value system of the company needs a serious redesign.

BP’s Prospects

If the organisation manages to convince the target audience that it is time to give it a second chance, BP may become very powerful in the target market. Because of the inconsistency in its use of resources, the organisation has been failing both financially and from the marketing perspective.

Therefore, the prospects of the company are rather vague. Although there are the advantages that the company can use as the foundation for increasing its profit margins and benefitting financially, the firm needs to use its resources in a more elaborate manner. Particularly, it is essential for the organisation to reconsider the principles of corporate values and ethics. Unless the company starts focusing on its key stakeholders, it will ultimately fail to gain the competitive advantage that it needs to become successful in the identified environment.

Response

Issues Faced by BP

Apart from the obvious reputation concerns, the firm is bound to deal with a plethora of issues related to its future change toward the sustainability model. As explained above, the fact that the company’s strategy was geared primarily toward increasing profit margins as fast as possible with little to no concern for the expenses and resources. In addition, the fact that the company has been depriving its stakeholders of their revenues so that the leaders of the organisation could benefit extensively shows that BP may need to improve its current relationships with the target audience. For this purpose, the essential principles of the sustainable use of resources, as well as the concepts of honesty and transparency, must be introduced into the design of the company.

The low levels of dividend payment are especially disappointing for the shareholders in light of the fact that the organisation has been known for decades for its high dividend payments (Cherry & Sneirson 2011). However, after the crisis stroke and the organisation became infamous for the damage that it had caused to the environment, the amount of dividend payment shrunk significantly. On the one hand, the specified step taken by the company can be viewed as rather rational. Indeed, given the drop in the firm’s popularity, it is quite sensible to use the available resources to improve the firm’s reputation in the target market by carrying out a vast campaign. Seeing that the latter is likely to be very expensive, the reduction in the dividend rate can be considered a temporary and inevitable step. However, a closer look at the way in which the firm has been using its financial resources will reveal that little to no effort has been made to address the obvious concerns; instead, the profits received by the company leaders have increased (Griggs 2011).

In other words, along with the financial strategy used by the company, the set of values and ethical standards used as the foil for the decision-making processes in the organisation must be revisited. Unless the company leaders recognise the necessity to meet the requirements and satisfy the needs of all stakeholders involved, including the company’s shareholders, the chances for progress will remain very low. Furthermore, there is a threat that BP will lose even more money and will ultimately fail in the global market because of the lack of trust and the negative reviews that it will receive. Particularly, the use of financial audits can be considered as the means of improving the current state of affairs (Ma 2016).

Planning Model

Goal-based planning can be viewed as a possible tool for addressing the current problems. To be more accurate, the SOSTAC + 3M model needs to be considered as the foil for addressing the problems that BP is currently facing. For this purpose, the following elements need to be considered and assessed carefully: situation, objective, strategy, tactics, actions, and control. The situation that the company has found itself in is clearly deplorable. Because of the irrational financial policies of the organisation and the lack of sustainability in the choices made by the leaders, the firm’s shareholders are currently experiencing mistrust toward BP. The reasons for their unwillingness to build strong relationships with the company and its leaders are quite obvious; as stressed above, the dividend policy of the organisation is very suspicious.

Among the essential objectives that the firm needs to pursue currently, the necessity to regain the trust of its shareholders, at the same time increasing the share value, needs to be brought up. To attain the identified objective, the firm will have to consider altering its current set of values and put a heavier emphasis on the promotion of ethical standards and a set of better values. Specifically, BP must promote the idea of keeping all stakeholders satisfied, the company’s shareholders being one of them. The increase in the company’s share values should be viewed as another objective that needs to be accomplished so that the firm could regain its reputation in the target environment (Rotkin-Ellman, Wong, & Solomon, 2012).

Determining the strategy that will help BP attain the identified goal, one will have to mention a shift toward a framework of financial operations that implies higher transparency rates. Moreover, it is strongly recommended that the firm should update its ethical code so that the decision-making process should result in the choices that are beneficial for all stakeholders involved. For instance, the allocation of the financial resources should be reconsidered. Instead of using the spare amount of money to increase the profits of the company’s leaders, it will be more sensible to focus on improving the current crisis management framework. Furthermore, the creating the promotion campaign that will help improve BP’s image in the global market should be viewed as the next step to take. The steps listed above can be deemed as the tactic that the organisation should use in order to advance in the realm of the global economy and regain the trust of its stakeholders.

As far as the actions of BP are concerned, the organisation will have to consider creating the promotion campaign that will help attract the target audience and make it evident that the firm has changed its ethical framework and set of values. Prior to the design of the campaign, however, the financial resources of the firm will have to be reallocated so that the shareholders could receive the dividends that they expect the company to pay them. As soon as BP starts meeting its obligations and complying with the principles of stakeholder satisfaction, it is expected that the firm will face a rapid revival (Wolf & Mejri 2013).

However, changing the organisational strategies radically is not enough to make sure that the company leaders should not make the same mistake in the future. To avoid possible financial issues and facilitate a proper allocation of the company’s resources, as well as meet the needs of the shareholders, BP will have to include regular audits into the set of its control tools. The audits will help make the corporate financial policy entirely transparent, thus, preventing possible instances of an unfair use of the company’s financial assets. Furthermore, regular reports must be included into the set of control tools that will be used to maintain the transparency rates consistently high. Furthermore, the organisation should consider using a statistical analysis to make sure that the emerging problems should register on BP’s radar successfully.

It is expected that the model described above will create prerequisites for a successful management of the issues that BP has been facing over the past few years. However, for the strategy to work, one will have to consider the 3M (Men, Money, Minutes) factor as well. For instance, as far as human resources are concerned, it will be necessary to shift toward the framework that will help take the needs of all stakeholders into account. As stressed above, it is crucial to create the environment in which the financial assets are distributed in a fair and unbiased manner. Thus, trust-based relationships can be created between the company and its stakeholders, including shareholders.

Furthermore, the ethical principles by which the company’s decisions are guided needs to be improved so that the needs of the general audience (particularly, the significance of clean and unpolluted environment) should be appreciated. For this purpose, the budget of the organisation must be allocated in a sustainable way. Finally, the organisation will have to make an efficient use of the available time (i.e., “Minutes”). In other words, it will be necessary to make sure that the necessary changes should be applied within the next several weeks; otherwise, the recovery process is likely to take a significant amount of time and have little effect on the firm’s progress in the target market. Particularly, it will be necessary to capture the attention of the target audience, at the same time making sure that the shareholders of the organisation should receive the dividends that they expect (Johnston & Goggin 2015).

Crisis Management

Gonzalez-Herrero and Pratt’s tool can be considered as a possible model for introducing the company to rapid yet inevitable changes. The three-step framework will help simplify the process and adjust it to the specifics of the firm. Thus, the needs of the staff will be met. At the first stage of the process, the organisation will have to define the source of the crisis, including internal and external factors. For instance, the ethical principles according to which BP is run will have to be questioned. The second stage will require the design of a sustainable strategy.

Specifically, it will be necessary to create the set of values that will be used as the foundation for the decision-making processes. In addition, the strategy for the allocation of the financial resources must be built so that BP could have enough resources to support its stakeholders and at the same time build a large promotion campaign to attract customers. Finally, at the third stage, the company will have to apply appropriate measurement tools to control the product quality level, the rate of stakeholders’ satisfaction, and other factors that affect the company’s position in the global market. Furthermore, the financial processes carried out within the organisation must be scrutinised carefully so that no instances of an inadequate management of financial resources could occur (Sabet, Cam, & Heaney 2012).

Timeline

Presumably, it will take a year to make sure that the alterations to BP’s design should be viable in the context of the global economy. In order to make sure that the necessary tools and frameworks are integrated into the organisation’s system of values and strategies, it will be crucial to introduce the elements of control. The chart provided below can be used as the means of keeping track of the essential changes made to the company’s design. As a result, a consistent improvement in the company’s performance, a rapid improvement of its reputation, and the following economic growth can be expected.

Table 1. Action Plan: Timeline.

Reference List

BP PLC2016. Web.

Cherry, MA & Sneirson, E 2011, ‘Beyond profit: rethinking corporate social responsibility and greenwashing after the BP oil disaster’, Tulane Law Review, vol. 85, no. 4, pp. 983-1038.

Griggs, JW 2011, ‘BP gulf of Mexico oil spill’, Energy Law Journal, vol. 32, no. 1, pp. 57-79.

Johnston, TS & Goggin, SN 2015, ‘Presidential confidence in crisis: blame, media, and the BP oil spill’, Presidential Studies Quarterly, vol. 45, no. 3, pp. 467-489.

Kent, S 2016, BP shareholders reject oil giant’s pay policy. Web.

Ladd, A E 2012, ‘Pandora’s well: hubris, deregulation, fossil fuels, and the BP oil disaster in the Gulf’, American Behavioral Scientist, vol. 56, no. 1, pp. 104–127.

Ma, M 2016, ‘Exploration decision-making on energy based on improved real option model and BP neural networks’, International Journal of Control and Automation, vol. 9, no. 10, pp. 393-402.

Rotkin-Ellman, M, Wong, KK, & Solomon, J 2012, ‘Seafood contamination after the BP gulf oil spill and risks to vulnerable populations: a critique of the FDA Risk assessment’, Environmental Health Perspectives, vol. 120, no. 2, pp. 157-61.

Sabet, SAH, Cam, MA, & Heaney, R 2012, ‘Share market reaction to the BP oil spill and the US government moratorium on exploration’, Australian Journal of Management, vol. 37, no. 1, pp. 61–76.

Wolf, DD & Mejri, M 2013, ‘Crisis communication failures: the BP case study’, International Journal of Advances in Management and Economics, vol. 2, no. 2, pp. 48-56.

Executive Summary

This paper reveals the case study that focuses on the explosion which happened on the Deepwater Horizon seven years ago. It was claimed to be one of the greatest disasters that led to human deaths and oil spills that affected the ecosystem adversely. Professionals argued whether the fact that British Petroleum failed to ensure safety and appropriate crisis management was the main reason for the accident. This view is analyzed in the addressed in the paper. It is also discussed how the company could have responded to the explosion and why.

Problem Statement

One of the most critical oil spill disasters related to the petroleum industry took place in April seven years ago. It occurred on a drilling rig owned by the largest company that operates within oilfield services and deals with offshore drilling, Transocean Ltd. The explosion on the Deepwater Horizon led to eleven deaths and oil leaks, resulting in enormous damages not only to human lives but also to the environment, economy, and tourism. As a consequence, British Petroleum (BP) had to deal with the biggest oil spill and financial losses at the same time. What is more, its reputation was negatively affected. Even though the company couldn’t predict the explosion and prevent it, proper behavior in the framework of crisis management could have had positive influences on the observed outcomes (Ingersoll et al. 2).

BP spends much effort trying to overcome issues related to reputation damage. Still, it is only one of the consequences of the main problem. To improve the situation, the company started up a communication machine, but experts questioned its effectiveness. Thus, professionals wondered whether BP maintained crisis management properly or failed to do it. In this way, the problem was what BP should have done to enhance its crisis management and communication. Even though the company had other issues as well, this one turned out to be the most critical because it affected almost all the company’s operations directly or indirectly. It influences the company’s income, the source of competitive advantage, customer satisfaction and loyalty, the morale of employees, and strategic directions. In addition to that, it is connected with the way BP could have improved its performance and repair reputation to overcome financial losses and become competitive again.

Data Analysis

BP had experienced crises before the explosion that happened in 2010. For example, Wolf and Mejri emphasize the fact that it neglected safety several times (51). For example, in the middle of the 20th century, one of the oil rigs that belonged to BP collapsed, and more than ten people died. In 2005, a similar situation repeated and fifteen employees died in the fire while more than 150 of them were injured. Back then, the organization was charged, but recent events showed that it did not start paying expected attention to safety.

The oil spill was caused by the gas explosion. The very disaster started can be traced back to April 19 when the well reached more than 12,000 ft below the seafloor. The company used 51 barrels of cement, but this number was not enough to ensure a required seal. During drilling, mud was lost to the reservoir as expected but then it was pumped into tanks. However, seawater was lighter than mud and that there was not enough cement to balance the flow of gas, so it went in the drilling fluid. There are almost no doubts that the supervisors were aware of this situation, as the photo reveals that a diverter line was affected (see Exh. 1). The volume of mud continued to increase, and the recorder failed to reveal the data appropriately. However, professionals did not stop pumping at that time. When they did, the pit volume decreased at first, but it remained the same the next time and even continued to increase. The extreme pressure led to the blowout, the gas shot the water out and exploded.

This situation reveals that BP did not make the required emphasis on the value of safety when training its personnel. It was more critical for the supervisors to fulfill the task they had instead of implementing measures needed to avoid possible danger. BP’s response to the crisis is not efficient.

In this way, it is also possible to claim that the population that was greatly affected by this accident included those workers who performed their duties on the Deepwater Horizon. In addition to that, the management team was affected because it had to deal with the consequences of the explosion. It was critical to resolving problems connected with organizational performance. The families of those who died that day were also influenced by the disaster because they lost a person who supported them. The company’s partners could have become less willing to cooperate with it because of the possibility to be negatively affected by BP’s reputation. Even the representatives of the general public had to reconsider their attitudes and loyalty.

To improve the situation, BP followed the decision of the federal government. It got engaged in the clean-up and paid attention to those people who were affected by the disaster itself or its indirect influences. The organization focused on health, safety, and welfare. It was involved in the economic recovery of those industries that were affected by the oil spill, including tourism and seafood (Ernst and Young).

In the framework of crisis management and communication, the organization faced a range of difficulties because its personnel did not know how to cope with issues that occur while operating. The company and its management team did not provide any guidance that can be used when facing an ethical issue and trying to decide whether to continue performing to fulfill the most critical goals or to focus on how potential disaster can be avoided. What is more, BP had an opportunity to resort to its previous experiences and to develop a plan that can be used to prevent the next possible crisis. In this way, BP also had a chance to avoid additional expenses. However, being responsible for numerous issues, the company had to pay more than $5 billion in 2010 and provide more than $50 million to health organizations (Wolf and Mejri 80).

There were different ways in which the problem could have been addressed. The company could have reacted to the disaster, and its consequences ignored it, or claim it to be not a BP’s mistake. Still, it would have been advantageous if the organization developed a crisis management plan for its employees to follow in any situation that might affect safety anyway.

Key Decision Criteria

Trying to identify which alternative to following, BP should have thought of the way each of them dealt with the issues observed by the organization. Thus, attention should have been paid to the possibility to restore the reputation and enhance financial performance. All in all, it can be presupposed that it would have been better for the company to respond to the disaster immediately because in this way it could have improved the situation better than other options.

Alternatives Analysis

BP could have reacted to the oil blowout, claiming that it was an accident. The organization could have tried to make its stakeholders believe that there had been no sights of an issue that might have led to the explosion. In this way, BP could have made others believe in its innocence and ensured that it had done its best while operating. As a result, the company would have lost a relatively small part of its clients. However, some partners and customers might start thinking that BP is not experienced enough and that its performance is poor so that it is better not to cooperate with it. Still, proving gross negligence, the organization had an opportunity to avoid expenditures connected with the necessity to support the ecosystem.

BP might have tried to claim that the disaster happened because of other parties. If it had conducted some research to collect information that can prove at least some errors made by other organizations, BP would have been able to make them compensate the affected people. In this way, the company would not only save its money but also improve its reputation, attracting clients back. Still, this option would have entailed a range of ethical issues.

Finally, BP could have resorted to the third alternative. It could have reacted to the explosion immediately, accepting its fault for the inability to ensure safety. The company should have interacted with other professionals to develop a range of initiatives that were likely to reduce negative influences provided on the ecosystem. They should have maintained research and developed a long-term plan to enhance the environment and provide full payment for those people who were affected. In addition to that, BP should have focused on the possibility to advertise seafood and tourism industries that were negatively affected by the explosion. All in all, this initiative could have been the most appropriate one because it addressed all critical issues and avoided ethical dilemmas.

Recommendations

To respond to disasters appropriately, BP needs to develop a working crisis management plan that can be resorted to by the staff members who face critical situations. Considering the discussed case, the organization should create an infrastructure that can be utilized to deal with possible leaks. It should be based on deep-sea oil wells that are used by BP. With the help of the absorbent wall, the company is likely to prevent further issues of this kind.

It will be a great advantage for BP to gather an emergency response team. This group of professionals should patrol that wall and ensure its efficiency. Needless to say, that such a team is to contain well-experienced professionals who have all required theoretical knowledge and skills that can be used in practice.

In the framework of crisis communication, the company should pay much attention to its stakeholders. Transparency should be discussed as a tool to attract clients and restore their loyalty. BP should take responsibility for all those issues that occurred due to the mistakes it made and the inability to ensure safety. Even sincere apologies may be enough to improve the situation greatly. In this way, the company should hire a spokesperson who can easily get in touch with numerous clients.

The company should also reconsider the use of social media because it has already proved to be a great type of communication that can be approached without any significant issues. Unlike a personal website, social media allows the company to avoid constant reconsideration of the discussed disaster, and negative feedback regarding it is also likely to be reduced in this way.

Finally, the organization may consider the possibility to develop some kind of disaster website so that if some crisis occurs, professionals have an opportunity to reach it and inform the population regarding the possibility of crises (McMasters).

Action and Implementation Plan

• To implement changes, following the results of data analysis, it can be claimed that BP should have done the following:
• Collect the oil that was spilled during the disaster;
• Address experts in the sphere to develop the most advantageous solution initiatives;
• Point out the way BP would respond to the consequences;
• Establish trust-based relations with stakeholders, sharing information about the accident;
• Cooperate with the government to minimalize negative influences on other industries;
• Provide compensations to families of those employees who died;
• Gather a group of professionals to focus on such issues;
• Improve safety standards;
• Provide training;
• Enhance security system;
• Promote tourism;
• Develop initiatives to improve the ecosystem.

Exhibits

Exh. 1: A Gas Flare Coming from a Diverter Line (Aeberman)

Works Cited

Aeberman. “What Caused the Deepwater Horizon Disaster?” The Oil Drum, 2010, Web.

Ernst and Young. “Deepwater Horizon Accident and Response.” BP, 2014, Web.

Ingersoll, Christina, et al. BP and the Deepwater Horizon Disaster of 2010, 2012, Web.

McMasters, Michael. “Analysis of Situation/Background.” LinkedIn, 2015, Web.

Mejri, Mohamed, and Mohamed Mejri. “Crisis Management: Lessons Learnt from the BP Deepwater Horizon Spill Oil.” Business Management and Strategy, vol. 4, no. 2, pp. 67-90.

Wolf, Daniel, and Mohamed Mejri. “Crisis Communication Failures: The BP Case Study.” Management Journal, vol. 2, no. 2, pp. 48-56.

Executive Summary

BP is one of the leading oil and gas companies in the world. This firm has been operating in a very competitive business environment. Although its operations went smoothly without serious incidents in its earlier times, the firm has been recently accused of serious environmental pollution, especially after the massive oil spillage in 2010. The firm is also facing an allegation of abuse of human rights. According to some recent reports, BP is has contravened some of the labour laws. It has also been accused of a series of corruption cases.

Introduction

British Petroleum is a large British multinational gas and oil company, which has its headquarters in London, England. The company has a heavy presence in the United States, where most of its products are sold. The company also has various processing plants and outlets across Asia, Africa, and South America. According to Abbi and Jain (2006, p. 89), BP is one of the most profitable oil companies in the world. It has been able to embrace emerging technologies in its production strategies, helping it cut its costs of operation. However, the company has performed poorly in terms of human rights protection and environmental conservation. BP has some of the worst records in terms of environmental pollution both at its onshore and offshore plants. The Deepwater Horizon oil spillage remains one of the worst environmental degradation occurrences in the history of this industry. Human rights groups have also accused this firm of its reluctance to protect their employees when they are working at the plants known to be volatile. In this responsible management audit report, the analysis will be focused on how this company has performed in terms of human rights protection, environmental conservation, respect for labour laws, and avoidance of corrupt dealings.

Discussion

According to Frase, English and Poston (2000, p. 46), many large multinational corporations are run with total disregard to human rights and concern for the environment. These two are important aspects of the sustainability of a firm that should be given as much attention as profitability. BP is one of the firms that have performed very poorly in this area. Some of the recent activities of this firm have revealed that the management is less concerned about the need to protect the environment and the society at large. It would be important to analyze specific issues that have been raised about the firm in recent times.

Human Rights

According to Kaptein (1998, p. 80), every business entity has the responsibility to respect and support international human rights. This principle emphasizes the need for individual firms to ensure that their operations are in line with international human rights principles. Corporations have the responsibility of ensuring that they protect the rights of their employees and other members of society. BP has performed poorly in this area, especially over the last twenty years. The Texas City Refinery explosion in March 2005 is one of the incidents that the firm’s lack of concern to its employees (Bulmer-Thomas 2008, p. 45).

A detailed enquiry into the incidents that led to the explosion points out to a deliberate attempt by the management of the firm to maximize its infrastructure at the expense of the rights of the employees. The accident was as a result of the management’s inability to replace the old infrastructure with new, improved ones. Reports from government agencies noted that there was an effort by the management to increase its profitability by maximizing on its use of the existing infrastructure (Taverne, B. (2008, p. 89). For this reason, employees were subjected to the use of infrastructure that exposed them to a lot of risks. The explosion that took place in March could not be avoided because the management ignored some of the safety procedures set in this industry. The result of this was a loss of 15 lives. Over 180 other workers sustained injuries that redefined their lifestyle. There was a general complaint from the employees that the management was not concerned about their well-being.

The second principle of human rights demands that firms should not be complicit in human rights abuses (American Institute of Chemical Engineers 2011, p. 16). This principle requires individual firms not to engage in acts that may contravene the human rights of its employees and members of the society. The working environment of the employees of this firm, especially those at offshore plants, has been put to question. The recent reports show that some of these employees are forced to work for over 14 hours in a day (Black 2011, p. 68).

The management has developed a work plan for these employees that makes overtime unavoidable. Although they make the packages for overtime very attractive, the fact that employees do not have the right to choose whether to work for overtime or not appears to be part of forced labour. BP is also known to have entered into strategic partnerships with other corporations and governments that do not respect human rights (Rose 1961, p. 38). Some of the strategic partnerships with various dictatorial governments are Africa, and Asia shows that it supports their human rights abuses. Currently, the firm is working on various plans that would enable it to repair its public image. Some of these plans are meant to the old human right of its employees and other members of society.

Labour Rights

Closely related to human rights are labour laws that define how firms are supposed to treat their employees. There have been confrontations between firms and employees for various years in various companies across the world. While business units are focused on earning more profits, employees always need a working environment that is friendly and remunerations that match what they do within a given company. The first principle under labour rights holds that employees should have the freedom of association and right to collective bargaining (Kumar & Sharma 2005, p. 37). Although the management of this firm has not been accused of abusing this right direction, there are claims that the management discourages all forms of unionisation of employees. It has developed a performance contract that seeks to treat employees on an individual basis. Each employee in the firm is treated differently on the basis of the benefits it brings to the organization. This makes it difficult for the employees to join unions because of their diversified needs.

The second principle of labour laws demands that an organization should eliminate all forms of compulsory or forced labour (Russell & Regel 2000, p. 121). BP has been accused of its policies that borders forced labour. The firm has policies which encourage employees to take overtimes, especially those who work on offshore plants. Some of the reports on Deepwater Horizon oil spillage associated the accident with employees’ complacency. Some of these employees are forced to work for long hours even when they are physically exhausted. Despite these accusations, it would be fair to mention that the management has developed attractive payment programs that are above the industry average (Gupta 2005, p. 78). This has seen most employees consider the firm as their preferred employer.

The third principle under labour laws involves abolition of all forms of child labour (Pickett 2013, p. 82). BP’s performance on this aspect of labour laws has been brilliant. Although some of the historical records show that the firm employed underage children to work in the plant during its earlier days, the firm has transformed and currently does not employ minors. The firm has strict regulation about the age of prospective employees at the firm.

The last principle involves elimination of any form of discrimination in its employment policies and employee management (Heisig, Mertins & Vorbeck 2003, p. 69). BP has developed revolutionary policies that give equal rights to its employees irrespective of their race, gender, or any other demographical strata. According to Freudenburg and Gramling (2011, p. 57), BP was one of the firms that had been accused of hiring and assigning employees based on their races and gender. During its early days, women could only be hired as secretaries or typist. Blacks were hired to work in the fields on physical assignments. The whites were the engineers and technocrats at the company. However, this has changed as the company struggle to eliminate all forms of discrimination. It is now common to see female or black engineers or top executives in this firm, something that was unimaginable in its early days. The firm is changing for the better, and although it may take some time for it to conform to all the labour laws and regulations, the current efforts indicate that the management is determined to achieve the best out of it.

Environment

The environment is one of the most important pillars of sustainability for any business unit. It supports the other two pillars, and for this reason, it should be treated with concern. The first principle under environmental laws demands that firms should take precautionary approach to challenges in the environment (Bamberg 2000, p. 56). Firms are expected to have strategies that would ensure that their activities do not pose any threat to the environment. BP has performed very poorly in this regard. The Prudhoe Bay five-day oil leakage of the firm’s oil transit pipeline in Alaska on March 2006 was a clear indication that the management had not taken precautionary measures that would eliminate such occurrence or manage its impact. The fact that it took five days to correct this leakage means that the firm did not have plans to address such issues. The Texas City Chemical leak from April 6^th to May 16^th 2010 only confirms that this firm did not have measures in place to protect the environmental from its dangerous consequences. It took over 40 days for this firm to realize that there was a leakage of a dangerous chemical into the environment.

The second principle under environmental laws demands that firms should undertake initiatives that would promote environmental responsibility (Harvey & Solly 2006, p. 118). BP has been one of the firms in Europe, Africa and the United States that have developed social responsibilities focused on promoting environmental conservation. The firm has developed plans of planting trees in various parts of the world. It has also developed initiatives and strategic partnerships with governments in Africa to help protect water catchment areas from human encroachment (Honnungar 2011, p. 78). This has earned it massive popularity in these regions. The last principle in this section involves development of technologies which are environmentally friendly.

The management of this firm has been part of the initiatives to develop green energy. This shows its commitment towards having a world free from pollution from fossil fuels. Although its activities in this field have not been commercialized, the management has been working on ways of promoting development of alternative sources of energy. In 2009, Tony Hayward announced that under his administration, BP was going to lay massive emphasis on alternative sources of energy. BP made massive investment into solar energy, bio-fuels, and other environmental friendly sources of energy. The management has plans to make the firm one of the leading energy companies in the world that produces green energy.

Anti-corruption

In defining this principle, Sullivan (2011, p. 78) says, “Businesses should work against corruption in all its forms, including extortion and bribery.” Corruption has been one of the reasons why some members of the society suffer. It denies people and other business units their rights as it seeks self-satisfaction through greedy and dubious means. BP was once one of the firms that loathed corrupt dealings, especially after the Second World War (Ulivia 2006, p. 57). It built its image as a principled firm that does not bend laws for self-benefits, based on laws that favoured it during these early times. However, this changed as the laws became strict and the market became very competitive. The management realized that it was operating in an environment that had so many challenges. For some time now, this firm has been associated with a number of corruption cases both at its local plants and other facilities overseas. Ferrier (2009, p. 48) says, “The Project on Government Oversight lists BP as number one on their listing of the 100 worst corporations based on instances of misconduct.”

This is an independent not-for profit organization that conducts investigation on the behaviour of individual firms within the United States. To be ranked first in the list of this reputable organization is a shame to such a large firm as BP. It clearly indicates that this firm has been openly engaging in corrupt activities within this country (Tusiani 1996, p. 32). This may explain the Texas Refinery plant was operating with infrastructure that were of poor standards and the concerned authorities at the federal and state level never took action till the accident occurred. Despite the strict rules and inspections that these government institutions have towards firms in this industry, they never bothered about the structures at BP. This could be taken to mean that the concerned government officials were given bribes to make them ignore the violation of the set standards.

List of Reference

Abbi, Y & Jain, S 2006, Handbook on energy audit and environment management, TERI Press, New Delhi.

American Institute of Chemical Engineers, 2011, Guidelines for auditing process safety management systems, Wiley, Hoboken.

Bamberg, J 2000, British Petroleum and global oil: 1950-1975: the challenge of nationalism, Cambridge Univ. Press, Cambridge.

Black, E 2011, British petroleum and the redline agreement, Dialog Press, Washington.

Bulmer-Thomas, V 2008, Britain and Latin America: A changing relationship, Cambridge University Press, Cambridge.

Ferrier, R 2009, The history of the British Petroleum Company, Cambridge University Press, Cambridge.

Frase, L, English, F & Poston, W 2000, The curriculum management audit: Improving school quality, Rowman & Littlefield Education, Lanham.

Freudenburg, W & Gramling, R 2011, Blowout in the Gulf: The BP oil spill disaster and the future of energy in America, MIT Press, Cambridge.

Gupta, K 2005, Contemporary auditing, Tata McGraw-Hill, New Delhi.

Harvey, W & Solly, R 2006, BP tankers: A group fleet history, Chatham, London.

Heisig, P, Mertins, K & Vorbeck, J 2003, Knowledge management: Concepts and best practices, Springer, Berlin.

Honnungar, V 2011, British Petroleum Oil Spill Crisis and Aftermath: Corporate Governance and Communication at BP during the disaster, GRIN Verlag GmbH, Munich.

Kaptein, M 1998, Ethics management: Auditing and developing the ethical content of organizations, Kluwer, Dordrecht.

Kumar, R & Sharma, V 2005, Auditing: Principles and practice, Prentice-Hall of India, New Delhi.

Pickett, K 2013, The internal auditing handbook, Wiley, Hoboken.

Rose, T 1961, The management audit, Gee, London.

Russell, J & Regel, T 2000, After the quality audit: Closing the loop on the audit process, ASQ Quality Press, Milwaukee.

Sullivan, H 2011, Death threats from British Petroleum & Life beyond the grave: Inspired by the career of Gillian Christabel Richardson (1939-2009) & in memoriam: tireless Chatelaine of the natural world, Author-House, Bloomington.

Taverne, B 2008, Petroleum, industry and governments, Kluwer Law International, New Delhi.

Tusiani, M 1996, The petroleum shipping industry: A nontechnical overview, PennWell Publishing, Tulsa.

Ulivia, B 2006, British petroleum trade in 1925, G.P.O, Washington.

Comparisons

The comparison of the common features between the stakeholders of BLC and SPDVC could be seen in terms of the following:

Employee base

Both companies have large and heterogeneous employee base, whose work contribution is critical for the success of both these companies. The output and motivation levels of employees at every level are important for the successful running of both these companies.

Suppliers

Both these companies share good rapport and understanding with their vendors and suppliers and practice excellent vendor support and streamlined payment practices.

Community welfare

Since the growth and prosperity of both these companies are linked with working harmononiously with the local populace and taking care of their needs and aspirations, both these companies have invested heavily in local community welfare and employment generation schemes.

Governments

In both these companies, respective governments play a crucial role in their supervision of the businesses. In the case of BLC, it is the British Government who needs to protect the company’s interests, since BLC is the second largest property owners in UK, and in case of SPDC, it is the Nigerian Government which holds oil extraction rights in Nigeria, and therefore, SPDC needs to seek permission from this Government before staring exploration of oil or gas in the country.

Competitive interests

Both the companies have struck excellent understanding with their competitors and strive to operate within ethical and legal jurisdiction.

In the case of SPDC, the controls exercised by Oil Producing and Exporting Countries (OPEC) render control and regulatory aspects in the conduct of business.

Contrasts

The contrasting factors between the two companies could be envisaged as follows:

Principle shareholders

In the case of BLC, the major shares are held by Groups, or individual shareholders. However, SPDC is a subsidiary company of Royal Dutch and Shell Group. The latter also happens to be the main shareholder of Royal Dutch, so, by default, SPDC, becomes a subsidiary of Shell Group also.

Community interests

BLC being a local company, has robust community settings and offer deeper commitments to local community health and welfare schemes, as compared to SPDC, whose community record needs to be improved.

Environmental matters

SPDC being in the energy sector, the aspects of pollution and disposal of industrial wastes are major concerns, however, with a good ecological management system in place, this is not a major concern in BLC.

“Construction is rigorously managed to achieve efficient and quick completion with the highest health and safety standards.” (Developments: We Commit to Projects on the Basis of Pre Lets or Anticipated Market Demand, Creating Quality Assets for the Portfolio. 2008).

Employees

At BLC, employee compensation is regulated and monitored by Steering committees and are maintained at industry levels; however in recent years, SPDC have witnessed criminal activities, law and order problems and terrorism, causing slump in salary levels.

“In areas where armed crime and lawlessness are prevalent, appropriate policing is provided by government, in line with its legal obligation.“ (Security in Nigeria).

However, this has caused detriment to motivation and productivity levels of employees, it is, therefore, essential that Company takes necessary steps to redress the situation and hold employee attrition to the minimum.

Competitive interests of the companies

BLC operates in a competitive and open market with its rivals belonging to the constructions, property management and land estate dealing business. However, global oil industry, including SPDC, comes within the jurisdiction of, firstly the Nigerian government in terms of oil exploration and extraction, and secondly, the OPEC cartel, in terms of sale and distribution of oil and gas in the international markets.

Bibliography

1. Developments: We Commit to Projects on the Basis of Pre Lets or Anticipated Market Demand, Creating Quality Assets for the Portfolio. (2008). [online]. British Land.
2. Security in Nigeria. Shell Nigeria. [online].

The Methodology

The methodology adopted in the study is the collection of secondary data, mainly from the internet and company reports published on the company website, and conducting a detailed analysis of the same and deriving conclusions thereof.

Limitations

Time was a major constraint in the conduct of this study. Due to the unavailability of sufficient time, a detailed and elaborate study was possible. The data available was limited and also latest updates were not available.

Beach Petroleum Limited

“Beach Petroleum is a publicly listed oil and gas exploration and production company based in Adelaide, South Australia.” (Corporate Information, Beach Petroleum 2008). The firm was established in early 1960 by the Late. Dr. Reg Sprigg, a highly regarded oilman, geologist, explorer, and conservationist.

Beach holds interests in exploration and production tenements within Australia, New Zealand, and Papua New Guinea. The firm is mainly engaged in drilling and extraction of oil, sales gas, sales and ethane, LPG, and condensate. The firm is also doing exploration in basins like Cooper/Eromanga, Otway, Browse, PNG, Surat, etc.

Firm’s external environment

A business firm is affected in many ways by the environment in which it belongs. The influence of the external environment is analyzed by different methods. One of the most popular methods of external analysis is Porter’s Five Force model. “Michael Porter provided a framework that models an industry as being influenced by five forces.” (Porter’s Five Forces, quickmba.com 2007) The influence of external environment on Beach Petroleum can first be analyzed based on Porter’s Five Force Model. The following diagram illustrates clearly Porter’s Five Forces model.

Supplier power

Supplier power is the first analysis in Porter’s Five Forces model. This refers to the bargaining power of the supplier. The bargaining power of the supplier makes them charge more on the resources they supply. This increases the cost of production for the company. In the case of Beach Petroleum, there is less scope for increased supplier bargaining power. The reason for this is that the major resources of the company are extracted by the company itself. It is not received from any external sources. Thus the sot structure of Beach Petroleum is not affected by the supplier power.

Buyer power

Buyer power has a certain influence on the business and profitability of Beach Petroleum. But compared to other products the company is less influenced by buyer power. The major reason for this is that there are a large number of buyers in the case of the products of Beach Petroleum. When there is a large number of buyers the buyers will have less bargaining power. Another reason for low bargaining power is that the producers are not in excess. When there are more producers the buyers will have more choices. Thus the buyer power also has less influence on the profitability of Beach Petroleum. Price sensitivity also falls under this category. The price of petroleum products is high sensitivity.

The threat of substitutes

The threat of substitutes is the next external factor that affects the company. As the term implies threat of substitutes refers to the entry of substitute products for Beach Petroleum. But it can be seen that there are very few substitutes for petroleum products. Petroleum products cannot be substituted with any other products. But there are substitutes from among the petroleum products. For example, nowadays most petroleum products are substituted by sales gas.

Degree of rivalry

Among Porter’s Five Force model degree of rivalry has a major influence on Beach Petroleum. There are other major competing companies for Beach Petroleum. Australia is the hub of mining and oil exploration companies. Many companies operate in the sector of oil exploration in Australia. Beach Petroleum is one of the mid-cap oil exploration companies in Australia. There are other major players in the market in large, medium, and small-cap segments.

Barriers to entry

Barriers to entry are the next influencing factor. This refers to the barrier to the entry of new players in the industry. There are fewer barriers to the entry of new players in the sector. But the intensity of entrance of new companies is limited even after the fewer barriers. The companies have to be specialized in the sector and need to make huge investments in order to enter the segment.

PESTEL analysis is another major tool that is used to analyze the external environment that influences the company. The external factors that are analyzed in this are Political, Economic, Social, Technical, Environment and Legislative. “It is a strategic planning technique that provides a useful framework for analyzing the environmental pressures on a team or an organization.” (PESTEL analysis)

Political factor has a major influence on the company. Political factor is related to the opinion of the general public regarding the product or the company. A group of people can be turned against the company with the help of political influence. One of the most prominent influences of political factors is the influence of change in Government on the company’s business. When a new government comes into power the policies that are being framed by the previous government will be changed to the new one. This might adversely affect the smooth operation of the company.

The economic factor is the second major factor that influences the operation of the company. Economic factor refers to the economic policies that are being framed by the government and their influence on the operation of Beach Petroleum. The changes in the economic indicators and determinants will affect the company in many ways. Petroleum products and their prices have a major influence on the company and the country in which it operates.

Social factors are closely related to the commitment of the company towards society. The company belongs to the society in which it operates. As such it is influenced by the decisions that have an influence on the societal level. Societal factors are sometimes derived from political factors.

Technological factor influences in such a way that when new innovations are introduced in the industry it has to be adopted by the company for the better and improved production process. One of the influences of technological change in Beach Petroleum is the introduction of new machinery and method of production.

Environmental influence refers to the next major influence on the business of Beach Petroleum. Environmental influence relates to the influence of the climatic conditions and other immediate environmental factors that influences the company.

Legislative or Legal factor is the last one in the PESTEL analysis. This refers to the influence of legal factors on the business of the firm. Changes in the rules and regulations of the country in relation to petroleum companies will affect the company and its operations in many ways. Legal change is more closely associated with the change of government of the country. The policies and strategies of Beach Petroleum have to be changed in accordance with the change in a legal environment.

Firm’s internal environment

Beach Petroleum is one of the leading petroleum companies in Australia. The major success factor of any company is its competitive advantage. A company’s competitive advantage makes it rule over the others in the market. The competitive advantage of a company is a result of the possession of rare resources, knowledge of varied production techniques, quality of the employees, patented production process and resources, etc. As far as Beach Petroleum is concerned its competitive advantage lies in the possession of valuable and rare resources.

Beach petroleum possesses good reserves of Oil, Gas liquids, Sales Gas, and Ethane and Oil Equivalent. The resources of Beach Petroleum are located at Cooper/Eromanga Basin, Gippsland Basin, and Surat Basin. The Cooper/Eromanga Basin consists of reserves of all four resources. The Surat Basin has reserves of only Sales Gas and Ethane, and Oil Equivalent from among the four required resources. The Gippsland Basin has reserves of Oil and Oil Equivalent. In order to analyze whether the resources contribute to the company’s competitive advantage, it is useful to apply Jay Barney’s VRIN model.

Valuable

This analyzes whether the resources of the company are valuable or not. “The world is at the beginning of the end of the age of oil, according to a growing body of analysts.” (Peak oil, Jonathan Holmes, Four Corners, ABC 2006). The oil resources of the earth would one day be fully extinct. Due to this oil has become a highly valuable resource all over the world and is one of the highly demanded resources in the world.

Rare

Beach Petroleum has its reserves of gas liquids only in Cooper/Eromanga Basin. It has 6.6 kboe of gas liquids in these reserves which forms the overall gas-liquid reserve of the company. “Analysts expect worldwide demand for NGL should rise significantly through the year 2010 because of feedstock usage, especially in the manufacturing of ethylene.” (Natural Gas Liquids, NAICS Code(s), Advameg Inc 2007). The excess demand and limited reserves make the resources rare. The gas-liquid is the rare resource that is possessed by the company at Cooper/Eromanga Basin.

Imperfectly imitable resources

This analysis is another determinant of the competitive advantage of the company. The key resources of the company are petroleum and related resources. Most of the resources used by the company are also used by other petroleum companies too. This cannot be termed under imitability of resources as it is a common resource for oil and gas companies. Thus this factor is not a contributor to the competitive advantage of Beach Petroleum.

Non Substitutability

Almost all petroleum products are nonsubstitutable. But there is a high level of substitutability among petroleum products. Sales gas is being used largely as a substitute for petroleum products at present. One of the major advantages for Beach Petroleum is that it has the highest reserve of sales gas when compared to the other oil companies. It also has major reserves of oil, oil equivalents, and gas liquids. Since sales gas is being used at large as a substitute for petroleum products the company has a major competitive advantage in the present as well as in the future.

From the above VRIN analysis, it can be inferred that the key resource that contributes to the competitive advantage of Beach Petroleum is sales gas and ethane. Compared to the competitors the company has the highest reserves of sales gas. The following diagram illustrates the total resource reserves of Beach Petroleum.

Present Strategy of the Firm

The firm follows a growth model that depends on increasing the production and in turn increasing the financial base. A major portion of this fund is used to explore more undiscovered potential areas. The growth model of the firm can be summarized as.

The firm has increased its production over the years. This has been the main strategy adopted by the firm. The firm’s sales and profits have increased over the past years adopting this strategy.

Beach Petroleum is reinvesting its profit back into the business and increasing production. They are at present the only mid-cap firm in Australia that has the highest capital reserves. Ploughing back of profits is also made to invest it in exploring new oil reserves. They are forming joint ventures with experienced partners (Anzon Australia Limited, Arrow Energy Limited, etc) who have proven their skills or possess complementary skills. They have also acquired some other petroleum companies, like Delhi Petroleum Group.

Company’s Environmental Strategy

The company follows a sound environmental policy. They take all necessary measures to avoid land, water, and air pollution. They identify the site of archaeological, historical, and natural significance that nay is affected by their operation and try to reduce the impact on them. They adopt strategies to protect the flora and fauna in all areas of operations.

Company’s Health and Safety Strategy

The Beach Petroleum conducts all its activities in a manner that ensures a healthy and safe workplace for all employees, contractors, and subordinates at all sites; protection of members of the public possibly affected by its operations and compliance with all applicable Government Acts, regulations, and standards.

Company’s Strategy and Three Horizon Model

The company follows a style very much in resemblance with the three horizon model. The company has well extended its markets in Australia and is able to face the competition without difficulty. They have now started to expand their business outside the country also by way of joint ventures and acquisitions. Now they are growing in foreign markets also and are trying to build a business on future asks.

Future Strategic Directions

The rise in demand for petrol and petrol-related products opens a wide opportunity for the industry to boom. The demand for petroleum products is expected to rise to 98-138 million barrels per day in 2030, whereas the demand for natural gas is expected to grow from 356 to 581 billion cubic feet per day in 2030.

These figures are highly motivating to the industry. However, it is quite obvious from researches that the existing energy fields may not last more than 30 years from now. Hence, it is necessary to explore new grounds to extract the minerals.

As far as Beach Petroleum is concerned, they are already future-oriented. A major portion of their funds is set up exploring new mineral grounds around the globe. They have already explored new petroleum fields at Gienaire (on-shore Otway) and Champagne Creek (Surat), as well as they, have a high potential ground at off-shore Carivarvon Hurricane. A recent discovery is also made at Cooper Basin. A large off-shore gas potential is also identified at Portland (Victoria) and South Island (New Zealand).

The firm has the right strategy of using a major portion of its profits in exploring new grounds. In fact, Beach Petroleum has embarked on strong exploring and development programs within five major Australian basins that are proven petroleum production provinces.

In spite of retaining a major portion as reserves, the firm is trying to satisfy its shareholders. This is because of the high profit they are able to derive from their operations (in fact, Beach Petroleum is the highest mid-cap reserve holding E&P Company in Australia).

With cool energy, Beach Petroleum is designing on a proposed gas-sweetening and carbon dioxide capturing plant that would facilitate CO₂ geosequestration.

The firm also has the highest gas reserves with them that adds to their advantage in future boom because the environmentalists are strongly recommending natural gas as a substitute for petrol considering the low amount of carbon wastes emitted by gas as well as motor companies and users prefer natural gas for economic reasons. Moreover, the world use of natural gas is expected to increase considerably in the near future.

Bibliography

Porter’s Five Forces, quickmba.com 2007. Web.

Five Competitive Forces, 12 manage 2008. Web.

PESTEL analysis. Web.

Peak oil, Jonathan Holmes, Four Corners, ABC 2006. Web.

Natural Gas Liquids, NAICS Code(s), Advameg Inc 2007. Web.