BLOG Academia of British Petroleum

AMERICAN INTERNATIONAL UNIVERSITY-BANGLADESH (AIUB)

Term Paper on British Petroleum (BP)

SUBMITTED TO

PROF. DR. M MAHMODUL HASAN,FACULTY OF BUSINESS ADMINISTRATIONDEPARTMENT OF MANAGEMENTMBA PROGRAM, 

SUBMITTED BY

“JILAPIR PACH”

Date of Submission: 7th December, 2014Letter of Transmittal

7th December, 2014

To

Professor Dr. M. Mahmodul Hasan

Faculty of Business Administration (MBA Program)

American International University- Bangladesh

Banani, Dhaka.

Subject: Submission of term paper.

Dear Sir,

We are pleased to submit the term paper that you asked for and

gave us the authorization to work on “British Petroleum (BP)”.

This term paper is an essential part of our course; we tried

our best to work on it carefully and sincerely to make the

paper informative.

The study we conducted enhanced our knowledge to make an

executive paper. This paper has given us an exceptional

experience that might have immense uses in the future

endeavors and we sincerely hope that it would be able to

fulfill your expectations.

We have put our sincere effort to give this paper a

presentable shape and make it as informative and precise as

possible. We thank you for providing us with this unique

opportunity.

Sincerely Yours,

Sl

no.Name ID Sign

01 CHOWDHURY, LUBNA JAHAN13-96928-

2

02 PRITHI, SARZANA AFRIN13-97229-

3

03 LABONNO, NASHID SHARMIN13-97202-

3

Executive Summary

British petroleum is one of the world’s leading oil & gas

company, headquartered in London, United Kingdom. It is the

sixth largest energy company by market capitalization, the

fifth largest company in the world measured by 2012 revenues.

Bp operates in all areas of the oil & gas industry, including

exploration, production, power generating etc. The mission of

BP is to maintain long term commitment to prosper as an

integrated, international company with strong technology base

& a focused market effort. The vision of BP is to improve

their performance & have a steady disciplined growth. BP’s

activities in low carbon energy are managed through its

alternative energy business, which is reported within other

business & corporate. BP stars with safely & excellence in

their operations. Their goal is to be a focused oil & gas

company that delivers value over volume. Bp provides fuel for

transportation, energy for heat and light, lubricants to

engines, and petrochemicals products worldwide. The company’s

Upstream segment is engaged in the oil and natural gas

exploration, field development, and production; midstream

transportation, and storage and processing; and marketing and

trade of natural gas, including liquefied natural gas (LNG),

and power and natural gas liquids (NGL). It also owns and

manages crude oil and natural gas pipelines; processing

facilities and export terminals; and LNG processing facilities

and transportation, as well as NGL extraction business. The

company's Downstream segment is involved in the refining,

manufacture, marketing, transportation, supply, and trade of

crude oil; petroleum; petrochemicals products and as well as

provides related services to wholesale and retail customers.

This segment also sells refined petroleum products, such as

gasoline, diesel, aviation fuel, and liquefied petroleum gas

(LPG).

Table of ContentsSERIAL NO. TOPIC PAGE NO.

1. STRATEGY 1-32. MOST STRATEGIC MANAGEMENT MODEL OF BP 4-11

2.1. PESTEL Analysis of BP

2.2. Porter’s Five Forces Model of BP

2.3. Strategic Group Map of BP

2.4. SWOT Analysis of BP

2.5. Blue Ocean Strategy of BP

2.6. Seven S Model of BP

4

5

5-7

8

8-9

10-11

3. THE EXTERNAL ASSESSMENT OF BP 12-133.1. EFE Matrix of BP

3.2. CPM Analysis of International Oil & Gas

Industry

3.3. Key Success Factors of BP

12

13

13

4. THE INTERNAL ASSESSMENT OF BP 14-214.1. Value Chain Analysis of BP

4.2. SWAN Analysis of BP

4.3. TWOS Matrix of BP

4.4. ViSA Model of BP

4.5. SMARTER Model of BP

4.6. PURE Objectives of BP

4.7. GREAT Model of BP

14-15

16

16-17

17

18-19

19-20

20-21

5. STRATEGY ANALYSIS & CHOICE 22-285.1. The BCG Chart

5.2. QSPM Analysis of BP

5.3. Financial Analysis of BP

22

23-24

25-26

5.4. Competitor Analysis of BP

5.5. Breakeven Analysis of BP

27-28

28

6. EVALUATION 296.1. Strategy Evaluation of BP

6.2. Contingency Plan of BP

29

29

7. RECOMMENDATION 308. CONCLUSION 31

REFERENCES

1. Strategy:Strategic Management (Theory: 2000 – 2010)

• Strategic Management can be defined as (1) the art and

science of formulating, (2) implementing, and (3)

evaluating cross-functional decisions that enable an

organization to achieve its objectives.

• Strategic Management focuses on integrating management,

marketing, finance/accounting, production/operation,

research and development (R&D) and computer information

systems to achieve organizational success.

Strategic Management (Theory: 2011 – 2015 ±)

• Strategic management involves strategy development, which

is comprised of five stages:

1. discovery,

2. strategic thinking,

3. strategic planning,

4. strategy roll-out,

5. strategy tune-up/adjustment.

British Petroleum (BP) is under the strategic theory of 2011-

2015+:

Discovery: BP’s history is full of discoveries, starting in

1908 with oil found in a rugged part of Persia after a long

and difficult search. Since then, discoveries large and small

have fuelled their progress.

BP is a British multinational oil and gas company

headquartered in London, England. BP is vertically integrated

and operates in all areas of the oil and gas industry,

including exploration and production, refining, distribution

and marketing, petrochemicals, power generation and trading.

It also has renewable energy activities in bio fuels and wind

power.

As of December 2013, BP has operations in approximately

80 countries, produces around 3.2 million barrels per day of

oil equivalent, has total proved reserves of 17.9 billion

barrels of oil equivalent, and has around 17,800 service

stations. Its largest division is BP America in the United

States. BP has a primary listing on the London Stock Exchange

and is a constituent of the FTSE 100 Index; it had a market

capitalization of £85.2 billion as of April 2013, the fourth-

largest of any company listed on the exchange. It has

secondary listings on the Frankfurt Stock Exchange and the New

York Stock Exchange.

Strategic Thinking: BP has been identified as an organization

that adopts differentiation strategy over the years due to the

proper utilization of the company’s competences or

capabilities in terms of having brands and also technical

creativity or innovation in terms of the development and

production of alternative energy source such as bio-fuels,

wind and solar energy.

Mission:

Long term commitment to prosper as an integrated,

international company with strong technology base and a

focused marketing effort.

Vision:

“To improve our performance and have a steady disciplined

growth.”

Strategic Planning: BP’s priority was to make BP a safer, more

risk-aware business. The plan included a series of milestones

from 2012 to 2014.

1

A relentless focus on safetyand managing risk through thesystematic application ofglobal standards.

6

Active portfoliomanagement to continue bycompleting $38 billion ofdisposals over the fouryears to the end of 2013,in order to focus on ourstrengths.

2

We will play to our strengthsin exploration, deep water,giant fields and gas valuechains.

7

We expect to bring newupstream projects onstream with unit operatingcash margins around doublethe 2011 average by 2014.a

3Stronger and more focused withan asset base that is highgraded and higher performing.

8

We are aiming to generatean increase of around 50%in net cash provided byoperating activities by2014 compared with 2011.b

4Simpler and more standardizedwith fewer assets andoperations in fewer countries;

9We intend to use half ourincremental operating cashfor reinvestment, half for

more streamlined internalreward and performancemanagement processes.

other purposes.

5

Improved transparency throughreporting TNK-BP as a separatesegment and breaking out thenumbers for the threedownstream businesses.

10

Strong balance sheet withintention to target ourlevel of gearing in thelower half of the 10-20%range over time.

Strategy Roll-Out: In analyzing the business strategy being

adopted by BP, the use of porter’s generic strategies can be

used to analyze BP. BP over the years has been trying to

differentiate itself amongst various competitors in a way that

makes them appeal to customers compared to their other

competitors, and this differentiation approach is achieved via

quality, innovations and responsiveness to customers.

Strategy Tune-Up: The main strategic changes undertaken by BP

in response to the turbulent and dynamic environment are

contracts with the governments to avoid political risks.

2. Most Strategic Management Model of BP:2.1. PESTEL Analysis of BP:

POLITICAL

Due to unstable governmentsin the BP’s productioncountries the worlds energymarkets are getting morevolatile.

Due to global warmingissues and climaticdisturbances governmentsare creating a strongbarriers on oilexcavations, besidesencouraging such industriesinto find out moresustainable forms of energy

On whole the global energymarket is becoming morevolatile due to continuedoil demands from the third

ECONOMICAL

The economy is supported bythe energy reserves in thatcountry

“ The pace of globaleconomic recovery holds thekey to energy prospect tonext several years”

Energy markets can envisagedemand increase by nearly 60percent according to IEA

Due substantial increase inthe alternative energysources supply are expectedto grow in the next fewdecades rapidly

world countries

SOCIAL

According to the Kyotoprotocol, control of theCF(chlorine fluorine)carbon emissions has becomea legal requirement

More attention has beendrawn towards the concernson sustainability of thefuture though this may seema little impact at themoment due tounavailability ofproduction of moreeconomical forms ofalternative energy such assolar and wind energy

TECHNOLOGICAL

The International EnergyAgency states thatalternative energy marketswill be underpinned bytechnologicalbreakthroughs.

Research shows technologyis the key tocompetitiveness in thealternative energyindustry; whilstalternative energytechnologies areunderpinned by 48 criticalsuccess factors acrosstechnological, commercial,socio-political andorganizational categories.

ENVIRONMENTAL

Higher EU pollutionstandards.

International EnvironmentOrganizations

More attention has beendrawn towards the concernabout sustainability of thefuture, other forms ofalternative energy such assolar and wind energy.

LEGAL

New laws from government The Kyoto Agreement, signed

in 1992 has led to carbonfunds and emission tradingin Europe and around theworld, which is become alegal requirement.

2.2. Porter’s Five Forces Model of BP:

2.3. Strategic Group Map of BP:

BP’s Global Marketing:

Multinational corporations operating in complex and diverse

political, economic, social and cultural environments have to

improve, adjust and develop their marketing strategies on a

regular basis. Changing environmental factors create new

conditions for their operating, which often require

considerable and serious changes in strategic decision-making

and positioning of companies. Inflexible and rigid firms will

cease to be competitive in the market every time changes

occur.

BP’s 4P:

SUPPLIER POWER- "The suppliers for BP are countries that have oil reservoirs and oil fields. They usually have a bid for their oil field explorat"THREAT OF SUBSTITUTE- Limited number of substitutes BUYER POWER- Low dependency on distributors -Product is important to customer - Large number of customers THREAT OF NEW ENTRANTS- High capital requirements - Strong brand names are important - Advanced technologies are required - Entry barriers are high DEGREE OF RIVALRY- Large industry size - Relatively few competitors

BP has some unique characteristics that influence how we

follow the 4Ps of marketing – product, price, place and

promotion.

1. Product: Fuel is a commodity product offered by all the oil

companies in all over the world. It is difficult to offer

customers a point of difference with fuels. However, BP does

so by selling petrol and diesel that is better for the

environment. BP is the only oil company in world to sell

superior fuels that are kinder to the environment. BP’s

Products Line is:

Fuels & stations

Motor Oils& Lubricants

Convenience Shop

2. Price: With common products in the oil industry, prices

between competitors are easily matched, which means it’s

difficult to differentiate their product based on price. If

BP’s competitors undercut us on price, BP sees significant

losses in volumes sold. A one cent per liter price reduction

requires retailers to achieve a 25% increase in volume to

break even on site. Pricing Strategy is:

Competition Based

Profit Oriented for Extremely Inelastic demand

Invigorate

3. Place: BP’s network of service stations is a vital strength

in marketing strategy – they have some of the best locations

for the service they provide. And research shows customers

mainly choose fuel retailers based on their location. They

have a significant investment in ensuring right number and

quality of locations for our customers. Strategy is:

Direct and Indirect Marketing

Worldwide Retail Network

Distribution Channel

4. Promotion: Research shows that customers respond well to

their promotion campaigns, such as the AA Reward programs.

Their loyalty programs are a valuable point of

differentiation; they use them to drive sales volumes and

counter their competitors’ activity. BP’s main promotional

focus is on:

Commercials

Out of Home advertizing

Pumps reward program

CSR Activity

Market Segments of BP:

This consists of a group of customers who share a common need

or want. With segment marketing, the company offers a better

design, price, delivers the product better and is able to

fine-tune the marketing program.

Geographic segmentation

Population Density

Territory

Weather

Demographics segmentation

Income

Occupation

Age

Behavioral and Psychographic Segmentation

Green Revolution and environment consciousness

Luxury of Travel

2.4. SWOT Analysis of BP:

STRENGTH

One of the biggest in the energy sector

Huge geographical reach High quality operations Very Strong Brand Name

WEAKNESS

Cost of environmental hazards

Decline in production Reaching Maturity Closing of Alaskan oil

wells

OPPORTUNITY

Increasing natural gas market

More oil well discoveries

Expand export market Investment in alternate

business

THREAT

Government regulations High Competition Environment Regulations Increasing Cost of

Operations

2.5. Blue Ocean Strategy of BP:

Kim and Mauborgne identify clear patterns for creating blue

oceans. They describe six basic approaches to remaking market

boundaries and call them the six paths framework (Kim &

Mauborgne, 2005). Traditionally, BP's main line of business is

producing various crude oils that are eventually refined into

petroleum or other petrochemical products. Following the six

paths framework BP can look across current assumptions of

their strategy and market realities to open up blue oceans. In

some respects, this is what BP has already been doing. Prior

to the Gulf oil spill BP was attempting to rebrand its name to

mean Beyond Petroleum. The effort was shelved as BP took a

strong emphasis on sustainability, safety and the environment.

Look across alternative industries

Alternatives mean alternative energy. Alternative energy will

not come from petroleum but other bio-fuels, wind power, or

solar power. BP is investing in sugar-to-diesel technology,

cellulosic, and corn based ethanol. BP owns and operates 13

wind farms in the U.S. generating enough electricity to power

over 500,000 homes. BP operates BP Solar that has installed

1.6 giga watts of products around the world. Look across

strategic groups within industries

Customers want clean, sustainable, and societal friendly

energy sources and production. BP is working to provide this

strategic group of energy resources. BP's AE venture looks for

ways to produce alternative energy by investing in companies

that provide clean tech and carbon offsets. BP's solar, wind,

and low carbon energy projects continue to produce profits and

results in the strategic group.

Look across the chain of buyers

BP understands the Gulf oil spill disaster cannot have made it

clearer for not just BP, but every oil and energy company in

the world. The chain of buyers for oil and energy is the local

community and society as a whole. BP works to create jobs,

support the community, and use local suppliers in the

communities they operate in. Along with concentration on the

socio-economic issues, BP is concerned with the environment

and human rights of the local communities. Concentrating on

local sustainability through local advisory councils keeps BP

initiatives flowing across the chain of buyers with society at

the forefront of everything they do.

Look across complementary products and service offerings

BP understands that their products are not used in a vacuum.

Many of their dozens of products for the road, home, or

businesses have complementary products or services. Their

gasoline service stations accept BP gas cards for purchasing

oil and gas on credit. Customers can pay their gas credit bill

online along with other online services. BP provides route and

travel planning along with BP store locater applications for

the customer's smart phone or mobile devices. All of these

products combine to get the customers to the BP gasoline

station fast and easy. Once at the gas stations, customers can

find not only fuel, but food and other goods for traveling.

Look across functional or emotional appeal to buyers

"Big Oil" is the term commonly brandished around when the

conversation turns to oil companies. Visions of greedy Oil

Barons polluting the environment while making themselves rich

in the process comes to mind. BP knows this and is working

hard to promote the company's long-term sustainability plans.

BP promotes its safety record, environmental performance,

employee conduct, and participation in the local communities.

Look across time

BP sees a 40% growth for global energy needs over the next

century. Meeting the energy challenge while supporting lower

carbon energy sources, is the challenge over time. BP is

taking this opportunity to be a leader in the trends and open

up a blue ocean strategy. They are moving to a diverse

portfolio of energy products.

2.6. Seven S Model of BP:

i. Business Environment/ Strategy: BP is pursuing their

strategy by setting clear priorities, actively managing a

quality portfolio and employing their distinctive

capabilities.

ii. Shared Values: BP starts with safety and excellence in

their operations. This is fundamental to their success.

Their approach is built on respect, being consistent and

having the courage to do the right thing. They believe

success comes from the energy of their people. They depend

upon developing and deploying the best technology, and

building long-lasting relationships. They are committed to

making a real difference in providing the energy the world

needs today, and in the changing world of tomorrow.

iii. Structure: The organizational structure of British

Petroleum-

iv. Staff: BP’s people are talented in a wide range of

disciplines and their approach to professional development

programmes and training helps build individual

capabilities. They aim to achieve a balance between

building internal expertise and recruiting external

professionals and graduates.

v. System: BP invest in technologies that they expect will

make the most difference to their business and the energy

industry

vi. Skills: BP’s management stresses the importance of an

‘informed’ rather than a ‘reactive’ approach to the

problem. To this end, the company is launching a group-

wide initiative this year to guide the skills development

of its 12,000-strong pool of technologists.

vii. Style: Creating a culture of continuous improvement is a

top priority for HR managers in BP. The company places

greater emphasis on organizational quality, which is about

driving continuous improvement in their leadership and

culture, skills and capability, and systems and processes.

They redesigned the way they manage and reward people to

incentivize performance.

3. The External Assessment:

3.1. EFE Matrix of British Petroleum:

Key External Factors Weight

Rating

WeightedScore

Opportunities Fuel & technologies can exchange

national & global energy securities that support the transition to a lower carbon

0.20 3 0.60

economy. Every stage of the hydrocarbon

value chain offers opportunitiesfor us to create value.

0.15 3 0.45

The portfolio of project &operations is focused where themost value is generated.

0.10 4 0.40

Veba Combi-Cracking technology converts a wide variety of raw materials that can convert 95% of hydrocarbon resources to marketable products.

0.05 2 0.10

Threats Many lower carbon resources will

remain costly to produce at scale.

0.10 3 0.30

Loss of primary containment is the number of unplanned or uncontrolled releases of oil, gas, and other hazardous materials.

0.20 2 0.40

Global oil consumption in 2012 grew by roughly 0.9 million barrels per day compared with 2011.

0.15 3 0.45

Provisions for decommissioning decreased from $17.4 billion at the end of 2012 to $17.2 billionat the end of 2013.

0.05 3 0.15

4= the response is superior3= the response is above average2= the response is average1= the response is poor

Rating

Total

1.00 2.85

3.2. CPM Analysis of International Oil& Gas Industry:

BritishPetroleum Chevron Exxon Mobile

CriticalSuccessFactors

Weight Rating Score Ratin

g Score Rating Score

Advertising 0.20 2 0.40 2 0.40 3 0.60Quality of Services

0.10 3 0.30 3 0.30 3 0.30

Price Competitiveness

0.10 3 0.30 4 0.40 4 0.40

Management 0.10 4 0.40 3 0.30 3 0.30Financial Position

0.15 3 0.45 4 0.60 3 0.45

Global Expansion

0.20 3 0.60 3 0.60 2 0.40

Customer Loyalty

0.10 3 0.30 2 0.20 4 0.40

Market Share 0.05 3 0.15 3 0.15 4 0.20 Total

1.00 2.90 2.95 3.05

4= Major Strength; 3= Minor Strength; 2= Minor Weakness; 1= Major Weakness

Comment: Exxon Mobile has the highest score than others. So it

has the lead.

3.3. Key Success Factors of BP:

British Petroleum’s key success factors are-

Financial stability: BP benefits from its financial stability.

It has enough resources to develop new projects and research

new areas. They are able to be innovative and expand and build

up new technologies.

New Findings: BP can pump sufficient oil until the year of

2020 without any new findings. This is one of the biggest

success factors they have at the current moment. They do not

need to invest more in finding new sources of oil and that

makes them really competitive in alternative energy sector.

Government: BP has big support from governments around the

world, because of the low prices and high quality they offer.

They have negotiated good deals (such as the recent one with

Libya) and this is really helpful for their development.

4. The Internal Assessment:

4.1. Value Chain Analysis of BP:

Value chain analysis explains the activities that goes on in

business organization and relates them into an analysis of the

competitive strength of the business it considers. According

to Michael Porter business activities could be grouped into

primary activities which are activities that are directly

concerned with creating and delivering products and also

support activities which are activities not directly involved

in production, but they are activities that increase

effectiveness or efficiency. It is rare for a business to

undertake all primary and support activities.

Value chain analysis is a way of identifying which activities

are best undertaken by a business and which are best provided

by others. Linking value chain analysis to competitive

advantage it points out what activities of the business

directly linked to achieving competitive advantage amongst

various competitors.

Primary Activities:

BP’s primary activities include research and development in

terms of technological innovations, production creation of

fuels and other products, marketing and sales in terms of

distribution via service stations and lastly services to the

customers and the supportive activities include the company

infrastructure like buildings and equipments, information

system, human resource and finance in terms of cash.

Support Activities:

Procurement specifically refers to the function of purchasing

not to the purchased inputs themselves. While raw materials

procurement is usually concentrated in a purchasing

department, other purchasing is often dispersed throughout a

firm.

Technology development as Porter defines it is wider than R&D.

It includes engineering and process development function, is

also dispersed.

Human Resource Management includes the recruitment, hiring,

training, development and compensation of all personnel.

Partly centralized but increasingly dispersed Porter points

out that the skills and motivation of employees and the costs

involved may be critical to competitive advantage.

Firm infrastructure broadly encompasses general management

activities, as well as finance, accounting, legal, corporate

affairs and quality management. Often viewed as an overhead

these can be a considerable source of advantage.

An organization can outperform its various competitors through

differentiating itself by trying to produce products with

higher quality and will also have to perform its value chain

activities better than the opposition. BP has the potential of

adding value via marketing and sale of its products which is

the way the company handles it marketing and sales of products

to the diverse consumers or market through the company’s

various brands where it markets diversified alternative energy

source as well as oil and gas.

The good marketing and sales or distribution flow of BP,

outstanding performances in relations to its competitors

various brand and also diversification into alternative energy

sources are all competence of the company which the company

has used through it marketing and sales activities in adding

value.

4.2. SWAN Analysis of BP-

STRENGTH

Participates in LondonStock Exchange, IPO inNew York Stock Exchangeand is listed in theFTSE 100 Index.

BP Amoco strong brandloyalty for oil.

BO Q3 net profitincrease by 83% due torecord oil and gasprices. The indicatoramounts to $53.43 pershare compared to$21.27 during the sameperiod.

WEAKNESS

Increase in petrolprices in the UK;

Explosion of BPrefinery in Texas thatcaused 100 injuries and15 deaths in 2005;

Closing of Alaskan oilwells.

ACHIEVEMENT Active portfolio

NEXT STEP A relentless focus on

management to continue bycompleting $38 billion ofdisposals over the fouryears to the end of 2013,in order to focus ontheir strengths.

They expect to bring newupstream projects on-stream with unitoperating cashmargins around double the2011 average by 2014.

They are aiming togenerate an increase ofaround 50% in net cashprovided by operatingactivities by 2014compared with 2011.

safety and managing riskthrough the systematicapplication of globalstandards.

They will play to theirstrengths in exploration,deep water, giant eldsfiand gas value chains.

Improved transparencythrough reporting TNK-BPas a separate segment andbreaking out the numbersfor the three downstreambusinesses.

4.3. TWOS Matrix of BP-

External analysis (EFE Matrix)Threats Opportunities

Many lower carbon

resources will remain

costly to produce at

scale.

Loss of primary

containment is the number

of unplanned or

uncontrolled releases of

oil, gas, and other

hazardous materials.

Fuel & technologies can

exchange national &

global energy securities

that support the

transition to a lower

carbon economy.

Every stage of the

hydrocarbon value chain

offers opportunities for

us to create value.

Internal analysis (CPM Matrix)

Weaknesses Strengths Cost of environmental

hazards Decline in production

One of the biggest in theenergy sector

Huge geographical reach

4.4. ViSA Model of BP-

Vision:

British Petroleum’s goal is to be a focused oil and gas

company that delivers value over volume. They are pursuing

their strategy by setting clear priorities, actively managing

a quality portfolio and employing their distinctive

capabilities.

Strategy:

Their goal is to be a focused oil and gas company that delivers value over

volume”

“BP is pursuing their strategy by setting clear priorities,

actively managing a quality portfolio and employing their

distinctive capabilities. Their financial objective is to

create shareholder value by generating sustainable free cash

flow. This disciplined approach enables us to invest for the

future while aiming to increase distributions to their

investors.”

Action Plan:

BP’s plan starts with a relentless focus on safety and centers

on playing to BP’s strengths. These are: exploration, giant

fields, deep-water, gas value chains, a world-class

downstream, technology and relationships. The plan was

discussed in detail by CEO Bob Dudley and other business

leaders when BP presented its 2011 results in February 2012.

4.5. SMARTER Model of BP-

Specific: Stimulating   Sincere

Bp is one of the world’s leading integrated oil and gas

companies. They aim to create short term value for share

holder by helping to meet growing demand for energy in safe

and responsive way. They strive to be a world class operator a

responsible corporate citizen and a good employer.

Measurable: Mapped to goals

They employ more than 80,000 people, mostly in Europe and

the US.

Their upstream segment manages exploration, development

and production activities through global functions.

Generate around 50% more annually in operating cash flow

by 2014 versus 2011 at $100/bbl.

Strong balance sheet, with gearing in the lower half of

the 10-20% range over time.

Achievable: Accountable

They are committed to excellence through the systematic and

disciplined management of their operations. They follow and

uphold the rules and standards they set for their company.

They commit to quality outcomes, have a thirst to learn, and

to improve.

Realistic: Relevant

British petroleum aims to serve the needs of its consumers

in a realistic way rather than making promises which can

remain unfulfilled.

Time: Tractable

1965 Sea Gem offshore oil rig disaster.

2005 Texas City Refinery explosion.

2006–2010: Refinery fatalities, safety violations, and

leak.

2011-2014: stronger and more focused with an asset base

that is high graded and higher performing.

Encompassing: Evaluating

British Petroleum (BP) proved to have numerous performance

problems that were continuously discounted. Although they

understood they had operational deficiencies after the Exxon

Valdez disaster, they failed to act appropriately on them,

which only led to larger problems. BP endured numerous

disasters that provided valuable data they could learn from.

With expert analysis they could have implemented superior

safety, operations, and performance programs for the company.

Hayward should have invested in experts to evaluate BP’s

safety operational procedures.  

Reviewed: Rewarding

To attract and retain the best people, they offer competitive

reward packages and link pay to performance, with their top

performers receiving industry-leading bonus rates. When anyone

joins BP, they’ll be eligible for a reward and benefits

package that is amongst the best in any other local employment

market.

4.6. Pure objectives of BP-

Positive: BP has operations in around 80 countries. This

starts with exploration and ends with the supply of energy and

other products. They supply fuel and related convenience

services to consumers at approximately 17800 BP branded retail

sites and have operations in almost 50 countries.

Understood:

Performance: They manufacture and market lubricants & related

products & services directly in about 45 countries. They

operate three ethanol production facilities in brazil, have a

joint venture ethanol product facility in the UK & operate bio

fuel technology centre in the US. They also have interest in

16 wind farms in the US.

Style: In 2013, BP controlled the program of renewal. BP is

stronger and safer as result. BP must work hard to maintain

people’s trust & respect. The first priority of BP is to run

safe & reliable operations. They must also make disciplined

financial choice, selecting the smart options that can help

meet demand & generate value. They must be competitive in how

we execute own project.

Jargon: To attract and retain the best people, they offer

competitive reward packages and link pay to performance, with

their top performers receiving industry-leading bonus rates.

Culture: Our third PTA plant in Zhuhai, China is planned to

begin production in late 2014. It is expected to bring total

capacity at the site to more than 2.7 million tons per year.

Thunder horse in the Gulf of Mexico is one of the largest

integrated offshore drilling and production platforms in the

world.

Recorded: BP operates cash flow with an expected delivery of

$30 billion to $31 billion in 2014. The alternative energy

primarily invests in wind and bio fuel operations. BP

alternative energy business employed 5000 people worldwide.

They expect own annual capital expenditure to remain between

$24 billion & $25 billion in 2014. They have $21.1 billion

operating cash flow, 4 major project start ups in upstream &

downstream, 12.9% reserves replacement ratio & 3.2 million

barrels of oil equivalent per day.

Ethical: BP strives to work to consistent and high ethical

standards. They remain committed to meeting their

responsibilities to the US federal, state & local government.

BP is a subject to a number of different legal proceedings in

connections with the deepwater horizon incident. Their values

& code of conduct define the expected qualities & actions of

all their people.

4.7. GREAT Model of BP-

Goals: The goal of BP is to be a focused oil & gas company

that delivers value over volume. The goal is to create long

term value for shareholders by helping to meet growing demand

for energy in a safe & responsible way. They strive to be a

world class operator, a responsible corporate citizen & a good

employer.

Roles: BP provide customers witel for transportation, energy

for heat on light, lubricants to keep engines moving, the

petrochemicals products used to make everyday items as diverse

as paints, cloths & packaging. The aim is to generate

employment & tax revenues in countries & communities around

the world

Expectations: BP delivers every products & services to people

around the world. The projects and operations are focused

where the most value is generated. Every stage of the

hydrocarbon value chain offers opportunities for us to create

value. The expectation is to work safely and responsively

around the world.

Accountabilities: They acquire exploration rights, and then

they search for hydrocarbons beneath the earth’s surface.

Their upstream segment manages exploration, development, &

production activities through global functions with specialist

areas of expertise. Downstream segment operates hydrocarbon

value chains covering their main business fuels, lubricants &

petrochemicals.

Timing: BP has two main operating segments, upstream and

downstream. The up stream’s activities include exploring for

new oil & natural gas resources. They find develop & produce

essential sources of energy turning them onto products that

people need. They buy & sell at each stage of the hydrocarbon

value chain. In renewable energy, their activities are focused

on bio fuels & wind.

5. Strategy Analysis & Choice:5.1. The BCG Chart:

The BCG Matrix of BP

Interpretation:

British petroleum has a big market share in oil and gas

industry with its wings extended in 80 different

countries.

The SBU are with high market share with less room for the

growth as it is a mature market.

These SBU need to be manage dwell with right strategy to

maintain the profits

Bp is well established in most of its operating

countries. It has high market share.

It is the fourth largest in terms of revenue making

followed by Royal Dutch and Exxon mobile.

Bp pipelines and ships safely transport company products

around to serve the energy needs of a demanding market

place.

5.2. QSPM Analysis:

QSPM for British Petroleum

Alternative 1

Explore in Africa

Alternative 2

Explore in AsiaKey Factors Weig

ht

Attract

iveness

scores

Tota

l

Attr

acti

vene

ss

scor

e

Weig

ht

Attract

iveness

scores

Tota

l

attr

a-

ctiv

enes

s

scor

eStrengths

Improves techniques 0.20 1 0.20 0.15 4 0.60

for maximizing

recovery from

existing. The redevelopment

project was one of

BP’s most complex

field expansion

developments.

0.10 2 0.20 0.10 3 0.30

Operating in more than

80 countries & with

around 14,100 service

stations.

0.10 3 0.30 0.10 3 0.30

Operating active

portfolio management.

0.10 0 0 0.05 4 0.20

WeaknessesNew sources of

hydrocarbon are more

difficult to reach,

extract& process.

0.05 2 0.10 0.20 0 0

The numbers of oil

spills are removed.

0.15 0 0 0.15 2 0.30

KPIs used to measure

progress against BP’s

strategy.

0.20 1 0.20 0.20 1 0.20

Loss of $474 million

in chemical &

corporate portfolio.

0.10 2 0.20 0.05 4 0.20

Sum weights 100% 100%

OpportunitiesHydrocarbon value

chain offers

opportunities to

create value.

0.10 3 0.30 0.10 3 0.30

The portfolio of

projects & operations

is focused.

0.20 2 0.40 0.15 2 0.30

Veba Combi- Cracking

technology converts a

wide variety of raw

materials.

0.05 1 0.05 0.05 2 0.10

Increases of fuel &

technologies.

0.10 2 0.20 0.20 0 0

ThreatsLoss of primary

containment.

0.10 3 0.30 0.10 3 0.30

Global oil consumption

in 2012 grew by

roughly.

0.15 2 0.30 0.05 2 0.10

Provisions for

decommissioning

decreased.

0.20 1 0.20 0.20 2 0.40

Many lower carbon

resources will remain

costly to produce of

scale.

0.10 2 0.20 0.15 1 0.15

Sum weights 100% 100%

Sum total

Attractiveness Score

3.15<

3.75

Attractiveness Score:

1= not acceptable;

2= possibly acceptable;

3= probably acceptable;

4= most acceptable;

0= not relevant.

5.3. Financial Analysis of BP:

To reveal the positive tendency in company’s financial health

if any we will look historical data of company for the

previous 3 years.

2013 2012 2011Revenue, $ 396217 388285 386463Net Income, $ 23451 11582 25700Earnings/Share, $ 4.26 5.56 7.36Profit Margin, % 5.92 2.98 6.65Return on Equity, % 17.98 9.68 22.85Return on Assets, % 7.67 3.86 8.77Price/Sales 0.32 0.31 0.30Price/Earnings 9.41 6.74 5.00Price/Book 1.05 1.00 1.03

Debt/Equity 0.31 0.32 0.31Interest Coverage 0.00 17.72 0.00Book Value, $ 38.30 37.51 35.57Dividend Payout, % 31.79 54.52 20.67Current Ratio 1.33 1.43 1.16

Earnings Per Share-

2011 2012 2013012345678

$

Decision: The EPS means net income divided by total number of

shares outstanding in the market. In 2013 the EPS was $4.26

which is comparatively lower than last 2 years. This is

declined because of lower return on investment and this

declining process which is shown in the graph is not good

enough for the company.

Return on Equity-

2011 2012 20130

5

10

15

20

25

%

Decision: ROE means earnings divided by average stockholders’

equity. In 2013 BP’s ROE was 17.98% which is higher than in

2012 but lower than in 2011 and it indicates the shareholders

are getting higher return in 2013 in compare to last year.

Return on Asset-

2011 2012 20130123456789

%

Decision: A profitability ratio calculated as net income

divided by total assets. BP PLC's ROA deteriorated from 2011

to 2012 but then improved from 2012 to 2013 not reaching 2011

level.

5.4. Competitor Analysis of BP:

Direct Competitor ComparisonBP CHEVRON EXXON

Market Capital 129.46B 224.17B 409.94BEmployees 79,600 64,600 75,000Quarterly Revenue

Growth-0.03 -0.09 -0.04

Revenue 373.78B 204.02B 392.84BGross Margin 0.12 0.29 0.28EBITDA 32.26B 39.84B 61.33BOperating Margin 0.03 0.12 0.11Net Income 9.23B 20.70B 34.30BEPS 2.98 10.86 7.95P/E 14.25 10.92 12.18PEG (5 year expected) 1.20 2.00 3.17P/S 0.34 1.09 1.03

BP is the world's #3 publicly traded integrated oil. BP

explores for oil and gas in 30 countries with proved reserves

of 17 billion barrels of oil equivalent. It's the largest oil

and gas producer in the US and a top refiner, with 15 plants

processing more than 2 million barrels of crude oil per day;

it is also a major producer of petrochemicals. BP operates

about 20,000 BP Connect gas stations worldwide. The company

took a major hit in 2010 when a Gulf of Mexico oil rig

exploded and killed 11 workers. Millions of gallons of crude

spilled into the Gulf and BP was forced to set aside $20

billion to pay for related damages in 2011 and 2012.

On the other hand Chevron has earned its stripes as the #2

integrated oil company in the US, behind Exxon Mobil. In 2013

it reported proved reserves of 11.2 billion barrels of oil

equivalent and a daily production of 2.6 million barrels of

oil equivalent, 10,072 miles of oil and gas pipeline, and a

refining capacity of 2 million barrels of oil per day. Chevron

also owns interests in chemicals, mining, and power production

businesses. The company owns or has stakes in 8,060 gas

stations in the US (and 8,600 outside the US) that operate

mainly under the Chevron and Texaco brands. Chevron also owns

50% of chemicals concern Chevron Phillips Chemical. 

In other side Exxon Mobil is the world's largest integrated

oil company (ahead of Royal Dutch Shell and BP). Exxon Mobil

engages in oil and gas exploration, production, supply,

transportation, and marketing worldwide. In 2013 it reported

proved reserves of 25.2 billion barrels of oil

equivalent, including its major holdings in oil sands through

Imperial Oil. Exxon Mobil's 31 refineries in 17 countries have

a throughput capacity of 5.3 million barrels per day. The

company supplies refined products to more than 19,000 gas

stations worldwide (including almost 10,000 in the US). Exxon

Mobil is also a major petrochemical producer

5.5. Breakeven Analysis of BP:

Break-even Sales Units = x =

FCp –v

Breakeven point is determined when total variable and fixed

costs are compared with sales revenue in order to determine

the level of sales volume, sales value or production at which

the business makes neither a profit nor a loss. Therefore, at

breakeven point, no profit has been made, neither have any

losses been incurred.

BP oil and natural gas supplies are declining; global demand

is on the rise. The top ten oil-consuming countries alone

consume over 50 million barrels of oil per day. And even with

the rising popularity of alternative energy sources as a means

to fuel our cars, oil cannot easily be replaced as it is used

to manufacture virtually everything we use on a daily basis,

from clothing and pharmaceuticals to detergents and

insulation.

There are thousands upon thousands of petroleum-based

products that we rely on every day. Through direct

participation programs in oil and gas, investors actually own

a portion of a well and receive a share of the cash flow

generated via monthly disbursements.

6. Evaluation:6.1. Strategy Evaluation of BP-

After the oil spill in April 20, 2010, BP decided to adopt new

strategies to improve safety such as:

Improve Performance and Reward: BP would measure performance

and reward based on safety, silent running and operational

risk management (Pfeifer, 2010).

New Leadership: Leadership was cited to be essential to

improve BP’s industry safety record. “Until safety is driven

from the top and not just from HSE department, the necessary

change will not happen” (Askeland, 2010).

6.2. Contingency Plan of BP-

BP’s plan is to be an oil and gas company that grows over the

long term. They will seek to continually enhance safety and

risk management, earn and keep people’s trust, and create

value for shareholders. They will continue to simplify their

organization and fine tune the portfolio. They will focus on

efficient execution in their operations and their use of

capital. They will build capability through the pursuit of

greater standardization and increased functional expertise.

7. Recommendation:BP company’s project, is a significant step toward the growth

of the company, but the Chief Executive Officer should ensure

that the established centralized development organization

enhance the integrity in the project implementation process.

The strategy should also establish a body of expertise in

green house gases in order to reduce emissions that may hinder

the attainment of the project goal. The other recommendation

is that BP should invest much on renewable energy sources like

wind power, solar panel and bio fuels because they present

little or fewer risks on people health and environment. In the

transport area the CEO should ensure more investments in the

pipeline because this would ensure safety on the environment.

Another recommendation is that, though BP company has assigned

a treaty with the World Bank to allow it access funds through

loans, the company should not rely more on the loans because

its payment may contribute to the downfall of the company if

misappropriated. Finally it’s recommended that BP should use

the diversification strategy as a future strategic option in

order to continue responding to the environmental challenges.

The company should diversify its product range associated with

the production of solar and wind energy for individual and

corporate customer.

8. Conclusion:

British Petroleum developed several oil fields and constructed

refineries in different countries all over the world,

including major interests in Alaska’s Prudhoe Bay and in the

north sea near United Kingdom, BP ,its subsidiaries and

associated companies combine together to engage in the

investigation, manufacture, refinement, shipping, and delivery

of oil and natural gas and in the manufacture of chemicals,

plastics, and synthetic fibers. It also operates expediency

stores and filling stations through other brands like, Aral,

ARCO, and am/pm. From the above factors we can analyze BP

options are opened widely to overcome the oil spill cost.

BP is back in business in the deep waters of the Gulf of

Mexico, having recently received its first permit to drill

since the explosion on their deep water horizon rig last year

that killed 11 people and ruptured the Macondo well

hemorrhaging millions of barrels of oil into the Gulf- the

largest offshore oil spill in U.S history.

It may concluded that the main strategic changes undertaken by

BP in response to the turbulent and dynamic environments are

contracts with the government to avoid political risks, moving

to more stables countries such as India from the Northern

Africa, acquisition to the solar panel manufacturers,

investment in wind, and solar projects. It may be summarized

that the identified changes were necessary. Nevertheless the

company could have been more honest and open in its CSR

projects. Although they can strengthen their financial

resources from current drill oil and develop for new forces

such as solar energy because for the new trends in the

emerging market. Besides this, it will also boost up the

company’s reputation and reduce the environmental threats and

pollution.

References: 1. Strategic Management, Concepts and cases by Fred R. David

2. http://www.bp.com/en/global/

3. http://www.google.com

4. http://www.osha.gov/dep/bp/bphistory.html

5. http://galvestondailynews.com/story/157738/.

6. http://www.bp.com/genericarticle.do?

categoryId=98&contentId=2000347

7. http://www.bp.com/liveassets/bp_internet/globalbp/

STAGING/global_assets/downloads/I/

BP_Annual_Report_and_Form_20F.pdf

8. http://www.bp.com/genericsection.do?

categoryId=135&contentId=7038549

9. http://www.osha.gov/dep/bp/bphistory.html