The History of British Petroleum Company, Essay Example

Executive Summary

This study dwells on BP, British Petroleum Company since its inception to its current state. BP started as Anglo-Persian Company, APOC, which later transformed to Anglo-Iranian Oil Company, AIOC (Freudenburg & Gramling, 2011). The commencement of the company by the British Government was fueled by the discovery of oil wells at Masjid-i-Suleiman in Iran in 1908. Since its inception, the company has gone through a series of transformation to catch up with technological advancement. The headquarters of the company are located in London, England (Fitzsimmons, 2012). Additionally, the company has other major branches in Beijing (China), Munich (Germany), Seoul (Korea), and New York as well as New Jersey (Unites States). By the end of 2013, the company had operations in more than eight countries around the world and producing approximately 3.2 million barrels of by-products of oil per day. This company is preferred to other similar companies because of its efforts in preventing major safety and environmental incidents. The company has also suffered major economic downturns. For example, the Texas Refinery Explosion and the oil spill on Torrey Canyon, Prudhoe Bay, and on the Alaska’s North Slope (Bergin, 2011). The company has accounted for these losses through venturing in new markets in Africa, Middle East, and other European nations. Additionally, the company has acquired a Russian oil company, Rosneft, to increase on its market scope. As a result, the company has maintained its high ranks in providing both gas and oil products, as well as solar energy as an alternative source of energy.

History of the Company

BP plc, British Petroleum, is a British multinational gas and oil company with headquarters in London, England. In 2012, it was ranked as the fifth of the world’s largest energy company by market capitalization (Fitzsimmons, 2012). The idea of the company came in 1908 after some British geologists discovered large quantities of oil in Masjid-i-Suleiman in Iran. In 1909, APOC, Anglo-Persian Oil Company became a subsidiary of Burma Oil Company to assist in oil extraction processes. In 1935, the two companies combined under international community and transformed APOC to AIOC, Anglo-Iranian Oil Company (Freudenburg & Gramling, 2011). After the World War Two, Iranian Nationalists made sentiments that aimed at revising AIOC concession terms in favor of Iran. AIOC, under the British government, filed a complaint about the Iranian Nationalists’ sentiments, but the complaints were dismissed.

In 1954, AIOC changed its name to British Petroleum Company and aimed at bringing Iranian oil to the international market. By mid 1960s, the company had developed a reputation because of its efforts in taking the riskiest business ventures. Although the company earned massive profits, it also earned the worst safety record in oil and gas extraction. In 1967, the company ventured in virgin oil wells in Atlantic beaches on Brittany and Cornwall, Bahamas, Nigeria, Kuwait, and Liberia (Bergin, 2011). Although the company, gained command in many of Middle East nations, power struggle intensified along with price shocks. The 1973 oil crisis affected the company negatively since it lost direct access to oil supplies from countries that formed OPEC, Organization of Petrol Exporting Countries. The result was diversification of its operations outside the Middle East regions of oil production. In 1976, British Petroleum merged with Shell to improve on marketing operations in England by dividing BP and Shell-Mex (Bamberg, 2000). As a result, the company acquired control over SOHIO, Standard Oil of Ohio. In the period between 1970 and 1980, BP ventured into nutrition, minerals, and coal businesses to diversify on its scope.

In 1979, the British Government sold $80 million of BP’s shares to promote privatization. As a result, these shares represented 46% of government’s ownership of the company. Under the leadership of John Browne in 2000, BP acquired other companies that transformed into top three largest oil-refining companies in the world. By 2010, the companies had extended its market to majority of African countries such as Namibia, Tanzania, Botswana, and Malawi under Puma Energy Network (Fitzsimmons, 2012). In 2011, the company collaborated with Reliance Industries acquiring 30% of the company’s share worth $7.2 billion. In the period between 2011 and 2013, BP reduced on its alternative energy business as it marked its departure from the renowned solar energy market. Additionally, the company shut down on its biofuels in 2012 to reduce on its expenditure.

SWOT Analysis with Discussion

SWOT analysis is an important tool of decision making and comprehending the situation of a business. SWOT standards for Strengths, Weaknesses, Opportunities, and Threats. SWOT analysis is useful in strategic planning, marketing, product, and business development, and in research reports.

Strengths

The success of the company has been spearheaded by its strong financial base. As a result, the company is ranked third in terms of financial base, which is accelerated, by its retail and subsidiary brands such as Amoco, BP Express, BP Travel Center, BP Connect, and Burma Castrol among others (Bamberg, 2000). This has enabled the company to research in different areas, which has led to limitless expansion of the company. It also has the capacity to invest lumps of money to develop alternative energy strategies. In the year 2005, the company managed to make $22.341 billion as profit. Owing to its financial base, the company participates in London Stock Exchange as well as in New York Stock Exchange and features in the FTSE 100 Index list (Fitzsimmons, 2012).

BP has also embarked on extensive innovation to improve on its brands. In 2004, the company signed strategic joint ventures with China in the solar market enterprises in order to provide narrow manufacturing capacity (Freudenburg & Gramling, 2011). Under the brand BP Alternative Energy, the Chinese solar business flourished, which in turn, increased market in Europe and other Asian countries (Bergin, 2011). The biggest accomplishment in innovation was the provision of solar panels to the United States Marine Corps Combat Center. Additionally, their provisions extended to Germany through their Lufthansa Terminal Branch in Munich.

Additionally, BP has continually created different programs to raise public awareness. For instance, the company has created programs, according to which, when a celebrity fits a solar panel, the company donates an extra solar panel to one of the low-income families (Bamberg, 2000). Through their school’s awareness program, the company has enlightened student on the energy situation in many nations of the world.

Weaknesses

In 2006, the company suffered huge losses when thousands of liters of its crude oil spilled in Alaska due to cracking of a pipeline. The company was charged with criminal offenses because of the spread of 270,000 gallons of oil in Alaskan tundra region that lead to deaths of millions of marine life due to suffocation (Bergin, 2011). Additionally, one of its refineries in Texas burst which resulted in 15 deaths and 100 injuries. The company has also been charged with toxic spills of more than 2,000 gallons of methanol in Prudhoe Bay. All these charges have ruined the public image of the company because of environmental degradation.

The company has faced a major setback as differences between solar industry and oil industry have started to crop up. As a result, BP has tried to enter the solar energy industry and become a leader. In the process, the company has experienced many challenges from similar Japanese and Chinese industries. The differences between solar industry and refining of oil, mine, transport, store, and drill is huge (Bamberg, 2000). Although the company has vast knowledge in crude oil refinery, this knowledge is irrelevant in solar energy sector.

Additionally, the company is facing stiff competition from alternative energy sectors. Although the company is exceptionally solid in the oil industry, the alternative energy sector in slowly taking control over oil and gas sector (Fitzsimmons, 2012). Reasonably, there are several hazards associated with emissions from crude oil. Conversely, the alternative sources of energy are environmentally friendly, and, as a result preferred to oil and gas energy sources as the world is turning green. In addition, the rise of Baku-Tbilisi-Ceyhan pipeline business has increased competition in the industry. This has resulted in fall of oil prices in the United Kingdom.

Opportunities

The biggest opportunity for BP is the alternative energy. The company has invested $8 billion in its research on alternative fuel methods including natural gas, hydrogen, solar, and wind. Currently, the company’s Home Depot and BP Solar Energy are installing BP Solar Domestic Solutions in New York and New Jersey (Bergin, 2011). To increase on customer’s satisfaction, the company is also offering a five-year service warranty to ensure that customers are keen on switching to alternative sources of energy. Although the company has encountered many hurdles in implementing this business, the business is now successful. BP is now working with various home improvement stores to expand its business and increase on its profit margins.

Over time, BP has maintained warm association with the UK Government as well as other governments where the company has extended. These warm relations have created a platform where the company collaborates with government in providing tax breaks for companies or people who have embraced alternative energy sources (Freudenburg & Gramling, 2011). In the developed countries, the company has been able to add clauses that campaign for alternative energy sources to counter the greenhouse effect (Bergin, 2011). For instance, the company requires that all companies built after 2007 should install solar system. Besides that, homeowners whose houses were built before 2007 would get a special discount if they were willing to shift to alternative energy sources.

With the ongoing research, the company has come up with cost effective synergies that combines the functioning of solar and petroleum sides of the company. BP has managed to design and fabricate solar panels that are cost effective and allow for expansion. When incorporated with petroleum resources, the resultant energy source is cost effective and assures customers of the improvements in the company’s functions (Fitzsimmons, 2012). Reasonably, increasing the confidence of the customers using company’s products is both cheap and easy.

Threats

The main threat facing the company is the environmental impact of greenhouse gases. The company has been accused of promoting global warming due to the toxicity of by-products of crude oil. The UK Government is planning sanctions that may ban hydrocarbon fuels, which in turn, will leads to reduction of BP’s profits (Fitzsimmons, 2012). Additionally, the company has experienced various oil spills in different water bodies, which have resulted to death of dolphins and other marine lives. In 2013, a good proportion of fish in the Atlantic Ocean had diseased lives due to the 2006 oil spills. The company has been charged with the responsibility of retrieving all oil deposits from the ocean, otherwise it may face stern sanctions.

The company is also facing stiff competition from Shell, which is one most successful company in oil business. In addition, Shell ventured into solar market before BP, thus making it well established than the latter. Shell has collaborated with other successful companies such as Sharp and Kyocera, a factor which has set it ahead in competition (Bamberg, 2000). As a result, the company is compelled to offers better products in order to conquer the energy market.

BP has also faced military actions and wars in the crude oil production regions. Although the company is currently experiencing peace at its oil wells, threats of military actions and wars are still prevalent across the globe. For instance, the release of Lockerbie bomb in 1988 still affects the company since 270 people were killed (Freudenburg & Gramling, 2011). The company also faces the threat of political lobbying and contribution. For example, in the 2008 US elections, the company was torn during the campaign period. Most of the BP employees supported Barack Obama while others sided with Chevron and Shell in campaigning against Obama.

Stock Decision

From the discussion of BP’s SWOT analysis and a general outlook of the company’s performance in the London Stock Exchange, it is recommendable to purchase 500 shares in the company. According to 17 January, 2014 agreement at the stock exchange, a person can hold 500 BP shares which are bought without any charges at 10p per share until a maximum charge of £150 is reached (Bergin, 2011). Holding 500 BP shares is commendable because of the ease of selling them in the event of price hike. Although all costs are deducted from the proceeds of each share sale, the cost of each share will be more than 10p per share until a maximum charge of £150 is reached. The BP registrar ensures that all transactions are completed in a span of one day.

The advantage of buying stocks at BP is because the company has cheaper dividend growth stocks than other similar companies such as Chevron and Shell (Freudenburg & Gramling, 2011). Both the internal and external climates of the company are calm because of the diversity of its enterprises. Although the 2012 BP stock declined because of the political tensions in Ukraine, the company has many other crude oil inlets that ensure constant flow of raw material (Fitzsimmons, 2012). The company adjusted rapidly to the decline in supply to maintain its position in 2013 London Stock Exchange. As a result, the strategic management of the company ensures that value of its shares and dividends either stabilizes or improves in order to attract more stakeholders. The value of shares with increase further since the company has acquired 20% of Rosneft, a Russian oil company (Bamberg, 2000). The company is taking advantage of the tension in Ukraine to increase on its returns acquiring other companies facing economic downturns. As a result, shareholders at BP will be certain of increase in the value of shares as the company diversifies its enterprises.

References

Bamberg, J.H. (2000). The History of British Petroleum Company. Cambridge: Cambridge University Press.

Bergin, T. (2011). BP Turns out Lights at Solar Business. UK Reuters, 34, 69-107.

Fitzsimmons, E.G. (2012). BP Plc. The New York Times, 2(1), 13-24.

Freudenburg, W.R., & Gramling, R. (2011). Blowout in the Gulf: The BP Oil Spill Disaster and the Future of Energy in the World. Massachusetts: Massachusetts Institute of Technology Press.