Company Study: British Petroleum

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Company Study: British Petroleum The study examines BP’s global operating environment through a detailed PESTEL analysis. It then goes on to analyze its competitive environment with the help of Porter’s five forces. A detailed SWOT analysis is then performed to assess BP’s internal strengths and weaknesses, the threats it has to face and the opportunities that lay in front. Finally, it summarizes the analysis in the form of conclusions. Introduction Company Overview British Petroleum (BP) is one of the largest vertically integrated oil and gas companies in the world. Headquartered in London, its operations expand over six continents in about 100 countries. Its principal operations include Refining and Marketing, Gas, Power and renewable, exploration and production of gas and crude oil, construction, manufacturing and transportation. Key focus of refining and mining is on oil supply and trading, as well as, refining and petrochemicals manufacturing and marketing. BP also has a network of subsidiaries engaged in the chemicals, power and renewable energy sectors. The Group operates in the United Kingdom, the Bahamas, Australia, the British Virgin Islands, Canada, the United States of America, France, Germany, the Netherlands, New Zealand, Norway and Spain. (British Petroleum, 2007) Financial Performance The company recorded revenues of $265,906 million during the fiscal year ended December 2005, as compared to $252,168 in 2005. The company’s replacement cost profit was $22,253 million during fiscal year 2006, an increase of 15% over 2005. Net profit rose from $32,682 in 2005 to $35,158 in 2006. Return on average capital employed on a replacement cost basis was 22%, compared with 20% in 2006. (BP Company Reports, 2006) Q1. PESTEL Political  

  • Political turmoil in Middle East, extremist threats in countries like Saudi Arabia and strikes in Nigeria and recurring geopolitical tensions (Eg. Iran’s dismissal of suggestions that Tehran might suspend uranium enrichment as a way of easing the deadlock with the west over its nuclear ambitions) have made the operational and investment climate very uncertain.
  • Governments in countries like UK, Alaska, US and Venezuela (where BP has major operations) have increased tax rates to take advantage of the high price environment. (Jason, 2007) This may lead to higher costs.
  • Oil and gas play a major role in the dynamics of economies worldwide which has made governments increased their presence through regulations, observations and support. Environmental regulations are enforced at potentially great cost to companies. (Joanne, 2007)

Economic

  • BP’s major economic concern is the rise in finance costs and increase in corporate tax expense. Finance costs increased by $102 in 2006 million as compared to 2005. The increase primarily reflects higher interest costs, offset by higher capitalized interest. The increase in corporate tax reflects the impact of the increase in the North Sea tax rate enacted by the UK government in July 2006. (BP, 2006)
  • BP’s high exposure to gas prices could affect it adversely as traditionally gas prices have lagged the sector.

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