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Oil & Gas Management: Anglo Persian Oil Company Add in library

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Question:

Describe about the Advantages of Bidders for taking over British Petroleum?
 
 

Answer:

Introduction

The Anglo Persian Oil Company is commonly known as BP, the company started its business in the year 1970s and became the member of the “Seven Sister” international oil companies. The main competitors of the BP oil company are the Exxon and the Shell oil companies, which are also members of the Seven Sister international oil companies. The BP oil company feces many disaster in the Texas City, the explosion in the time of re-introducing the hydrocarbon and during this explosion many of the workers of the BP oil company were dead and many were injured. After that many investigation happened in the BP oil company, and the company have to pay the fine for it, which was something around $50 million.  The BP oil company taken many safety measures after the incident happened in the company, and the various instigation teams also did the investigation about the safety measures of the company. There were many incidents occurred in the BP oil company in the City like Mexico and other and many of the workers had been died because of the incident. As a result the share of the BP oil company gradual goes down in the share market and the company was running in loss in that time (Berdowski et al., 2010).

Advantages of Bidders for taking over British Petroleum (BP)

Companies dealing with oil and gas like British Petroleum generates huge turnover for industries. If the past is considered, it can be found that $25 billion cash flow was delivered by BP in 2005. $8.3 billion cash proceeds was yield by BP. $19 billion of cash was distributed to shareholders. Thus the past record of BP is quite attractive for the bidders to takeover. The most important advantages for bidders are below-

Cost Reduction- Dividend quarterly payments were suspended by BP by 9.5pence per share that amounted to $2.6 billion to the shareholders. This resulted in cost reduction and profit maximization. Moreover BP agreed to sell $7 billion assets in Egypt and North America, have cut down 20% employees for maintaining capital expenditure and established escrow fund of $20 billion for victims of oil spreading. These strategies are attracting for bidders as they need not take more cost reduction strategies after takeover (Berthelot, Coulmont and Thibault, 2013).

Marketing and Sales-  BP deals with all the energy resources like solar, wind, carbon, bio-fuel, gas fired power, hydrogen power and storage systems. For dealing with alternative energy resources like wind, bio-fuel and carbon, BP has spent $1.4 billion. But now the industry is facing financial trouble and due to this it has divided alternative energy budget into $1 billion and $500 million. This diversification strategy attracts the bidders to takeover BP (BOND, 2013).

Process Innovation- the innovative approach of recovering oil to boost out the process significantly was done by going into deep sea shores which utilized polymer popcorn technique was one of the latest innovative method of oil extraction done by BP. This futuristic innovative approach attracts the bidders to takeover BP.

Research and Development- for Illinois research on production of bio-energy, BP invested $500 billion. Bp also introduced personal development program to develop young people that positively influenced local communities. In 2008 BP was associated with a project to extract natural gas and crude oil that involved 8 countries. This project resulted to generate a record profit of $37.9 billion EBIT which was 39% more than that of previous year. Such R&D team is competent enough for handling future projects that is quite attracting for bidders to takeover BP (Wilson, 2013).

Analysis has been made that the present competitors of BP are Exxon Mobile, Shell and Chevron in relation to their position in petroleum industry. Such competitors can takeover BP to sustain in the competition as they are the greatest rivals of it. They can diversify their product and services to survive against the downturns in such core markets (Bozeman, 2011).

Possible disadvantages of bidders for taking over British petroleum

Competitive environment- In accordance to the competitors, if Shell moves to takeover BP in Europe and US, then it will induce a serious competition that may force divestments. That ultimately will hamper the management and sustainability for a company.

Higher payroll- In China, the salary and wages for the employees are lower than US. Now if Petrochina takeover BP, then it will need to overpay the employees than usual, and this will result in cost disruption, inefficient cost management and substantially workforce risk from top to bottom (Wang, n.d.).

Overlapping Management- The combinations of assets needs to be downsized if Exxon Mobile takeover BP. They have a different process and system. This overlapping of management will create dissatisfaction among the employees that may happen to lose their jobs and others may need longer time to familiarize with the new system, which again may incur loss. As the governments have insisted more tough environmental safety standards, the cost of oil projects will eventually increase (Dauwalter, 2013).

Political Issue & Managerial Style

After the explosion in the Gulf of Mexico the valuation of the company comes very low as it wipes 58 billion dollar due to explosion. At that time many experts predicted that there could be a takeover by its competitors such as Exxon Mobil, Shell and Petrochina. Technically any of these companies was able to afford to the takeover of BP but there was some other problems which was creating doubt. One of the biggest issues was political issue which was inhibiting the takeover process. The industry of gas and oil is already full of political and regulatory issues which make it difficult to cope up with all situations. The US law was very stringent about the industry and BP was hiding many of their facts which were not allowed there. All these issues of BP came out after the explosion. At that time it was obvious that the US government will charge a huge amount of penalty to the company (Google.com, 2015). The companies which were thinking of bidding for the BP to takeover find that if their takeover includes the penalty then it will be a huge loss for them. Moreover another issue was very prominent over that period. BP was conducting their business unethically at that country so there was a big chance of getting a ban for that company; this was also a risk for the bidding companies. As it was expected that US politicians including Barack Obama was not in favor of the company which forced them to cut off their business in the US market. This kind of political situation forced to increase the liability of the company in the Gulf of Mexico which contributes to the continuous drop of their share price in the market. In this situation the takeover of BP would have result in unlimited liabilities for the company along with the cutoff from the US market where BP used to be the biggest oil and gas provider. There was another threat which was the disadvantage of the takeover process for the other companies was the cost of the cleaning the sea. This cost would be the biggest liabilities for any company who will be taking over them (JARVIS, 2010).

When a company takeover some of its competitor company, it abolish the competition from the market. So in terms of business perspective it is always good to absorb competitor’s business if that is profitable. In case of BP acquisition after their disaster in Gulf of Mexico, there were many disadvantages due to their huge liabilities in the US market. From the managerial perspective it was very difficult to decide about the acquisition of BP (Price-Howard and Holladay, 2014). Any company who will be acquiring BP has to think of the profitability aspect. Acquisition will also include the liabilities of the company which will be added to the cost of acquisition and also the regulations will be applicable as the same. Since BP was banned in the US market So it was difficult to operate the business in that market after acquisition. These are the factors which will influence the decision of the leaders of the acquiring company. When an company takeover another company the problem arises in the management level which destroy the continuity of the leadership in the target company. It was found that there was an average 20% loss of the senior executive after the merger process. From the outcome of this research the acquiring company will remain in an unstable position at least for next ten years which will be an obstruction towards the profitability of the organization (Grondin, Thibault and Quérel, 2014).

 

Will Low Oil Price Accelerate Bid or another Barrier?

In most of the research, it has been observed that the economy of US has been considered as one of the popular and the biggest oil consumer. In most of the cases, now days, the management have been focusing on the relatively lower prices so that it can be able to reduce the energy consumption. First of all the cartel need to make the restart of the authority over the prices of the oil so that the crude values can also be varied in between the nations. In this case, the relative production cost need to be varied in between the nations (Jacoby, 2012).

The nations also need to increase the spending so that the unemployment can be reduced. Most of the nations need to push the prices so that the cuts in the production can be managed. In most of the debates, it has been observed that the nations have been developing some of the aspects so that the international oil prices can be made higher. They are planning to induce the prices at the break-even points so that so that they can be able to meet the demands of the customers. It will not only lead to an increase of the profits, but at the same time, it will also lead to an increase of the growth within the economy. It will help in reducing the demand of the oil with the help of the efficient utilization of the energy resources (Rodriguez and Soeder, 2015). 

In this way, the geopolitical risk can be minimized easily. In many cases, it has been observed that the market segmentation of the oil have been changed and for this reason , the demand for the oil as well as the supply for the oil have also been changing at a rapid rate. It will hurt the producing countries, at the same time have also reduced the prices, and at the same time have reduced the costs of the farmers. Therefore, in this case, the aim of the government is to make an intervention so that the prices can be pushed up and at the same time, the cheaper cost of the energy can be made available (Rusco, n.d.).

The suppliers of the energy are resisting on the gases. The fuel price not only hurts the consumers but at the same time, it is also hurting the farmers as well as the manufacturers. In many cases, it has been observed that they have been hurting the government and at the same time, they are weakening the economy. In this way , the government professional have been discouraged in many ways and in many cases , it has been observed that the lower price levels of the fuel have been decreasing the carbon as well as also decreasing the economic perspectives. Too many governments need to cut the business so that the prices can be controlled and at the same time, the food costs can be reduced properly (Telegraph.co.uk, 2012).

In most of the cases, the supermarkets have been facing the problems regarding the cutting of the costs. The low gas price can be able to create the subsidies for the new creators and at the same time, it will not disappoint the government as well as delighting the environmentalists. By this way, the domestic producers can be absorbed and in this way, the monopolization within the economy will be increased at a substantial amount. It is not at all considered one of the simplistic issues but at the same time, the political rivals have also been destructed. The pressure that has been induced are political in nature and it will help in reducing the loss (Thompson, n.d.).

 

Reference List

Berdowski, J., Schulten, R., Tijssen, J., van Alem, A. and Koster, R. (2010). Delaying a shock after takeover from the automated external defibrillator by paramedics is associated with decreased survival. Resuscitation, 81(3), pp.287-292.

Berthelot, S., Coulmont, M. and Thibault, K. (2013). Sustainability Content on Oil and Gas Company Websites. BMR, 2(1).

BOND, D. (2013). GOVERNING DISASTER: The Political Life of the Environment during the BP Oil Spill. Cultural Anthropology, 28(4), pp.694-715.

Bozeman, B. (2011). The 2010 BP Gulf of Mexico oil spill: Implications for theory of organizational disaster. Technology in Society, 33(3-4), pp.244-252.

Dauwalter, D. (2013). Fish assemblage associations and thresholds with existing and projected oil and gas development. Fish Manag Ecol, 20(4), pp.289-301.

Google.com, (2015). Redirecting. [online] Available at: https://www.google.com/url?q=http%3A%2F%2Fwww.ukessays.com%2Fessays%2Fcommerce%2Ftakeover-mergers-acquisitions-case-study-of-british-petroleum-commerce-essay.php&sa=D&sntz=1&usg=AFQjCNHizW_oc70KkfyIiokPPT5alWt6qQ [Accessed 1 Jul. 2015].

Grondin, O., Thibault, L. and Quérel, C. (2014). Energy Management Strategies for Diesel Hybrid Electric Vehicle. Oil & Gas Science and Technology – Revue d’IFP Energies nouvelles, 70(1), pp.125-141.

Jacoby, D. (2012). Optimal supply chain management in oil, gas, and power generation. Tulsa, Okla.: PennWell Corp.

JARVIS, L. (2010). SANOFI COMES OUT WITH GENZYME BID. Chem. Eng. News, 88(36), p.13.

Price-Howard, K. and Holladay, P. (2014). Resorts, Resilience and Retention Ater the BP Oil Spill Disaster of 2010. Journal of Tourism Insights, 5(1).

Rodriguez, R. and Soeder, D. (2015). Evolving water management practices in shale oil & gas development. Journal of Unconventional Oil and Gas Resources, 10, pp.18-24.

Rusco, F. (n.d.). Oil and gas management, continued attention to Interior's human capital challenges is needed : testimony before the Subcommittee on Energy and Mineral Resources, Committee on Natural Resources, House of Representatives.

Telegraph.co.uk, (2012). A history of BP's US disasters. [online] Available at: https://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/9680589/A-history-of-BPs-US-disasters.html [Accessed 1 Jul. 2015].

Thompson, R. (n.d.). Takeover Regulation After the 'Convergence' of Corporate Law. SSRN Journal.

Wang, H. (n.d.). Successful business dealings and management with China oil, gas and chemical giants.

Wilson, A. (2013). Reservoir Management for World's First Thermal Gas/Oil Gravity-Drainage Project.Journal of Petroleum Technology, 65(03), pp.140-143.

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