Strategic Choices And Priorities Of BP (2014-17) Essay.

Write a report critically analysing one Oilfield Service Provider operating during 2014-2017 in the oil and gas sector. Your report should analyse the strategic choices made by the Oilfield Service Provider.

Your report should analyse the following

 
Provide a justification as to why you chose that particular Oilfield Service Provider

Analyse the challenges or benefits facing your chosen Oilfield Service Provider during 2014-2017

Your report should include appropriate oil and gas examples about your chosen Oilfield Service Provider

Provide recommendations for your chosen Oilfield Service Provider to improve their strategic direction.

After two years of hunkering down, struggling U.S. oilfield service providers are preparing for an expected oil-price recovery in an unexpected way: filing for bankruptcy.

Companies that drill wells, haul water and provide other services to energy exploration firms have been waiting out a slump in oil prices by idling machinery, laying off workers and extending deadlines for repaying debts. Now they are turning to Chapter 11 creditor protection to shed debt and raise cash so they can spend and invest again.

Without bankruptcy, many of small and medium-sized service companies risk missing out on any upturn that could follow President-elect Donald Trump's prodrilling agenda or OPEC's plan to cut oil production for the first time in eight years, restructuring advisors said. (Eyeing upswing, more U.S. oilfield service firms restructure, Reuters, Dec 2016)

As oilfield services companies grow into this space, they handle more risk. The current low oil price environment may accelerate that trend, leading them and oil company operators into new partnerships through which risk can be shared and project delivery optimized. (KPMG, Unsung workhorses of the oil industry Oilfield Services Companies, March 2016) The oil and gas sector is a diverse one made up of various types of firms including IOCs (International Oil Companies), NOCs (National Oil Companies), Independents, Junior oil firms and Oilfield Service Providers.

Oilfield Service Providers have been called the workhorse of the oil and gas sector. During the 2014-2016 oil price drop Oilfield Service Providers also suffered under falling profits due to the issues facing their customers, price cuts and the wider turbulent business environment. Like many firms in the sector Oilfield service providers had to rethink and be flexible in their approach to strategy and the choices they made during this time always with an eye for the future.

Introduction to BP

BP, formerly known as British Petroleum, has its presence since the discovery of oil in Persia (1908); The Company started its operation in the year 1908, after discovery of oil in Persia. Since then, the company has moved through various phases-it was in coal first, then graduated to oil, further moved to gas, then from onshore to deep water and now it is in the look out towards a new mix of energy sources as the world moves into a lower carbon future. The company is led by Mr. Bob Dudley since 2010 (Mikesell, 2016)

The universe is changing fast and so is BP, it produces a mix of energy that provides light, heat and mobility for billions of people and is shifting towards lower carbon sources, this is driven by advancement in technology and increasing concerns about the climate change. BP is among one of the oil and gas companies which are working towards sustainable development of resources. (Gale, 2015)

BP is present in more than 70 countries across the globe; they are in lookout for oil and gas from different parts of the world and are also involved with logistics of energy. The company has been marketing & producing raw material and fuel which find usage in everyday product (Koziol & Whatley, 2016)

In the report further, we will look at the strategic choices made by BP during the financial years 2014-17, a close look at the choices to understand the reason and purpose behind them. BP in the past has faced many challenges leading to its oil spill; explosion in the well, change in the leadership, organizational changes etc., and still the company has kept its face strong and put a strong position in front of its stakeholders. Keeping all the points in mind, the period of 2014-17 is rightly suited to analyze the choices made my BP (Selley & Sonnenberg, 2014)

The oil and gas industry is changing at a rapid rate; every company is working towards reducing its carbon footprints and working towards finding a sustainable solution for energy. Energy resources are depleting day by day, hence it becomes pertinent to constantly look out for alternate sources of energy in order to satiate the growing needs of energy. The strategic priorities for BP are to deliver heat, light & mobility solution to the world (Martinez & Harbaugh, 2013)

BP has multiple brands of its own, but has a unique distinctive style or personality. Some of the prominent brands of BP are:

• Amoco: In October 2017, the company announced reintroduction of its long standing Amoco brand to the US fuel retail sector.
• AMPM:First of its kind, it was opened in order to add value to the gas stations. Apart from fuelling vehicles, it also treats them with beverages and a service station.
• Aral: It is one of the most loyal and trust worthy brand in Germany. The company follows the same model like AMPM and provides good food and excellent services to people on the go
• Castrol: It is widely seen as the world’s true global lubricant specialist. BP acquired Castrol brand in the year 2002. Castrol’s motor oils for automobiles and bikes are known all over the world (Crystal, 2016)
• Wild Bean Café: BP identified the motorist culture rising in the states; it hence came up with the concept of wild bean café, which offers good quality food and coffee to the motorists on the go.

Shift towards Lower Carbon Sources

BP has been in midst of multiple controversy owing to its huge spill on the gulf of Mexico accidents in its drilling and exploration sites and inefficiency of the top management to respond to the growing concern related to the safety and concern of the employees and public outrage. Hence, BP is the perfect company in oilfield sector to be anlyzed during the period 2014-17 (Onoh, 2017)

• Sharp fall in oil & gas prices- after rapidly falling by over 50% , oil prices remain volatile in the $50 per barrel range, LNG prices also fell due to weak demand and rising supplies.
• Oil demand response is limiting stock builds-Global oil demands have picked up significantly in recent months- with Asia and the US becoming strong markets. Stocks were still building but not as it were expected to rise (Hakansson, 2015)
• Oil and gas producers responding to lower prices- Prices of US rig numbers have fallen, despite producer hedging, with even some of the best shale players testing breakeven. Prices still below the levels needed to justify investments in many parts of the world (Sovacool, 2014)
• Slowdown of Non-OPEC supplies- US output, is always the first to respond to falling prices, but it hasn’t been in a position to react since a long time. Record investments which are driven by high prices temporarily reversed the declines across non-OPEC supplies outside the US (Warner & Sullivan, 2017)
• Two –tier OPEC not in a mood to cut its output
• Lower prices adding to the existing geopolitical issues- Lower revenues fuel the political and security issue that are already disrupting the output in countries like Libya. A large number of militant groups are also spreading across various regions, limiting energy investments (Noreng, 2016)
• China’s increase in demand for petroleum is draining the economy and further forcing the prices to be volatile.
• Asia Pacific is well known for its demand growth. In between 2012 and 2035, Asia Pacific has world’s demand growth in liquids and it is expected to be about 72%.
• The European Union with an intention to increase their share of alternative fuels in energy supply portfolio which ultimately meet the severe emission targets (Anderson, 2014)
• In East the consumption is on rise, mainly in China & India, and this increase in consumption lead to attract imports and oil supplies.

It can be easily said that the oil and gas industry has taken quite an international approach in its behavior and attitude, and the years ahead suggests to do the almost the same, which is going to generate the high levels of inter-dependence and connectivity, Leading the world to be a safe place for it (Kelly, 2015)

• Dealing with the 3D effect-It is a known fact that existing wells are drying up rapidly, and the demand for the oil is increasing, hence meeting this demand supply gap is one of the biggest challenge at the hand of BP. Businesses these days are finding new sources but at the same time the sources are proving to be extremely hard to access and requires deep underground cutting tools and a very rich manpower.  All this comes at an additional cost. With the problem happening at the time when the demand of oil and gas is at the highest is putting too much pressure on BP(Miller, 2015)
• Handling GovernmentPressure-Increasing carbon footprint is a source of big concern, hence government all over the world is trying hard to reduce the carbon footprint and curb down the greenhouse emissions, and this is putting businesses under a lot of pressure. Recently BP has to shut down two if its refinery owing to excessive emission of carbon. It has also been seen in reports that oil and gas has now overtaken transportation as leading producer of greenhouse houses (Robinson & Morgan, 2016)
• Attracting Investments- After the slump in productivity in the year 2011, the sector has not yet fully recovered; this has made investors rethink before investing money and hence comes a cash crunch. BP is facing big issues in attracting investment, as it is under pressure to show consistent performance, which they have not entirely lived up to the expectations of its shareholders in the recent past(Draper, 2017)
• Improving Safety Standards- Oil being the most important natural resource and probably one of the costliest and also with the highest hazard causing capacity. Hence it’s extremely important to work towards the safety standards. In the year 2013, EU has asked the companies to maintain the highest safety standards. A lot of oil spills in the Gulf Ocean etc., have made it mandatory for all oil firms to keep their workforce and the environment safe. This puts additional pressure on BP, as they have to rework on its entire plan according to the new standard of safety (Cohen, 2015)

BP sees trading benefits from oil boom in the USA

BP is expecting its trade operations to boom because of the growing global crude oil demand from Canadian, Brazilian, The USA and the growing demand rise in Asian markets. The company is keen to expand BP’s trading activities using long term deals on third party oil products. BP employees more than 1800 people in oil trading, trades over 5 million barrels per day of oil and refined products; it’s only succeeded by its longtime rival shell. The benefits the company is deriving out of its Atlantic basin refineries are less sophisticated than modern Asian and middle eastern plants, which can deal with more complex grades of crude. This will also help in boosting price of heavier fuel. It has also been observed that the global demand for distillates is growing faster than that of gasoline.

The economic benefits provided by BP to the nation’s economy are far outstripped its earning. It has created spur in the economy by providing thousands of jobs in the years of its growth. In the past year this industry has delivered, if roughly estimated equivalent to 60 percent of the government package to the US economy. The benefits in taxes and royalties has also seen a rise, company pays billions of dollars as taxes to government of US and by another way collect royalties which benefits financially to the economy These taxes and royalties paid by the company to government help in paying the services provided by government named as health care, education and infrastructure which ultimately benefit people living in US. The investment made in this industry by way of mutual funds and other funds results into higher profits and also it supports other businesses and job in the economy (Sanders & Houghton, 2016)

BP's Presence in Global Market

The oil and gas industry is changing; all the forms of energy are becoming less and less abundant in nature. With the evolution of new technology, BP is also evolving and moving away from natural resources and working towards reducing the carbon footprint (Hollick, 2017)

                                                                       

                                                                                  Figure 1 Safety events (BP website)

The strategy is to invest in large scale gas projects, pursue quality oil projects in core basins and seek out new opportunities in selected region. Around 75% of the company’s planned projects are gas projects, all these projects are at lower costs. Working towards maximizing the recovery, managing the decline in falling prices and extend the life of the existing projects. At the same time BP is doing investment in the priority sector and disinvestment from the projects which are not yielding much value to the company (Robinson & Morgon, 2016)

                                                                       

                                                                   Figure 2: Safety improvement in upstream (BP website)

Strengthen the competitiveness of the refineries and petrochemical plants. Grow the fuel marketing and the lubricant business in the existing and new markets. Creation of new fuels, lubricants and petrochemicals offers to meet the evolving needs of the customers and partners. And finally develop and prove new business models through partnership with vehicle manufacturers and others (Mitchell, 2014)

Reducing carbon footprint is most essential for the oil and gas industry. At BP the Research and development team is consistently working on finding new and innovative solution to reduce the carbon emissions. The company is teaching its partners and customers the harmful effects of carbon emissions, conducting various workshops as well. The company is focused on deepening its understanding of future and the new generation technology (Uldam, 2016)

Strategic Choices and Priorities during 2014-17

The company is tirelessly working on simplifying its organizational structure; the ease in the structure will get more transparency and ease of working in the system. It is also incorporating digital solutions in its marketing and business strategy to make it accessible to its target audience. BP is focused on transforming the way people feel when they work with them, by motivating them. It is also on a mission to improve the safety of its workers in the drilling oil fields (Tedlow, 2014)

Operational excellence is essential to every organization, but it becomes excessively important in the oil and gas field as the lives of the employees working in the oil field is at stake. Hence, in order to achieve operational excellence, the team at BP has set up six sigma quality and safety methods to be implemented to ensure the safety of its employees and provide an atmosphere of operational excellence.

Conclusion

BP has come out strongly from its disaster of oil spill and corporate mismanagement, the changes the company has brought in its management policies has brought stability to the group. Company is focused on developing new and innovative solution for the world; it is working towards a futuristic approach towards energy sector. The company believes that the future of oil and gas industry is towards finding a sustainable solution towards it, because the depleting resources are a cause of concern. BP had major issues related to the safety of its employees, the company has faced a lot of flak from public related to its employee’s turnover, and the company has come up with special training for its employees which is directed towards their safety and establishing safety standards for them. The CEO Mr. Dudley is doing a terrific job in acquiring various projects of drilling and oil exploration and has stuck ties with the USA and Asia for sustainable energy projects. Therefore, it is for certain that the strategy company has adopted now will surely work in its favor.

References

Mikesell, R.F., 2016. Petroleum company operations and agreements in the developing countries. Routledge.

Gale, G., 2015. International directory of company histories. Saint James Press

Kozio?, M.J. and Whatley, F.R., 2016. Gaseous air pollutants and plant metabolism. Butterworth-Heinemann.

Selley, R.C. and Sonnenberg, S.A., 2014. Elements of petroleum geology. Academic Press.

Martinez, P.A. and Harbaugh, J.W., 2013. Simulating nearshore environments (Vol. 12). Elsevier.

Crystal, J., 2016. Kuwait: The transformation of an oil state (Vol. 11). Routledge.

Onoh, J.K., 2017. The Nigerian oil economy: From prosperity to glut. Routledge.

Hakansson, H. ed., 2015. Industrial Technological Development (Routledge Revivals): A Network Approach. Routledge.

Sovacool, B.K., 2014. What are we doing here? Analyzing fifteen years of energy scholarship and proposing a social science research agenda. Energy Research & Social Science, 1, pp.1-29.

Warner, M. and Sullivan, R. eds., 2017. Putting partnerships to work: Strategic alliances for development between government, the private sector and civil society. Routledge.

Noreng, O., 2016. The oil industry and government strategy in the North Sea (Vol. 11). Routledge.

Anderson Jr, I.H., 2014. Aramco, the United States, and Saudi Arabia: A study of the dynamics of foreign oil policy, 1933-1950. Princeton University Press.

Kelly, S., 2015. Buraimi. The Struggle for Power, Influence and Oil in Arabia, by Michael Quentin Morton/British Policy in the Persian Gulf, 1961–1968. Conceptions of Informal Empire, by Helene von Bismarck: London and New York, IB Tauris, 2013. Pp. 286, bibliography, index, plates.£ 22.50 (hardback) ISBN 978 1 84885 818 3/Basingstoke, Palgrave Macmillan, 2013. Pp. 269, bibliography, index.£ 55.00 (hardback) ISBN 978-0-230-24650-8. Middle Eastern Studies, 51(4), pp.674-680.

Miller, A.D., 2017. Search for security: Saudi Arabian oil and American foreign policy. UNC Press Books.

Draper, T., 2017. American business and public policy: The politics of foreign trade. Routledge.

Cohen, B.C., 2015. Press and foreign policy. princeton university press.

Hollick, A.L., 2017. US Foreign Policy and the Law of the Sea. Princeton University Press.

Sanders, D. and Houghton, D.P., 2016. Losing an empire, finding a role: British foreign policy since 1945. Palgrave Macmillan.

Robinson, C. and Morgan, J., 2016. North Sea Oil in the Future: economic analysis and government policy. Springer.

Mitchell, T., 2014. Economentality: how the future entered government. Critical Inquiry, 40(4), pp.479-507.

Uldam, J., 2016. Corporate management of visibility and the fantasy of the post-political: Social media and surveillance. New Media & Society, 18(2), pp.201-219.

Tedlow, R.S., 2014. The Rise and Fall of Mass Marketing (RLE Marketing) (Vol. 25). Routledge.