British Petroleum Essay
The history of BP was set in motion as the Anglo-Persian Oil Company in Persia in 1901. William Knox D’Arcy, an English entrepreneur hired George Reynolds, a geologist and explorer to dig Persia for oil. Reynolds could smell natural gas and was most certain they would hit oil. After several years and after D’Arcy had spent nearly all his savings and on the verge of losing his homes, he gave Reynolds one last attempt. The orders were to drill 1600 feet and give up. This took several months of trials and tribulations but eventually paid off on May 26, 1908 after drilling 1,108 feet.
A fountain of oil was discharged. Within a year, the Anglo-Persian Oil Company now known as BP became a business. The previous years for the explorers were rough but they were no comparison over the course of the next fifteen years, where situations didn’t improve. A few factors which hindered the process of turning thick crude oil into a useable product included lack of equipment, construction delays and sickness. In 1914, the Anglo-Persian project was near bankruptcy for a second time. The problem didn’t consist of producing the oil but they had no product market.
To protect Britain in World War I, the company British Petroleum was created to market its product. During the next ten years, major adjustments were made. Gas and electricity replaced kerosene, gasoline would fuel delivery vehicles and the automobile use immensely increased. During the 1920’s and 1930’s, gasoline pumps began to appear around Britain. All was going well until World War II which caused gasoline to become a rationed commodity and forced BP as well as others to pool their fuel together. After the war ended, companies began to move forward.
D’Arcy reached an agreement with former Shah of Persia to drill in the Middle East. At this time, in 1954, the board changed the company’s name to The British Petroleum Company. New technology pushed explorations into unexpected lands. Explorations began in Alaska in 1968 and in 1969 BP uncovered the largest oil reservoir ever found on the North American continent. BP was an extremely prominent force. In 1971, Muammar al-Ghaddafi announced Libya would take a higher percentage on all oil left in the Middle East.
Over the next few years, BP’s supply had dwindled down to 10% from 80%. It seems as if this economic factor would cause BP to lose steam but it was just enough for BP to re-focus their energy which brought on the merger of Amoco, ARCO, and Castrol motor oil. With the emergence of a new millennium, BP began to look to the future. Research of fossil fuels and new forms of low-carbon energy was the foundation for BP to unveil its new unified global brand. In keeping with continuous improvement, BP has published a statement which sums up their company mission, “What We Stand For”.
Their mission is to be progressive in building relationships, responsible by being committed to providing a safe environment, innovative by thinking outside the box to find the next breakthrough, and performance driven to provide safe and dependable operations. The company’s attempt to live up to this mission stands the test of time. Even though BP was recently involved in an oil spill, they have continued to provide the services outlined in their mission. For example, BP was performance driven in the oil spill because they were constantly involved with the restoration and repair of the pipe that was broken.
BP constantly had people searching for a solution. BP is aware of the extreme loss of marine life, environment damage and the loss of jobs. They are still working diligently a year later to correct loss of wages and restoring the ecological environment. In society, a company will not please everyone but in my opinion, BP has owned up to their mistakes and making attempts to correct and restore society back to normal. BP currently operates in six continents which include Africa, Asia, Australasia, Europe, North America, and South America with products and services available in more than eighty countries.
BP is vertically integrated in production and distribution, increasing its power in the economy. BP has involvement in refinery, production, transportation, and distribution, just to name a few areas of vertical integration. BP’s product line includes gas stations, credit cards, natural gas and solar power energy. In 2008, BP even ventured out to sponsor a professional BASS fishing team. To overcome some barriers in their scope of operations, BP employs multilingual and multicultural staff. By having multilingual employees, they are able to break language barriers with staff in the states and overseas.
Having multicultural staff can assist with the cultural differences we face. For example, a handshake, a nodding of the head or two thumbs up are gestures that may be offensive in other cultures. Being a global company, it is imperative BP understands and overcomes all barriers. In an oligopoly economic environment, there are a limited number of competitors, high barriers to entry and have a strong control over pricing. They also have a kinked demand curve with an equilibrium price point. Some of BP’s competitors include, Exxon Mobil, Apache Corporation (Royal Dutch Shell), and Conoco Phillips.
In an oligopoly environment, BP has the ability to lower their prices. This in turn will either cause the competitor’s to lower their prices as well or allow for BP to gain market share because customer’s would most likely be willing to wait in line for gasoline purchase for a savings of five cents a gallon and possibly less. As of today, BP currently stands number three in the market. After researching the past four years of financials, BP suffered a terrible loss resulting from the Deepwater horizon rig explosion and oil spill.
BP’s net income for the year of 2007 was over twenty billion increasing in 2008 to approximately $22 billion. In 2009, net income dropped substantially to $16 billion. The cause of this drop is unknown but in the next few months there was an explosion and fire on an oil rig. In April 2010, oil was found leaking from the well. During the oil spill, BP paid out billions in research, equipment and loss of wages claims. In 2010 BP’s net income was a -$3. 7 billion. In direct comparison to Exxon Mobil, Exxon as well had a strong net income.
In 2007, their net income was $20 billion more than BP, $9 billion more than Royal Dutch Shell and almost $30 billion more than ConocoPhillips. BP’s current ratio shows they have the ability to convert assets into cash by 1. 15%. In comparison to Exxon Mobil, BP has a greater chance to covert assets. For every dollar BP has in assets, they have 1. 15% available for turnover. BP is considered a liquid company; they have enough money that can be quickly converted to cash. When calculating BP and Exxon’s debt to total assets ratios, I noticed both companies were very close in leverage.
BP’s debt to total assets ratio was 65% while Exxon had a 51% ratio. These ratios show the percentage of assets that have been financed by debt. The higher the percentage, the more leverage and more risk a company has. In the Activity ratio category, I used the total assets turnover ratio to determine if BP compared to Exxon is generating a sufficient volume of business for the size of its assets investment. The lower the ratio, it is reviewed to have slower sales. BP has a ratio of 1. 09% while Exxon is 1. 27%.
Both companies have the ability to use assets to generate sales. The rule of thumb in business finance is anything over 1 is good. The profitability of BP is a sore subject for shareholders after the effects of the oil spill and explosion. BP’s profitability for the past year ended in a -. 01%. The net profit margin shows how well a company converts sales into profits after all expenses are paid. This negative standing was expected after the payment of claims, attorneys, and clean-up. In comparison to Exxon, Exxon has an 8% chance to convert sales into profits.
BP has had tremendous growth in sales over the past 3 years. Each year, BP has shown at least a one percent growth in sales. Even with a tough economy, BP recorded a growth in sales. After researching the history of BP, it is my observation that after a major slump, BP rises and surpasses their economic trial. BP has had their highs and lows but with careful strategic management, marketing, and financial budgeting they will soon be on their way to becoming the company who can proudly say again “What We Stand For” and really mean it.
University/College: University of Chicago
Type of paper: Thesis/Dissertation Chapter
Date: 1 November 2016
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