Case Study Oil and Gas Management

Question: Can britain retain ownership of its former imperial oil company, BP? Answer: Introduction The British Petroleum (BP) has seen many a spills since 1970s when it was one of the three giants of the Globe. The oil drilling and refining have seen accidents like oil spill, fires and such disasters that have brought the entire existence of the firm into questions. To counter the 2010 Mexican tragedy in its Gulf the firm has to sell 40 Billion worth of asset to pay for 43 Billions of fines, legal cost and clean up jobs. The stakeholders have seen a reduction of 20% worth of stock value within this period where the overall growth for the sector was 20% in the globe. Therefore for investors the broader stock market indices have made it a takeover target. However the capitalization price was 107 Billion USD which rather increased to 190 USD and the firm holds a 20% stake with the Russian giant of Rosneft ad have announced a Billion USD for its restructuring and a 15% reduction in its capital expenditure. The plans for restructuring would succeed would let the business would succeed in maintaining its position or fail delivering is the question being critically analyzed herein. Advantages of a possible Takeover of BP The advantages a possible takeover for BP would mean that the business gave into its mistakes that made it run for its money. The Texas city mishap of fire and Deepwater disaster in 2010 in the Gulf of Mexico have made the business see a huge cost which can be avoided. The loss in terms of Asset value to meet the same is estimated high as 43 Billions for the purpose which makes the investor lose their money in the period when the Global sector 20% rise while BP say opposite. This has made the business gain advantage of fixing its new markets where it may compete and excavate for future. The futuristic plans get the money for new explorations as was business enters new era with improved products and safety on place on which the business may build its image up and reduce the use of water in plants as well as develop environmental consciousness among the user to improve the environmental position of the business. Further the lower oil price in the international market in 2015 may be a b arrier to the process of bidding as new investors may fear the loss of revenue if the market stays that was (Bp.com, 2015). Disadvantages of a Possible takeover The disadvantage would be to the stakeholders where they have invested with BP to get the fair return on investments price out of the same. The one fifth dip in the stock price have been borne by them but the takeover by a new management may make the investments risk as the commitment of one management would definitely differ to others. The cost of bearing the loss which gets subsequent asset sales loss for the investors would be a heavy burden. Again BP have some expertise in deepwater drilling and collaboration with Russian Rosneft that have made disadvantageous position for the business if they loose upon the aforesaid. The long term is being settles with a capital expenditure cut of 15% that would bear no attraction if the business is sold. With a takeover the long known Imperial brand of BP is expected to suffer a major setback which may outdo its position in the global oil and Gas market. People who are environment friendly would thus concentrate upon the alternative energy gen eration and distribution as the case would wake the conscience up for alternative energy generation (Afgan, 2010). Probable Bidders The BP is thus a target for the bidders after the loss of face in the environment and operational front. BP was considered one of the sisters in the International oil companies which composed of the Seven Sisters. Therefore in the case as said Exxon and Shell are the two biggest bidders for BP in the coming days. For its sustainability and the legal dues that the business owns, that bidder may sell of the assets to pay off the debts. However the long term dilemma stays when the business is tight and competitive and the venture to buy Shell for any one of the two is a big challenge. The one who buy BP has to shell out money to pay for the liabilities that the business has met. The probable cause is the low price of the fuel in the international market that has made the profits in the long run tight for the bidder, whosoever it is. Again, the 20% stake in the Russian Oil and Gas company has made the political views a bit complex. Sabet et al. (2012) suggests that the Exxon mobile CEO h ave good ties with the Russian government who may act as the ice breaker if Exxon comes to bid for the BP. Any other firm may find this difficult. The entry into the Russian market is to happen with influence that Shell lacks. Thus Exxon have the power to bid and win BP but the business of BP is undergoing a transition which is aimed to a long term sustainable future. Future of BP The future of BP there is two ways out which the business may consider. The selling off the business altogether would mean the loss of the age old brand by the business. Nevertheless, the sale would also mean that the strategies as taken up by BP have proved unsuccessful. The Mexican Gulf tragedy and the Deepwater leaks are the cases that have made the brand suffer a major jolt. The business is still a big brand in the Oil and Gas segment and one of the largest in the globe even today when market capitalization, reserve profits and production. The operations being so long for the brand that process have made the business integrated. The current day prices and regularized price rise and competitive pricing in the industry have lowered the price of oil. The fuel and transport segment is only of part of the BPs portfolio that have petrochemical products too as a part of production. Thus the rise and fall of fuel prices is just one headache for the brand as the other resources generated have a market price too. The 190 Billion of market valuation is to be paid by a bidder but the same is difficult to be collected in new operational and managerial set up of BP (The Guardian, 2013). Since each organization has its own special features that make it unique, BP too have its own ways. Buying and generating profits are to different story. BP is being operating via subsidiaries, branches, joint ventures etc in the global market as per the legal suitability. The presence of BP in all the continents of the globe was made easier by the followed policy in those parts that proved successful for BP. Further the globe is changing where the dependence of people on ecology is reducing and the pollution is on the rise. This has made the social awareness to rise which considers pollution a global menace. However, BP had a good name for itself as a responsible brand promoting sustainability. The loss of face was thus the biggest attack on the face of BP which had a good record. The accident made the business do something that would eventually change the way Petroleum companies work. The energy is considered to be fossil fuel derived product where the business has the capability t o change by introducing the alternate energy derivation. The lessening demand for fuel may act well for the brand which would give it the buffer time to consolidate the needed changes. The changes that would sustain the business for a long sustained future, was the motive. Reduction of capital expenditure along with addition of technology to exploit gas and oil in any geographic condition has given the brand the headway for the future (McKenna, 2010). The future of BP, with the incorporation of the aforesaid, is likely to generate a new business. The dependence of the society towards fossil fuel is reducing along with the price of the oil which has given the benefits to the brand by reducing its chances to be bought by other. The best value from the business over volume is the business target. The long term solutions to BPs problem would need safety to be a priority, development of projects with the best of recent technologies, is aimed towards a long term value generation (Coate et al. 2014). A strong financial would be an additional benefit which would draw investments as well as give the investors the desired returns. Generation of jobs, investments, livelihood are very primary few priorities that the business have created. The disadvantage is the loss of name whereas advantage to society was shift of focus for energy needs from one source to another. The other advantage to the business was a major cut in capital expenditure th at has made the business to focus upon the volume but not on all infrastructures it has at one time. BP has strategically determined a scope for itself where the focus is to produce from few mills at a time so that much more concentrated effort towards the safety can be put on any project on any given time (Crotts and Mazanec, 2013). The strategy would enable BP to put their focus more deeply into the sustainable business practice where the concentrated demand and supply shall be confined to a few mines and not on the region altogether. The low or volatility of the price has acted as a boon for BP in disguise. The use of the funds for acquisition needs a fast return that has been blocked by the changing oil price to a date in uncertainty. The buyers interested, like Exxon or Shell, is thus not as keen on the same grounds as the price of oil is ever diminishing. The diminishing price in such a market means that the invested money would have a longer return period and not a short term plan. The investors would thus keep the options open as buying BP would also mean buying BPs liabilities too. The takeover bids are thus not accelerated where the business attraction is reduced. The oil price is that barrier that would make a firm competing with BP thinks twice before the bid is made. The barriers to potential bidders are thus the long term investments, low return on investments, price volatility and changing consumer perception about the bio-fuel. The human resources of the firms are not the same so that may have its effect (Conard, 2013). The technologies used as well as the organizational cultures are not going to match for a BP employee if it is being sold. The changes may be permanent causing damage of repute to the brand. So a measured step forward and balancing act of execution and resource can be bought by investing in this case (Kirsch, 2010). Conclusion The businesses of BP being a global oil and gas business have its own flaws where the people are unhappy with the natural pollution it had created. The pollution have taken the face of BP to a place where the only possibility of BP is to balance its production and generate awareness about nonpolluting natural sources of energy. The case of BP in the past decade had been cases which have moved all in every location concerned about pollution and green house effects. The plans to take over the firm are risky for its competitors too seeing the political and price effects in the long term. The consumers motive has changed in the time when they wish to go for non-pollutants for energy needs and so the demands are there but the regulations have kept the price under control. The signal for a takeover was there but the conditions of the market and the competitive positioning has kept the brands away. The price and volatility of technology has made the firms come back a step where the brand li ke BP is investing 1 million to reconcile its operations further. List of references Afgan, N. (2010). Sustainability Paradigm: Intelligent Energy System. Sustainability, 2(12), pp.3812-3830. Bp.com, (2015). BP Magazine | Press | BP Global. [online] Available at: https://www.bp.com/en/global/corporate/press/bp-magazine.html [Accessed 7 Aug. 2015]. Bp.com, (2015). Products and services | BP Global. [online] Available at: https://www.bp.com/en/global/corporate/products-and-services.html [Accessed 7 Aug. 2015]. Coate, C., Holly, K. and McAllister, B. (2014). A Financial Analysis Exercise: Exxon Mobil vs. Royal Dutch Shell, US GAAP vs. IFRS. The BRC Academy Journal of Education, 4(1), pp.1-6. Conard, B. (2013). Some Challenges to Sustainability. Sustainability, 5(8), pp.3368-3381. Crotts, J. and Mazanec, J. (2013). Diagnosing the impact of an event on hotel demand: The case of the BP oil spill. Tourism Management Perspectives, 8, pp.60-67. Kirsch, S. (2010). Guest Editorial: Sustainability and the BP oil spill. Dialectical Anthropology, 34(3), pp.295-300. Lotfian, F., Kimiagari, A., Pejmannia, S. and Keivanloo, M. (2010). Pricing Policy in EPC Oil Gas Projects. International Journal of Trade, Economics and Finance, 1(2), pp.207-210. McKenna, P. (2010). Lessons from the BP oil spill. New Scientist, 208(2789), p.44. Sabet, S., Cam, M. and Heaney, R. (2012). Share market reaction to the BP oil spill and the US government moratorium on exploration. Australian Journal of Management, 37(1), pp.61-76. Stimeling, T. (2014). Music, Place, and Gulf Coast Tourism since the BP Oil Spill. Music and Politics, VIII(2). The Guardian, (2013). BP oil spill | Environment | The Guardian. [online] Available at: https://www.theguardian.com/environment/bp-oil-spill [Accessed 7 Aug. 2015]