BP Plc

Company Profile
Publication Date: 1 Apr 2011
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TABLE OF CONTENTS
Company Overview..............................................................................................4
Key Facts...............................................................................................................4
SWOT Analysis.....................................................................................................5
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TABLE OF CONTENTS
COMPANY OVERVIEW
BP is one of the largest vertically integrated oil and gas companies in the world. The company's
operations primarily include the exploration and production of gas and crude oil, as well as the
marketing and trading of natural gas, power, and natural gas liquids. BP is headquartered in London,
the UK and employs about 79,700 people.
The company recorded revenues of $297,107 million during the financial year ended December
2010 (FY2010), an increase of 24.2% over FY2009. The operating loss of the company was $1,702
million during FY2010, compared to an operating profit of $28,152 million in FY2009. The net loss
was $3,719 million in FY2010, compared to a net profit of $16,578 million in FY2009.
KEY FACTS
BP Plc Head Office
1 Street James's Square
London
SW1Y 4PD
GBR
44 20 7496 4000 Phone
44 20 7496 4630 Fax
http://www.bp.com Web Address
297,107.0 Revenue / turnover
(USD Mn)
December Financial Year End
79,700 Employees
BP London Ticker
BP New York Ticker
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Company Overview
SWOT ANALYSIS
BP is one of the largest vertically integrated oil and gas companies in the world. The company's
operations primarily include the exploration and production of gas and crude oil, as well as the
marketing and trading of natural gas, power, and natural gas liquids. BP, with a focus to drive future
performance, continuously invests in research and development (R&D). Strong R&D capabilities
enable BP to attain competitive advantage over its peers, maintain technological edge over its
competitors, and stay ahead of industry trends. However, the company is subject to various
environmental laws and regulations, costs associated with which could be significant and may be
material to the results of operations in the period in which they are recognized.
Weaknesses Strengths
Oil spill in the Gulf of Mexico Robust research and development
capabilities Explosion in the Texas refinery
Vertically integrated operations
Wide geographic presence
Threats Opportunities
Risks concerning environmental regulations Transformational partnership between BP
and Reliance Industries Instability in some oil-producing regions
Expansion of the biofuels business in Brazil Drilling ban threat to Gulf of Mexico
operations Boosting of PTA production capacity in
China Saturation of resources in the North Sea
Strengths
Robust research and development capabilities
BP, with a focus to drive future performance continuously, invests in research and development
(R&D). Investment in R&D is also a measure of the companys commitment to the future organic
growth of the business. In FY2010, BPs expenditure on R&D was $780 million, compared with $587
million in FY2009 and $595 million in FY2008. The company has chosen 20 major technology
programs that support its competitive performance in resource access, advanced conversion,
differentiated products, and lower-carbon energy.
As of FY2010, BP treated 56 wells with Bright Water technology in Alaska, Argentina, Azerbaijan,
and Pakistan, which has delivered increased reserves at a development cost of less than $6 per
barrel, and with an 80% success rate. Moreover, BP continues to develop and apply innovative
exploration technologies. Following the successful use of the ISSTM seismic acquisition technique
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in Libya in 2009, the company conducted field trials, combined with cableless node receivers to
further increase seismic acquisition efficiency. Positive test results led to a decision to acquire 3,000
square kilometres of the 2010/11 Libya onshore acquisition program using this method.
In addition, BP has developed a new passenger car engine oil offering 2.4% fuel saving, a
transmission oil for military vehicles with a 1.5% fuel saving, and the turbine oil for the new Boeing
787 Dreamliner. Furthermore, the companys proprietary processing technologies and operational
experience continue to reduce the manufacturing costs and environmental impact of its petrochemicals
plants, helping to maintain competitive advantage in purified terephthalic acid (PTA), paraxylene,
and acetic acid.
In the wind business, BPs quest for more energy-efficient wind turbine generators continues. In the
US, BP Wind Energy is testing state-of-the-art laser wind sensor units to deliver improved wind
turbine performance and increased energy output. In the solar business, InnerCool solar technology,
a new technology designed to make solar cells more efficient in extremely high temperatures, is
being piloted at a university in Saudi Arabia, where it has demonstrated increases in energy generation
of approximately 3%.
Strong R&D capabilities provide BP to attain competitive advantage over its peers, maintain
technological edge over its competitors, and stay ahead of industry trends. In addition, it allows the
company to ensure safe and reliable operations by strengthening its portfolio, getting more from its
resource base and winning new access.
Vertically integrated operations
BP has vertically integrated operations as it is involved in upstream, midstream, and downstream
oil businesses. The company operates through two business segments: exploration and production;
and refining and marketing.
Its upstream activities involve oil and natural gas exploration and field development and production.
Its midstream operations involve the ownership and management of crude oil and natural gas
pipelines, processing facilities and export terminals, and LNG processing facilities and transportation.
It also includes BP's natural gas liquids (NGL) extraction businesses in the US, the UK, Canada,
and Indonesia. Its most significant midstream pipeline interests are the Trans-Alaska Pipeline System
in the US, and the Forties Pipeline System and the Central Area Transmission System pipeline in
the UK sector of the North Sea, the South Caucasus Pipeline (SCP), and the Baku-Tbilisi-Ceyhan
pipeline.
BP's downstream activities include refining and marketing of oil and natural gas and related products.
In total, BP has interests in 16 refineries worldwide, including those partially owned. At the end of
FY2010, BP's worldwide network consisted of about 22,100 retail sites operated under the brands
BP, ARCO, and Aral. In the US, BP's retail network comprised approximately 11,300 branded retail
sites. In Europe, the retail network consisted of 8,400 branded retail sites. In addition, in FY2010,
BP had approximately 2,400 branded retail sites outside Europe and the US in countries such as
Australia, New Zealand, and South Africa.
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The company's vertically integrated businesses confer advantages related to operational efficiencies.
Vertically integrated operations provide control over the entire value chain, which enable the company
to produce products, which are used at different stages in the entire value chain. The company's
vertically integrated operations give it significant competitive advantage in the global oil market.
Wide geographic presence
BP has a wide geographic presence. The company operates in over 80 countries. BP has
well-established operations in Europe, the US, Canada, Russia, South America, Australasia, Asia,
and parts of Africa. Currently, around 68% of the companys fixed assets are invested in Organization
for Economic Co-operation and Development (OECD) countries, with around 42% of its fixed assets
located in the US and around 20% in Europe.
In FY2010, the exploration and production segment operated upstream and midstream activities in
29 countries including Angola, Azerbaijan, Canada, Egypt, Norway, Russia, Trinidad and Tobago
(Trinidad), the UK, the US, Asia, Australasia, South America, North Africa, and the Middle East. The
segment is also into gas marketing and trading activities, primarily in Canada, Europe, and the US.
The refining and marketing segment of the company markets its products in more than 70 countries,
with a particularly strong presence in Europe and North America. It also manufactures and markets
its products across Australasia, in China and other parts of Asia, Africa, and Central and South
America.
BP's widespread international operations enable it to take advantage of opportunities arising in
emerging markets. Therefore, the company's wide geographic presence enables it to gain access
to key markets as well as to attain a competitive edge over its peers.
Weaknesses
Oil spill in the Gulf of Mexico
BP is involved in one of the worst environmental disasters in the US. In April 2010, an explosion
occurred on the Transocean's rig which was drilling an exploration well on BP operated license. The
rig was located approximately 41 miles offshore Louisiana on Mississippi Canyon block 252. The
explosion killed 11 workers. Subsequently, the rig worth over $500 million sank triggering an oil spill
in the Gulf of Mexico, the largest accidental marine oil spill in the history of the petroleum industry.
During July 2010, the leak was stopped by capping the gushing wellhead, after it had released about
4.9 million barrels of crude oil. It was estimated that 53,000 barrels per day were escaping from the
well just before it was capped. In September 2010, the relief well process was successfully completed,
and the federal government declared the well effectively dead.
As a responsible party, the company made swift payments to support local economies, and gave a
total of $138 million in direct state grants during FY2010, which included behavioral health programs.
BP has also set up the $20 billion Deepwater Horizon Oil Spill Trust to meet individual, business,
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government, local and state claims, and natural resource damages. The company provided $500
million for the Gulf of Mexico Research Initiative, which is funding independent research to investigate
impacts on affected ecosystems. Furthermore, the company contributed a $100 million fund to
support rig workers hit by the drilling moratorium. Overall the company recognized charges totaling
$40.9 billion in FY2010 as a result of the incident.
To meet its financial commitments, BP announced the sale of up to $30 billion in assets and, by the
end of 2010, had agreed to $22 billion of disposals. Moreover, the Gulf of Mexico oil spill has damaged
BPs reputation, which may have a long-term impact on the groups ability to access new opportunities,
both in the US and elsewhere. Adverse public, political, and industry sentiment towards BP, and
towards oil and gas drilling activities generally, could damage or impair the companys existing
commercial relationships with counterparties, partners, and host governments. In addition, responding
to the incident has placed, and will continue to place, a significant burden on BPs cash flow over
the next several years, which could also impede its ability to invest in new opportunities and deliver
long-term growth.
Explosion in the Texas refinery
In March 2005, an explosion and fire occurred in the isomerization unit of BP Products' Texas City
refinery. Fifteen workers died in the incident and many others were injured. In October 2007, the
US Department of Justice (DOJ) announced that it had entered into a criminal plea agreement with
BP Products related to the explosion and fire. In February 2008, BP Products pleaded guilty, pursuant
to the plea agreement, to one felony violation of the risk management planning regulations
promulgated under the US federal Clean Air Act. The company paid a $50 million criminal fine and
was sentenced to three years' probation.
In addition, the Texas Office of Attorney General, on behalf of the Texas Commission on
Environmental Quality (TCEQ) filed a petition against BP Products asserting certain air emission
and reporting violations at the Texas City refinery from 2005 to 2009, including the March 2005
explosion and fire. In September 2009, BP Products filed a petition to clarify specific required actions
and deadlines under the 2005 Settlement Agreement with the Occupational Safety and Health Act
(OSHA). That agreement resolved citations issued in connection with the March 2005 Texas City
refinery explosion. OSHA has denied BP Products' petition. In October 2009, OSHA issued the
Texas City Refinery citations seeking a total of $87.4 million civil penalty for alleged violations of the
2005 Agreement and alleged process safety management violations. The fine was the largest in
OSHA's history, and BP Products contested the citations.
Later in August 2010, a settlement agreement between BP Products and OSHA resolved the petition
filed by BP Products in September 2009 and the alleged violations of the 2005 Agreement. The
company agreed to pay $50.6 million of the October 30 fine, while continuing to contest the remaining
$30.7 million; the fine had been reduced by $6.1 million between when it was levied and when BP
paid the first part.
Such events causing environmental damage could result in heavy financial penalties for the company
eroding its profits. In addition, such law suits could also tarnish its brand image.
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Opportunities
Transformational partnership between BP and Reliance Industries
BP is focusing on forming alliances with strong national partners. Accordingly, BP and Reliance
Industries (Reliance) signed a partnership agreement in February 2011. The partnership across the
full value chain comprises BP taking a 30% stake in 23 oil and gas production sharing contracts that
Reliance operates in India, including the producing KG D6 block. It also includes the formation of a
50:50 joint venture between the two companies, for the sourcing and marketing of gas in India.
The partnership will combine BPs deepwater exploration and development capabilities with Reliances
project management and operations expertise. This partnership meets BPs strategy of forming
alliances with strong national partners, taking material positions in significant hydrocarbon basins
and increasing its exposure in growing energy markets.
According to BPs Energy Outlook 2030, energy consumption in India has grown by 190% over the
past 20 years and is likely to grow by 115% over the next 20 years, a rate of over 4% per annum.
Gas is expected to be the fastest growing fossil fuel, with demand growing at a rate of nearly 5% a
year between 2010 and 2030. Indias gas consumption was 5.0 bcf/d in 2009 and is estimated to
have been 6.1 bcf/d in 2010 (comprising 4.9 bcf/d production plus 1.2 bcf/d LNG imports). Total
Indian gas consumption is projected to grow to12.5 bcf/d in 2025, and exceed 15 bcf/d in 2030.
The 23 oil and gas blocks together cover approximately 270,000 square kilometres. This will make
the partnership Indias largest private sector holder of exploration acreage. By allying with Reliance,
BP will access the most prolific gas basin in India and secure a place in the fast growing Indian gas
markets, creating a genuinely distinctive market position.
Expansion of the biofuels business in Brazil
Low carbon energy will play an increasingly significant role in meeting world energy demand. BP is
committed to producing biofuels to help meet this demand. The company is expanding its biofuels
business in Brazil through an acquisition. In March 2011, BP agreed to acquire majority control of
the Brazilian ethanol and sugar producer Companhia Nacional de Acucar e Alcool (CNAA). The
company agreed to pay approximately $680 million to acquire 83% of the shares of CNAA and to
refinance 100% of CNAA's existing long term debt. After the acquisition, which is subject to regulatory
approval and agreed closing conditions, BP will become the operator of two producing ethanol mills,
located in Goias and Minas Gerais states. A third CNAA mill is currently under development in Minas
Gerais state.
The total planned combined crushing capacity of all three mills, when fully developed, is expected
to be 15 million tonnes of sugar cane per year. At full capacity, each mill will have a production
capacity of about 480 million liters of ethanol equivalent per year. When CNAAs assets are fully
developed, this is expected to increase BPs overall Brazilian production capacity to around 1.4
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billion liters of ethanol equivalent per year (nine million barrels). Alternative energy is expected to
be the fastest growing energy sector over the next 20 years, with global biofuels production projected
to more than triple. This strategic acquisition underlines BPs commitment to building material
businesses in growing economies and continued expansion in Brazil through exploration and
production, as well as biofuels investments.
Boosting of PTA production capacity in China
The company aims to boost its purified terephthalic acid (PTA) generation capacity in China. PTA
is the preferred raw material used to manufacture polyethylene terephthalate, a widely used polyester
polymer for the production of textiles, bottles, packaging, and film products. China is the worlds
largest and fastest growing PTA market. Government statistics showed that Chinas PTA consumption
in 2009 exceeded 18 million tonnes, of which only around 65% was supplied by domestic production.
China's PTA consumption may increase by an equivalent 8% per year through 2013. In order to
meet the demand, BP is planning to increase its PTA production capacity.
During February 2011, BP confirmed that it is proceeding with its project for a major increase in PTA
production capacity at the BP Zhuhai Chemical Company (BP Zhuhai), Guangdong Province, China,
a joint venture between BP and Zhuhai Port (formerly named Fu Hua Group). The petrochemicals
business of BP started a debottleneck project to add a further 200,000 tonnes per year PTA capacity
at the BP Zhuhai, which is scheduled for completion in the first quarter of 2012. This additional
capacity employs BPs latest proprietary technology and will bring the sites total PTA capacity to
1.7 million tonnes per year, continuing its growth in China.
In addition, BP is planning to build a new world-scale PTA plant at the same site. This plant in Zhuhai
is under pre-engineering planning. With a capacity of 1,250,000 tonnes per year, it will be the first
to employ BPs latest generation PTA technology and is expected to come on stream earliest 2014
to meet PTA demand growth in China. This will make Zhuhai the largest PTA site in BPs global
PTA system. Therefore, increase in PTA generation capacity allows BP to capitalize the growing
PTA market in China.
Threats
Risks concerning environmental regulations
The company is subject to various environmental laws and regulations that govern the discharge of
pollutants and disposal of wastes. With rising awareness of the effect that the environment has on
human health, regulatory standards have been continuously improved in recent years. In 2005, one
of the most important developments in this area has been the introduction of the Kyoto Protocol for
the reduction of greenhouse gas. The protocol calls on industrialized countries to reduce their annual
greenhouse gas emission levels by an average of 5.2% (relative to 1990 levels) during 200812.
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In 2007, the European Union adopted important strategic objectives with regard to policies that
address climate change. In the same year, the European Council adopted a European sustainability
strategy based on three reference targets that must be achieved by 2020, which include a 20%
reduction in carbon dioxide (CO2) emissions, an increase in the penetration of renewable energy
sources (binding target) to 20%, and a reduction in demand by 20% (non-binding target). BP already
has a weak record in environmental matters.
A number of pending or anticipated governmental proceedings against BP and certain subsidiaries
under environmental laws could result in monetary sanctions of $100,000 or more. The company is
also subject to environmental claims for personal injury and property damage alleging the release
of or exposure to hazardous substances. The costs associated with such future environmental
remediation obligations, governmental proceedings and claims could be significant and may be
material to the results of operations in the period in which they are recognized.
Instability in some oil-producing regions
BP has exploration and production interests in 30 countries. Many of these regions, including Africa,
the Middle East, and South America, are prone to political instability. Though BP has been operating
in these countries for a long time and understands the local environment very well, much of the
geo-political risks are outside its control. In particular, the companys investments in the US, Russia,
Iraq, Egypt, Libya, and other countries could be adversely affected by heightened political and
economic environment risks.
For instance, BP is in partnership with the Libyan Investment Corporation (LIC) to explore acreage
in the onshore Ghadames and offshore Sirt basins, covered under the exploration and
production-sharing agreement ratified in 2007 (BP 85%). BPs net assets in Libya as of FY2010
were $212 million. Due to the outbreak of political unrest in Libya, the BP office in Tripoli was closed
on 21 February 2011 and the Libyan operations suspended. All BP expatriate staff and their families
have been evacuated from Libya. Although, it is not possible to say exactly what impact the ongoing
unrest, potential political changes, and international sanctions will have on the suspended seismic
operations, the start-up of the exploration drilling program which had been scheduled to commence
onshore and offshore in 2011 will be delayed.
Failure to anticipate some of these events or the inability to mitigate risks in the regions where BP
is operating could seriously impair the companys operations and disrupt the flow of output.
Drilling ban threat to Gulf of Mexico operations
The company faces risk concerning a deepwater billing ban against oil companies, implemented in
FY2010. A moratorium on deepwater oil and gas drilling was imposed by the Obama administration
in July 2010, in response to BP's catastropic Deepwater Horizon oil spill in the Gulf of Mexico. The
moratorium was to impact 33 deepwater drilling sites, less than 1% of the 3,600 oil and natural gas
production platforms, in the Gulf of Mexico. Later in October 2010, the ban was lifted. Even after the
Obama Administration has lifted its ban, oil companies are still waiting for an approval to drill oil in
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Gulf of Mexico. It is expected that the companies have to wait to proceed until the second half of
2011, and perhaps through 2012.
In addition, the delay in new oil drilling approval in Gulf of Mexico has affected investors' confidence
in BP, who depend on the Gulf of Mexico for around 10% of its total oil production. Furthermore,
BPs operations in the region are affected as billions of dollars of investment was made in Gulf
projects and would also prevent the company from carrying out work to boost production from existing
fields. Therefore, delay in the assessment of new licenses would affect the operations of the company
which in turn would impact the companys profit margins.
Saturation of resources in the North Sea
The company has extensive offshore exploration operations in the North Sea. Offshore exploration
in the North Sea has been highly prospective in the past and intensive exploration work has been
carried out in this region in the past few decades. Reserves in the region are maturing and are slowly
getting saturated. There has been a succession of dry holes being drilled in the last few years. The
saturation of reserves in this region is a key challenge for the company especially as newer exploration
activity in other parts of the world is far more localized and entails significantly higher investments.
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