bp analysis final

8/3/2019 Bp Analysis Final

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The Turn Around of BP Oil in 2011

Group 6

11/18/2011

Dr. Manish K. Srivastava

YuZhou

WillDuray

HaoQiu

ChaoYang


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BP is one of the worlds leading international oil and gas companies which

headquartered in London, United Kingdom. BP has 22,100 retail sites, upstream active

in 29 countries in the world. It is vertically-integrated and is active in every area of the

oil and gas industry, including exploration and production, refining, distribution and

marketing, petrochemicals, power generation and trading. It also has major renewable

energy activities, including in biofuels, hydrogen, solar and wind power.

The cornerstone of BP oil empire industry had been laid on Standard Oil of Ohio,

which was incorporated in Cleveland reported on January 10, 1870. In 1889, John D

Rockefeller forms Standard Oil of Indians, which will become Amoco. Within a decade

it will dominate oil refining and marketing in the US Midwest.

In 1870, Atlantic got into the business that would fuel its success: refining oil into

usable products. This success attracted the attention of John D Rockefeller added

Atlantic to his growing oil empire in 1874. At this time, Atlantics president at the time

is said to have urged his employees to go find the company some crude, and they

were making significant discoveries in the southwestern USA.

In 1901, English entrepreneur William Knox DArcy got exclusive rights to search

for oil in southwest Persia (Now Iran), and he discovered oil in May 1908. The Burmah

Oil Company joined DArcy with large capital supporting was in a Concessionary OilSyndicate in 1905 and supplied further funds in return for operational control. This was

the first commercially significant find in the Middle East. In April, 1908 the

Anglo-Persian Oil Company (APOC) was incorporated as a subsidiary of Burmah Oil

Company to exploit this. In 1923, APOC employed future Prime Minister, Winston

Churchill as a paid consultant, to lobby the British government to allow Burmah to have

exclusive rights to Persian oil resources, which were successfully granted. In 1935, it

became the Anglo-Iranian Oil Company (AIOC). The AIOC became the British

Petroleum Company in 1954. In 1987 the company obtained an interest control in

Standard Oil of Ohio.

During 1980s and 1990s, BP restructured a new management team. The British

government sold its entire holding in the company in several stages between 1979 and

1987. The sale process was marked by an attempt by the Kuwait Investment Authority,


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the investment arm of the Kuwait government, to acquire control of the company. This

was ultimately blocked by the strong opposition of the British government. In 1987,

British Petroleum negotiated the acquisition of Britoil and the remaining publicly

traded shares of Standard Oil of Ohio. In 1995, John Browne was appointed group chief

executive which responsible for three major acquisitions: Amoco, ARCO and

Burmah-Castrol.

British Petroleum merged with Amoco in December 1998, becoming BP Amoco

plc. In 2000, BP Amoco obtained Arco and Burmah Castrol plc. In 2001, the company

formally renamed itself as BP plc and remains in use today. In 2011, BP had its 60 th

anniversary. The Global energy is facing with breathtaking change in technology,

political and economic systems. Even the environment and culture are changed during

these 60 years.

Milestones

Bp has four steps for global reach, the first one is enhancing European position; the

second one is to be a leading marketer in the US; third one is critical mass in key

markets and bench-heads in high growth markets; and the last step is strengthened

global position. BP extraordinary growth period of the 60 years was clearly reached.(See Exhibit 1)

Redevelop the super-giant field in Southern Iraq by increasing production by more

than 10 per cent above the 1.066 million barrels a day is an initial product aim for The

Rumaila Operating for these years.

Bob Dudley, BPs Chief Executive, said: BP has a long history in Iraq.

Reaching this production milestone is a great achievement and underlines BPs success

in building its presence in the region. Increasing production at Rumalia, the worlds

fourth largest oilfield, has been a massive undertaking.

Ten percents improved production target in Iraqis is a break-through point for BP

to achieve by working in partnership with SOC, BP, PetroChina and the dedication of

their contractors.


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External Environment Analysis

Economics

The oil industry influences all the aspects of national and international economics.

The rising of the oil price means there is potential for U.S. economic growth. There are

three examples of oil and unleaded gasoline and the impact on last 3 years GDP growth

-- most recently forecast by the Federal Reserve to be between 3.4% and 3.9%. In

December of 2010, the price of oil would drop back to $89 a barrel. This would cause

the price of gasoline to decline to $3 a gallon and would lead to GDP growth of 4.1%,

roughly 0.5% increase. Back to very late 2009, the price of oil rising to nearly $100 a

barrel and the price of gasoline climbing to $3.50 a gallon due to ongoing instability in

the Middle East, but with Saudi Arabia is continuing to control its oil supply.

However, the price of oil relates to the U.S. GDP with citizens living level. In the

summer of 2011, the news reported the mass of vehicle owners of Britain did not use

their cars again because the price of gasoline was too high in Britain. As result, the

summer GDP of the U.K. was reduced around 0.3%. The oil industry decides the

energy stock market performance on a high degree. The excellent performance will

attract more investments then leads to a bull market situation. If everything turns to an

opposite situation, just like in late 2008 and early 2009, when the average pricedecreased to about $55 a barrel from $100, the financial crisis soon happened.

Technology

The main goal behind innovation of oil and natural Gas companies is to increase

recoverable reserves in order to increase production and economic benefits. The basic

technology innovation for the oil and natural gas industry can be separated into

exploration, innovation and drill innovation in the last century. The Most important

innovation that helps explore the oil and gas fields is the 3D seismic Technology. The

first time 3D seismic technology was available was 1967, it was much more expensive

than the outdated existing technology.

The Drilling process is also a sophisticated technology used in the oil industry,

because this part of innovation has to consider lots of facts (provided position,


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temperature, pressure, and porosity date while the borehole was being drilled).

Therefore innovations in technology took a long time to go from planning to

completion and implementation. This is seen especially when compared to the vertical

well drilling technology. Although Horizontal Drilling almost cost about 25 to 300

percent more than a vertical well, Horizontal Drilling has a higher production and less

environment footprint than the vertical one. More and more specific drilling systems

have been introduced that help reduce the environmental impact, and increase the

production process level of safety

Political-Legal

When it comes to the global energy/oil industry there are many different political

factors that affect the industry. The first major political institution most people would

associate with this industry is OPEC. OPEC is the organization of the Petroleum

Exporting Countries, and it was founded in 1960. OPEC has twelve member countries:

six in the Middle East, four in Africa, and two in South America. According to the

organization their goals are to to coordinate and unify the petroleum policies of its

Member Countries and ensure the stabilization of oil markets in order to secure an

efficient, economic and regular supply of petroleum to consumers, a steady income toproducers and a fair return on capital for those investing in the petroleum industry.

Many of the countries in this organization are located in the Middle East, and this

organization has helped these countries with political diplomacy with its consumers all

over the world since its inception. This organization has been an integral part of the

world economy because of the huge nature of these corporations, and it most definitely

affects the global oil/energy industry in many huge ways.

On the topic of the American oil industry, there is the American Petroleum Institute,

which is also referred to as API. Organizations goal is to bring together the different oil,

natural gas, gasoline, diesel and other energy related companies across the United

States. To this day, API consists of about 400 corporations. OPEC and API are made up

of many different companies and organizations alike. These all need political

intervention to help keep the world industry regulated and in check. Without political


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measures, these companies would potentially be able to monopolize the industry, create

unfair pricing and at the same time avoid the environmental worries that are associated

with oil and gas industries. In the next few years, the importance of all of these political

aspects will rise to change the way the world looks at oil and gas industries.

Socio cultural

World natural gas consumption grew most rapidly increasing by 7.4% since 1984.

The consumption growth was above equal in all regions except the Middle East. The

US had a new high record which rising by 5.6%; was the largest increasing natural gas

consumption in the world. Russia and China registered large increases-the largest

volumetric raise in the countrys history in each case. Global natural gas trade has risen

by 10.1% in 2010. With more new renewable energy, such as hydroelectric and nuclear

development and using, the increasing demand trend of Oil and Gas have become

slowly than usual.

People concerned more about the environment development and protection. Even

oil and gas still is a necessary energy trend in the global world, people and local

commitment are concern about sustainable and meaningful local resource and

authorities to develop local energy industry.

The bargaining power of suppliers

The supplier power for BP is likely to be high when the supply market is stable,

less out competition threaten, powerful brand, and forward integration provides

economies of scale. Then all of the forward discussions can be evidence to indicate the

bargaining power of suppliers in the Oil and Natural Gas industry is very high.

The threat of the entry of new competitors

The threat of the new entrance competitors is low. An Organization of the

Petroleum Exporting Countries (OPEC) represents a role for stabilizes the oil price in

international oil market. Integrated oil companies, independents oil companies and

National Oil companies are mainly operating oil industrial segments from exploration,


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refining, marketing, and retail. In order to enter the industry, a company needs large

capacities, proprietary technology, or channels of trading and transportation try to

compete with other oil companies. In addition, keeping high fixed cost and good

relationship with upstream, midstream and downstream are important for new entrance.

Thus, it is hard to make new players entry the oil industry not even to compete with

them.

The intensity of competitive rivalry

The competitive rivalry of the oil industry is low. The oil industry always attracts

public attention. However as an un-renewable nature resource, the most oil industry

market segments are occupied by the national government and some international

organizations like OPEC. The product chain is complex and long, each competitor is

hard to compete with rivalry for all chains of product, such as exploitation, refining and

shipping. Each competitor has similar technological level and qualities of oil, it is hard

to large changes without government or organizational limitation.

The main competitors in the oil industry include BP, CVX, CONFO, OPEC, CNPC,

XOM and so on. Most of these companies or organizations implement the production

chain. The process of upper stream with exploitation and exploration, mid-stream oftransportation, and lower stream of retail and service are contained in the whole

business progress of companies running. Besides the great finance supports, the

industry companies running is also need high technologies. The solid entry barriers of

the oil industry decide this industry is more like monopolization. The competitive

intensity is also relatively weak.

Competitor Analysis

In the league of large oil corporations, there are only a few in the same range as BP.

These other corporations, along with BP, are sometimes referred to as the super major

oil companies. They are comprised of large, global and highly specialized companies.

They are BP, Chevron Corporation, ExxonMobil, Royal Dutch Shell, Total S.A. and


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Conoco Phillips. For this analysis we will be reviewing the performance of BP with that

of ExxonMobil (XOM) and Chevron Corporation (CVX). The measures that will be

used are the Debt to Equity percentages, Current Ratios, Gross Profit Ratios and

Earnings per Share for the years of 2006-2010. Also the most current Market

Capitalization figures will be used to assess BPs current financial position.

ExxonMobil as well as Chevron are both American multinational energy

companies that focus mainly on the upstream aspects of oil and petroleum based

products, development and research for finding cleaner and more efficient fuels as well

as fields like natural gas and chemical additives. Being such large companies, these oil

producers have a huge employee base that reaches across the world. According to their

annual reports ExxonMobil, BP and Chevron employ 82,000, 79,700 and 62,000

personnel respectively. Chevron and ExxonMobil both are powerhouses in this industry,

they are competent in many different areas of both upstream, midstream and

downstream production of oil and other associated energy products like natural gas,

chemical additives or alternative fuels to replace petroleum based products. BP is also

strong in many of these areas, but its main weaknesses come from organizational

structure and issues in communication across all of their business units. These issuesresult in potentially dangerous events such as the Texas City refinery explosion or

Deepwater Horizon explosion/ massive contamination of the Gulf of Mexico. If these

structural issues are not straightened out and communication is not improved, BP will

be left behind in the industry with only its accidents to show for itself. These other

companies have had accidents, but nowhere near as many as BP has had to claim

responsibility for. The accidents BP has had have caused deterioration of the view of BP

in the public eye, as well as take a toll on its financial results over the past five years.

When looking at the financial statements for the past five years (all figures come

from the 2010, 2008 and 2007 annual reports for each company) BP is continually at the

bottom of the results, when looking at BP, XOM and CVX. The first area that was

assessed is the liquidity, or current ratio, of the three companies. This measure is a way

to tell how each company is able to meet its short term obligations. BP is the most stable


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of the three, but also the worst performing over the past five years, its current ratio

varies only between .951 and 1.14 meaning that the company usually is hard pressed to

meet its short term liabilities. (See graph below) XOM went from a very liquid state in

2006 to a continual declining state in 2010 with a current ratio of .942. CVX was very

liquid with its assets and saw only a small decline and then a large accent to having a

ratio of 1.683.

Continuing with the financial calculations is the Debt to Equity % which illustrates

what percentages of the companys finances are backed with debt. BP is again the

lowest performing company in this metric. Its finances from 2006-2010 are funded

with between 20 to 23 percent debt. XOM is the lowest continual leveraging percentage

with a slow increase to 9% in 2010. CVX isnt far behind XOM in this category; these

competitors both finance their operations with a lower amount of debt than BP.

This trend continues on to the market standing of BP in relation to XOM and CVX. The

Earnings per Share of XOM and CVX follow roughly the same trend with a large

variation between their 2008 and 2009 financial years, with CVX on top with a peak

EPS of $11.74 and XOM with a peak of $8.7. BPs performance in this category is very

low; it is a declining trend with a high of $1.09 per share in 2006 to a low of $(00.19)

0.600

0.800

1.000

1.200

1.400

1.600

1.800

2010 2009 2008 2007 2006

CurrentRatioXOM

CVX

BP

0.00

5.00

10.00

15.00

20.00

25.00

2010 2009 2008 2007 2006

DebttoEquity(%)XOM

BP

CVX


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per share in 2010. This poor standing among BPs competitors continues, the market

capitalization of BP is the lowest out of the three companies with 134.7B in market

capitalization while XOM currently reports 373.2B and CVX with 199.31B. (See

Exhibit 5)

For the financial year 2010, the only category that BP excels over both of the competingcompanies being referenced is in the gross profit ratio. But if this ratio is viewed for the

past five financial years, BP has the most extreme changes out of the three companies.

It has a range between 1.016 and the high of the three with 1.04. Both XOM and CVX

follow a similar pattern, much like they did with the EPS calculations for those years.

These competing companies had a more stable range between their highs and lows,

which shows that these companies are more stable with their sales and gross profits.

That then shows that BP, if they do not change something with their infrastructure and

communication methods will keep having these large fluctuations between financial

years.

This financial analysis is one large indicator that BP is in a struggling structural state.

With its low performance across the board, when comparing BP with XOM and CVX,

2

0

2

4

6

8

10

12

2010 2009 2008 2007 2006

$/Share

EarningsPerShareXOM

CVX

BP

1.0101.015

1.020

1.025

1.030

1.035

1.040

1.045

2010 2009 2008 2007 2006

GrossProfitRatio

XOM

CVX

BP


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the need for something to be done with the company is very apparent. With an

organizational culture that is aimed at doing everything rapidly, without regard for rules

and regulations, BP is destined to keep reporting sub-par financial figures and also to

keep experiencing large scale accidents that provide major losses to the company.

Internal Environment Analysis

Marketing analysis

The company's present assets are about $200 billion, with the millions of

shareholders. 1.1million employees work for the company all over the world. BP has

production and operation activities in many countries. BPs strategic focus is on

holding a portfolio of quality, integrated, efficient positions and accessing available

market growth in emerging markets. The objective has been to improve our

performance by focusing on achieving safe, reliable and compliant operations,

restoring missing revenues and delivering sustainable competitive returns and cash

flows.

In the 2010 market strategy of BP, the company was going to pay more attention on

the refining products. The group had the strategy which includes stronger refining

margins, strong operational performance in fuels value chains, continued momentum in

international businesses, further cost efficiencies, and loss in supply and trading.

Bps main products are oil relative products include fuel, lube, polish, petroleum

based, and other associated chemical products. The customer group divides to two parts,

individual customers and the commercial groups. Gas station, vehicle owner,

transportation companies, and chemical oil production companies are all the customers

of BP. The product retails are also from multiple channels. Besides they own their gas

stations, BP also cooperates with the governments all around the world, for example,

BP chemical companies support the governments road construction. In addition, the

international trading is also a large part of BPs business. As the one of the Worlds

largest oil companies, BPs crude price always influences the world oil price.

In the past 30 years the price experienced the large scale fluctuation with the

international oil price trend. BPs promotion method is very famous. Because of the oil


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industrys environment issue, BP promotes the environment protection and social

welfare. In the past 10 years, BP helps the third world countries build more than 3000

schools; subsidize poor families children to continue their studies. When disasters

happen, like the Indonesia tsunami in 2004 and Japan Fukushima earthquake in 2011,

BP contributes large amount of material assets to support the peoples temporary

placement and rebuilding. In addition, BP also keeps planting activities for more than

10 years. Because of these activities, BPs reputation in the world is very nice.

Research and Development (R&D)

BP strategy of R&D is growing long-term value by continuing to build a portfolio

of enduring positions in the worlds key hydrocarbon basins, focused on deepwater, gas

and giant fields. This will be enabled by strong relationships built on mutual advantage,

deep knowledge of the basins, technology and the development of capability along the

value chain in exploration, development and production. BPs R&D is moving towards

their promotion ideas environment.

Because of the nature of the oil industry, BPs main research and development

topics are non-carbon and refining. BP has its R&D department, and also cooperates

with labs and universities. BP spends over $1 billion each year on research anddevelopment. Companys Naperville, Illinois Technology Complex in suburban

Chicago is at the heart of our U.S. R&D effort, providing the emerging technologies for

Refining and Marketing operations. The work will involve conducting pilot plant and

laboratory experiments to discover and define new and better chemical processes;

designing experiments and overseeing technical support staff; analyzing results and

discovering ways to make the current and new processes more profitable.

BPs approach to a lower-carbon future is also a very important topic in the R&D.

This topic shows the BPs development orientation in the future. Through the

low-carbon research, BP can increase the energy efficiency within BP operations, and

also reduce their investment of carbon or their cost. In another word, the low-carbon

research is promoting lowest-cost energy pathways. This is a totally new method of oil

processing industry, but if it succeeds, it will bring great revenue to more than BP. The


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technology can be a revolution of the oil industry. Besides the core technologies

assessed above, BPs continual investment in Alternative Energy field includes biofuels,

wind, solar, carbon capture and sequestration (a kind of carbon purification technique).

Finance

BP is strong in its financial operation. It has different size, scope and sheer

importance of finance. Finance isnt a simple support function. Finance is right at the

very heart of our operation, making the rest of the business tick. In BPs finance

framework, its strategies are increasing investment to grow the firm, resumption of the

quarterly dividend, financial flexibility, and the quarterly dividend level.

Under these strategies, BP produced 4 million boe (barrels of oil equivalent) per

day in 2009, an increase of 4 per cent on 2008. In the next two years 24 new major

projects will reach final investment decision. BP intends to start up a total of 42 new

major projects between 2010 and 2015, expected to contribute about 1.0 million to total

production by 2015, more than offsetting the decline from currently producing fields.

From the 2010 annual report, although BP met serious problem in 2010, the company

still earned the income of 447 million dollars in 2010, and the loss in continuing

operations was only 3,324 dollars. In the four years before 2010, BP kept earning profitno least than 16,000 million per year. The information shows BPs risk management

was perfect; it helped the company avoid the large loss and build the base of the

company recovery.

The past two years stock market performance of BP shows that BPs price was

stable until April to September 2010 (See Exhibit 2). After April 2010, the price met a

serious drop and retreated in the September. But the price cannot go back to more than

$60 per share. The attribute after 2010 is good, steady trend refers to a nice performance

in BPs financial field. Now, BP is developing at a fast pace, the new technologies

research will also bring BP to be a more powerful and competitive force in the oil

market.

Human Resource


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Human Resource occupies a key place in BP. It provides a basic daily routine

supports. By improving the organizational capacity, and provide the necessary

resources that can help BP achieve the business goals. BP invented a HR management

method T-management, and the effect is extraordinary. The so-called

T-management refers to the free sharing of knowledge within the company (T

horizontal section) which can share the resource and communicate the ideas to

maximize the resource and technology use and create the knowledge value. And the

vertical section of T focuses on a single business unit performance which can contribute

to enhance the quality of the company component.

BP related "security" into BP's idea, this "security" expressed in their workers life

and health, working environment safety, and relative aspects. Because of the largest

part of BP is exploiting crude, so the job is a high risk job. Small mistakes will take

workers life away. So BP does its best to protect its workers. In addition, for the correct

development of the company, BP allows all employees to talk about the business to get

large verities information to lead the company. Because BP is an international company,

the human resource will include the cultural difference. BP companies in different

location show totally different culture feature. Culture openness make BP executive

level can collect a lot of viewpoints from people all over the world. And also theextension of international market will face less culture barriers. All in all, BP uses the

idea of fair and openness in its human resource management. The open environment

makes the company be the fifth of the Fortune 500 Headquarters.

Current BP Business Model

Cost Lever Analysis

The major costs components of BP Company are research and development cost,

exploration cost, Acquisition cost, and human resource cost. The exploration costs are

including construction, installation and completion of infrastructure facilities such as

platform, pipelines and the drilling of development wells. Research and Development

costs have increased about 33 percent in 2010 compared with the data from 2009.


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There was a rapid growth in expenses because of the Gulf of Mexico oil spill. After

the Gulf of Mexico oil spill, BP established a 10 years and about $500-million

open-research program that looks into the effects of the spill. Also BP invested more

money than usual in the exploration to try to avoid risking the drilling of a well that

wont produce. The Acquisition cost has been decreased, because BP made about

40,858 million dollars for the Mexico oil spill response. Human Resource cost includes

employees salaries, retirement benefits, and etc. As the chart showed the H&R cost is

very stability, which means the BP company is very care about the employee'(See

Exhibit 3).

Revenue Lever

The companys revenue is mainly generated from two business segments. One is

the Exploration and production segment. Through this segment, BP engages in the

search for undeveloped oil and gas reservoirs, the development of reservoirs, and the

production and transportation of oil and natural gas from developed wells. The

upstream and midstream activities in this segment have been expanded in 29 countries

in 2010. The other one is refining and Marketing segment. Through this segment, BP

processed crude oil into refined petroleum products and selling those products towholesalers and retailers located in over 100 countries around the world. Through their

strong dealer network, BPs products have been distributed in 22,400 gas stations in 80

countries.

The company has enough ability in expanding their business and marketing their

products in the world range. With the adequate oil and natural gas reserves, it is easier

for BP to earn market share and compete with the other oil companies. Some

uncontrollable factors might include the demand of the oil and natural gas, the decrease

in fossil fuel prices and some unpredictable accidents.


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The chart above showed the companys revenue change from the last five years. In

2010, the company has lost$40.8 billion because of the Gulf of Mexico exploded.

However, due to the increasing crude oil price, it drives up the sales of 2010 by 24%

compared to the last year. Although the Gulf of Mexico explosion might take many bad

effects on BP, such as the decreasing trusty and bad financial performing, their revenue

lever still has a lot of strength compared to their competitors. They have the big market

share over the world, and they have a good brand image which established for a long

time. That all makes BP becomes more powerful and outstanding in this industry.

Compare the revenue between BP and their competitors, Bp has lead position (See

Exhibit 4).

Innovation lever

As the global expectation of the energy demand from 2011 to 2030 will increase

50%, and 85% of the increasing demand is coming from fossil fuels. Under this

situation BP made several innovations to achieve the demand. For example the seismic

imaging technology which is use the newest seismic technology to research the detail

underground environments. Exploiting digital technologies to improve performance

and optimize production. To ensure the quality of the crude oil, BP Company set up

several researches and development centers in some universities in Naperville, Illinois

in US to increase the safety and reliability of the production. BP also developed many

systems and technologies to help refineries characterize the components of their crude

oil. With those systems BP Company can track their production mixtures, and also

understanding the feedback improved BP Companys brand image.


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BP has a leading technology position on the ultimate oil clean technology. BP

Ultimate can clean up to four times more than conventional fuels, which would

decrease the damage to the customers engine. BP corporate with KBR and licensed

BPs Veba Combi Cracking (VCC) technology for slurry phase upgrading of refinery

residue, coal slurries and heavy oil. BP is also one of the few companies in the world

can provide Fischer Tropsch technology, which is a high efficiency oil and gas

converting system. BP also pays special attention the alternative energy investment like

wind power, solar power and other non petroleum based energy sources

In fact BP is currently providing service for business and home using solar power

systems. BP has a large amount of great innovations; the most dominant one for the

company is still increasing the efficiency of the production of the nature gas and oil.

The investment for the new alternative energy is also trend to increase, because CO2

emissions have become a serious challenge in the world. Also recent investments for

the R&D program are a 500-million open research program in Mexico to monitor the

spill influence. A very great innovation strategy BP current enrolls is to set up the

research programmers with major universities and research institutions around the

world. With this strategy BP not only can keep the technology leading with the continue

innovations, but also help BP rebuild the brand reputation.

Growth Lever

BP is currently in the sixth position among the oil and gas industry. In the upstream,

BP is leading the group cutting the production cost. Compare to the 2009 and 2008,

BPs unit costs is decreased about 12%, and the decreasing trend is still continuing.

From the downstream, with BPs efficiency initiatives, BP has decrease its cash costs

by more than 15% in 2009. The cash cost is basically maintain acquisitions, distribution

channels, R&D investments.

In March 2010, BP successful grows its portfolio of assets through acquisitions

with Devon Energy which enhance its position in core strategic areas. Technology

innovation strategy is accelerating BPs Global growth. With the leading technologies

in some major parts, like production, oil and gas convent technologies, enhance BP


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Companys competitive advantages in the global wide. With high focus on the customer

feedback and tracking services, BP creates a very positive image inside of the

customers mind. Sustainable production, and high environment responsibility also

help BP gain the support of the environmental community.

The key strategy for BP Company is still improving efficiency of the production,

and to also be cost effective. BP Company would focus on four major parts to achieve

this strategy. The first one is planning and execution, the second is turnarounds and

projects, then is the contractor management, finally is to control the sourcing and

energy efficiency. To improve the efficiency, BP is going to improve the manufacturing

efficiency through the R&D. Also BP focuses on the supply management and

procurement to cut the transportation cost. From the acquisition and merges BP

Company also get many well drilling political licensing. The key mergers and

acquisition companies BP has are Veba Oil, Amoco, ARCO, Burmah Castrol, TNK-BP.

All of those are doing a great job in the BP Company. For example BP Amoco lead

United States gasoline retail share with 14% market share in 2010. And also ARCO is

leading US West Coast retail network.

Strategic Alternatives

One of the headquarters of BP is London, which will hold 2012 Olympic and

Paralympics Games. This provides both great opportunity as well as challenge. BPs

London 2012 vision is to use the power of the Games to inspire change and to provide

real solutions for a lower-carbon future.

BP has advocated a proactive approach to climate change and supported action to

curb carbon emissions during these years. However, a diverse energy mix should be

incorporated all available sources in the world from oil sands to solar and leverages

investment in technology. The mixing resources and technologies will be required to

deliver energy security and to lower CO2 emissions.

However, in 2010, BP experienced the Deep-water Horizon oil spill issue, which


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happened on April 20, 2010. A Deepwater Horizon drilling rig was rocked by an

explosion and large fires which sank the rig into the Gulf of Mexico causing the death

of 11 employees. The spill caused extensive damage to marine and wildlife habitats and

to the Gulfs fishing and tourism industries. This event caused a large drop in BPs

stock price and caused BP to lose extensive amounts of money, potential revenues,

resources and also have a heavily damaged reputation.

Because of these recent events like the Deep-water Horizon drilling rig accident,

the current strategy is one that we as the NMG agree with. It is a 10 point plan that is

found in BPs 2011 Investor Update. Seeing as it is so recent, the current plan addresses

many, if not all of the issues that we have presented in this report. The 10 point plan is

as follows.

1. First and most importantly, we will continue to have a relentless focus on safety and riskmanagement.

2. BP will build on its distinctive strengths areas where we have deep-seated experience andproven capability: exploration; deep water; managing giant fields and gas value chains;

operating our world-class downstream business; building relationships and developing

technologies.

3. We will be a stronger and more focused BP with a base of assets which is high graded and highperforming.

4. BP will be simpler. Our organization is already much more standardized. And our internalreward and performance processes are more streamlined.

5. There will be greater visibility of the value we are creating. Beginning next year, we will breakout the numbers of certain parts of our businesses, such as lubricants and petrochemicals in the

downstream.

6. Active portfolio management to build value will continue. In addition to the current $30bndivestment program, we intend to divest a further $15bn of assets by the end of 2013. Planned

divestments will result in a total of $45bn. This includes the sale of two US refineries

announced earlier this year.

7. We have a strong list of upstream projects coming on stream over the next three years. By 2014,unit cash margins on production from this new wave of projects are expected to be around

double our existing average.

8. We will grow our cash flow. You can expect us to generate an increase of around 50% inadditional operating cash flow in 2014 compared to 2011 at an oil price of $100 a barrel

approximately half from ending Gulf of Mexico Trust Fund payments and around half from

operations.

9. BP will use this additional operating cash prudently. We want to use around half for increasedinvestment in our project inventory for growth and around half for other purposes. This would


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include increased distributions to shareholders through dividends and buybacks, as appropriate,

or repayment of debt.

10. The strength of our balance sheet will be enhanced. We will move to the lower half of the 1020%gearing range.

Proposed NMG Business Model

As the new managing group for BP, we propose to use the 10 point plan that is

new this year (2011) and we also believe that this strategy will help BP come out of the

situation it is in and be able to become the leader in the global oil industry. The short

term goals that we have set for the company are to ensure all damages we have caused

from the Deep-water Horizon spill are fixed, to improve our safety and capability to

manage risk in new operations and lastly to restructure the company to allow for better

communication between business units and more stability in decision making and

fiscally. This 10-step plan that was offered by the current BP management places these

goals among the top priorities. For long term goals, we believe that the company should

keep working on many of the short term issues to become the leader in the industry, also

the most important save money when it can and also do as much as possible to raise

their fiscal and market standing. This 10 step plan will allow for more structure and a

simple design, this will help communication in the company and allow the change for

higher safety standards to happen more easily. This more simple structure will also

allow for the company to focus more on making sure its making use of its extensive

asset base to increase the company image as well as cash flows in the years to come.

The issues concerning this new plan come from the company simplification and

restructuring that is planned. This will affect every aspect of the company and will thus

be hard to implement because BP is such a large company. The changes, or 10 step plan,

will be implemented in phases over the next five years. This will make the burden of

such large changes less on the individual business units and allow them to fully make

the changes that are needed to have BP succeed as one of the worlds largest oil

producers.


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Exhibit1a

Exhibit1b


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Source:Companydocument

Exhibit 2

Stock price from 2009 to current

Exhibit 3


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Exhibit 4

Exhibit 5

Exhibit 6

0

5000

10000

15000

20000

Resarchand

Development

cost

exploration

cost

Acquisition

cost

human

resourcecost

2008

2009

2010

0

50

100

150

200

250

300

350

400

Billions

Asof11/17/11

MarketCapitalization

XOM

CVX

BP


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s/B/Burmah_Castrol__BP_Strategy_Presentation.pdf

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612

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Hayward,

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