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What we know today as British Petroleum is the result of several companies being bought and sold over many years. One of the companies, Standard Oil Company was created in 1870 by John D. Rockefeller in Cleveland Ohio. By 1892, while still not selling gas products, Standard Oil companies was providing lubricating products to keeps parts on horse drawn wagons moving friction-free.
One of the other companies, the Angelo-Persian Oil Company was formed in 1905. By 1908 they were producing gas products and in 1912 they discovered a way to double the output of gasoline produced from a barrel of oil. At the same time they were able to find a way to increase the octane level of the gasoline produced.
Today, British Petroleum is one of the largest energy companies in the world. They provide their customers with fuel for transportation, energy for heat and light, retail services and petrochemical products for everyday household use. British Petroleum is involved in exploring for oil and other natural resources that can be converted into power. British Petroleum is committed to finding fuel sources that reduce green house gases and reduces the carbon footprint. They hope to accomplish as they research and refine alternative fuel sources such as fossil fuels, solar power, wind power, hydrogen, and natural gas.
Competition in the oil and energy industry is furious. British Petroleum competes with companies like Exxon-Mobil and Chevron in three major sectors; Energy and Utilities, Chemicals, and Retail. These major players have been able to keep the competition high by finding economies of scale in production, and finding more and more ways to automate the processes.
The output in the industry is expected to grow at an annual compounded rate of 5-7 percent between 2007 and 2012. Domestic production was slow in 2007 as compared to 2006 rising 0.5 percent. This is the slowest production rate since the last U.S. recession.
Return on equity:
22.2%----2007 26.4%----2006 27.4%----2005
Return on equity has decreased over the last three years and as much as 5%. Despite the decrease, BP is right on track with than the industry average of 22%.
Return on asset:
8.8----2007 10.3----2006 10.6----2005
The ROA has decreased over the last three years and is less than the industry average of 13.8.
Book value per share:
$29.71---2007 $26.02----2006 $23.14----2005
The industry average of $36.26 per share, indicating that BP has less assets to be able to turn into cash.
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BP would probably get more investors if they were to increase this number.
11.3----2007 10.1----2006 10.3----2005
Although there is no significant difference in the P/E ratio, the earnings per share of BP have increased almost 30% in the last five years and BP’s P/E ratio is 41% of the industry (www.fidelity.com).
Net profit margin:
7.2%----2007 8.1%----2006 8.9%----2005
Net profit margin has slightly decreased over the last three years, yet remains to be over 5%, the rate at which many investors consider to be a good position. Compared to the industry, BP’s profit margin is well below the average and 4% below Exxon Mobile.
3.5----2007 3.4----2006 3.3----2005
BP’s dividend yield has made it a very attractive investment and currently at around 5%. Columbine believes the company to be undervalued by Wall Street standards, expecting higher future earnings.
$2971----2007 $(13)----2006 $3793----2005
In the last year, BP has proven to be able to cover obligations once due.
1.04----2007 .999----2006 1.05----2005
The current ratio being above 1 is a good indicator that the company’s short term debts are less than its assets showing that it is in a good financial position.
Financial Leverage Measures
33%----2007 28%----2006 24%----2005
Although the debt/equity ratio has increased over the last three years, 33% is an acceptable rate and is above the industry average of 22%.
.6----2007 .6----2006 .6----2005
BP has held constant the debt ratio and has proven to be able to maintain its debt payments. According to Compustat, its debt is typical for the industry.
Total asset turnover:
1.22----2007 1.24----2006 1.18----2005
BP has done a great job historically of turning over its assets to sales and is comparable to the industry average of 1.2.
The following charts display BP’s stock analysis along with BP’s two major competitors:
Bid (Bid Size)
N/A (N/A) (O)
Ask (Ask Size)
N/A (N/A) (P)
63.72 - 64.85
57.85 - 79.77
Last Trade Volume
Block Trade Count
Ex Dividend Date
Source: Merrill Lynch
CHEVRON CORP COM (CVX)
Bid (Bid Size)
N/A (N/A) (P)
Ask (Ask Size)
N/A (N/A) (O)
91.50 - 93.31
76.40 - 104.63
Last Trade Volume
Block Trade Count
Ex Dividend Date
Source: Merrill Lynch
EXXON MOBIL CORP COM (XOM)
Bid (Bid Size)
N/A (N/A) (O)
Ask (Ask Size)
N/A (N/A) (O)
84.48 - 86.47
77.55 - 96.12
Last Trade Volume
Block Trade Count
Ex Dividend Date
Source: Merrill Lynch
Looking at P/E alone BP would not be a wise investment; however, factoring in the dividend yield and beta values, BP becomes a relatively stable company. Merrill Lynch defines the term “beta” as:
A value that measures a fund's relative volatility, as compared to a standard market index, such as the S&P 500. (By definition a market's beta will always be equal to one.) A Fund with a higher beta (more than 1) is more volatile than the market.
Because BP is such a stable company, analysts recommend either holding onto the stock or buying more throughout the fiscal year. The following graph shows analysts ratings found on MSN Money:
Recommendations Current 1 Month Ago 2 Months Ago 3 Months Ago
Strong Buy 8 8 9 9
Moderate Buy 0 0 0 0
Hold 3 4 5 5
Moderate Sell 2 2 1 1
Strong Sell 0 0 0 0
Mean Rec. 1.92 2.00 1.87 1.87
The graph below displays BP’s stock prices over the last year.
British Petroleum is the second largest oil and gas company operating today in the United States today based on market capitalization. British Petroleum enjoys providing gas and crude oil to more than 100 countries. Today the company has more than 13 million customers by providing product to more than 28,500 service stations around the world on a daily basis.
British Petroleum has integrated operations in both the upstream and downstream oil business. The company has three main business segments that they operate through, exploration and production; refining and marketing; and gas, power and renewables. These vertically integrated operations provide advantages to British Petroleum through the entire value chain.
British Petroleum has a very widespread source of revenues. This helps British Petroleum reduce the impact of market volatility and provides the company with economic stability.
British Petroleum has several weaknesses that are having an impact on their operations. British Petroleum’s crude oil and gas reserves have declined significantly over the past several years. This has had an negative impact on their operating margins.
British Petroleum has also seen in a decline in their revenue per employee over the last several years as compared to their competitors. The weak revenue per employee of the company compared to the competitors indicates its weaker productivity and operational efficiency.
The company is well positioned to focus on the increasing need for natural gas. This will allow them to tap into these resources to help meet the increasing need for natural gas on a global perspective.
British Petroleum is also positioned well to meet the increasing need for oil in China. This opportunity will be short lived as China ramps up its own production over the next three decades.
There is an increasing need for jet fuel. Air BP, a specialized fuel and lubricant division of BP is one of the world’s largest suppliers of aviation fuel, supplying over 488,000 barrels per day.
There are three major threats that exist today. One is the saturation of the drilling efforts in the North Sea region. More and more dry holes are being drilled today. This is a region where BP has significant drilling operations.
Another threat is the instability we see in many of the oil rich regions such as Africa, the Middle East, and South America.
Lastly there is the environmental threat. Regulations continue t o hamper their ability to drill in some locations. The major environmental threat is the Kyoto protocol for the reduction of greenhouse gases. BP already has a weak record in this area and can not afford more stringent regulations that may impose new liabilities to them.
"Compustat Company Research." www.fidelity.com. July 11 2008. Compustat. 13 Jul 2008 .
"BP plc (ADR)." www.fidelity.com. July 11 2008. Columbine Capital Services. 13 Jul 2008 .
"Ned Davis Research Evaluation." www.fidelity.com. July 3 2008. Ned Davis Research, Inc.. 13 Jul 2008 http://research2.fidelity.com/fidelity/research/reports/pdf/getReport.asp?dockey=5010-BP-RFSHI6EVC24S524BPGEBMOJF7&docTag=BP&version=2RFSHI6EVC24S524BPGEBMOJF7&feed=5010>.
"Benefits Online." Merrill Lynch. 14 July 2008. ILX Systems. 14 Jul 2008 .
"BP ADR Each Representing Six Ord Shs: Analyst Ratings." MSN Money. 14 July 2008. Zacks Investment Research. 14 Jul 2008 .
British Petroleum (BP): SWOT and BP Porter Five Forces Analysis – Essay
John | September 6, 2017
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SWOT and Porter Five Forces Analysis of British Petroleum (BP)
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WritePass Sample Essay – Abstract
BP Porter Five Forces – BP Plc is one of the leading oil and gas companies in the world operating in more than 80 countries and serving close to 13 million customers. The company was ranked third in the FTSE 100 all share index ranking as at the close of 31st August, 2014 with a market capitalization of 82,093.2, million US Dollars. BP’s major strengths include strong brand recognition, massive financial capability, excellent corporate strategy, and the ability to innovate. Global reduction in the production of crude oil and natural gas, poor disaster management and inability to implement long-term regulatory mechanisms are the company’s key weaknesses. The company has the opportunity to invest in alternative energy even though it faces significant competition from key rivals such as Royal Dutch Shell, Exxon Mobil and Chevron. BP Porters Five Forces Analysis of BP reveal low threat of new entrants and substitutes, medium bargaining power of both buyers and suppliers, and high rivalry among existing competitors. To remain competitive, the company should increase strategic investment in R&D, negotiate with governments and other firms to exploit emerging markets, rebuild its brand value and streamline its production and business operation.
WritePass Sample Essay – Introduction
Founded in 1908, British Petroleum (BP) is one of the leading oil and gas companies in the world. The company operations in more than 80 countries, has over 83,900 employees and serves over 13 million customers globally (BP Plc, 2014). The company provides customers with oil and gas products, fuel for transportation, petrochemical products and energy for light and heat. With a market capitalization of 82,093.2, million US Dollars, BP was ranked third in the FTSE 100 all share index ranking as at the close of 31st August, 2014 (Stock Challenge, 2012).
BP’s interests and activities can be categorised into two core business segments: Refining and Marketing and Exploration and Production. The Exploration and Production segments cover upstream and midstream activities which include exploration, production, pipelining, and processing. Refining and Marketing segments cover downstream activities such as crude oil transportation, manufacturing, marketing and supply of both petrochemical and petroleum products and services (BP Plc. 2014).
WritePass Sample Essay – BP SWOT Analysis
BP’s key strengths are its strong brand recognition and massive financial capability. Being the third largest energy company in the world, it is globally acknowledged for high quality petroleum products. Additionally, with an expected total operating cash flow of 2014 at $30 billion, the company’s strong financial position gives it the opportunity to introduce new products, develop alternative energy, and expand to new markets (Reuters, 2014). Regarded as one of the best in the world, the company’s corporate strategy is also a notable strength. This, coupled with its strong brand loyalty, enabled it to emerge from the devastating deepwater horizon oil spill of 2010 (Reuters, 2014). The company’s ability to innovate and enter into strategic ventures with other governments and corporations in new markets is another key strength. In 2013, BP entered into a strategic alliance with both China and the US to provide alternative solar energy to a number of government agencies.
A global reduction in the production of crude oil and natural gas is a key weakness of the company. Poor public image as a result of the North Alaska and deep-water oil spills also led to serious challenges for the company. Not only did it face criminal charges, it spent an estimated $42.2 billion in cleanup and compensation (Reuters, 2014). Another key weakness is its non-competitiveness in the alternative energy sector. Despite being a major player in the oil industry, majority of consumers are still unaware of the company’s involvement in alternative energy (Bamberg, 2000). The inability to implement long-term regulatory mechanism to cushion it from the highly volatile petroleum prices is also a key weakness of the company.
BP’s profits and its current strong financial position present an opportunity for the company to initiate new projects. The company’s biggest opportunity is investing in alternative energy. The BP Solar Home Solutions initially introduced in New York can be expanded into other regions especially within the American and European markets. This will guarantee the company more customers who prefer the less costly solar energy. The company also has an opportunity to expand its export markets to Asia and South America. Discoveries of more oil wells and increasing prices of oil and gas are additional opportunities that the company can take advantage of (Smith, 2011).
Major players in the oil and gas industry especially the Royal Dutch Shell, Exxon Mobil, and Chevron pose the greatest threat to BP. The implementation of environmentally unsound policy and poor management of natural disasters such as the toxic spills often disrupt the company’s operation (Bruland, 2003). Other threats include, corrosion in BP’s pipeline network, occasional refinery explosions, multiple lawsuits emanating from ecological disasters and the continued sale of BP’s corporate owned stations. Declining operations in several potential locations and the tensions associated with operating in the oil business are also potential threats (Black, 2011).
WritePass Sample Essay – BP Porter Five Forces – Analysis
Porter (1980, p. 80) outlines the five forces model to analyze an organization’s competitiveness. These include threats of entrants, bargaining power of suppliers, bargaining power of buyers, threats of substitutes and rivalry among existing competitors. The oil and gas industry in which BP operates traditionally require massive financial investments in very expensive infrastructure. Huge capital investment is necessary to cover expenses such as building pipelines, drilling wells, building access roads and acquiring land. BP has an asset value of $236.0 billion (Honnungar, 2011). Considering the cost of market entry and economies of scale in the industry, the threat of new entrance is low.
There are a number of substitute products such as hydroelectricity, nuclear energy, coal, wind power and solar energy. However, most are still in the developmental phase, besides, the cost of production of substitute products is often extremely high. The importance of oil in fuelling cars, running industries and generating electricity makes it essential and useful to sectors of the economy (Ferrier, 2009). Threats of substitutes are therefore, low since alternative products are less competitive. The oil and gas industry have considerable number of suppliers ranging from private corporations to governments. There are also a number of potential buyers similar to BP. Besides, BP’s vertical integration in its operations is similar to that of its key competitors (Stiel, 2003). The bargaining power of suppliers is consequently rated as medium.
The products offered by players in the oil and gas industry are often not much different from those offered by their competitors. As a result, buyers tend to choose products with either lower prices or that have better terms. On the flipside, buyers are many; hence even if a cross section chooses to use the products of their competitors, BP’s operations would not be greatly impacted. The bargaining power of buyers can therefore be regarded as medium. Finally, the oil and gas industry is dominated by huge corporations that produce a number of low differentiated products (Stiel, 2003). Key competitors such as Chevron, Total and Royal Dutch Shell have established well recognized brands with significant client base. This implies that BP and its competitors have all adapted a vertical integration of similar range of products. These factors coupled with low threats of both substitutes and new entrants make competitive rivalry high (Uph, 2010).
WritePass Sample Essay – Conclusion and Recommendations
BP is as a major corporation with significant financial backing that can be used to venture into alternative energy research to boost its manufacturing capacity and increase its global presence. The SWOT and Porter’s five forces analyses indicates that, the oil and gas industry’s major players are well established conglomerates with massive financial resources hence high level of competitive rivalry. The attractiveness of the industry makes both the powers of buyers and that of suppliers’ medium while the threat of substitute and new entrance low.
BP should increase its strategic investment in R&D in order to maximize production and exploit new markets. It should also negotiate with governments and other firms in order to exploit emerging markets such as China. The company should also consider rebuilding its brand value thereby regaining its image adversely affected by the recent oil spill crisis (Honnungar, 2011). Finally, the company should streamline its business operations and production to gain competitive advantage over major rivals.
Bamberg, J. H. (2000). British Petroleum and Global Oil: 1950-1975: The Challenge Of
Nationalism. Cambridge: Cambridge University Press.
Bruland, K. (2003). British technology and European industrialization: the Norwegian textile
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Ferrier, R. W. (2009). The history of the British Petroleum Company. Cambridge, Cambridge
Honnungar, V. (2011). British Petroleum Oil Spill Crisis and Aftermath Corporate
Governance and Communication at BP during the disaster. Munich: GRIN Verlag
Porter, M.E. (1980)Competitive Strategy, New York: Free Press. Stiel, P. (2003). British
Petroleum: A Global Company in a Global World. [Online] 3 September, 2017. Available From: http://www.pstiel.de/fileadmin/pstiel.de/Download/english_globalisation.pdf
Smith, N. J. (2011).The Sea of Lost Opportunity: North Sea Oil and Gas, British Industry and
The Offshore Supplies Office. New York: Elsevier.
Stock Challenge, (2012). FTSE All-Share Index Ranking as at Close on Fri, 31 October 2014.
[Online] 3 September, 2017. Available From http://www.stockchallenge.co.uk/ftse.php
Uph, C. (2010). PR Analysis of British Petroleum. New York: GRIN Verlag.
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Essay - BP SWOT and Porter Five Forces
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