The Turn Around of BP Oil in 2011

Group 6

11/18/2011
Dr. Manish K. Srivastava
YuZhou WillDuray HaoQiu ChaoYang

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 Oil Syndicate 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,

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 60th 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.

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 price decreased 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,

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 to producers 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

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,

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 of transportation, 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

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 issues result 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

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.

1.800 1.600 1.400 1.200 1.000 0.800 0.600 2010

CurrentRatio
XOM CVX BP

2009

2008

2007

2006

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.

DebttoEquity(%)
25.00 20.00 15.00 10.00 5.00 0.00 2010 2009 2008 2007 2006 XOM BP CVX

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)

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)

EarningsPerShare
12 10 8 $/Share 6 4 2 0 2 2010 2009 2008 2007 2006 XOM CVX BP

For the financial year 2010, the only category that BP excels over both of the competing companies 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.

GrossProfitRatio
1.045 1.040 1.035 1.030 1.025 1.020 1.015 1.010 2010 2009 2008 2007 2006 XOM CVX BP

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,

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

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 and development. 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

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 profit no 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

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 the extension 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.

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 to wholesalers 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.

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.

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

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

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. 2. First and most importantly, we will continue to have a relentless focus on safety and risk management. BP will build on its distinctive strengths areas where we have deep-seated experience and proven capability: exploration; deep water; managing giant fields and gas value chains; operating our world-class downstream business; building relationships and developing technologies. 3. 4. 5. We will be a stronger and more focused BP with a base of assets which is high graded and high performing. BP will be simpler. Our organization is already much more standardized. And our internal reward and performance processes are more streamlined. There will be greater visibility of the value we are creating. Beginning next year, we will break out 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 $30bn divestment 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% in additional 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 increased investment in our project inventory for growth and around half for other purposes. This would

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.

Exhibit1a

Exhibit1b

 Source:Companydocument

Exhibit 2 Stock price from 2009 to current

Exhibit 3

20000 15000 10000 5000 0 Resarchand Development cost exploration cost Acquisition cost human resourcecost 2008 2009 2010

Exhibit 4

Exhibit 5

MarketCapitalization
400 350 300 250 200 150 100 50 0 Asof11/17/11

Billions

XOM CVX BP

Exhibit 6

References:
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