BP Exploration Research Paper
BP is one of the largest multinational oil companies which play an extremely important role in the world market. At the same time, the recent development of the world market and economic trends have revealed the fact that such companies as BP have to constantly develop their resources since they are traditionally oriented on the exploitation of natural resources and the production of BP is based on oil and natural gas. In such a situation, one of the most important direction of the strategic development of the company has become the exploration of new territories where such natural resources as oil and gas could be excavated and where the production may be the most efficient.
As a result, BP Exploration was created targeting at the fulfillment of the strategic goal of the company to explore new sources of natural resources and expand the presence of BP in new markets and territories. Obviously, the creation of this unit was essential since the exploitation of the existing resources would inevitably lead to their exhaustion and, thus, threatened to the future perspectives of the entire multinational corporation. In such a situation it is extremely important to carefully analyze and discuss the functioning and effectiveness of BP Exploration in the current economic situation in order to be able to make a reliable forecast as for the future of the company.
Porter’s and Bowman’s strategies in relation to BP Exploration
Naturally, in order to properly analyze the functioning and operations of a company, it is primarily necessary to discuss it in the context of reliable strategies that can help understand the position of the company in the market and its perspectives. In this respect, it is possible to refer to the work of Porter and Bowman.
First of all, it should be said that Porter has developed the model of pure competition which actually implies that risk-adjusted rates of return should be constant across firms and industries (BP 2006). On the other hand, it is worthy of mention that different industries are traditionally characterized by the different level of profitability, which is, to a significant extent, explained by the industry structure. On realizing this fact, Porter has developed his own framework which models an industry influenced by a variety of forces and, what is more, this help better understand the actual state of the industry and properly assess the position in the company and its perspectives in the industry.
Basically, Porter singles out five forces that can influence an industry and functioning of a company. First of all, it should be said that one of the major forces is the supplier power. It should be pointed out that, at the present moment, BP Exploration, being a part of BP, receives practically all essential resources from other units of BP and, taking into consideration the fact that BP operates in an industry that is traditionally believed to be extremely profitable, BP Exploration has practically no problems with suppliers and it is rather the question of the coordination of actions within BP than the dependence of the company on external suppliers that actually can create any problems to the company.
Secondly, there are barriers to entry that may be quite serious obstacles to BP Exploration since the modern oil and gas market is considered to be quite stable where large companies practically have the total control over all production processes. At the same time, the specific feature of BP Exploration is the fact that the company mainly attempts to explore new resources. Practically, it means that BP constantly targets at entering new markets or, to put it more precisely, geographical areas where the company attempts to launch its business. The problem is that BP Exploration often faces the resistance of the local companies, or its competitors as well s the state policy in relation to its functioning in a region. As a result, the company often has to overcome barrier to entry not only form the part of the major rivals, but also from the part of the state, creating fiscal barriers, and public organizations, especially dealing with environment protection.
The third force that influences the industry and the company is the treat of substitutes which is getting to be more and more serious as alternative sources of energy gradually become more preferable than traditional ones such as oil and gas. Practically, it means that such industries as automobile industry, tend to decrease the use of oil and gas products as a source of energy preferring alternative ones. As a result, the activity of BP is under a questions since if the substitutes of oil and gas outweigh these traditional sources of energy in the world market than it will be practically useless to keep expansive exploration of oil and gas resources, while, instead it will be more logical to strategically change the direction of the company’s exploration in favor of alternative sources of energy.
The fourth force that should be taken into account is buyer power which is also quite significant. In fact, nowadays, the buyer power remains relatively high but there is a problem of gradual and constant raise of prices on oil and gas that naturally decreases the buyer power and threatens to the future perspectives of the company. In this respect, it is worthy to remind that within last five-ten years the oil prices have hit the ceiling and have been the highest since the start of the exploitation of oil resources.
Finally, according to Porter’s model, the degree of rivalry can be another extremely powerful force that can influence the position of the company in the market. In this respect, it should be said that BP Explorations, as a unit of BP, faces a serious rivalry from the part of such giants as Chevron, Exxon Mobil, and Talisman Energy. Naturally, the competition is extremely high because of the scarcity of the natural resources and the growing difficulty of their exploitation.
As for Brown, he also suggests analyzing the competitive power of a company and his model considers competitive advantage in relation to cost advantage or differentiation advantage. On applying his strategic options to BP Exploration it should be said that the company basically tends to focused differentiation since it implies perceived added value to a ‘particular segment’ warranting a premium price. Practically, it means that the company tend to explore new sources of natural resources in new areas which are the main priority of the company’s strategy and, at the same time, the price on the company’s products remain quiet high that actually fully corresponds to the current market trends.
Bp Exploration’s success in the last five years
In recent years, BP Exploration has achieved quite good results to the extent that it is even possible to speak about the fact that the company has perfectly met the critical success factors within the last five years or even exceeded them. To put it more precisely, it should be primarily said that, at the present moment, oil and gas industry are considered to be in quite a difficult position because the resources used by the industries are getting to be more and more scarce. As a result, there is a real threat that in the nearest future the world economy would suffer from the lack of oil and gas. In such a situation, it is quite logical that BP and its unit BP Exploration have focused on the exploration of new areas with the potential for large oil and gas fields (BP 2006). Moreover, the company has launched its operations in such new and potentially rich areas as Asia Pacific, which is considered to be particularly rich in gas, Azerbaijan, Algeria, and some other African countries, deepwater Gulf of Mexico and Russia. In such a way, the company has entered new areas where BP can exploit oil and gas resources. In this respect, it is worthy of mention that in order to overcome the existing barriers of market entry, BP used mergers to make the entrance of the new market easier. For instance, in Russia the company formed a merge with the local company, TNK, TNK-BP where BP has 50% interests.
At the same time, along with the development of new large fields, the building of leadership position of the company in these areas is another strategic goal of BP Exploration that has predetermined its recent successes. However, it seems to be not less significant the strategic efforts of the company to manage its existing producing assets and divesting assets when they are no longer competitive. In the result of this strategy, the company has managed the decline of its existing but not perspective centers in Alaska, Latin America, Egypt, Middle East, North America and the North Sea (BP 2006).
The resources and capabilities of BP Exploration in the last five years
Obviously, in recent years the exploration of new large fields was extremely significant for the company and, judging from the table 1, the interest of the company in the new fields has constantly grown. In fact, it is necessary to underline that the primary concern of the company has been the development of new fields and gradual decreasing of the exploitation of old ones. In such a way, it is obvious that new fields of oil and gas in such regions as Asia pacific, Africa, including Angola, Trinidad and Tobago, Algeria, Russia, and some others, are extremely important to BP Exploration and they are the major resources of the growth of the company and, in actuality, they are its future.
In this respect, it is also worthy to refer to the table 2 where the oil and natural gas exploration and production activities reveal the growing profitability of this strategic direction of the development of the company. Practically, it means that the development of new oil and natural gas fields in new regions enhances the capabilities of the company and, thus, increases its competitiveness in the market giving essential advantages compared to the major competitors.
The analysis of the financial performance of BP Exploration over the last five years
On analyzing the current financial position of the company it is possible to refer to tables 2 and 3 which, actually, reveal the positive trends in relation to the exploration of new fields that basically indicate to the effective functioning of BP Exploration. To put it more precisely, it is obvious that the share of new fields in the production of BP grows steadily and potentially they are much more perspective than traditional fields where BP manages to decrease production because of the scarce resources.
At the same time, it is worthy of mention that there exist problems that are actually non-financial by nature but which can deteriorate the financial position of the company. Basically, the problems concern the questions of safety and environment protection. For instance, it is worthy of mention the recent charges over the explosion at the Texas city refinery disaster that killed 15 people and it is investigated whether BP is responsible for this tragedy or not.
Nonetheless, the financial situation of BP at large and BP Exploration in particular remains quite stable and, even though in short-term perspective, the positive results of functioning of BP Exploration are not so obvious and the costs of investments in exploration and development of new fields do currently outweigh benefits, it is obvious that in a short-term perspective the investments will be returned while in the long-term perspective BP Exploration receives a strategic advantage compared to the major competitors due to the exploration and start of exploitation of new large fields that, unquestionably, opens new opportunities for the company to grow and enlarge its production, regardless the decrease of exploitation of its traditional fields in Europe and America.
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