Part A

Introduction

Today‘s world is the world of technology.  We need more energy sources as we go for
further development.  The government’s primary motive clearly does state that till 2020
the consumption of oil should be 70%. According to Jennifer, (2010) there is 25 billion
barrel of crude oil still to be drilled in the UK oil industry. This deepwater oil allows us to
contribute at least 70% of total energy from crude oil and gas. This industry is the main
pillar of the UK economy which worth of the total expenditure of 12 billion pounds with
extreme engineering and technology. The sector has around half million jobs in 2008.
These employees are working with world leading supply chain of the UK oil industry that
has a 13 billion pounds turnover, exports the goods and service for 5 billion pounds per
annum, throughout the world. But, to survive in the oil industry the organizations, for
instance BP Plc, Shell etc, have to analyze the external environment to remain in the
completion and make the new strategies with the time. As we know there are many
factors that affect the firms directly as well as indirectly which are beyond the control, so
firms mostly carry out the PESTEL analysis so that the risk can be minimized and
thereby profitability can be maximized (www.euromonitor.com).
 
The macro-environment sets the limit for any organization because as mention above it
is always beyond control or in other way this environment controls the organizations.
 
Macro environment
 Macro or external environment give a clear picture of the concern industry. It does help
with a clear picture of all the various factors existing in the macro environment. For
instance these factors are political, economical, socio-cultural and technological. These
factors vary time to time and affect the concern industry directly. (Jack, 2007)
 
 

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External environment of oil industry
 
Political and legal factors: -
Change in the government does have a direct affect on the organizations. For instance,
the last UK Prime Minister Mr. Gordon Brown declared 10% extra tax on the profit in
order to raise capital for the oil companies. It will lead an extra burden on the
organizations.(bbc.uk 2009). The European Union also makes the new regulations
which will be affective from 2011. These regulations would consist of the new laws for
drilling the oil with safety and security. These regulations are concern with oil split due
to the Gulf of Mexico. According to UK budget 2009 there will not be any 3 year tax loss
carry back period which was a relief for the organizations as the tax rates were very
high. The tax rate varies from 50% to 70% which was totally subjective to the
organizations size. In 2010 there is a 20% decrease in investment in the oil industry
since last 2 years which was 6 b to 4.4 b till 2009. (Watson, 2010)
 
.
Economical factors:-
The economic factors are also very important. The biggest factor is the global economic
crises which created imbalance between purchasing and saving which was mainly due
to the increase in the inflation rate that is from 4.5% to 5%. During the economic crisis
crude oil price decreased to 55% since January 2008. During this period the
consumption of the oil decreased by 2% and leads to price downward. The International
Energy Agency decided to cut down 0.5 m barrels crude oil production everyday due to
decrease in demand in order to control the price. (Stephen. 2008)

Social factors:-
Change in trend and taste of the customers does affect the industry in a direct or an
indirect manner. According to the survey more than 70% women are working, but as
mention above the trend of the people is to more save not to spend more. Tendency of

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saving encourages the people to use public transport rather than personal vehicles. So
the demand of the fuel is reduced by 2% in 2009. (Koottungal, 2009)

Technological factors: -
These factors are related to advanced technology. For instance the new technology,
which is based on remote electromagnetic sensing system provide a clear 3d model of
the underground crude oil which is a cost saving technology. The new underwater
cutting technology launched in 2009 by BP, COP and Shell, requires low power and the
cutting capacity increases by 100% (Manama, 2007) than the traditional electric cutting
technology. In January 2010 sub surface sediment imagery cameras were launched
with hydrocarbon sensors that detect the background water quality. The cost of the
project was £187k. The new alternate of cement which has been launched does safe a
lot of time and is also durable. 
 
Environmental factors:-  
Government is very aware about environment in recent years. European Union is going
to introduced new law and regulations in 2011. These laws will be relating to oil spill,
drill process. The main focus would be on the climate damage by oil spill because it was
the biggest disaster accrued in the Gulf of Mexico.  EU has targeted the carbon
emission too. According to Budget 2009, the oil companies have to pay 20% of their
carbon emission till 3013 and this amount will increase by 70% in 2017. (bbc.co.uk,
2009)

Part B
Internal environment of British Petroliam:-

Internal environment means, to examine strengths, weaknesses, opportunities and

threats which exist within the organization. The analysis of internal environment of BP
Plc is below:-
Strengths:-

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Market leader: - BP Plc is the market leader in the oil industry. The company has a
strong hold on the market. The company is the biggest oil producer in the world with
2.53 m barrel of oil and 8.48 cubic feet gas production per day. As a global prospect BP
is the biggest producer of oil and gas in North American continent. The Air BP is the
largest fuel supplier to the aviation industry including Asia and partly China. BP Plc
operates it’s ail fuel supply in 64 countries with 25 b liters sales in a year.(Datamonitor,
2009)
Vertically integrated operations:- BP operates its operations in two segments which
are exploration and production; and refining and marketing. With the upstream
operations it produces oil and gas from the underground, the midterm streams is related
with management and ownership of the oil and gas and the pipelines and
transportation. The last stream which is downstream, the PB Plc operates its refineries
and marketing which makes the organization unique. The BP has 22400 sites worldwide
operating with the brands like, BP, Amoco, ARCO and Aral. (Bp.com, Datamonitor.com)

Wide geographical hold: - The Company has reached around 80 countries which the
biggest energy market like Europe, America, Middle East and China. So the BP Plc is
not depending on a particular country. (O'Connor, 2007)

Weaknesses:-
Oil spill in the Gulf of Mexico:- BP Plc is linked with the biggest environmental
disaster in history of USA when the oil was split in the gulf of Mexico. The explosion in
the BP’s drilling well killed 11 workers. The US government examined in June 2010 the
spilt oil well pushes the oil on water surface 35000 to 60000 barrels per day which has
adverse effect on the marine life. Even though it affected the fish industry in the USA,
So BP announced to pay for the loss which is around 20 billion USD. The justice
department of the USA also states to investigate against oil split in crime as well as in
civil. (Crain, 2010)

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Explosion in the Texas refinery:- There was another explosion in the Texas in march
2005 where 15 workers died. The US justice department made the criminal compulsory
agreement with BP explosion and fire. (Kristen, 2008)

Violation of tax laws in Turkey:- During its business operations in Turkey2009, it was
forced to pay fine because of operating cross border business activates without paying
tax. In the economic crisis it is a shock for the BP Plc. because BP transported its duty
free petrol from Turkey to Greece. Turkish Finance minster stated that the amount of
the petrol was145.3 gallon. (Paul, 2010)

Opportunities:-

Acquisitions: - BP states in 2010 to acquire the Devon Energy’s assets in Brazil,

Azerbaijan and Gulf of Mexico. This acquisition will open the door to drill the crude oil in
the ten exploration blocks in Brazil, seven in the prolific Campos basin and in the US
Gulf of Mexico. After this acquisition BP will have 50% stake in Kirby oil in Alberta,
Canada that could lead to 500 m USD revenue. In addition BP will have chance to use
150 m USD asset that belongs to Devon Energy. (Evans, 2006)
New oil and gas projects: - BP wants to make its portfolio strong. For example in
February 2009, BP discovered 17th oil discovery in the deepwater of Angola. Later in
2009 BP discovered crude oil storage in the Gulf of Mexico. (Datamonitor.com)
Investments in other energy projects:- BP also invested in other means of energy
like wind, solar power advance bio-fuels and low carbon energies. Hence the
dependability of the business could diversify. (Sao 2010)

Threats:-
Failure in some projects:- Many of the projects proved to be failure for the BP. For
instance some African and Middle East regions. The main reason of the failure is failure

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to understand the requirement of the local environment including political risk.
(Bbc.co.uk, 2009)

New environment regulations: - BP, as a multinational company, has to face different

environment regulations according to the various country. The coming environmental
regulation 2011from European Union could lead to change in company’s strategies. As
EU is aware about omission of the CO2 and that is a threat for the environment. (
Macdonald, 2009)

Threat of take over:- BP is facing a threat of take over due to the financial damage by
the oil split in the gulf of Mexico. The company’s market share has declined hence BP is
a target for the big companies for its acquisition like Exxon Mobil and Cheron. Because
in 2009 Exxon had 10,693 million and Chevron had 8,716 million cash reserves. Any of
these companies could propose the acquit ion for the BP. (Schwab & Alex, 2008)

Part C

Ansoff Matrix and BP Strategic options:-

After analyzing macro and internal environment, the organizations make their strategies
to remain in completion. To make these strategies, organizations use various kinds of
tools. Ansoff matrix model provides a clear direction regarding the growth strategy. It
gives a clear picture about market and product development. It also answers the
question that how the organization can diversify itself? Ansoff matrix model analysis of
BP Plc is on next page:-

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(http://marketingteacher.com/lesson-store/lesson-ansoff.html)

Existing product New product

Existing market Market penetration Product development

Ad by street interviews, Bio-fuel, and wind energy,
CEO Tony Hayward.
Discount scheme,
Making excellent location of
felling station worldwide.
New market Market development Diversification
New market in Libya, Solar energy
Sudan Entering in
telecommunication and
cabal network in USA.

Market penetration:- Organizations promote their existing product in the existing

market in market penetration by different price and promotion strategies. The main aim
of market penetration is to extend the market share and pushing back to the
competitors’ by adopting different pricing and promotion strategies. Price is set different
from the competitors because of price reduction the organization retains the customers.
For example, medium size households in California, if the pay in circulation throughout
the year then they have to pay 49% less than the customers of competitors like
Transocean, ConocoPhillips etc. BP’s new advertisement campaign is different from
other organizations like Shell. The new advertisement is starting with simple street
pedestrians’ interviews, followed by CEO of BP Tony Hayward. This is the alive
example of the product promotion which is called market penetration. The cost is also

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reducing by these activities of banding. BP in USA, changes the name of its fuel station
to give independency look which is Beyond Petroleum (BP). Discount cards of BP are
also recently launched in various countries like Australia, New Zealand which gives all
the information about monthly purchases and discount of 1c on per liter fuel. To
increase the shopping visitors BP Plc, Sainsbury’s and Barkley issued nectar cards.
Involving other market penetration activity, BP is more focusing the locations of the fuel
stations. For example, BP changes its fuel stations location in New Zealand and Austria.
(Carl, 2006)

Product development:- When organizations launched a new product in the existing

market is called product development. This strategy provides the competitive
advantages for the organizations. For instance BP is more focusing on bio-fuel, and
wind energy. The main aims of the focus on these energies are low cost and low carbon
emission energy. BP has invested $1.5b in the bio-fuel project. Wind energy is to be
considering the future energy; because the 80% of energy are consumed from fossil
fuel According to BP the wind energy market is growing by 30% every year. As BP’s
R&D program researched that there will be 150% increase in wind power by 2015. A
survey conducting by International Energy Agency stated that the renewable energy
sources like bio-fuel; wind energy etc would be the future of the energy. (Keith. (2007)

Market development:- For the development of the market, organizations seeks to sell
their existing product in the new market. In other words, extension of the market size
geographically. The main aim to adopt this strategy is to widen its customer base and
growth. For instance BP has recently discovered crude oil in the deepwater West Nile
Delta in Egypt. This discovery opens the door of Sudan and Libya for the BP. Because
the export duty on Egypt is 12% which is comparatively low and the due to less
distance, the transportation cost also will be lower. Although Libya is the highest crude
oil exporter in the African continent but BP has sufficient capabilities to operates its
business in Libya, to drill and to sell. BP is also conducting survey and taking legal
information for its operations in Sudan. If BP starts its business in Libya and Sudan,
then there is a complete hold on the African market where the company drills the oil and
sells it the costumers. The new oil discovery of 80m barrels in Egypt, it is estimated that

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BP’s overall production will increase by 50,000 barrels per day. (BBC.co.uk, 2010,
Bp.com, 2009)

Diversification: - Diversification is concern with the new product and the new market,
especially when a firm enters in the different industry. BP is now entering in the
telecommunication and cable industry in the USA. The aim of diversification is to retain
profit from the new industry to overcome the loss of economic crisis and the Gulf of
Mexico. In other words BP is minimizing the risk one industry going to loss and the other
business of the company can cover up. Because of the oil spill in the Gulf, BP has to
pay fine which is $35m to the USA government. Apart from the fine it also has to pay for
the fish industry which is directly affected by the oil spill. Another diversification activity
of BP is solar energy. BP announced to invest $10m every year in solar energy sector.
According to data monitor the market of solar energy, would grow 50% till 2040.
(Docherty 2008)

References:-

Carl D H.  (2006). ‘PB Market Shows Effect of Megabank Acquisitions’. Arkansas

Business, 20(17), 2

Crain, R. (2010). ‘BP's 'Beyond Petroleum' positioning becomes toxic in wake of Gulf oil
spill’’. PR Week. p7.

Docherty, S. (2010). ‘Income: a global opportunity’. Investment Week. 1 (2), 17-19.

David M, (1996). ‘Marketing’, p171-172

Evans J  (2006). ‘BP's calculated risk to get to the Top’. Euromoney,16

Jack J, ( 2007), ‘A handbook for the digital engineer’. P8

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Jennifer A. D.  (2009). ‘Spill panel leader says oil industry was complacent’. McClatchy
- Tribune 

Koottungal, L. (2009). ‘Governments, operators eyeing effects of synthetic-based drilling

fluids’. Oil & Gas Journal. 1 (1), p16.

Keith . (2007). ‘A handbook for the digital engineer’. Journal of management. 6 (4), 34.

Kristen H H C. (2008). ‘BP's Texas City refinery to run at full tilt soon’. McClatchy -
Tribune Business News . p5

Liz P, (2007). ‘Nectar Finds Loyalty's Sweet Spot'. Stores, July 1, 66-68

Manama. (2007). ‘Brinker achieves industry accolade’. Oil & Gas News. p15.

Macdonal J, (2009), ‘Parliamentary Update’, Wireline. P3

Watson. (2010). ‘BG banks on Brazil and LNG’. Petroleum Economist, Vol 6 , p7

O'Connor, C. (2007). ‘BP restructures combs ahead of Hunter's exit’. PR Week. 9 (2),
15.

Paul B. (2006). ‘BP goes for an alternative strategy’. Modern Power Systems. 1 , p17-
19.

Stephen J S. (2008). ‘Governments, operators eyeing effects of synthetic-based drilling

fluids’. Oil & Gas Journal. 1 (1), p88-90

Sao P. (2010). ‘BP's Devon-assets acquisition makes perfect sense’. Valor Economic .
p11

Schwab N, & Alex D. (2008). ‘Corporate News’. Wall Street Journal, p. B.4

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