Bp Analysis 2011

BP Plc

Company Profile

Publication Date: 1 Apr 2011

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BP Plc

TABLE OF CONTENTS

Company Overview..............................................................................................4

Key Facts...............................................................................................................4

SWOT Analysis.....................................................................................................5


BP PlcTABLE OF CONTENTS

COMPANY OVERVIEW

BP is one of the largest vertically integrated oil and gas companies in the world. The company'soperations primarily include the exploration and production of gas and crude oil, as well as themarketing and trading of natural gas, power, and natural gas liquids. BP is headquartered in London,the UK and employs about 79,700 people.

The company recorded revenues of $297,107 million during the financial year ended December2010 (FY2010), an increase of 24.2% over FY2009. The operating loss of the company was $1,702million during FY2010, compared to an operating profit of $28,152 million in FY2009. The net losswas $3,719 million in FY2010, compared to a net profit of $16,578 million in FY2009.

KEY FACTS

BP PlcHead Office1 Street James's SquareLondonSW1Y 4PDGBR

44 20 7496 4000Phone

44 20 7496 4630Fax

http://www.bp.comWeb Address

297,107.0Revenue / turnover(USD Mn)

DecemberFinancial Year End

79,700Employees

BPLondon Ticker

BPNew York Ticker


BP PlcCompany Overview

SWOT ANALYSIS

BP is one of the largest vertically integrated oil and gas companies in the world. The company'soperations primarily include the exploration and production of gas and crude oil, as well as themarketing and trading of natural gas, power, and natural gas liquids. BP, with a focus to drive futureperformance, continuously invests in research and development (R&D). Strong R&D capabilitiesenable BP to attain competitive advantage over its peers, maintain technological edge over itscompetitors, and stay ahead of industry trends. However, the company is subject to variousenvironmental laws and regulations, costs associated with which could be significant and may bematerial to the results of operations in the period in which they are recognized.

WeaknessesStrengths

Oil spill in the Gulf of MexicoRobust research and developmentcapabilities Explosion in the Texas refineryVertically integrated operationsWide geographic presence

ThreatsOpportunities

Risks concerning environmental regulationsTransformational partnership between BPand Reliance Industries Instability in some oil-producing regionsExpansion of the biofuels business in Brazil Drilling ban threat to Gulf of Mexico

operationsBoosting of PTA production capacity inChina Saturation of resources in the North Sea

Strengths

Robust research and development capabilities

BP, with a focus to drive future performance continuously, invests in research and development(R&D). Investment in R&D is also a measure of the company’s commitment to the future organicgrowth of the business. In FY2010, BP’s expenditure on R&D was $780 million, compared with $587million in FY2009 and $595 million in FY2008. The company has chosen 20 major technologyprograms that support its competitive performance in resource access, advanced conversion,differentiated products, and lower-carbon energy.

As of FY2010, BP treated 56 wells with Bright Water technology in Alaska, Argentina, Azerbaijan,and Pakistan, which has delivered increased reserves at a development cost of less than $6 perbarrel, and with an 80% success rate. Moreover, BP continues to develop and apply innovativeexploration technologies. Following the successful use of the ISSTM seismic acquisition technique


BP PlcSWOT Analysis

in Libya in 2009, the company conducted field trials, combined with cableless node receivers tofurther increase seismic acquisition efficiency. Positive test results led to a decision to acquire 3,000square kilometres of the 2010/11 Libya onshore acquisition program using this method.

In addition, BP has developed a new passenger car engine oil offering 2.4% fuel saving, atransmission oil for military vehicles with a 1.5% fuel saving, and the turbine oil for the new Boeing787 Dreamliner. Furthermore, the company’s proprietary processing technologies and operationalexperience continue to reduce the manufacturing costs and environmental impact of its petrochemicalsplants, helping to maintain competitive advantage in purified terephthalic acid (PTA), paraxylene,and acetic acid.

In the wind business, BP’s quest for more energy-efficient wind turbine generators continues. In theUS, BP Wind Energy is testing state-of-the-art laser wind sensor units to deliver improved windturbine performance and increased energy output. In the solar business, InnerCool solar technology,a new technology designed to make solar cells more efficient in extremely high temperatures, isbeing piloted at a university in Saudi Arabia, where it has demonstrated increases in energy generationof approximately 3%.

Strong R&D capabilities provide BP to attain competitive advantage over its peers, maintaintechnological edge over its competitors, and stay ahead of industry trends. In addition, it allows thecompany to ensure safe and reliable operations by strengthening its portfolio, getting more from itsresource base and winning new access.

Vertically integrated operations

BP has vertically integrated operations as it is involved in upstream, midstream, and downstreamoil businesses. The company operates through two business segments: exploration and production;and refining and marketing.

Its upstream activities involve oil and natural gas exploration and field development and production.Its midstream operations involve the ownership and management of crude oil and natural gaspipelines, processing facilities and export terminals, and LNG processing facilities and transportation.It also includes BP's natural gas liquids (NGL) extraction businesses in the US, the UK, Canada,and Indonesia. Its most significant midstream pipeline interests are the Trans-Alaska Pipeline Systemin the US, and the Forties Pipeline System and the Central Area Transmission System pipeline inthe UK sector of the North Sea, the South Caucasus Pipeline (SCP), and the Baku-Tbilisi-Ceyhanpipeline.

BP's downstream activities include refining and marketing of oil and natural gas and related products.In total, BP has interests in 16 refineries worldwide, including those partially owned. At the end ofFY2010, BP's worldwide network consisted of about 22,100 retail sites operated under the brandsBP, ARCO, and Aral. In the US, BP's retail network comprised approximately 11,300 branded retailsites. In Europe, the retail network consisted of 8,400 branded retail sites. In addition, in FY2010,BP had approximately 2,400 branded retail sites outside Europe and the US in countries such asAustralia, New Zealand, and South Africa.


BP PlcSWOT Analysis

The company's vertically integrated businesses confer advantages related to operational efficiencies.Vertically integrated operations provide control over the entire value chain, which enable the companyto produce products, which are used at different stages in the entire value chain. The company'svertically integrated operations give it significant competitive advantage in the global oil market.

Wide geographic presence

BP has a wide geographic presence. The company operates in over 80 countries. BP haswell-established operations in Europe, the US, Canada, Russia, South America, Australasia, Asia,and parts of Africa. Currently, around 68% of the company’s fixed assets are invested in Organizationfor Economic Co-operation and Development (OECD) countries, with around 42% of its fixed assetslocated in the US and around 20% in Europe.

In FY2010, the exploration and production segment operated upstream and midstream activities in29 countries including Angola, Azerbaijan, Canada, Egypt, Norway, Russia, Trinidad and Tobago(Trinidad), the UK, the US, Asia, Australasia, South America, North Africa, and the Middle East.Thesegment is also into gas marketing and trading activities, primarily in Canada, Europe, and the US.The refining and marketing segment of the company markets its products in more than 70 countries,with a particularly strong presence in Europe and North America. It also manufactures and marketsits products across Australasia, in China and other parts of Asia, Africa, and Central and SouthAmerica.

BP's widespread international operations enable it to take advantage of opportunities arising inemerging markets. Therefore, the company's wide geographic presence enables it to gain accessto key markets as well as to attain a competitive edge over its peers.

Weaknesses

Oil spill in the Gulf of Mexico

BP is involved in one of the worst environmental disasters in the US. In April 2010, an explosionoccurred on the Transocean's rig which was drilling an exploration well on BP operated license. Therig was located approximately 41 miles offshore Louisiana on Mississippi Canyon block 252. Theexplosion killed 11 workers. Subsequently, the rig worth over $500 million sank triggering an oil spillin the Gulf of Mexico, the largest accidental marine oil spill in the history of the petroleum industry.During July 2010, the leak was stopped by capping the gushing wellhead, after it had released about4.9 million barrels of crude oil. It was estimated that 53,000 barrels per day were escaping from thewell just before it was capped. In September 2010, the relief well process was successfully completed,and the federal government declared the well effectively dead.

As a responsible party, the company made swift payments to support local economies, and gave atotal of $138 million in direct state grants during FY2010, which included behavioral health programs.BP has also set up the $20 billion Deepwater Horizon Oil Spill Trust to meet individual, business,


BP PlcSWOT Analysis

government, local and state claims, and natural resource damages. The company provided $500million for the Gulf of Mexico Research Initiative, which is funding independent research to investigateimpacts on affected ecosystems. Furthermore, the company contributed a $100 million fund tosupport rig workers hit by the drilling moratorium. Overall the company recognized charges totaling$40.9 billion in FY2010 as a result of the incident.

To meet its financial commitments, BP announced the sale of up to $30 billion in assets and, by theend of 2010, had agreed to $22 billion of disposals. Moreover, the Gulf of Mexico oil spill has damagedBP’s reputation, which may have a long-term impact on the group’s ability to access new opportunities,both in the US and elsewhere. Adverse public, political, and industry sentiment towards BP, andtowards oil and gas drilling activities generally, could damage or impair the company’s existingcommercial relationships with counterparties, partners, and host governments. In addition, respondingto the incident has placed, and will continue to place, a significant burden on BP’s cash flow overthe next several years, which could also impede its ability to invest in new opportunities and deliverlong-term growth.

Explosion in the Texas refinery

In March 2005, an explosion and fire occurred in the isomerization unit of BP Products' Texas Cityrefinery. Fifteen workers died in the incident and many others were injured. In October 2007, theUS Department of Justice (DOJ) announced that it had entered into a criminal plea agreement withBP Products related to the explosion and fire. In February 2008, BP Products pleaded guilty, pursuantto the plea agreement, to one felony violation of the risk management planning regulationspromulgated under the US federal Clean Air Act. The company paid a $50 million criminal fine andwas sentenced to three years' probation.

In addition, the Texas Office of Attorney General, on behalf of the Texas Commission onEnvironmental Quality (TCEQ) filed a petition against BP Products asserting certain air emissionand reporting violations at the Texas City refinery from 2005 to 2009, including the March 2005explosion and fire. In September 2009, BP Products filed a petition to clarify specific required actionsand deadlines under the 2005 Settlement Agreement with the Occupational Safety and Health Act(OSHA). That agreement resolved citations issued in connection with the March 2005 Texas Cityrefinery explosion. OSHA has denied BP Products' petition. In October 2009, OSHA issued theTexas City Refinery citations seeking a total of $87.4 million civil penalty for alleged violations of the2005 Agreement and alleged process safety management violations. The fine was the largest inOSHA's history, and BP Products contested the citations.

Later in August 2010, a settlement agreement between BP Products and OSHA resolved the petitionfiled by BP Products in September 2009 and the alleged violations of the 2005 Agreement. Thecompany agreed to pay $50.6 million of the October 30 fine, while continuing to contest the remaining$30.7 million; the fine had been reduced by $6.1 million between when it was levied and when BPpaid the first part.

Such events causing environmental damage could result in heavy financial penalties for the companyeroding its profits. In addition, such law suits could also tarnish its brand image.


BP PlcSWOT Analysis

Opportunities

Transformational partnership between BP and Reliance Industries

BP is focusing on forming alliances with strong national partners. Accordingly, BP and RelianceIndustries (Reliance) signed a partnership agreement in February 2011.The partnership across thefull value chain comprises BP taking a 30% stake in 23 oil and gas production sharing contracts thatReliance operates in India, including the producing KG D6 block. It also includes the formation of a50:50 joint venture between the two companies, for the sourcing and marketing of gas in India.

The partnership will combine BP’s deepwater exploration and development capabilities with Reliance’sproject management and operations expertise. This partnership meets BP’s strategy of formingalliances with strong national partners, taking material positions in significant hydrocarbon basinsand increasing its exposure in growing energy markets.

According to BP’s Energy Outlook 2030, energy consumption in India has grown by 190% over thepast 20 years and is likely to grow by 115% over the next 20 years, a rate of over 4% per annum.Gas is expected to be the fastest growing fossil fuel, with demand growing at a rate of nearly 5% ayear between 2010 and 2030. India’s gas consumption was 5.0 bcf/d in 2009 and is estimated tohave been 6.1 bcf/d in 2010 (comprising 4.9 bcf/d production plus 1.2 bcf/d LNG imports). TotalIndian gas consumption is projected to grow to12.5 bcf/d in 2025, and exceed 15 bcf/d in 2030.

The 23 oil and gas blocks together cover approximately 270,000 square kilometres. This will makethe partnership India’s largest private sector holder of exploration acreage. By allying with Reliance,BP will access the most prolific gas basin in India and secure a place in the fast growing Indian gasmarkets, creating a genuinely distinctive market position.

Expansion of the biofuels business in Brazil

Low carbon energy will play an increasingly significant role in meeting world energy demand. BP iscommitted to producing biofuels to help meet this demand. The company is expanding its biofuelsbusiness in Brazil through an acquisition. In March 2011, BP agreed to acquire majority control ofthe Brazilian ethanol and sugar producer Companhia Nacional de Acucar e Alcool (CNAA). Thecompany agreed to pay approximately $680 million to acquire 83% of the shares of CNAA and torefinance 100% of CNAA's existing long term debt. After the acquisition, which is subject to regulatoryapproval and agreed closing conditions, BP will become the operator of two producing ethanol mills,located in Goias and Minas Gerais states. A third CNAA mill is currently under development in MinasGerais state.

The total planned combined crushing capacity of all three mills, when fully developed, is expectedto be 15 million tonnes of sugar cane per year. At full capacity, each mill will have a productioncapacity of about 480 million liters of ethanol equivalent per year. When CNAA’s assets are fullydeveloped, this is expected to increase BP’s overall Brazilian production capacity to around 1.4


BP PlcSWOT Analysis

billion liters of ethanol equivalent per year (nine million barrels). Alternative energy is expected tobe the fastest growing energy sector over the next 20 years, with global biofuels production projectedto more than triple. This strategic acquisition underlines BP’s commitment to building materialbusinesses in growing economies and continued expansion in Brazil through exploration andproduction, as well as biofuels investments.

Boosting of PTA production capacity in China

The company aims to boost its purified terephthalic acid (PTA) generation capacity in China. PTAis the preferred raw material used to manufacture polyethylene terephthalate, a widely used polyesterpolymer for the production of textiles, bottles, packaging, and film products. China is the world’slargest and fastest growing PTA market. Government statistics showed that China’s PTA consumptionin 2009 exceeded 18 million tonnes, of which only around 65% was supplied by domestic production.China's PTA consumption may increase by an equivalent 8% per year through 2013. In order tomeet the demand, BP is planning to increase its PTA production capacity.

During February 2011, BP confirmed that it is proceeding with its project for a major increase in PTAproduction capacity at the BP Zhuhai Chemical Company (BP Zhuhai), Guangdong Province, China,a joint venture between BP and Zhuhai Port (formerly named Fu Hua Group). The petrochemicalsbusiness of BP started a debottleneck project to add a further 200,000 tonnes per year PTA capacityat the BP Zhuhai, which is scheduled for completion in the first quarter of 2012. This additionalcapacity employs BP’s latest proprietary technology and will bring the site’s total PTA capacity to1.7 million tonnes per year, continuing its growth in China.

In addition, BP is planning to build a new world-scale PTA plant at the same site.This plant in Zhuhaiis under pre-engineering planning. With a capacity of 1,250,000 tonnes per year, it will be the firstto employ BP’s latest generation PTA technology and is expected to come on stream earliest 2014to meet PTA demand growth in China. This will make Zhuhai the largest PTA site in BP’s globalPTA system. Therefore, increase in PTA generation capacity allows BP to capitalize the growingPTA market in China.

Threats

Risks concerning environmental regulations

The company is subject to various environmental laws and regulations that govern the discharge ofpollutants and disposal of wastes. With rising awareness of the effect that the environment has onhuman health, regulatory standards have been continuously improved in recent years. In 2005, oneof the most important developments in this area has been the introduction of the Kyoto Protocol forthe reduction of greenhouse gas.The protocol calls on industrialized countries to reduce their annualgreenhouse gas emission levels by an average of 5.2% (relative to 1990 levels) during 2008–12.


BP PlcSWOT Analysis

In 2007, the European Union adopted important strategic objectives with regard to policies thataddress climate change. In the same year, the European Council adopted a European sustainabilitystrategy based on three reference targets that must be achieved by 2020, which include a 20%reduction in carbon dioxide (CO2) emissions, an increase in the penetration of renewable energysources (binding target) to 20%, and a reduction in demand by 20% (non-binding target). BP alreadyhas a weak record in environmental matters.

A number of pending or anticipated governmental proceedings against BP and certain subsidiariesunder environmental laws could result in monetary sanctions of $100,000 or more. The company isalso subject to environmental claims for personal injury and property damage alleging the releaseof or exposure to hazardous substances. The costs associated with such future environmentalremediation obligations, governmental proceedings and claims could be significant and may bematerial to the results of operations in the period in which they are recognized.

Instability in some oil-producing regions

BP has exploration and production interests in 30 countries. Many of these regions, including Africa,the Middle East, and South America, are prone to political instability.Though BP has been operatingin these countries for a long time and understands the local environment very well, much of thegeo-political risks are outside its control. In particular, the company’s investments in the US, Russia,Iraq, Egypt, Libya, and other countries could be adversely affected by heightened political andeconomic environment risks.

For instance, BP is in partnership with the Libyan Investment Corporation (LIC) to explore acreagein the onshore Ghadames and offshore Sirt basins, covered under the exploration andproduction-sharing agreement ratified in 2007 (BP 85%). BP’s net assets in Libya as of FY2010were $212 million. Due to the outbreak of political unrest in Libya, the BP office in Tripoli was closedon 21 February 2011 and the Libyan operations suspended. All BP expatriate staff and their familieshave been evacuated from Libya. Although, it is not possible to say exactly what impact the ongoingunrest, potential political changes, and international sanctions will have on the suspended seismicoperations, the start-up of the exploration drilling program which had been scheduled to commenceonshore and offshore in 2011 will be delayed.

Failure to anticipate some of these events or the inability to mitigate risks in the regions where BPis operating could seriously impair the company’s operations and disrupt the flow of output.

Drilling ban threat to Gulf of Mexico operations

The company faces risk concerning a deepwater billing ban against oil companies, implemented inFY2010. A moratorium on deepwater oil and gas drilling was imposed by the Obama administrationin July 2010, in response to BP's catastropic Deepwater Horizon oil spill in the Gulf of Mexico. Themoratorium was to impact 33 deepwater drilling sites, less than 1% of the 3,600 oil and natural gasproduction platforms, in the Gulf of Mexico. Later in October 2010, the ban was lifted. Even after theObama Administration has lifted its ban, oil companies are still waiting for an approval to drill oil in


BP PlcSWOT Analysis

Gulf of Mexico. It is expected that the companies have to wait to proceed until the second half of2011, and perhaps through 2012.

In addition, the delay in new oil drilling approval in Gulf of Mexico has affected investors' confidencein BP, who depend on the Gulf of Mexico for around 10% of its total oil production. Furthermore,BP’s operations in the region are affected as billions of dollars of investment was made in Gulfprojects and would also prevent the company from carrying out work to boost production from existingfields.Therefore, delay in the assessment of new licenses would affect the operations of the companywhich in turn would impact the company’s profit margins.

Saturation of resources in the North Sea

The company has extensive offshore exploration operations in the North Sea. Offshore explorationin the North Sea has been highly prospective in the past and intensive exploration work has beencarried out in this region in the past few decades. Reserves in the region are maturing and are slowlygetting saturated. There has been a succession of dry holes being drilled in the last few years. Thesaturation of reserves in this region is a key challenge for the company especially as newer explorationactivity in other parts of the world is far more localized and entails significantly higher investments.


BP PlcSWOT Analysis

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