An Investigative Report: Refining British Protroleum’s Operations
Jake Poterbin Hollie Farrahi Michelle Hankins Peter Soto
Table of Contents
Company Profile Industry Trends Competitive Landscape Consumer information Analysis References/citations 2- 5 6-7 8 - 10 11 12 13 - 14
Company: BP p.l.c. Headquarters: 1 st. James Sq., London, SW1Y 4PD, United Kingdom Tel: (442) 07496400 www.bp.com NAICS codes: 211111 – Crude Petroleum and Natural Gas Extraction 324110 – Petroleum Refineries British Petroleum and the U.S.-based Amoco merged in 1998 to form BP Amoco PLC, one of the chief global integrated oil companies worldwide. In 2000, the company became just BP p.l.c., the name it holds today. The merger added substantially to the company’s oil operations, but more significantly, positioned BP as a leader in the natural gas exploration. Upon merging, BP shareholders owned 60 percent of the company. Officers: Tony Hayward - Chief Executive Officer Byron E. Grote - Chief Financial Officer Iain Conn - Chief Marketing Officer Sally Bott - Director of Human Resources Rupert Bondy - General Counsel Employing an estimated 92,000 workers, its revenues reached $239 billion in 2009, according to its 10-K Form. The largest oil and gas producer in the U.S., BP processes 4 million barrels of crude oil per day.
Some of BP’s well-known company brands include: BP, Castrol, Arco and Aral. Its three core business ventures include oil exploration and production; oil refining and marketing and chemicals. Product Line BP Gasoline with Invigorate Amoco Ultimate BP Diesel Brand Image Following the name change in 2000, BP created a new logo and adopted its current colors of green and yellow arranged in the Helios sunburst. Industry analysts speculated that the company made changes with the intent to move away from its longstanding identity as an “oil company” and reposition itself as an “energy company,” one with operations in oil, natural gas and solar power. The BP Brand: “beyond petroleum” BP offers quality gasoline, transport fuels, chemicals and alternative sources of energy such as wind, solar and biofuels. Mission Statement: “We help the world meet its growing need for heat, light and mobility, and strive to do so by producing energy that is affordable, secure and doesn’t damage the environment. BP is progressive, responsible, innovative and performance driven. Our logo – the Helios symbolises these values. Named after the Greek sun god, the Helios represents energy in its many forms” Evolution of a Logo:
! In light of the April 20, 2010 oil spill in the Gulf of Mexico, BP’s brand image took a major hit, with hundreds of thousands of people around the world boycotting the company. At the consumer contact level, individuals boycott single gas stations and convenience stores with the BP name or logo. However, according to a June 2010 article in the New York Times, “BP owns only a handful of the 11,000 stations that bear its brand” (Lieber). This can be misleading, leaving independent convenience store owners to deal with the effects of the boycotts. The article goes on to state that oftentimes, the gas in pumps at a station bearing the BP name may contain just trace amounts of BP additives, after undergoing a lengthy extraction and refinement process completely removed from BP’s influence. The article quotes Jeff Lenard, a spokesman for NACS, who says, ‘“What BP gets from this is probably a rounding error in terms of overall revenues or profits.”’ 3
2005 March: An explosion at the company’s Texas City refinery in the United States, considered to be one of the nation’s worst refinery disasters, resulted in 15 deaths and 170 injuries; by 2007 BP settled approximately 1,350 lawsuits surrounding the refinery disaster in Texas City 2006 Two oil spills in Prudhoe Bay, Alaska, results of corroded pipelines; significant deals in 2006 included the $1.3 billion sale of producing properties on the Gulf of Mexico’s Outer Continental Shelf to Apache Corp. 2007 The Department of Justice investigated BP concerning alleged gasoline trading irregularities, as well as the aforementioned Alaskan oil spills; BP agreed to pay $373 million in restitution and fines to the Department of Justice in October 2007. BP’s annual profits had fallen 22 percent in 2007, reaching $17.3 billion 2008 5,000 job cuts in early 2008 2009 April 14, 2009: 100th anniversary In early 2009 the State of Alaska, the Justice Department, the U.S. Environmental Protection Agency and the U.S. Department of Transportation filed civil lawsuits against the company’s BP Exploration business in connection with the oil spills in Prudhoe Bay. 2010 The company’s reputation took a major hit in 2010 when one of its deepwater rigs, working less than 50 miles south of Louisiana, exploded and killed 11 workers. Millions of gallons of crude gushed into the Gulf of Mexico for months
Crude Oil in the United States
The American crude oil industry has a long history of volatility. This is especially apparent during the last 40 years where the industry has seen multiple double-digit price fluctuations. Between July of 2008 and January of 2009, crude oil prices dropped from $137.11 a barrel to $34.57 a barrel. The most recent complete information on crude oil prices was collected for October 15, 2010 and shows crude oil prices recovering to $80.88 per barrel. As of 2008, the year for which there is the most complete data, crude oil consumption topped 19,498,000 barrels a day in the United States. This accounted for almost 23 percent of the total consumption for the entire world. If current consumption rates continue and pricing stays somewhat level, consumers in the United States are projected to spend more than $1,617,600,000 a day, or about $590,424,000,000 a year on crude oil. When expanded to include the rest of the world, crude oil consumption tops 86 million barrels a day at a value of $2,538,823,200,000 per year. It is important at this time to remember that this market has a history of volatile price fluctuations and any projections made by the International Energy Agency, U.S. Energy Information Administration or any other body should be reviewed on a regular basis. Crude oil prices in the United States are subject to geopolitical issues. Extreme price fluctuations occurred in the early 1970s when OPEC placed an embargo on the United States, because the United States backed Israel during the Yom Kippur War. In the early 1980s, the war between Iran and Iraq caused oil production to drop and prices to more than double in three years from $14 a barrel to $35 dollars a barrel. Crude oil prices were driven up again during the early 1990s when Iraq invaded Kuwait and began the Gulf War. Price fluctuations began again in the early 2000s with the beginning of the U.S. invasion of Iraq in 2003.These are just a few examples of how crude oil production and pricing can change drastically in a short period of time. In the short run, oil expenditures in the United States saw historic highs in 2008, triple-digit drops in 2009 and have recovered to double in 2010. Globally, this industry has the potential to top three trillion dollars a year, though this may not last with the emergence of alternative energy (namely the introduction of ethanol) and green energy industries.
Background ExxonMobil is the product of the 1999 merger, the largest merger in US history, between two oil companies, Exxon and Mobil and forming the largest company in the world. Both companies are descendants of Standard Oil, a company established in 1870 by John D. Rockefellar. In 1911, the Supreme Court of the United States ruled that Standard Oil was a monopoly and had to be dissolved. Thirty-four companies were created from the split-up, two being Exxon and Mobil. Exxon’s largest public relations slump was in 1989, when an oil tanker spilled more than 11 million gallons of crude oil and at the time, the second largest oil spill in US history. In 2008 ExxonMobil announced it was exiting the retail fuel business because of difficulty running gas stations while crude oil costs were rising. Today The headquarters are located in Irving, Texas. The multinational oil and gas company is the largest refiner in the world and is included in the six oil “supermajors” and has been in the top five largest publicly traded companies in the world for the past five years. The company operates in three segments: the upstream, downstream and chemical functions. It is a major manufacturer and marketer of commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics and a wide variety of specialty products. The industry giant had just over 310 billion dollars in revenue the 2009 fiscal year. The company also had nearly 20 billion dollars in earnings the same year and spent roughly 50 million dollars expenditures, such as advertising. The company has also seen recent critical remarks accusing ExxonMobil of funding nearly 16 million dollars since 1998 towards advocacy groups that dispute the impact of global warming. The chairman and CEO of the company is Rex W. Tillerson and has been since 2006. Board of Directors
- Michael Boskin, professor of economics Stanford University, director of Oracle Corporation, Shinsei Bank, and Vodafone Group - Larry R. Faulkner, President, Houston Endowment; President Emeritus, the University of Texas at Austin - William W. George, professor of management practice, Harvard Business School - James R. Houghton, Chairman of the Board, Corning Incorporated - Reatha Clark King, former chairman, Board of Trustees, General Mills Foundation - Philip E. Lippincott, retired Chairman of the Board, Scott Paper Company and Campbell Soup Company - Marilyn Carlson Nelson, Chairman and CEO, Carlson Companies - Samuel J. Palmisano, Chairman of the Board, President and CEO, IBM Corporation - Steven S Reinemund, retired Executive Chairman of the Board, PepsiCo - Walter V. Shipley, retired Chairman of the Board, Chase Manhattan Corporation - Rex Tillerson, Chairman of the Board and Chief Executive Officer, Exxon Mobil Corporation - Joaquin Pelayo, Chairman of the Board and President, McGraw Hill. - Edward E. Whitacre, retired Chairman of the Board and Chief Executive Officer, AT&TSlogans
Recent Criticism In 2003, Greenpeace listed Exxon as #1 Climate Criminal. Exxon’s alleged crimes include the sabotage of efforts to deal with climate change, the fraudulent manipulation of peer reviewed scientific studies and organizations, misleading and outright lying to the population of the U.S., its government officials and the global community in general. 8
Background Formed from a merger between Conoco and Phillips in 2003, the company has seen a rich history dating back to the 1870s. Conoco Inc. was originally from the Utah based company Continental Oil and Transportation Company. The company was a key supplier to the United States government during World War II, which helped it grow to a global corporation. In the 1980s after the oil crisis of the 70s, Conoco was bought by DuPont. Though, in 1998, DuPont dropped Conoco, which alllowed Conoco, a private company, to go public, resulting in the largest IPO in history. This eventually lead to Conoco acquiring Phillips in 2003. Today In 2009, ConocoPhillips had 30,000 employees and nearly 153 billion dollars in revenue. The company also saw roughly 5 billion dollars in earnings. Its expenditures were 60 million dollars and advertised in several different media including, cable TV, co-op advertising, consumer magazines, daily newspapers, point of purchase, special events marketing, spot TV and spot radio. Board of Directors - J. Mulva, Chairman, CEO and Chairman of Executive Committee - R. Auchinleck, ConocoPhillips Canada Resources Corp. - Ruth Harkin, ConocoPhillips - James Copeland Jr., UBS AG - William Wade Jr., ConocoPhillips - Victoria Tschinkel, ConocoPhillips - Kathryn Duberstein, The Travelers Companies, Inc. - William Reilly J.D., Aqua International Partners - Herald Norvik, Taylor Companies - Harold McGraw III, The McGraw-Hill Companies, Inc. - Richard Armitage, M.I.C. Industries, Inc. - Bobby Shackouls, Burlington Resources Inc. - Robert Niblock, Lowe’s Companies Inc. Recent Criticism ConocoPhillips was ranked 13th among U.S. corporations producing the most air pollution according to the Political Economy Research Institute.
Background Chevron is yet another company created by the anti-trust break up of Standard Oil by the Supreme Court in 1911. At that time and for most of the 20th century the company was known as Standard Oil of California, or SoCal, until it merged with Gulf Oil in 1984. At the time, the merger was the largest in history, and formed the company name Chevron. Also, in 2001 Chevron acquired Texaco, another American retail brand, forming ChevronTexaco, which would later return to Chevron after only a few years. In 2010, Chevron began a similar process of the other competitors, by selling the majority of its retail stores, focusing first Mid-Atlantic region and shedding nearly 1,100 stores. Today In 2009, Chevron had roughly 64,000 employees and 171.6 billion dollars in revenue. The company’s earnings were also particularly high with 10.5 billion dollars. Its expenditures were around 55 million dollars and advertised in several different media including, cable TV, internet, spot radio, consumer magazines, daily newspapers and outdoors (posters, billboards). Board of Directors - John S. Watson, Chairman and CEO - Samuel H. Armacost, (Lead Director) Retired Chairman, SRI International - Robert J. Eaton, Retired Chairman of the Board of Management, DaimlerChrysler AG - Franklyn G. Jenifer, President Emeritus, The University of Texas at Dallas - Kevin W. Sharer, Chairman, CEO and President, Amgen, Inc. - Ronald D. Sugar, Chairman Emeritus, Northrop Grumman Corp. - George L. Kirkland, Vice Chairman and Executive Vice President of Global Upstream and Gas - Linnet F. Deily, Former Deputy U.S. Trade Representative and U.S. Ambassador to the WTO - Chuck Hagel, Distinguished Professor, Georgetwon University, University of Nebraska at Omaha - Sam Nunn, Co-Chairman and CEO, Nuclear Threat Initiative - Charles R. Shoemate, Retired Chairman, President and CEO, Bestfoods - Carl Ware, Retired Executive Vice President, The Coca-Cola Company - Robert E. Denham, Partner of Munger, Tolles & Olson LLP - Enrique Hernandez Jr., Chairman, CEO and President, InterCon Security Systems, Inc. - Donald B. Rice, President and CEO, Agensys, Inc. - John G. Stumpf, Chairman, President and CEO, Wells Fargo & Company Criticisms Pollution from refineries in Richmond, California - Chevron’s refineries in Richmond, California, have been fined over 500,000 thousand dollars for illegaly bypasssing waste water treatments. This has caused Chevron to be listed as potentially causing 95 Superfund sites for the EPA to clean-up.
In 2009, Americans used 378 million gallons of gasoline per, which breaks down to more than one gallon of gasoline every day for each person in the United States per day (U.S. Energy Information Administration) Of the total amount of energy used in the U.S. each year, 28 percent of this is used in transportation. The most common mode of transportation is personal vehicles such as cars, motorcycles, and light trucks. There are 249 million of these types of consumer vehicles on the road today. These vehicles use gasoline for fuel (as opposed to diesel), and consume about 60 percent of the total energy used in transportation. Of this 60 percent, automobiles consume 32 percent of energy, and light trucks consume 28 percent of that energy. (U.S. Energy Information Administration) There are 162,000 fueling stations that provide gasoline to these types of personal vehicles. In 2009, Americans paid an average of $2.40 per gallon for gasoline. In 2008, the state of California spent the most on motor gasoline: $49,584 million. The state of Alaska spent the least. In 2008, Wyoming had the highest expenditures per person, as the average amount that each person spent on motor gasoline for the year was $2,043 per year. (U.S. Energy Information Administration) In recent years, there has been a trend toward using renewable energy between 2007 and 2008, renewable energy consumption grew 10%. In 2009, consumers bought 200,646 hybrid vehicles. (HybridCar.com) Overall, the consumers that would be most likely to shop at BP retail stations are those who drive personal vehicles. Gasoline is still the most popular form of fuel being used by these types of consumers, but there has been a recent trend toward hybrid cars, which is reducing the amount of gasoline being used by consumers. ! 11
BP is in the midst of undergoing certain business operations, including selling assets, which will make up to $30 billion available to the company. The money will be put toward clean-up efforts, essentially refining the company’s image and helping rebuild status and credibility with the general public and its consumers (BBC News http://www.bbc.co.uk/news/business-11618528). In addition to clean-up efforts, the company should focus its efforts more on producing affordable alternative energy options. Consumer research shows an increased demand for hybrid cars and the use of renewable energy to fuel personal vehicles, which coincides with the component of BP’s mission statement identifying the production of affordable, secure and environmentally safe energy options. If BP responds to this trend, it can redirect public attention away from recent occurrences and toward the future of BP: a company concerned with the needs and wants of its consumers in accordance with the state of the environment on a local, national and global level
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