Describe about the Bidding Procedure of British Petroleum?
The BP plc, formerly known as British Petroleum is one of the largest oil and Gas Company among the six “super major” oil and gas companies in this world. It is a famous multinational company of Britain situated in London, England. In 2012, it acquired the place of world’s sixth largest oil and Gas Company of the world. It is a vertically integrated company and operates in all the areas of oil and Gas Company, which include production, exploration, marketing, distribution, trading, refining, power generation and petrochemicals. In bio fuels and wind power, it also has the renewable energy interest. However, the changing environment of the upstream crude oil procurement industry and the recent Deepwater Horizon disaster in Mexico in the year 2010, have generated various issues for the British Petroleum. As a result, there arises a situation of undertaking for the BP Plc, after the 1970s. However, an undertaking process by the potential bidders was not as easy as thought to be due to some political issues and managerial strategies.
As a possible take, BP has the following attractions:-
It has a large capital stock or assets that could generate interest among different bidders or undertakers in the country.
According to the financial report of 2012, it held the fifth position among the largest revenue earning oil and gas companies. Other foreign oil and gas companies of the world may interest to undertake this oil and gas company for the large amount of revenue earned by BP Plc (Bp.com, 2015).
British Petroleum can secure the crude oil reserves and also can grow as a publically traded company.
The company deals with developing the construction, exploration and operations, which will lead to a growth of the company in future if there is the flow of investments by the foreign undertakers.
Since, the BP Plc depends on the long-term goal, the overseas investors of the company will incur high profits and there will be a possibility for the company to grow in future.
However, in 2010, BP has faced the Deepwater Horizon disaster but currently it has developed a comprehensive programme to overcome the problems related to the upstream oil procurement division (Crunchbase.com, 2015).
British Petroleum has planned a project named “Project 20K” including new business strategies, technologies and unique regulation approaches. This can easily attract the foreign companies to undertake the British Petroleum, as now they can easily overcome the uncertainties and costs of Disasters.
In spite of some weaknesses, this company still has some strength as it has the expertise in the deep-water drilling process besides having 20% stake in Rosneft, which is the biggest oil company of Russia.
At present year due to the fall in oil price, this company has faced 15% reduction in the capital expenditure for the 2010’s Mexican disaster at suggested by USA law. This incident will help to reduce the fear for costly acquisition among the undertakers of BP.
Recently, a $1 billion restructuring programme has been announced by BP, which will attract more investors to invest in it (Encyclopedia Britannica, 2013).
The main disadvantage of BP as a possible undertake is its vulnerable reputation after the Oil spill in deep water horizon in Mexican Gulf, in April 2010. These incidents caused a huge financial loss for BP. Hence, most of the foreign companies reluctant to undertake the British Petroleum for its improper management and safety issues.
Day by day, the market share of BP is declining due to its bad reputation, which raises the uncertainty for the company as well as the possible undertakers (Ethicalconsumer.org, 2015).
As BP is a multinational company, it is facing a huge challenge in different countries by their domestic national oil and gas companies. Because, these national oil and gas companies dominate the whole domestic oil market by receiving beneficial treatments and subsidies from the local government. Hence, at present it is very difficult for BP to operate as large revenue earning business firm in the international oil market after facing a huge competition from the side of the rival oil and gas companies. Therefore, there will be a risk for the foreign undertakers to operate this company.
British Petroleum has 20% stake in the Russia’s biggest oil company Rosneft, but in recent years Rosneft is going through a declining phase by incurring a large amount of loss that intern cause a capital loss for BP as well as its undertakers.
For the recent disasters of BP, the U.S. and the U.K., the government has introduced the tight environment regulations for BP, which act as a hindrance to its free production activity and business strategy. Hence, the new undertakers will not be able to take any new production process or business strategy that cause violation to these regulations (Islam, Khan and Chhetri, 2012).
According to many experts of the oil industry, the potential bidders of BP Plc will face some vulnerable problems while undertaking the oil BP oil company. These problems mainly related to some political issues and managerial styles.
Five years ago, the government adopted a huge bill after the disaster of Mexico Deepwater Horizon. According to this bill, the British government is completely opposed to the undertaking of BP Plc.
The British Government is against the undertaking process of foreign investors as according to them it will not be a neutral process if there is a foreign takeover on the BP Oil Company. For example, in past, when the Exxon Mobile undertook the BP Plc, it had a full control over the BP, which also faced some other major problems while it was undertaken by the Anglo-Dutch Oil Shell.
The U.K. government has some formal powers by which it can block a bid in such a manner that it can deter the foreign bidders from making a bid (Jacoby, 2012).
The 2010 oil spill in the Gulf of Mexico also acts as a major political issue in the way of undertaking the BP Plc by the U.S. company Exxon as it includes a large amount of uncertainty.
A laissze-fair approach to takeovers have been pursued by the Successive Labour and the Conservative government of Britain, but the two opposite parties have a protest against this bid respect to the business, political and public factors.
Because of the political oppositions, the U.S. company Exxon is seen as being unlikely to launch a bid though BP has many assets that could create interest for the Exxon (Jiménez, 2014).
In case of managerial system of BP Plc, there are some difficulties related to the integration of two companies i.e. BP Plc and Exxon due to some critical practices at BP, which has been suggested by the chief executive of Exxon to contribute to the disaster.
The potential bidder Exxon is worry of overpaying for the acquisition of BP Plc.
According to the chief executive BP Plc, the energy group of the potential bidders like Exxon had no appetite for a megamerger, which is similar to those that reshaped the oil industry in the 1990s (The Economic Times, 2015).
The potential bidders are afraid of the vulnerability of BP while takeover the company because of the incident of Deepwater Horizon disaster (Kermani and Chevrot, 2012).
BP is still bearing the huge cost of the disaster, which may be a burden on the potential future bidder. For the individuals and the businesses, which are affected by the spill, the company is bearing a large amount of cost.
After the disaster of 2010, BP faced a continuous fall in its share price.
The shareholders of BP Plc are also unsatisfied with the performance of the company as at present it offers a very low level of dividends to the shareholders. Over the past ten years, the shares of BP have fallen by one-fifth though there was 20% growth in the stock market (Myassignmenthelp.com, 2015).
In the first quarter of 2015, the economy has faced a continuation in the low oil prices. However, there will be a conflict in the decision-making that whether this fall in oil price will accelerate any take-over bid on British Petroleum or whether it will cause another barrier for the bidders. Hence, two types of arguments can be considered in this case (Rusco, 2012).
Due to a fall in oil price there will be a fall in the overall production, transportation and restructuring cost of the environment, which will minimize the fear of overpaying among the new bidders. Hence, the new bidders will now be interested to undertake the company without any fear.
With the fall in production cost, it will be easy for BP to compete with the domestic national oil and gas companies, which are mainly supported by the benefits and subsidies of local government (Openoil.net, 2015).
With the fall in oil prices, a 15% reduction in capital expenditure of BP has been seen in recent years, which will accelerate the takeover bid in future.
Besides BP has announced a restructuring program of $1 billion to accelerate its growth and business strategy that will attract many foreign companies for take-over.
The reduction in oil price will also decline the expenditure or production cost of the foreign companies, which will increase the real income of those firm. That is now the foreign companies hold a greater amount of investable fund in their hand than before and can easily invest in the oil and gas companies like BP, which is undergoing through the deep financial crisis (Quotes.wsj.com, 2015).
As there is a fall in oil prices like most of the oil and gas companies, British Petroleum is also suffering from the low level of profits. If this fall in price will continue farther, then BP will soon incur a loss. Then the foreign companies will not be interested anymore to undertake BP, as they cannot gain incentive by undertaking this oil and gas company.
The fall in oil prices will lead to a fall in earning of BP, but according to U.S. law, it has to provide; compensation or cost for the 2010’s Mexican deep-water disaster. In this situation, if a foreign company undertake BP in this situation then it has to carry this burden of the excess cost of BP (Reuters UK, 2015).
Due to fall in oil price, there is a risk for any profit-making company to go for the undertaking procedure of a oil and gas company especially the company like British Petroleum which itself is suffering for the low market price and financial crisis (Rusco, 2009).
Hence, from the above discussion it can be concluded that there are some advantages as well as disadvantages related to this undertaking or the Bidding Procedure Of British Petroleum. The advantages are mainly due to a large amount of revenues incurred by BP while the disadvantages of undertaking procedure are related to the vulnerable reputation of BP due to Gulf disaster of 2010. There are also some political factors and other managerial issues, which act as a hindrance to this undertaking procedure of BP. Therefore, even after the continuous fall in oil price in the first quarter of 2015, it can be specifically said that whether it will accelerate the take-over procedure or will act as a barrier to take-over.
Different experts of oil and gas industry have provided different suggestions for BP to overcome the present uncertain situation. Hence, to avoid the uncertainties the BP should go for the new innovative techniques, which should be technologically improved to avoid the issues of difficulties in managerial styles and integration factors related to the production process. Besides the company should concentrate on the Corpora rate Social Responsibility (CSR) policy to avoid the environment issues.
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