BP and the Consolidation of

the Oil Industry (1998-2002)

Group 9
GAURAV KASHYAP (0249/55)
HARPAL SINGH (0327/55)
SHRUTI BHARGAVA (0365/55)
SHUBHAM ABROL (0366/55)
SAMYA MITTAL (0440/55)
 British Petroleum
OVERVIEW
• BP plc is one of the largest vertically
integrated oil and gas companies in the
world headquartered in London, UK.
• It is also a part of the group 'called
‘supermajors’
• Operations primarily include exploration
and production of gas and crude oil, as
well as the marketing and trading of
natural gas, power and natural gas liquids.
• As of 31 December 2019, BP had
operations in ~80 countries, produced
~3.7 million barrels per day and had
total reserves of 20 billion barrels
HISTORY
• 1901 – William Knox, founder of BP
entered oil industry by obtaining an oil
concession in Persia (Iran)
• 1909 - William formed Anglo-Persian Oil
company (APOC)
• 1950’s - Changed name to British
Petroleum and expanded beyond Middle
east to Alaska.
• 1987 - British govt. privatized the company
• 1998 – BP merged with Amoco to become
BP Amoco plc
• 2001 – Acquired ARCO and Burmah
Castrol becoming BP plc .
 Segments of the
Oil and Gas Industry
UPSTREAM
• The upstream segment is responsible for
exploring oil and gas, developing
reserves & bring them to the surface for
further usage
• Responsible for estimating how long the
reserves would last at the current rate of
production (15 for non-OPEC, 80 for
OPEC)
• Technology Innovations – horizontal
drilling, measurement while drilling, 3-
D seismic analysis enabled companies to
better explore new reserves & sustain
upstream
DOWNSTREAM
• The downstream segment is primarily
responsible for refining crude oil
through various processes and followed
by marketing to reach the end consumers
• Refining margins in this segment are
typically low
• ‘Just in time’ principle to increase
margins – inventories kept at historical
lows relative to production
• Move towards lighter products to
increase margins
 Oil and Gas
Industry Structure
OPEC
Non-
OPEC

OPEC – Formed in
Baghdad in 1960 to unify,
coordinate petroleum
policies
-Sets production quotas
for members to drive Non-OPEC – Post 1973 price surge investment in non-
prices OPEC increased resulting in higher market share
-Ineffective without formal -OPEC’s control diminished as a result
enforcement mechanism
 Porter’s 5 Forces
Analysis
4 Factors that affect the newest
Threat of companies to enter oil and gas
New business, especially the upstream
Extremely low due to: Entrants segment are:
Vertical integration of most of 1. Huge capital required
companies. 2. National Oil Companies
Companies present in Upstream control more than 90% of the
Operations as well proven oil and gas reserves
3. Huge R&D Spends
Rivalry
1 3
Extremely
Bargaining Bargaining
Power of
High Power of
Suppliers -> Industry Customers
Reaction after
BP merger

No imminent threat from Main buyers of oil and gas

substitution
But focus was increasing on
alternatives like Nuclear,
renewables due to high oil prices
which could be a long-term threat
products are:
1. Refineries,
2 2. National Oil Companies
Threat of 3. Int’l Oil and Gas companies
Substi- 4. Distribution companies
tutes The bargaining power of
buyers is relatively low due to
the nature of this industry
 Competitive Landscape
• Formed in Nov 1999 by
merger of Exxon (formerly
SOC of New Jersey)
& Mobil (formerly SOC of
New York)
• Merger in reaction of BP’s
bid for Amoco
• World largest publicly
traded company –
– Capacity - 6.3 Mn barrels
– Reserves – 20 Bn Barrels
• Efficiencies from merger
propped up prices
• Royal Dutch Shell - is
British-Dutch company
headquartered in
Netherland
• 3rd largest company in the
world measured by 2018
revenues • 52% upstream production in
– Capacity – 3.7 Mn barrels
– Reserves – 13.7 Bn
barrels
• Disinvested coal, chemical
business to cut costs
• Future focus on gas,
alternatives
• Chevron’s $38 Bn
acquisition of Texaco in
2001 to form world’s 4th
largest petro company
– Capacity – 2.7 Mn barrels
– Reserves – 11.5 Bn barrels
2000 from US, the highest
of ‘supermajors’
• Strategy to increase
capital expenditure
• Venture into energy
services business Dynegy
 BP’s merger with Amoco

US largest producer of petroleum & natural gas

- low overlap according to Competition Commission

Synergies
• Cost reduction synergies of $2000mn
• Better retailing position in US
• Enlarge chemical business
• Increase proportion of natural gas
production (higher margin) to
oil production (lower margin)
 BP& ARCO

World’s largest public oil producer

FTC – 75% Alaskan North slope crude oil output
- 70% of Trans-Alaska Pipeline system
Synergies
• Expected synergies of $1bn
• Alaska (30% BP’s oil production) - 2.8$bn BOE proven
reserves & lease to 860000 acres land
• Strengthen global portfolio
– Upstream growth in Asia
• Undeveloped natural gas reserves of 25tn cubic feet
• Improved US retail network