Submitted by: Submitted by dfroment
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Category: Business and Industry
Date Submitted: 02/20/2011 10:54 AM
Industry Background
1.1 Oil and Gas Industry Background
Nowadays oil and gas are the world’s primary fuel source. The Oil and Gas industry involves different stages which are: exploration, production, refining, transportation and storage, marketing and distribution. (Yahoo Finance, 2007)
The exploration and production industries (E&P) are very diverse and fragmented (Library of Congress, 2007). The processes of exploration include many uncertainties[1] which depend on geological technology (BP Annual Report, 2006). The cost of a failed exploration, which consists of geological studies and a dry well, can vary from $5 million to $20 million per exploration site (Dickens and Lohrenz, 1996). However, when an exploration site is successful, profitability margins are higher compared to the rest of the industry (Library of Congress, 2007). These characteristics make the E&P business the riskiest of the oil and gas industry.
In contrast, refining[2] has a much lower level of uncertainty, being similar to any general manufacturing process. However, the oil and gas refining industry is highly capital-intensive[3], which explains why there are not many players in this business (Library of Congress, 2007).
1.2 BP PLC Background
BP Plc’s (BP) history started in 1908 with the discovery of oil in Persia (Iran today). BP is a holding company within the industry of oil and gas. BP has operations in Europe, the United States, Canada, Russia, South America, Asia and Africa (BP Form 20-F, 2006) and employs around 96,000 employees (BP website, 2007). BP is what is known as an ‘integrated[4]’ company - because it has operations in every part of the industry: Exploration and Production (upstream), Refining and Marketing and Gas, Power and Renewable (downstream) (BP Form 20-F, 2006). BP also operates in low-carbon power generation and other alternatives sources of power generation without the use of oil or gas. Since 2004 BP has not undertaken any major acquisition (BP...