Managing the Risk Environment

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RISK REVIEW OF BP

REPORT

Background

Everyday BP serve around 1 million customers in more than 100 countries across 6 continents, providing products that improve their quality of life-fuel, energy for heat and light and petrochemicals for use in everyday items such as textiles, packaging and health products. Everyday more than 100,000 people combine their energy and innovation to make BP one of the world's leading companies. Write my Essay on Managing the Risk Environment cheap

BP Risks

Financial

Financial risks exist in many forms. Not meeting annual growth targets and not investing sufficiently in new fields due to being short sighted and return of assets low is one of many dangers that BP faces. Analysts expect sales of up to $ billion of mature assets around the world, most of which will come from the North Sea, Alaska and other parts of North America. This time OPEC may consider temporarily suspending its output limit altogether, but that will do little if the group is about to reach its maximum capacity. But the main way of countering the surcharge will be through new investment in the North Sea, which will qualify for 100% capital allowances. BP announced plans for a further $0 billion of investment in less traditional oil fields after confirming a $6.75 billion deal to buy a half share in TNK, Russia's third largest oil company. In Russia, BP will assume management control of a new joint venture, formed from existing investments in TNK and Sidanco, but said it turned down the chance to take more than 50% of the equity because it wanted Russian investors to feel wanted Russian investors to feel equal partners and help lobby the government. It still prevails today, by just about every measure of the share price, and it is still our view that it must come down. Because falling oil prices are likely to cool demand for the sector; it is more likely that BP shares will fall.

Economic

Global recession may cut consumption. The six biggest international oil companies all been left with a long tail of old and inefficient assets which are eating into management time. North Sea asset deals had fallen to a five year low because big companies were clinging to mature assets in the vain hope of hitting their production targets. An additional incentive for them to do so is the chancellor's hefty 10% surcharge on North Sea oil profits introduced in the last Budget. A bold some might argue reckless-acquisition in Russia, has upped the risk profile of this previously relatively conservative institution. This acquisition, of a 50% stake in TNK for £4 billion looks expensive and comes with the usual risks associated with integrating a big new deal, plus the extra stress of doing business in Russia, the modern day equivalent of the Wild West.

Political

War on Iraq may cause shortage and increase oil prices significantly. Oil prices have risen by almost 60% since mid 00 to nearly $40 a barrel in recent weeks, a level not seen since the 10 invasion of Kuwait. Analysts and officials in the main consuming nations question whether the kingdom of Saudi Arabia and its nine active OPEC brethren have much spare crude to offer the seemingly insatiable market.

The most powerful of those statistics is the massive decline in commercial oil inventories, especially in the U.S stocks have been hit by the cold winter and shortages created by the Venezulean strike.

Environmental

The obvious problems with operating an oil and gas company are the likelihood of oil spillages, land exploration and drilling. Alongside the standard financial figures, BP reports its own greenhouse gas and other emissions, oil spillages, employee satisfaction, days lost through injury at work, and community investment across the world (see Appendix 1). Tanker accidents make newspaper and television headlines but, in fact, oil spilt from tanker accidents are estimated by be 5% of all the oil which goes into the sea. The biggest input of petroleum hydrocarbons into the sea is from land sources.

BP operations feature in the Greenpeace Filthy Fifty list and in Friends of the Earths Secret Polluters list. In February 11, a 00,000 gallon spill from a BP-charted oil tanker spread for twenty square miles and severely disrupted the environment of nearby Huntingdon beach in California. The State of California then drafted new legislation to improve tanker safety and to elicit a $500m spill response fund to be paid for by the oil companies. This was part of the far-reaching Big Green environmental proposals defeated in late 10 by a majority. BP spent $171,000 to help oppose the bill. (See Appendix )

Competitions

SHELL

Shell Oil has attracted much criticism and media attention recently over two major issue; Brent Spar and Nigeria.

It is now over a year since the Nigerian military dictators executed Ken Saro Wiwa, the leader of a minority ethnic protest group in Nigerian region called the Ogoni. He and eight others were sentenced to death in an unfair trial for their alleged involvement in murder. They were innocent; the real motive for the trial and the execution was to end campaigns against Shell Oil. Ken Saro Wiwa played an important part in leading the protest against the exploitation of Ogoni lands and Ogoni people by the oil giants such as Shell. Shell Oil did nothing to stop the killing because they wished the protests to end so that they could return to Ogoni to continue to exploit the oil reserves, the environment and the local people. As media interest peaked, Shell Oil was forced to admit that they had even supplied guns to the Nigerian government. (see Appendix )

TEXACO

For 0 years, Texaco pumped oil from the Ecuadorian rainforest, one of the Earths gems of biodiversity, and home to 00,000 Quichua, Siona, Secoya, Cofan, Shuar, and Huaorani Indigenous people. After extracting more than one billion barrels of crude oil, Texaco washed its hands and pulled out of Ecuador in 1, leaving behind a colossal mess of toxic waste pits, oil spills, and poisoned communities. (See Appendix 4)

EXXON/ESSO

The big tanker spills at sea are often the most visual and striking reminder of the potential environmental damage of oil production. In March 18 the Exxon Valdez super tanker ran aground and broke open, releasing 11 million gallons of crude oil into the Prince William Sound, Alaska. The US National Transportation Safety Board, investigating the causes of the spill, partly blamed the higher-ups at the Exxon Shippinh Company for poor management. (See Appendix 5)

CONCLUSION

The most obvious and most publicised risk to date has been the war in Iraq which would inevitably have a big impact on the operation of the oil companies seeing as it is seen by many to be a war about the control oil. This in turn would have an affect on the world economy where oil prices would have to be pushed up due to the scarcity of the availability of the resource. Currently, with a Beta value of 0.8, BP would seem to be a safer investment than say Shell, their nearest competitor, who has a Beta value of 0.87. It could also deter potential future investors due to the high risk that is involved. Environmentally, they have been a lot more socially conscious, thus reducing the number of oil spillages and advocating being more globally aware. The competition a face the same problems as do BP

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