SWOT Analysis of Oil Companies
The report provides an analytical review of British petroleum (BP) (international oil company) and PETRONAS (national oil company) in terms of management style, culture, organizational structure, and SWOT analysis. Providing a balanced review of these aspects would assist in making a conclusion on whether the two companies are appropriate investment vehicles.
British Petroleum (BP) is known to be among the biggest companies around the globe and deals with gasoline and oil (Bamberg 1994). Headquartered in the United Kingdom, it is the leading gasoline retailer in the United States. The company is ranked among the top three gasoline and oil producers internationally. It is evidenced that the markets of Europe and the United States contribute not less than 70% to the company's profits (Bamberg 1994). BP's operations are stretched to more than six continents including South America and Asia. The company takes part in exploration, production, refining, manufacturing, marketing, and transportation of crude oil, natural gas, and petroleum products (Bamberg 1994).
Management Style, Culture and Structure
According to Tony Hayward, BP has a directive leadership and management style. The top officials of the company do not listen to the bottom employees. As the chief executive officer, Hayward employed visionary leadership style to react to the diverse strategic concerns facing the company. By involving their novel middle-management, BP was able to put into practice a new culture. The management was blend from the diverse company entities by a rational human resource strategy.
BP has engaged in developing a solid cultural policy to ensure that it remains competitive in the market, and improves and retains its employees. A good instance is the acquisition of AMOCO, which enabled BP to move towards cultural integration. The structure of the company also modified as a result of acquisitions and mergers.
Research shows that BP has a non-hierarchical culture (Edersheim 2010). Some people argue that the company has lost their culture, and it is linked with the numerous problems faced by BP. For instance, the company's culture resulted in environmental and safety issues. Lack of answerability, safety violations, and oil spills shows that social responsibility, environmental and safety processes are not incorporated in BP's culture (Edersheim 2010).
The organizational structure of BP has developed towards an empowered, entrepreneurial of 100 business units. The management levels of the company have been decreased from 13 to 5 to enhance efficiency. The company's organizational structure enables it to operate in an effective way. This makes certain that employees understand their responsibilities and accountabilities well. For instance, BP restructured its upstream business with an aim of bringing professionals with the same knowledge together.
BP has been able to dominate in the oil industry since its establishment, and this has enabled the company to gain a dominant position in the market. The company is the third biggest internationally in the oil industry. It is deemed a multinational oil corporation due to its involvement in the global market activities. BP is the biggest gasoline and oil producer in North America. Research shows that British Petroleum has a substantial market effect, through which it obtains remarkable trading performance in the international energy industry (Ferrell 2012).
The second strength of the company is that it has superior and remarkable performance in the energy industry around the globe. This has been enabled by its network with retail brands and subsidiaries including AMOCO, BP CONNECT, BURMAH CASTROL, and BP EXPRESS among others.
The company's slogan "Beyond Petroleum" has enabled BP to manage its brand effectively (Ferrell 2012). Through this, the company has been able to maintain it strong in the market. This has contributed to the success of BP in the energy industry around the globe.
The operations of BP are vertically integrated. Research shows that it is among the biggest vertically integrated corporations in the world (Boscheck 2008). Vertical integration is beneficial as it allows the company to operate in the whole supply chain. This includes exploration, extraction, transportation, refining, and distribution of oil and oil products. This assists in cutting the costs that could be involved when using middlemen.
BP functions in a complete hydrocarbon value chain (Bamberg 1994). This enables the company to develop collective operational excellence efficiently in different areas. These include technology, environmental, safety, and social practice.
Safety concerns and inappropriate management are among the major weaknesses of the company. BP is linked to environmental incidents because of its involvement in oil spill. For instance, in 2005, there was an explosion at the Texas City refinery that left fifteen of its employees dead and 100 injured. Other concerns include Prudhoe Bay and the Gulf of Mexico oil spills. The Deepwater Horizon spill, which took place in 2010, is evidenced to be the biggest oil spill into marine water (Safina 2011). The spill led to harsh economic, health, as well as environmental impacts (Safina 2011). These environmental and safety concerns have tarnished and ruined the image and reputation of the company.
The company has faced a number of legal suits, most of which are connected with oil spill. Some of them are still proceeding in the current time. In some of the suits, BP has been found guilty, which led to penalties and fine (Boscheck 2008). This also contributes to tarnishing the company's reputation.
Amplification in the price of oil in the United Kingdom and other regions may reduce the competitiveness of the company. Price is a major factor considered by consumers when deciding whether to buy a product. They may prefer products of the competitors, considering high pricing of BP oil products. Finally, BP has also launched contentious business with other corporations such as the Baku-Tbilisi-Ceyhan pipeline.
BP is amongst the largest oil corporations on the globe. One of the ways in which the company has grown is through acquisition. BP has an opportunity of acquiring other companies in order to continue with its expansion.
The company can engage in alternative energy techniques by implementing an effective plan. Besides, it can invest highly in research in order to seek alternative method. These include solar, wind, and hydrogen. This may reduce the risk of decline in oil production.
Other opportunities encompass discovery of new oil wells; therefore, provision of an increased supply of crude oil, expansion of market for oil products, and amplification of prices can offer a great opportunity for the company.
BP is highly affected by external threats. The main threat is legal and environmental pressure from advocates, which amplifies operation cost for the company. Paying attention to the damages caused to the environment by BP is the origin of all these external threats.
Other threats include lack of stability in regions well known for oil production, environmental protection systems, rise in operation costs, competition and risks of takeover by the competitors. The competitors include Shell, Chevron, Total, and Exxon Mobil (Bamberg 1994).
Petroliam Nasional Berhad (PETRONAS) is a national petroleum company headquartered in Malaysia. Since its conception, it has become a world leading oil and gas company operating in over 30 nations globally (Oxford Business Group Malaysia 2010). It ranks among the 500 largest Fortune Global corporations worldwide. PETRONAS has a sturdy and diversified stand of upstream assets, which gives it a competitive advantage over its competitors. Increasing competition and price escalations in the global market could result in lower market share and operational growth for the company, also experiencing disruptions in the supply and production of its operations.
Management Style, Culture and Structure
PETRONAS has established a corporate style management structure to enhance its operations. The culture adopted by the company aims at contributing to the welfare of the people and the countries in which they operate. This culture is the heart of their mission, and it shapes the company's loyalty to conducting its business in a socially, environmentally and ethically responsible manner, as it strives to capitalize returns from shareholders.
PETRONAS organization structure comprises of nine board members who are mainly representatives from the private and public sectors. The chairman of the board is the Honorable prime minister of Malaysia. In the discharge of its duties, the board of directors is assisted by an audit committee and executive committee that it establishes. The management team is led by a managing director.
Huge revenue growth: in the fiscal year 2008, the company delivered a record revenue performance. It recorded the highest ever revenue of 66,215 million US dollars in 2013 (Oxford Business Group Malaysia 2010). Since then, the company has always aimed at increased revenues through average realized prices and higher volume sales. PETRONAS revenues from operations in Malaysia to international operations increased to 34.3 percent demonstrating the company's growing operational presence. The operating profit of PETRONAS increased by 33.78 percent as it successfully contained costs in spite of operating in an environment characterized by uneven operating cost escalations. The robust revenue growth will enable PETRONAS to track strategic capital investment opportunities in the future (Oxford Business Group Malaysia 2010).
Diversified operations: PETRONAS has incorporated operations along the energy value chain locally and globally. The company's operations include the full range of oil and gas operations. These include explorations, production and oil refining, crude oil marketing and trading, gas transmission pipeline operation network, gas processing and liquefaction as well as marketing and trading of liquefied natural gas. The company is also involved in the manufacturing, marketing, shipping, and property investment of petrochemical manufacturing. PETRONAS functions in over 33 countries worldwide through five business operations, including petrochemicals, exploration and production, gas business, oil business, and logistics and maritime business. The diversified operations have seen the business thrive well in the market. For instance, in the fiscal year ended March 2007, the company generated total revenue of 22 percent from its exploration and production operations while the other four divisions raised total revenue of 73.1 percent (Oxford Business Group Malaysia 2010).
The company's integrated nature in its business operations has enabled it to add value to the energy value chain, as well as track future strategic growth opportunities and cost savings. The company's diversified operations in terms of divisions and locations shield it from risks that can result from a downturn in the market.
The reserves position of the company in terms of replacement ratio, capacity, and geographical diversity is strong. In 2008, the proved reserves of PETRONAS made 26.37 billion barrels of oil equivalent (boe), a decline from the previous year. Lack of good reserve replacement over years affects the ability of the company to increase its sales and maintain a stable supply source.
Refinery disruption: PETRONAS refinery in Durban had disruptions of operations in 2008. The company's production declined as a result of unplanned shutdowns. In turn, this influenced negatively the supply and distribution of the company. The disruptions resulted in financial losses and adjustments in operations. Continued disruptions in operations could result in cumulative losses in future (Segal-Horn & Faulkner 2010). This could not only lead to lengthened sales cycles but also reducing profitability.
Growing LNG Capacity: the aim of PETRONAS is to build an integrated LNG business globally. After the company started its operations, its share of production from the ELNG project raised to 1.8 million tons in 2007. Today, the company engages in the debottlenecking of the MLNG Dua Plant in Malaysia that is estimated to raise the production capacity of its LNG complex of 1.2 million tons to 2.4 million tons per year. This project is set to ensure the company's access to new markets and provide a home for LNG cargoes in the future (Chin 2008).
The demand of natural gas, LNG, and high fuel prices is anticipated to continue growing. Natural gas global consumption is expected to rise by 70 percent by 2025. The focus by PETRONAS on natural gas ensures the company's better placement in the market and thus a chance to pursue opportunities in the growing LNG market.
Increasing demand for natural gas and oil: the strong economic growth in the underdeveloped nations is expected to drive the demand for natural gas and oil significantly. The overall energy demand is expected to grow about 1.6 percent annually by 2030. As a result of the growing transportation sector, demands for liquid fuels will rise by about 1.4 percent while natural gas demand will increase by 1.7 percent annually by 2030.
Price escalations: the oil and gas companies operated in a challenging environment in 2007 due to increasing costs which overshadowed returns from high energy prices. The prices of crude oil remained high through the transportation sector, and it continued to affect the strong economic growth, especially in the Asian countries. Increased demand, OPEC crude production limitations, and the international lack of capacity escalated the prices higher. The heightened oil prices and demand intensified the operations of the industry, and this fuelled PETRONAS' upstream costs. Price escalations have resulted in project delays and threatened the safety, quality, and efficiency of the operations of the company. This continuing trend will influence the economic viability of the ongoing and unplanned PETRONAS projects, thus pressurizing its earning capacity in the future.
The energy industry is governed by numerous environmental local, national and regional laws and regulations with respect to production and exploration of oil and gas, petrochemical and petroleum products (Taverne 2008). These laws and regulations require companies to file and get approval for an environmental report before they start the exploration, production, and refining of its products. They are also required to restrain the type and quantities of the substances they release to the environment during their production activities. The laws and regulations also prohibit drilling activities within protected areas and impose penalties for pollution as a result of exploration and production of oil and natural gas (Taverne 2008). PETRONAS is subject to the regulations involving the production, handling, storage, transportation, and disposal of solid waste materials (Segal-Horn & Faulkner 2010).
By considering the Management style, culture, organisational structure, and SWOT analysis of both companies, it is true to say that they are worth investing on heavily. BP and PETRONAS have a myriad of strengths, good organizational culture and structure which have enabled them to be the leaders in the energy industry. Besides, there exists numerous opportunities in which both companies can take advantage of. This implies that investing in the companies could yield better results.