Executive Summary
This case study report examined a public relation management problem that British Petroleum (BP) faced since the oil spill accident happened in April, 2010. In addition, this thesis recommended possible solutions and implementation plans for BP to deal with the public crisis. On April 20, the explosion on the Deepwater Horizon drilling rig in the Gulf of Mexico led to the largest accidental release of oil into marine waters in history. As a result, a huge loss of money and life was caused and affected serious environmental damage to wild animals and water pollution.
BP was accused of their irresponsibility that it took 87 days before the well was closed and sealed. BP’s shares plummeted to the lowest point since 1996. The communities around the Gulf of Mexico blamed BP for their carelessness and appealed for more actions to recover their low income life. BP has already established $20 billion fund to respond the situation in the Gulf of Mexico. However, according to recent research, the amount of the money is not enough to straighten out the crisis. In order to examine the case, we performed PEST and SWOT analysis methods.
We focused on evaluating economic and socio-cultural factors that were the major elements had affects on BP’s public image. At the same time, we analyzed and key strengths and opportunities that essential for BP to revitalize its brand image. Our analysis revealed two crucial factors. First, BP’s own fund is not enough. Second, there can be more effective solutions to sew up the company’s mishap. Based on those finding, we determined that BP should play more active role in the crisis and our solution is to create a worldwide oil trust fund that will gather the power of all oil companies.
The purpose of this fund will be collecting money for extra help in such situations, due to the case with BP is not the only one and other companies also experience such situations previously.
Introduction
Background
In the evening of April 20, 2010, the gas release and subsequent explosion occurred on the Deepwater Horizon oil rig working on the Macondo exploration well for BP in the Gulf of Mexico. The fire burned for 36 hours before the rig sank, and hydrocarbons leaked into the Gulf of Mexico for 87 days before the well was closed and sealed. The explosion led to the largest accidental release of oil into marine waters in history. Eleven workers on the rig died, 17 were injured. The oil spill also caused serious social and environmental problem.
About 1,070 kilometres of Gulf of Mexico coastline were contaminated by the oil. The area closed to fishing reached a peak 225,290 square kilometres on June 21. The area’s tourism industry was devastated by the spill which employs 524,000 employees. The latest report from the oil spill’s Unified Area Command shows that 2,080 oiled birds were collected alive. Also, about 6,104 dead birds were assembled and 609 dead turtles have been amassed. Accordingly, BP has acted to take responsibility for the clean-up, to respond swiftly to compensate people affected by the impact of the accident.
As of 31 December 2010, BP had spent $17. 7 billion for their response activities. As of March 28, there were still 217 vessels and 2,349 personnel working on cleaning up the spill. 3,474 kilometres of containment and absorbent boom were deployed against the spreading oil slick on August 2nd. 411 in-situ burns conducted (which burned 265,450 barrels of oil) and 1. 4 million barrels of liquid waste collected.
Problem of statement
The oil spill undermines the reputation and market position of British Petroleum, thus its stock prices decline dramatically. Even though BP took measures for resolving these problems, its way was not beneficial enough and therefore, it still requires more advantageous resolutions.
Statement of Objectives
The objectives of this study were to:
- Figure out problems that BP faced after the disaster
- Analyze companies’ position at the oil market
- Overview the main resent futures of oil industry
- Evaluate BP’s masseurs
- Suggest applicable ways to cope with obstacles
- Build implementation plans for BP to put into action
Methodology
We used two analyses methods to identify background and to evaluate information that we have. First of all, SWOT analysis finds specific internal facts that play main role in BP’ business, its Strength and Weakness, Opportunity and Threat. Secondly, by performing PEST analysis, we discovered external elements that had major influence on this issue.
We evaluate oil business environment from four perspectives, political factors, economic factors, socio cultural factors, and technological factors. PEST analysis gives company opportunity to see a longer horizon of time, and be able to clarify strategic chances and threats that the organization faces. This evaluation lets us prepare better solution of problem and strategic plan that will successful in the future.
Assumptions
- This case was conducted at the beginning of 2011
- There was not another major problem affecting to BP except the oil spill in Mexican Sea.
Findings
Analysis Performing
PEST analysis, we found following key factors: From political perspective, we would like to mark, the most important recently happen event that after long discussion with some oil companies, such as Shell, Exxon Mobil, Chevron and BHP Billiton received permission to continue their drilling work in The Mexican Sea.
Moreover, BP also received that permit; however, after other companies and with different limitations and strict rules. Nevertheless, companies can continue their work, but they are not let to drill new ones. Even though the works in Mexican Sea was started again, the damage after disaster still exists and there are not any proved forecasts when environment will be completely clean and re-establish. Furthermore, some events that are going on now in the World nowadays have huge influence on oil industry.
There are problems in the Middle East and earth quick in Japan. All of these factors make oil market unpredictable and very changeable, and at the same time stimulating upper trend of oil prices. In addition, work in oil industry is becoming more and more complicated and expensive, due to diverse limitations and rules are created by different environment organizations. From economic side, it is obvious that oil price increased dramatically from 95. 27 (January, 25 2010) to 122. 5 (April, 6 2011).
Moreover, according to forecast, such trend will continue and oil market expects future increase to $130 in July 2011 and even $150 in October 2011. On the other hand, the costs of drilling process will also rise in very close future. Social perspective demonstrates high rise in oil consumption for one person, thus oil consumption is expected to become 90 ml barrel/day at the end of 2011 year. Also we should notice social responsibility of BP and the evidence of this fact is its sponsorship of London 2012 Olympic and Paralympics Games. The last point of PEST analyze is Technological factors.
These findings determine the continuing development and improvement in industry under consideration, therefore, these new advanced technology makes drilling more beneficial and safe for environment and also decrease possibility accidents. Performing SWOT analysis, we found following factors: BP is the third-largest energy company and fourth-largest company in the world measured by revenues. It has a strong foundation and potential to be recovered from the oil spill accident. According to the company’s report that BP had a return to profit of $1. 85 billion after the disaster though it had huge loss after the disaster.
With the new investment in alternative energy and alliance with Kremlin-controlled oil company Rosneft, BP has good opportunities to gain back its profits. However, BP also faced serious situation that the company had several oil spill accidents and massive economics loss. For example, the catastrophe in the Gulf of Mexico in 2010 led to 11 deaths and at least $17. 15 billion loss. BP sold some asserts and gas stations to pay for the compensation. In 2005, the explosion of BP refinery in Texas caused 100 injuries and 15 deaths. The Exxon Valdez spill in Alaska in 1989 resulted in closing of Alaskan oil wells and $7 billion loss.
Moreover, BP is suffering its largest threat of its reputation and company image. The public criticized BP’s attitude to the victims of the oil spill when Kenneth Feinberg, the administrator of the independent fund, indicated the $20 billion compensation fund was too generous in a press.
Findings Finding
BP’s $20 billion fund is not enough for oil spill clean-up After the meeting with the President of the United States, BP established a $20 billion escrow fund to dealing with the damages and claims arising from its disastrous Gulf oil spill. Businesses, individuals who suffered economic losses or physical injury as a result of the BP oil spill were eligible to file two types of claims: Emergency Advance Payments and long-term final damage claims. Although $20 billion fund is already a financial calamity for BP, it planned to reduce its investment program and sell $10 billion of assets to help defray the costs of the escrow fund. But the real question is whether $20 billion is enough for the loss of lives and environmental damage?
According to the initial investigate report from analysts at Barclays Capital, estimates of the total cost of cleaning up the spill and paying damage claims have run as high as $70 billion, including costs associated with the damages to wildlife, commercial fisheries, tourism and recreational industries and costs associated with disruption of shipping. Till now, the average daily cost jumped to $33 million as BP paid more than 1,000 claims. Depending on how the situation unfolds, the final cost is still unknowable but it will definitely exceed $20 billion.
Moreover, the public have harbored suspicions about the $20 billion BP Trust Fund meant to compensate victims of the oil spill. The calamity, which now ranks as the largest offshore oil disaster in US history, paralyzed important segments of the Gulf Coast’s economy. The fishing industry came to a stop, tourism was wrecked, and the livelihoods of hundreds of thousands were in deep jeopardy. To the shrimpers, oystermen, boat captains, restaurant and hotel owners and their employees, all of whose lives and livelihoods have been completely upended, they are pondering more on the future that how could they earn a living in this disaster. With all these situations, a $20 billion escrow suddenly seems “relatively trivial” compared to the “vast ocean”.
BP has strong social responsibilities BP has a long track of taking social responsibilities. In 1997, it became the first major oil company to publicly acknowledge the need to take steps against climate change, and in that year established a company-wide target to reduce its emissions of greenhouse gases. With operations in more than 80 countries worldwide, BP has a positive impact on many local communities and economies.
BP projects and operations have benefitted local communities by creating jobs, tax revenues and opportunities for local suppliers. The company also has been working on alternative energy sources like solar and wind. Since 2005, BP Alternative Energy has invested over $5 billion in the growing markets of bio-fuels, wind and solar while building long term options in carbon capture and storage and clean technology. It’s the only oil company investing in all of these concepts. Indeed, BP is the most active in alternative energy among all the major oil companies.
BP at one point was the world’s second-largest solar company, the Washington Post reports (it’s now in the top 15). BP holds a leading share in the global market for photovoltaic modules, which turn sunlight into electricity. In addition, company’s sunburst logo and decade-old green marketing campaign with the adverting slogan “Beyond Petroleum” tell people that BP is looking at investing in alternatives with more environmental concerns. BP’s award-winning building in Cape Town has been praised by the architectural community as a pioneering achievement in eco-friendly design and is ranked among the world’s most innovative and sustainable.
oil industry considerably profitable business and take one of the main positions in the World economy and The British Petroleum if we exclude the accident in Mexican Sea has a huge respect and reputation as a stable, developing and profitable corporation. Oil industry The oil industry enjoyed record revenues and profits during many years. For example, in 2007, the oil industry recorded revenues of approximately $1. 9 trillion, of which 78% was accounted for by the five major integrated oil companies.
Profits for the industry totaled over $155 billion, 75% of which were earned by the five major oil companies. Thus, oil production led the way as the most profitable segment of the market, even when oil and gas production growth can be not so significant. Two factors stimulate this profit, first of all the continuing growth of crude oil price and secondly, it is an increase of demand for petroleum products worldwide. According to forecast these trends continue in future: April 2011 – $110 oil July 2011 – $130 oil October 2011 – $150 oil About BP
BP is one of the five largest oil companies in the world; the British Petroleum Company plc is considered the United Kingdom’s largest corporation. The pioneer of the Middle Eastern oil industry, BP discovered oil in Iran before World War I and eventually became involved in all aspects of the oil industry, from exploration to marketing. By the mid-1990s, it was producing over 1. 2 million barrels of oil and 1. 5 million cubic feet of natural gas every day. “Downstream” operations–oil refining and marketing–contributed the lion’s share (over four-fifths) of BP’s revenues in the mid-1990s.
BP is familiar to most people by virtue of its more than 16,400 service stations around the world, but it also has significant interests in oil exploration (generating 13 percent of revenues) as well as production of chemicals and plastics (about seven percent of sales). BP is one of the world’s leading international oil and gas companies, providing its customers with fuel for transportation, energy for heat and light, retail services and petrochemicals products for everyday items. BP operates at the frontiers of the energy industry.
It uses world-class assets, technology, capability and know-how to meet energy needs and deliver long-term value. BP is working hard to restore trust in its ability to operate safely and responsibly wherever they do business. Their approach to sustainability covers issues relating to governance and risk management, safety, the environment, the energy future and its local and global socio-economic impact. They aim to report on these issues in a way that answers key questions raised by their stakeholders. The slogan of BP suggests an environmentally friendly company undergoing a sea change toward alternative energy sources like solar and wind.
BP says it has invested $4 billion in wind, solar, biofuels and carbon-capture-and-storage since 2005 and the company expects to spend another $4 billion in the next five years. It’s the only oil company investing in all of these concepts. And, surprise – oil and gas companies are by far the biggest investors in green energy. In addition, we need to notice the profitability of BP, BP’s first-quarter (2010) replacement cost profit was $5,598 million, compared with $2,387 million a year ago, an increase of 135%. Moreover, BP demonstrate continuing trend of growing on the stock market (except the year of accident).
Furthermore, there is some evidence that prove its successful future. For example, its $8 billion deal with the Russian state-owned oil company, which also includes a plan for a joint venture to explore the Russian Arctic. BP’s businesses in Russia are vital to its future. Russia represents a quarter of BP’s global oil output, and drilling in the Russian Arctic remains one of the company’s best opportunities to increase reserves and production in the future.
Recommendations and implementations
After analyzing and reviewing all potential actions, we determined two recommendations based on the findings. Each of the recommendations has their own implementations. Establish a trust fund with other oil super-majors BP and other oil giants should assign parts of their profits into an escrow fund to avoid and eliminate such oil spill accident.
Implementation plan for recommendation
- Phase 1: BP has long-term cooperation with other oil companies and contractors. Since such oil spill accident has occurred not only in BP but also in these companies, they are assuming the risk of digging oil. The mutual fund can provide funds for technical development. In this way, the technology development will reduce the rate of accidents to solve the problem under the real root.
- Phase 2: The trust fund can give assistance to accident as such. If there is an emergency oil spill, a company could extract a considerable volume of money from this fund to solve the crux. The fund could pay for the loss, including the cost of damages to local communities, circumstances, people and other infrastructure.
- Phase 3: The fund should donate money to environmental organizations (eg. World Wildlife Fund) to deliver the eco-friendly image of oil industry. This action will also promote the company’s positive image.
Promotion and PR its past achievements and awards and also continuing building positive reputation British Petroleum during more than one hundred years of existent created an advantageous reputation and gain people’s confidence through all over the World. Therefore, we suggest BP use these benefits for remaining people BP’s positive side.
Implementation plan for recommendation
- Phase 1: British Petroleum should create film about its history from very beginning, where all its positive side will be reproduced. There are two main facts that should be shown in the film, first of all, BP’s successes on the market (its profitability, development and growth) and secondly, BP’s social responsibility (environment care, charity and investments in new research). Also they can published a book with the same content and distribute it through the library from all over the world.
- Phase 2: BP should use also other ways of promotions such as conference, advertisement and even organize its museum.
- Phase 3: BP should continue its environment and social projects, organizing donations and financing environment organizations.
Conclusion
Based on the facts provided in the case and our analysis, we identified two key findings as bellow:
- BP’s $20 billion fund is not enough for oil spill clean-up;
- BP has strong social responsibilities;
- oil industry considerably profitable business, which takes one of the main positions in the World economy and The British Petroleum if we exclude the accident in Mexican Sea has a huge respect and reputation as a stable, developing and profitable corporation. Therefore, we figured out two corresponding recommendations for BP to resolve its obstacles.
First, establish a trust fund with other oil super-majors. Second, promotion and PR its past achievements and awards and also continuing building positive reputation. We strongly suggest BP to perform both of our recommendations, due to we believe that only combination of them is able to generate beneficial results. We expect that the world will require a more diverse energy mix as the basis for a secure supply of energy over time. Moreover, we hope that that BP will be a safer, more risk-aware business and it will able work hard to earn back the trust in its operations.
