Research Paper: Public Administration British Petroleum BP

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Public Administration

British Petroleum

BP is one of the world's major energy companies. It supplies its customers with fuel for transportation, energy for heat and light, retail services and petrochemicals products for everyday living. BP's businesses are organized to deliver the energy products and services to people around the world, that is needed right now. Their business is broken down into three areas: Exploration and Production, Refining and Marketing and BP Alternative Energy (About BP, 2010).

BP's Exploration and Production business locates, manufactures and transports oil and gas to sell. They operate in 30 countries and employ more than 20,000 people. Their strategy is to invest to grow production efficiently by:

Strengthening their portfolio of leadership positions in the world's most productive hydrocarbon basins, allowed by the development and application of technology and strong relationships based on shared advantage.

Sustainably driving cost and capital efficiency in accessing, finding, developing and producing resources, facilitated by deep technical capability and a culture of continuous improvement (About BP, 2010).

BP Alternative Energy is focused on the newest forms of fuel and power, but it draws on the traditional strengths that BP has built up over a century of finding, producing and delivering energy to its customers. They think that renewable and alternative energy will make up an increasing share of the mix and we have therefore invested around $4 billion since 2005 in low-carbon technologies with the potential to become material businesses for BP. The key powers of our alternative energy efforts are a series of biofuels ventures focused on sustainable feedstock's, increasing U.S. wind capacity, restructuring our solar business to reduce cost and increase competiveness and technology expansion in hydrogen power and carbon capture and storage projects (About BP, 2010).

Standard & Poor's Ratings Services recently lowered the long-term credit rating of BP to A from AA- and kept it on CreditWatch with negative implications, representing that it can further downgrade the oil company in the future. This downgrade reflects their opinion of the challenges and uncertainties that BP continues to face in the aftermath of the explosion on the Deepwater Horizon rig in the Gulf of Mexico, and the subsea Macondo well blowout. These doubts and uncertainties come on the heels of the complexities that BP had in containing the spill as well as the eventual extent of the pollution, the penalties for BP of ongoing official investigations, and the implications of these investigations for the magnitude and timing of further cash payments by BP (S&P cuts BP to 'A' on oil spill challenges, 2010).

The BP shareholders have lost about $88 billion and it is thought that this will grow. That is approximately how much money investors have lost on paper as the oil giant's share price has plunged. In the grim calculations of the spill, the lives and livelihoods lost, the barrels of oil spewing into the Gulf of Mexico the financial toll keeps mounting. BP is so large, and its stock is so widely held, that these troubles are being felt across the investment world. Large insurance businesses in Britain, large money management companies in the United States and government proscribed investment funds in Norway, Kuwait, China and Singapore are among the company's major stockholders. BP may be a British company, but Americans own half its stock. After weeks of tremendous market losses, shareholders were dealt another blow when BP announced that it would suspend paying dividends for the rest of the year and establish a $20 billion fund to pay claims arising from the spill. While BP's share price stabilized after that news the developments did little to ease the anxiety of investors (BP's Shareholders Take It on the Chin, 2010).

Many believe that BP shareholders will have to pay for their investment in a company that is thought to be responsible for what history may evaluate as the worst environmental disaster ever. BP is thinking about slashing its annual $10 billion dividend payout in a cash hoard to pay for costs associated with the Deepwater Horizon gusher. Some experts have criticized a dividend cut because it penalizes innocent shareholders, widows and orphans invested in pension funds. They contend that BP shouldn't bend to the Obama administration and lawmakers who argue that the move is prudent given the inability to stop the leak, the $1 billion spent so far to fix, contain and clean it up and the hundreds of billions in potential economic damage to Gulf communities (Sorry, shareholders, there will be BP blood, 2010).

BP's trading partners aren't as worried as its investors by the catastrophic Gulf of Mexico oil spill. Traders continue to do business with BP, which produces processes and markets huge quantities of oil, natural gas and fuels worldwide. If a dividend cut were to take place it is thought that it would be devastating to BP stockholders. Many buy and hold the stock strictly for the dividend. BP stock offers the major dividend of any U.K. company. BP, with $130 billion in assets and those unbelievable profits, may in the end be able to pay for its liabilities without cutting the dividend (Sorry, shareholders, there will be BP blood, 2010).

The containment efforts have played out as investors have deserted BP amid fears that the company might be forced to suspend dividends, end up in bankruptcy and find itself overwhelmed by the cleanup costs, penalties, damage claims and lawsuits generated by this oil spill. Shrimpers, oystermen, seafood businesses, drilling crews that are out-of-work and the tourism industry all are getting in line to get paid back the billions of dollars washed away by the disaster, and tempers have flared as locals direct outrage at BP over what they see as a tangle of red tape (BP Now Valued At Less Than Its Assets, 2010).

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According to federal law, BP is required to pay for a range of damage, including property losses and lost earnings. Residents along with businesses have been able to call a number in order to report losses, file a claim online and seek help at one of 25 claims offices around the Gulf. Deckhands and other fishermen have needed to show a photo ID and documentation showing how much money they typically earn. In order to jump-start the process, BP was initially offering an immediate $2,500 to deckhands and $5,000 to fishing boat owners. Workers could then receive additional compensation once their paperwork and larger claims were approved. The oil giant had expected to spend $84 million through June in order to compensate people for lost wages and profits. That number was expected to grow as new claims were received. When it is all over, BP could be facing at total liabilities in the billions, perhaps tens of billions, according to analysts (BP Now Valued At Less Than Its Assets, 2010).

This disaster, which has become known as the BP spill in the U.S. And the Deepwater Horizon oil leak in the UK had divided two longtime allies, and ignited severe populist anger on both sides of the Atlantic. As businesses and multiple layers of government have worked to control the oil, U.S. citizens have blasted BP. For the moment, investors tackle paying for far-away disasters, the energy industry expects new regulations and costs, neighboring nations wait for oil to wash up on their shores and developing nations review drilling provisions with foreign firms. The U.S. has already settled with BP, the world's fourth largest company, in order to hold back dividend payments until the end of the year. They have set aside $20 billion in an escrow account as a starting point in order to pay for damages (Froetschel, 2010).

This oil spill catastrophe shows how good governance and caution guard the environment and maintain the interest of investors. As the crisis progressed, accusations flew across the Pond thick and fast. British politicians and commentators have said that the U.S., in seeking discount prices for oil, have cut corners on oil-drilling safety conventions, leading the way to the disaster. The reality is that as of December 2009, the U.S. And UK investors had roughly equal shares of BP stock, almost 80% altogether. The suspension of dividends affects shareholders on both sides of the Atlantic. Contrary to what has been depicted in the media, the force on British pension funds is insignificant. BP consists of less than two percent of the typical UK pension fund portfolio. Still, investors and policymakers examine prices, habits and regulations around the globe. A gallon of BP gas costs about £4.50 in England, which is more than $6.50 in us dollars, while U.S. consumers pay less than half of that (Froetschel, 2010).

The disaster demonstrates exactly how oil is a global matter. The Deepwater Horizon drilling rig was put together in South Korea for a drilling firm based in Texas, and was purchased by Transocean, which is based in Switzerland. The rig was insured for $560 million by major insurers which are based in the U.S., Switzerland and the UK.… [END OF PREVIEW]

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