BP and the Consolidation of the Oil Industry

BP and the Consolidation of the Oil Industry– 1998-2002 Case Discussion Summary rou! 8 "n#suman Bhan$deo-12"%%"&hay Sin#h-'"%%"&hishe( Desh!ande-)"%%Ishan Chndra "tri-22"%%Shadan *ahta&-)8"

 +he oil and #as sector sector can &e &roadly &roadly cate#ori,ed cate#ori,ed into to &usiness se#ments handlin# distinct o!erations. +hese are Upstream

 +he u!stream u!stream se#ment is res!onsi&le res!onsi&le for e/!lorin# e/!lorin# for oil oil and #as deelo!in# the reseres and &rin#in# them u! to the surface for further usa#e. +his se#ment is also res!onsi&le for estimatin# ho lon# the e/istin# reseres ould last at the current rate of !roduction. +echnolo#ical innoation throu#hout the years hae ena&led oil com!anies to e/!lore ne reseres and sustain the u!stream se#ment. Downstream

 +he donstream donstream se#ment is !rimarily res!onsi&le res!onsi&le for renin# renin# the crude oil throu#h arious !rocesses and folloed &y its mar(etin# to reach the end consumers. +he renin# mar#ins in this industry ere ty!ically ty!ical ly lo.  +his case e/amines e/amines the economics of the oil and #as sector sector from from the time &eteen 1998-2001.It also e/amines the im!lications of ertical inte#ration this sector and the !ros and cons of such a measure. +he industry ent throu#h a series of demer#ers in the 1930 ith donstream com!anies &ein# #ien the freedom to !rocure crude from di4erent sources. " thorou#h understandin# of the case study tells us that the &ul( of the !rot in the oil industry comes from the 5!stream se#ment.In such a scenario the rationale for e/istin# in &oth the

se#ments as discussed in the class as that the donstream &usiness hel!s to sta&ili,e the o!erations as the u!stream &usiness is hi#hly !rone to !rice 6uctuations. "lso BP as loo(in# for ays to #ro in the future and the alternaties aaila&le ith it ere7- acquisition, internal growth, divestiture and business diversifcation . "s !er our understandin# BP should start a ne &usiness in the clean ener#y sector &ecause it could lose !rots from the oil su!!ly. Oil industry as is eident from the case has not &een a sector for !erfect com!etition and the !rices hae &een oli#o!olistically controlled. In such a situation it ould &e &est for BP to inest for its #roth in the renea&le ener#y sector as more and more consumers ould &e moin# to sources of clean ener#y in the u!comin# future.