This article covers PESTLE Analysis of British Petroleum (BP PLC) which is based in UK, operating in the oil and gas sector, renowned across the globe for the large scope of its operations and profits generated each year. The organization was established in 1909 and over the years the management has illustrated its purpose of reimagining energy through its different endeavors. The PESTLE analysis below shows the dynamics of external environment of BP PLC.
British Petroleum – Political Factors
The political environment of a country effects the way an organization operates in that region. It also carries implications for the strategic direction adopted by the management as the external forces exert pressure on the company to respond in an effective manner. One of the main components that are a part of the political domain is stability of the government, as a stable government creates a positive business environment with minimum economic uncertainty for organizations.
Volatile political environment changes the business environment and outcomes for the company as seen in case of BP. The war in Ukraine has disrupted the supply of oil and its related products, which resulted in increased prices of oil, ultimately leading to higher profits for the company. It has been reported that in 2021 the company has gained profit of £7bn, which is associated with the price hike due to Ukrainian conflict (Jolly, 2022). In addition, the company had decided to exit its more than 19% share in Rosnef. This move has been instigated by the Russian attack on Ukraine.
British Petroleum – Economic Factors
The economic conditions of a country effect the way businesses perform in that particular region. When there is economic decline in a country, the businesses operating there are likely to suffer losses, owing to the changing buying patterns of the customers and the altered prices of the raw materials and services. BP had to face significant losses due to a decline in the energy prices resulting in the profits dropping from $10bn to $5.7bn (Raval, 2021). Another factor that has significant implications for the profit generated by BP is the exchange rate of the foreign currency, as the price difference can affect the revenue of the organization.
British Petroleum – Social Factors
The social factors such as demographic variables as well as consumer likes and preferences direct the business decisions as organizations try to align the consumer needs and their products to maintain steady sales and revenue. When a company is not able to keep track of the changing social trends, it results in losing the customer base and market share. During pandemic, the demand for oil and gas changed, which in turn affected the revenue of BP, as the demand for oil decreased due to travel restrictions and lockdown (Raval, 2021). Another social trend that can reduce the sales for the company is the consumer’s preference for electric vehicles, as the shift to non-fuel-based vehicles could result in lower sales of oil.
BP made massive profits due to Ukraine conflict, which lead to the speculation of the critics that the company was giving priority to earning profits, compromising the ethical conduct. The management has decided to forego the share in the Russian oil company because of the pressure building from the UK consumers. The management had to illustrate their ethical behavior; therefore, they opted to decline any payment from Rosnef.
British Petroleum – Technological Factors
The technological factors affect all businesses, particularly those in oil and gas sector that are dependent on the use of technology to run their business operations in an effective manner. The evolving artificial intelligence, automation and vehicle functionality changes are some of the influences of technology. BP PLC is heavily dependent on the use of technology as its oil extraction and processing is entirely dependent on integration of up-to-date machinery as a part of its production processes.
The company has pioneered in the use of automated remote operating vehicle to carry out the onshore operations (BP, 2021). The emerging technology team scans the external environment for the new technological advancements and the management incorporates the required upgrades to remain competitive in the industry. Furthermore, the technology adopted by the company focuses on the reduction of harmful impact on the environment.
British Petroleum – Legal Factors
The legal factors for the oil and gas sector are related to the Acts, licensing requirements and permits that govern all the activities of oil and gas companies. BP and other oil companies are bound by Petroleum Act which defines the areas where oil production processes can be carried out after obtaining the relevant licenses. An opportunity to further expand the operations has arisen out of the UK government’s decision to open licenses for North Sea for oil exploration (Lawson, 2022). Even though the decision has raised concern of environment protection entities, the move is favorable for BP PLC. Along with the laws governing the industry, the company is bound by environmental protection laws that define the expected standards for production processes.
British Petroleum – Environmental Factors
For the oil and gas sector in the UK, there are different agencies that govern the environmental protection domain, for instance the Environment Agency (EA) has created guidelines for the standards to be maintained by the oil and gas companies. The company needs to maintain low carbon emission and sustainable practices with due diligence. BP has adopted technologies that can help the company in the reduction of carbon emission, as well as extended its operations in the hydrocarbon domain to adhere to the environment friendly business. Lack of compliance with the environmental guidelines can result in penalization, as observed in the case of the Gulf oil spill case, due to which a fine of $18.7bn was imposed on BP (Rushe, 2015). Therefore, it can be seen that BP is operating in a highly regulated industry, where strict environmental laws have been put in place.
Conclusion
The oil and gas industry is managed under strict laws, including the licensing for exploration which carries significant implications for BP. The company has maintained profitability despite the different challenges from the external environment and continues to progress through the use of an effective strategic direction.
References
BP (2021). Annual Report and Form 20-F. Retrieved from: https://www.bp.com/content/dam/bp/business-sites/en/global/corporate/pdfs/investors/bp-annual-report-and-form-20f-2021.pdf
Jolly, J (2022). BP profits triple to £7bn as oil prices surge because of Ukraine war. The Guardian. Retrieved from: https://www.theguardian.com/business/2022/aug/02/bp-profits-oil-prices-ukraine-war-energy-prices-cost-of-living-crisis
Lawson, A. (2022). UK offers new North Sea oil and gas licences despite climate concerns. The Guardian. Retrieved from: https://www.theguardian.com/business/2022/oct/07/uk-offers-new-north-sea-oil-and-gas-licences-despite-climate-concerns
Raval, A. (2021). BP reports first annual loss in a decade. Financial Times. Retrieved from: https://www.ft.com/content/d89f65d1-0c73-4575-aa11-8e770f8d90bd
Rushe, D. (2015). BP set to pay largest environmental fine in US history for Gulf oil spill. The Guardian. Retrieved from: https://www.theguardian.com/environment/2015/jul/02/bp-will-pay-largest-environmental-fine-in-us-history-for-gulf-oil-spill