BP and the Consolidation of the Oil Industry

1998-2002 Case Discussion Summary

Group 8

Angsuman Bhanjdeo-12A||Abhay Singh-3A||Abhishek Deshpande-4A||Ishan Chndra

Atri-22A||Shadan Mahtab-48A

The oil and gas sector can be broadly categorized into two
business segments handling distinct operations. These are

Upstream

The upstream segment is responsible for exploring for oil and gas,
developing the reserves and bringing them up to the surface for
further usage. This segment is also responsible for estimating how
long the existing reserves would last at the current rate of
production. Technological innovation throughout the years have
enabled oil companies to explore new reserves and sustain the
upstream segment.

Downstream

The downstream segment is primarily responsible for refining the

crude oil through various processes and followed by its marketing
to reach the end consumers. The refining margins in this industry
were typically low.

This case examines the economics of the oil and gas sector from
the time between 1998-2001.It also examines the implications of
vertical integration this sector and the pros and cons of such a
measure. The industry went through a series of demergers in the
1970 with downstream companies being given the freedom to
procure crude from different sources.

A thorough understanding of the case study tells us that the bulk

of the profit in the oil industry comes from the Upstream
segment.In such a scenario the rationale for existing in both the
segments as discussed in the class was that the downstream
business helps to stabilize the operations as the upstream
business is highly prone to price fluctuations.

Also BP was looking for ways to grow in the future and the
alternatives available with it were:-acquisition, internal growth,
divestiture and business diversification.

As per our understanding BP should start a new business in the

clean energy sector because it could lose profits from the oil
supply. Oil industry as is evident from the case has not been a
sector for perfect competition and the prices have been
oligopolistically controlled. In such a situation it would be best for
BP to invest for its growth in the renewable energy sector as more
and more consumers would be moving to sources of clean energy
in the upcoming future.