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BP - The Changing Face Of A European Bastian

Everyone loves a winner, and Castrol, the lubricants brand that now sits on BP?s forecourts, reckoned that the face of David Beckham was worth a million or two in May when it signed the England football captain to a two year sponsorship deal.

Everyone loves a winner, and Castrol, the lubricants brand that now sits on BP?s forecourts, reckoned that the face of David Beckham was worth a million or two in May when it signed the England football captain to a two year sponsorship deal. The campaign was launched in South East Asia after consumer research in China, Thailand and Vietnam showed that people there associated Beckham with high performance.

BP has not decided when the Beckham ads will appear on British television. After England?s lacklustre performance in Japan, Castrol may need to do more research to assess how British consumers will react to Beckham on a Castrol jerrycan.

Oil companies are used to playing for high stakes and Castrol?s expensive decision to buy Beckham?s image is more about Asian teenage fashion than a desire to associate Castrol and BP with England.

In an important sense, BP is no longer a British company. It is no accident that what was once The British Petroleum Company is now just plain BP.
Shedding the British moniker is not just an attempt to distance the company from an imperial past or from the British Government?s foreign policy. It is commercial and financial reality that Britain is no longer a major focus of investment, and nor is the North Sea the largest profit source.

BP?s head office is in the City of London. Most of the company?s directors are British citizens and its chief executive was recently made a peer, as Lord Browne of Madingley, but in respect of the things that really make a business, BP is an American oil company.

The most recent annual accounts tell the tale. In terms of invested capital, the UK represents just $19 billion or a fifth of the capital employed.
The US accounts for $44 billion and the drift is continuing, with the UK receiving less than fifteen percent of new investment last year, compared with forty four percent for the US and twenty nine percent for Asia, Africa and Latin America.

In terms of profit, the figures are even more striking. Producing oil and gas from the North Sea, and refining petrol and selling it to UK consumers made BP $2.7 billion in operating profits last year, a billion dollars less than the previous year and just seventeen percent of BP?s total operating return of $16 billion. However, the US accounted for $7 billion of profits or forty four percent of the total. Clearly, BP is right to be spending more and more abroad and less at home.

It was not always so. A decade ago, The British Petroleum Company was not the prettiest of the ?Seven Sisters??. Analysts dismissed it as a two well company. BP made its money lifting oil from Forties, the giant North Sea field, and Prudhoe Bay in Alaska.

BP was weak in US refining and marketing and weak in gas and had few long term opportunities in new oil provinces in Asia and Africa. Over two years, from 1998, BP was transformed by acquisitions.
Its takeover of Amoco, in what was then the world?s largest industrial merger, gave BP a huge position in the US gas market and greatly expanded its US downstream operation. Amoco also brought with it a big share in Atlantic LNG, the Trinidad liquefied natural gas project, which is now in rapid expansion and a cornerstone of BP?s growth in upstream markets for the next few years. The second US takeover, Atlantic Richfield, increased BP?s dominance in Alaska and gave it the Arco petrol retailing chain in California, the missing piece in BP?s US downstream jigsaw puzzle. Arco brought Tangguh, a huge gas prospect in Indonesia, offering BP the prospect of its first foothold in the growing Asian LNG market.

The shape of BP has been transformed almost beyond recognition by Lord Browne?s aggressive acquisition strategy, but it is also striking that the new BP retains a strong bias to the developed world and North America. It has invested heavily in Azerbaijan and paid up for a stake in Angola?s offshore oil bonanza, but BP has not aquired a developing world powerbase such as Shell has in Nigeria and Malaysia or TotalFinaElf?s position in the Middle East.

It is not for want of trying. BP has worked hard to return to Iran, home of its ancestor, the Anglo-Persian Oil Company, but Lord Browne runs a different sort of ship to some of his rivals. BP is a more financially driven company than is typical of the oil industry; it has little exposure to Opec nations and there is a sense that BP may be happier in the more disciplined and transparent markets of the Northern Hemisphere. BP is not afraid to say no ? even in China, where it has big ambitions, the company pulled out of bidding for a huge gas project because returns were inadequate, leaving the field to Shell.

BP?s latest thrust is into Russia, a nation that has become a thorn in the side of Opec and where Lord Browne believes a more investment-friendly culture is developing. It is an initiative that followed the September 11th attacks and led to BP taking virtual control of Sidanco, a major Russian oil company. BP may be no more wedded to Western liberal values than other oil companies, but it wears them more boldly, championing environmental causes, and going ?beyond petroleum?.

Last week, in a speech in Berlin, Lord Browne promised equal treatment to gay and lesbian BP staff. It is unclear how this welcome message is being interpreted in Teheran.

Author: Alexander Groom

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