Dividend Policy Theories - Case Study Example

Running Head: Most theories on dividend policy Most theories on dividend policy are simply untrue since they bear no resemblance to what happens in practice. Identify the dividend policy of BP PLC [Name of the writer appears here] [Name of the institution appears here] Most theories on dividend policy are simply untrue since they bear no resemblance to what happens in practice. Identify the dividend policy of BP PLC Although all of these events were important for the company, it was hydrocarbons under the North Sea and under the permafrost of Alaska that were to play the key role in transforming BP into the company it is today. Earlier, in 1959, the Dutch had discovered a giant gas field on the edge of the North Sea at Groningen. This discovery encouraged others to begin searching for hydrocarbons offshore. BP scored the first success in British waters when, in 1965, it found the West Sole gas field, which it brought on stream two years later. The search for oil spread farther north and in 1970 BP discovered the Forties field -- the first major commercial find in the UK sector. The 1970s was the decade of the two great oil price shocks (1973 and 1979/80) that were to have serious effects on the world's economies. It was also a decade when the major oil companies saw a decisive change in their old concessionary relationships. Like its major competitors, BP lost direct access to most of its supplies of OPEC oil as the OPEC countries took control of production and prices. The 1973 price explosion had a dramatic effect on demand. BP's oil sales started falling for the first time since 1952 (with the exception of 1957, the year of the Suez crisis). By 1978, sales had recovered somewhat; but then came the Iranian revolution and another major rise in the price of oil. In 1979, BP suffered further blows when its assets in Nigeria were nationalised and its supplies from Kuwait cut back. By 1980, its sales were down again. The entire oil industry was affected by the events of the 1970s. But thanks to BP's large investment programme in areas outside the Middle East, the company showed, as it had done in Iran in 1951 that it could survive. As noted, of key importance were the developments of its oilfield discoveries in the North Sea and Alaska. In the autumn of 1975, BP pumped ashore the first oil from the North Sea's UK sector when it brought the Forties field on stream. This field development was financed by a bank loan of 370 million, then the largest wholly-private bank advance ever arranged. At its peak, Forties produced half a million barrels a day, equivalent to one-quarter of the UK's daily oil requirement. Today, BP's other oil- and gas-producing countries include Abu Dhabi, Australia, Colombia, Norway and Papua New Guinea The spirit of enterprise continues (mid-1970s - today) Diversification and a new structure The upheavals of the 1970s led BP to conclude that it should broaden its activities so that it could operate in the future with more balanced sources of income. Accordingly, from the mid-1970s there was increased emphasis on diversification into new areas of activity. BP's entry into the nutrition business originated in the 1950s, when the company's French researchers began to develop a process for converting oil into protein. Although the process was later discarded, BP developed other interests in nutrition. From the mid-1970s, it became involved in animal feed, animal breeding and consumer foods and related products. As a result of the purchase in 1986 of the US company, Purina Mills, BP Nutrition became one of the world's largest feed millers. In 1990, it also took responsibility for BP's household cleaning and personal care products -- successors of the old detergents business. Another industry which BP entered in the mid-1970s was minerals. BP expanded its minerals interests considerably in 1980, when, in what was then the London stock market's largest-ever takeover bid, it bought Selection Trust, the British-based mining finance house. In the following year, Standard Oil acquired Kennecott, America's largest copper producer and a major force in other metals. The mid-1970s also saw the start of the build-up of BP's coal business. By 1989, about half the group's coal operations were in the US, the remainder being in Australia, South Africa and Indonesia, with some coal trading in Europe. Meanwhile, in the 1960s, BP had become involved in the information technology industry through its acquisition of Scicon. With a view to the effective management of this now much more diversified group, the company underwent major restructuring in 1981. The organisation that resulted consisted of international business streams, national associate companies around the world and, at the centre, the supporting services and corporate head office. These elements were co-ordinated by a matrix system of management. Rationalisation (Economic Factors) Also during the early 1980s, BP's refining, shipping and chemicals operations were suffering from the effects of industry-wide overcapacity and economic recession. Consequently, these activities were thoroughly rationalised. BP cut back its refining capacity, particularly in Europe, so that by the end of 1988 it was left with five main fuels refineries in the region, compared with 16 in 1981. In chemicals, BP had augmented its interests substantially when, at the end of 1978, it acquired European assets from Union Carbide and Monsanto. But the difficult trading environment that emerged shortly afterwards led BP to make severe cuts in its operations. Between 1980 and 1984 it closed a number of chemicals plants and withdrew from certain products. 1987 -- three major events (Economic Factors) The year of 1987 was dominated by three historic events in BP's development: the company's 4.7 billion offer for the 45% of Standard Oil it did not already own; the sale by the British government of its remaining holding in BP; and, as the year ended, the start of BP's successful bid to acquire Britoil, the UK-based oil exploration and production company. After acquiring Standard Oil outright, BP combined its existing interests in the US with Standard's operations to form a new company: BP America. The merging of Standard Oil into BP gave the group access to the full potential of the world's biggest market as well as to Standard's considerable cash flow. Today, about one-third of BP's fixed assets are in the US. When the government came to sell its remaining 31.5% shareholding in BP in October 1987, few could have forecast the collapse in the world's stock markets that was to occur between the opening and the closing of the offer. The outcome was naturally a disappointment to BP. But even if the hoped-for international broadening of the company's ownership did not fully materialise, the number of names on BP's share register more than doubled to around 600,000. The share sale did attract one large new investor -- the Kuwait Investment Office, which, by early 1988, had built up a 21.6% stake in BP. After an investigation by the UK's Monopolies and Mergers Commission, the government endorsed the Commission's findings that the KIO's holding could operate against the public interest. The KIO was therefore required to reduce its stake to not more than 9.9% of BP's stock. In 1989, BP purchased (and then cancelled) 790 million BP shares from the KIO, so reducing the holding. The third major event of the year was BP's bid for Britoil, whose purchase was completed in 1988. The success of the 2.8 billion acquisition meant that BP almost doubled its exploration acreage in the North Sea and reinforced its position as the largest oil and gas producer in the area. Major divestments After the diversifications of the 1970s and early 1980s BP found -- like other companies which followed a similar course -- that it experienced mixed success in managing its 'new' businesses. Towards the end of the decade, in a change of strategy, the company decided to concentrate on its core, hydrocarbon-based activities. To that end, it began a series of divestments. In early 1988, BP sold its subsidiary, Scicon, and so withdrew from the computing services industry. After developing its minerals interests successfully during the 1980s, the company sold most of the business to RTZ in 1989 and disposed of the balance during the next few years. Similarly, most of BP Coal was sold in 1989 and 1990. The company did not begin to sell its nutrition interests until 1992, but by the middle of that year the divestments programme was well advanced. Responding to change From the early 1970s, BP's centre of gravity has shifted westwards, away from the Middle East where its origins were laid. Having diversified into other industries, the company is now focusing again on its core activities in petroleum and chemicals. In 1989, the company launched a campaign to introduce a stronger corporate identity, featuring a restyled BP shield and an emphasis on the colour green. And in a complementary programme that was to prove highly successful, BP started to re-image its global network of service stations in a new design and livery. At the same time, in the quest to find new sources of oil and gas, BP's explorers began to focus their skills more and more on the regions of the world that for political or technical reasons remained relatively unexplored -- Colombia, the republics of the Former Soviet Union, and the deep water areas of the Gulf of Mexico, for example. And in all its operations, BP maintained its policy of striving to be an industry leader in health, safety and environmental standards. To equip itself for the challenges of the 1990s and beyond, the company introduced, in a programme called Project 1990, major changes in its organisation and way of working to improve efficiency and flexibility. To help further in the running of BP, the roles of chairman and group chief executive were split in 1992. Bp and Employees (Social Factors) Bp provides jobs for local workers all around Britain in the areas where company branches & offices are available. Bp provides heath care & education programs for its employees and their families. Technology is vital to BP's business strategy. It underpins the search for oil and gas. It stimulates innovation. Through it the company can make more efficient use of the resources it has already found. It helps to create new chemicals and find new sources of energy, and makes it easier to control costs, safeguard the environment and improve safety. Bp & Technology (Technological Factors) Activities of the company is focused on improving quality and reducing the cost of the products, as well as giving it access to new reserves of oil and gas. Much of the companys work is done in partnership with outside organisations. One link, with the University of Cambridge, aims to improve the fundamental science that supports our industry. Another, with General Motors, is concentrating on the search for cleaner fuels. Under the ARCO brand, The Company introduced the industry's first emission control gasoline for older cars and trucks. A new emission control diesel fuel is now being tested in fleets throughout southern California. The company drives technology forward through its business units and at major technology complexes in London, Chicago and Houston. Some impressive results have been achieved, including pioneering work on the recovery of oil and condensate using gas injection and initiatives to reduce the environmental impact and waste of our operations. Overall, the company believes new technology has cut the cost of producing oil and gas by at least 30% in the past 10 years. The development of new sources of energy is a priority for the company. BP holds a leading share in the global market for photovoltaic modules, which turn sunlight into electricity. Manufacturing plants are located in the United States, Spain, Australia and India. The company is committed to a rapid build-up in production and sales of photovoltaic over the next few years. The history of BP shows that the company has never shirked from responding to change. The spirit of enterprise, which led to its birth in 1909, is still very much alive today. Read More