Strategy for BP investment in Norway - Case Study Example

Strategy for BP Investment in Norway STRATEGY FOR BP INVESTMENT IN NORWAY As one of the "super-major" oil and gas companies in theworld, BP already operates in more than 80 countries, reporting revenues of $396.2 billion in the year 2014 (Helman, 2014). BP could invest in several business activities in Norway, including refining and marketing, exploration and production, energy distribution, and production of petroleum products like aviation and maritime fuel, diesel, petrol, bottled gas, and lubricants.

The best mode of investment in the Norwegian market for BP is through a joint venture, which would involve a partnership with an energy company in Norway to undertake specific projects in the oil and gas industry. This investment strategy has been especially popular in the last thirty years. For example, joint ventures between European firms and foreign-based firms have increased by almost 30% since 1985 (Hess & Siegwart, 2013). While not all joint ventures in the oil and gas industry have been successful in the past, BP should use a joint venture for several reasons, most importantly because of the capital-intensive nature of the oil and gas industry.

Using the joint venture strategy has become popular for oil and gas companies operating in foreign markets because it saves money. Along with metals processing and mineral extraction, oil and gas exploration and development is a capital intensive industry. Since Norways oil and gas industry is already well-developed, financing such an investment on its own would be a risky undertaking for BP, necessitating the use of a joint venture strategy to share costs and risk, as well as create economies of scale (Grandell et al, 2011).

In addition, BP should use a joint venture strategy because of the high costs that will be involved in continuing their operations in such a capital-intensive industry. BP and other petroleum companies are heavily dependent on technology advances so as to achieve lower costs. A joint venture should enable BP to pool its personnel and funds with a Norwegian company with knowledge about the Norwegian petroleum sector in developing advanced technologies, specifically to reduce production and exploration costs, while also increasing profit margins.

Ideally, BP and its Norwegian partner will contribute roughly the same amount of capital and resources into the joint venture, although Norway does not allow foreign companies to own majority stakes in their oil sector (Grandell et al, 2011). International financial institutions like the WTO, World Bank, and the IMF have been heavily involved in fostering international joint ventures through polices aimed at deregulating restrictions on foreign ownership and international capital flows (Garcia et al, 2014).

As such, an international joint venture would be attractive for BP as it seeks to expand their market share and profit margins. Moreover, since both the UK and Norway are members of the EU, the conditions for joint ventures are favourable within the EU economic zone. Finally, BP should pursue a joint venture strategy because they can share risks with the Norwegian partner organization should their project fail. For instance, if BP and its joint venture partner seek to produce new drilling platforms for oil exploration in ocean areas, they might join forces to finance the project together (Peters & Kumar, 2012).

Because Norways oil and gas sector is very developed, meaning that the chances of striking new resources in the country are low, a joint venture is more attractive for BP since they will share costs for the risky projects, while reducing their risk individually should they fail to find developable resources. ReferencesGarcia, R., Lessard, D., & Singh, A. (2014). Strategic partnering in oil and gas: A capabilities perspective. Energy Strategy Reviews, 3, 6, 21-29. Grandell, L., Hook, M., & Hall, C. (2011). Energy return on investment for Norwegian oil and gas from 1991 to 2008.

Sustainability, 3, 11, 2050-2070. Hess, S., & Siegwart, R. (2013). R&D Venture: Proposition of a technology transfer concept for breakthrough technologies with R&D cooperation: A case study in the energy sector. Journal of Technology Transfer, 38, 2, 153-179. Peters, M., & Kumar, M. (2012). Why international oil companies choose to enter into joint operating agreement. Acta Juridica Hungarica, 53, 2, 175-180. Helman, C. (2014). The Worlds 25 Biggest Oil Companies. Retrieved February 27, 2015, from Forbes: 12 June 2013