Tuesday, 8 June 2010

BP, The Oil And Gas Industry And Its Reputation

There is no doubt that the oil spill in the Gulf of Mexico has affected the reputation of oil giant, BP. But to what extend?

Will the damage to its reputation lead to a poor balance sheet? Will it lead to bankruptcy, taking into account the lawsuits, fines, compensation and the cost of the oil clean-up operation which so far has cost close to £2.7 billion (U$4 billion)? The potential spill liabilities is estimated to reach £25.25 billion (U$37billion). Will it lead to a takeover? I don’t think so.

Firstly, there aren’t many oil companies, meaning there’s not much choice for consumer really. Secondly, I don’t know if the majority of consumers really care about which brand they use when filling up their cars with petrol. Thirdly, BP is an established company which suffered several problems (although not to this magnitude) a few years back, such as the Texas City oil refinery explosion in 2005 in which 15 people were killed. Fourthly, BP is a global company and there’s no doubt it will survive this terrible crisis.

This sort of crisis doesn’t only affect the company involved, but the oil industry as a whole which has long suffered a bad reputation due these kind of crises (environmental damage) and the high price of oil and gas which keeps increasing every year.

According to the Reputation Institute’s Global Pulse U.S. Study of 2008 which looks at corporate reputation rankings, oil and gas companies had the lowest corporate reputation rankings among U.S companies.

According to the Oil Spill Intelligence Report, there have been an estimated 4100 oil spills (involving more than 10 000 gallons) around the world. The Exxon Valdez oil spill in Prince William Sound’s Bligh Reef in Alaska in 1989 is considered as one of the biggest oil spills and biggest environmental disasters in the world, having spilled an estimated 10.8 million gallons (40.9 million litres) of crude oil.

Such crises are inevitable and bitterly expected, just as is expected of faulty car parts in the motoring industry....Human error and technological error!

When such crises occurs, it is not only the affected company that should look at finding solutions to avoid them occuring in future, but the respective industry as a whole.

Although the affected company will suffer the most in terms of its corporate image and reputation, the crisis puts a terrible mark on the industry as a whole. Thus, it is important that BP gets the support of all other oil and gas companies in its efforts to seal the leak and clean up the Gulf.

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