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Oil business is about small margins being created at each step of production leading to a large margin at the end. The way BP structures itself to do so is amaz

Oil business is about small margins being created at each step of production leading to a large margin at the end. The way BP structures itself to do so is amazing. The BP company that owns the exploration rights pays BP to determine the feasibility, then BP pays BP to extract the oil, then BP pays BP to ship the oil, then BP pays BP to refine the oil, then BP pays BP to distribute the refined products, then BP pays BP to fill the tanks at the bowsers, then we pay BP to fill our car, and every one of those BP segments makes a margin. So yeah, I agree, just because a drilling operation looks like a loss in isolation, unless you view it in context of that entire vertical integration, you're missing the woods for the trees.

Spooky23 4y ago
It’s also like real estate where tax strategy drives the bus. Oil is a capital intensive business but by isolating each layer or spinning off the layers alot of the margin is essentially a transfer from the government. Oil is one of the original businesses that developed these strategies. John Rockefeller was surprised to have made money post Standard Oil!
deleted 4y ago
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lotsofpulp 4y ago
> then BP pays BP to fill the tanks at the bowsers, then we pay BP to fill our car, and every one of those BP segments makes a margin. In the US, this last step is not BP. The gas station is almost certainly not owned by BP, but rather pays BP royalties as a franchisor, and also does not buy oil from BP directly, I believe a gas station operator buys from separate trucking businesses that contract with refineries (that may or may not be owned or operated by BP) to deliver the oil to the gas station.
whatshisface 4y ago
>The way BP structures itself to do so is amazing. That's just vertical integration, a lot of companies do it to varying degrees. For example there is a long history of power plants owning coal mines. Bell, at one point in history owned the mines that produced the resources they used to make their telephones!
refurb 4y ago
Sure, but splitting up BP into different companies that do each part of the process doesn't increase the margins. What it does is segment out capital costs, risk and debt, so that the financial statements look better than they otherwise would.
- stuaxo 4y ago
  Laundering responsibility. BP as a whole should be responsible for the cleanup cost, around wells and of the air.
- selimthegrim 4y ago
  What if VAT or some sort of carbon-based border adjustment tax ever got imposed
  - Loic 4y ago
    It would be applied to the end-user, so it would change nothing up to you paying the extra at the end of the line. VAT is not a sales tax but a tax for the full chain of added value.
Panzer04 4y ago
Presumably the point of that is ensure each individual, mostly separate step is completed efficiently, rather than inefficient refineries or drilling being papered over by efficiencies elsewhere.
- Phiwise_ 4y ago
  Of course not. A better-tuned engine would have made zero improvement on the transport efficiency of the Titanic. The point is to ensure that all of the "unprofitable" but necessary precursors to the small fraction of the business that makes all the money, spooling up established and productive wells during favorable market conditions, are coordinated to maximize those conditions in the face of the uncertainty of industrial prospecting, rather than the interests a contractor might have. In such a skewed-return field, other strategies risk over-fitting; it'd be like if you saw the housing collapse coming in 06 or so and responded by trying to target your retirement investments against a granularity level of individual regional banks. Just shorting an index will pay out far more on average, even if it's more "inefficient".
  - im3w1l 4y ago
    If a particular segment is unprofitable, then it seems that a) you could outsource it or b) the accounting for that segment is wrong "bp isn't paying bp enough"
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Spooky23 4y ago

It’s also like real estate where tax strategy drives the bus. Oil is a capital intensive business but by isolating each layer or spinning off the layers alot of the margin is essentially a transfer from the government. Oil is one of the original businesses that developed these strategies. John Rockefeller was surprised to have made money post Standard Oil!

deleted 4y ago

[deleted]

lotsofpulp 4y ago

> then BP pays BP to fill the tanks at the bowsers, then we pay BP to fill our car, and every one of those BP segments makes a margin. In the US, this last step is not BP. The gas station is almost certainly not owned by BP, but rather pays BP royalties as a franchisor, and also does not buy oil from BP directly, I believe a gas station operator buys from separate trucking businesses that contract with refineries (that may or may not be owned or operated by BP) to deliver the oil to the gas station.

whatshisface 4y ago

>The way BP structures itself to do so is amazing. That's just vertical integration, a lot of companies do it to varying degrees. For example there is a long history of power plants owning coal mines. Bell, at one point in history owned the mines that produced the resources they used to make their telephones!

refurb 4y ago

Sure, but splitting up BP into different companies that do each part of the process doesn't increase the margins. What it does is segment out capital costs, risk and debt, so that the financial statements look better than they otherwise would.

stuaxo 4y ago
Laundering responsibility. BP as a whole should be responsible for the cleanup cost, around wells and of the air.
selimthegrim 4y ago
What if VAT or some sort of carbon-based border adjustment tax ever got imposed
- Loic 4y ago
  It would be applied to the end-user, so it would change nothing up to you paying the extra at the end of the line. VAT is not a sales tax but a tax for the full chain of added value.

Panzer04 4y ago

Presumably the point of that is ensure each individual, mostly separate step is completed efficiently, rather than inefficient refineries or drilling being papered over by efficiencies elsewhere.

Phiwise_ 4y ago
Of course not. A better-tuned engine would have made zero improvement on the transport efficiency of the Titanic. The point is to ensure that all of the "unprofitable" but necessary precursors to the small fraction of the business that makes all the money, spooling up established and productive wells during favorable market conditions, are coordinated to maximize those conditions in the face of the uncertainty of industrial prospecting, rather than the interests a contractor might have. In such a skewed-return field, other strategies risk over-fitting; it'd be like if you saw the housing collapse coming in 06 or so and responded by trying to target your retirement investments against a granularity level of individual regional banks. Just shorting an index will pay out far more on average, even if it's more "inefficient".
- im3w1l 4y ago
  If a particular segment is unprofitable, then it seems that a) you could outsource it or b) the accounting for that segment is wrong "bp isn't paying bp enough"

deleted 4y ago

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