1.4Justification of trade practices and profit levels
Extensive disclosure was made by BP during both crises in justification of trade practices and profit levels. BP justified its trade practices by producing from various areas to adjust production and flow to regional differences in demand and competition. It is not that such a contingency that arose in the second half of 1956 but this followed the 1951 closing down of the Abadan refinery which involved coordination among other oil companies operating abroad. In 1951 and 1952, BP chairman’s statement dealt with the Iranian crisis by displaying 2 pages of photos for the first time addressing new agreements in the Middle East other than Iran and disclosing information about BP continued operations although the flow of supplies was disturbed by nationalisation event.
Several disclosures in 1956 and 1957 were also noted by BP chairman statement. For instance, Gass, BP chairman, instead refers to prestige investment projects to allay concerns about excessive profits in the disclosures. Gass used his statement to the public as part of a strategy aimed at protecting and enhancing the political and economic control of the company at the time of the crisis. For instance, Gass, explained in 1955 annual report that there had been a 'problem' with 'retarding effects in the last 2 months of 1956, ‘essentially’ a transport problem on the long voyage round the Cape. However, Gass was aware that stockholder will be concerned with the consequences of the Suez crisis on BP’s performance so he said that the results of 1956 represent “a fabulous story of progress”60. The 1956 Annual report was different from that of the previous year in a number of respects. For instance, Gass “geographically dealt with it (the crisis) in words, figures, and photographs in the full report, and accounts and the accompanying statement to stockholders”61. Meanwhile, he asked the stockholders “to appreciate that the current half year’s results must inevitably be affected by the changes in the flow of supplies and in the consumption of products brought about by last year’s events”62. Gass disclosed that for the four months November 1956 until February 1957 “production in the Middle East where so many of BP’s interests lie, declined to a monthly average of 10 million tons, against an average of nearly 15,500,000 tons a month in the preceding four months. The early months of this year, in fact, have been a difficult period in which the trade of the group has been reduced and consumption in the European area has slowed down”63. The 1957 annual report was again longer, this time 48 pages, with 11 photographs. Like the previous years' reports, it included graphs for the annual crude oil production, refinery throughput, tanker tonnage and sales, but this time these were combined with maps of these activities. Furthermore, discussion of Suez was more explicit than that of 1956. Suez was no longer a 'problem' but a 'crisis' with 'adverse effects'64. Gass disclosed in 1957 annual report that the major investments were being made in facilities for production, refinement, transport and delivery, but ‘a combination of various factors’ had resulted in a slowing down of ‘the growth of consumption’, resulting in lower prices and ‘deteriorated trading conditions.’ Moreover, Gass emphasised that although ‘difficult’ trading was likely to continue, this ‘should be regarded as a phase of adjustment’. Oil still had ‘important and expanding’ contribution to make to energy supplies65.
Although it has been reported in the Times that BP has had more than its share of frustration of the expansion of group’s business in recent years and stockholders should anticipate that capital expenditure will continue at a high rate and that “retention in the business of a very substantial proportion of earnings will need to be continued”66. But Gass was quite confident (or said he was) looking “forward to an expanding business granted the stable conditions requisite for the progressive development of Middle Eastern oil-production on which the economic future of the producing countries in that area so largely depends on oil”67. Gass declared that sea transport was one of the major issues in the future capital programme of BP and consequently announced “that orders have been placed by the BP Tanker Company, which already has a fleet of 143 ships of over two million dead weight tons for a further number of new tankers including some of 65,000 dead-weight tons”68. Harold Snow, managing director of BP, explained that BP could not maintain through December and January supplies at the rate of 70 per cent of normal. He was hoping that “there will progressively develop in the markets measures for mutual aid or the pooling of supplies between distributing companies. He emphasised that the most important issue that BP should adopt a policy of very strict control over their deliveries with the object of doing their best for as many of their customers as the can with, of course, particular reference to those with the most important requirements and of protecting the company’s future goodwill as much as they can” 69. Thus, this shows that BP was stimulated to diversify its production, refining and transportation using giant tankers to undercut the cost of moving oil by pipelines without depending on the Suez Canal.
However, Shell seems to go through a series of denials about profiteering and anti-competitive behaviour. For instance, in 1952, the chairman noted in his statement the Anti-trust litigation in the U.S.A. For instance, Shell chairman argued that the Attorney General in office acted with the consent of the president instituted a criminal investigation under the United States Anti-Trust Laws into the conduct of the principal American oil companies operating in the foreign aid. Also included in the proceedings was the (BP) and the intention was publicly expressed of including the Royal Dutch Petroleum Company and the Shell Transport and Trading Company Limited. Furthermore, in 1957, the chairman argued that the present period of uncertainty the company is naturally adopting a cautious attitude towards capital expenditure. But although adverse conditions will have some effect on the rate of expenditure in the immediate future, it is his view that the prospectus for the industry remains good in the longer term and it is primarily with this consideration in mind that he formulates plans for development…… as the laying of pipelines take several years to complete and may not be working at optimum capacity until a further period has elapsed after completion. These disclosures proceed to explain that Shell went through government regulations and therefore the company aimed at protecting their existence against any pressure.
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