Introduction

Table of Contents
Introduction........................................................................................................... 1
1.

Background of the British Petroleum Australia................................................1

Industry classification......................................................................................... 1
Management and governance issues.................................................................1

Investment decisions taken by the British Petroleum Australia.............................1

2.

Sources of funds.............................................................................................. 2
Reference to markets......................................................................................... 2
Instruments and institutions used......................................................................2

Uses of funds and incorporation of the matching principle....................................2

3.

Analysis of the sources and uses of funds.......................................................2

Analysis of fundamental..................................................................................... 3

4.

Analysis of profit/loss/balance sheet...............................................................4

5.

Share price fluctuations, market capitalization...............................................7

6.

Competitiveness in the market........................................................................8

7.

Findings........................................................................................................... 9

Conclusion and Recommendations........................................................................9

Reference............................................................................................................ 10

1. Background of the British Petroleum Australia

Industry classification
BP is also BO (Big Oil). It is the world's #3 publicly traded integrated oil concern,
behind Exxon Mobil and Royal Dutch Shell. BP explores for oil and gas in 30
countries with proved reserves of 17 billion barrels of oil equivalent. It's the
largest oil and gas producer in the US and a top refiner, with 15 plants
processing more than 2 million barrels of crude oil per day; it is also a major
producer of petrochemicals. BP operates about 20,000 BP Connect gas stations
worldwide. The company took a major hit in 2010 when a Gulf of Mexico oil rig
exploded and killed 11 workers. Millions of gallons of crude spilled into the Gulf
and BP was forced to set aside $20 billion to pay for related damages in 2011
and 2012. Industry Areas Oil and gas exploration and production,
refining/marketing and supply of petroleum products, manufacturing and
marketing of Chemicals, Gas & Power generation and the manufacture of
Photovoltaic (solar) cells.

Public Company
Incorporated: 1909 as Anglo-Persian Oil Company
Employees: 53,700
Sales: 44.7 billion (US$69.8 billion)
Stock Exchanges: London New York Toronto Tokyo Paris Zurich
Amsterdam Frankfurt
SICs: 1311 Crude Petroleum & Natural Gas; 1321 Natural Gas Liquids;
2911 Petroleum Refining; 2992 Lubricating Oils & Greases; 4922 Natural
Gas Transmission; 4612 Crude Petroleum Pipelines; 4613 Refined
Petroleum Pipelines; 5171 Petroleum Bulk Stations & Terminals; 5172
Petroleum Products, Not Elsewhere Classified; 5169 Chemicals & Allied
Products, Not Elsewhere Classified; 6719 Offices of Holding Companies,
Not Elsewhere Classified

Management and governance issues

By late 2010, the British Petroleum has become a cause clbre amongst those concerned with
corporate governance and particularly with the social, ethical and environmental responsibilities
of business In the 21st century, corporate governance has become critical for medium and large
organisation. The organization which fallows corporate guidelines strategy performs well than
compared to organization which does not adhere to the guidelines. Corporation work with
governance framework which is first set by law and then by regulation emanating from the
regulatory bodies to which they are subject.
The chairman and Boards of directors are responsible for the Mexico disaster as they not
properly scrutinised the outsourcing to the partner and we call as leadership failure. The
responsibilities of the board include setting the companys strategic aims, providing the

leadership to put them into effect, supervising the management of the business and reporting to
shareholders on their stewardship. It will be critically analyses the corporate governance
structure of British Petroleum and its related issues regarding the corporate social responsibility.
Certainly the BP directors, with their global vitae and savvy, would insist that a company facing
huge potential environmental exposures should have immediate plans to both prevent and
manage a disaster. The boards fundamental risk management duties alone should see to that.
But no such sound crisis response plan was found at BP. Even in a sector where the company
was most vulnerable to a disaster, a major oil spill, essential crisis planning was lax. In
congressional hearings on the BP Gulf Coast disaster, U.S. Representative Ed Markey noted that
BPs emergency oil spill plan was a near-duplicate of ineffective, boilerplate plans from several
other petro companies right down to a telephone number for an expert whod died years earlier.

Investment decisions taken by the British Petroleum

Australia
According to FitzGerald (2014), the resources reporter of The Australian (2014),
BP is in confidential discussions to buy more petrol stations despite its decision
to reduce its exposure to the oil refinery sector by closing its ageing Bulwer Island refinery at the mouth of Brisbane River in mid-2015. The commercially
confidential discussions were revealed by BP Australasia president Andy Holmes
at a Melbourne media conference for the Bulwer Island announcement, with the
closure to cost the jobs of at least 355 BP employees while raising question
marks over the future of 300 contractor jobs.
According to Sharples (2014), BP Plc (BP/), the operator of the biggest oil refinery
in Australia, plans to spend A$10 billion ($9.3 billion) this decade expanding its
filling station network and developing oil and gas projects such as the Browse
venture. The company will open a dozen new filling stations during the next 12
months while seeking to increase the fleet through acquisitions, Andy Holmes,
the president of BPs Australasia business, said in an interview. He declined to
elaborate on potential takeover targets. The London-based group will spend
about A$2.3 billion over the next five years on its downstream unit that also
includes the Kwinana refinery in Perth.
FitzGerald. B, (2014), BP drive for more petrol stations, THE AUSTRALIAN 2014,
viewed on 1st October 2014http://www.theaustralian.com.au/business/miningenergy/bp-drive-for-more-petrol-stations/story-e6frg9df-1226872767560?
nk=c74b12e92eef9fda0425ff74ee29fed7
Sharples. B, (2014), BP to Spend $9 Billion on Australia Fuel Stations,
Exploration, viewed on 1st October 2014
http://www.bloomberg.com/news/2014-08-22/bp-to-spend-9-billion-on-australiafuel-stations-exploration.html

2. Sources of funds
Reference to markets
Instruments and institutions used
Equity Issuance
A cash-strapped global organization like British Petroleum works in tandem with
investment bankers to analyses conditions on global equity markets, determine
the best time for stock issuance and figure out better ways to prevent money
problems in the future. Given its global presence, BP effectively can cope with a
dearth of affordable financing on the domestic front, drawing up strategies to
raise money overseas. The major equity markets where BP raises money range
from the New York Stock Exchange and the Tokyo Stock Exchange to the London
Stock Exchange and the Hong Kong Stock Exchange.
BPs share capital is made up of ordinary shares of US$0.25 each, 8% cumulative
preference shares of 1 each (First preference shares), and 9% cumulative
preference shares of 1 each (Second preference shares). The main underlying
economic currency of the BP groups cash flows is the US dollar. This is because
BPs major product, oil, is priced internationally in US dollars. Accordingly, to
reflect the nature of our business and help investors to assess our performance
better, our accounts are prepared in US dollars as the functional currency of BP
and our ordinary shares are also denominated in US dollars. The primary market
for BPs ordinary shares is the London Stock Exchange. BPs ordinary shares are
also traded on the Frankfurt Stock Exchange in Germany. In the US, the
companys securities are traded in the form of ADSs, for which JP Morgan Chase
NA is the Depositary and transfer agent. The Depositarys principal office is 1
Chase Manhattan Plaza, Floor 58, New York, NY 10005-1401, US. Each ADS
represents six ordinary shares. ADSs are listed on the New York Stock Exchange
(BP, 2014).
Selling Debt Products
When BP needs to borrow money for an investment it issues a bond. With a
bond, BP borrows a certain amount of money and agrees to pay the entire
amount back at a fixed date in the future, typically anywhere from one month to
30 years. In return for this money, BP agrees to make interest payments in
regular intervals at a certain interest rate
Net debt and net debt ratio are non-GAAP measures. Net debt includes the fair
value of associated derivative financial instruments that are used to hedge
foreign exchange and interest rate risks relating to finance debt, for which hedge
accounting is claimed. The derivatives are reported on the balance sheet within
the headings Derivative financial instruments. We believe that net debt and net
debt ratio provide useful information to investors. Net debt enables investors to
see the economic effect of gross debt, related hedges and cash and cash

equivalents in total. The net debt ratio enables investors to see how significant
net debt is relative to equity from shareholders. The net debt ratio is defined as
the ratio of finance debt (borrowings, including the fair value of associated
derivative financial instruments that are used to hedge foreign exchange and
interest rate risks relating to finance debt, plus obligations under finance leases)
to the total of finance debt plus shareholders interest.
The table below presents BPs debt to debt plus equity ratio on a gross basis as
net debt is not a recognized GAAP measure:
BP Share Capital, (2014), Investors: Share capital, viewed on 1 st October 2014.,
http://www.bp.com/en/global/corporate/investors/share-information/sharecapital.html

Uses of funds
THE Great Australian Bight could become a world-class oil province with the
potential to rival the big producing regions of Nigeria and the US Gulf of Mexico,
according to global major BP, which is getting set to drill in 2016. BP is building a
$US755 million ($813m) floating rig in South Korea especially to drill in the wild
Southern Ocean 300km southwest of Ceduna where the ocean is up to 2.5km
deep.
In April, BP revealed it would shut its Bulwer Island refinery in Brisbane, the
latest victim of bigger, cheaper, Asian refineries that Australian refineries cannot
compete with. While an unspecified amount of the $2.3bn will go to converting
Bulwer Island into an import terminal, the investment will also include
acquisitions, upgrades and construction of service stations. It will be spent across
the business from our Kwinana refinery in Perth through our terminal network
and also at the customer end, where we are spending more on the retail
business than we have done in some time, Mr Holmes said, adding that Kwinana
was not likely to close in the foreseeable future. He would not say how many
service stations BP had or was adding (Chambers, 2014).
Recent capital investment projects at the refinery include;

Laboratory: The state-of-the-art $11M laboratory houses all the fuel testing facilities, including
the engines used to test octane, in a safe environment. The G10 Project: this debottlenecking
project allowed the refinery to increase its production of low sulphur diesel. The project was
completed in mid-2011 for an investment of over $50M.
LPG Upgrade: Commissioned in September 2011 with an investment of more than A$60M,
the project included the installation of two mounded (half-buried and totally covered in dirt)
butane product storage drums that increased butane (a component of LPG) storage to 1930
cubic meters an increase of 135%. Also there was a new truck gantry and a number of
safety improvements to the refinerys LPG facility. The new facility enables the refinery to
make more Automix in summer. Automix is a mixture of propane and butane suitable for
transport vehicles. (BP, 2014)

Chambers, M. (2012), BP hopeful of tapping new world-class oilfield, viewed on

2nd October, 2014 http://www.theaustralian.com.au/business/bp-hopeful-oftapping-new-worldclass-oilfield/story-e6frg8zx-1227032460850
BP, (2012), BP Kwinana Refinery: Investment continues, viewed on 2 nd October,
2014
http://www.bp.com/en_au/australia/media/media-releases/bp-kwinana-refineryinvestment-continues.html

3. Analysis of the sources and uses of funds

To analyze the sources and uses of funds of British Petroleum Australia
(BP), the cash flow statement would be a reliable reference material. We
collect some cash flow statement of British Petroleum Australia (BP). The
following chart shows an overview of cash flow of BP from March 31 of
2004 to June 30 of 2014.

(source:http://cash-flows.findthebest.com/l/9315/BP-PLC)

As a public company, British Petroleum Australias operation extends to

many industry, such as administrative management and general
management consulting services industry. From the chart above, it is
obvious that by 30th of June 2014, net change in cash flows was
approximately 4.99 billion dollars, which positively reflects that the capital
of British Petroleum Australia can strongly afford all its operations.
Additionally, it also shows that British Petroleum Australia has a good
capability of acquiring cash.

(source
:http://cash-flows.findthebest.com/l/9315/BP-PLC)

The chart above shows an overview of cash flow from operating activities,
investing activities and financing activities.

Cash Flow from Operating Activities

All numbers in thousands

(source:http://cash-flows.findthebest.com/l/9315/BP-PLC)

According to the chart above, British Petroleum Australia generated

approximately

Analysis of fundamental
In this report, the analysis of fundamental will be mainly focused on
financial ratios analysis. All the useful sources can be found in financial
statements of British Petroleum Australias annual report 2013. Asset
management ratio, inventory turnover ratio, P/E, ROA, ROE will be
discussed in this part.
a) Asset management

100

Asset management ratio= total assets sales revenue

305690

379136 100

=80.6%

From the calculation above, we can see that the asset management ratio
of British Petroleum Australia is not high, which possibly means that the
company did not utilize its assets efficiently. Furthermore, low asset
management ratios could mean that British Petroleum Australia is likely to
operate below their full capacity.
b) Inventory turnover

Inventory turnover ratio= sales revenue average inventory

379136

28717

=13.2

From the calculation above, British Petroleum Australia shows a high

Inventory turnover ratio, which is difficult to analyze. If we base on
analyzing sales, it could be a good sign that British Petroleum Australia
had impressive sales. However, if we base on analyzing inventory, it could
not be good as British Petroleum Australia seems to have difficulty in
managing its inventory and buying (Winston 2013).

c) P/E
P/E is a short ratio calculated by comparing a companys current share
price and pre-share earnings. Generally, a high P/E attracts more investors
as it shows a higher likelihood of earning money in the future.

P/E= Market Value Per Share Earning Per Share (EPS)

= 15.21 (30th of June 2014)

Here is a chart that shows P/E fluctuation from 18th October 2009 to 1st
October 2014.

(source:http://ycharts.com/companies/BP/pe_ratio)

From this chart, we can see the minimum of British Petroleum Australias
PE ratio is 4.250 (25th June 2010), and the maximum of British Petroleum
Australias PE ratio is 21.25 (9th November 2009), from which, the average
ratio can be easily

4. Analysis of profit/loss/balance sheet

To analyse Profit or Loss and balance sheet, we need collect the income
statement, balance sheet of British Petroleum Australia from its annual
report.

Income Statement

(source:http://www.marketwatch.com/investing/stock/bp/financials)

As the income statement shows, from 2009 to 2013, British Petroleum

Australia basically has been profitable ($ 10.62 billion in 2009, $16.03
billion in 2011, $6.95 billion in 2012, $ 15 billion in 2013) except once
deficit in 2010 (-$ 2.41 billion). To compare net income in 2009 and 2010,

the year-on-year growth shows a negative ratio, which is -122.68%.

However, the year-on-year growth of 2011 shows a positive ratio
(+765.55%) compared with 2010s. The growth of net income in 2012
shows a negative ratio (-58.63%) again compared with the year of 2011.
Finally, the net income growth of 2013 shows a positive increase
(+115.79%).

Balance Sheet

(Source: British Petroleum Australia annual report 2013)

From the summary of this group balance sheet, we can see the changes in
total assets, liabilities and equities from 2012 to 2013. Firstly, the total
assets of British Petroleum Australia increased stably from 2012. Current
assets showed a slight increase from 1st January to 31st December in 2012,
then it fell down from $247 million to $216 million during the period of 31st
December 2012 to 31st December 2013. However, non-current assets
increased continuously since 2012 (from $123,431 million to $133,690

million). Secondly, the total liabilities of British Petroleum Australia slightly

went up from $ 180,322 million in 1st January to $ 180,714 in 31st
December 2012, while current liabilities and non-current liabilities both fell
down from $52,000 million to $ 46,673 million (current liabilities); $ 3,214
million to $ 2,292 million (non-current liabilities). After that, total liabilities
dropped from $ 180,714 million to $ 175,283 million from 31st December
2012 to 31st December 2013, while current liabilities and non-current both
increased from $ 46,673 million to $ 47,159 million (current liabilities); $
2,292 million to $ 4,756 million (non-current liabilities). Finally, the total
equality of British Petroleum Australia had increased continuously since 1st
January 2012.

5. Share price fluctuations, market capitalization

London Stock Exchange (LSE) is the primary market for trading ordinary
shares of British Petroleum. The ordinary shares of BP are contributed to
Financial Times Stock Exchange 100 index. Frankfurt Stock Exchange
Electronic Trading Service (SETS) is also a market for ordinary shares of
BP.
In order to analyse the value and the historic share prices, we collect a
share price fluctuations graphic from Australian Securities Exchange.

(source:http://www.plus500.com.au/Instruments/BP-L)

From the graphic above, we can see that the current price is
approximately $ 445.18. The highest price from 2009 to present was $
641.45 (11th April 2010).
The lowest price from 2009 to present was $ 304.8 (20th June 2010).
It is clear that the share price of BP is unstable from 2009 to present. From
2009 to 2010, the share prices showed a rising trend in general (from
$553.13 to $621.35). After reaching the highest point of price ($ 641.45)
at 11th April 2010, the share prices faced a unprecedented decrease with
dropping to the lowest price at $ 304.8 (20th June 2010). After that, the
share prices generally continued to increase from 2011 to present.

Market Capitalization
Ending 30th June 2014, the market capitalization of BP is $ 132.91 billion.
The graphic below shows the market capitalization of BP from 2005 to
present.

(source:http://www.wikinvest.com/stock/BP_(BP)/Data/Market_Capitalization)

By analysing this graphic, we can easily see that except a significant

decrease with reaching the lowest point in 2009 ($ 129.97 billion), the
trend of market cap of BP is generally stabilized. In 2006, the market cap
reached at the highest point ($ 246.43 billion), after which, the cap
decreased continuously till 2009. From 2010 to 2013, the market cap
fluctuated slightly but generally staying at approximately $ 150 billion.
To sum up, the market capitalization of BP can be said to be generally
stable.

6. Competitiveness in the market

To analyse the BPs competitiveness in the market, firstly, we could
compare the market capitalizations with BPs competitors. We collect a
comparison graphic from Wikinvest.

(Sour
ce: http://www.wikinvest.com/stock/BP_(BP)/Data/Market_Capitalization)

The graphic above describes the 2014s market capitalization of different

companies, which operate in the same business industry. From the chart,
it is obvious that British Petroleum Australias market capitalization only
occupies at fourth ($148.59 billion), with XOM, PTR and CVX occupying at
the first ($420.38 billion), second ($253.74 billion) and third places
($227.9 billion) respectively. From these data, it could be said that British
Petroleum Australia still need to develop as its market capitalization is
greatly less than the first ($271.79 billion less).

As there are many players such as Royal Dutch shell, Exxon Mobil and
Conoco Phillips, operating in the same industry, the level of competition of
the oil and gas industry where BP operates in is very high. Additionally, to
compare with Royal Dutch shell, Exxon Mobil and Conoco Phillips, BP has
no great advantage, as many of these companies (including BP) have a
wider geographical coverage. However, BP has advantages in terms of its
various brands which include the Ampm, Arco, Castrol, Aral, and BP and
Wild bean caf and the energy mix of the BP is a mixture of oil, gas, solar,
wind and biofuels. Additionally, BP is not only focusing on the oil and gas
industry, but also the alternative energy, which is totally different from its
competitors.

7. Findings Conclusion and Recommendations

BP is one of the largest petroleum corporations in the world and the biggest in
Australia. They operate in a highly sensitive industry with competition. The
biggest issue BP has ever faced is the 2010 oil spill and the company having
troubles and financial constraints to date. This is the biggest corporate
governance and management issue identified for BP. The main sources of funds
are shares and derivatives. The share price is augmenting and the debt is
decreasing with the increased performance of BP.

According to our analysis, it can be said that British Petroleum Australia

(BP) has been generally operating in a good condition since 2004. By
analyzing its cash flow statement (from 2004 to 2014), it is obvious that
the capital of British Petroleum Australia can strongly afford all its
operations. Additionally, it also shows that British Petroleum Australia has
a good capability of acquiring cash. From analyzing the cash flow of
Investing Activities, we could see that British Petroleum Australia was
doing investment in new assets, which reflects that BP is fairly typical for
a growing and stable company. Moreover, the risk of holding shares from
BP is low, as the PE ratio is low. Additionally, from analyzing its income
balance sheet, we could say that the BP has been running in the black
since 2004.
However, by analyzing the fundamental of BP, we could possibly conclude
that the company did not utilize its assets efficiently as the asset
management ratio of British Petroleum Australia is not high. Furthermore,
British Petroleum Australia is likely to operate below their full capacity as
the asset management ratio is low. Additionally, Inventory turnover ratio
of BP is high, which is difficult to analyze. If we base on analyzing sales, it
could be a good sign that BP had impressive sales. However, if we base on
analyzing inventory, it could not be good as British Petroleum Australia
seems to have difficulty in managing its inventory and buying. Moreover,
it could be said that British Petroleum Australia still need to develop as its
market capitalization is greatly less than the first ($271.79 billion less).

Reference