bp report new (2)

8/8/2019 BP Report New (2)

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BP Share Report

By Kate Williams

January June

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1. Introduction

This report looks at the financial progress of BP (British Petroleum). BPsshare price was followed every week for 22 weeks from January to June.

Their progress was monitored over this period and share price was takenon the closing time of the stock markets on the Wednesday. The news wasconsidered in context of the project as economic factors could affect thecompany and stock market at any time.

1.1 Why BP?

I decided to invest my shares in BP because being one of the largest fuelcompanies in the world; I thought that it would be a good investment. Itwas predicted at the start of the year that the profits of BP would rise sothis also contributed to the reasons as to why I chose to follow BP. Theycome across as a financially sound company with profits starting at $5598million in the first quarter of the financial year (1 January 2010).

The industry looked to be a good venture as fuel energy is a necessity.Although BP uses it is a non-renewable energy source, they are adaptingthe company to produce more eco-friendly commodities.

1.2 Number of shares bought with 1000

On 14 January the share price of BP was at 6.26.

10,000/6.26 (Share Price) =1597 (Number of shares bought)

1597 (Number of shares bought) * 6.26 = 9997 (value of investment)

1.3 Information on BP

Being one of the worlds biggest fuel companies, BP provides itscustomers with energy, fuel and retail services. They boast over 92,000employees and in excess of 1.2 million shareholders (as from December2008). They are active in 29 countries with 17 refineries (some of whichBP are interested in) and 22,600 service stations throughout the world.

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In keeping with the economic and political pressures today, BP nowhas BP Ultimate. They claim it improves engine performance and reducespollution. In 2006 BP declared they were going to invest $500 million intothe bioscience research to find more environment friendly fuel.

From looking at a five-year history of the company, it would seem thatthey are a relatively stable company within the stock market.

The graph below shows five-year history of BPs share prices.

As we can see from the graph, the company share price fell in 2008. Thereis apparently no simple explanation for this as it was revealed that theywere making quarterly profits of $10bn. They then start to rise until 2009.

We can then see from the graph that around the start of 2009 the shareprices again drop. However, this was during the collapse of Northern Rock.

The UK bank was subsequently nationalised and indicated the start of therecession. Its lowest price when Northern Rock collapsed wasapproximately 3.70. From then, it started to make a strong recovery until2010 peaking at just over 6.44. From then, the graph line steadily buildsup again, indicating that they are a strong company

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The graph below shows the share price of the company over the past

three months.

The graph above shows an exceptionally sharp fall from mid-April. This isdue to the massive oil leak from the off-shore oil rig The Deepwater Horizon , in the Gulf of Mexico. It is being claimed that it is largest oil spillwith up to an estimated 5000 barrels of it being leaked into the sea everyday. It is now washing up on the shores of Louisiana, Alabama andMississippi. The explosion killed 11 and injured 17 and public are nowcalling for a boycott of the company.

However, BP has recently demonstrated that they are acting responsiblyand taking significant action to correct the mistakes made. These eventshighlight the unpredictable nature of the off shore oil drilling industry andan investment in this sector has risks associated with it. BP however is alarge organisation and will undoubtedly recover from this in due course.

BP has assumed responsibility for the accident and are incurring costs forthe cleanup operation. However, Transocean Offshore were the contractoremployed by BP to drill the well and were directly responsible for theaccident although this is yet to be confirmed.

SWOT Analysis

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Opportunities Investment in the research of

alternative fuel methods,including hydrogen, naturalgas, wind and solar over theforthcoming decade.

Expansion of frontier areassuitable for BPs futurereserves (post-Soviet Unionterritories).

Extension of strategic oil andgas acquisitions in North Sea

area. Launch of more flexible price

policy to compete with mainrivals.

Threats Environmentally unsound

policies due to oil and toxicspills.

Occasional refinery explosions.

Corrosion in pipelines.

Competition from Shell andChevron.

Ceasing operations in anumber of potential locations

with their further re-branding(Conoco).

Sale of corporate-ownedstations.

More than 5, 000 shortageswithin coming months.

$66, 71 per barrel createsconsiderable tensions for

Strengths BP is ranked at the worlds 3rd

largest energy company and is

positioned as a multinational oilcompany headquartered inLondon that:

Operates petrochemicalbusinesses worldwide throughthe network of its subsidiariesand retail brands(Amoco; ARCO;BP Express, BP Connect; BP

Travel Centre; Burmah Castroletc).

Participates in London StockExchange, IPO in New York StockExchange and is listed in theFTSE 100 Index.

BP Amoco strong brand loyaltyfor oil.

Strong brand managementdriven by the Beyond Petroleum

Weaknesses Launch of controversial

business with the Baku-

Tbilisi-Ceyhan pipeline. Increase in petrol prices in

the UK.

Explosion of BP refinery in Texas that cause d 100injuries and 15 d eaths in2005.

Criminal charges due to thespread of 270.000 gallons of crude oil in the Alaskantundra in 2006.

Toxic spill of 2,000 gallonsof methanol in the oil field(Prudhoe Bay) managed byBP.

Closing of Alaskan oil wells.
http://www.businessteacher.org.uk/business-resources/swot-analysis-database/shell-swot-analysis/http://www.businessteacher.org.uk/business-resources/swot-analysis-database/shell-swot-analysis/http://www.businessteacher.org.uk/business-resources/swot-analysis-database/shell-swot-analysis/http://www.businessteacher.org.uk/business-resources/swot-analysis-database/shell-swot-analysis/


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Share Progress ChartWeek Date same

time eachweek

No of sharesbought infirst week

Price pershare each week

+/- changein shareprice fromlast week

Value of investment eachweek

+/- week by week changes invalue of investment

+/- changein value of investment fromstart

1 14/01/2010 1597 6.26 n/a 9997 n/a n/a

2 21/01/2010 1597 6.19 -0.07 9885 -112 -112

3 28/01/2010 1597 5.94 -0.25 9486 -399 -511

4 04/02/2010 1597 5.74 -0.20 9166 -320 -831

5 11/02/2010 1597 5.69 -0.05 9086 -80 -911

6 18/02/2010 1597 5.72 +0.03 9134 +48 -863

7 25/02/2010 1597 5.76 +0.04 9198 +64 -798

8 04/03/2010 1597 6.04 +0.28 9646 +448 -351

9 11/03/2010 1597 6.25 +0.21 9981 +335 -16

10 18/03/2010 1597 6.31 +0.05 10077 +96 +80

11 25/03/2010 1597 6.37 +0.06 10172 +95 +175

12 01/04/2010 1597 6.23 -0.14 10077 -95 +80

13 8/04/2010 1597 6.42 +0.19 10252 +175 +255

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14 15/04/2010 1597 6.43 +0.01 10269 +17 +272

15 22/04/2010 1597 6.48 +0.05 10348 +80 +351

16 29/04/2010 1597 6.25 -0.23 9981 -367 -16

17 06/05/2010 1597 5.65 -0.6 9023 -958 -974

18 13/05/2010 1597 5.41 -0.24 8639 -384 -1358

19 20/05/2010 1597 5.23 -0.18 8352 -287 -1645

20 27/05/2010 1597 4.92 -0.91 7857 -495 -2140

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Share Progress Graph

The chart shows that BPs share price drops from the beginning. This wasnot due to the fault of BP but more the countrys economic state. As wecan see from looking at both of the charts they rise and fall in a similarpattern suggesting that BP is reflecting the economy.

BP took a slight fall in the first few weeks of the project. However, lookingat the FTSE 100 chart, it appears that the stock market also took dippedduring that time. This could be due to the low demand from energycompanies and BPs profits through this period were low. BP then starts torise again as does the FTSE 100. At this time, BP was entering into Brazilwith plans of deep water drilling. It may be this that causes a strong riseBPs share price.

From around week 16 the share price falls dramatically. This was whenthe Deepwater Horizon in the Gulf of Mexico started to leak. Since then

the company has not yet been able to contain the leak although efforts tostop it have been made. The share price has not picked up since then asthey are facing opposition from the public. They are losing profit whilstthis continues.

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Week by Week Analysis

Week 1 14 January

FTSE 100 5494.24

During January, Britain saw the coldest weather since 1963. With littlepreparation for this weather some businesses were forced to shut down.Roads were dangerous so little transport was on the roads.

Week 2 21 January

FTSE 100 5416.40

This week saw the unemployment rate fall to 2.6 million for the first timein 18 months. The FTSE 100 fell to 5416.40 (-4.70). Share prices weregood as the building societies had low interest rates. This meant thatpeople were investing their money into the shares. Week 2 also saw theHaiti Earthquake. The government published the inflation figures of 2009/10. They had risen to 2.9%. Although this was above thegovernment target, the public were told not to worry as it was temporary.It was being caused by some factors such as a rise in VAT from 15% to

17.5%. This meant a rise in prices but a reduction in fuel prices. The Chinese economy initially boosted the UK shares this morning. At8.7% GDP, the growth puts China in line to over-take Japan as the worldssecond biggest economy.

Week 3 28 January

FTSE 100 5217.47

Again the FTSE fell quite dramatically this week to 5217.47. The stockmarket fell sharply as Obama announced a banking reform in America. Hetold the public that the banks would no longer be able to take big risks.

The public were told that the UK was emerging from the recession. Retailprices were down in January but there was a rise in VAT and the coldweather was still ongoing. Personal share ownership was fell to just 10%of UK shares down from 13% in 2006. This was far lower than the 54% in1963.

BP was forced this week to borrow rather than pay out of cash flow to paythe dividends to its shareholders. Their profits fell from 26bn to 14bnlast year. It was forecast that BP could expect a large jump in profits due

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FTSE 100 5276.64

Inflation has risen to 3.5% massively up from 2.9%. Mervyn King Governorof the Bank of England was forced to write to the Chancellor, AlistairDarling as when inflation rates rise above 3% the Bank of England has toexplain the reasons. He was told that the rise was temporary as VAT rateswere up to 17.5%. This means that there was a pay freeze so thatalthough prices go up 3.5% goes up the pay rate stays the same sotherefore people dont have as much money to put back in to theeconomy. It also means that the interest on savings is not keeping pacewith inflation. Unemployment was down to 2.46 million and the countryowes 178bn in borrowing.

Last week BPs Chief Executive Tony Hayward entered the company intoBrazil (the Campos basin) to drill. They are also becoming experts in deepwater drilling. Experts have estimated that BP has bought 140m barrelsand this could lead to 800m. This is a significant move as the last biggestdeal that BP entered into was the joint venture with TNK back in 2003.

Week 7 25 February

FTSE 100 5342.92

Retail prices are down by 1.8% in December to January. This is because

people havent got the money to spend. However, fuel prices are downthis week. This could be because people arent travelling as much. Thegovernment is worried about the level of debt the country is in. Thegovernment gets their income from the tax returns however, as therehavent been any this year, they have had to borrow 4.3bn to cover thecosts.

Week 8 4 March

FTSE 100 5533.21

This week interest rates were at a record low at 0.5% for the twelfthconsecutive month whilst the stock market has been at its highest intwelve months. This is because economists believe that a raise in thecosts in borrowing could damage the UKs fragile economy. Last month,the Bank of England stopped the process of quantitative easing havingspent 200bn to boost the economy. Figures released last month showedthat the economy grew by 0.3% in the last three months of 2009. This wasmore the initial estimated 0.1%. However, economists are still doubtful asto whether economic growth is guaranteed.

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The mining companies are making a lot of money. There is moreconfidence in the market. England has for the moment a triple A creditrating. This means that people are confident in trading with us but withthe amount of debt the country is in, this means that we could lose it. Thecountry this week is concerned about the fact that we could face a hungparliament. However, it is interesting because the stocks arent showingthis.

Week 9 11 March

FTSE 100 5640.57

It is interesting to see that the FTSE 100 has again risen although thepound () is very weak. Other countries can buy British products verycheaply and it is also cheap for tourism. Exports are very cheap which isnot good for the British economy. Interest rates on savings are not goodso therefore people are putting their money into shares. This is may bewhy stock shares have soared despite economic concerns.

This week, BP gained a vital foothold in Brazil through its purchase of Devon Energy. BP said that it would take on ten blocks in Brazilianterritory. The purchase of is likely to give the company an extra 40,000barrels per day and a potential extra 2bn barrels in reserves. It is TonyHaywards biggest deal to date with the 4.6bn purchase of DevonEnergy.

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Week 10 18 March

FTSE 100 5644.63

The economy hit a 21 month high which was better than expected.Employment figures saw that not as many people were out of jobs. TheEuropean Commission report accused the government that the plans forreducing the countrys deficit were not ambitious enough. They plannedspending cuts and tax rises to meet EU targets. However, othereconomists said that it would do irreparable damage to the economy. TheEU rules that the government deficit must be below 3% GDP but it isexpected to rise to 12.6% of GDP this year. However, Labour announcedin the pre-budget report that it would the GDP reduced to 4.7% by 2015.

The EU expects it to be down to 3% by 2014.

The FTSE 100 looks to be rising as people are not putting their money intosaving accounts but rather into shares. The country is coming out of therecession very slowly. Inflation is currently 3.9% but this looks to becaused by high petrol prices.

Week 11 25 March

FTSE 100 5677.88

The FTSE 100 is at its highest level from June 2008. It has risen more than60% from 3 March 2009. CPI has dropped from 3.9% to 3.5% which meansthat inflations in also dropping. The Budget was announced today,however, this did not affect the FTSE 100. The inflation has gone downthis week.

Week 12 1 April

FTSE 100 5679.64

As the country is coming out of the recession (although this is still indebate) it looks as though companies are doing well. The FTSE 100 hasagain risen this week. 75% of the FTSE 100 involves over sea trading andthis looks to be benefitting the country.

Week 13 8 April

FTSE 100 5762.06

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This week the general election was announced. Gordon Brown went tothe Buckingham Palace to dissolve parliament. The companies look tobe holding out until the new leader is announced.

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Week 14 15 April

FTSE 100 5796.25

This week saw a 22 month high in the FTSE 100. UK retail sales rose lastmonth with 6.6% in March up from 4.4%. The value of sales is improvingthe economy; however 12% of the economic growth is from China.

The UK retail sales saw a strong rise last month, according to the BritishRetail Consortium. The total value of sales jumped 6.6% in March from ayear ago. Another survey found that fewer retailers fell into administrationin the first three months of the year.

Today BP is facing a rebellion from major shareholders over the financialand environmental concerns connected to the project in Canadas oil sandreserves. A review backed by 140 investors is expected to be launchedinto the plan but BP is opposing it and it is not expected to be passed bythe board. Tony Hayward (Chief Executive) received a 41% rise in paywhich equates to 4m in salary, bonus and share awards. This was despitethe firms profits falling by 45% last year.

Week 15 22 April

FTSE 100 5723.43

Government borrowing hit a record high of 163.4bn for 2009/10.Although it is lower than the predicted 166.5bn, it is the biggest annualborrowing figure for a UK government. The countrys deficit is now at890bn which is at record height this year. Inflation has rise from 3% to3.4%. From March retail sales have gone down and unemployment is upto 2.5 million.

Volcanic ash brought the countrys airways to a standstill this week.Goldman and Sachs are being investigated for fraud. Both of thesecombined have pushed the FTSE lower as we can see from the resultaffecting business both internationally and environmentally.

This week saw the first ever political debate between the campaignleaders, David Cameron, Gordon Brown and Nick Clegg.

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Week 16 29 April

FTSE 100 5586.61

This week BP made headlines as the Deepwater Horizon exploded killing11 people. The incident happened off the Gulf of Mexico when anunderwater pipeline burst. BP have said that weather improvements haveaccelerated the clean-up.

BP brokers raised their earnings forecast following a strong first quarterfigures. Although Britain is vulnerable to economic collapse, it has not yetreached the critical point at which Greece has got to.

This week Gordon Brown calls a Labour supporter a bigot after shequestioned him about immigration. This sees his ratings drop in opinionpolls and it look set for a hung parliament. This has lowered confidence inthe markets, however it seems that they are standing back and waitingfor the election.

Week 17 6 May

FTSE 100 5260.99

6 May has seen the day of election for the new Prime Minister. The FTSE100 went down due to the uncertainty of hung parliament.

Week 18 13 May

FTSE 100 5383.45

There has been a dramatic increase in the costs for BPs efforts to containthe leak in the Gulf of Mexico. To date, BP estimate that the cost is at$450m up from $350m on Monday. This implies that the expenditure is$33m in daily costs compared with the estimated $18m just three daysago and $6m calculated on 30 April. It is turning to be one of the biggestenvironmental disasters.

A Conservative and Liberal Democrat coalition is now in government andinterest rates are staying at 0.5%. The FTSE 100 dropped during the weekbut rose again. Greece was bailed out by Europe but the FTSE 100 hasbeen down considerably due to problems in the Euro-zone.

Week 19 20 May

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FTSE 100 5158.08

This week the inflation figures show that they have reached a 17 monthhigh and inflation hit 3.7%, well above the target of 2% and the highestrate since November 2008. RPI inflation is up to 5.3%, the highest in 19years. Today, Germany banned naked short-selling which pushed theFTSE 100 down.

Week 20 27 May

FTSE 100 5038.08

This week, the public are directing their anger at the Tony Hayward overhis handling of the oil spill. The company has seen a steep drop in theirshare price and faced accusations that the management had authorised

shortcuts on the rig. US politicians released a memo saying that hoursbefore the explosion the rig had showed a very large abnormality.

It has been claimed that the event is the worst environmental disastersince Chernobyl. BP is the biggest company holding pension funds and theshares have so far fallen by 25%. The stock market believes that theirdividends are endangered by compensation claims and if the company isnot able to plug the leak within 48 hours then they put the risk of sharesdropping by 70%. BP claims that is the fault of the contractor, Transocean.In the clean-up attempt, BP has so far spent $75 million and mobilised220,000 people for the operation.

The FTSE closed above 5000 points last night but has climbed to 5200points today and again dropped. Although it is up today it has come downsince last week and it went below 5000 points on Monday. The market isgoing through a turbulent time because of the Euro-zone debt problems.

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Summary of Findings

Profit or Loss for BP?

The company overall has made a massive loss due to the oil spill in April.With 10,000 invested in the company, I made a loss of 2140. At itshighest peak, the share price was at 6.48 but at the cut off point it hasbeen at its lowest in a long time at 4.92. The company was rising againwith the economy but the oil spill has created a massive back-lash fromthe public and share-holders will be nervous about the future of thecompany. This has had a huge damaging effect on the company as it hasaffected the environment and job losses are on the increase. The publicare now calling for a boycott of the company. The company is spendingmillions a day on the clean up attempt and they are losing up to 5000barrels a day from the leak. Tony Haywards future as Chief Executive of BP is under consideration.

There were other factors that contributed to the falling share price of BP.6 May saw the general election. This caused a drop in the market when it

was announced as the future of the government was uncertain whichtherefore caused uncertainty in the markets. There was no confidence sono-one was investing.

Long Term Prognosis

As a world-wide company, I think that they will recover from the oil spilldisaster. Although they are losing millions a day on the clean-up process,it has not yet affected the company so far as to determine financial ruin.

They work within a sector that generates huge amounts of money. Theyalso have other deep-water refineries around the world, so they aremaking profits in other areas.

However, the oil spill has come at a bad time when the stock market is notvery stable. On the other hand it seemed that the companys share pricewas rising with the markets. From looking at the week by week analysis,there was a 6 week high from 18 February (Week 6) until 25 March (Week

11). BP rose from 18 February, which coincides with the stock market andthen fell on the 22 April, which shows that it is a strong company in the

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market as I think that it would have continued to rise were it not forthe Deepwater Horizon disaster. The price per barrel was rising andpeaked at $75 per barrel.

The table below shows BPs share price during the Texas oil explosion inMarch 2005. It demonstrates that being such a large company, it canrecover from such disasters. The blue line represents the FTSE 100 at thetime which shows that while BP and the green line represents BP. Thoughit BP was going through a turbulent time, it shows that it was higher thanthe FTSE100 indicating its strength within the markets. It appears thatthere was a rather steep drop at the time but managed to pull itself upagain from mid-April. I therefore feel, that although this disaster is a on alarger scale, BP can pull itself out of the situation it is in at the moment.

The graph below shows the share history before and after the time of the Texas refinery explosion on 23 March 2005.

In conclusion, I believe that although the companys prospects do not lookgood at this point in time, it will be able to pick itself up once they havecleared the oil spill up. However, I think that it will be a couple of yearsbefore that is possible.

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Recommendations

Before the disaster in the Gulf of Mexico, BP was a strong company, withover 1.2 million shareholders. An investment would be recommended nowwhilst the company is in a slump as the share price is low. However, this isa risk as it is not certain that the company will return to full strength. Itcould as of yet lose its ranking as third largest energy company.

From looking at the history of BP, they work in volatile conditions and it istherefore predictable that explosions occur from time to time. Before theexplosion in the Gulf of Mexico, the last blast was in Texas back in March2005, killing 14 people. As a listed company in the US stock market, it lost2.4% of its shares but did not drop significantly. It recovered from theblast as it did from similar situations. Although the current blast is quicklybecoming one of the most catastrophic events both environmentally andcapital wise, it is rare that such a strong and internationally well renownedcompany collapses. It may be that the company suffers reputation wise;however, I believe that they will recover.

Stock Market Investments

At the present moment in time, it is a good idea to invest in the stockmarkets whilst the valuations are low. Generally, investing in the stockmarket is a long term investment. Historically the average return onmoney in the markets is at 8% per year. The stock markets are veryaccessible and easy exit too made simple by the internet. There is alsosuch a diverse range of assets that can be invested in. Investing in stocks

that offer dividends is a unique aspect of the markets. Dividends are theshare of the profits and the larger companies usually issue these aroundtwice a year. It is very easy to follow those companies in the FTSE 100 andlook at their history.

There are different ways to invest in the

Bonds

Building society

Long term investments

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Bibliography

http://www.bp.com/onefeedsection.do?categoryId=152&contentId=2002499

http://production.investis.com/bp2/charts/csi/bp_ads/#

http://en.wikipedia.org/wiki/BP

http://www.timesonline.co.uk/tol/news/world/article436046.ece http://www.bp.com/sectiongenericarticle.do?

categoryId=3&contentId=2006926

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http://www.bp.com/onefeedsection.do?categoryId=152&contentId=2002499http://www.bp.com/onefeedsection.do?categoryId=152&contentId=2002499http://production.investis.com/bp2/charts/csi/bp_ads/http://en.wikipedia.org/wiki/BPhttp://www.timesonline.co.uk/tol/news/world/article436046.ecehttp://www.bp.com/sectiongenericarticle.do?categoryId=3&contentId=2006926http://www.bp.com/sectiongenericarticle.do?categoryId=3&contentId=2006926http://www.bp.com/onefeedsection.do?categoryId=152&contentId=2002499http://www.bp.com/onefeedsection.do?categoryId=152&contentId=2002499http://production.investis.com/bp2/charts/csi/bp_ads/http://en.wikipedia.org/wiki/BPhttp://www.timesonline.co.uk/tol/news/world/article436046.ecehttp://www.bp.com/sectiongenericarticle.do?categoryId=3&contentId=2006926http://www.bp.com/sectiongenericarticle.do?categoryId=3&contentId=2006926

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