Introduction

Table of ContentsIntroduction11.Background of the British Petroleum Australia1Industry classification1Management and governance issues1Investment decisions taken by the British Petroleum Australia.12.Sources of funds2Reference to markets2Instruments and institutions used2Uses of funds and incorporation of the matching principle23.Analysis of the sources and uses of funds2Analysis of fundamental34.Analysis of profit/loss/balance sheet45.Share price fluctuations, market capitalization76.Competitiveness in the market87.Findings9Conclusion and Recommendations9Reference10

1. Background of the British Petroleum AustraliaIndustry 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/mining-energy/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-australia-fuel-stations-exploration.html

2. Sources of fundsReference to marketsInstruments 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 1st October 2014., http://www.bp.com/en/global/corporate/investors/share-information/share-capital.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-of-tapping-new-worldclass-oilfield/story-e6frg8zx-1227032460850

BP, (2012), BP Kwinana Refinery: Investment continues, viewed on 2nd October, 2014

http://www.bp.com/en_au/australia/media/media-releases/bp-kwinana-refinery-investment-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

Asset management ratio= total assetssales revenue

305690=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 revenueaverage inventory

379136=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/Eis 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 ShareEarning 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.

(Source: 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

100

100

379136

28717