BP 2006-2010

Strategic and Financial Analysis

Osman Terdi Batu Cem Ekiz
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Content
I. STRATEGIC ANALYSIS
Overview Industry PESTEL Porter s 5 Forces SWOT

II. FINANCIAL ANALYSIS

Oil Prices- Refining Margin Key Ratios Cash Flow

III. CONCLUSION
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Overview

Global oil and gas company. One of the six Supermajors Fourth largest company in the world by its revenue size. Main operations are E&P (Upstream) and R&M (Downstream)

Industry Players
Supermajors
ExxonMobil (USA) Royal Dutch Shell (UK/Netherlands) BP (BP plc - UK) Chevron Corp. (USA) ConocoPhillips (USA) Total S.A (France)

NOC s: National oil companies

Saudi Aramco Pemex Petrobras

An Industry is Shaping
COMPETITIVE RIVALRY

Amoco & BP (1998) Mobil & Exxon (1999) Petrofina & Total (1999) then ElfAquitaine (2000) Texaco & Chevron (2001) Phillips Petroleum & Conoco merged (2002)

Industry

PESTEL
POLITICAL Tax Legislation Russia- State Intervention Environmental Legislation LEGAL Diversified Labour Safety First ECONOMIC Global Crisis 2008-2009 Emerging Markets

ENVIRONMENTAL Climate change Oil Spill Bad Reputation Alternative Energy

TECHNOLOGICAL Advances in Tech. Deepwater Oil Sands Liquified LPG

SOCIO-CULTURAL Arab Spring Terrorist attacks on BTC 7

Porter s 5 Forces
FORCES Bargaining Power of Suppliers Bargaining Power of Buyers Threat of Entry Labour Suppliers- Medium Tech Suppliers- High Governments-Very High Industry-Very Low Retail(short)- Low Retail(long)- Below Moderate Capital investment requirements High-Tech Cumulative Experience No exact substitute Renewable- expensive Coal- emmission/legislations Upstream- Medium Downstream- Very High Retail- Low cost/ differentiation LEVEL VERY HIGH

LOW

VERY LOW

Threat of Substitutes

LOW

Rivalry within the industry

HIGH

SWOT
Strengths:
Cumulative Experience High-Tech / LNG, Deepwater projects, Oil Sands Expertise in refining, transportation and petrochemicals. The ability to develop megaprojects sets supermajors apart from other oil and gas companies.

SWOT
Weaknesses:
NOCs have access to major reserves. As they dominate the market, have power on supply side price rearrangements. They are capable for price setting. Bad Reputation in terms of environmental issues, protests, oil spill

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SWOT
Opportunities:
growth in global energy demand. Population increase in Asia Renewables New oil field explorations Upstream E&P, where margins are higher and competition is lower. Upstream is the most profitable part of the business and the profit margins in the downstream are less relatively. Natural gas -(LNG)

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SWOT
Threats:
Competition from NOCs. Competition for the world's remaining available and accessible resources remains fierce despite the associated costs and risks. In recent years NOCs have begun to expand outside of their native regions. Environmental Threats like hurricanes, floods, fire Accidents trigger environmental issues within bad reputation of BP Political Threats especially in Middle East and Central Asia.

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Highlights
Growth Internal Growth + Mergers & Acquisations

Production

High- Tech Production Growing production potential with new prooved resources Improving position both in Upstream & Downstream

Segmentation

Reputation

Use Alternative Energy foundation of BP as a defence shield of accusations based on environmental issues

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Financial Analysis

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Oil Prices- Revenues

600 500 400 300 200 100 0 2006
* Brent Oil Price $/bbl

120 100 80 Oil Prices* 60 40 20 0 2007 2008 2009 2010 15 BP Rev. Exxonmobil Rev. Chevron Rev.

Refining Margin
40 35 30 25 20 15 10 5 0 -5 -10 2006 2007 2008 2009 2010 16 Revenue Refining Margin Operating Margin

Profitability
Return on Shareholders Funds
80 70 60 50 40 30 20 10 0 -10 -20 EXXONMOBIL BP CHEVRON SHELL 2006 2007 2008 2009 2010 17

Efficiency
Current Ratio- Inventories
50 45 40 35 30 25 20 15 10 5 0 2006 2007 2008 2009 2010 Current Ratio 1.4 1.2 1 0.8 0.6 0.4 0.2 0 18

Average Inventories Turnover Period

Efficiency
Current Ratio
1.5 1.4 1.3 1.2 1.1 1 0.9 0.8 0.7 0.6 0.5 2006 2007 BP
performances between 2006-2010

2008 Average*

2009

2010

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* Average calculation based on Exxonmobil, BP, ConocoPhilips, Chevron s current ratio

Efficiency
45 2009-Year of Credit Crunch 40 35 30 25 20 15 2006 2007 2008 2009 Credit Period (Days) 2010 20

Collection Period (Days)

earing
Interest Cover Ratio 60 50 40 0.4 30 0.3 20 10 0 2006 -10 2007 2008 2009 2010 0 0.2 0.1 21 Gearing Ratio 0.6 0.5

Dividends
Chart Title
80 70 60 50 40 30 20 10 0 2006 2007 2008 2009 2010 0 -0.1 -0.2 -0.3 22 0.4 0.3 0.2 0.1

Price/Earnings Ratio

Earnings per share

Cash Flow
80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 -10,000 2006 2007 2008 2009 2010 Oil Spill Share buyback Rosneft Husky Chesapeake Capital Expenditure Nerefco

Provided from Operating Activities Used in Financing

Used in Investment

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Conclusion
2006- 2007 Performance is sticked with oil prices, 2007 is weaker relatively in terms of efficiency and gearing, however promising results in terms of dividend management. Altough the volatile oil prices and environment, BP s position becomes stronger in terms of its financial structure. Problem for short term but benefit for long term. Beneficial year for long term players of shareholders Liquidity and credit problems occured due to global economic slowdown. The company turns into a defensive position more than agressive policy of 2008. Bad reputation and protesting BP S product will affect especially retail segment of BP. The most competitive segment of industry will be the worst. Recovery in future is closely related with bank crisis and company s managing it s debt.

2008

2009

2010

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