BP Company Overview: Financials, Ethics, and Investment Recommendation

BP is a multinational oil and gas company headquartered in London, founded in 1909 to drill for oil in Iran. It has more than 16400 service stations around the world and significant interests in oil exploration, generating 13% of revenues, and the production of chemicals and plastics. The company provides fuel for transportation, energy for heat and light, lubricants to keep engines running, and petrochemical products used to make everyday items such as paints, clothes, and packaging.

Written by: Ahmad Alumatairi 220006751
Mirunaleni Thavapalan 210015851
Duc Nguyen 220018076
IS IT
RATIONAL
TO INVEST
IN BP?

Iliana Oikonomidi 220023064
Contents
1.0 Executive Summary...................................................................................................................3
1.1 Company Information...............................................................................................................3
1.2 Financial Information................................................................................................................3
1.3 Ethics............................................................................................................................................3
1.4 Conclusion...................................................................................................................................3
1.5 Recommendation.......................................................................................................................4
2.0 Introduction.................................................................................................................................4
3.0 Company Overview...................................................................................................................4
3.1 Operations and Products.........................................................................................................4
3.2 BP’s History.................................................................................................................................4
4.0 Competitiveness.........................................................................................................................5
5.0 BP’S Financial Performance....................................................................................................6
6.0 BP’S Ethical Issues...................................................................................................................7
6.1 BP’S Strategy..............................................................................................................................8
7.0 Conclusion...................................................................................................................................8
8.0 Recommendation.......................................................................................................................9
9.0 APPENDIX..................................................................................................................................10
9.1 APPENDIX 1...............................................................................................................................10
10.0 References...............................................................................................................................11

1.0 Executive Summary
1.1 Company Information
BP (also known as British Petroleum) is a multinational oil and gas company that is
headquartered in London. It is an oil exploration company founded in 1909 to drill for oil in
Iran (then known as Persia). Most people are very familiar with BP because of its more than
16400 service stations around the world, but it also has significant interests in oil exploration
(generating 13% of revenues) and the production of chemicals and plastics. The company
provides many customers with fuel for transportation, energy for heat and light, lubricants to
keep engines running, and petrochemical products used to make everyday items such as
paints, clothes, and packaging.
1.2 Financial Information
Analysing BP’S financial statements can be done through accounting ratios (liquidity, acid
test, and profitability ratio using ROCE, return on capital employed). In 2020, the liquidity
ratio was calculated to be 1.19:1 (where 2:1 is the ideal liquidity ratio). In 2021, this
worsened to 1.14:1. With the ideal acid test ratio at 1.5:1, in 2020, the acid test ratio was
calculated to be 0.916:1 meaning the company struggled to fully pay back its current
liabilities. In 2021, this was calculated to be 0.841:1 worsening compared to the previous
year. Assets and liabilities derived from the statement were noticeably similar comparing
both years. For 2020, the profitability ratio is calculated to be a loss, which amounts to
24,888 being detrimental to the company. On the contrary, 2021 seems to be better through
a positive percentage of 8.74%, although the ideal percentage is 20%. Cash provided by
operating activities through 2020 to 2021 increased by 11,450.
1.3 Ethics
BP has consistently been promoting renewable energy projects, those which address
climate change issues, and so on. However, r, they have also been involved in a cluster of
catastrophes and confusions. These have threatened the ‘green’ image of BP, and more
importantly their long-term growth. One of the major challenges included the BP Gulf Coast
oil spill in 2010, where BP paid $60 billion in costs. Moreover, BP agreed to a $7.8 billion
medical lawsuit for those who became ill that year. More than 37,000 people filed the lawsuit
claims which were intended to compensate victims. However, only a fraction of those claims
has been paid 8 years later with many choosing to opt out of the suit to proceed with
individual litigation.
1.4 Conclusion
BP is widely recognised as one of the world’s major oil producers. Profits and revenues are
high due to the company’s strong financial and human resources. As a result of industry
analysis and environmental activities, the company’s revenue margins have steadily
increased over the years. Industry analysis have also prompted the company to establish
new, sustainable business strategies that have allowed it to maintain its growth over time.
Over the years, the company is positioning itself to become more dominant by investing in
safer energy alternatives and renewable energy technology.
1.5 Recommendation
Taking everything covered in this report into account, our group proposes to invest in BP.

2.0 Introduction
The global energy industry is rapidly growing, with the need for these resources i.e. gas and
oil, increasing. Following technological advancements, BP p.l.c. (British Petroleum) has
become one of the largest leading companies in providing this service with operations
worldwide. As the demand for these commodities is on a consistent rise, BP constantly faces
many challenges through competition in the market. As evaluated further in this report,
outlined will be how BP continues to provide these commodities effectively worldwide,
including how their operations have influence external stakeholders. Finally, a conclusion
and recommendation will be drawn as to whether BP is truly an appropriate investment
decision.
3.0 Company Overview
3.1 Operations and Products
BP is a major integrated oil and gas company that acquires a number of brand names
associated with its gas station operations. It is the world’s third largest energy company,
headquartered in London. The company is one of the world’s largest private sector energy
corporations and one of the six “supermajors” - vertically integrated private sector oil
exploration, petroleum product marketing companies and natural (NewWorld Encyclopedia,
2021). In a single day, the company supplies 3.8 million barrels of oil to over 22,400 stations.
The company is dedicated to providing sustainable energy alternatives within the oil industry,
which is evidenced by its $80 million investment in energy options such as solar power,
natural gas, wind, and biofuels. The investment has also been used to develop energy
technology used in the search for new energy sources. When comparing sales and earnings,
it is among the largest firms in the world and is one of the oil and gas powerhouses. The
business model for the company adopts a vertical integration approach whose business
practices focus on the generation of electricity, oil and gas trading, distribution of oil and gas,
and marketing. The company is also involved in oil and gas exploration and extraction.
3.2 BP’s History
The company’s origins can be traced back to the Anglo-Persian Oil Company, which came
into place in 1908 under the Burmah Oil Company subsidiary to capitalise on oil discoveries
in Iran. The company later changed its name to Anglo-Iranian Oil Company in 1935 and then
to British Petroleum in 1954. The business extended to Alaska in 1959, going beyond the
Middle East. In 1978, the company was a majority shareholder in Standard Oil of Ohio.
Between 1979 and 1987, the government of Britain sold its majority to private enterprises,
leading to the company’s privatisation (Hobbs, 2019).
British Petroleum purchased ARCO and Burmah Castrol in 2000 and Aral AG in 2002 after
its 1990 merger with Amoco. In 2001, the organization’s full name was abbreviated to BP
plc. The company took part in the TNK-BP joint venture during the period between 2003 to
2013. For a long time, BP has controlled a 20% share of Rosneft (Hobbs, 2019). BP
operates in nearly 80 countries globally and is responsible for producing 3.7 million barrels of
oil per day and has total proven reserves of 19.945 billion barrels of oil. The corporation runs
its approximately 18,700 service stations under the umbrella of BP globally (Chaplinsky et
al., 2017). It operates under the Amoco brand in the United States, while in Germany, it is
known as Aral. As of 2022, the company’s revenue amounts to $158 billion, with assets
totalling $287.3 billion and $7.6 billion in profits (Forbes, 2022).

4.0 Competitiveness
BP operates in a highly competitive sector. However, the company has built a competitive
edge around its operations, making it among the leading oil and gas production companies.
The company faces heightened competition from 5 key companies, including Chevron
Corporation, Exxon Mobil, Royal Dutch Shell, Total, and ConocoPhillips. When BP makes
revenue and profits amounting to $158 billion and $7.6 billion, respectively, its competition is
way ahead (Forbes, 2022a). Chevron Corporation makes a revenue of $156.3 billion and a
profit of $15.6 billion (Forbes, 2022b). On the other hand, Exxon Mobil makes a revenue of
$280.5 billion and a profit of $23 billion (Forbes, 2022d). The revenues and profits of Royal
Dutch Shell fall between $261.8 billion and $20.3 billion, respectively (Forbes, 2022e). Total
generates $185.1 billion and $16.1 billion in revenues and profits, respectively (Forbes,
2022f). Finally, ConocoPhillips generates $46.1 billion and $8.1 billion in revenues and
profits, respectively (Forbes, 2022c). In revenue generation, BP takes fourth, with Exxon
Mobil leading, followed closely by Royal Dutch Shell. BP ranks fifth in profit generation, with
Exxon Mobil still taking the lead in this category.
The company’s true competitive advantage does not lie in its products and services but in its
ability to manage a resource that cannot be easily duplicated: knowledge (Woods, 2013).
BP’s value system is highly reliant on collaboration and knowledge management. The
company focuses on engaging creative talent in developing and applying leading cost-
effective technologies to enhance innovation and create new ideas. BP capitalises on a
methodological framework that involves a learning cycle during and after every event. It is,
however, critical to note that the learning cycle is highly dependent on simple learning tools.
The company focuses on treating every process as an enclosed learning loop.
The lessons the company learns from any experience are posted on its intranets and shared
with all its business units to capture and share knowledge. Unlike its competition, BP has
implemented an effective system of capturing knowledge (Woods, 2013). Without this
framework and system, such valuable knowledge always leaves when the employees leave
the organization. It is almost impossible for multinational companies like BP to operate as a
collaborative unit, but it can work as a collection of individual units. Unlike its competitors, BP
has put in place peer review and cross-unit interaction mechanisms to facilitate the
development of this collective nature. To further support its competitive advantage, BP
leverages information systems management in managing knowledge and creating and
developing infrastructure to support its quest for knowledge management.
Please refer to Appendix 1 (Source: Sönnichsen, 2022)
Fig 1: Chart showing revenue generated by the leading oil and gas companies worldwide as
of 2022 (Sönnichsen, 2022).
5.0 BP’S Financial Performance
Internal control over financial reporting is a procedure implemented by a corporation to
ensure that financial reporting is accurate and that financial statements are prepared in
compliance with generally accepted accounting principles for external use. The policies and
procedures relating to the upkeep of records that fairly and accurately reflect the
transactions and dispositions of the company's assets, reasonably ensure that transactions
are recorded as required to enable the preparation of financial statements in accordance
with generally accepted accounting principles, and provide reasonable assurance that
receipts and expenditures of the company are recorded as necessary are all included in a

company's internal control over financial reporting. The company's performance materiality is
also established at a level lower that materiality to reduce the probability that uncorrected
misstatements exceed the materiality for the financial statements as a whole.
Through the analysation of the financial statements of the company we can see how they
performed each year. We will look at their statement of financial position, their income
statement, and their cash flow statement of 2020-2021. We took the information about the
financial statements from the (bp-annual-report-and-form-20f-financial statements). The
ways that the analyzation has taken place is through some accounting ratios including the
liquidity ratio, the acid test ratio and the profitability ratio return on capital employed and
through some commenting on the financial statements mentioned above. Starting with the
statement of financial position which is also named as balance sheet we can look at the
liquidity ratio which is an important class of financial metrics used to determine a debtor’s
ability to pay off current debt obligations without raising external capital. The liquidity current
ratio measures the company’s ability to pay debt obligations and its margin of safety through
the calculation which is as follows: current assets over the current liabilities. The ideal
liquidity ratio is 2:1. As calculated for the year 2020 the liquidity ratio turns to be 1.19:1
(71656 /59753) which is good that its above 1 but it is not close to the ideal ratio meaning
that the company has not managed to perform to meet its expectations. In 2021 the current
ratio was at 1.14:1 (90938/79928) which is almost the same as last years which means that
the company has not managed to improve the liquidity of the company and it was even
worse by 0.04. Another liquidity ratio is called the acid test ratio which is similar to the
current ratio but provides a more conservative assessment of the liquidity position of firms as
it excludes inventory, which it does not consider as sufficiently liquid. The acid test ratio is
calculated as follows: current assets minus the inventories over the current liabilities. The
ideal acid test ratio is 1.5:1 and in 2020 the acid test ratio is calculated to be 0.916:1
(54783/59753) which is almost 0.6 away from the ideal ratio but it also means that the
company cannot fully pay back its current liabilities since the ratio is less than 1.
Also, in 2021 the acid test ratio is calculated to be 0.841(67227/79928) which is even less so
even worse. The assets and the liabilities taken from the statement did not have any change
from 2020 to 2021 meaning they were almost the same number.
Another important ratio to understand the profitability of the company after considering the
amount of capital used is the return on capital employed ratio. The equation is as follows: in
the nominator we have profit before interest plus the tax times 100 and in the denominator
the capital employed which includes the equity plus the non-current liabilities. For this
equation we have taken the profit from the income statement the finance cost from the
statement of cashflow and the capital employed from the statement of financial position. For
the year 2020 the capital employed ratio is calculated to be a loss since as we can see from
the income statement, we have a loss of 24888 which is bad for the company. However, in
2021 we have a positive percentage of 8.74% (18,084/206,985 *100) which is good that it
became positive from the loss of 2020 however the ideal is 20% and 8.74% is even lower
than the half of it.
Looking at the cashflow statement which bridges the gap between the income statement and
the statement of financial position by showing how much cash is generated or spent on
operating, investing, and financing, we can see that the company has managed to increase
its cash provided by operating activities from 2020 to 2021 by £11,450 which means that
more cash came into the company by receiving receipts or collecting accounts receivable.

Additionally, by looking at the investing activities we can see that the company has managed
to spend less than the previous year in investing. It is still negative like the previous year but
a negative cash flow in investing activities is not considered as a negative sign if
management is investing in the long-term health of the company. Finally, by looking at the
financing activities which measures the movement of cash between a firm and its owners,
investors, and creditors we can see that it decreased since 2020 by 22035 which can mean
that the company is servicing debt but can also mean that the company is retiring debt which
investors might be glad to see.
By examining the income statement, we can see that the company has eliminated its loss
from 2020, which was -£22,370, to +£10,552 in 2021. This is very advantageous for
investors because it shows that the company was able to eliminate losses from year to year,
which will draw investors. In conclusion, investors should invest in the company since it
became profitable the previous year for all the reasons listed above. The company's liquidity
ratios and return on capital employed ratio, however, did not perform as well as expected.
However, a lot can change in the upcoming year; nothing is predictable.
6.0 BP’S Ethical Issues
BP is known as one of the world’s global companies in the sale of fuels and products to
various countries. They are responsible for making moral decisions and acting in a moral
manner towards its people and the environment. For years BP have been promoting
renewable energy projects, investing in projects which address climate change issues and
other places. However, at the same time BP have been involved in a variety of disasters and
confusions. Many of these challenges have threatened to damage the image as well as the
long-term growth of the company.
One of the major challenges that BP ad faced was the BP Gulf Coast oil spill in 2010.
Between April to July 2010, 185 million gallons of unrefined petroleum leaked into the Gulf
Coast and destroyed many wildlife habitats and homes of the Gulf Coast people. BP and its
drilling partners removed most of the oil from the coast over the next several years, but
research indicates that it will take decades for the Gulf coast to fully recover. BP paid a high
price for the spill’s risk-taking; more than $60 billion in criminal and civil penalties, natural
resource damages, economic claims, and clean-up costs. To avoid crowding the court
system, BP agreed to a $7.8 billion medical lawsuit for those who became ill that year. The
lawsuit was intended to compensate victims $60700 each, along with the option to file
additional claims if they developed more serious symptoms. More than 37,000 people filed
the lawsuit claims. However, only a fraction of those claims has been paid 8 years later.
Many others chose to opt out of the suit in order to proceed with individual litigation.
On the other hand, BP has tried to set its differences aside and has tried to make its
company more ethical. In 2020, BP announced ten goals to help it achieve its goal of
becoming a net zero company by 2050 or sooner, as well as assisting the rest of the world in
doing so. BP also wishes to contribute to the resolution of other pressing sustainability
issues, for example, biodiversity, loss, and water scarcity. As a result, BP has now
introduced ten new goals to connect its actions to a wider range of ethical concerns. The
COVID-19 pandemic allowed BP to reinvent the company by reducing operational
greenhouse gas emissions by 16% and has launched a new goal to become water positive
which means replenishing more freshwater than the company use in its operations.

BP explains that they are working on better safety metrics with the Centre of Chemical
Process Safety, the American Petroleum Institute, and its industry peers to prevent future oil
spills. The company also claims to have “enhanced training and development programmes,
particularly around the practical aspects of process safety techniques.” This shows that BP
are taking into consideration their consequences and are trying to prevent any more
accidents in the future.
6.1 BP’S Strategy
The company has outlined a strategy that is enabling them to change from being an
integrated energy company focused on providing solutions for clients to being an
international oil corporation focused on generating resources. In order to increase value, the
company has built on three focus areas of activity and three sources of difference. They are
concentrating on three key areas: robust hydrocarbons, which are elevating their portfolio,
reducing emissions, and boosting profitability. They are also emphasising comfort and
mobility, which involves maintaining customer-focused returns. Finally, they are
concentrating on low-carbon energy, which is used on a building scale with an emphasis on
capital discipline and returns.
7.0 Conclusion
BP is amongst the world’s largest producers of gas and oil. Between 1979 and 1987, the
company was privatised when its majority was sold to private enterprises. Through 2000-
2002, BP acquired ARCO, Burmah Castrol, and Aral AG after its 1990 merger with Amoco.
BP operates in a wide range of countries globally, amounting to nearly 80. As of 2022, the
company’s revenue totals around $158 billion, with assets totalling $287.3b and $7.6b in
profits. BP operates in a highly competitive sector; however, their competitive edge has
provided them an advantage around its operations, making them amongst the leading oil
and gas producers. Competition arises through companies including Chevron Corporation,
Exxon Mobil, Royal Dutch Shell, Total, and ConocoPhillips. The company’s edge sourced
not from its products and services, but in their ability to manage a resource that could not
easily be duplicated. BP has implemented a learning cycle where any new knowledge is
shared on its intranets and shared with all its business units. This methodical approach is
what makes them stand out from its competitors.
As BP is amongst the world’s largest producers of this vital commodity, it is fair to say they
hold a substantial proportion of the market share within this industry. Hence, this provides
evidence that BP simply attract different stakeholders to their company through their
competitive edge within the market. This is backed through their learning cycle which proves
to be effective as a stunt towards internal growth within their company. Therefore, it is
evident that BP do not lack in innovative ideas as they are able to find solutions to boost
productivity and keep a consistent rate revenue inflow, thus, attracting investors.
Furthermore, one of the main factors influencing investor decisions within this industry is
their ethical approach, BP promoting renewable projects highlights the fact they are
embarking towards a more sustainable future. However, the Gulf Coast oil spill would drive
investors away, especially as BP have not compensated all the victims who suffered. This
allows individuals to question whether BP are truthful or in fact greenwashing.
Regarding strategic decisions within BP, they are planning to build on key areas, those of
which include robust hydrocarbons, reducing emissions, and boosting profitability. Although
they have managed to create a well thought plan for their future, investors may question the

magnitude of costs incurred in the process and if they will remain financially sustainable
following this. Moreover, time could be an issue which may drive attention away from the
company.
BP’s financial performance throughout the years remains questionable. The use of
accounting ratios concluded that their performance has worsened as time progresses. The
value of the liquidity, acid test, and profitability ratio all deteriorated through the period 2020-
21. Therefore, investors may be reluctant to invest if BP prove to be unreliable with cost
management.
8.0 Recommendation
It could be argued that investing in BP is an irrational decision mainly due to their financial
performance in recent years alone. Moreover, the Gulf Coast oil spill was a catastrophic
disaster which incurred BP major losses. However, their strategic plan for the future allows
stakeholders to believe that they will improve in the future, in terms of financial performance
and sustainability. Therefore, you can conclude that BP is in fact a good company to invest
in, given the fact they have made mistakes in the past.

9.0 APPENDIX
9.1 APPENDIX 1

10.0 References
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