BP Share Report

By Kate Williams
January – June
2010
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1. Introduction

This report looks at the financial progress of BP (British Petroleum). BP’s

share price was followed every week for 22 weeks from January to June.
Their progress was monitored over this period and share price was taken
on the closing time of the stock markets on the Wednesday. The news was
considered in context of the project as economic factors could affect the
company and stock market at any time.

1.1 Why BP?

I decided to invest my shares in BP because being one of the largest fuel

companies in the world; I thought that it would be a good investment. It
was predicted at the start of the year that the profits of BP would rise so
this also contributed to the reasons as to why I chose to follow BP. They
come across as a financially sound company with profits starting at $5598
million 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 adapting
the 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 world’s biggest fuel companies, BP provides its

customers with energy, fuel and retail services. They boast over 92,000
employees and in excess of 1.2 million shareholders (as from December
2008). They are active in 29 countries with 17 refineries (some of which
BP 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 now
has BP Ultimate. They claim it improves engine performance and reduces
pollution. In 2006 BP declared they were going to invest $500 million into
the bioscience research to find more environment friendly fuel.

From looking at a five-year history of the company, it would seem that

they are a relatively stable company within the stock market.

The graph below shows five-year history of BP’s share prices.

As we can see from the graph, the company share price fell in 2008. There
is apparently no simple explanation for this as it was revealed that they
were 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 share
prices again drop. However, this was during the collapse of Northern Rock.
The UK bank was subsequently nationalised and indicated the start of the
recession. Its lowest price when Northern Rock collapsed was
approximately £3.70. From then, it started to make a strong recovery until
2010 peaking at just over £6.44. From then, the graph line steadily builds
up 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 is
due 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 spill
with up to an estimated 5000 barrels of it being leaked into the sea every
day. It is now washing up on the shores of Louisiana, Alabama and
Mississippi. The explosion killed 11 and injured 17 and public are now
calling for a boycott of the company.

However, BP has recently demonstrated that they are acting responsibly

and taking significant action to correct the mistakes made. These events
highlight the unpredictable nature of the off shore oil drilling industry and
an investment in this sector has risks associated with it. BP however is a
large organisation and will undoubtedly recover from this in due course.

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

SWOT Analysis

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 Strengths Weaknesses
Opportunities
• BP is ranked at the world’s 3rdThreats • Launch of controversial
• Investment
largest in the research
energy company ofand is • Environmentally
business withunsound
the Baku-
alternative fuel as
positioned methods,
a multinational oil policiesTbilisi-Ceyhan
due to oil andpipeline.
toxic
including hydrogen, natural
company headquartered in spills.
gas, London
wind and solar over the
that: • Increase in petrol prices in
forthcoming decade. • Occasional refinery explosions.
the UK.
• Operates petrochemical
• Expansion of frontier
businesses areasthrough • Corrosion
worldwide in pipelines.
• Explosion of BP refinery in
suitable for BP’s future
the network of its subsidiaries Texas that caused 100
reserves (post-Soviet
and retail Union ARCO; • Competition
brands(Amoco; injuriesfrom
andShell and in
15 deaths
territories).
BP Express, BP Connect; BP Chevron.2005.
Travel Centre; Burmah Castrol
• Extension
etc). of strategic oil and • Ceasing operations
• Criminal in a due to the
charges
gas acquisitions in North Sea number of potential
spread of 270.000locations
gallons of
area.
• Participates in London Stock with their further re-branding
crude oil in the Alaskan
Exchange, IPO in New York Stock (Conoco).
tundra in 2006.
• Launch of moreand
Exchange flexible price
is listed in the
policy to compete
FTSE 100 Index. with main • Sale• ofToxic
corporate-owned
spill of 2,000 gallons
rivals. stations.
of methanol in the oil field
• BP Amoco strong brand loyalty (Prudhoe Bay) managed by
for oil. • More than
BP. 5, 000 shortages
within coming months.
• Strong brand management • Closing of Alaskan oil wells.
driven by the ‘Beyond Petroleum’ • $66, 71 per barrel creates
slogan. considerable tensions for
running oil business.

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Share Progress Chart
Week Date same No of Price per +/- change Value of +/- week +/- change
time each shares share £ in share investmen by week in value of
week bought in each week price from t each changes in investmen
first week last week week £ value of t from
investmen start
t

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 BP’s share price drops from the beginning. This was
not due to the fault of BP but more the country’s economic state. As we
can see from looking at both of the charts they rise and fall in a similar
pattern suggesting that BP is reflecting the economy.

BP took a slight fall in the first few weeks of the project. However, looking
at the FTSE 100 chart, it appears that the stock market also took dipped
during that time. This could be due to the low demand from energy
companies and BP’s profits through this period were low. BP then starts to
rise again as does the FTSE 100. At this time, BP was entering into Brazil
with plans of deep water drilling. It may be this that causes a strong rise
BP’s share price.

From around week 16 the share price falls dramatically. This was when
the 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 to
stop it have been made. The share price has not picked up since then as
they are facing opposition from the public. They are losing profit whilst
this 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 little
preparation 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 time
in 18 months. The FTSE 100 fell to 5416.40 (-4.70). Share prices were
good as the building societies had low interest rates. This meant that
people were investing their money into the shares. Week 2 also saw the
Haiti Earthquake. The government published the inflation figures of
2009/10. They had risen to 2.9%. Although this was above the
government 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. At

8.7% GDP, the growth puts China in line to over-take Japan as the world’s
second biggest economy.

Week 3 – 28 January

FTSE 100 – 5217.47

Again the FTSE fell quite dramatically this week to 5217.47. The stock
market fell sharply as Obama announced a banking reform in America. He
told 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. Retail
prices were down in January but there was a rise in VAT and the cold
weather 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% in
1963.

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

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to higher oil prices and a £4bn cost cutting drive. However, it was not
just BP that had been suffering. The industry as a whole has been
troubled by low demands for petrol goods, causing their refining
operations to become unprofitable. BP’s refining business which converts
crude oil into petroleum made a loss of $1.9bn in the fourth quarter.
However, this was redeemed by other areas in the business over the
course of the year with oil prices at more than $70 per barrel. The
company recently overtook Shell as Europe’s largest competitor

Week 4 – 4 February

FTSE 100 – 5253.15

Manufacturing was up in January. The FTSE 100 was down again to

5253.15. Mortgage offers were at the lowest rate but construction figures
were up which meant more work was being generated. This means that
less people are buying houses but it could be due to the seasonal factors.
It is being argued that the UK is coming out of recession.

This week BP profits fell by 45%. This was their biggest fall in almost a
year as they revealed that they expected profits to be higher. All the
energy majors have been hit by low demand for petrol causing their
refining operations to become unprofitable. BP recently overtook Shell as
Europe’s largest oil company.

Week 5 – 11 February

FTSE 100 – 5131.99

Greece and Portugal are in big debt. This caused worry on the markets.
The UK has been told that interest rates should stay the same for the rest
of the year.

On Monday, 8 January, BP was facing a shareholder investor revolt over

the Canadian oil sands project. This project is very expensive and it raises
controversial issues over the carbon-dioxide it emits which is more than
the more conventional method of drilling. Many organisations have filed a
motion to BP asking them not to commit £10bn to the project. The
investors are concerned about whether the project will be profitable and
about the carbon emissions impact on the environment. The Chief
Executive of BP, Tony Hayward is keen to press ahead with the project.
The company ensured that it would not be responsible for any damage to
the environment.

Week 6 – 18 February

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FTSE 100 – 5276.64

Inflation has risen to 3.5% massively up from 2.9%. Mervyn King Governor
of the Bank of England was forced to write to the Chancellor, Alistair
Darling as when inflation rates rise above 3% the Bank of England has to
explain the reasons. He was told that the rise was temporary as VAT rates
were up to 17.5%. This means that there was a pay freeze so that
although prices go up 3.5% goes up the pay rate stays the same so
therefore people don’t have as much money to put back in to the
economy. It also means that the interest on savings is not keeping pace
with inflation. Unemployment was down to 2.46 million and the country
owes £178bn in borrowing.

Last week BP’s Chief Executive Tony Hayward entered the company into
Brazil (the Campos basin) to drill. They are also becoming experts in deep
water drilling. Experts have estimated that BP has bought 140m barrels
and this could lead to 800m. This is a significant move as the last biggest
deal 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 haven’t got the money to spend. However, fuel prices are down
this week. This could be because people aren’t travelling as much. The
government is worried about the level of debt the country is in. The
government gets their income from the tax returns however, as there
haven’t been any this year, they have had to borrow £4.3bn to cover the
costs.

Week 8 – 4 March

FTSE 100 – 5533.21

This week interest rates were at a record low at 0.5% for the twelfth
consecutive month whilst the stock market has been at its highest in
twelve months. This is because economists believe that a raise in the
costs in borrowing could damage the UK’s fragile economy. Last month,
the Bank of England stopped the process of quantitative easing having
spent £200bn to boost the economy. Figures released last month showed
that the economy grew by 0.3% in the last three months of 2009. This was
more the initial estimated 0.1%. However, economists are still doubtful as
to whether economic growth is guaranteed.

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The mining companies are making a lot of money. There is more
confidence in the market. England has for the moment a triple A credit
rating. This means that people are confident in trading with us but with
the amount of debt the country is in, this means that we could lose it. The
country this week is concerned about the fact that we could face a hung
parliament. However, it is interesting because the stocks aren’t showing
this.

Week 9 – 11 March

FTSE 100 – 5640.57

It is interesting to see that the FTSE 100 has again risen although the
pound (£) is very weak. Other countries can buy British products very
cheaply and it is also cheap for tourism. Exports are very cheap which is
not good for the British economy. Interest rates on savings are not good
so therefore people are putting their money into shares. This is may be
why 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 Brazilian
territory. The purchase of is likely to give the company an extra 40,000
barrels per day and a potential extra 2bn barrels in reserves. It is Tony
Hayward’s biggest deal to date with the £4.6bn purchase of Devon
Energy.

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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. The
European Commission report accused the government that the plans for
reducing the country’s deficit were not ambitious enough. They planned
spending cuts and tax rises to meet EU targets. However, other
economists said that it would do irreparable damage to the economy. The
EU rules that the government deficit must be below 3% GDP but it is
expected to rise to 12.6% of GDP this year. However, Labour announced
in 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 into
saving accounts but rather into shares. The country is coming out of the
recession very slowly. Inflation is currently 3.9% but this looks to be
caused 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 than
60% from 3 March 2009. CPI has dropped from 3.9% to 3.5% which means
that inflations in also dropping. The Budget was announced today,
however, this did not affect the FTSE 100. The inflation has gone down
this week.

Week 12 – 1 April

FTSE 100 – 5679.64

As the country is coming out of the recession (although this is still in

debate) it looks as though companies are doing well. The FTSE 100 has
again risen this week. 75% of the FTSE 100 involves over sea trading and
this 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 to
the Buckingham Palace to dissolve parliament. The companies look to
be 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 last
month with 6.6% in March up from 4.4%. The value of sales is improving
the economy; however 12% of the economic growth is from China.

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

Today BP is facing a rebellion from major shareholders over the financial

and environmental concerns connected to the project in Canada’s oil sand
reserves. A review backed by 140 investors is expected to be launched
into the plan but BP is opposing it and it is not expected to be passed by
the board. Tony Hayward (Chief Executive) received a 41% rise in pay
which equates to £4m in salary, bonus and share awards. This was despite
the firm’s 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 annual
borrowing figure for a UK government. The country’s deficit is now at
£890bn which is at record height this year. Inflation has rise from 3% to
3.4%. From March retail sales have gone down and unemployment is up
to 2.5 million.

Volcanic ash brought the country’s airways to a standstill this week.

Goldman and Sachs are being investigated for fraud. Both of these
combined have pushed the FTSE lower as we can see from the result
affecting business both internationally and environmentally.

This week saw the first ever political debate between the campaign
leaders, 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 killing

11 people. The incident happened off the Gulf of Mexico when an
underwater pipeline burst. BP have said that weather improvements have
accelerated the clean-up.

BP brokers raised their earnings forecast following a strong first quarter

figures. Although Britain is vulnerable to economic collapse, it has not yet
reached the critical point at which Greece has got to.

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

Week 17 – 6 May

FTSE 100 – 5260.99

6 May has seen the day of election for the new Prime Minister. The FTSE
100 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 BP’s efforts to contain
the 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 days
ago and $6m calculated on 30 April. It is turning to be one of the biggest
environmental disasters.

A Conservative and Liberal Democrat coalition is now in government and

interest rates are staying at 0.5%. The FTSE 100 dropped during the week
but rose again. Greece was bailed out by Europe but the FTSE 100 has
been 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 month
high and inflation hit 3.7%, well above the target of 2% and the highest
rate since November 2008. RPI inflation is up to 5.3%, the highest in 19
years. Today, Germany banned naked short-selling which pushed the
FTSE 100 down.

Week 20 – 27 May

FTSE 100 – 5038.08

This week, the public are directing their anger at the Tony Hayward over
his handling of the oil spill. The company has seen a steep drop in their
share price and faced accusations that the management had “authorised”
shortcuts on the rig. US politicians released a memo saying that hours
before the explosion the rig had showed a very large abnormality.

It has been claimed that the event is the worst environmental disaster
since Chernobyl. BP is the biggest company holding pension funds and the
shares have so far fallen by 25%. The stock market believes that their
dividends are endangered by compensation claims and if the company is
not able to plug the leak within 48 hours then they put the risk of shares
dropping 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 mobilised
220,000 people for the operation.

The FTSE closed above 5000 points last night but has climbed to 5200
points today and again dropped. Although it is up today it has come down
since last week and it went below 5000 points on Monday. The market is
going 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 its
highest peak, the share price was at £6.48 but at the cut off point it has
been at its lowest in a long time at £4.92. The company was rising again
with the economy but the oil spill has created a massive back-lash from
the public and share-holders will be nervous about the future of the
company. This has had a huge damaging effect on the company as it has
affected the environment and job losses are on the increase. The public
are now calling for a boycott of the company. The company is spending
millions a day on the clean up attempt and they are losing up to 5000
barrels a day from the leak. Tony Hayward’s 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 which
therefore caused uncertainty in the markets. There was no confidence so
no-one was investing.

Long Term Prognosis

As a world-wide company, I think that they will recover from the oil spill
disaster. 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. They
also have other deep-water refineries around the world, so they are
making profits in other areas.

However, the oil spill has come at a bad time when the stock market is not
very stable. On the other hand it seemed that the company’s share price
was 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 and
then 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 for
the Deepwater Horizon disaster. The price per barrel was rising and
peaked at $75 per barrel.

The table below shows BP’s share price during the Texas oil explosion in
March 2005. It demonstrates that being such a large company, it can
recover from such disasters. The blue line represents the FTSE 100 at the
time which shows that while BP and the green line represents BP. Though
it BP was going through a turbulent time, it shows that it was higher than
the FTSE100 indicating its strength within the markets. It appears that
there was a rather steep drop at the time but managed to pull itself up
again from mid-April. I therefore feel, that although this disaster is a on a
larger 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 company’s prospects do not look

good at this point in time, it will be able to pick itself up once they have
cleared the oil spill up. However, I think that it will be a couple of years
before that is possible.

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Recommendations

Before the disaster in the Gulf of Mexico, BP was a strong company, with
over 1.2 million shareholders. An investment would be recommended now
whilst the company is in a slump as the share price is low. However, this is
a risk as it is not certain that the company will return to full strength. It
could 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 is
therefore predictable that explosions occur from time to time. Before the
explosion in the Gulf of Mexico, the last blast was in Texas back in March
2005, killing 14 people. As a listed company in the US stock market, it lost
2.4% of its shares but did not drop significantly. It recovered from the
blast as it did from similar situations. Although the current blast is quickly
becoming one of the most catastrophic events both environmentally and
capital wise, it is rare that such a strong and internationally well renowned
company 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 stock

markets whilst the valuations are low. Generally, investing in the stock
market is a long term investment. Historically the average return on
money in the markets is at 8% per year. The stock markets are very
accessible and easy exit too made simple by the internet. There is also
such 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 the
share of the profits and the larger companies usually issue these around
twice a year. It is very easy to follow those companies in the FTSE 100 and
look 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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