Financial Analysis of Shell Plc and Bp PlcIntroductionSome financial outrages have put corporate governance in the business spotlight. Basically, the issues and interest in the subject corporate finance can be traced back at least to the eighteenth century and economists such as Adam Smith. Certainly, there is probably little new in the existing debate involving to financial negligence, except for the range of the financial and economic consequences which replicate the greater importance of finance in the current economy. The purpose of this paper is to examine the economic and financial context of corporate governance of two UK oil companies i.e. Shell Plc and BP Plc. Basically, corporate governance has significant implications for the performance of the financial sector and, by addition, the economy as whole. Well-organised resource allocation is supported by strapping shareholder control rights, which assists investment in fresh development actions and confines the scope for corporate over-investment. Apparently, investment decisions are further linked to corporate governance insofar as investors prefer to invest in appropriately supervised corporations and be apt to avoid investing in ambiguous environments. In this way, the investor assurance created by sound corporate governance provisions and the security of minority shareholders encourages the financial market progress by encouraging share ownership and capable capital allocation across firms. Transparent financial reporting is necessary to sending efficient corporate governance.
For the last several years, the business industry in UK have seen the rapid growth of the number of firms offering financial situation analysis services even though we are currently in the stage of global financial crisis. Anyway, this serves as a proof that more and more organisations are realising the importance the analysis of their financial situation in order to keep up with the demands of the business world.
Background of CompaniesBritish Petroleum (BP) Plc[1]BP is one of Britains biggest companies and one of the worlds largest oil and petrochemicals groups. William Knox DArcy, the company’s founder, believed that oil deposits were to found in Iran so in the companys first six decades, its prime focus lay in the Middle East. But from the late 1960s the center of gravity shifted westwards, towards the USA and Britain itself. Oil exploration and production account for 20 percent of BP’s revenues. In 2005, the firm reported a turnover of $262 billion and by December of the same year, they have 96,200 employees working for the organization. Lord John Browne is the Chief Executive Officer of BP as of the moment. The recent 2003 merger with the Alfa Access Renova group creating the TNK-BP tie-up and the not-so-recent 1998 acquisition of the Amoco Corporation oil company has provided the groundwork for
[1] BP and its subsidiaries have since seen major capital and political changes. In 2005, only the second largest company in the world merged with the Chinese firm of BP, BP-Acoa and the Anglo American and Australian operations. At present, BP’s major business partners in North America and North Africa, North America are mostly made up of foreign investment partners and their assets may be offshore. These subsidiaries and subsidiaries may be the focus of ongoing strategic and legal discussions with the US and other countries about extending to, and extending past, BP-Acoa. However, BP has long been the global benchmark for the development of a wide range of businesses. The business of oil exploration and production has been a subject of ongoing, ongoing and complex legal and regulatory proceedings. In 1999, over $2 billion (1.5 per cent of BP’s gross revenues) was invested in legal actions (including the U.S. Federal Government). The following year, the U.S. Justice Department, in conjunction with the American Bar Association, filed a U.S. District Court application for a restraining order, allowing BP and two other independent corporations on behalf of the U.S. Government to establish the company, on various terms and conditions. The court also sought to preclude a U.S. judicial proceeding on an offshore oil production project that BP was seeking to operate in Pennsylvania. The Court of Appeal in 1999, while appealing against a United States patent in the drilling case filed by BP and its two subsidiaries, decided against a previous ruling in that case stating that foreign investment was not required for investment by BP Corporation in the Pennsylvania shale oil fields, in violation of the Patent Act of 1976. The court in their original decision did not follow the common law principles set out for the establishment of foreign companies for the production of oil in Pennsylvania. They set out the requirements for the establishment of foreign companies. As noted above, the U.S. Supreme Court, in the most recent case, held that it should be applicable to the construction of oil pipelines and to any other offshore energy assets built on the basis of domestic or foreign requirements. In 2010, the Court of Appeals for the Fourth Circuit in Texas ruled, in an appeal from a decision of the U.S. Court of Appeals for the D.C. Circuit to the Federal Judicial Court of Federal Way ordered that BP and its subsidiaries be allowed to retain their position of operations in Pennsylvania even though they had built three offshore oil facilities from 2005 to 2012. During this period, BP operated three oil platforms that were subsequently dismantled to prevent more offshore oil shipments in the Gulf of Mexico. It also operated a four-stage system where its main operations were to conduct operations offshore in Ohio, Pennsylvania, and Louisiana. While these are the only such offshore oil platforms BP has operated outside the U.S., they are the primary oil-producing vessels for the company’s operations. BP and its subsidiaries now hold approximately $3 billion worth of debt. While foreign investment in these offshore oil platforms has been limited with each other since 2005, the offshore oil business has grown tremendously. In 2012, BP began to invest directly in $1 billion worth of assets, but the investments had a dramatic effect on the industry and resulted in less funding. In September 2012 with international oil demand slowing to record levels in the first half of the year, BP announced a $6 billion investment in $2.5 billion portfolio in Delaware, with that amount likely to fall on the first of the year