BP Plc: Overview, Revenue, And Financial Metrics

Introduction to BP Plc

Company Background: BP Plc

Formerly known as the British Petroleum Company plc, BP Plc is a United Kingdom based multinational organization of oil and gas which is geographically headquartered in London, England. The company also forms one of the seven ‘supermajors’ in the oil and gas industry. BP is a vertically integrated organization that operates in all the areas pertaining to the oil and gas industry which include exploration, extraction, refining, marketing, distribution, trading and power generation. The company of late have also had interests in renewable energy which includes biofuels, smart grid, wind power and solar technology. BP Plc being a public limited company has multiple listings. The company is primarily listed on the London Stock Exchange with secondary listings on the New York Stock Exchange and the Frankfurt Stock Exchange. BP also happens to be a constituent of the FTSE 100 component. The company serves worldwide with global operations in Europe, North & South America, Australia, Africa and Asia. Some of the key markets of the company include the United States, United Kingdom, Germany, Australia, India and Gulf of Mexico.

There are four main strategic business units from which the company derives its main sources of income. These are outlined and elaborated as follows:

1. Upstream Activities: The upstream activities of the company include exploration of natural gas & oil, production & field development, midstream transportation, processing & storage, trading & marketing of natural gas.
2. Downstream Activities: These activities include refinement, manufacture, marketing, transporting, supply and trading of petroleum, crude oil, petrochemicals and provision of other related services to retail customers and wholesalers.
3. Rosneft: The company has interests in Rosneft which is accounted for using the equity method and is reported as a separate operating segment.
4. Other Business & Corporate Activities: These include the renewable sources of energy, treasury & shipping function and worldwide corporate activities.

Geographic Segmentation:

BP Plc has generated total revenue of $ 180,366 million in the financial year 2020. From a geographical standpoint, BP has two major geographical segments. These are categorized into United States segment and Non United States segment. The total revenue which has been generated from the United States segment in 2020 is $55,611 million which has declined year on year from $98,066 million in 2018 and $89,334 million in the year 2019. The total revenue generated from the Non United States segment in 2020 is $124,755 million. This segment has also seen a year on year decline in revenue from $200,690 million in 2018 and $189,063 million in 2019. The total revenue derived from the United Kingdom market in the Non United States segment in 2020 is worth $42,729 million which has also reflected a similar decline trend from $65,630 million in 2019 and $63,194 million in 2019.

From a product segmentation standpoint, there are four different product revenue generating segments for BP Plc. Oil products are the main revenue generating segment wherein the company has generated $63,564 million in the year 2020. This is followed by natural gas segment which has generated revenue worth $12,726 million in the recent financial year. This is followed by non-oil products & customer contracts at $9,840 million and crude oil at $5,048 million. Lastly, there is another segment which is other operating revenues that consist of physically settled derivative contracts that have generated revenue worth $89,188 million.

 

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On the basis of business segmentation which has already been discussed under the section ‘strategic business unit’ of the report, BP Plc have four major business segments from which it has generated a total revenue of $180,366 million in 2020. The first business segment pertains to downstream activities from which the company has generated $162,816 million worth of revenue which is the main business activity revenue driver for the company. This is followed by revenue generated from upstream activities which was worth $17,067 million in 2020. Lastly the company generated $483 million from other business & corporate activities.

Geographic Presence

The key financial ratios and industry average ratio results have been obtained from secondary research conducted. The same has been provided in the appendix section of the report.

The three main key performance indicators selected for analysing profitability performance are operating profit margin, net profit margin and return on equity. The operating profit margin can be best explained as the proportion of revenue left behind after covering the direct expenses and operating expenses incurred by a business entity in their ordinary course of operations. The operating profit margin of BP Plc had been increasing year on year from 0.27% in 2016 to 3.62% in 2017 to 5.29% in 2018 and started to decline to 3.56% in 2019 and -12.19% in 2020. A similar trend was noticed for the net profit margin as well. The net profit margin of an organization can be best interpreted as the ultimate bottom line profitability performance of an organization and refers to the proportion of revenue which is left behind after covering for the total expenses incurred during the financial year which includes direct expenses, indirect expenses and financial expenses.

 

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The net profit margin of the company grew from 0.06% in 2016 to 3.15% in 2018 and declined to 1.45% in 2019 and -11.28% in 2020. A decline in profitability is because of the year on year decline in revenue over the previous three financial years. A steep decline in 2020 in total revenue is credited to decline in demand for energy which was affected because of the Covid19 pandemic. From a global standpoint, the pandemic resulted in an 8.8% in demand with respect to global oil consumption and a 2.5% decrease in demand in natural gas. Additionally, the company also witnessed a significant decline in spot prices in all key markets for most of 2020 which were not at par with 2016-2018 average price level. The rerun on equity was also compromised which shows a similar trend as that of other metrics and a decline was imminent because of a reduction in share prices and lower dividends in the year. Lastly, these metrics lagged significantly behind the industry average results.

The overall liquidity performance of the company has seen consistency over the past five financial years. It is also worth mentioning that the metrics performed better in contrast to the industry average results. For instance, the current ratio can be interpreted as the total reliance an entity can place upon their short term current assets for meeting their short term current liabilities. The current ratio of BP Plc in 2020 was just about optimal at 1.22 times and is higher than previous four years thus suggesting that the company can meet all their current liabilities by placing reliance upon their total current assets. A similar trend can be noticed for the quick ratio as well which was at an all time high of 0.84 times in the past five years. The quick ratio is a conservative measure of liquidity as it only places reliance only upon current assets which are quick to liquidate and thus ignores inventories and prepayments.

Strategic Business Units

The quick ratio of 0.84 may not be considered optimum as the company will not be able to meet all their current liabilities, however the same is better when compared to prior year results or the industry average of 0.73 times. However, the operating cash flow ratio has declined in current year at 0.20 times because of a decrease in cash flow from operating activities for the company due to decline in business in current year. The company have managed to further improve their liquidity position because of paying off short term liabilities which decreased from $73,595 million in 2019 to $59,799 million in 2020. An imitative into effectively managing liquidity was to reduce the exposure to liquidity risk which prevails because of existing market conditions.

 

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The asset turnover ratio can be best interpreted as the efficiency with which an organization utilizes their total resources for generating annual revenue. The asset turnover ratio had been increasing through 2016-2018 reaching an all time high of 1.07 times in 2018 but started to decline since then reaching an all time low of 0.64 times in 2020 over the past five years. The metric also lagged behind the current industry average of 0.76 times. A decline in asset turnover is because of a steep decline in the total revenue which was generated during the year. The inventory turnover ratio and the receivable turnover ratio of an organization reflect upon the overall efficiency with which an organization manages their stock and debtors. This too saw a similar trend reaching an all time low in 2020 at 8.18 times and 10.77 times respectively. Furthermore, the metrics also happened to lag behind the industry average results.

The solvency ratios reflect upon the debt dependency of an organization and the exposure to a consequent financial leverage. The debt ratio can be interpreted as the total amount of reliance a company places upon debt sources of finance for financing the assets as opposed to equity. The debt ratio of BP Plc have been marginally increasing year on year reaching an all time high of 68.03% in 2020 which is behind the current industry average of 59.00% because of an increasing proportion of debts which finances the asset base. Likewise, the debt to equity ratio of the company has also reached an all time high of 95.74% which means that for every $1 worth of equity invested in the capital structure, the company makes use of $0.95 worth of debts. This significantly lags behind 63% of the current industry average. A high debt reliance increases the financial leverage for the company which increases the risk of default. Lastly, the interest coverage ratio can be interpreted as the total number of times a company can meet their interest expense from their available EBITDA. The metric has declined in performance over the last few years because of an increase in interest expense and a decrease in the available earnings before interest, taxes and non cash expenses.

The earnings per share ratio can be interpreted as the total amount of after tax net profits that are available to be distributed to the shareholders of an organization. The earnings per share are an important investment ratio as an increasing trend reflects upon the growth potential for the company. The earnings per share of the company has increasing year on year through 2016-2018 but started to decline since 2019 reaching a negative figure at $-1.00. This is because the company owing to a poor financial year witnessed a negative absolute net income figure. Likewise, the dividend per share also saw a similar trend. The company used to have a constant dividend policy which remained at an average of $0.40 per share in 2016-2017 and $0.41 per share in 2018-2019 but eventually had to pay fewer returns in 2020 because of a poor year resulting in a decline to $0.26 per share.

Revenue Generation and Segmentation

 

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The main competitors of BP Plc are outlined as follows:

1. Chevron Corporation:

• Chevron is headquartered in the United States.
• The company has generated total revenue in 2020 worth $94.4 billion.
• Chevron has a total market capitalization of $244.643 billion.

1. Shell Plc:

• Shell Plc is headquartered in the Netherlands.
• The company in 2020 generated a total revenue worth $180.54 billion
• Shell has a total market capitalization of $191.665B billion.

1. Exxon Mobil Corp:

• Exxon is headquartered in the United States.
• The company has generated total revenue in 2020 worth $178.57 billion.
• The current market capitalization of the company is $305.537 billion.

1. TotalEnergies SE:

• Total Energies is headquartered in France.
• In 2020, the company has generated total revenue worth $190 billion.
• The company has an existing market capitalization of $143.503 billion.

A competitive comparison in between BP Plc and the above primary peers in terms of total revenue generated in 2020 have been drawn as follows:

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The marketing strategy which is followed by British Petroleum (BP) ltd appropriately covers upstream and downstream operations. The business utilizes the 4 P’s of Marketing as an approach to ensure the overall marketing strategy which the business follows is appropriate.

Product: The products which are offered by the business are mainly related to energy generation. In terms of upstream operations, the business has natural gas, gas trading activities and furthers its renewable businesses, including biofuels, solar and wind. The upstream operations further cover oil fuels. In terms of downstream operations, the business offers customer based products which are used for mobility. The products which are offered by the business are itself in significant demand in the market. A chart presented below shows the main products which the company offers.

 

Prices: The price of oil and natural gas has fallen in 2020 due to fall in their consumption which is a direct result of the pandemic scenario. In terms of Oil, the prices show $41.84/bbl in 2020 which is a 35% decrease from 2019 levels. The prices of natural gas also show a similar decline. The management of BP is considering keeping the prices of its products low so that steady revenue can be generated. The Government of UK has an influence on the pricing strategies of the business and in an overall basis, it can be said that the business follows competitive pricing strategy.

Place: The prime area of operations in UK where the company also has its headquarters and further the business also has its operations in Houston, North America. The business has widespread operations considering the appropriate network which it has across UK and US. This helps in reaching out to a wider range of customers.

Promotion: The business already has an established brand name in the market which itself helps in appropriate promotion of the business. The business has always focused on quality and this further enhances the reputation in the market. The business utilizes mainly the print media for attracting the attention of the customers and further utilizes its official website to inform the stakeholders regarding the developments which takes place in the business.

In terms of league table rankings in oil and gas industry, the business of BP ltd ranks fifth in overall global market which shows that the company is quite recognized in the market. Further the business has maintained this position for the last two years. A table which is provided below shows the brand positions of top ten brands:

 

Therefore, it can be said that the business follows 4P’s of marketing approach for settings its marketing strategies and ensuring that a proper budget is reserved for such operations.

Human Resource Analysis

The business considers its employees and staff members as important assets for the business and therefore follows safety as one of the core values of the business. The business implemented safety protocols for the employee and staff members of the company so that the safety of the workforce is not compromised in any manner.

Financial Metrics Analysis

The business believes in a diverse culture and therefore people of different skills and background work in a collaborative manner in the board of directors. The business has established separate committees which handles different areas of operations. For remuneration requirement, the responsibility lies with the remuneration committee. The directors are entitled to fixed remuneration (basic pay), annual bonus which is 112.5% of salary at target, and 225% at maximum, performance shares and retirement benefits. The table presented below shows remuneration of executive directors for 2020:

The recruitment operations for the business are undertaken by the human resource management team and the skill and experience of the employees are big factor in the recruitment criteria for the company. In terms of company’s structure, there are different departments which are responsible for their own line of work and all operations are controlled by the board of directors and committees which are given responsibilities. A chart presented below shows different departments which operates within BP:

The corporate governance framework is formulated by the board of directors of the business and due to the pandemic scenario 2020; new corporate governance strategy is adopted by the business. The governance structure which the business follows focuses on strategy and ensures such strategies are consistent with the core values of the business. Further, the business has established different committees who have their own responsibilities for managing the flow of operations and ensure that there is a code of conduct in the business.

In an overall basis, it can be said that the governance framework and corporate structure is appropriate so that it can meet the tough conditions of the market and still provide quality product and services to the customers.

Business Model Canvas

KEY PARTNERS · IT team managing the website of the company. · Established companies like Equinor, Microsoft, and JinkoPower. · Existing Suppliers. · Marketing Partners.	KEY ACTIVITIES · Distribution of Gas and Oil. · Extraction and refining of oil and gas products. · Biofuel developments. · Providing consumer based products especially fuels which can be used for mobility. · Power generation and marketing for fuels	VALUE PROPOSITION · Providing variety of different. · Generation of energy both from renewable and non-renewable sources. · Constant improvements in the operations so that it can be meet the expectations of the customers.	CUSTOMER RELATIONSHIPS · Customer’s relationship management. · Alternative energy sources for consumer. · Entering a social contract with customers for providing energy	CUSTOMER SEGMENTS · Household consumers. · Government and public corporations · Chemical industry · Neighbouring states.
KEY RESOURCES · Oil fields. · Heavy machinery (drillers, forklifts). · Website. · Patents. · Human resource · Plants and refineries	CHANNELS · Gas stations · Refinery and petrochemical plants · E-Commerce Platforms. · Advertisement · Print Media.
COST STRUCTURE · Website costs and platform license fees. · Transportation cost. · Transactional fees. · Marketing costs. · Other administrative expenses.	REVENUE STREAMS · Selling of gas, oil and petrochemicals. · Biofuel sales revenue · Advertisement income. · Consumer based products like lubricants, mobility fuels..

(Source: Author)

The above chart appropriately shows the different elements which are considered for creating appropriate value for the customers. The business model for the business is based on the idea that the company would be providing diverse kinds of energy products across the world. The business can be referred to as a vertically integrated, globally distributed company network which has operations in all stages of the oil and gas value chain, including the exploration and extraction of crude oil and gas, the transportation and trade in oil and gas. Further the business has manufacturing operations as well for by-products such as lubricants and mobility fuels. The diversity in the product portfolio creates competitive advantage for the business and further the global network which the business has created has a positive impact on the value creation process.  A chart presented below shows the value creation process for the business of BP ltd for both upstream and downstream operations.

 

Sl. No	Strengths	Weaknesses
1	The business has a wide diversity of products in terms of gases, oil, biofuels, by-products (lubricants)	The business faces high cost of operations which affects the profit margin of the company.
2	The global network which the company has established helps in reaching out to customers far and wide.	The inventory management policies for the business is inappropriate and therefore losses is suffered due to such a factor
3	The business has a diverse culture which has skills to contribute towards the needs of the operations.	The business further suffers from a high attrition rate which endangers the sustenance of skills and experienced people in the business.
4	The business has an innovative mind-set which allows the management to continuously improve its operations.	The business has been affected by the COVID 19 situation and therefore profitability has fallen and in 2020 the business has incurred significant amount of losses.
5	The business has a solid reputation in global market considering the ranking which the business has achieved.	The business has faced issued in terms of managing its risks in terms of fluctuation in prices of oil in global market.

(Source: Author)

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