BP's Environmental Report and Financial Statements - Essay Example

 BP's environmental report and financial statements Period covered by the environmental report BP’s sustainability reports look closely into the impact of BP’s business operations. The reports are essential in analysing the environment, the economies and the societies where they operate. The environmental report can be used by anybody concerned to analyse the company’s performance, as well as view its progress in the respective year (2013, in this case). Since 1998, BP has been preparing these reports on its sustainability performance for all those years now. The report seeks to show that the oil company is taking measures to correct the catastrophic oil spill it caused at the Gulf of Mexico back in 2010. They include all stories from all over the world. Method or framework used to prepare the environmental report, if any The BP environmental report sure is prepared following a certain model. The framework is a series of steps that begins by briefly outlining what the BP Company is all about, followed by an illustration of what the pictures on the cover page stand for. What follows next is a table of contents and then an overview, which is made up of a recap of the year’s milestone events, follows in the series. There is an order of stories, from the most intriguing to the least. The stories include a country to county analysis of projects, for example, in 2013, the director mentioned the terrorist attacks in Algeria, environmental restoration efforts in the Gulf of Mexico, the extension projects in Papua, the prevention measures in China, Brazil, Libya and Russia. After the overview, there come the focus areas, which include specific points of interest. For instance, the focus areas of 2013 included the following; 1. The energy future analyses BP’s view on climate change, energy forecasts, deepwater oil, bio fuels and gas, oil sands and hydraulic fracturing. 2. BP also focuses on its people including how the company encourages diversity of people and thought, as well as how they depend on the motivation and the talent of its workforce. 3. The report also entails how the company operates including its framework of governance, how it manages risk and how effective or efficient their operating management system is. 4. Safety forms a major point of focus on the report. Here, the report focuses on managing the safety and operational risk of the people and environment, including measures to avoid the occurrence of accidents and oil spills. 5. Environment -The Company is very committed to their approach to oil spills greenhouse gas emissions, water, working in the Arctic, waste and biodiversity. 6. The report show cases some socio-economic impacts the company has had in supporting the development of societies where the company works, focusing on human rights as well. The final step of the framework is reporting. This includes the company’s report on their stakeholders on their engagement with our stakeholders. That is, what the company heard from its shareholders and how it is responding to their sentiments. (Sustainability Review, 2013) Reporting boundaries used The report uses Operational Controlling approach in setting its organisational boundaries. This is because the BP company has operational control over an all its operations since one of its subsidiaries, the parent company is able to direct the financial and operating regulations of the company with an aim to gain economically from its operations. BP seeks to curb its operational GHG emissions by introducing reductions in flaring, operational energy efficiency, and venting. The BP Company also wishes to factor a carbon cost into their engineering design of new projects and their investment appraisals. From the report, one can also tell that BP has full authority over the introduction and implementation of its operating policies at the operation site. This criterion is in tandem with the accounting and reporting practice used currently by the many companies like BP which report on emissions emanating from the facilities they operate (that is, operations for which the BP company has acquired operating licenses) (Sustainability Review, 2013). Moreover, I get from the report that it is expected that only in very rare circumstances, if the BP oil company or one of its subsidiaries operates a facility, it normally has the full authority to establish and undertake its policies of operation and therefore the company has operational control (Sustainability Review, 2013) Additionally, from my study of the focus areas of the BP report, what makes me certain that the company operates under this operational control approach is that the company accounts for all the emissions from operations run by it or operations conducted by any of its subsidiary companies. Types of greenhouse gases (GHG) emissions Scope1. They are the Direct Green House Gas emissions. These types of emissions emanate from sources that the BP Company controls or manages, for instance, emissions from combustion in controlled or owned boilers in the company, vehicles, furnaces, ships, purifiers etc.; emissions coming from production of chemical in controlled or owned process equipment. Direct Carbon Dioxide emissions from the burning of biomass are however excluded from the list of direct green house gas emissions. The Kyoto Protocol does not cover these GHG emissions (The Greenhouse Gas Protocol, 2013) Scope 2: These are the Electricity indirect GHG emissions The Scope 2 green house gas emissions account for emissions emanating from the generation of electricity purchased for use by the BP Company in running its many processes and machines such as the drilling machine, the oil purifying machine, and so on. Purchased electricity takes the definition of electricity brought into the company’s organizational boundary. These types of emissions occur physically at the facility where electricity gets used. (The Greenhouse Gas Protocol, 2013) Scope 3: Indirect GHG emissions Scope 3 is a reporting category (optional) that enables the consideration of the rest of the indirect emissions. The Scope 3 emissions come are the result of the company activities, which emanate from sources not controlled or owned by the company. For instance, scope 3 activities in the BP Company could include production and extraction of purchased materials; the use of sold products and services and the transportation of purchased fuels. (The Greenhouse Gas Protocol, 2013) Sources of Green House Gas emissions and volumes of emissions per thousand metric tones. The company’s direct GHG emissions as of 2013 are 49.2 million tonnes compared to 59.8Metric tonnes in 2012 and 61.8Metric tonnes in 2011.The decrease in quantity emissions is essentially because the BP Company sold two of its refineries, Carson and Texas City in the US, which according to the report, is part of their divestment programme(Sustainability Review, 2013). Companies dealing with Natural gas and Oil such as the BP Company release greenhouse gases (GHGs) in almost all aspect of their work. These aspects range from the exploration, extraction and processing of hydrocarbon resources, all the way to the transporting and delivery of these products to customers. The most GHG emissions during these processes the come as a result of the flaring and venting of gas, the combustion of fossil fuels for energy, and from process and fugitive sources (The Greenhouse Gas Protocol, 2013) Actions undertaken by the company’s businesses to sustain their emissions in lower levels resulted to a 0.2Metric tonnes reduction. According to the report, BP Company has been measuring their sustainable reductions in the company’s operational GHG emissions since 2002 and has done so every year since then. The net reduction in Green House Gas emissions by the year 2014 is stated to be approximately 8.7Metric tonnes (Sustainability Review, 2013). BP wants to be part of the growing campaign on reducing emissions of components or fumes that have a negative global warming effect on the climate. They are also referred to as ‘short-lived climate forcer because these substances have relatively lesser lifetimes in the atmosphere as well. An example of such an emission is methane and the BP sustainability report says that the company is working to understand better the emissions from such substances and analysing the potential for further reductions as well. A number of factors influence the company’s GHG emissions. These factors include the shifts in business activity, assets or production hence making it hard to establish an appropriate GHG target for the entire company that can be cascaded throughout the company with the aim of attaining cost-effective emission reductions (SEBA, 2014). These are the reasons why, BP Group, like many of its peer companies, has not set company-wide GHG targets but chooses to adopt local level performance management through their operating management system (OMS) (Sustainability Review, 2013). Q2. Suppose the government has set a minimum price on direct (Type 1) GHG emissions of US$100 per metric-tone. The likely impact of the emissions price on the company’s operations would be as follows: Greenhouse gas intensity -Another way the BP sustainability report has looked into the performance of the company through conducting reviews on the various forms of emissions of direct GHGs per unit of production by sector. If the government set a minimum price of 100 dollars per metric tonne, it would mean that the company will intensify its search for better and more effective ways of preventing the emission of green house gases. This would mean a decline of company operations this year than last year. This cannot be substantiated with a solid example because the government has not done that yet, so all campaigns pushing for production of lesser GHG are self driven and serve to appeal to the general public. In the company’s Upstream business, Green House Gas emissions per production unit in 2013 stood at 30.0 teCO2e per thousand oil barrels. The performance is a reflection of start-up of operations in the North Sea, maturing assets, and increased flaring in Angola. The general increased intensity over the last half decade reflects a decrease in production in our less Green House Gas intensive areas. The company has also enhanced intensity of some additional areas as they develop more complex resources and commission new assets. More in intensity keeps on occurring in most of their mature assets where the production of oil and gas declines faster than energy consumption. The intensity is as a result of the declining reservoir energy as well as the use of more energy intensive enhanced and secondary recovery techniques. Refining According to the report, in 2013 the refining GHG intensity metric in BP Group was 934 teCO2e per UEDC (Utilized Equivalent Distillation Capacity). This is in comparison to the figure 901 in 2012. The overall increase GHG intensity is attributed to the significant changes in the refining portfolio of the oil company. This includes the sale of their two larger refineries in the US Carson and Texas City, which had a lower GHG intensity than the rest or its portfolio. Refining availability is a key indicator of the operational performance of the company’s Downstream businesses. According to the report, 2013 performance Refining availability rose by 0.5% to 95.3% from 2012 translated into strong operations around the company’s global refining portfolio. If the government set a minimum price of 100 dollars per metric tonne, it would mean more refining this year than last year, since the Green house gas emissions are on the decline according to the trend. Petrochemicals The 2013 report says that petrochemicals GHG intensity stood at 283 teCO2e/kte of production compared to the figure 293 in 2012. The general downward trend from 2008 onwards reflects continuous efficiency gains in their aromatics and acetyls businesses. For instance, at their metaxylene and paraxylene petrochemicals plant in Texas City, the company has made modified one of the flares, contributing to the reduction of gas channelled to the flare and subsequently reducing GHG emissions.  If the government set a minimum price of 100 dollars per metric tonne, it would mean more production of petrochemicals this year than last year, since the Green house gas emissions are on the decline according to the trend. The following management accounts would be affected by the emissions price and describe how each account would be affected.  Income Statement View: Annual Data | All numbers in thousands Period Ending Dec 31, 2013 Dec 31, 2012 Jan 1, 2012 Total Revenue 379,136,000   375,765,000   375,713,000   Cost of Revenue 325,878,000   326,700,000   309,296,000   Gross Profit 53,258,000   49,065,000   66,417,000   Operating Expenses Research Development -   -   -   Selling General and Administrative 20,117,000   21,515,000   22,238,000   Non Recurring 5,402,000   7,750,000   3,578,000   Others 13,510,000   12,687,000   11,357,000   Total Operating Expenses 39029000   41952000   37173000   Operating Income or Loss 14,229,000   7,113,000   29,244,000   Income from Continuing Operations Total Other Income/Expenses Net 13,871,000   8,155,000   4,488,000   Earnings Before Interest And Taxes 31,769,000   19,769,000   39,815,000   Interest Expense 1,068,000   1,072,000   1,187,000   Income Before Tax 30,221,000   18,131,000   38,228,000   Income Tax Expense 6,463,000   6,880,000   12,619,000   Minority Interest -   -   -   Net Income From Continuing Ops 26,947,000   15,186,000   31,292,000   Non-recurring Events Discontinued Operations -   -   -   Extraordinary Items -   -   -   Effect Of Accounting Changes -   -   -   Other Items -   -   -   Net Income 23,758,000   11,251,000   25,609,000   Preferred Stock And Other Adjustments -   -   -   Net Income Applicable To Common Shares 23,758,000   11,251,000   25,609,000   Currency in USD. Table 1: The table (“BP financial statements”, 2013) shows the income statement of BP for three years. Operating cash flow – the 100 dollar per metric tone of Green House Gas charge by the government will adversely affect the operating cash flow and subsequently there will be an increase in operating expenses in the BP income statement. If for example we consider the BP group income statement of December 31st 2013, the operating expenses add up to 39 billion dollars (BP Income statement, 2013). If the government charges 100 dollars per metric tone of type one emissions, this will translate to more operational expenses that would amount to close to 4.9 billion dollars (in December 2013). The Total Expenses Net will increase by 4.9 billion since the amount of type 1 Green House Gases emitted by BP in 2013 is 49.2 million tones, therefore the new total expense net will be about 15million dollars. This is a significant amount considering that the company’s net income for that year is roughly 23 billion dollars. If we subtract the government charges from the company’s income, the new income as of December 2013 would be just over 18 billion dollars. Period Ending Dec 31, 2013 Dec 31, 2012 Jan 1, 2012 Assets Current Assets Cash And Cash Equivalents 22,520,000   19,635,000   14,177,000   Short Term Investments 467,000   319,000   288,000   Net Receivables 40,343,000   38,067,000   43,824,000   Inventory 29,231,000   28,203,000   26,073,000   Other Current Assets 4,279,000   25,160,000   13,836,000   Total Current Assets 96,840,000   111,384,000   98,198,000   Long Term Investments 38,270,000   24,583,000   35,022,000   Property Plant and Equipment 133,690,000   125,331,000   123,431,000   Goodwill 12,181,000   12,190,000   12,429,000   Intangible Assets 22,039,000   24,632,000   21,653,000   Accumulated Amortization -   -   -   Other Assets 1,685,000   1,472,000   1,563,000   Deferred Long Term Asset Charges 985,000   874,000   611,000   Total Assets 305,690,000   300,466,000   292,907,000   Liabilities Current Liabilities Accounts Payable 58,064,000   56,051,000   59,959,000   Short/Current Long Term Debt 9,703,000   12,691,000   12,259,000   Other Current Liabilities 5,045,000   8,433,000   11,776,000   Total Current Liabilities 72,812,000   77,175,000   83,994,000   Long Term Debt 45,567,000   41,059,000   38,383,000   Other Liabilities 37,240,000   44,514,000   38,952,000   Deferred Long Term Liability Charges 19,664,000   17,966,000 18,993,000   Minority Interest 1,105,000   1,206,000   1,017,000   Negative Goodwill -   -   -   Total Liabilities 176,388,000   181,920,000   181,339,000   Stockholders' Equity Misc Stocks Options Warrants -   -   -   Redeemable Preferred Stock -   -   -   Preferred Stock -   -   -   Common Stock -   -   -   Retained Earnings -   -   -   Treasury Stock -   -   -   Capital Surplus -   -   -   Other Stockholder Equity -   -   -   Total Stockholder Equity 129,302,000   118,546,000   111,568,000   Net Tangible Assets 95,082,000   81,724,000   77,486,000   Table 2: The table (“BP financial statements”, 2013) shows the financial statement of BP for three years. The proportion of environment cost based on the financial report is as shown below Consolidate Income Statement Customer Pay $100/tonne carbon tax Investor Pay $100/tonne carbon tax Sales 379,136,000  367,136,000  379,136,000  Cost of Sales 325,878,000   323,870,754 325,878,000   Gross Margin 53,258,000   51257845 53,258,000   GM% 14.05% 14.05% 14.05% All Other Expenses 7531000 7531000 7531000 Environmental Expenses 0 - - NPBT 30,221,000   30,221,000   30,221,000   NPBT/Sales 7.97% 7.97% 7.97% CO2 equivalent emissions tonne price 100 CO2 equivalent emissions tonnes 14300000 Proportion cost allocated to P&L 70% Shareholder distributions account – shareholders of a company are a vital part of the company. They invest in a company with the hope that their shares will accumulate as a result of the profits harnessed by the company they invest their money. However, with the introduction of such charges by the government, the amount of money meant to be distributed to the shareholders will decrease to cater for the additional expenses. This is because we calculate the Total Stockholder Equity by subtracting the Total Assets of the company by the Total Liabilities of the company. The 100 dollar charge by government by per metric tone will increase the Other Current Liabilities, and thus increase the total liabilities by 4.9billion dollars going according to the amount of type 1 gas released by BP in 2013. If we subtract that amount from the Total Stockholder Equity, we have about 124 billion, which is lesser than the initial 129 billion. This translates to a lesser value of BP shares. The effect of the emissions price on the company forecast profit levels and liquidity positions will be quite significant. The profit levels will be affected negatively impact because the additional charges will increase the operational expenses of the company, which are subtracted from the total revenue of the company, and subsequently diminish the net profits of the company as illustrated above. (The Total Expenses Net will increase by 4.9 billion sice the amount of type 1 Green House Gases emitted by BP in 2013 is 49.2 million tones, therefore the new total expense net will be about 15million dollars. This is a significant amount considering that the company’s net income for that year is roughly 23 billion dollars, f we subtract the government charges). This means that the company’s liquidity level drops as well . References The Greenhouse Gas Protocol 2013, A Corporate Accounting and Reporting Standard: revised edition, World Resources Institute. Available from: [28 February 2013] BP financial statements 2013, Market Information. Available from: http://www.hl.co.uk/shares/shares-search-results/b/bp-plc-ordinary-us$0.25/financial-statements-and-reports Annual Report and Form 20-F 2013, Financial Reports. Available from: Sustainability Review 2013, Selected Highlights. Available from: http://www.bp.com/content/dam/bp/pdf/sustainability/groupreports/BP_Sustainability_Review_Summary_2013_English.pdf BP Sustainability Environmental remediation and decommissioning. Available from: http://www.bp.com/en/global/corporate/sustainability/environment/managing-our-impact-on-the-environment/environmental-remediation-and-decommissioning.html BP Income statement 2013. Available from: http://finance.yahoo.com/q/is?s=BP+Income+Statement&annual EBOOKS CORPORATION. (2013). International GAAP. generally accepted accounting practice under international financial reporting standards 2013 2013. Ebook Library. Chichester, West Sussex, U.K., John Wiley. SEBA, T. (2014). Clean disruption of energy and transportation: how Silicon Valley will make oil, nuclear, natural gas, coal, electric utilities and conventional cars obsolete by 2030. Silicon Valley, Calif., USA, Clean Planet Ventures. Read More