Bp Case Study
CORPORATE RISK
MANAGEMENT REPORT
Corporate and Enterprise risk at BP
BP plc is one of the worlds leading oil companies on the basis of market capitalisation and proved reserves. It is a global group, with interests and activities which cover three main business segments of Exploration and Production, Refining and Marketing and Gas, Power and Renewables. BP has total assets of $217,601million and total revenues of $270,602million with the majority of their revenues ($) coming from its refining and marketing business and the majority of their profits ($) from Exploration and Production. In this report we will evaluate BP’s risk profile by examining BP’s main risk sources and risk management policies. In the process this report will highlight BP’s risk management failures, risk financing structure and come up with our own solutions for how BP can incorporate Enterprise Risk Management in its risk function.
As a leading multinational group BP is exposed, and exposes its employees to a large number of risks which vary in probability and severity, in the following few pages this report will outline the major Financial, Operational and Non financial risks that BP faces and explain briefly what can happen and how.
Oil price risk:
Сov(X,Y) = ∑(xi-y)(xi-y) ρ = Сov(X,Y)__
N -1 Std(X).Std(Y)
Where X is BP’s share price and Y is crude oil price.
Over the last 5 years the correlation coefficient between the price of crude oil and BP’s share price was 0.875467, which signifies a strong positive correlation between crude oil and share price as expected. Oil prices have risen dramatically of late but this has not been matched with increases in share price. This is mainly due to BP’s profits being down 45% as a result of lower oil and gas production, lower profits from refining and asset disposals. This has results in a correlation coefficient of -0.143. We can therefore argue that had it not been for the rising oil prices then BP’s
MANAGEMENT REPORT
Corporate and Enterprise risk at BP
BP plc is one of the worlds leading oil companies on the basis of market capitalisation and proved reserves. It is a global group, with interests and activities which cover three main business segments of Exploration and Production, Refining and Marketing and Gas, Power and Renewables. BP has total assets of $217,601million and total revenues of $270,602million with the majority of their revenues ($) coming from its refining and marketing business and the majority of their profits ($) from Exploration and Production. In this report we will evaluate BP’s risk profile by examining BP’s main risk sources and risk management policies. In the process this report will highlight BP’s risk management failures, risk financing structure and come up with our own solutions for how BP can incorporate Enterprise Risk Management in its risk function.
As a leading multinational group BP is exposed, and exposes its employees to a large number of risks which vary in probability and severity, in the following few pages this report will outline the major Financial, Operational and Non financial risks that BP faces and explain briefly what can happen and how.
Oil price risk:
Сov(X,Y) = ∑(xi-y)(xi-y) ρ = Сov(X,Y)__
N -1 Std(X).Std(Y)
Where X is BP’s share price and Y is crude oil price.
Over the last 5 years the correlation coefficient between the price of crude oil and BP’s share price was 0.875467, which signifies a strong positive correlation between crude oil and share price as expected. Oil prices have risen dramatically of late but this has not been matched with increases in share price. This is mainly due to BP’s profits being down 45% as a result of lower oil and gas production, lower profits from refining and asset disposals. This has results in a correlation coefficient of -0.143. We can therefore argue that had it not been for the rising oil prices then BP’s