Pioneer Petroleum Corporation’s (PPC) has been through a diverse amount of changes throughout the years. They were originally were a merger of several different independent firms operating in the oil refining, pipeline transportation, and industrial chemicals fields. PPC then integrated vertically into exploration and production of crude oil and marketing refined petroleum products, but horizontally into plastics, agricultural chemicals, and real estate development. They decided to restructure the company into a hydrocarbons-based company, concentrating on oil, gas, coal, and petrochemicals. They needed to decrease their overall risk and optimize their overall performance and would only be able to by collaboration and coordination among …show more content…
With the economy and the market constantly fluctuating, the actual rate of return fluctuates with the market. The discounted rate gives a weighted average cost of capital (WACC) of 9% (Example 1). The divisions will ultimately affect the company and the WACC will fluctuate along with the divisional costs of capital. The risks involved within the divisions are reflected in the risks that the company overall chooses to invest.
Example 1
WACC = rdebt(1-Tc)(D/V)+requity(E/V)
=.12(1-.34).50+.10*.50 = .0896 = 9%
The company has invested into many different industries and markets. Each industry’s risk is different and remaining diversified is crucial to obtaining a marginal rate of return. The company needs to use single corporate cost of capital hurdle rates in order to evaluate projects and in order to allocate costs. PPC has integrated so many different industries into their portfolio that it would be best for them to look at each division differently. Their oil division is going to have a higher risk compared to the plastics division. The divisions need to allocate costs according to the risk within that division. The multiple hurdle rates need to be determined to this risk.
Pioneer needs to look to the future and determine how they want to compete in the long run. Though they need to use multiple hurdle rates they need to relate these to the company as a whole also. This is crucial in order to compete industry wide in the long
The mixture of debt-equity mix is important so as to maximize the stock price of the Costco. However, it will be significant to consider the Weighted Average Cost of Capital (WACC) as well so that it can evaluate the company targeted capital structure. Cost of capital (OC) may be used by the companies as for long term decision making, so industries that faced to take the important of Cost of capital seriously may not make the right choice by choosing the right project(Gitman’s, ).
Our WACC is almost constantly these years – around 5.50% -- via from 5.04% to 5.82%. We also use the scenario analysis for how the WACC and growth rate affect enterprise value and equity value.
Cost of Equity is the return that stockholders require for a company. A company’s cost of equity represents the compensation that the market demands in exchange for owning the assets and bearing the risk of ownership. Based on capital markets the cost of equity varies in direct relation to the assumed risk in that specific market. The distinctive of the firm is the sensitivity to market risk (β) which depends on everything from management to its business and capital structure. Therefore past performances and present conditions have a direct effect on the overall value. Applying calculations at a divisional level allows specified markets to be analysis based on present market conditions for that service or product. The formula used to calculate Cost of Equity is:
The auditors did not appropriately assess the risks discussed in part (A) discussed above. CNB auditors were not in a position to recognize that the firm did not fully own some of the assets in Powder River Petroleum International Inc.'s balance sheet. They used audit assistants in their standardized audit programs and hence failed to take into account the specific audit risks for each engagement.
After the 2010 oil spill that killed 11 workers and sent more than 4 million barrels of crude gushing into the Gulf of Mexico, BP had to pare its portfolio around the globe and sell off $43 billion in assets, including refineries, pipelines and producing wells. In the process, the London-based firm became a leaner company, with a slimmed-down portfolio that makes it better prepared to weather a bear oil market than some competitors just beginning similar cost-cutting. (Dlouhy, 2014)
This report will investigate the three most prominent external PESTEL factors which face BP (Beyond Petroleum). The report will provide a detailed look at how these factors affect the business, and explore the
BP wa s the largest company in the United Kingdom and the third largest publicly held oil and gas company in the world. It had 56,000 employees, activities in more than 70 countries, and three principal lines of businesses: crude oil and natural gas exploration and production (E&P), refining and marketing (R&M), and petrochemical production. Its principal producing or “upstream” assets were oil and gas fields in the North Sea and on Alaska’s North Slope, where it had been a leader in the development of the Prudhoe Bay oil field and the construction of the Trans Alaska Pipeline. BP’s refining and marketing operations, the “downstream” assets, consisted of refineries, service stations, transportation and storage facilities, most of which were located in the United Kingdom, United States, and Europe. Besides oil and gas, BP was also a leading chemical producer with several proprietary technologies such as processes for making polyethylene and acetyls. Sir John Browne, a 22-year veteran of the company and former head of the E&P business, had been the group chief executive since 1995. In 1997, BP earned $4.1 billion on revenues of $71.3 billion and assets of $54.6 billion (Exhibits 1 and 2 include summaries of BP’s financial statements.) Adjusted for exceptional items, exploration and production, refining and marketing, and petrochemicals accounted for 68%, 21%, and 11%, respectively, of consolidated 1997
BP is a British multinational oil and gas company; whose headquarters is on London. BP developed its reach in America by buying up companies like Standard Oil of Ohio, ARCO and Amoco (Tharoor). “Twenty years ago, BP was nothing like the powerful multinational corporation it is today” (PBS: Frontline). BP became this powerful company by using an ideology known as “run to failure.” In other words, use things until they break in order to save money (PBS: Frontline). Over the years, many oil companies have faced legal problems regarding the meeting of environmental standards, most notably was British Petroleum (BP). In recent memory, British Petroleum (BP) has been facing troubles year in and year out. In 2005, an explosion in Texas City
Chevron is one of the world's largest integrated energy companies. Headquartered in San Ramon, Calif., we conduct business worldwide. We are engaged in every aspect of the crude oil and natural gas industry, including exploration and production, manufacturing, marketing and transportation, chemicals manufacturing and sales, geothermal energy, and power generation. We're also investing in renewable and advanced technologies.
British Petroleum is an industry where accidents occur and given the complexities of such an industry, it is critical that the Board remain vigilant about company affairs and that it learns from its previous mistakes. This note tries to evaluate actions that a Board should have taken after the resignation of Lord Browne through the current crisis in the Gulf of Mexico.
World Petroleum, Inc., is a large, international, publicly-traded energy company currently seeking growth opportunities abroad. Their latest interest is Afrinia, a small nation on the west coast of Africa with largely untapped resources. The area is divided into two sections, both geographically and socioculturally. The southern region is made up of grasslands, populated by the Abani tribe. The northern region is made up of rainforest, populated by the Banu tribe. These regions are joined together by the Afrinia River. The Banu people have always resented those belonging to the Abani tribe. The Abani, having easier access to higher education, quickly assumed the higher-raking government positions and corporate jobs after gaining
Oxy’s growth strategy in this domain has primarily relied on Enhanced Oil Recovery (Explain), exploration and acquisitions.
Strategies are constantly changing in business, especially in the oil and gas industry. Different strategies and new technology present a real challenge to companies pursuing to be the top performers in the industry. Enerplus, Aramco, Maersk and Jones Energy all have unique strategies in the industry. Interest in this fascinating industry was chosen because it was relevant to the local environment. This industry also employed many people across the state. This will provide some perspective into decisions that are made in local and global oil and gas companies.
weighted average cost of capital (WACC) (shown in Tables 1 and 3 for direct sales and comarketing
According to the case, Auto-Drive Company is developing an Auto-Drive which will be installed in cars, a technology that would switch cars into automatic pilot. This kind of