BP Amoco

Topics: Petroleum, Finance, Peak oil Pages: 2 (592 words) Published: October 30, 2013

British Petroleum Company (BP) and Amoco Corporation are two of the largest oil and gas firms in the world. In spite of the intense rivalry between the two companies for several years, they decided to merge in 1990. The upstream business of BP which is exploration and manufacturing of crude oil accounted for 68% of its revenues while that for Amoco accounted for 60%. BP Amoco after the merger in 1998, their business involved exploration and production of crude oil. This was their upstream business and could generate saving of about $2 billion annually. Refining and marketing was their downstream business. The new project that BP Amoco plans to implement was highly capital intensive. If this project is to be implemented in India, then we have to look all the factors such as benefits and cost of using Project finance and/or corporate finance from India’s perspective. BP Amoco’s project has a capital expenditure of about $10 billion. So, in case of India, the type of financing will be different compared to other countries. In case BP Amoco goes for corporate financing it would expect a cost saving as it would expect to pay slightly less than LIBOR for short-term borrowings under bank lines or through commercial paper programs. The company in such case can go for corporate financing initially and then project financing. This can be done after the company has sufficient reserves from oil field exploration. However, India doesn’t have huge hydrocarbon resources, has a lot of bureaucracy and a difficult government. In case if the company goes for corporate financing and the reserves are not proven it may affect the corporate’s balance sheet. However, if the company explores the available reserves then it would significantly profit the company. India currently has a large CAD (current account deficit), oil imports being one of the reasons. So, there is huge demand for oil in India. So the company can go for a mix of corporate finance and project finance. By doing...
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