Equity Capital Update: BP
October 14, 2010, 12:01 am
Copyright © 2010 Integrated Profitability TM
(This article is published concurrently at the “Integrated Profitability” blog. Please visit for the full series of articles.)
The final article on capital and equity was posted at the end of July: Equity Capital: In Conclusion. Since then, one of the most written-up examples of the need for equity capital to cover adverse conditions has published 2Q10 financial results: British Petroleum.
The explosion on the Deep Water Horizon, killing 11 people; its subsequent sinking; the ruptured oil well; and wide-spread environmental damage has added huge expenses related to fixing and cleaning up the problem. It is for exactly these types of disasters that capital and equity are needed.
A quick review of BP’s 2Q10 results highlights the following:
Income Statement
● Production and manufacturing expenses*:
Increased to $38.0 billion (from a ~$6.0 billion quarterly run-rate)
● Taxation:
Received offsetting credit of ($7.2 billion) (from a ~$2.5 billion quarterly tax run-rate)
● Profit (loss) for the period:
Became a ($17.0) billion loss (from a ~~$6.0 billion quarterly run-rate)
*: Footnote to Production and manufacturing expenses:
“Second quarter and first half 2010 include a charge of $32,192 million in production and manufacturing expenses, and a credit of $10,003 million in taxation in relation to the Gulf of Mexico oil spill.”
Source: Excel download from investor relations portion of BP’s website; “Copy of FOI_quarterly_ifrs_full_book”
Balance Sheet
● Trade and other payables
Increased to $45.5 billion (from $38.1 billion at the end of 1Q10)
● Provisions
Increased to $13.4 billion (from $1.6 billion at the end of 1Q10)
● Other payables
Increased to $16.3 billion (from $3.2 billion at the end of 1Q10)
● Deferred tax liabilities
Increased to $11.0 billion (from $20.2 billion at the end of 1Q10)
● Total liabilities (includes the above items)
Increased to $162.3 billion (from $135.7 billion at the end of 1Q10)
● BP shareholders’ equity
Decreased to $85.5 billion (from $104.1 billion at the end of 1Q10)
Notice the Income Statement’s 2Q loss ($17.0 billion) and the Balance Sheet’s decrease in Shareholder equity from 1Q to 2Q: $18.6 billion.
Which re-emphasizes the desirability of having adequate equity-capital.
Bill
William A. Stong
Email: william.a.stong@gmail.com
SBF&P # 84
Telephone: 925-202-6244
Copyright © 2010 Integrated Profitability TM
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