5.1 Case study – BP strengthens its liquidity position
This next activity focuses on BP.
Activity 3
Timing: Allow around 30 minutes for this activity.
BP required significant additional liquidity after being faced with exceptional costs related to the Gulf of Mexico oil spill in 2010. From p. 90 of its Annual Report and Form 20-F (2012), identify the various steps the company has taken to-date to strengthen its liquidity position. Make notes in the box provided below.
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Discussion
BP took the following steps to address its liquidity needs.
- The company renegotiated its committed bank facilities during early 2011, putting in place $6.8 billion of facilities with 23 international banking counterparties for a term of three years.
- It continued to strengthen its access to commercial bank letters of credit (LC) and at the end of 2012 had in place committed LC facilities of $6.9 billion and secured LC arrangements of $2.2 billion, to supplement its uncommitted and unsecured LC lines.
- It completed a $38 billion disposal programme a year ahead of schedule, including $15 billion during 2012, following $2.7 billion of receipts in 2011 and $17 billion in 2010.
- In addition, the company will benefit from further financial flexibility once the proposed sale of its 50% share in TNK-BP to Rosneft is completed. The company had already received a $709 million dividend from TNK-BP in December 2012 and it expected to receive a further net $11.6 billion cash on completion, which was anticipated in the first half of 2013.
- BP also accessed US, European and Australian capital markets with bond issuances amounting to $11 billion in 2012 alone.
- Finally, BP repaid the remaining balance of $2.3 billion on the $4.5 billion of borrowings raised in 2010 that were backed by future crude oil sales from BP’s interests in specific offshore fields in Angola and Azerbaijan.