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The comparison of Lukoil & BP - Case Study Example

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LUKOIL is the largest oil company of Russia and the country's largest producer of oil producing over 90.16 million tonnes of oil and 7.57 billion cubic meters of natural gas in 2005. It has control over 18.0% of Russian oil production and 18.3% of Russian oil refining…
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The comparison of Lukoil & BP
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Download file to see previous pages The company registered thelargest trading volumes among foreign companies tradedon the London Stock Exchange (IOB) in 2005 and at home, the Russian Trading System - also in 2005.
Sales coverage includes the 59 regions Russia and 16 other countries -Azerbaijan, Belarus, Georgia, Moldova, Ukraine, Finland, Bulgaria, Hungary, Cyprus, Latvia, Lithuania, Poland, Serbia, Romania, Czech Republic, Estonia, and the USA. Distribution operational capacity stood at 199 tank farms and 5,405 gas stations by the end of the year 2004. This includes 779 Mobil gas stations throughout the USA (LUKOIL, 2006a).
BP was formerly known as British Petroleum and is a British energy company with headquarters in London. After merging with the Amoco Corporation, the company was named "BP Amoco". After a single year of joint operations, the company drop the Amoco name and BP now stood for "Beyond Petroleum".
The company is regarded as one of the oil, natural gas and petrol leaders in the world. In the 2006 Fortune Global 500 list of companies, BP was ranked 4th in the world for turnover with sales at $268 billion which was down from 2nd in 2005 and 1st among oil companies the. The 2006 Forbes Global 2000 ranked BP as the 8th largest company in the world with profits in 2005 amounting to $22.341 billion.
The number of service stations stood at 28,500 with 15,900 based in the USA alone. Proven reserves amount to 18.3 billion barrels of oil and gas (57/43 percentage distribution). The company is active in 26 countries with production activities in 22 of them. (BP, 2006b)

In this paper, we will be comparing which company between LUKOIL and BP is more investment equitable. BP, having been in the business since 1889 (Amoco), has established itself as the foremost leader in the global oil industry as we have seen in the company's profile. However, as we will be seeing later, LUKOIL has seen a tremendous growth in performance.

The BP, being well established in the industry, has certain advantages over LUKOIL such as business management expertise honed by years in the industry and a larger market share and production capacities. But this edge may very well be overcome with the current performance of LUKOIL.

To determine which of the two will be more equitable, we will be looking into the financial health of the company especially the equity returns. We will also be considering the economic trends and the political factors that affects the profitability of LUKOIL and BP as these are major determinants of the risk involved in investing in the company.. Special focus will be given to the developments in Russia, which have contributed to the tremendous growth of LUKOIL.

Equity Profile
LUKOIL Return on Equity Profile (LUKOIL, 2006c):

2001 2002 2003 2004 2005
Equity, mln USD 12,385 14,000 17,472 20,811 26,804
Net Income, mln USD 2,109 1,843 2,571 4,248 6,443
Return On Equity, % 18.4 14.0 16.3 22.2 27.1

BP OIL Return on Equity Profile (BP, 2006a):
_________________________ 2001 2002 2003 2004 2005
Equity, mln USD 63,251 68,254 75,524 81,456 86,647
Net Income, mln U ...Download file to see next pagesRead More
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