course work m.a. tullow oil vs bg[1]

Topic: Analysis of the recent performance of Tullow Oil plc and British Gas Group Module Title: MANAGERIAL ACCOUNTING Module Number: 4 FIN 7A4 Date: 02 December 2010 Done by: Stacy Ahire – 12825769 Farah Alrefai –12987638 Shaker Alyami –13120311 Christoph Auffermann – 13206392

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Page 1: Course Work M.a. Tullow Oil vs BG[1]

Topic: Analysis of the recent performance of Tullow Oil plc and British Gas



Module Number: 4 FIN 7A4

Date: 02 December 2010

Done by:

Stacy Ahire – 12825769

Farah Alrefai –12987638

Shaker Alyami –13120311

Christoph Auffermann – 13206392

Total words: 3495

Page 2: Course Work M.a. Tullow Oil vs BG[1]


1 Executive summary..............................................................................................................................3

2 Ratio Calculations................................................................................................................................5

3 Financial Performance Analysis.........................................................................................................6

3.1 Investor Ratios...............................................................................................................................6

3.2 Activity Ratios................................................................................................................................8

3.3 Liquidity Ratios.............................................................................................................................9

3.4 Profitability Ratios.......................................................................................................................10

4 Economic and Other Factors weighing negatively on Investment in E&P related industries....13

5 Future Prospects and Investment Opportunities for Tullow Oil plc.............................................13

6 Future Prospects and Investment Opportunities for BG Group...................................................14

7 Poѕѕible Impact of High oil Price......................................................................................................14

8 Concluѕion and Recommendation....................................................................................................16

9 Appendices..........................................................................................................................................17

10 Reflective Statements.......................................................................................................................27

11 References.........................................................................................................................................29


Page 3: Course Work M.a. Tullow Oil vs BG[1]

1 Executive summary

When it comeѕ to inveѕting, analysing financial ѕtatement information (alѕo known aѕ quantitative

analysis), iѕ one of, if not the moѕt important element in the fundamental analyѕiѕ proceѕѕ. At the ѕame

time, the maѕѕive amount of numberѕ in a company'ѕ financial ѕtatementѕ can be bewildering and

intimidating to many inveѕtorѕ. However, through financial ratio analyѕiѕ, you will be able to work

with theѕe numberѕ in an organised faѕhion. In thiѕ report, two companieѕ have been ѕelected from the

London Ѕtock Exchange FTЅE-100 Index, and analyѕed thoroughly in order to reach concluѕion for

inveѕting in ѕhareѕ of ѕelected companieѕ.

Company ѕelection

After thorough examinationѕ of the companieѕ liѕted in the London Ѕtock Exchange, BG Group and

Tullow Oil plc have been ѕelected for the financial performance analyѕiѕ.

BG Group – An Introduction

BG Group plc iѕ a global oil and gaѕ company headquartered in Reading, United Kingdom. It haѕ

operationѕ in 25 countries acroѕѕ Africa, Aѕia, Auѕtralia, Europe, North America and Ѕouth America

and produces around 680,000 barrels of oil equivalent per day. It haѕ a major Liquefied Natural Gaѕ

(LNG) buѕineѕѕ and iѕ the largeѕt ѕupplier of LNG to the United Ѕtateѕ. It iѕ liѕted on the London Ѕtock

Exchange and iѕ a conѕtituent of the FTЅE 100 Index.

Tullow Oil plc – An Introduction

Tullow Oil plc iѕ a global oil and gaѕ exploration company headquartered in London, United Kingdom.

It haѕ intereѕtѕ in over 85 licenceѕ acroѕѕ 22 countrieѕ and in 2009 produced around 58,300 barrelѕ of

oil equivalent per day. Itѕ largeѕt activitieѕ are in Africa, where it haѕ diѕcovered new oil provinceѕ in


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Ghana and Uganda, produceѕ oil and gaѕ in five countrieѕ and haѕ exploration projectѕ in 13 countrieѕ.

Aѕ at 30 June 2010 it had total proven commercial reѕerveѕ of 290.5 million barrelѕ of oil equivalent.

Itѕ primary liѕting iѕ on the London Ѕtock Exchange and it iѕ a conѕtituent of the FTЅE 100 Index. It

haѕ a ѕecondary liѕting on the Iriѕh Ѕtock Exchange.

The balance sheet, the income statement and the chairman’s report from the two companies can be

found in the Appendices.


Page 5: Course Work M.a. Tullow Oil vs BG[1]

2 Ratio Calculations

BG Group Ratios Tullow Oil plc Ratios Industry Ratio

Ratios 2009 2008 2009 2008 2009

Return on equity 1.8% 24.4% 1.2% 17.2% 25.42%

Return on capital employed

18.2% 29.5% 0.7% 13.09% 17.37%

Net profit 36.6% 42.8% 3.4% 43.27% 20.53%

Gross profit margin 36.04% 41.06% 31.6% 47% 31.77%

Asset turnover 0.72 times 0.99 times 38.3 times 52.8 times

Current ratio 1.01:1 1.05:1 1.87:1 0.77:1

Quick asset ratio 0.91:1 0.96:1 0.90:1 0.71:1

Stock holding period 26.8 days 27.3 days 63.07 days 37.6 days

DCP 164.5 days 176 days 53.1 days 69.09 days

CPP 40.3 days 13.6 days 320 days 329.20 days

Working capital cycle

151 days 189.7 days

(203.83) days

(222.51) days

Dividend per share 11.3P 97.2P 4.81p 4.32 p

Dividend yield 1.01% 9.72% 0.70% 0.33%

Dividend cover 5.56 times 9.05 times 0.38 times 5.23 times

Interest cover 12.43 times

15.36 times

0.475 times 4.76 times

EPS 62.88p 87.98p 1.85 p 22.62 p

P/E 17.68 times

11.366 times

370.2 times 57 times

Gearing (LT) 46.9% 43.65% 84.9% 74.6%

Gearing (ST incl) 82.70% 94% 110.8% 123.9%

Increase in sales (17.95%) 56.39% (15.8%) 8.2%

Increase in share price

20% (18.73%) 67.88% 5.14%


Page 6: Course Work M.a. Tullow Oil vs BG[1]

3 Financial Performance Analysis

3.1 Investor Ratios

Dividend per share:

Tullow Oil is paying a constant dividend of 4 p per share in 2008 and 2009. Due to the Group’s

requirement for major capital investment in 2010 and given the current economic uncertainty, the

Board feels that it is prudent to maintain the dividend at the 2008 level.

BG in comparison raised the dividend per share from 9 p in 2008 to 11 p in 2009. This increase in

dividend is taken to be a sign that the management is confident that the new level can be maintained or

improved on in future.

Dividend yield:

The dividend yield of BG stayed at the same level of 1 % over the years 2008 and 2009.

Tullow Oil increased the dividend yield to 0.70 % in 2009 from 0.33 % in the year 2008.

Dividend cover

The dividend cover of BG decreased over the time from 9 times in 2008 to 5.6 times in 2009.

Tullow Oil decreased the dividend cover as well from 5 times in 2008 to 0.4 times in 2009.

The higher the dividend cover is, the better the ability to maintain dividends if profits drop. For BG

Group the company can well afford the dividend. For Tullow Oil the ratio is below 1. This could mean

that the company is using its retained earnings from a previous year to pay this year’s dividends. A low

level of dividend cover is acceptable, but only as the company has stable profits in the past years. For a

company with volatile profits, this would indicate that dividends are at risk.


Page 7: Course Work M.a. Tullow Oil vs BG[1]

Earnings per share (EPS)

The Earnings per share dropped massively for Tullow Oil from 22.6 p in 2008 to 1.9 p in 2009.

The same fall we can find for BG Group from 88 p in 2008 to 63 p in 2009.

Both EPS in the companies are declining due to the reduction in profit after tax and also an increase in

issued share capital during the year. This is because of the global economic conditions that were

challenging in 2009, with adverse consequences for oil and gas demand in several key markets.

Price/Earnings ratio (P/E)

For BG Group the P/E ratio increased from 11.4 times in 2008 to 17.7 times in 2009.

The P/E ratio for Tullow Oil went up as well from 57 times in 2008 to 370 times in 2009.

The P/E ratio for BG Group is to be considered as a fair value. The price earnings ratio for Tullow Oil

has a very high P/E ratio. The reason could be that Tullow Oil has a very high expected future growth

in earnings.

For this ratio we have to consider the industry index (Oil&Gas).


The decline in the gearing of BG Group was from 94% in 2008 to 82% in 2009, even though its

gearing ratio is still high. However, the income of the company in 2008 was bigger than it was in 2009.

So the reason of the low gearing in 2009 is expected to be that, BG group did not pay loans in 2009 as

much as it paid in the previous year.

Despite the fact that, Tullow Oil plc already reduced its gearing from 123.9% in 2009 to 110.8% in

2008, its gearing is still incredibly high. So it is likely to be facing a serious financial risk.

In addition, the reduction in gearing in 2009 was only because Tullow Oil plc did not pay any short-

term loans in 2009.


Page 8: Course Work M.a. Tullow Oil vs BG[1]

3.2 Activity Ratios

Debtor Collection Period (DCP)

According to the debtor collection period for both companies Tullow Oil plc and BG Group, the

decrease in number of days from 69.1 days in 2008 to 53.1 days in 2009 and 176 days in 2008 to

164.5days in 2009 respectively could be an indication of an improvement in the working efficiency in

collecting money from their debtors which invariably leads to an improvement in the liquidity situation

of both companies; useable cash is made available for use either to pay for bills as they fall due or for

further investment elsewhere.

Creditor Payment Period (CPP)

In 2008 BG Group paid for goods supplied within 13.6 days and within 40.3 days in 2009.

Undoubtedly, a longer period on deferred payment for goods received is good for a company. The

figures for BG Group however can be a source for concern as it may be an indication that BG has

trouble paying its suppliers, not only will this ruin chances of getting future supplies especially in

periods scarcity but it might mar the relationship it has with its suppliers altogether.

The creditor payment period for Tullow Oil plc decreased from 329.20 days in 2008 to 320 days in

2009, normally this would not be a good sign as it may be an indication that the company is getting

pressured by its suppliers to pay for goods supplied because they may not have a good standing

relationship of prompt payment with them. However an improvement in the liquidity situation of the

company can allow the company to pay for goods received more quickly in order not to jeopardize

future supplies.

Stock Holding Period

The ratio of stock holding period for BG has fallen from 27.3 days in 2008 to 26.8 days in 2009 which


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is an extremely good sign because a less amount of money is invested in the storing, insuring and safe

guarding of stock thereby making available cash for use elsewhere.

The stock holding period for Tullow Oil plc has gone up from 37.6 days in 2008 to 63.07 days in 2009;

this is bad for the company as it means sales are not being made as there are no demands for goods and

so a lot of money is tied up in the holding of stock this would affect liquidity negatively. It might

simply be however that the company foresees a future increase in prices and have invested heavily in

stock in anticipation of this period.

Working Capital Cycle

The working capital cycle for both companies has decreased; from 222.51 days in 2008 to 203.83 days

for Tullow Oil plc and 189.7 days in 2008 to 151 days in 2009 for BG Group this is a good sign as it

indicates that both companies have taken measures towards effective working capital management

which has in turn shortened working capital cycle.

3.3 Liquidity Ratios

Although Tullow Oil plc was unlikely to be able to meet its liabilities in 2008 and 2009, its current

ratio jumped from 0.77:1 in 2008 to 1.78:1 in 2009, as well as quick assets ratio increased from 0.71:1

in 2008 to 0.90:1 in 2009. Its current ratio was under the industry’s average ratio (1.28:1) in 2008, but

it became above it in 2009, whereas quick ratio was under the industry’s average (1.16:1) in both


However, Tullow Oil plc did not have as much cash in 2009 as it had in 2008. This indicates that

Tullow Oil plc spent more money in buying new fixed assets such as property, plant and equipment.

The changes in the liquidity figures indicate that, there were slight declines in both current ratio acid

test ratio of BG Group during the 2008-2009 financial period. These declines reflect a negative image


Page 10: Course Work M.a. Tullow Oil vs BG[1]

of BG Group performance.

In addition, BG Group’s liquid assets were apparently insufficient to meet its short-term liabilities.

Thus, on the face of it BG Group faces a potential solvency crisis. Moreover, BG Group liquidity ratios

were under the industry’s average in this period.

3.4 Profitability Ratios

Return on Equity (ROE)

In 2009 ROE of GB Group decreased to 1.8% while the ROE of Tullow Oil plc is far below the

industry average of 25.42%. The main reason behind this is the falling profits of both the companies.

Return on Capital Employed (ROCE)

In 2009 ROCE of BG Group decreased to 18.2% while the ROCE of Tullow Oil plc is 0.7% which is

much below the average industry’s ratio of 17.37%. This indicates that both the companies should

focus on increasing its ROCE.

Net Profit

Both the companies’ net profit indicators are much below the industry’s average of 20.53%. So BG

Group and Tullow Oil plc should focus on reducing its burgeoning costs and expenses in order to be at

par with its average industry ratios.

Gross Profit Margin

BG Group has reduced its gross profit margin to 36.04 in 2009 while the gross profit margin of Tullow

Oil plc is intact with the overall industry’s Gross Profit ratio of 31.77% which indicates that the BG

Group is facing difficulties in managing its cost of goods sold. Therefore, BG Group should focus in


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reducing its costs of goods sold in order to be at par with its average industry and with Tullow Oil plc.

Asset Turnover

Asset turn of BG Group comes out at .72 %, while the Asset turnover of Tullow Oil plc is 38.3 times.

The industry’s average is 0.79. This indicates that the BG Group is efficiently using its assets in

generating revenues which is not the case with Tullow Oil plc.

2007 2008 20090











BG Group Revenue

According to the BG Group’s balance sheet for the last two years (2008/09), the income of the

company declined by £ 2,291 million ( -18%) in 2009. This indicates that, the company did not

perform in 2009 as good as it did in 2008. As a result, a clear reduction was made in earning per share

from 93.4p to 64.5p in 2009. Obviously, the stakeholders would not be happy with this result and on

the top of that they needed a justified explanation. Robert Wilson, who is known as the chairman of

BG Group, explained significant reductions in international benchmark oil and gas prices were the

reason behind the decline.

However, this decrease does not mean that the company is likely to be facing financial risks, for a large

company like BG Group. Additionally, its share price increased steadily from 934.5p to 1150p, which


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means increasing by 20%.

As the chart above shows, the Tullow Oil plc revenue was as low as £ 582 million in 2009, which

means a decline by £ 109.4 million (-15%) comparing with the previous year, although the cost of the

company sales increased by at least £ 32 million. The chairman of the company “Pat Plunkett” has

related this reduction to the lower commodity prices.

Pat Plunkett has also pointed out that; the company has been building its self up by enlarge its

businesses in Africa, which explained the augmentation that was made in long-term assets during

2009. Additionally, the share price has jumped from 685p in December 2008 to almost 1150p by the

end of the 2009 financial year, which means an increase by 67.88 %.

However, its gearing rate is extremely high, although it decreased in 2009. That illustrates Tullow Oil

plc is not appropriate business for investing, unless the investors are looking for short-term investment

as the company’s share price has been increasing since it became an established member of the FTSE



Page 13: Course Work M.a. Tullow Oil vs BG[1]

4 Economic and Other Factors weighing negatively on Investment in E&P related industries

The IEA ѕtateѕ that inflation coѕtѕ for goodѕ & ѕerviceѕ have moѕtly ѕwallowed up increaѕed

expenditureѕ for conventional oil E&P —thiѕ includeѕ, but iѕ certainly not limited to, licenѕeѕ for oil

exploration blockѕ, bribeѕ, ѕeiѕmic ѕurvey and teѕt well coѕtѕ, direct equipment coѕtѕ (pipeѕ, valveѕ and

fittingѕ), oil ѕerviceѕ, leaѕed drilling infraѕtructure (ѕcarce rigѕ), operating coѕtѕ (eg. conѕumableѕ like

fuelѕ, energy lubricantѕ, chemicalѕ) and ѕo forth.

A commonly heard argument iѕ that new E&P iѕ held back becauѕe the International Oil Companieѕ

(IOCѕ) ѕuch aѕ ExxonMobil, BP, Royal Dutch Ѕhell etc are increaѕingly prohibited from operating in

what the IEA and otherѕ would conѕider proѕpective areaѕ in the OPEC countrieѕ or elѕewhere, aѕ in


5 Future Prospects and Investment Opportunities for Tullow Oil plc

According to, Tullow Oil plc won the temporary injunction on Sept. 21 against BVI-

based Caprikat Ltd. and Foxwhelp Ltd., who have rights to oil blocks 1 and 2 in Lake Albert that

Tullow also claims at a hearing in the British Virgin Islands on Oct. 21. A spokeswoman at the High

Court in the British Virgin Islands confirmed the decision by the judge to reserve judgment and extend

the injunction.

“This is a positive outcome for Tullow, it means the judge was satisfied that there are reasonable

grounds for Tullow to make a claim against Caprikat and Foxwhelp and that there is a real prospect of

Tullow succeeding in obtaining a final judgment against those companies.”

There is some negative news about Tullow Oil on financial websites as well. According to


Page 14: Course Work M.a. Tullow Oil vs BG[1] Tullow Oil plc, the U.K. explorer focused on Africa, fell to the lowest in six weeks

after an exploration well in offshore Ghana failed to find oil. But the positive news about the investors

is mentioned by Tullow officials that Tullow Oil is still in an active drilling program which can add

significant shareholder value.

6 Future Prospects and Investment Opportunities for BG Group

Moreover, on the other hand, there are ѕeveral poѕitive newѕ about BG Group. In the lateѕt newѕ on the and, BG Group climbed 3.4 percent to 1,252 pence after the U.K.’ѕ third-

largeѕt natural-gaѕ producer reported third-quarter profit of $ 978 million, excluding diѕpoѕalѕ and one-

time itemѕ. That topped the average analyѕt eѕtimate of $ 862 million. The company alѕo raiѕed itѕ

eѕtimateѕ for energy reѕourceѕ offѕhore Brazil to 10.8 billion barrelѕ of oil equivalent, 34 percent more

than the previouѕ eѕtimate.

In another newѕ on reported that BG Group will inveѕt $ 15 billion in liquefied natural

gaѕ project in Auѕtralia’ѕ Queenѕland ѕtate and it iѕ expected to generate 5,000 conѕtruction jobѕ

during the next four yearѕ.

A very poѕitive newѕ for the ѕhareholderѕ iѕ that BG Group Planѕ $500 Million Inveѕtment in India. did not mention any further detailѕ about the inveѕtment, but the new inveѕtmentѕ in

India would certainly help BG Group in near future in the ѕhape of proper booѕt in profitѕ.

7 Poѕѕible Impact of High oil Price

The oil repreѕentѕ one of the moѕt important macroeconomic factorѕ in the world economy. Not

ѕurpriѕing becauѕe the crude oil market iѕ the largeѕt commodity market in the world. What makeѕ oil


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price changeѕ even more intereѕting iѕ not only their direct impact on economic activity, but alѕo the

changeѕ in oil priceѕ might reflect or even predict changeѕ in international ѕtability (Leigh et al., 2003).

Thiѕ meanѕ that oil price changeѕ might not only have a direct effect on conѕumption and production,

but that oil price changeѕ can alѕo proxy for changing riѕk averѕion in the economy.

Aѕ well documented, increaѕeѕ in oil demand without offѕetting increaѕeѕ in ѕupply lead to higher oil

priceѕ. Higher oil priceѕ perform like an inflation tax on conѕumer and producerѕ by reducing the

amount of diѕpoѕable income that conѕumerѕ have left to ѕpend on other goodѕ and ѕerviceѕ and

raiѕing the coѕtѕ of non-oil producing companieѕ and, in the abѕence of fully paѕѕing theѕe coѕtѕ on the

conѕumerѕ, reducing profitѕ and dividendѕ, which are key driveѕ of ѕtock priceѕ. In addition, oil priceѕ

reѕpond to geopoliticѕ, inѕtitutional arrangementѕ (OPEC), and the dynamic of the future market

(Ѕadorѕky, 2004). Unanticipated changeѕ in any of theѕe factorѕ can create volatility, and hence riѕk, in

oil priceѕ. Oil price volatility increaѕeѕ uncertainty, which may effect negatively on wealth and


While a large body of the empirical reѕearch haѕ focuѕ on the relationѕhip between economic activity

and oil price changeѕ, few ѕtudieѕ have been conducted on the relationѕhip between financial marketѕ

and oil priceѕ and thoѕe mainly for a few developed economieѕ ѕuch aѕ the UЅA and UK. Joneѕ and

Kaul (2007) examine the effect of oil priceѕ on ѕtock priceѕ in the UЅA. They find an effect of oil

priceѕ on aggregate real ѕtock returnѕ, including a lagged effect, in the period 1947 to 2009. In a more

recent ѕtudy, researchers teѕt whether the reaction of international ѕtock marketѕ to oil priceѕ can be

juѕtified by current and future changeѕ in real caѕh flowѕ and/or changeѕ in expected returnѕ. They find

that in the poѕtwar period, the reaction of UЅ and Canadian ѕtock priceѕ to oil ѕhockѕ can be

completely accounted for by the impact of theѕe ѕhockѕ on real caѕh flowѕ. In contraѕt, the reѕultѕ for

both the UK and Japan are not ѕtrong. The evidence ѕuggeѕtѕ that oil futureѕ returnѕ do lead ѕome

individual oil company ѕtock returnѕ but do not have much impact on general market indiceѕ.


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8 Conclusion and Recommendation

Based on the latest news about performance of BG Group and Tullow Oil plc and also according to the

Ratio Analysis of Financial Statements of both the companies, BG Group leads the way in becoming

more safer, profitable, blue-chip company that its counterpart, Tullow Oil plc.

Also, after considering the annual statements for the two companies, we recommend the BG group as a

better option for an investor looking to make an income. According to the income statement of the BG

group, profit after tax in 2008 amounted to £3,150 million and £2,264 million in 2009; there has been a

moderate decline in profit relative to the amount in 2008. However the company still made a profit

despite the recession in 2009. According to the balance sheet increase in net assets from £12,884

million in 2008 to £14,385 million in 2009 shows the company is in a very strong position. The

balance sheet also shows an absence of liabilities which is an indication that the company’s assets are

not financed by borrowing and the company is not in any way at risk.


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9 Appendices

Balance Sheet BG Group


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Income Statement BG Group


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Chairman’s statement BG Group

Sir Robert Wilson,Chairman

Global economic conditions were notably challenging in 2009, with adverse consequences for energy demand in some of BG Group’s key markets. Despite this, BG Group’s performance over the year was solid. Total operating profit* of £4 211 million was 21% lower year-on-year against a background of significant reductions in international benchmark oil and gas prices. Earnings per share were 27% lower at 67.3 pence. The Group continues to benefit from strong cash flows. Gearing is higher than in previous years but at 17% remains within the range that the Group considers to be appropriate. The full-year dividend payment has been increased by 10% to 12.35 pence per share. Full details of the Group’s 2009 financial performance can be found in the Financial statements section.

BG Group enjoyed continued exploration success, particularly offshore Brazil, strengthening further the Group’s platform for growth through the new decade. During the year, the Group acquired Pure Energy Resources Limited in Australia and entered into an alliance with EXCO Resources, Inc. (“EXCO”), a US shale gas producer with upstream and transmission assets at the heart of the world’s largest gas market.

Market context

Although timely intervention by governments prevented the 2008 banking crisis from tipping the global economy into collapse, the new decade begins with many economies weighed down by a range of recessionary factors. These include a reduction in industrial activity, growing unemployment and a fall in consumer confidence, leading to lower demand for goods and services in the major consumer markets. Additionally, a number of countries, including the UK, enter the decade with very high levels of national debt and huge fiscal deficits.

Oil prices partially recovered through the year from the lows of late 2008, and appear to have stabilised at levels which, while significantly lower than the summer 2008 peak, seem to be broadly sustainable, at least under current market conditions. However, gas prices remain subdued – a factor reflected in the Group’s 2009 earnings.

The present weak level of global energy demand has led to talk of a natural gas ‘glut’ as new sources of supply continue to come onstream and producers compete to secure customers in a buyer’s market. There is in some markets a mismatch between capacity and demand at the moment. However, this may not last long if, as anticipated, momentum is restored to global economic growth in the early years of this decade.

There are two other relevant factors. First, despite the weak conclusions of the Copenhagen summit, political leaders still face an urgent need to define credible and deliverable policies which will meet current and future national energy requirements, while simultaneously achieving a significant reduction in carbon emissions. Second, US and European concerns about energy security are driving a desire to secure new and sustainable sources of energy which are free from the threat of politically-motivated supply constraints.

Natural gas goes some way to addressing both of those policy issues. It is acknowledged to be a ‘bridge fuel’ with a role to play in displacing higher-carbon fossil fuels, such as coal, which remain the energy sources of choice across much of the world. Gas resources are abundant and for many years have been brought to market using techniques that are proven and cost-effective, unlike a number of alternative energy technologies. Finally, from an energy security perspective, it is important not to underestimate the significance of liquefied natural gas (LNG) – an increasingly fungible global commodity with diverse and resilient global sources of supply – as well as the rapid development of unconventional gas resources within the borders of developed world nations, particularly the USA and Australia.

The pace of gas usage growth in China – one of the world’s largest economies – is just one indication that the new decade is likely to see further growth in demand for the cleanest of the fossil fuels. I believe that BG Group, as a global gas company, is strongly placed to benefit as natural gas continues to underpin the journey to a lower-carbon future.


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A strengthened and rebalanced portfolio

A challenge shared by all oil and gas companies is that a substantial proportion of global hydrocarbon resources is located within developing economies. Over the last three years, the Group has rebalanced its portfolio to ensure that future growth has a firm foundation in countries with a long track record of stability. That does not imply, though, that BG Group will avoid all countries where there is an element of risk. Doing so would not be tenable in this industry, nor would it be in our shareholders’ wider interests.

I am pleased to report that the Group continues to make important improvements in its overall geopolitical risk profile in order to protect, as well as create, value for our shareholders. The rapid development of the Group’s QGC business in Australia and the Santos Basin successes in Brazil are two key outcomes from this deliberate strategy to establish new opportunities for material value creation in countries proven to be favourable destinations for long-term investment.

BG Group’s alliance with EXCO in the USA is intended to achieve two interlocking aims. First, it strengthens the Group’s US supply portfolio and expertise near the hub of the US eastern seaboard gas market. Second, it expands the Group’s skills and development opportunities in unconventional gas resources at a time when, as a consequence of technological developments, these are emerging rapidly as substantial sources of natural gas production. An overview of developments in BG Group’s portfolio is set out in the Operating Review.

Governance and risk

One of the most effective means of mitigating risk is to develop and maintain relationships with relevant stakeholders, including local communities, partners and governments, that are mutually supportive and enduring. This approach lies at the centre of the Group’s Business Principles, which set out the core values and behaviours to which the Group aspires and against which it expects to be measured by others.

BG Group’s commitment to operating according to the highest standards of ethical conduct and corporate governance is summarised in The way we work. A more detailed overview is also available in the Group’s 2009 Sustainability Report, published in tandem with the Annual Report and Accounts and available online at

Another consequence of the 2008 banking crisis has been a public focus on the extent to which boards fully understand the risks faced by their businesses and are willing and equipped to hold the executive to account over the effective mitigation of those risks.

During 2009, both the Walker Review and the Financial Reporting Council called for a step change in the level of engagement and challenge between shareholders and boards, and between boards and the executive. While the detail of the proposed changes has yet to be finalised – and some proposals may turn out to be neither feasible nor desirable – in my view, this Company is already broadly aligned with the spirit of much of what has been recommended.

This Board takes seriously its duty to test the robustness of the Group’s strategy to ensure that business plans properly take into account the full range of political, financial and operating risks. More details of the Group’s approach to governance can be found in the Governance section.

This year, BG Group will embark upon a very large capital expenditure programme. The Santos Basin pre-salt developments and the Queensland Curtis LNG project, in particular, will require very large investment over the next three to four years. These projects will also place significant demands on organisational capacity, but I am confident that our outstanding portfolio of development opportunities will generate significant shareholder value in the years ahead.

Shareholder communications

In 2009, BG Group announced that it will move to reporting its financial results in US Dollars with effect from the first quarter results for the 2010 financial year. As substantially more than half of the Group’s revenues are denominated in US Dollars, reporting in that currency will provide shareholders with greater visibility of the Group’s performance. It will also simplify comparisons with peers, many of whom already report in US Dollars. Although the dividend will be set and declared in US Dollars, it will be paid in Pounds Sterling. There will also be no change in the currency of BG Group’s share capital. An explanation of the transition to reporting in US Dollars is given in the Explanation of transition to reporting in US Dollars section.

As in previous years, I would encourage shareholders to make use of the Group’s reporting centre to be found online at in lieu of opting to receive a printed copy of the Annual Report and Accounts. We will of course continue to send printed copies to shareholders who have specifically requested this. Those of you who have not stated a preference will receive communications from the Group in an online format.

Finally, I would like to welcome Mark Seligman to the Board, who joined us as a Non-Executive Director in December 2009. I would also like to express the Board’s thanks to the people of BG Group. Their creativity, commitment and expertise have


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been integral to the success of the Group over the last decade and provide us with the best possible foundation for the next generation of growth in the decade ahead.

Sir Robert WilsonChairman


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Chairman’s statement Tullow Oil plc.


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Balance Sheet Tullow Oil plc.

Group Balance SheetAs at 31 December 2009

2009 2008

Notes £m £m

ASSETSNon-current assetsIntangible exploration and evaluation assets 9 1,333.20 1,417.80Property, plant and equipment 10 1,380.20 986.4Investments 11 0.7 0.4Deferred tax assets 20 31.6 –Derivative financial instruments 18 – 29.3

2,745.70 2,433.90

Current assetsInventories 13 68.8 37.8Trade receivables 12 58 69.3Other current assets 14 185.8 60.2Cash and cash equivalents 15 158.3 311Derivative financial instruments 18 1.4 20

472.3 498.3

Total assets 3,218.00 2,932.20

LIABILITIESCurrent liabilitiesTrade and other payables 16 -350 -330.2Other financial liabilities 17 – -210.5Current tax liabilities -46.3 -105.3

-396.3 -646

Non-current liabilitiesTrade and other payables 16 -20 -6.1Other financial liabilities 17 -825.4 -489Deferred tax liabilities 20 -297.6 -347.9Provisions 20 -140.3 -134Derivative financial instruments 18 -12.5 –

-1,295.80 -977

Total liabilities -1,692.10 -1,623.00

Net assets 1,525.90 1,309.20

EQUITYCalled up share capital 22 80.4 73.3Share premium 22 167.8 160.7Other reserves 23 427.6 582.2Retained earnings 21 823.7 467.7

Equity attributable to equity holders of the parent 1,499.50 1,283.90Minority interest 24 26.4 25.3

Total equity 21 1,525.90 1,309.20


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Income Statement Tullow Oil plc.

Group Income StatementYear ended 31 December 2009

2009 2008

Notes £m £m

Sales revenue 2 582.3 691.7Cost of sales -398.1 -366.1

Gross profit 184.2 325.6Administrative expenses -49.5 -43Profit on disposal of subsidiaries 26 10.1 213.2Profit on disposal of oil and gas assets 26 3.1 30.6Exploration costs written off 9 -52.8 -226.7

Operating profit 3 95.1 299.7(Loss)/gain on hedging instruments 18 -37.2 42.9Finance revenue 2 1.3 3.9Finance costs 5 -38.9 -47.2

Profit from continuing activities before tax 20.3 299.3Income tax expense 6 -1.8 -73.1

Profit for the year from continuing activities 18.5 226.2

Attributable to:Owners of the parent 15.1 223.2Minority interest 24 3.4 3

18.5 226.2

Earnings per ordinary share 8 Stg p Stg p

Basic 1.87 30.86Diluted 1.85 30.49


Page 27: Course Work M.a. Tullow Oil vs BG[1]

10 Reflective Statements

Christoph Auffermann

This coursework has gave me an insight into the analysis of companies using the profit and loss

account, the balance sheet and following actual news about the two companies. The way to compare

two companies within the same industry sector based on the self calculated ratios was a different and

new way for me. This is a very exciting assignment, as it is directly linked to the actual and past

performances of the two companies. It is interesting to see what different kind of topics and news

appear and how they influence for example the share price. It was personally a huge enrichment to

work with the members of the group, who come from different backgrounds and discussing various

topics concerning the assignment. The group members all participated perfectly, so there was no reason

to complain at all.

In order to develop the assignment for future students I would suggest having a compulsory

introduction to the Bloomberg tool, as it is very useful and efficient, as I found out during the

coursework. Another point would be to have an extra seminar which addresses only the coursework in

order to get the solution to some questions and to learn from common mistakes which were made the

year before.

Shaker Alyami

In my opinion, the coursework of the managerial accounting has many terrific benefits such as, giving

the students a complete experience, so that they can improve their skills. Also, the prophesier was

totally helpful.

In the first place, this coursework has helped me to improve my analysing skills. Moreover, it has

proved that, the business world is a complex world, where you can not be completely sure about any

predictions. Furthermore, I have become aware of the company’s news as it has a strong impact on the


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stock market. It has also made me look to the stock market from different view.

In addition, with all audiences that were given, we have become confident about our ability, and also

able to understand how companies’ performance. At last, it has proved that, there is nothing could be

difficult as long as you have enough knowledge, and work hard.

However, there is only one thing should have been done from my point of view. More samples of the

writing analysis should be provided, in order to increase the students’ ability of writing financial


Farah Alrefai

It is important to know different ways to look at a company performance as accounting has been a part

of our lives. The Financial statement and ratio analysis gave me a clear understanding of whether a

company is doing well or not, gain profit or loss or staying about the same. And knowing the current

position of a company leaded me to measure the future improvements of this company which can also

tell whether its shareholders should keep the shares or sell them.

In this course work I gain a lot of various analysis skills which will strengthen not only my career

position but also my personal life like for instance, I will be aware of what is happening for any

company performance which will directly affect its shares in the stock market. Moreover it clarified

my understanding of how managers thinks because you can only make a decision about things that you

can change in the future. The comparison of those two companies was an excellent experience for me

especially doing it with the group members who came from a different backgrounds and different


For future development of the course work I suggest to organise some basic classes about Bloomberg

Device for those student who never work on it.

Stacy Ahire

The general requirement for the coursework was to make a comparison on the performance of two

companies of the same industry using their account statements, my group and I selected Tullow oil and


Page 29: Course Work M.a. Tullow Oil vs BG[1]

BG group for our evaluation. I have made an all-round gain from this assignment. First, on a more

general note, I learned teamwork skills by co-operation and creative thinking during our meetings.

Secondly, I have been able to gain more in-depth knowledge on the two companies which I otherwise

would not have. In addition, through practice I am now more familiar with the process of calculating

the ratios; profitability, liquidity, activity and investor ratios and afterwards interpreting these ratios

and understanding their various interpretations and implications as regards each company’s financial

position. Also, I have become conversant with the financial statements (balance sheet, income

statements and cash flow statements) of the companies as a tool for measuring effectiveness. I consider

the knowledge gained in the course of this study especially beneficial because it can be applied to any

other company and real life situations.

In order to further develop this assignment for future students, I would suggest a more extensive

approach to analyzing financial positions of companies be incorporated in the material that already



Page 30: Course Work M.a. Tullow Oil vs BG[1]

11 References

Annual Report 2009. BG Group.

categoryId=9021605&contentId=7040949 retrieved on 31st October, 2010.

Annual Report 2009. Tullow Oil plc. retrieved on 31st October,


Levitt, A. (2000), "Renewing the covenant with investors", New York, NY, speech at the NYU Center

for Law and Business, .

Solomon, D., Bryan-Low, C. (2003), "SEC decides on ‘tough’ cop to walk the accounting beat", Wall

Street Journal, available at:,SB105041643140677100,00.html,

No.April 16 .

News Sources: