IB Business Management HL 3.4.1 Purpose of accounts Question Bank

BP and the Gulf of Mexico
In May 2010, the oil company BP suffered a major disaster while drilling for oil off the coast of Louisiana, United States (US) in the Gulf of Mexico. The drilling platform exploded and was destroyed, killing 11 workers. Millions of tonnes of oil spilled out into the sea. This was the worst industrial accident BP had ever faced. Subsequently the price of BP shares fell by 30 %.
It took BP three months to stop the leak in the oil well. The oil spill had a major negative impact on fish, birds and the whole ecosystem. Regional fishermen, seafood restaurants and the tourist industry were the first to suffer from the impact of the pollution and demanded compensation.
This was a public relations (PR) crisis for BP. The US media attacked the company on a daily basis. Environmental pressure groups called for a ban on deep water oil drilling and even the US president got involved, announcing on television that BP would be "made to pay heavily". The perception was that BP's crisis management was slow, uncaring and inefficient. For example, Tony Hayward, the Chief Executive Officer (CEO) of BP was reported to have said that the oil spill "was tiny" and on another occasion he complained of stress and said he "would like his life back". However, to solve the problem in deep water was a very technical exercise, which had never been attempted before. As a result of this PR crisis, BP decided not to give dividends to its shareholders in 2010.
BP has identified the following as causes of the decline in financial performance:
- the loss of the oil drilling platform
- the cost of stopping the leak 250 metres below the sea
- the cost of the clean-up operations
- the fall in share price
- the loss of brand image and goodwill
- compensation paid to regional businesses
- compensation paid to the families of the workers killed.
Selected items from BP's balance sheet as at 31 December 2009 (US$ millions) (before the disaster).

Outline the importance of the balance sheet to two stakeholder groups of BP.