Coprorate Finance Bp Amocco

Corporate Finance

Case Study: BP Amoco

Executive Summary

The study examines how project finance is used on businesses, as well as what the differences are compared to corporate finance. Further on, analysis shows how and why BP and Amoco used their chosen financing methods and what happened after their merger. Finally, the report concludes with a thorough analysis as to how the group positioned itself on the development of the Caspian Oil Fields, given the geopolitical risks and difficulties of the region.

Contents

Executive Summary 2

Contents 2

Project Finance vs Corporate Finance 3

BP Amoco & The use of Project Finance 3

Market Imperfections & Project Finance 4

BP Amoco Policies 5

Portfolio of Call options 6

Caspian Oil Field investment opportunity 7

How BP Amoco should fund its share of the Full Field Development Project? 8

LUKoil & How partners decisions affect each other? 9

Bibliography 10

Project Finance vs Corporate Finance

Project finance refers to the financing of a particular project which is repaid from the cash injection of that project itself. Project finance differs from traditional forms of finance due to the fact that the financier takes each given project as an individual business entity, which in turns will secure and service its obligations. In a project financing the lenders of the project usually have little or no ability to claim any of the non-project assets of the sponsors of the project. Today, sponsoring firms use project finance as a risk management tool as well as a way to solve cash flow problems associated with certain assets. On the other hand, in corporate finance, lenders are not reliant to any project and can rely on the cash flows and financial strength of the entire corporate entity (Esty &Kane 2003).

Further on, the purpose of project finance for a corporate entity is to have limited liability to every single project. In contrast in corporate...