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Company Insights on BP, Microsoft, and Western Digital

On August 30, we all chose 5 stocks to evaluate before purchasing. At this time I chose BP AMOCO, Microsoft, Western Digital, Toys-R-Us, and Fortune Financial Incorporated. After a few weeks of tracking these stocks, I chose to keep BP AMOCO, Microsoft, and Western Digital, because the stocks were relatively stable and most of them were on the rise at this time.

As you are aware, we were given $30,000. 00 to invest in our three chosen stocks, which breaks down to $10,000. 0 per stock. We also had to include a brokers fee of $500. 00 for every $10,000. 00 invested. My first stock was BP AMOCO. On September 8, I purchased 167 shares at $57. 06 per share, which totaled $9,523. 00 and incurred a $476. 15 brokers fee, making the grand total spent $9,999. 15. BP is one of Britains biggest companies and one of the worlds largest oil and petrochemical groups. Its origin dates back to May 1901.

BP owes its origin to one man, William Knox DArcy, a wealthy Englishman, who obtained concession from the Muz-affaru’d-Din, Shah of Persia (1896-1907) to explore and exploit the oil resources of the country, excluding the five northern providences that bordered Russia. He, shortly after the turn of the entury, invested time, money and labor in the belief that worthwhile deposits of oil could be found in Persia, which is now known as Iran. Having been granted the concession; DArcy employed an engineer, George Reynolds, to undertake the task of exploring for oil in Persia.

For seven years, Mr. D’Arcy battled with severe weather, the absence of a developed infrastructure, the shortage of skilled local labor, the problems of dealing with neighboring tribes in the absence of a strong central government, difficult terrain, and an uncertain political situation. These conditions made Reynolds pioneering task an exceptionally difficult venture. Meanwhile, the costs mounted stretching DArcys resources to the point where e sought outside financial assistance. This came in 1905 from the Burmah Oil Company, which provided new funds for his venture.

More exploration in Persia followed without success, until eventually, in May of 1908, Reynolds and his helpers struck oil in commercial quantities at Masjid-i-Suleiman in southwest Persia. It was the first commercial oil discovery in the Middle East, signaling the emergence of that region as an oil producing area. After the discovery had been made, the Anglo-Persian Oil Company was formed n 1909 to develop the oilfield and work the concessions. At the top of Anglo-Persians formation, Burmah Oil Company owned 97 percent of its ordinary shares.

Lord Strathcona, the companys first chairman, owned the rest. Although D’Arcy was appointed a director and remained on the board until his death in 1917, he was not to play a major part in the new company’s affairs. His role as the initial risk-taking investor was past and the daunting task of developing the oil discovery into a commercial enterprise shifted to others, amongst whom one stands out: Charles (later Sir Charles, then Lord) Greenway. Greenway was one of Anglo-Persian’s founder-directors, becoming managing director in 1910 and chairman, after Strathcona, in 1914.

Greenway, anxious to avoid falling under the domination of Royal Dutch-Shell, also turned to another potential source of revenue and capital: the British government. The basis of an agreement to mutual advantage lay in Greenway’s desire to find new capital and an outlet for Anglo-Persian’s fuel oil; and, on the government’s part, in the desire by the Admiralty (then headed by Winston Churchill as First Lord) to obtain secure supplies of fuel oil, which had dvantages over coal as a fuel, for the ships of the Royal Navy.

After lengthy negotiations, an agreement was reached in 1914 shortly before the outbreak of World War I. Anglo-Persian contracted to supply the Admiralty with fuel oil and the government injected $2 million of new capital into the company, receiving in return a majority shareholding and the right to appoint two directors to Anglo-Persian’s board. Although the government undertook not to interfere in Anglo-Persian’s normal commercial operations, its shareholding introduced an unusual political dimension to the company’s affairs.

In later years, the government shareholding was reduced and — apart from a tiny residual holding — ended in 1987. Further expansion followed in the decade after World War I. New marketing methods were introduced, with curbside pumps replacing two-gallon tins for the distribution of motor spirit (or, gasoline). Anglo-Persian also marketed its products in Iran and Iraq; it established an international chain of marine bunkering stations, and in 1926 began to market aviation spirit.

New refineries, much smaller than the plant at Abadan, also came on stream — at Llandarcy in South Wales in 1921 and at Grangemouth in Scotland in 1924. Moreover, the company’s majority-owned French associate had a refinery at Courchelettes, near Douai. On the other side of the world, in Australia, a new refinery at Laverton, near Melbourne, was commissioned in 1924. Exploration was carried out not only in the Middle East, but also in other areas, such as Canada, South America, Africa, Papua and Europe.

By the time Greenway retired as chairman in March 1927, he had realized his main strategic goal of establishing Anglo-Persian as one of the world’s largest oil companies, with a substantial presence in all phases of the industry. In 1935, the company was renamed the Anglo-Iranian Oil Company. During the post-war reconstruction of Europe, the high demand for oil enabled Anglo-Iranian to expand its business greatly. The company’s sales, profits, capital expenditure and employment all rose to record levels in the late 1940s.

The refinery at Abadan was by this time the largest in the world. Moreover, crude oil production from the company’s Iranian oilfields kept Iran at the top of the league of Middle East oil producing countries. Meanwhile, Anglo-Iranian entered the field of petrochemicals. An agreement ith the Distillers Company in 1947 resulted in the formation of a joint company, later to become known as British Hydrocarbon Chemicals, which produced basic materials from naphtha at Grangemouth. A second petrochemical complex was built at Baglan Bay in South Wales in 1961.

While the company was expanding its operations in the late 1940s, it was also engaged in talks with the Iranian government about the terms of its oil concession. Long and complex negotiations failed to produce an agreement, and in 1951 the Iranian government passed legislation nationalizing the company’s ssets in Iran, then Britain’s largest single overseas investment. The nationalization precipitated a major international crisis in which the British and US governments became deeply involved. The company’s operations in Iran were brought to a halt.

Only after three years of intensive negotiations was the crisis resolved by the formation of a consortium of oil companies, which, by agreement with the Iranian government, re-started the Iranian oil industry in 1954. Anglo-Iranian — which was renamed The British Petroleum Company in 1954 — held a 40 percent share in the consortium. One of the effects of the Iranian nationalization crisis was that the company was forced to broaden its operations to make good the loss of oil supplies from Iran, on which it had depended.

Crude oil production in other countries, notably Kuwait and Iraq, was greatly increased; and new refineries were built in Europe, Australia and Aden. In another development, in 1952, the company commissioned its first lubricating oils plant at Dunkirk. Two years later, it began marketing BP Visco-Static, Europe’s first multi-grade-oil. Although all of these events were important for the company, it was ydrocarbons under the North Sea and under the permafrost of Alaska that were to play the key role in transforming BP into the company it is today.

Earlier, in 1959, the Dutch had discovered a giant gas field on the edge of the North Sea at Groningen. This discovery encouraged others to begin searching for hydrocarbons offshore. BP scored the first success in British waters when, in 1965, it found the West Sole gas field, which it brought on stream two years later. The search for oil spread farther north, and in 1970 BP discovered the Forties field — the first major commercial find in the UK sector. Meanwhile, in Alaska, BP was rewarded for ten years’ exploration effort when, in 1969, it announced a major oil discovery at Prudhoe Bay on the North Slope.

When it became clear that, through its large share in Prudhoe Bay, BP owned part of the biggest oilfield in the USA, the company decided that its Alaskan oil could best be handled by a well-established US refining and marketing company. Accordingly, it signed an agreement with the Standard Oil Company of Ohio in August 1969. This company, the original John D. Rockefeller Standard Oil, was the market leader in Ohio and was strongly represented in neighboring states. Under the agreement, which became effective from 1st January 1970, Standard took over BP’s leases at Prudhoe Bay and some East Coast downstream assets that BP had acquired in 1968.

In return, BP acquired 25 percent of Standard’s equity, a stake that would rise to a majority holding in 1978 when Standard’s share of Alaskan production passed 600,000 barrels a day. The 1970s were the decade of the two great oil price shocks (1973 and 1979/80) that were to have serious effects on the world’s economies. It was also a decade when the major oil companies saw a decisive change in their old oncessionaire relationships. Like its major competitors, BP lost direct access to most of its supplies of OPEC oil as the OPEC countries took control of production and prices.

The 1973 price explosion had a dramatic effect on demand. BP’s oil sales started falling for the first time since 1952 (with the exception of 1957, the year of the Suez crisis). By 1978, sales had recovered somewhat; but then the Iranian revolution came and another major rise in the price of oil. In 1979, BP suffered further blows when its assets in Nigeria were nationalized and its supplies from Kuwait cut back. By 1980, its sales were down again. The entire oil industry was affected by the events of the 1970s.

But thanks to BP’s large investment program in areas outside the Middle East, the company showed as it had done in Iran in 1951, that it could survive. As noted, of key importance were the developments of its oilfield discoveries in the North Sea and Alaska. In the autumn of 1975, BP pumped ashore the first oil from the North Sea’s UK sector when it brought the Forties field on stream. This field development was financed by a bank loan of $370 million, then the largest wholly rivate bank advance ever arranged.

At its peak, Forties produced half a million barrels a day, equivalent to one-quarter of the UK’s daily oil requirement. Since the early 1980s, BP has developed many more oil and gas fields in the North Sea. Among these have been, in the UK sector, Magnus (commissioned in 1983), the Village gas fields (1988), Miller (1992) and Bruce (1993) and, in Norwegian waters, Ula (1986) and Gyda (1990). In Alaska, meanwhile, the construction of the 800-mile Trans-Alaska Pipeline System enabled the Prudhoe Bay field to come on stream in 1977.

In 1981, the Kuparuk field also started production, and towards the end of 1987 the world’s first continuous commercial production from an offshore area in the Arctic was achieved when the Endicott field was commissioned. Today, BP’s other oil- and gas-producing countries include Abu Dhabi, Australia, Colombia, Norway and Papua New Guinea. The upheavals of the 1970s led BP to conclude that it should broaden its activities so that it could operate in the future with more balanced sources of income. Accordingly, from the mid-1970s there was increased emphasis on diversification into new areas of activity.

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