Purchase Solution

GDP affects on petroleum industry and its capital expenditures.

Not what you're looking for?

Ask Custom Question

The estimate of growth in US GDP over the past quarter has been revised upwards to 8.2%.

(a) How would this news affect capital investment and budgeting decisions in the petroleum industry? Give some examples and explain. Comment briefly on the past decisions made in the industry, leading up to the current situation.

(b) Would the growth in petroleum firms' capital expenditure tend to coincide with the growth in GDP? Why or why not?

(c) How will the recent economic growth affect the sources and cost of external capital (comment on the IPO and bond markets), and how will this in turn affect decisions mad by firms,

Purchase this Solution
Solution Preview

GROWTH IN US GDP AND EFFECT ON CAPITAL INVESTMENT AND BUDGETING DECISIONS IN THE PETROLEUM INDUSTY
The GDP or the gross domestic product of a country is a measure of the market value of all goods and services produced in the USA. The upward growth of the GDP imploes that the per capita income of USA has gone up. Also, the total GDP means the economy's overall size, which is an important determinant of the total market. This simply means that petroleum industry is likely to increase its capital investment in oil production and processing and have larger budgets for expansion.

The financial aspect of why the capital budgeting goes up is that the estimates of internal rate of return, net present value, profitability index, payback period and accounting rate of return improve with an expanding GDP.

RECENT EXAMPLES OF EXPANSION BY OIL COMPANIES

We take a few examples of the company BP its investment in projects include 'Furnace Remediation Project', Chocolate Bayou, Texas, US Gulf Coast, USA,'Texas City Clean Fuels" Texas City, TX, Texas, "PTA Debottlenecking Program", Cooper River, South Carolina, "Cherry Point Clean Fuels" Seattle, Washington, 'Clean Fuels' Washington DC, USA.

Apart from these projects of other companies include, ExxonMobil, "Global Procurement Support" and Pennzoil Products Co. "Pennzoil Crude/Vacuum Revamp", Rouseville, Pennsylvania.

From the past experience as well as current observations we conclude that the increasing GDP triggers increase in exploration and extraction to the refining process, chemical by - products, specialty chemicals and retail gas distribution centers. It has been observed that at almost every stage including planning and feasibility, engineering and design, ...

Purchase this Solution
Free BrainMass Quizzes
Basic Social Media Concepts

The quiz will test your knowledge on basic social media concepts.

Understanding Management

This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.

Organizational Leadership Quiz

This quiz prepares a person to do well when it comes to studying organizational leadership in their studies.

Situational Leadership

This quiz will help you better understand Situational Leadership and its theories.

Motivation

This tests some key elements of major motivation theories.

View More Free Quizzes
Related BrainMass Solutions

  • International Economies - Comparative and Absolute Advantage

    It possesses 18% of the world's proven petroleum reserves, and is the largest exporter in the world of petroleum. The GDP growth rate of Democratic Republic of Congo is 4.9% but the GDP per capital is $4,700.

  • Petroleum in Nigeria

    These days, the capital-intensive oil sector, provides 20% of GDP, 95% of foreign exchange earnings, and about 65% of budgetary revenues.

  • Macroeconomics

    in spite of the capital deepening, while very modern and internationally competitive, is nevertheless very vulnerable to external shocks because the value of its exports is much larger than its GDP and about two-thirds of its industrial output is exported

  • Assume that consumer spending is $1,000, government expenditures are $250, investments by industry are $200, and the excess of exports over imports is $300

    That is, if there were more imports than exports, it would HURT GDP and hence, we would use a negative number. GDP also assumes that these expenditures are all on local products (not money spent on imported things).

  • Regional Integration in Northerm South Africa

    Investment (gross fixed): 15.8% of GDP (2004 est.) Budget: revenues: $15.33 billion expenditures: $21.03 billion, including capital expenditures of NA (2004 est.) Public debt: 51.8% of GDP (2004 est.)

  • Inflation and its Consequences

    expenditures M-X= Net exports As illustrated above, an increase in consumption expenditure, investments, government expenditure or net exports will cause real GDP to rise in the short run.

  • nominal GDP and real GDP

    Other factors contributing to the increase include increased personal consumption expenditures on services and also increase in expenditure and investment by local and state governments. References Bureau of Economic Analysis. (2009).

  • The Four Components of Gross Domestic Product

    428793 Four Components of GDP are expressed. List the four components of GDP and provide an example of each, explaining how each item affects you and the way that you live today.

  • Gross Domestic Product Measurement

    Personal consumption expenditures - These are expenditures on non-capital goods used to maintain the operations of the bureaucracy. b.)

View More Related Solutions