¶ … Failure-to-Disclose
Disclosure & Financial Accounting
Environmental and Financial Factors in the Petroleum Industry
The petroleum industry has a unique responsibility in the initiative to practice environmental safeguarding while producing the petroleum products in such great demand. The financial manager must be decide what weight to apply to costs in terms of new processes and methods that are efficient as well as environmentally friendly and complaint.
Weighing Costs in Failure-to-Disclose
Environmental and Financial Factors in the Petroleum Industry
Environmental Hazards
Profitability Factors
Future Outlook
Findings Related to Cost Factor of Compliance
BP, Conoco, and Phillips
Primary Considerations
Summary & Conclusion
References
Weighing Costs in Failure-to-Disclose
Environmental and Financial Factors in the Petroleum Industry
Objective
The objective of this work is the research the Petroleum Fuel industry and to render an accounting of what results from either complying with or non-compliance to environmental regulations as set down by governing and ruling bodies.
Introduction
According to the work entitled: "Environmental Impact of the Petroleum Industry: Environmental Update #12": "Petroleum refining is one of the largest industries in the United States and a vital part of the national economy." Potential hazards that can damage the environment are associated with petroleum refiners. A petroleum refinery separates the crude oil and through processes of both physical and chemical techniques (fractionation, cracking, hydro treating, combination/blending processes, manufacturing and transport) creates other products. The petroleum plant will generally use products inclusive of kerosene, diesel fuel, motor oil, asphalt, waxes, and petroleum gas."
Environmental Hazards
Environmental hazards that exist at the petroleum refinery site are hazards such as (1) air pollution hazards; (2) water pollution hazards; and (3) soil pollution hazards. The petroleum industry is affected by market and environmental factors due to demand for product, decrease in U.S. production. High costs are associated with compliance to the Clean Air Act. Furthermore, costs in the effort to meet environmental regulations has resulted in many of these companies joining with government agencies, both states and federal in an effort of reduction of air pollutants that are extremely hazardous being released.
Profitability Factors
Profitability witnessed a 'sharp decline ... during the 1988 to 1995" time period however during the years 1996-2001 the petroleum industry witnessed, "along with capital expenditures ... An upswing in profitability." (1995-2001 Energy Finance) In the report assessed are the "effects of pollution and abatement requirements on the financial performance of U.S. petroleum refining and marketing operations." (1995-2001 Energy Finance) Key findings in the study include that (1) "Over the past decade, the profitability of the FRS companies' U.S. refining/marketing operations has been volatile and, in the 1990's thus far, below that of their other businesses generally; (2) The poor financial performance of the majors' U.S. refining/marketing operations was echoed by the corporate profitability of smaller, specialized refiners; (3) Although U.S. refining/marketing profitability has been low in the 1990's, the FRS companies noticeably increased their capital expenditures for their U.S. refining operations; (4) The share of total U.S. refining capital expenditures for pollution abatement increased from slightly over 10% shortly before the Clean Air Act Amendments of 1990 to over 40% in recent years; (5) Since the relationship between refining/marketing profitability and the net refined product margin is strong, some of the effects of pollution abatement standards on profitability can be assessed by examining the net refined product margin; (6) Pollution abatement operating costs have been and continue to be a small part of overall operating costs; (7) The main factor affecting the net margin from 1988 on has been a near continual decline in the spread between refined product prices and raw material input costs; (8) The decline in the price spread between crude oils of differing qualities contributed to the overall deterioration in the gross margin; (9)Lower refined product prices also contributed to the decline in gross margins in the 1990's; (10) The additional capital expenditures stemming from heightened pollution abatement requirements for the U.S. refining operations of the FRS companies have added to the capital intensity of U.S. refining in the 1990's; and (11)Although pollution abatement requirements clearly reduced the rate of return to refining/marketing assets, these requirements appear to account for only a small part of the steep decline in the rate of return to U.S. refining/marketing operations in the 1990's." (1995-2001...
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