BP Plc Ordinary US$0.25 (BP.)

Company overview

BP PLC is a global oil and gas company headquartered in London. It is the third largest energy company and the fourth largest company in the world measured by revenues and is one of the six oil and gas "supermajors". The group has operations in over 80 countries, produces around 3.8 million barrels of oil equivalent per day and has 22,400 service stations worldwide. Its largest division is BP America, which is the biggest producer of oil and gas in the United States and is headquartered in Houston, Texas. The name "BP" derives from the initials of one of the company's former legal names, British Petroleum. Its primary listing is on the London Stock Exchange and it is a constituent of the FTSE 100 Index. It has a secondary listing on the New York Stock Exchange.

HL Comment (7 February 2012)

BP's profits were underpinned by high crude oil and gas prices and a solid set of production figures. Europe's second largest oil company reported a fourth quarter replacement cost profit, which strips out the value of oil and gas inventory, of $7.6 billion, up from $4.61 billion in the same period a year earlier, exceeding analyst estimates. Key milestones for the coming year, set out by management included drilling 12 exploration wells, (double the 2011 total) starting up six major exploration and production projects, operating eight rigs in the Gulf of Mexico by the end of the year; and completing payments into the Gulf trust fund it set up to help pay for costs related to the Deepwater Horizon disaster. The company is set to start a civil trial on 27 February to determine liability and apportion fault for the Gulf of Mexico accident. The company said it has set aside about $40 billion to pay for damages and legal bills. For all of 2011, BP's profit was $23.9 billion compared with a $4.9 billion loss in 2010.

Negative Points:

• The group's output suffered for more than a year after the 2010 explosion on the BP leased Deepwater Horizon rig causing millions of barrels of oil to spill and which forced the company to shut down fields for safety reviews and sell assets to raise cash.
• BP faced more than 600 lawsuits as a result of the Gulf of Mexico spill. As this is a highly litigious situation, there is a risk that fines and penalties could escalate above initial estimations.
• BP's earnings are sensitive to changes in oil and natural gas prices, along with and refining margins, all of which can fluctuate significantly.
• BP's operating activities can be severely disrupted by the effects of natural disasters or industrial accidents.
• Changing political forces can affect BP's pace of development activity in countries in which it operates. Approximately 40% of BP's capital is invested in the US and 6% in Russia.

Positive Points:

• BP's profits were boosted by the price of oil which has remained at relatively high levels of about $100 a barrel throughout the final three months of 2011.
• The company has already reached settlement with its partners on the well, Anadarko Petroleum and Mitsui, as well as Cameron International. It has yet to reach agreements with Transocean, the owner of the rig that exploded, and Halliburton, the company responsible for making the cement.
• BP has committed to selling $38 billion worth of assets before the end of 2013 following the oil spill disaster, and has so far sold $19.7 billion.
• Refining and marketing, which has been a weak spot for rivals saw BP deliver a record underlying pre-tax profit of $6 billion in 2011.
• The board has declared a 14% increase in its fourth quarter dividend to 8 cents a share.

Consensus:

On balance, market consensus indicates a buy.

All yield figures are variable and not guaranteed.

Fundamental Data

Values are quoted in the stock's local currency: US dollar.