Stock of the day 02/02/2015 – BP PLC

It has been a tough time for oil companies of late; BP, however, is having a tougher time than most ahead of its Q4 and full year 2014 earnings release on Tuesday.

Like Exxon Mobil and other oil companies, the first half of 2014 saw steady, if not explosive, growth: BP started at $48.40 and kept gaining culminating in the company’s year-high price of $53.49 at the start of July. However, the all-too-familiar sight of an oil-company-decline set in after this peak, and by mid-December share prices had sunk to $34.88. By the start of the New Year BP had managed to crawl back to $38.16; after reaching $40.44 last week BP now stands at $38.84 ahead of its big announcement.



Oil received a big boost last week after 105 US and Canadian rigs were slashed in the largest drop for 27 year low after; however, at $52 per barrel, this price is still too low for the big oil companies, and BP is preparing itself for a dismal set of data. Full year profits expected to more than halve from $23.4 billion to $9.3 billion, with fourth quarter earnings falling to $1.57 billion from $2.8 billion year-on-year. The company is expected to slash its $23 billion annual spending plans, and after cutting 300 jobs from the North Sea last month, around 10% more of the workforce there is expected to be axed, with a salary freeze for those who remain.

Whilst this is par for the course for oil companies at the moment, there are a few factors that make BP’s situation all the worse. Its 19.75% stake Russian oil giant Rosneft has come back to haunt the company as the interlinked rouble and oil crisis is set to cost $750 million in losses for BP. This risky venture was questioned at the time, and many analysts have been proven right as the disastrous state of the Russian economy has dealt a major blow to Rosneft, as its majority owner is the Government of Russia.

However even more than the Rosneft-fiasco it is the ghost of the 2010 BP oil rig explosion and subsequent mega-spill that is separating BP from its oil peers. A recent study suggests that at least 6 to 10 million gallons of BP oil are buried in the sediment on the Gulf floor despite clean-up efforts. This week sees the fallout from this spill continue, as the Justice Department does battle with BP in court, as the former pushes for a penalty near the $13.7 billion maximum fine mark. BP has already sold more than $40 billion of assets to fund the fines, including its half of both the Gila and Tiber fields to rival Chevron.

With the weight of the Gulf oil spill and Rosneft on its shoulders BP is carrying extra baggage when compared to its fellow oil companies; as Exxon Mobil looks to announce losses later today, whilst Chevron beat analysts’ expectations last Friday, it remains to be seen which way BP will go after its announcement tomorrow.