Energy Markets: Can British Petroleum Rally on Oil Gains?

Energy Markets: Can British Petroleum Rally on Oil Gains?

British Petroleum (NYSE: BP) is an integrated oil and gas company that was incorporated in 1909. The company classifies its business into the following segments: Upstream and Downstream.  BP owns 13 refineries and logistics networks, and the company holds an interest in an oil and gas company, OJSC Oil Company Rosneft (Rosneft).  As of December 2015, Rosneft owned and operated over 2,500 retail service stations in Russia and abroad.

BP: Company News

On February 7th, the company said OPEC production cuts will have a limited impact on BP‘s production this year. The company’s CFO Gilvary expects oil prices to hold above $50/bbl this year, and these trends should continue to be beneficial for oil market traders for the next several quarters.  Recent statements from BP suggest that the company 

Recent statements from BP suggest that the company adapted to current oil price conditions a year earlier than planned by cutting controllable cash costs by $7 billion from the numbers seen in 2014. BP expect to get $4.5-5.5 billion from divestment proceeds for 2017, and BP extended its existing contract with Petrofac for three years (for $25 million).

Quarterly Earnings Results

BP reported fourth quarter earnings-per-share at $0.026. Its net revenue for the quarter was $51 billion, versus $54.70 billion expected by analysts on Reuters. On average, analysts are expecting $2.33 in per-share earnings for 2017 and full-year revenues of $233.818 billion for the same period.  Expectations are currently $2.67 and $258.869 billion, respectively, for 2018.

BP’s fourth-quarter replacement cost (RC) profit was $72 million, compared to a loss of $2,233 million for the same period in 2015. Net debt as on December 31, 2016, was $35.5 billion, compared with $27.2 billion a year ago.

Stock Prices

Last year, BP was trading around $30 and moving up after making a low of $28 in February. Many of these trends were influenced by heightened options trading activity in the early parts of the year.  The stock made a high of $38 in January, and at present, it is trading around $33. BP is a regular dividend payer, paying $0.60 a share in its quarterly dividend. At current prices, the stock is yielding 7.18%. Despite the loss, the company did not cut its dividend rate, which has been highly encouraging for investors.

BP’s trailing-twelve-month earnings per share is $0.02. At current price forward price to earnings ratio of 14x given that the 2017 earnings per share estimate of $2.33; source Reuters. BP gives 5.69% annualized return on equity in last 5 year while the industry average is 14.36% during the same period; source Reuters. Similarly, it gives 2.29% annualized return on assets during the last five years compared to industry average of 5.44%.  

The stock gives a return on investment 3.02% annualized in last five year despite the industry average of 9.53%.  Sales have a negative growth rate of -13.40% annualized in last 5 years despite the industry growth rate of 7.48% during the same period. But the analysts are optimistic about the stock and recommending Outperformer on Reuters.

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