Why BP Earnings Won't Gush Higher

BP (NYSE: BP  ) will release its quarterly report tomorrow, and investors remain uncertain whether the company will ever fully recover from the Gulf oil spill three years ago. The stock is nowhere near its levels from before the spill, and it's unclear when BP earnings will stop feeling the impact of one-time charges and asset writedowns.

On the surface, conditions in the energy industry would seem to favor BP, as oil prices remain high and new discoveries around the world are helping other oil giants keep their production levels up. BP has had its share of successes, but those wins haven't turned around investors' somewhat negative sentiment about the stock. Let's take an early look at what's been happening with BP over the past quarter and what we're likely to see in its quarterly report.

Stats on BP

Analyst EPS Estimate

$1.13

Change From Year-Ago EPS

(2.6%)

Revenue Estimate

$90.3 billion

Change From Year-Ago Revenue

(3.3%)

Earnings Beats in Past Four Quarters

3

Source: Yahoo! Finance, S&P Capital IQ.

When will BP earnings grow consistently?
Analysts have shown mixed beliefs about the future direction of BP earnings. In the past few months, they've lopped a dime per share from their June-quarter estimates, but they've raised their full-year 2013 estimates by nearly 5% and their 2014 consensus by more than 10%. The stock, though, hasn't made a big move, climbing just 5% since late April.

Three years on, the Gulf oil spill continues to weigh on BP. Last month, the company said that it had completed active cleanup activity in Florida, Alabama, and Mississippi, leaving only 84 miles of Louisiana coastline to finish cleaning up. With BP and other parties to the spill having spent roughly $20 billion in litigation and cleanup costs, the oil giant is eager to put the episode behind it once and for all.

BP has responded by continuing to sell off non-core assets to raise cash. In June, the company finalized a $2.4 billion sale of assets to Tesoro (NYSE: TSO  ) , which included a California refinery and a network of 800 retail gas stations. The move helps bolster Tesoro's presence on the West Coast, but for BP, the amount raised is only a fraction of what it will end up having spent in the wake of the Gulf spill.

But BP has done its best to focus on growth efforts elsewhere. In response to tax reform efforts that encouraged further investment in Alaska's North Slope, BP joined ExxonMobil (NYSE: XOM  ) and ConocoPhillips (NYSE: COP  ) in investing an additional $1 billion in the area over the next five years. The companies are also considering more wells in the Prudhoe Bay oilfield as well as streamlining transportation of oil southward, which could require even more capital expenditures. But as long as oil prices remain high, the benefits are worth the expense. In addition to Alaska, BP is also planning to invest in 40 major exploration and production projects through 2020, with 11 of them requiring $10 billion each in gross investment across regions including the North Sea, Angola, Azerbaijan, and the Gulf of Mexico.

In the BP earnings announcement, watch for the latest on the ongoing litigation over the Gulf oil spill. With a new trial scheduled for September as well as an outstanding verdict and a new fight about alleged mishandling of claims for compensation from those affected by the spill, BP still has billions at stake in resolving its legal woes successfully.

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  • Report this Comment On July 29, 2013, at 11:50 AM, NolAloha wrote:

    The news is really interesting. One of Halliburton's key points in the Mercado Well blowout was that Halliburton recommended 21 spacers to center the column, and that BP insisted that 6 were enough, Halliburton was saying that as a result, the well blew, and it was BP's fault.

    Halliburton just pleaded guilty to destroying evidence and was fined $200,000. (Not a significant amount, but perhaps very important)

    The evidence they supposedly destroyed were simulations by Halliburton employees that there was no essential difference between 21 and 6 spacers. There were also comments that another employee, doing a separate simulation, also had similar results, that 6 or 21, there was no difference in results. Sounds like both Halliburton and BP will be hiring independent experts to attempt to support their positions. I would presume that BP had done some prior evaluation to show that 6 spacers were sufficient.

    Since the well blew because of a bad cement plug (Halliburton's responsibility) and that the "supposedly destroyed" simulations showed that the configuration was determined to be safe, that could shift a lot of responsibility onto Halliburton. If the concreting configuration was correct, than what really caused the blowout. Installation process? Incorrect material specification? Incorrect material delivered? Inadequate scientific database for such a deep and high-pressure well?

    The story continues to unfold. This could be a game-changer for both companies.

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