What to Expect From BP plc's Upcoming Earnings

Integrated energy giant BP (NYSE: BP  ) is set to report fourth-quarter and full-year results on Tuesday, February 4. Considering the wild ride BP has taken its investors on over the past few years, it might be difficult to hazard a guess on what the company will reveal. Its results have been volatile since the 2010 oil spill due to ongoing legal expenses. While its full-year results will probably show familiar pressures on profits and growth, it's equally likely that 2013 was another year of steady recovery for BP.

Investors should keep expectations modest, in light of the many factors weighing on BP. The company still faces billions in upcoming legal payments, and its recent asset sales will keep a lid on growth potential. That being said, BP's recovery appears fully intact, and the road ahead for investors is paved with strong dividend payments.

'A more focused oil and gas company'
That's how BP describes itself in the post-spill era. In 2011, BP set in motion a 10-point plan for itself through 2014. In it, BP provided a series of steps that would be taken to ensure it got back to business-as-usual as quickly as possible. The plan also contained measures that acknowledged the reality it was in, which is one of continued financial pressure in light of its ongoing legal battles.

There's no denying the massive financial hole caused by the oil spill. BP has paid more than $40 billion so far in damages, with billions in additional penalties coming once its civil trial concludes. To prepare for this, BP has aggressively sold assets that it deems non-critical to future operations. And, BP is planning on a conservative capital expenditure budget.

Going forward, BP plans to divest approximately $2 billion-$3 billion per year to keep optimizing its portfolio toward only the most promising opportunities. In addition, BP is keeping a lid on future capital expenditures, since it simply cannot afford to waste money on unproductive exploratory missions. Through the end of the decade, BP aims to keep capital spending between $24 billion-$27 billion.

Integrated peer Chevron (NYSE: CVX  ) announced it would spend $39.8 billion on investments in the upcoming year. This represents a decline from 2013 spending levels, and management stated that 2013 will likely have been a peak year for investments. Chevron reiterated the familiar theme of investing in a disciplined fashion.

In the area of asset disposals, ConocoPhillips (NYSE: COP  ) was itself extremely active last year. Conoco sold off sizable stakes in its Algerian and Kashagan operations, as it sought to reduce its global geopolitical risk profile. In all, Conoco shed $12.4 billion worth of assets from the beginning of last year through the end of the third quarter.

As a result, it's clear BP's measures should not be held against it, as asset sales and constrained spending are indicative of the oil and gas industry as a whole. These are not BP-specific initiatives; rather, many of the integrated majors are taking similar steps to streamline their businesses and keep spending in check.

BP is an opportunity, assuming modest expectations
BP is set to provide its 2013 report on February 4. It's important for investors to keep their expectations in check. Huge growth simply isn't a realistic scenario given the fact that BP is still weighed down by legal expenses. In addition, BP is a much smaller company operationally than it used to be, so future production capacity is limited.

That being said, BP still has a lot to offer investors. BP is an industry leader in its core exploration and production activities, with several promising discoveries announced in recent quarters. In addition, it has increased its dividend payments several times since it was forced to suspend its payout after the 2010 oil spill. BP should be on the radar for investors, but only those with a long-term focus. Those looking for energy exposure, steady production growth, and a compelling near-5% dividend ought to give due consideration to BP.

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