Good doesn't seem to be good enough for BP (NYSE:BP) this fourth quarter.
While revenue was up 22%, and replacement cost profits were up more than 26%, the bottom-line numbers missed the analyst targets, and it looks like the stock will be trading a bit lower.
There was good and bad news across the board. The upstream business saw fine price realizations (just like every other major oil company, from Chevron (NYSE:CVX) to ExxonMobil (NYSE:XOM) to Royal Dutch Shell (NYSE:RDS-B)), but production declined 2% from the year-ago level. While BP did a fine job of replacing its reserves (achieving 95% replacement by U.S. accounting standards), the aftermath of the Gulf Coast hurricanes hurt production and upstream profitability.
On the refining and marketing side, the company had lower refinery availability and missed the contributions from its Texas City facility (shuttered by a hurricane). While refining margins were up nicely on a year-over-year basis, they fell fairly significantly on a sequential basis. On a brighter note, the company hopes to start testing the Texas City refinery this quarter, with an eye toward getting it back up and running fully.
Has oil run its course? Who knows. The supply and inventory picture really isn't quite as bad as some people seem to think, but you can't ignore the idea that bad weather (hurricanes, a late cold snap, etc.) or bad behavior (terrorism, war, conflict with Iran) could hike the cost of oil once again.
That said, I'm no longer looking at major oil companies like BP through the lens of progressively higher oil prices. In fact, it would seem from the comments of BP's managers that oil is currently more expensive than they thought it would or should be. Of course, "expensive" is relative, isn't it? Oil at $40 per barrel might seem pretty cheap compared to today's price of $64, but it's quite a bit higher than just a few years ago.
Here's the good news on BP -- it has major new projects coming online, it's expecting to increase production (though it's revised the figures a bit lower), it has low finding and development costs, and it's keen to share cash flow with shareholders. If you want the possibility of dramatic growth, you should probably look at the likes of Occidental (NYSE:OXY), Ultra Petroleum (AMEX:UPL), or maybe OMV Aktiengesellschaft. But if you want a very solid, well-run, and shareholder-friendly major oil play, BP is not a bad pick at all.
For more Foolish thoughts on oil and energy:
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
