Monday, 2 May 2011

BP 2011 1st quarter results.

BP's 1st quarterly results came out last week to mixed reviews, but the majority seem to be negative (particularly with the Rosneft deal still in limbo).
As it stands:
- At £3.3bn, first quarter profits are down 2% on a year ago.
- At 3.6bn barrels of oil per day, output is down 11%

Most of this should have been expected as it comes down to falling production due to: the postponement of operations in the Gulf of Mexico (can't think why?); and the subsequent sell-off of £19bn of oil producing assets.

The asset sell-off has been applauded up to now as BP took positive steps towards financing the costs resulting from the Gulf disaster and realising good value for them.
BP also revealed that it has added a further £232m to the current cost set aside which now stands at £25bn. 
The company points out that this figure is down on that reported in previous quarters and also that should anything come from its lawsuit against Transocean then the cost could be wiped out or significantly reduced (see earlier post: BP: Gulf of Mexico Anniversary; lawsuits; and 1st quarter results due.).
Finally, the company has also revealed that it has re-applied for licenses to resume production in the Gulf later this year (but I wouldn't bet my house on it unless the US starts to run dry).

The "replacement cost profit" measure for BP also fell from £5.6bn to $5.5bn. The measure hinges on a measurement of inventory and the cost of finding new reserves to replace those sold, so to me, this again hinges on the sale of oil producing assets and the moratorium on Gulf of Mexico drilling.
Logic suggests that this figure, or range, may need to re-establish a new level following the fundamental changes to BP's portfolio of assets.

Away from the Gulf and the Arctic, and back to the traditional North Sea, BP has put forward the probable cost of the North Sea Oil windfall tax as being £413m (should it go ahead).
Of more immediate concern is the discovery of an unexploded mine from WWII during a routine inspection but removal will require the temporary shutdown of 40% of Britains total output, half a million barrels of crude per day.

The Rosneft deal, or lack of, continues to cloud BP's present though and with it, the doubts over the capabilities of Chairman and Chief Executive.
Looks quite a way to go then before the path of "new" BP becomes clear. But, in time the company will surely re-establish itself.
So it continues to be a recovery play for me but having at least restored the dividend the investment is paying its way with a prospective yield of 3.8%. 
Payable quarterly, the ex dividend date for the next payment of 7c per share, is the 11 May, with payment due on the 28 June.

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