Sunday, 26 June 2011

BP update: a little bit of everything.

BP @ 437.15p, +1.65p (+0.38%).

Well, much like the update on Rolls-Royce, the performance of BP since they were added to the Virtual Portfolio can only be described as a roller coaster. Purchased at 435p, the shares quickly rose to 509p in January but have since charted an unrelenting course back to the levels they were bought at.

BP Share price performance (Chart courtesy of Digitallook)
Unlike Rolls-Royce, I see this performance as being entirely down to its own making. In particular, to my mind, the Chairman and the Chief Executive have yet to demonstrate that they deserve their positions. Put another way, it would be interesting to know where BP might have been if the Rosneft deal had never even been considered.

Given the volatility of the oil price, and its link to economic recovery, its nowhere near conclusive but, BP's share price was 503.7p on the day prior to the announcement of the Rosneft tie-up. The CEO, Bob Dudley and the Chairman, Carl Henric Svanberg, have to take responsibility for this bumbled attempt at international deal making and the distress of the share price since then.

However, trying to move forward but still being held back by the past. BP did announce last week that a further agreement has been reached with another one its partners in the Gulf of Mexico operation. This time, oil services firm, Weatherford, has agreed to contribute £46.2 which will go directly into the compensation fund.

That was the good news, and I did say that this was a little bit of everything. Well the not so good news is that, another partner Transocean, continues to decline all responsibility opting instead to point the finger at BP. Transocean owned and operated the rig.

Finally, the don't know bit of news, the International Energy Agency has announced the release of an extra 60 million barrels of oil into the market in response to disruption caused by the Libyan crisis. Up until the end of May the crisis has removed 132 million barrels from the market.
Apparently this increases global oil supply by around 2.2% and the price of crude dropped accordingly:
- Brent crude @ $107.26, -$6.95
- US light crude @ $91.02, -$4.39

Might also be in response to OPEC's decision in June not to increase output despite IEA's call for an increase.

Seems more a statement then anything else.

Anyway, back to BP, it has certainly been testing and at times it would be easy to lose sight of off the objective which is to generate returns over the long term. 
Since adding BP to the Portfolio, the company has re-instated its dividend and yields around 4% payable quarterly. It has also made solid moves to finance the liabilities and compensation due to the Gulf of Mexico incident.
Due to its well publicised issues, the share price trades on just 5.8 times current year so has plenty of scope for "recovery" and, it remains highly geared to the oil price and economic recovery (obvious I know).
As a result, for the Income side of the Portfolio, I still see BP making a significant dividend contribution for many years to come and eventually, a recovery in its share price once credibility is restored and its assets and prospects are appreciated once again. BP strikes a £46m deal over Gulf oil disaster RIG OWNER SAYS BP IS AT FAULT FOR GULF SPILL Oil price drops on reserve sale

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