Friday, January 28, 2011

BP plc (NYSE: BP): Q4 Earnings Preview 2010

BP plc (NYSE: BP) is scheduled to release fourth-quarter earnings before the market open on Tuesday, February 1, 2011. Analysts, on average, expect the company to report earnings of $1.66 per share on revenue of $68.29 billion.

BP p.l.c. provides fuel for transportation, energy for heat and light, retail services, and petrochemicals products. The Company operates in more than 80 countries, providing its customers with fuel for transportation, energy for heat and light, retail services and petrochemicals products.

In the preceding third quarter, the London, United Kingdom-based company's net income was  $1.8 billion in the third quarter, compared with a loss of $17 billion during the second quarter in the same year. The results reflect a pre-tax charge of $7.7 billion and $39.9 billion respectively related to the Gulf of Mexico oil spill. Adjusted replacement cost profit climbed 18% to $5.5 billion. Total revenues and other income increased 10% to $74.65 billion from $67.86 billion in the same quarter last year. Analysts, on average, expected the company to report a profit of $4.6 billion on revenue of $72.46 billion. 

For the fourth quarter of 2010, the company expects the usual seasonal decline in refining margins. Moreover, the supply and trading contribution is expected to remain weak in the fourth quarter due to continued lack of volatility in the market. BP’s refinery turnaround activities are expected to be higher in the fourth quarter than in the third.

The British oil giant has been rocked since the spill in the Gulf of Mexico, and its problems continued with a recent leak in Alaska. BP took a charge of $40 billion in the second and third quarters to account for costs of the spill. The company is obligated to pay $5 billion a year into the $20 billion fund for victims agreed on with President Barack Obama in June.BP is now working hard to rebuild its shattered reputation. The company has been divesting assets to cover costs linked to the Gulf of Mexico oil spill. According to BP's management, the total cost of the Gulf oil spill has reached $40 billion and the company aims to dispose assets worth $30 billion all over the globe by the end of 2011 to pay for it. The company’s asset disposal program, which is nearing completion, will help it overcome liquidity concerns. So far, BP has sold $22 billion of non-core assets  in Argentina, Colombia, Pakistan, the U.S. and Vietnam. BP interests in Algeria, Alaska’s Prudhoe Bay and Canadian pipelines may be next up on the block, taking the company close to its original goal. Raising funds will help BP to reduce its net debt level to $10–$15 billion by the end of 2011.

According to analysts, BP is likely to bring back a dividend payout and may pledge sales beyond the $30 billion target when it outlines strategy and announces full-year results on February 1. London-based BP suspended its $10 billion annual dividend for the first three quarters of last year, bowing to political pressure in the U.S. and the need to strengthen its balance sheet. 

Recently, BP unveiled a share-swap agreement with Russia's state-controlled OAO Rosneft  that allows it to jointly explore and develop parts of the Russian Arctic. BP said that it was swapping 5% of its own stock for a 9.5% stake in Rosneft. BP already is a key player in Russia’s energy market through its 50% interest in TNK-BP; the country represented a quarter of BP’s output in the third quarter. The deal with Rosneft will allow the two firms to jointly drill in the Arctic Ocean, as Rosneft controls three licenses that cover 125,000 square kilometers on the Russian Arctic ontinental shelf. The two companies have agreed to lock-up provisions for two years.

BP has also acquired stakes in deepwater blocks in the South China Sea over the past six months, as it steps up activity in frontier regions thought to be rich in oil and natural gas. 

Also in January, BP Plc won rights to drill for oil and natural gas in four deepwater exploration areas in Australia. The deal further entrenches BP in Australia, where it operates two refineries, part-owns  the North West Shelf liquefied natural gas project, and has agreed to pipe natural gas from several large discoveries to the A$43 billion dollar (US$42.4 billion) Gorgon liquefied natural gas project being built in Western Australia state.Such bold bets have helped fuel a recovery in BP's shares after the Gulf spill.

The company has also benefited from a rally in oil prices. Oil prices rose 12 percent in the fourth quarter, which likely contributed to sizable gains in fourth-quarter net income.Oil is trading above $90 in the last days. With the economic rebound showing signs of strengthening, oil may go even higher. Projections are that it will hit $100 again in 2011.

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