BP Plc
BP Plc
Political challenges
If any boardroom was looking forward to closing the chapter on 2010, it was that of BP Plc (LSE, BP). However no sooner had 2011 got underway than BP shareholders were provided a jolt by the news that the Trans Alaska Oil Pipeline - which is operated by a joint venture in which BP is the majority stakeholder - was shut down after the discovery of an oil leak. The latest spill however was not as dramatic as the headlines and, after an initial scare, the BP share price recovery has resumed as the market digests the group’s tie up with Russian giant, Rosneft.
Despite the White House announcing its intention to sue BP in relation to the Gulf of Mexico spill in mid December, BP shares finished 2010 with a flourish. Investors have paid more attention to the fact that the underlying business performance is strong, asset sales are going well and BP is not the only the company which the White House has in its sights.
Indeed a recent National Commission report on the spill highlighted the shortcomings of Transocean, Halliburton, and the respective regulators, as well those of BP. From the markets viewpoint, the report findings have reduced the likelihood of BP being dragged into a costly gross negligence case and as such investor sentiment
Whilst the Trans Alaska situation will soon be forgotten, the fallout from the Gulf of Mexico will continue for some time to come. Interestingly enough it was recently revealed that crisis almost paved the way for Royal Dutch Shell to launch a takeover bid for BP. Like many investors Shell was apparently discouraged by the potentially uncapped legal liabilities that BP faced. But the issue raises the question: is today’s BP a potential target?
Indeed there are many reasons for such speculation. There is a lot more clarity regarding Gulf of Mexico spill costs today than there was when BP’s share price was freefalling towards £3. Gross negligence seems less likely and recent reports suggest that the US$20 billion Oil Spill Trust is more than enough to cover claims of economic losses.
Whether politicians would allow a deal is another issue. A mega merger between Shell and BP would boost shareholder value but it would also likely mean lots of cost saving job cuts which in the current climate of high unemployment would not be well received by policy makers.
As a standalone entity in its current form, BP is developing projects at a fair clip and investors seem content to stay the course. The group’s development of the Rumaila oilfield in Irag has gone better than expected and investment costs are now being recovered. The recently announced partnership with Rosneft to develop three offshore blocks in the Kara Sea in the Arctic may represent uncharted waters however the potential for profit is high. Fourth quarter results are due out shortly and should they follow on from the third quarter, shareholders will be looking forward to a better year ahead.
This report was produced by Senior Research Analyst, Aamer Nawid.
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