By Sarah Kent
LONDON--As BP PLC prepares to report on Tuesday its first
financial results since settling all federal and state claims over
the 2010 Gulf of Mexico spill, investors say they want to know how
the company plans to move forward from an event that defined its
corporate strategy for five years.
"We're entering into a period where the company needs to decide
what it's going to be," said Paul Mumford, an investment manager at
Cavendish Asset Management Ltd. "When the results come out, I would
hope the company would give a clear outline of where it expects to
move in the future."
But don't expect an abrupt about face, analysts said.
Once the world's biggest independent oil producer, BP has slid
down the rankings of oil giants in the wake of the Deepwater
Horizon blowout, which claimed 11 lives and spewed millions of
barrels of oil into the Gulf of Mexico. Over the past five years,
it has sold off more than $40 billion in assets to help pay for
legal and cleanup costs and carefully crafted its business around a
smaller set of high-value assets and a regime of cost cuts.
Given the steep drop in oil prices over the past 12 months, that
focus on A-grade projects and improving returns is likely to
remain, analysts said.
The company has already announced plans to trim costs and reduce
capital spending by around 20% and it is in the midst of a
two-year, $10 billion divestment plan. As prices fell over the past
year, BP has taken one of the most austere approaches among the big
oil companies. According to Wood Mackenzie, it has delayed approval
on six projects so far this year, three times the number of
projects delayed by Exxon and Shell.
Chief Executive Bob Dudley has been vocal in expressing his
cautious take on the downturn, warning that he expects oil prices
to remain "lower for longer."
"I wouldn't get ahead that they're going to roll the dice big. I
don't think that's Dudley's style," said Citigroup oil-and-gas
analyst Alastair Syme.
Still this month's $18.7 billion settlement gives the company
more breathing room and allows it to focus on the future. The
agreement settled BP's largest legal exposures, including penalties
for environmental damage under the Clean Water Act and claims from
Louisiana, Mississippi, Alabama, Texas and Florida.
Though hefty, BP's payments will be spread out over 18 years
leaving room to maneuver with the balance sheet.
"I think they really have a chance now to rise from the ashes,"
said BP investor Richard Hulf, manager of the Global Energy Fund at
Artemis Fund Managers.
Now could be the ideal time to stage a comeback, some investors
said. The oil-price slide could open up interesting acquisition
opportunities, though analysts say BP's ambitions are likely to be
far more modest than the $70 billion acquisition of BG Group by
Anglo-Dutch rival Royal Dutch Shell PLC. Still, assets in the U.S.
or Africa could prove attractive if the price is right.
"They've got a chance to completely reset the strategy," said
Jonathan Barber, a portfolio manager at Columbia Threadneedle
Investments, which has limited its investment in BP because of the
cloud cast by the Gulf of Mexico disaster.
Indeed, acquisitions could prove a necessity. BP's production
has shriveled since 2010 and last year it failed to find enough oil
to replace what it pumped. Its elite set of assets--though
carefully pruned and curated--isn't risk free either. A $7 billion
investment in Indian gas, made right after the Gulf of Mexico
disaster, has largely fallen flat. Last year, it restructured its
onshore business in the U.S., after struggling to profit from the
shale boom, and it remains exposed to significant political risk in
Russia through its stake in state-owned oil company OAO
Rosneft.
Moreover, the five years of belt-tightening that BP endured in
the wake of the Macondo blowout has left it better placed than many
of its peers to weather the current downturn in oil prices.
BP's balance sheet remains strong. At the end of the first
quarter, its net debt amounted to $25.1 billion, slightly lower
than a year earlier. Its ratio of net debt to equity, or gearing,
remains below pre-2010 levels. The ratings agency Standard &
Poor's revised its outlook for the company on Thursday from
negative to stable, praising its cost-reduction efforts and control
on spending.
It is a symbol of the effort BP has deployed to regain
shareholder confidence, despite a 40% drop in its stock-price since
the 2010 blowout. Though it suspended its dividend in the wake of
the disaster, it has raised it pretty consistently ever since
reinstating it at the beginning of 2011.
Write to Sarah Kent at sarah.kent@wsj.com
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