British Petroleum
01/26/2007
 At Fat Prophets, we have long been bullish on oil, and retain this view despite recent weakness. Given our expectation that oil will set new highs in 2007, remaining invested in the sector is in our view the wisest course of action. Industry heavyweight British Petroleum (BP) certainly fits the bill when it comes to gaining high quality exposure.
With proven reserves of over 18 billion barrels of oil equivalent (boe) and exploration activity on-going in more than two dozen countries, there can be little doubt that BP's fortunes will ebb and flow with the oil market. The story however, as anyone inspecting this month's financial headlines will have noticed, does not end there for BP.
Last week's "Baker" report on BP's US refinery operations would have made for awkward reading in the executive suite. The group's principle findings were that BP lacked effective process safety leadership, had not established safety as a core value in practice, did not optimise available information and ineffectively allocated resources in pursuit of safety.
The report also made suggestions for improving the group's safety process. In fact, since the March 2005 Texas City refinery explosion, many of the recommendations were already in the process of being implemented. That said, BP has already committed to studying the group's finding in detail and implementing further changes as necessary.
Implementing these changes and seeing them through will not be the job of Lord Browne. After an illustrious career, Lord Browne will be stepping aside at the end of July. Stepping into the breach and ensuring the remedial actions already set in motion continue will be Tony Hayward.
Despite coming from an exploration and production background, we believe Mr Hayward is an excellent choice. While refining operations have grabbed all the attention of late, increasing production is also an issue which BP must grapple with. Mr Hayward's appointment leads us to believe that it will remain a focus.
Maintaining and growing production is vital to the group's outlook. In this regard we take great encouragement from BP's healthy pipeline. There are 16 major projects under development between now and 2009, with a further 11 in the appraisal stage. Taking these from the drawing board to fruition will no doubt be a challenge for BP and its new Chief Executive Tony Hayward.
There is no question that 2006 was a testing year for BP despite record oil prices. As we enter 2007, oil markets have been less supportive and reports on operations have been uncharacteristically critical. However, we believe that energy prices will retrace new highs later this year. We are also confident that actions taken now to address previous operational pitfalls at BP will be successful. As such we are optimistic regarding BP's prospects in the year ahead.
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