BP Gets the Green Light in the Gulf, On Track for Better 2011

April 4th, 2011 by Trefis Team
+6.92%
Upside
39.47
Market
42.20
Trefis
BP: BP logo
BP
BP

BP (NYSE:BP) may have a reason to smile after all. After a year of turmoil following the Deepwater Horizon oil spill, BP has been granted permission to resume drilling in the Gulf of Mexico. The permission was granted after BP pledged to adhere to strict safety standards in its operations. BP is the third largest of the six oil & gas ‘supermajors’ after Exxon Mobil (NYSE:XOM) and Royal Dutch Shell (NYSE:RDS.B). Its other competitors include Chesapeake (NYSE:CHK), Anadarko (NYSE:APC) and Chevron (NYSE:CVX).

We have a price estimate of $49.38 for BP stock. This price is at a premium of roughly 10% to the stock’s current market price.

Relevant Articles
  1. BP Stock Up 7% This Year, What’s Next?
  2. Flat Since The Beginning of 2023, Where is BP Stock Headed?
  3. What’s Happening With BP Stock?
  4. BP Stock Up 11% Over Last Month. What’s Next?
  5. BP Stock Up 8% Over Last Month. Will It Continue?
  6. Should A Benchmark Price Correction Weigh Heavily On BP Stock?

BP Has Navigated Some Recent Trouble…

BP’s woes began in April 2010, when an explosion in the BP-operated Deepwater Horizon drilling rig resulted in the world’s biggest accidental oil spill. [1] The spill continued for 3 months and caused almost 4.9 million barrels of oil to leak into the Gulf of Mexico. The ordeal cost BP about $40 billion, including cost of cleanup and compensation.

To add to that, an oil leak discovered in the Trans Alaska Pipeline forced the company to reduce oil production from its operations in Alaska by 95%. [2] BP’s operations in Alaska contributed approximately 400,000 barrels of oil daily. You can read more about this in our article, BP’s Alaskan Connection: Opportunity or Concern?

While current production has hit a snag, exploration activities have also been hindered as BP was forced to evacuate its personnel in Libya due to civil unrest. What Libya meant to BP can be better understood from our article, Unrest in Libya Could Jeopardize BP Exploration Deal. More recently, a tribunal blocked BP’s deal with Rosneft – which would have allowed the company to explore the Arctic region for oil.

… but the Company Sees the Light at the End of the Tunnel

BP can now resume its operations at 10 wells in the Gulf of Mexico region that had been shut-down since the oil spill last year. [3] The company cannot yet start drilling new wells, however.

With operations expected to restart in the next few weeks, BP looks poised to gain from the recent sharp rise in oil prices. The price of Brent crude is currently around $119 per barrel – the highest it has been since the economic recession. [4]

If BP’s revenue per barrel of crude oil increases to $90 in 2011, vs. our current estimate of just under $80, it would imply roughly 10% upside to our $49.38 price estimate for BP stock and a stock value of nearly $54. This scenario, we should note, assumes that currently projected gains in revenue per barrel in the out years (as illustrated in the chart above) continue beyond $90 in 2011.

See our full analysis and $49.38 price estimate for BP

Notes:
  1. BP leak the world’s worst accidental oil spill, The Telegraph, Aug 3 2010 [↩]
  2. BP to Cut Alaskan Oil Production, The Wall Street Journal, Jan 9 2011 [↩]
  3. BP cleared to return to the Gulf of Mexico, Daily Mail Online, April3 2011 [↩]
  4. Energy & Oil Prices, Bloomberg, April 3 2011 [↩]