Weekly Oil & Gas Notes: BP, Petrobras and Anadarko

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Oil and gas stocks continued their decline last week, as benchmark crude oil prices trended lower on slowing demand growth and ample supplies. The growth in demand for crude oil has been slowing down recently due to moderating economic growth in emerging markets such as China and India and signs of a slower economic recovery in the Euro-zone. In China, the rate of growth in demand for petroleum products has fallen to almost half of what it was a year ago. As a result, the International Energy Agency (IEA) expects the growth in global oil demand this year to hit a 5-year low. It expects demand, which stood at around 91.7 million barrels per day last year, to increase by just around 0.74 million barrels per day this year. The price of front-month Brent crude oil futures contract on the ICE declined by around 4.4% last week and is currently trading at around $79/barrel. The NYSE Arca Oil & Gas Index (^XOI) also declined by around 2.4% last week.

Below, we provide an update on some of the key events that occurred last week related to the oil and gas companies we cover.

Setback For BP In Its Fight To Limit Oil Spill Expenses

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In a latest setback for BP Plc. (NYSE:BP) in its effort to curb costs associated with the 2010 Deepwater Horizon incident, a U.S. federal judge refused to overturn his own ruling that the company’s conduct was grossly negligent in the lead-up to the incident. The U.S. district judge, Carl Barbier, rejected BP’s call to either amend his September 4 ruling or hold a new trial on the issue. Geoff Morrell, the company spokesman said that the company disagrees with Barbier’s order, and will appeal his decision, which we believe could increase the London-based oil and gas giant’s total liabilities by as much as $14.5 billion. [1] (See: BP’s Oil Spill Liabilities Could Rise Sharply As The Court Finds It Grossly Negligent)

  • We currently have a $54/share price estimate for BP, which is around 30% above its current market price. The company’s share price decreased by around 2.7% last week.
  • We currently estimate BP’s 2014 diluted EPS to be at $4.16, compared to the consensus estimate of $4.26 reported by Reuters.

See Our Complete Analysis For BP

Petrobras’ Hydrocarbon Production Rises

Petrobras (NYSE:PBR) announced its October 2014 hydrocarbon production figures last week. The company’s total oil and gas production from Brazil increased to 2,579 thousand barrels of oil equivalent per day (MBOED), up more than 11.5% over last year. Its domestic crude oil production grew by 8.5% from 1,959.5 thousand barrels per day (MBD) last year to hit an all-time high of 2,126.4 MBD this year. Most of the increase in hydrocarbon production came from the ramp up of P-55 and P-62 platforms at the Roncador field and the P-58 platform at the Parque das Baleias (Whale Park) field. Both the fields are located in the offshore Campos Basin that holds more than two-thirds of the company’s total proved hydrocarbon reserves in Brazil. [2] Despite the impressive growth in crude oil production, Petrobras’ stock price declined sharply last week due to ongoing investigations into the multi billion-dollar laundering and bribery case. The company delayed the release of its third quarter earnings for a month amid allegations that kickbacks from its contractors were funnelled to politicians from the ruling party and its allies.

  • We currently have a $21/share price estimate for Petrobras, which is around 110% above its current market price. The company’s share price decreased by around 8.7% last week.
  • We currently estimate Petrobras’ 2014 diluted EPS to be at $2.1, compared to the consensus estimate of $1.55 reported by Reuters.

See Our Complete Analysis For Petrobras

Anadarko’s Settlement Receives Final Approval

Anadarko Corp.’s (NYSE:APC) $5.15 billion agreement to settle fraud claims arising from the company’s 2006 acquisition of Kerr-McGee crossed the final hurdle last week as it received an approval from a federal judge. The largest-ever environmental cleanup recovery signed by the U.S. Department of Justice resolved the lawsuit filed against Anadarko and its Kerr-McGee unit by Tronox’s creditors. Most of the settlement’s proceeds, about $4.5 billion, are earmarked for cleaning up some 2,000 sites in the U.S. contaminated by Kerr-McGee’s decades-old jet and rocket fuel manufacturing and uranium mining operations. The rest will pay for legal claims filed by people who got sick from the pollution. We believe that the settlement will help Anadarko increase its focus on unlocking greater value from its core activities of exploration and production of hydrocarbons. [3]

  • We currently have a $102/share price estimate for Anadarko, which is around 15% above its current market price. The company’s share price decreased by around 4.4% last week.
  • We currently estimate Anadarko’s 2014 GAAP diluted EPS to be at $5.54, compared to the consensus estimate of $4.95 reported by Reuters.

See Our Complete Analysis For Anadarko

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Notes:
  1. BP Loses Bid For New Trial Over Its Gulf Spill Negligence, dailyherald.com []
  2. Petrobras reaches its highest historical monthly oil production in Brazil, investidorpetrobras.com []
  3. Federal Judge Approves Anadarko Settlement Over Tronox, wsj.com []