BP Earnings Preview: Good Riddance to Q3

October 13th, 2011 by Trefis Team
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On the 25th of October, BP (NYSE:BP) will become the first major oil company to report earnings for Q3 2011. Earlier this week competitor Chevron (NYSE:CVX) had indicated that its Q3 results were expected to remain in-line with their Q2 figures. [1] According to our analysis, BP should not deliver any unexpected surprises in its latest release which will mark a rather forgettable quarter for the company as it lost out to Exxon Mobil (NYSE:XOM) in the Rosneft deal, faced embarrassing raids of its Russian office and had to contend with a couple of production outages in the Gulf of Mexico. Lower oil prices will be another factor that may pull down the company’s earnings.

We have a $55 price estimate for BP, which is a 40% premium to its current market price.

Click here for our full analysis of BP.

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Production may bottom out

Earlier this quarter BP officials had expressed hope that production will pick up by the end of 2011 while warning that Q3 output may still remain weak. (See: BP Places Bets on the Gulf of Mexico and India to Raise Output) The company’s production has suffered since the Macondo incident which resulted in its U.S. Gulf of Mexico output dropping from 400,000 bbl/day to 250,000 bbl/day. To add to its woes, BP has not been very successful in securing permits to drill new wells in the region since the moratorium was lifted and exploration resumed in the area. However the British oil major has expressed hope that it will be able to convince the U.S. government to issue it new licenses to drill in the prolific Thunder Horse and Atlantis fields located in the Gulf, where BP suffered a couple of production outages in this year’s hurricane season. (See: BP’s Stock Holds up Despite Russian Raids & Platform Closures)

The $7.2 billion deal in which BP purchased a 30% stake in the 21 Indian oil and gas blocks owned by Reliance marked the other important event for the company. BP will be using its expertise to raise the output levels in the KG D6 deepwater block and the efforts are expected to deliver results after two years.

Price drops may impact revenue

Oil prices have dropped from their peak levels in May on the back of the weakening global economy and recovering production from Libya. Lower prices will directly impact the revenue income for BP as a large portion of its revenue is generated from the sale of oil.

Beyond Q3

Earlier today, BP announced that it will invest $6.3 billion in the massive Clair field in the North Sea, which will be its fourth investment in the North Sea this year. [2] The company claimed that the new investments will help it sustain production levels of 200,000 to 250,000 bbls/day from the U.K. until 2030. BP will be partnering with Chevron, ConocoPhillips (NYSE:COP) and the Royal Dutch Shell (NYSE:RDS) to take the Clair Ridge project forward.

The company hopes that the new projects in the North Sea and other countries such as Angola and Brazil should come to stream in the next five years to help it catch up with competition.

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Notes:
  1. Chevron 3Q to be Sequentially Flat, Zacks [↩]
  2. BP to Invest £4 Billion in North Sea Oil, The Wall Street Journal [↩]