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BP limping along

The oil giant will announce its first-half figures on 28 July, and the weak oil price is taking its toll on the profits. 

BP
Source: Bloomberg

The company has been struggling over the past five years. Major setbacks like the Gulf of Mexico disaster and the collapse in the price of oil at the back end of 2014 have kept the share price under the cosh. The oil giant is still suffering from depressed energy prices, and it revealed a 39% drop in profits for the first three months of 2015. As I previously stated, BP is relatively cushioned from weak oil prices as the downstream business offsets the losses incurred at the exploration operation. The price of oil bounced back in early 2015, but it has been drifting lower since the middle of the year which will still be an issue for BP.

The refinery business is suited to lower oil prices, and to tackle weak commodity markets the firm has been cutting back on production levels, reducing the number of staff and asset-stripping. BP sold off a North Sea pipeline for £324 million in April to beef up its cash reserves for legal costs in relation to the Gulf of Mexico accident. The firm has plans to spin-off $2 billion worth of assets within the year.

The oil giant will report its second-quarter figures on 28 July, and dealers are expecting revenue of $54.31 billion and adjusted net income of $1.69 billion. The first-quarter figures easily exceeded estimates, and revenue came in at $54.19 billion, and adjusted net income was $2.57 billion; analysts were anticipating $51.9 billion and $1.2 billion respectively. BP will reveal its full-year numbers in February 2016, and the market is anticipating revenue of $236 billion and adjusted net income of $7.4 billion. These forecasts represent a 33% drop in revenue and a 38% decline in adjusted net income.

Equity analysts are bullish on BP, and out of the 33 ratings, seven are buys, 20 are holds, and six are sells. The average target price is 456p, which is 14% above the current price. Investment banks are very bullish on Royal Dutch Shell, and out of the 18 recommendations, nine are buys, eight are holds and one is a sell. The average target price is £22.63, which is 26% above the current price.

BP’s share price has been trading lower since July 2014, and the bias points to further declines. The initial target will be 365p and if that mark is cleared then 300p will be the next level of support. A move back above 400p will be the resistance at 420p into play, and if that level is breeched the 445p level will be next upside target.

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