Rid us of this drugs nightmare
A: The giant oil company, formed by the merger of British Petroleum Co. and Amoco Corp. in 1998, has set the bar high with production growth targets that exceed those of its competitors.
It has an impressive portfolio of deep-water oil and gas projects and in liquefied natural gas, while its chemical operations are especially strong in Asia. A consistent performer, it hasn’t had an unprofitable year in the past decade, and its disclosure of financial information has been admirable.
Despite the London-based company’s positives, the entire oil industry’s dramatic earnings growth is slowing down, and BP finds itself dealing with its own particular set of issues.
BP (BP) shares are down 6 percent this year following gains of 4 percent last year, 10 percent in 2005 and 18 percent in 2004. Oil spills in Alaska and allegations of improper energy trading, which it denies, have been concerns. It also derives more of its production from Russia than any other major oil company, an added political risk.
Most recently, an independent panel chaired by former Secretary of State James Baker III found that its US operations had “significant” safety problems at five refineries. The 374-page report, commissioned after an explosion at BP’s Texas City, Texas, refinery killed 15 workers and injured many others, determined that effective safety leadership had not been provided. Federal regulators have similarly been critical.
BP has settled several lawsuits and set aside $400 million to resolve legal disputes from that explosion. The total cost, including repairs and lost profits, is estimated to be about $2 billion.
Amid these issues, the analyst consensus rating on BP stock is currently “hold,” according to Thomson Financial. That consists of five “strong buys,” one “buy,” 14 “holds” and one “underperform.”
Regarding management, chief executive John Browne, who boldly built the company into a global powerhouse during a decade that included the Amoco merger, is stepping down from his position this summer, one-and-a-half years ahead of schedule. He said the safety problems were his responsibility.
Tony Hayward, head of BP’s exploration and production unit, will replace him. He is moving quickly to improve safety, including allowing an outside body to monitor safety for five years.
BP earnings are expected to decline nearly 2 percent in 2007. The three-year annualised growth rate forecast is for a 14 percent gain.
(Andrew Leckey answers questions only through the column. Address inquiries to at andrewinv[AT]aol.com.)
