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Oil Earnings: How Does BP Stack Up Against Its Peers?

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The Gulf of Mexico disaster isn't the only thing hanging over BP.

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BP (BP) announced first-quarter results this week that fell short of analyst expectations, as the fallout from the 2010 disaster in the Gulf of Mexico still seems to be weighing on the company.

BP's replacement cost of operating profit, or RCOP, fell 13% in the first quarter to $4.8 billion, down from $5.5 billion in the same quarter of 2011. According to a survey of analysts by Bloomberg, the average estimate was for profit of $5 billion.

The company also reported a 6% drop in production in the quarter, due to a production decline in the Gulf of Mexico, which it says continues to be impacted by the 2010/2011 drilling moratorium. The company has also announced $23 billion worth of divestments since the start of 2010, including the sale of gas assets in Kansas in March and the sale of its Canadian natural gas liquids business in April.

For the second quarter, BP says it expects reported production to be lower and costs to be higher as a result of "normal seasonal turnaround activity."

Also ahead for BP, while the company agreed to resolve the "substantial majority of eligible private economic loss and medical claims stemming from the Deepwater Horizon accident and oil spill" earlier this year at an expected cost of $7.8 billion, a trial to address other unresolved claims relating to the 2010 disaster in the Gulf of Mexico reportedly still looms.

London-based stockbroker Hargreaves Lansdown notes that while BP, along with rivals Exxon (XOM) and Chevron (CVX), "failed to take advantage of higher oil prices during the period," the Gulf of Mexico accident also continues to hang over BP, with asset sales impacting production.

"Assets sales of over $3 billion have been confirmed or announced during 2012 to date, with production down some 6%," says Lansdown, while an inventory adjustment for its downstream division also impeded.

On a more positive note, Lansdown says BP's planned asset sales are now 60% complete, new exploration projects continue to be pursued, and costs for the Macondo accident have reduced. "Furthermore, like rivals, profitability for downstream operations improved compared to the prior quarter. Finally, despite ongoing legal uncertainty in relation to the Gulf of Mexico accident, an increase in the dividend appeared to reflect long term management confidence," says the group.

BP also noted in its results that it remains on track to start up six new major upstream projects in 2012, and expects to have eight rigs operating in the Gulf of Mexico before the end of the year.

At the same time, analysts at Nomura said in a note to clients, via Reuters, that "there is little in the numbers for the bulls."

"They reported clean RCOP in Q1 of $4.8 billion at the bottom end of the consensus range and an unchanged dividend of $.08 per share. The company missed our own forecasts in all 3 divisions. Investor satisfaction with company strategy will likely to lead to a break-up of the company," says Stuart Joyner, an analyst at Investec Securities in London.

So how do BP's results stack up against its competitors?

First-quarter results for BP's peers have been a mixed bag. Royal Dutch Shell (RDS-A), for example, reported last week that its adjusted earnings climbed 16% to $7.3 billion in the first quarter compared to Q1 2011. This was driven, says the company, by improved operating performance, increased upstream volumes, and strong oil prices.

Reporting late last week, Chevron's earnings reached $6.5 billion in Q1 2012, up from $6.2 billion in the same quarter last year, while the company increased its dividend by 11% to $.90 per share. Production, however, fell from 2.76 million barrels per day in Q1 2011 to 2.63 million barrels per day in Q1 2012.

Meanwhile, Exxon Mobil's announced last week that its earnings declined 11% in the first quarter, as a result of lower sales volumes. Production decreased 5% in Q1 2012, compared to the same quarter of 2011, says the company. At the same time, Exxon did also announce a 21% increase to its dividend.

So far in 2012, BP's share price is also lagging slightly behind those of its competitors, down 0.89% year to date (to May 2), while Exxon has climbed 1.7% in the same period. Chevron is up 0.6% this year. More broadly, the NYSE Arca Exchange Oil Index (^XOI) has also moved 0.6% higher so far in 2012.
No positions in stocks mentioned.
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