We have upgraded our recommendation on U.K. oil giant
) to Neutral from Underperform. The company operates in three
segments: Exploration and Production, Refining and Marketing, and
Other Businesses and Corporate.
BP maintains a leadership position among the global offshore
drillers despite the oil spill in 2010. The company obtained 43 new
drilling leases in Gulf of Mexico (GoM) in June 2012. BP plans to
strengthen its Gulf operations with around four large production
hubs and is likely to employ eight oil rigs in the area by the end
of 2012. The company has major project ramp ups underway in
Atlantis and Mad dog, which will likely boost output when these
fields come online by third quarter 2012.
In 2012, BP expects organic capital expenditure to be around $22
billion. This bodes well for the company's future as it will be
beneficial for the expansion plans and help in increasing revenues.
The availability of gas in the Taurt North and Seth South
discoveries in the North El Burg Offshore Concession and the
winning of two deepwater exploration and production blocks in
Trinidad and Tobago are recent examples of organic growth.
Additionally, the company's strategy of offloading its non-core
upstream properties will prove beneficial over time while creating
a portfolio with potentially stronger growth from a smaller base.
BP expects deepwater segment to form an important component in
attaining its business strategy. During second quarter 2012, BP
commenced production at Galapagos in the GoM and Clochas-Mavacola
in Angola. The company intends to bring online another six projects
by 2012 end. BP expects final investment decisions in over 10 new
projects between 2012 and 2014. BP intends to complete exploring
wells in Angola, Brazil, the North Sea and Namibia in 2012.
However, we remain apprehensive following BP's weak second-quarter
performance. The company's earnings missed our expectation due to
weaker-than-expected results in Upstream, TNK-BP and Downstream
segments. Upstream and TNK-BP earnings were affected by lower
realizations, and lower contributions from lubricants and
petrochemicals operations hampered Downstream earnings.
BP also projected a lower production level for the year on a
year-over-year basis. The GoM spill in 2010 and the failed Russian
Arctic deal have undoubtedly weighed on BP shares.
BP, which recently disposed the Carson refinery in California to
), carries a Zacks #3 Rank (short-term Hold rating).
BP PLC (BP): Free Stock Analysis Report
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