We reaffirmed our Neutral recommendation on
) on Sep 20, 2013. The company's strategy of offloading its
non-core upstream properties will prove beneficial over time
while creating a portfolio with stronger growth from a smaller
However, headwinds from a number of macro issues, which
include sovereign debt risks, defaults on sovereign credits and
changes in U.S. policies, are major concerns. BP carries a Zacks
Rank #3 (Hold).
The U.K. giant expects its deepwater segment to form an integral
part of its business goal as it is the largest leaseholder in the
Gulf of Mexico (GoM) region, with stakes in more than 700 leases.
In the deepwater GoM region, BP currently has seven rigs drilling
this year, up from five rigs in the recent past. Another rig is
expected to be added later in the year.
BP has a strong pipeline of projects and expects four additional
upstream ventures to commence by the end of 2013. Of these,
Angolan LNG and Atlantis North Expansion commenced operations in
the first half of 2013, while Australia-North Rankin phase 2 and
Azerbaijan-Chirag are on track to start production in the second
Six more project start-ups are expected by next year.
Altogether, BP has about 50 major assignments through the decade.
Eleven of these involve more than $10 billion in total cost.
During 2013, the company plans to drill 15-20 explorations wells,
up from 9 in 2012. The company has already completed 4 wells in
Brazil, North Sea and India, with 11 more exploration wells
underway in the GoM, Brazil, Angola, Egypt, Jordan, India and
Moreover, a large gas condensate discovery in the KG D6 block
of India, acquisition of new acreage in Norway, Brazil and China,
two awarded blocks in the Barents Sea, as well as farm-in to one
block in the South China Sea are expected to boost earnings going
forward. BP's upstream spending budget of $2.5-$3 billion in 2013
has also doubled in the last few years.
BP PLC (BP): Free Stock Analysis Report
DRIL-QUIP INC (DRQ): Free Stock Analysis
STONE ENERGY CP (SGY): Free Stock Analysis
CHINA PETRO&CHM (SNP): Free Stock Analysis
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However, BP's earnings and revenues decreased on an annualized
basis during the second quarter. Earnings in Upstream experienced
a decline due to lower liquids price realization and higher
costs. Total production also fell on an annualized basis mainly
due to field declines and divestments. Thus, the results raise
concerns with respect to its performance in the coming years.
Other Stocks to Consider
While we prefer to remain on the sidelines for Valero, Zacks
Ranked #1 (Strong Buy) stocks -
China Petroleum & Chemical Corp.
Stone Energy Corp.
) - could be good buying options for the short term.