BP plc BP, one of the largest energy firms in the world, agreed to an $18.7 billion settlement of all federal and state claims related to the 2010 Gulf of Mexico (GoM) oil spill. This is touted as the worst spillage in the history of the U.S.
The explosion occurred in 2010, when Transocean Ltd’s RIG deepwater horizon semi-submersible mobile offshore drilling rig was working for BP in the Macondo Prospect, an oil field located off shore Louisiana in the GoM. BP was not able to control the oil spillage – that continued for several months. The estimated oil released – compiled by several media reports – was as high as 200 million gallons. The disaster also cost the lives of 11 workers.
Following the accident, BP was placed with significant liability by the United States. Originally, the company had estimated that it would have to $7.8 billion in compensation to those who were harmed by the oil spill.
BP provides its customers with fuel for transportation, energy for heat and light, retail services and petrochemical products.The company is offloading its non-core upstream properties while creating a portfolio with potentially higher growth from a smaller base.
However, BP’s capital expenditure guidance for 2015 is $20 billion, down 16% from the 2014 organic capex. The company’s 2015 production guidance also remains largely flat with 2014. The company announced divestitures of several non-core assets that comprise interests in many North Sea oil and gas fields and in its Yacheng gas field in the South China Sea. Thus, the forecasts raise concerns with respect to its performance in the coming years.
Moreover, BP projects a weaker refining environment for 2015. This is mainly due to narrowing crude differentials in the low crude price environment. Moreover, the financial impact of refinery turnarounds is likely to remain the same as 2014.
With crude prices tumbling 50% since June, BP’s upstream division has not been value accretive. This has put the group’s profit margins under pressure.
BP currently carries a Zacks Rank #2 (Buy). Investors interested in the oil and gas sector could also try out stocks like LRR Energy, L.P. LRE and Pembina Pipeline Corporation PBA. All these have a better Zacks Rank of 1 (Strong Buy).
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