U.K. oil giant, BP Plc (BP) has invoked a force majeure on its Destin natural gas pipeline owing to operational problems that are hurting its offshore Gulf of Mexico (GoM) natural gas production.
The company revealed that Destin is experiencing operational disturbances after high levels of fluid were encountered at the liquid handling facility in the Pascagoula compressor station. Although, this has forced BP to curtail production at some of its platforms in the U.S. GoM, the extent of damage remains unclear owing to its policy of not disclosing particular field output details. The force majeure will debar Destin from providing transportation services or accepting nominations from its offshore receipt points.
The 255-mile (400-km) natural gas Destin pipeline –– with a capacity of up to 1.2 billion cubic feet a day of natural gas –– stretches from the central GoM to Mississippi. It also extends further north, where it links with nine major interstate U.S. gas pipelines. BP owns a 67% share of the Destin natural gas pipeline with Enbridge Inc. (ENB) holding the remaining 33%.
BP is one of the world's largest energy companies, providing customers fuel for transportation, energy for heat and light, retail services and petrochemical products. While the GoM tragedy has affected BP’s share performance, we see a gradual economic recovery, a focus on upstream exposures through the trimming of downstream operations and increases in oil prices as favorable for the company.
However, we remain concerned about BP’s third quarter production outlook due to operational disruptions in the GoM, acquisitions and divestments, and seasonal ramp-ups in turnaround activity. Again, we continue to see near-term headwinds with respect to weak U.S. refining margins and competitive disadvantages versus its European peers.
BP has a Zacks #3 Rank, which is equivalent to a Hold rating for a period of one to three months. We also maintain a Neutral rating on BP ADRs for the long term and expect it to perform in line with the broader market indices. ExxonMobil Corporation (XOM) and Total SA (TOT) are the major competitors of the company.
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