Well where on earth do I start?
BP has come in with$2.7bn, a long way short of consensus of $3.5bn and we were at the bottom of the range. The main culprits were; the weaker dollar, weaker oil prices, a higher tax rate- 45% up from 35%; Rosneft earnings well adrift as the rouble weakens and the effect of Russian oil export duty hits; forecast falls in refining margins as well as fuels income due to fall as well as petrochemical margins ‘remaining under pressure’.
Apart from that it was all fine……………except the Macondo charges which for the fishermen and local businesses went up again. Having gone up from $7.8bn to $8.2bn that figure is now a conservative $9.6bn +++ and won’t get any less even if they win their appeal, our estimate of $50bn+ has been in place for over a year vs co provision of $42bn.
The company continue to buy back shares at the rate of circa 5m shares a day, so far they have spent $2.4bn of the promised $8bn, this is the only thing propping up the shares at the moment and looks increasingly reckless as the US situation gets worse and worse. The market is expecting a big fine but maybe not the ultimate weapon of sanctions, imagine if BP were banned from owning or operating licences in the Gulf of Mexico or elsewhere?
Until the court case is over the potential upside on asset value is a waste of time, only then will BP become of investment grade, until then investors should realise that the shares are only where they are because the company is buying them and other investments in the sector offer greater certainty of operating results, a vastly better management and a better ability to sleep at night.
Overall a pretty desperate statement, the conference call at 2pm UK time will make grim listening.
More later, must dash.