BP Needs Better PerformanceBP Needs Better Performance
By Stephen D. Simpson, CFA (TMFWildWeasel)
May 1, 2006
BP's (NYSE: BP) had a challenging stretch operationally, though you wouldn't know it from the stock. While ConocoPhillips (NYSE: COP) and Eni (NYSE: E) have outpaced it over the past year, BP is ahead of others like Chevron (NYSE: CVX) and ExxonMobil (NYSE: XOM). Just imagine what the stock could do, then, once management gets things moving in the right direction once again.
BP seemed to struggle in its first quarter. Revenue looked all right, up 21%, but profit performance lagged behind. The straight net profit number was down 15%, while the replacement-cost-basis net-income figure was down 4%. Even excluding non-operating items from the latter number, you've still got just 7% growth -- certainly not the level we've come to expect from Big Oil of late.
In the exploration and production business, the 5% replacement profit was fueled solely by higher price realizations -- production actually dipped slightly due to weather problems in Russia and ongoing issues with restarting production in the Gulf of Mexico. It seems like the big Thunder Horse platform is coming along, though, so hopefully second-quarter production figures will look stronger.
On the refinery side of things, there was good news and bad news. The good news was that profits rose 14%, and margins were up year over year. Unfortunately, throughput was down 19% (though the restart at Texas City will help) and margins fell about 17% from the fourth quarter.
I know it's tempting to abandon a stumbler, especially when there are other ideas in a still-hot sector. And if you like Apache (NYSE: APA) better than BP, I can't quarrel with you. That said, BP is a better company than its results suggest, and I expect better performance down the line. In my view, it's worth holding onto for a little while longer.