BP: which season for the sunflower?

Is it rather the winter or the summer of the four seasons of Vivaldi? Here different writers' sounds...

The 2010 strategy has been announced this Tuesday, the 2nd of March, and the sound is quite good for BP, which forecasts to boost its annual profits by £2bn over the next two or three years.

British Petroleum, founded in 1901 by William Know, is the world's largest private sector oil company by production volume. it is now present in more than 100 countries and employs more than 92,000 persons. The company operates through two main business segments; the first one is the upstream activities, which involve oil and natural gas exploration and fiels development and production. The second one is the midstream operations which involve the ownership and management of crude oil and natural gas pipelines, processing and export terminals. these two segments let BP being considered as one of the "most important instrument in the oil orchestra".


But this announcement has been received with some really different points of view. Indeed some are very preased to hear such "good notes from this Tenor". But for others this is perceived as overconfidence...


What are the BP's history and its situation at the end of 2009 which let the chief executive forecasting such news? Why are analysts so divided? With the actual economic crisi which affects the oil companies, and the uncertain future concerning the oil reserves, how can the CE be so sure about the long forecasts he just announced this week?


This is these uncertain future oil reserves and the long forecasts which motivated me to talk about this subject. In fact oil reserves are a really important issue for our future, and I do nor understand how oil companies can still hope to have a good future... Here is a new song for my blog...





BP's history in the recent past, the current situation and the CE's forecasts:


The company has been through difficult issues before 2007 when Mr. Browne was the CE. indeed the explosion of a refinery in Texas which killed 15 workers and some major oil spill in ALaska had damaged BP's wealth. In 2007 a new director has been put on the throne in order to "tune music with a good tonality". Tony Hayward re-managed the company with a recovery program in cutting 7,500 jobs and investing $2.4bn of management-instigated costs.

The new director has practiced its instrument with dexterity and is now a "maestro". The recovery program is nearly closed today. The operational availibility which had slumped because of the Texas' accident and other hurricanes at its US refineries has been restored, and the financial and operational performances have recovered relative to its peers. The Spleen is now behind the company.

Even though pre-tax profits fell by a half on the lower price and BP is only 55 per cent of the size of ExxonMobil (one of its competitors) by market capitalization, Tony Hayward just presented really good forecasts. He first wants to cut costs in boosting profitability by £2bn. He also plans to start 42 new projects (there were only 5 in 2009) and to focus on low carbon businesses. Finally he has the hope in raising the production by an average of 1-2 per cent a year between 2008 and 2015.

The tonality sounds good for the company, but how this news has been perceived through the newspapers?



Newspapers analysis:


The Daily Mail's article is the most positive of the fourth I will talk about. It announces the different measures in a really happy tone. The quotation of the CE chosen to support the author's point of view is quite clear: "The challenge and opportunity for us is that while our portfolio ranks among the best in the industry, our financial performances has yet fully reflect this". The article clearly sides with the CE's positive mind. For the Daily Mail, the Summer is here for BP:

http://www.youtube.com/watch?v=3dct8n7y2Y4&feature=related



The Daily Telegraph's article is quite close from the Daily Mail. It has the same tone in the measures' explanation and the same quotation of Tony Hayward. But it more focuses on the shareholders worries about the economic ciability of BP. It also explains the worries of analysts who are afraid that Shell has a stronger pipeline of projects. This article has a more ecological view with the problems of carbon dioxide emissions caused by the oil sands, but this stance on the matter can be explained by the author's specialization; indeed, Rowena Mason has an energy blog on the Telegraph's website. For the Daily Telegraph, it is rather the autumn, when the nature is dying slowly...:

http://www.youtube.com/watch?v=OgJYc9WE7xY



The article written by Ed Crooks in the Financial Times is the most neutral. The author first explains the measures taken by Tony Hayward in a "single-string tone". To Crooks' point of view the issues have been settled, the performance are at their best. Even if the company sold 10 refineries in the past years and is now selling marketing assets such as petrol stations in several African countries, he also explains that there are opportunities to raise profitability by bringing the US refineries up to the standard, of the bests, which are all in Europe.



This topic is also present in the Lex Column in the Financial Times. In this article Tony Hayward is quite adulated: "Hayward of BP has handled that role [alias CE]with distinction". Then BP is compared to his rival Shell which has invested in projects too, in order to give its superior production growth from 2011, and which has also cut costs which sounds liks good music today. The writer then analyses figures of the both companies, in order to show that they are both similar. For the Financial Times it is the beginning of the spring, with still some clouds in the sky, but with a good weather forecast:

http://www.youtube.com/watch?v=CSx6HrWV2XM&feature=PlayList&p=9A5469EC605BA2F0&index=14



The most negative article comes from The Guardian. In fact Tim Webb starts its articles sayig that BP "still has a long to go to improve its performance and cut costs". The quotation of Tony Hayward which he chose to illustrate his mind is quite strong: "Our financil performance still has some catching up to do. There is still a lot to be done". It is the opposite of the Daily Mail's tone. Then it is about the profit "of just $2.20 on each barrel, almost half last year's level and less than a quarter of the margins enjoyed in 2007é. It shows a really bad aspect of BP, and he finishes with the death blow: that come refineries could be closed. It is definitively the winter for the Guardian!:

http://www.youtube.com/watch?v=w8dq9NodWDY&feature=related





My opinion:


After the different positions, which is the real season for BP?

For my part I think that the Guardian is right in expressing some reservations. Indeed thet BP's finance is not as strong as it should be, when the CE forecasts such figures. I think that BP has always a long way to do and that some uncertainties should be taken into account...

But to an other side I really think that shareholders should not worry about the research in alternatives products such as the oil sands in Canada, because oil companies should invest in research before the end of the oil wells. Furthermore BP could be with this new product the future number 1 in new energy products thanks to this oil sand.

In addition it should be taken as good news given the current crisis and its context. Every news is good to keep!

For my answer on the first question, I would be on the summer's side for this song, I need some hope in the future energies!


The musical piece for the week, as you should have understood, is the "four seasons" of Vivaldi. There are the different points of views, optimistic or pessimistic, the uncertainty of the weather, here bound with the uncertainty of the energetic reserves...




sources:

"BP in drive to lift profits by $3bn by 2013", Daily Mail, 3rd of March 2010,

"BP targets $3bn more profit amid oil sands dissent", The Daily Telegraph, 3rd of March 2010,

"BP to cut costs and raise production", Financial Times, 3rd of March 2010,

"BP", Lex Column, Financial Times, 3rd of March 2010,

"BP will boost production, says Hayward", The Guardian, 3rd of March 2010,

BP, Datamonitor

http://www.bp.com/



2010 Strategy Presentation: Video:

http://www.gginternet1.co.uk/bp/ir/strategy2010/ggwebcast.asp?format=fl&bandwidth=hb