BP Plc. 1QFY15 earnings preview: decreasing oil prices to balance higher production

BP Plc. is scheduled to report its first quarter of fiscal year 2015 earnings result on Tuesday April 28. It is expected that falling crude oil prices will offset the higher production level of the company.

BP As 5th

BP Plc. is all set to release its first quarter earnings result on Tuesday April 28. Forbes expects the declining crude oil prices to impact considerably on the earnings growth of the company. On an average the prices of crude oil has gone down by over 50 % during the first quarter of the current year. This is most likely to end in less operating margins on company’s sales of crude oil. However, greater volume of production due to the contribution from projects started lately, and improved entitlement because of declining oil prices, together with BP’S enhanced potential to translate larger amount of oil into refined goods are likely to somehow offset the effect of lower prices. Analysts will be seeking for an update during the earnings release about company’s operating strategy to deal with the lower price environment and current legal problems linked with the 2010 deep water oil spill took place at Gulf of Mexico.

Forbes currently has $54 of stock price target for the oil and gas company that is nearly 25% over its market price at the moment.

BP has transformed a lot since 2010 oil spill incident mainly because of company’s divestment with the aim to raise money to pay the charges of oil spill.  By the end of 2014, BP has successfully completed $31 billion of asset divestment. These assets mainly include pipelines, upstream installations, wells, but the company accomplished to retain up to 90% of its proven reserves. This has caused a sharp decrease in company’s overall production rate since 2010.  BP’s daily production of hydrocarbon plunged by 25% in the last four years and reached 2,143 thousand barrels of oil per day in 2014.

According to Forbes, the London based company’s first quarter production is most likely to surge due to more rights from projects which are under production sharing agreements (PSA). This is a contract by which an oil company is abides the cost of exploration and risks attached to it, production and development. If the exploration went successful, the company gets entitlements to variable volume of hydrocarbons. BP Plc. generates nearly one third of its hydrocarbon production from this agreement, and it net cash profit are hence comparatively less vulnerable to the instability in prices of crude oil.

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