Shares in oil major BP (LSE: BP) (NYSE: BP.US) topped 520p in June but now theyve fallen back to 473p -is it time to buy?
A double blow
Theres reason for the weakness, of course. Earnings from BPs Russian venture with Rosneft seem threatened by sanctions over the Ukraine affair, and the District Court for the Eastern District of Louisiana has declared BP grossly negligent with respect to the Gulf of Mexico accident four years ago.
The market is fretting that BPs cash flow from Russia will dwindle and that the gross-negligence ruling opens the door to US fines at the higher end of their Clean-Water-Act scale $4,300 per barrel of oil spilled, rather than $1,100 per barrel in the case of simple negligence. The difference between gross and simple negligence seems to be a matter of intent. However, BP is appealing the decision, arguing that its actions at the Macondo well did not constitute willful negligence at all the saga rumbles on.
Getting things in perspective
Commentators estimate that a gross-negligence assessment could end up costing BP $18 billion dollars in Clean-Water-Act fines instead of a previously assumed $4.6 billion or so. That sounds massive, but Im not losing sleep fretting on BPs behalf.
Macondo has been hanging over the firm for nearly half a decade now and the firm is still here, still trading, still paying its billions in Deepwater-Horizon related costs. Ever since the shares touched 300p in the wake of the disaster, Ive always argued that BPs massive cash-generating ability would combine with the staggered timing of costs to see the company through.
Its the same thing now. All thats changed is the possibility of a stretched period before BP once again has control of the income that currently leaks to America for Gulf-of-Mexico costs. Similarly, reduced cash flow from Russia seems like a set-back rather than game over. With the firms half-year results, BP revealed it earned $1,542 million from its Russian venture, just 14% of its earnings overall. Losing that for a while wont sink BP.
What now?
Buying share-price weakness has proved a good tactic with BP since 2010 the shares have always bounced back as the outlook improves and the firm works through its challenges. I think the shares look attractive right now, too.
I’m also keen on three companies poised to do well this year and beyond. The Motley Fools top team of share analysts reckons these three could be among the best picks on the London market today.
One company is a largely ignored small cap trading at an irresistible discount. There’s a play on technology focused high-tech defence applications, and the third share provides a fundamental vehicle to ride emerging-market potential.
Find out more by clicking here.
Kevin Godbold has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
