BP's Q2 a Mess; Outlook Still Very Uncertain

Morningstar analyst Stephen Simko explains what went wrong for BP in the second quarter

Stephen Simko, CFA 1 August, 2012 | 10:31AM
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Shares in the oil giant BP (BP.) suffered sharp losses on Tuesday after the company reported lacklustre results in the second quarter of 2012. Morningstar analyst Stephen Simko explains what went wrong for BP in his latest research note:

"BP reported messy second-quarter results, which included a $1.4 billion reported loss and $5 billion of impairments (related to its shale gas assets, US refineries, and a postponed upstream project in Alaska). These figures overstate the problems, particularly as the underlying performance of its downstream segment excluding impairment charges was sound ($1.1 billion adjusted profit before taxes, up $200 million from the first quarter).

"But BP's upstream results were indeed disappointing, as adjusted profits before taxes were $4.4 billion, way off the $6.3 billion generated both last quarter and in the year-ago period. There were a few reasons for this miss. Production was down by more than 80,000 barrels per day in the Gulf of Mexico compared to the first quarter due to maintenance and workovers. Also, Russian oil realizations fell hard, which caused TNK-BP's profits to tumble. Finally weak North American natural gas prices materially pressured margins there. Although this may turn out to be BP's trough quarter of 2012, this demonstrates that operationally BP remains a significant work-in-progress. We believe there is a good chance the company won't be truly turning the corner for at least another year.

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About Author

Stephen Simko, CFA  is a senior stock analyst at Morningstar.

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