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BP Hurt by Weak Crude Price & Macondo Oil Spill Expenses

Zacks Equity Research

BP plc BP has lost 10.9% in the past six months and the struggle is likely to continue as crude prices remain weak. The oil spill incident of 2010 is also a drag on the stock.

In the past 30 days, the Zacks Consensus Estimate for 2019 earnings per share has been revised downward to $3.20 from $3.65. The Zacks Consensus Estimate for 2018 earnings per share has also witnessed negative estimate revisions from $3.58 to $3.51 over the same time frame.

Presently, the British energy giant carries a Zacks Rank #4 (Sell).

Factors Pulling the Stock Down

Oil Weakness to Continue

Through fourth-quarter 2018, the average monthly West Texas Intermediate (WTI) crude prices declined from $70.75 per barrel in October to $49.52 in December, per the U.S Energy Information Administration. Prices are unlikely to recover before May, when waivers of sanctions on Iranian oil imports issued by the United States to several countries are slated to expire. Since liquids are responsible for BP’s 50% production volumes, a weak oil pricing scenario is expected to continue to hurt the company’s upstream businesses.

Macondo Oil Spill Incident Still a Drag

Although BP has cleared a huge litigation expenses related to the spill, it had to divest some of its best operating properties. The asset sales might hinder BP’s cash generating opportunities.

Through the nine months of 2018, the integrated energy firm made a payment of $2.9 billion, after tax, associated with the oil spill incident in the Gulf of Mexico. For 2018, BP continues to expect total payment to be slightly higher than $3 billion.

Global Economic Slowdown May Hurt Downstream Unit

Slowing economic growth in the global economy is likely to hurt demand for chemicals and petroleum products of the integrated energy player.

Russian Sanctions Creates Uncertainty

The British energy firm has a 20% interest in Rosneft — an integrated energy giant in Russia. With sanctions against Moscow still in place and the country being responsible for 33.3% of production volumes of BP — per a published media report — the company’s operations are likely to get affected.

Stocks to Consider

Not all the stocks in the energy space are having a tough time. Investors can consider energy stocks like RGC Resources Inc. RGCO, TransCanada Corporation TRP and Golar LNG Partners LP GMLP, with a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

RGC Resources has an average positive earnings surprise of 87.6% for the past four quarters.

TransCanada will likely record earnings growth of 2% in 2019.

Golar LNG is expected to post earnings growth of 11.9% in 2019.

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