Daily Telegraph: You bet: BP faces another year of worries

EXTRACT: Another worry is TNK-BP, BP’s Russian joint venture, with increased concerns that Russia might try to buy out the indigenous joint-venture partners through state-controlled Gazprom – doing to BP what it did to Royal Dutch Shell with Sakhalin.

THE ARTICLE

By James Quinn
Last Updated: 12:33am GMT 13/01/2007

BP faces another year of worries

If 2006 was BP’s annus horribilis, how will things turn out for the oil major in 2007?

Lord Browne of Madingley will be gone by the end of July, leaving BP’s head of exploration and production, Tony Hayward, as the new man in charge. Mr Hayward will be hoping for a less eventful year after the string of safety scares and oil spillages of the past 12 months. One thing that is certain is that there will be no repeat of the boardroom spat — between Lord Browne and chairman Peter Sutherland — that so undermined confidence in management last year.

The extent of BP’s horrid 2006 was evident in the share price, with a fall from highs last May of 720p to 546½p on Friday. Of course, the price of oil has also been falling but it should be noted that a share price drop has not been the fate of all oil majors.

So what does 2007 hold? Unfortunately for Mr Hayward there will be more of the same. High on BP’s list of possible nightmares is a report due this month, by former US Secretary of State James Baker, into the 2005 Texas City refinery fire in which 15 people were killed and scores more were injured. It is unlikely to make pleasant bedtime reading. There are a number of other reports also due, including one on the Alaskan oil spillage.

Another worry is TNK-BP, BP’s Russian joint venture, with increased concerns that Russia might try to buy out the indigenous joint-venture partners through state-controlled Gazprom – doing to BP what it did to Royal Dutch Shell with Sakhalin.

But perhaps the largest issue is now resolved: succession. There is nothing stock markets love more than blood running down Threadneedle Street as heads roll. When Mr Hayward said last month that resolving BP’s top down culture and obsession with cost-cutting would “have to start from the top of the organisation”, he struck a chord. His appointment and may be just the fillip BP needs. Investors have been waiting in the wings to buy this stock, which should be expected to move to recovery mode. Many analysts believe BP is undervalued, but would not be persuaded to buy it until remedial action was taken against the existing management, despite Lord Browne’s innumerable achievements. The recovery may be slow, but patience could be well rewarded.

Going long on BP could present a real opportunity. City Index is offering a March spread of 546.7-550.2p. The situation is the same with the oil price, with the same firm offering a March spread of $54.14-$54.24 for Brent Crude, against about $53 a barrel last night. A rising oil price will only underpin BP’s shares further.

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