Tuesday, January 09, 2007

BP So Bad It Might Be Good

BP plc (NYSE:BP) attempted to manage market expectations by announcing production declines for the sixth straight quarter. The tales of woe are primarily attributed to start-up delays in the Gulf of Mexico and reduced crude flow from Prudhoe Bay Alaska. Complete year-end financials will be available Feb 6, 2007 but in the meantime management thought that they would deal with some of the bad news.

The Prudhoe Bay and Gulf of Mexico problems are all reasonably well known. The industry is experiencing production declines and problems. The price of oil and gas is down. When prices were much higher it was not the time to deliberately shut down facilities for maintenance that local managers almost certainly knew were needed. (Produce now fix later.) Refinery safety and corroded pipelines are legacy problems rooted in decisions made decades ago. Current management will need to fix the problem. They should be judged on how well they address the problem not that it manifested itself on their watch.

The stock is near its 52 week low. Petroleum pricing is weak. BP has been experiencing problems (which are fixable). The industry has been experiencing similar problems. The business media is all quite negative. BP management is releasing bad news (Get it all out I say). Most problems seem to have a implied cap ex solution. Many publicly quoted analysts (investment cheerleaders) are all quite disappointed with BP. Its all so bad that it might be very good.