BP : Trading statement

8:09 a.m. Wed 05 Apr 2006

Storm damage is keeping down BP’s output, according to its latest trading statement. BP reported that production in the first quarter of 2006 is expected to be around 4.025m barrels of oil equivalent per day (mboed) compared to 4.090 mboed in the same period last year.

The company’s output was hit in the second half of last year by hurricanes Katrina and Rita. Production in the fourth quarter of last year was around 4.010 mboed. Production in the first quarter was also hit by lower output from its Russian unit, TNK-BP (0.99mboed against 1.027mboed in Q4) reflecting disposals and extremely cold weather in Q1.

Better overall prices should however ensure earnings growth, although fears of falling oil prices have caused some wobbles in the stock price recently.

While BP’s prospects over the medium term look sound, the failure of the share to outperform the market is a bit of a mystery. Despite strong results, BP has marginally underperformed the FTSE 100 index over the last year and is only slightly ahead over a two year period.

Trading at 673.68p, the share is on a prospective PE (2006 earnings) of 10.8x, at the lower end of the sector range.

BP, as a whole seems to be valued by the market at something less than the sum of its parts, meaning that a great deal of upside could exist if the company is broken up, something the management shows no sign of doing despite the disposal of its chemicals business last year.

Ordinarily, this would make BP an attractive takeover target but its sheer size; in terms of market capitalization it is the world’s second largest oil business, makes it a difficult target to attack.

The yield is a reasonable 3.3%