BP Beats 1Q17 EPS View, Breakeven Oil Price Down to $55

BP oil rig - photo - May 2017London-based oil and gas company BP Plc (NYSE: BP), also referred to as British Petroleum, reported a swing to profit in the fiscal 2017 first-quarter, compared to a net loss in the prior year’s corresponding period. The quarterly results also exceeded the Street’s estimates. Following the results, the stock has so far appreciated by about 5% to close at $36.41. Considering the improved outlook for oil, following the Russia-Saudi Arabia deal, we anticipate the stock to remain bullish in the current quarter.

Higher production volumes and nearly a 60% y-o-y appreciation in prices enabled the company to post 1Q17 revenues of $56.39 billion, up 17 billion from $39.17 billion in 1Q16. Net profit in the quarter ended March 2017 was $1.45 billion, or $0.074 per share ($0.44 per ADS), compared with a net loss of $558 million, or $3.16 per share ($0.19 per ADS) in the year-ago quarter. Earnings of $0.06 per share on revenues of 49.98 billion were expected by the Wall Street analysts.

During Q1 2017, underlying replacement cost profit, which is regarded as the net income by the company, tripled to $1.510 billion or $0.077 per share ($0.46 per ADS), from $532 million, or $0.029 per share ($0.17 per ADS) in the similar period last year. The Reuters analysts’ estimates stood at $1.26 billion.

Upstream profit was $1.37 billion in the recent quarter, compared with a net loss of $747 million in the year-ago quarter. Downstream profit declined $71 million y-o-y to $1.74 billion. In the first-quarter 2017, profit from the stake in Rosneft was $99 million, up $33 million from $66 million in 1Q16.

The first quarter results were the best for BP, since 2015. In 2017, the company expects to take a charge of between $4.5 billion and $5.5 billion for the Gulf of Mexico oil spill that killed 11 workers. Excluding the charges for oil spill, BP recorded cash flow of $4.4 billion. The company also announced a quarterly dividend of 10 cents per share, which will be paid on June 23rd. BP also announced that it needs a price of $55 per barrel to break even. Earlier in February, the company had said that it needs $60 per barrel for breakeven. So, this announcement is a notable improvement.

The company has also announced plans to initiate eight projects in 2017, the highest number in a single year for an oil company. Through the projects, BP aims to increase production by 800,000 barrels per day by 2020. Thus, considering the steep rise in the underlying replacement profit, decrease in the breakeven price of oil, new project initiatives, and impressive cash flow, fundamentally, the stock is expected to be in an uptrend.

The stock is consolidating around 36, as shown in the historic price chart below. The stochasticRSI indicator is in the oversold region. That indicates a high probability of an uptrend in the share price.

BP - Technical Analysis - 30th May 2017

To gain from the uptrend, as a binary trader, we would be looking for a high or above option offered by a reputed binary broker. As the analysis is for a short-term, we will choose a date around June 7th as the contract expiry date. Finally, we prefer to enter when the stock of BP trades near $36 in the NYSE.