Last week UK-based British Petroleum Plc. (BP, Financial) signed a $12 billion energy pact with the Egypt government to produce 3 billion barrels of oil equivalent. The deal is aimed at rescuing Egypt out of its worst energy crisis of the decades. The country is experiencing constant blackouts as a result of rising energy consumption and decreasing production. This situation has turned Egypt into a net import from a net exporter of oil. The Egypt government is hoping to control the situation with its deal with British Petroleum. BP considers Egypt as one of the biggest consumers of oil in the middle-east region. The agreement will cover West Nile Delta project, exploration and resource appraisal activities, East Nile Delta operations and operations in the Gulf of Suez. Three days after signing the Egypt deal, BP announced a gas discovery in the East Nile Delta region which was expected to be the deepest well every drilled in the country.
Gulf of Mexico oil spill
The joy was short lived for BP as last week US government has indicated that it will be appealing against a federal court ruling in January which reduced potential penalty of nearly $4 billion levied on UK oil major in respect to the Gulf of Mexico oil spill case. In the earlier ruling BP escaped with a reduced penalty of $13.7 billion instead of $17.6 billion. A discrepancy in the quantity of oil spillage by the US government and the defendant BP led to the reduction in penalty. The government estimated 4.09 million barrels in the oil spill, whereas BP acknowledged spillage of 3.26 million barrels in the Gulf of Mexico. The company has already spent over $42 billion in clean-up process of approximately 810,000 barrels, fines and compensation to the victims of the tragedy.
Charged with cheating in the Ohio State, US
In the first week of March 2015, Ohio state officials filed a suit against BP claiming that the company had wrongfully collected over $33 million in state reimbursement to clean up storage tank leaks. The suit alleges that BP acquired the funds from the state by stating that it had no insurance for the leaks. The funds were paid by the state through the Petroleum Financial Assurance Funds which helps pay cleanup costs for storage tank owners who do not have an insurance cover or accept money from other sources. Ohio state officials alleged that BP had layers of insurance, yet it indulged in the unethical transaction of acquiring funds from the state as well as through insurance claim. The suit calls for refund of the money claimed through 2651 reimbursement claim and also puts an additional 905 claim applications amounting to $22,281,962.28 under scrutiny.
BP has been going through some really trying times in past few years. The company’s finances are hit by a slew of legal damage suits as well as the low oil prices.
Unfavourable global scenario
The oil prices have plummeted to all time low levels. According to BP’s CEO Bob Dudley, the oil prices have fallen sharply by 60% since June last year and have been causing a lot of distress on the company’s finances. The downward trend in price is expected to continue and has hit the oil companies and the oil producing nations of the world hard. The disparity in the demand and supply of oil has been fuelling the sharp drop in oil prices. BP has tried to minimize the strain caused by falling prices on its finances by adapting cost cutting and reshaping measures which included layoff of 200 staff and 100 contractors in January.
Stock performance
In the past one year, the stock has suffered badly due to the legal battles as well as the global oil price slump. A year back the stock was trading close to $48 and saw some upswing till July, when the stock price surpassed the $53 mark. Post then the stock has seen a steep decline, dropping to $35 level in December. It recovered slightly in the beginning of the year and reached close to $42 by first week of March 2015, only to drop further to $37.60 towards the end of Friday’s trading session. BP has been put under negative watch by Standard & Poor’s since December last year.
Conclusion
The stock has been struggling to maintain price levels. The impending legal issues have been plaguing the oil giant for quite some time. Additional $4 Billion in Gulf of Mexico Oil Spill damage as well as the refund of $33 Million demanded by Ohio State is going to further strain the company’s financial health. This spells trouble for the investors in form of flat or negative ROI. Hence it would be advised to ‘hold’ the stock till the company comes out of the legal tangles and the oil prices start recovering.
