As time continues to elapse since the 2010 Deepwater Horizon disaster, BP p.l.c. (BP) has become well positioned for a comeback. During the preceding two years the total liabilities for the massive oil spill and explosion aboard the Deepwater Horizon Rig that claimed the lives of 11 workers were unknown. This created an uncertainty that prevented many from investing in the company.
However, clarity for some investors will not come until costs for the oil spill are accurately estimated. Much debate remains to this day when attempting to calculate the total costs of the oil spill. Ever since the oil spill BP has shown a dedication to the restoration of the Gulf of Mexico and established a $20 billion trust to mitigate the effects of the oil spill. This also demonstrated BP's long term commitment to the region. On November 15th 2012 BP announced it will plead guilty to twelve felonies in federal court that include manslaughter and obstruction of Congress. This also included a record $4 billion in criminal penalties. Since the establishment of the trust and the determination of the criminal penalties, the costs of the oil spill are now taking shape. It is also apparent that these costs exceeded the $37 billion originally estimated for the spill and are now totaling about $42 billion.
BP reported a $17 billion loss during the quarter of the oil spill, but was profitable in the nine quarter thereafter to date. There is no indication that BP's profits will not continue to grow as the company puts the disaster behind itself. Third quarter earnings were reported on October 30th 2012 and showed a 40% increase in underlying earnings of $5.2 billion from the previous quarter. BP also raised its dividend 9c a share or 12.5%, which totaled 54c a share payable in the fourth quarter. This amounts to a yield of about 5.22%. BP has traded in a range of $36.25-$48.34 over the past year with the price currently at about $41.00. This also reflects a P/E ratio of about 7.5.
As uncertainties of the fiscal cliff loom investors are likely to take profits before year end which could mean that BP will get cheaper. However, this may be used as a buying opportunity going into 2013. Since BP will continue to have strong growth potential and a lucrative dividend it should be considered by the investor looking to enter the energy sector as a long-term buy. As time elapses and uncertainties fade, investors and institutions will return to BP causing share prices to rise. BP has also recently announced that it contracted to sell its 50% interest in TNK-BP to Rosneft ending a troubled partnership. BP has identified a 12 point plan for 2013, where it will seek to maximize profits amongst its best assets and rid itself of less profitable positions. As BP continues into the future streamlining its business to operate more efficiently and increase profits, it will become more attractive.
Global economic headwinds to that may be present in 2013 include slowing growth, high U.S. unemployment, sovereign debts of various European Countries, volatility of oil prices, and Federal Reserve action. All of these circumstances should be given consideration when determining the suitability of investing in the energy field.
Disclosure: I am long BP and short Call Options..