British Petroleum merged with Amoco in December 1998,becoming BP Amoco plc. In 2000, BP Amoco acquired Arco (Atlantic Richfield Co.)and Burmah Castrol plc. As part of the merger's move towards a new branding strategy the company changed its name to BP plc (BP) and adopted the tag line "Beyond Petroleum," which remains in use today.
Most Amoco stations in the United States were converted to BP's brand and corporate identity. In many states BP continued to sell Amoco branded gasoline even in service stations with the BP badge, because consumers rated Amoco the best petroleum brand by for 16 consecutive years.
In May 2008, when the Amoco name was mostly phased out in favor of "BP Gasoline with Invigorate", promoting BP's new additive, the highest grade of BP gasoline available in the United States was still called Amoco Ultimate.
BP probably wished it had kept the Amoco (AMerican Oil COmpany) name instead, because the ten-years-buried name of British Petroleum came back to life on the lips of U.S. President Barack Obama after the offshore drilling rig Deepwater Horizon exploded after a blowout on 20th April 2010, sinking two days later, killing 11 people.
This blowout in the Macondo Prospect field in the Gulf of Mexico resulted in a huge oil spill that contaminated thousands of square miles of fishing waters, beaches, and estuaries making it one of the worst environmental disasters in history.
Following the Deepwater Horizon Oil Spill, BP's stock fell by 52% in 50 days with the US ADR stock price falling from $60.57 on 20th April, 2010, to $29.20 on 9 June, its lowest level since August 1996.
The company's generous dividend was suspended and $20 billion was escrowed in a trust fund to pay compensation to those people whose livelihoods had been damaged or lost.
BP is a much smaller company than it was before the accident, having sold $30 billion--that's about 20 percent--of its assets to pay for costs and claims related to the accident. Its stock price is still well below where it was before the accident. Its current market capitalization is 121.04 billion.
Still, BP has not yet been able to put the spill behind it. The company faces possible criminal charges in the accident, billions of dollars in pollution fines, and claims from people and businesses that have rejected settlements from the $20 billion claims fund set up by the company.
A comprehensive trial to resolve claims involving BP, drilling partners Transocean Ltd and Halliburton Co , federal and state governments, private plaintiffs and others had been scheduled for February 27th, 2012, but has been rescheduled two times and is now set for January 14th, 2013.
Whether this trial will ever take place is a moot point and probably depends on politics more than law. If the Obama administration wants to announce a successful negotiated settlement prior to the November general election, one assumes that it will make that happen.
The settlement could be sizeable. BP previously took a roughly $37.2 billion charge for the spill. The London-based company's potential liability for violating the federal Clean Water Act alone could reach $17.6 billion if it were found to have acted with gross negligence. At issue are two points:
1. Was there criminal negligence?
2. How much oil was actually spilled?
Since neither question can be answered with any degree of precision, there seems to be plenty of room for negotiation as neither side would want to run the risk of losing in court.
The company's profits average about $6 billion per quarter. At the current stock price the dividend is 5.03% and represents an 18.37% payout, and clearly has scope to be increased once the legal issues are resolved.
Chart courtesy of bp.com
With the recent dip in the price of the stock the P/E ratio is 5.
The dividend chart shown here will bring no joy to the hearts of the community of dividend growth investors, but it should be noted that the current dividend, now 5.03% is only half of the dividend prior to the Macondo disaster and that even if only 75% of the original dividend is restored within a couple of years, that would represent a 7.5% dividend on stock bought at today's price, which is now close to the book value of $37.34 per ADR.
Compare these numbers to Exxon (XOM) with a P/E of 9.88, similar earnings per share to BP, but just over half the dividend yield. Or how about Chevron (CVX) which has a P/E of 7.41 and trades at 1.5 times book value? And then look at Marathon (MRO) with a P/E of 10.56--again double that of BP--even though it too has fallen on hard times over the last three months.
BP's institutional ownership at 11.83% is much lower than the other big oilers. Certainly when the driller hit bedrock at $29.20 back in 2010, that step into the abyss below $30 was in no small part due to the announcement of the dividend suspension, which forced dividend funds to dump the stock in very short order so as to remain in compliance with their charters.
It could be that some of that institutional money has yet to return due to uncertainty over legal issues. Fund managers do try hard to avoid unquantifiable downside factors.
In spite of uncertainty over compensation charges and fines, European uncertainty, and falling oil prices, can BP stock really go lower than the $29.20 it hit while the oil was gushing a mile below the waters of the Gulf of Mexico, the dividend cancellation was announced, and even bankruptcy was not out of the question? I think not.
If you buy 100 shares of the stock and sell 1 2013 $35 call and 1 $35 put, you could be in for about $30, and if called away for $35 you would have a nice 15% return plus the dividend, or if additional is stock is put to you, then you are into 200 shares for an average of $32.50, which looks like a deal to me.
Disclosure: I am long BP.