BP plc (ADR) (BP), Royal Dutch Shell plc (ADR) (RDS.A): What Makes This European Oil Major A Buy?

The European oil major, BP plc (ADR) (NYSE:BP) released its quarterly results that were a disappointment. The company’s income dropped significantly due to falling oil prices, a higher tax rate and lower income from Russia. Its stock has under performed while it continues to face legal challenges from the oil spill disaster. But BP plc (ADR) (NYSE:BP) pays out healthy dividends, has high quality assets and I believe it can be a good investment for those looking for long term growth.

Quarterly Results
BP plc (ADR) (NYSE:BP)’s adjusted net income dropped from $3.6 billion in last years second quarter to $2.7 billion this past quarter, which is significantly below the market’s expectations of $3.4 billion. This was attributed to lower oil prices, an unusually large underlying effective tax rate of 45%, as opposed to 35% the year before, and a drop in profits from Russia due to the Russian oil export duties and weakness in the Ruble.

Dividend and Buybacks
Although shares of European oil majors, such as BP plc (ADR) (NYSE:BP) and Royal Dutch Shell plc (ADR) (NYSE:RDS.A) have under performed as compared to the broader market and their American peers, they continue to reward shareholders through dividends and share buybacks. BP plc (ADR) (NYSE:BP) offers an attractive 5.2% yield while Royal Dutch Shell plc (ADR) (NYSE:RDS-A) gives more than 4%. BP plc (ADR) (NYSE:BP) is an attractive income play and continues to emphasize its commitment to its dividend and share buyback policy.

Traditionally, Royal Dutch Shell plc (ADR) (NYSE:RDS-A) has preferred the route of dividends to reward shareholders but lately, it has been increasing its pace of buybacks. In the last twelve months, Royal Dutch Shell plc (ADR) (NYSE:RDS-A) paid out more than $11 billion in dividends. So far in 2013, $3.2 billion in shares have been repurchased and the company is on pace to for a total of $4 to $5 billion in buybacks this year.

Strong Asset Portfolio
BP plc (ADR) (NYSE:BP)’s $38 billion divestment target has been achieved which will make the company more focused on its core assets. BP has an impressive asset portfolio and has operations spread across the globe. The business has been actively pursuing deep-water opportunities, which is evident in its operations at the Gulf of Mexico, Brazil and India.

At the Gulf of Mexico, BP has spudded the Gila well and will start operating an additional rig in the region by the end of the year . Here, BP has its crown jewel, the largest offshore platform in the world called Thunder Horse. By the end of 2013, BP will be operating a total of 8 rigs in the Gulf of Mexico .