Is BP plc (ADR) (BP) Recovering?

Shares of BP plc (ADR) (NYSE:BP) haven’t perform well during the year. The 2010 oil spill kept the company’s stock from rising. The negative PR the company endured also didn’t help BP’s stock to recover. Is this company out of woods? Has done worse than other oil companies 2012? Let’s examine the recent developments related to British Petroleum.

The company’s credit default swap (five years, in US dollar) has declined in recent years: it has decreased from nearly 160 back in September 2011 to nearly 71 as of last week. Moving even further back, the company’s CDS reached 630 basis points back in mid-2010. The current price of 71 means the annual premium is $71 thousand in case of a default of $10 million of debt within the next five years. The sharp fall in the CDS is another indication for the company’s slow recovery and regaining the confidence of both bondholders and shareholders in this company’s financial stability.

The chart below presents the developments of the 5 year CDS price in the past few years (weekly prices).

One of the reasons for the decline in the CDS price is the company’s drop in uncertainty vis-à-vis its oil spill cost. Moreover, BP was able to raise $38 billion from the $42.2 billion the company decided to allocate for funding the cost and fines of the 2010 oil spill. But not all is well, the company still faces the civil trial of the states that could result in a higher than planed compensation. The suing States include Louisiana, Alabama, Mississippi and Florida. Some analysts speculate these States’ will demand for an additional $34 billion for economic and property damages. For now, these numbers aren’t substantiated but are likely to impede the growth of BP’s stock; as the trial will progress it will become clearer if there is any reason for BP to start selling additional assets to cover additional cost for the oil spill.

BP’s revenues inched down by 0.7% during 2012 (year-over-year). But BP wasn’t the only company that didn’t have growth in revenues in 2012. Other leading oil and gas companies including Exxon Mobil Corporation (NYSE:XOM) and Royal Dutch Shell plc (ADR) (NYSE:RDS.A) have also had a no-growth year: Exxon’s revenues also declined by 0.8% during 2012 and Shell’s revenues fell by 0.6%. BP’s operating profit, on the other hand, took a beating and declined from 10.3% in 2011 to 5.1% in 2012. After controlling for goodwill provision and other accounting provisions the company’s operating profit would have reached 6.8%. This a much lower rate than its top competitors: Exxon’s profitability was 16.3% in 2012 and Shell’s was 11%. So even though BP’s revenues didn’t grow in 2012, other leading oil and gas companies also didn’t record any growth in revenues.