The Spill Still Stings for BP plc (ADR) Stock Holders

BP - The Spill Still Stings for BP plc (ADR) Stock Holders

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Seven years is a long time. But for energy giant BP plc (ADR) (NYSE:BP) apparently, it’s not long enough. While things have started to go right for the energy stock, and BP has plenty of plans in place to win in the years ahead, an old foe continues to make itself known. It’s even affecting its latest earnings report.

With the ghosts of the Deepwater Horizon still plaguing its bottom line, you have to wonder if BP will ever fully recover from the spill’s effects. Considering the lower-for-longer oil environment, that may not be such a great thing for investors.

Another $4 Billion For BP

There was plenty of positives for BP in its latest earnings report. For one, BP still managed to eek out a profit — which was impressive considering the lower-oil-price environment during the second quarter.

For the past three months, the energy stock managed to make $553 million. And while that may seem modest when compared to rivals like Exxon (NYSE:XOM) or Royal Dutch Shell (NYSE:RDS.A), it’s a vast improvement over the $2.2 billion loss it realized for the same period a year earlier.

At the same time, BP managed to increase production during Q2 by 10% when looking at last year. Even BP’s cash flows managed to grow to more than $6.9 billion, while its breakeven point for production across its entire asset base decreased to an oil price of $47 a barrel.

All in all, BP reported a pretty decent quarter. Nothing really to see or say here. Except that Deepwater Horizon is still kicking BP’s butt.

Over the past seven years, BP has toiled through legal drama, major fines and clean-up fees — all adding up to more than $60 billion so far. And the sad thing is that BP isn’t done paying out costs related to the Deepwater Horizon disaster.

In fact, BP would have made more money this quarter if it hadn’t been forced to shell out roughly $4 billion in payments for the 2010 accident that resulted in the worst oil spill in history and the death of eleven workers abroad the rig.

And those hefty cash flows that BP now says “exceeded organic capital expenditure and dividends paid?” Reduce them by about $2 billion.

The Spill Issues Keep Coming For BP

The problem for BP is that it keeps signaling that it’s moving forward and finally getting its mojo back. However, the Deepwater Horizon is still lingering, and it doesn’t look like it’ll get any better anytime soon.

Remember, BP reached a $20 billion settlement in 2015 with federal and state authorities. Payment of that settlement is still on going. This year, BP will shell out more than $5.5 billion to cover that debt. But that still leaves a hefty balance.

And speaking of that balance, BP’s debt has exploded thanks to the spill costs. Net debt rose to $39.8 billion this quarter. That’s about $9 billion more than a year earlier. According to chief financial officer Brian Gilvary that was “primarily due to Gulf of Mexico payments.”

In the end, income still doesn’t cover spending at BP. That’s not okay in the slightest when you consider that the firm still has more spill-related issues to contend with.

Skip BP for Now

For investors, BP continues to be the red-headed step child of the super-majors. And while it does have some things to look forward to- its MLP spin-off or rekindled love for deepwater drilling — there just isn’t enough.

Especially when you are comparing it to the other giants. For example, RDS managed to generate just as much cash from its operations this quarter as it did when oil was $100 per barrel or Total’s (NYSE:TOT) nearly 14% jump in its profits.

The point is, everyone is and has already improved during this lower for longer oil environment and BP is still fighting its demons from the past. Will BP overcome those demons? Maybe. But there’s no sense waiting around to find out.

There’s plenty of other oil giants that offer a better value than shares of the firm right now. BP once again belongs on the back burner.

As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.

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