BP (NYSE:BP) reported its third-quarter earnings on Oct. 30. The results were better than expected. However, BP stock failed to move higher on the good news.
Through Oct. 31, BP PLC stock had delivered a total return of 4.8% in 2019. Excluding its dividend, BP stock price has risen 2% in 2019, versus a 22.3% gain for the S&P 500.
Bob Dudley Is Stepping Down as BP CEO
In early October, BP’s current CEO, Bob Dudley, 64, announced that he would step down as BP’s CEO on Feb. 4, 2020, after delivering the oil company’s Q4 results. After staying on as a consultant for a couple of months, the American-born executive will retire.
Designated to succeed Dudley as CEO is Bernard Looney, the 49-year-old head of BP’s upstream business.
While the new CEO will be a lot younger than his predecessor, it’s debatable if that is going to make a difference for the company best known for the Deepwater Horizon explosion which killed 11 people and cost BP more than $60 billion.
Over the past nine years, Dudley has worked hard to restore BP stock to its former glory. Unfortunately, from the viewpoint of the owners of BP stock, he hasn’t been too successful.
When Dudley took the top job in Oct. 2010, the BP stock price was around $38. Today, it’s just short of $39. BP plc stock has basically gone sideways for almost a decade. Perhaps that’s why shareholders voted down the 20% raise that the board had awarded to Dudley in 2016.
However, you shouldn’t feel sorry for Dudley. In the nine years that he’s been CEO, he’s received $118 million of cash and shares and could receive as much as 40 million British pounds if BP can meet specific performance criteria over the next three years.
Don’t get me wrong. Dudley’s been a terrific band aid for a company that just as quickly could have melted into nothing after the Gulf of Mexico disaster. In other words, he managed to keep the company together.
“During his tenure he has led the recovery from the Deepwater Horizon accident, rebuilt BP as a stronger, safer company and helped it re-earn its position as one of the leaders of the energy sector. This company — and indeed the whole industry — owes him a debt of gratitude,” BP Chairman Helge Lund said in a statement announcing Dudley’s retirement.
It Won’t Be Easy for the New CEO to Boost BP Stock Price
It will be hard for Looney to reignite BP stock, since the oil industry isn’t firing on all cylinders at the moment.
BP reported that its replacement cost profit had fallen 41% year-over-year to $2.25 billion, excluding certain items, in Q3. (According to Dow Jones, replacement cost profit is “a metric similar to the net income figure that U.S. oil companies report.”) I suppose the owners of BP stock can take solace in the fact the analysts, on average, were only expecting its adjusted profit to be$1.75 billion in Q3.
Although BP expects higher revenues in Q4, lower oil and gas prices remain significant headwinds for BP Plc stock. Dudley’s last quarterly report probably won’t be a home run; it’s likely to be a single or double at best.
The Outlook for BP Stock Under the New CEO
BP set a deadline to divest $10 billion in assets by the end of 2020. It appears that it will complete the task a year early, which should encourage the board to purchase more shares of BP stock. So far,in 2019, BP’s bought back 52 million of its shares.
All of BP’s stakeholders will be clamoring for more from Looney.
Shareholders will expect a higher share price; environmentalists will expect the CEO to invest in combating climate change so that BP isn’t one of the world’s biggest polluters; employees will seek assurances their jobs will be protected, and consumers will want to know that it’s doing everything it can to deliver clean energy.
The Bottom Line on BP Stock
That all adds up to an arduous task, one that, in some ways, is even more difficult than the one Dudley faced in 2010.
BP might be getting a younger CEO, but I doubt Looney’s relative youth is going to make a difference.
The BPs and Exxon Mobils (NYSE:XOM) of the world are facing tough challenges.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.