The oil price has tumbled since 2014, crashing from over $100 per barrel down to the current price of $49.03.
Major oil producers have all had to adapt to the new economic realities created by the price collapse, but BP (NYSE:BP,LSE:BP) is in an especially challenging position due to the Deepwater Horizon oil spill.
The company is still feeling the impact of heavy fines stemming from the 2010 spill in the Gulf of Mexico. It has spent over $2.3 billion on fine payments this quarter alone, and its share price has never fully recovered to its pre-spill level. For that reason, many investors are still wondering about the BP stock price before the Deepwater Horizon spill.
The spill’s impact
The Deepwater Horizon spill, considered the worst of its kind in US history, released an estimated 3.19 million barrels of oil before a leaking pipe was finally capped after 87 days. BP agreed to pay $18.7 billion in fines related to the spill back in 2015.
BP’s stock price was sitting at roughly $59 prior to the spill, and so far the company’s share price has fallen short of that mark; it stands at $36.16 currently. It has been relatively stable in recent times, having traded within a 52-week range of $32.50 to $38.68.
Not surprisingly, the spill coincided with one of the biggest drops for the BP stock price since 1978. The company’s share price lost 54 percent on the NYSE between April 20 and June 25, 2010, bouncing back slightly before the wellhead was capped on July 15, 2010. BP stock lost a similar amount in London over the same period.
Previously, the company had lost roughly 45 percent of its share price value in New York between May 23, 2008 and October 10, 2008 — that fall came during the global financial crisis.
The selloff in the wake of the Deepwater Horizon spill was also marked by the largest trading volumes in BP stock price history by a long shot. Volumes peaked at 735.76 million in New York on June 11, 2010, compared with daily averages of closer to 30 million. Check out the spike at the bottom left of the BP stock price chart below:
Chart via Google Finance.
The road to recovery
BP’s most recent efforts to move forward involve adapting to the new oil price environment after prices crashed in 2014. BP CEO Bob Dudley is looking to cut costs to reduce the company’s breakeven point. “If we can bring the cash balance down into the $30s it would make us a very healthy, profitable company,” Dudley said recently.
Along with reduced costs, an increase in credit rating and improved production paint a picture of recovery for the oil giant as it looks to keep up with its competitors. In fact, the BP stock price is about even year-to-date despite lower profits related to a canceled project in Angola. The bump has been attributed to increases in the company’s oil and gas projects and production in 2017.
Oil market opimism can still be found amongst investors despite a steady stream of bearish headlines. Andy Lipow of Lipow Oil Associates sees reductions in petroleum reserves and recovering demand as important indicators of a good market for the next six to 12 months. That said, Lipow also notes that the geopolitical risk from OPEC production and Venezuela’s political strife have already been priced into the market.
Price and sustainability concerns
All that being said, market watchers are still divided on BP’s outlook. Many are concerned about issues of oversupply and price volatility — especially as OPEC struggles to maintain a high compliance rate amongst its members in terms of production.
BP’s high dividend yield is also a point of discussion amongst investors and analysts. At 6.6 percent, the yield is significantly higher than average in the oil sector. BP’s debt accumulation and struggles with profitability have created doubts about the sustainability of such a high yield. Analysts like Neil Woodford don’t see these yields lasting. Woodford believes “[t]hese companies are liquidating themselves rather than facing up to the need for a dividend cut. The only thing that can save them from that eventuality is a return to sustainably higher oil prices — something that I think is very unlikely to happen.”
This is an updated version of an article originally published by the Investing News Network in 2016.
Don’t forget to follow us @INN_Resource for real-time updates!
Securities Disclosure: I, Sivansh Padhy, hold no direct investment interest in any of the companies mentioned in this article.