This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

BP Spinoff Case Overstated

Argus Research's Weiss added that it's logical to make the case that BP's refining and marketing business is large enough to be viable and attractive as a stand-alone stock play, but the financial bang that BP could see in a spinoff might not be as exciting as investors hope. On a revenue basis, refining was four times exploration and production for BP in the first quarter, however, on an earnings basis, E&P was four times greater than refining. In the fourth quarter 2010, E&P earnings were eight times refining and marketing earnings.

"E&P is the profit driver, and if a unit represents a smaller portion of the market value, then the value accretion from a spinoff would be less," Weiss said.

The Argus Research analyst said a better spinoff case for BP can be made to break up the company geographically, such as an "Emerging BP" company. Yet even this would be one more form of financial engineering, Weiss said, because from a deepwater drilling standpoint West Africa, Brazil and the Gulf of Mexico are more alike in profile than different. Even so, an "Emerging BP" or "BP Americas" would deal more directly on the E&P side of the equation, where the value is in BP shares.

In the case of BP, the spinoff issue may be as much a function of the stock lagging peers as making strategic sense for BP. With the Macondo overhang still holding back BP, Wall Street can make the case that the quick payback is worth it, and investors who have watched BP shares get stuck in the mid-$40s will go along for the ride. The market has shown that it rewards companies for financial engineering, said Raymond James' Hudson.

"It's just financial engineering, but it's a reasonable topic to bring up," Weiss said. Between the failure of BP to close the deal with Rosneft to jointly explore the Arctic, the lack of clarity on when BP gets back to work in the Gulf of Mexico, and two specific refinery sales that BP has yet to close -- Carson City and Texas City -- there are few catalysts for BP shares short of financial engineering, and investors may be getting frustrated.

"People are upset because of Rosneft," Weiss said.

The U.S. government also announced last Friday that it would delay the release of the U.S. Coast Guard report on the BP oil spill, which was scheduled to be released this week. BP watchers had hoped the release of the report would be one more sign that the gross negligence argument against BP was weak, and that the report would spread the blame across multiple companies, giving BP shares a legal lift.
2 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
BP $31.42 -1.69%
COP $43.41 -3.70%
CVX $100.60 -0.71%
MRO $12.16 -4.90%
RDS.A $50.22 -2.47%


Chart of I:DJI
DOW 17,651.26 -99.65 -0.56%
S&P 500 2,051.12 -12.25 -0.59%
NASDAQ 4,725.6390 -37.5850 -0.79%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs