BP Stock: Where Will It Trade in 2011?

(BP poll story updated for Algerian asset sale talks, Transocean records)
NEW YORK (TheStreet) -- Aren't you just kicking yourself for not buying BP (BP) back when shares of the integrated oil major slipped below $27 after the Gulf of Mexico oil spill? Sure, it might have seemed like the environmentalist's moral equivalent of investing in German industrial giants during World War II -- when the mild-mannered makers of toasters and coffee machines were churning out ammo and tanks for the Axis war machine -- but boy was that BP stock price low back in the wake of the worst oil spill in U.S. history.

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I mean, one had to know there was just a little bit of market paranoia sending BP shares to $26.75 at the end of June, when rumors of the oil company going bankrupt were greatly exaggerated. Granted, there was no end in sight to the oil spill, the top hat and original top kill were on the top of the scrap heap of oil spill history, and the bottom kill looked like a three-month project. Still, for a company with $50 billion or so in annual profits, a case had to be made for BP shares being a deepwater, deep-value steal, even as oil kept spewing into the Gulf of Mexico and Americans went so far as to shun BP gas stations and join Facebook groups created to simply hate the British oil company.

Indeed, last week represented both the best and worst in BP post-oil spill. BP shares hit their highest level last week since the oil spill crisis, at close to $45, and shortly thereafter, the U.S. government filed its first lawsuit against BP, claiming a wide range of environmental regulatory violations.

So which is it? Has the all clear been signaled for BP shares or is the government lawsuit the fist indicator of another leg down in BP shares?

The Justice Department lawsuit was well telegraphed, and even though BP shares ended last week with a small gain over the five trading sessions, BP shares did decline over the last two days of the week after the lawsuit was revealed. On Monday morning, BP shares opened up slightly.

Jefferies' London-based research group restarted coverage of BP at a hold last Wednesday, and its reasoning reflects the ongoing schizophrenic nature of BP shares. Jefferies stated that coverage was merited but that the ongoing risk of liabilities from the Macondo oil spill made it difficult to do more than recommend a hold. Certainly, that risk can't be sloughed off any time soon.

The U.S. government's first major legal move is just the opening salvo in what's likely to be a long legal oil spill battle, suing BP -- and several other companies involved in the oil spill -- in a New Orleans federal court, and asking a federal judge to waive the $75 million liability on damages which exists under the Oil Pollution Act. The other companies named in the suit include Transocean ( RIG) and Anadarko Petroleum ( APC).

There were several headlines last week highlighting the fall in BP's London-listed shares, and one headline saying BP investors were "spooked," but the more accurate headline might be that BP investors expected this day was coming all along. In fact, it had to come, and the fact that the government is asking the court to waive the $75 cap on oil spill liabilities is a non-event as far as BP is concerned, too, as it already agreed to not invoke this law in relation to its oil spill liabilities.

There's still another legal headline looming for BP, too, which may be much scarier for investors. The government may still file criminal charges against companies implicated in the oil spill, as occurred in the case of the Exxon Valdez.

BP completed another asset sale last week, too, shedding its exploration and production assets in Pakistan in a $775 million deal with United Energy Group Limited. The sale of assets in Pakistan is the latest in BP's plan, announced in July, to divest up to $30 billion of assets by the end of 2011, and pushes the total above the $21 billion in sales already announced by BP since the oil spill.

BP is also involved in ongoing negotiations with the Algerian government over BP's wishes to sell gas-producing fields as part of its global asset divestiture.

How much BP pays in the end, more so than how much BP is paid for its asset sales, is the unanswerable question. Last week, BP oil spill fund pay czar Kenneth Feinberg was pushing claimants to accept expedited payments from BP in exchange for agreeing to waive their right to sue the company separately. Individuals choosing this payment option receive $5,000, while businesses will receive $25,000 within two weeks of filing a claim, and are not required to provide more documentation for their claims. Some critics have called the "quick pay" option being offered by the government to oil spill claimants "extortion."

The debate over the oil spill claims, and the Jefferies upgrade to a hold -- with the reservation from the research firm that the oil spill liabilities are still a wild card -- raises the issue of how much better the world looks today for BP shares than it did when the shares were trading at $26.75.

It's not just the asset sale announced this week and the research ratings. In a more general sense, the ongoing oil-spill hearings and Presidential commission investigation have shown that the gross negligence claims being made by BP partners, such as Anadarko Petroleum ( APC) and Halliburton ( HAL), will be debated as part of a long and difficult court room battle.

BP is to blame, but seems to be far from alone as a bad actor in the oil spill, according to the ongoing revelations, the latest of which included the fact that a Halliburton worker on Deepwater Horizon went out to smoke a cigarette just as pressure in the well was reaching a breaking point. So the one-time "smoking gun" that envisioned BP ultimately going bankrupt, has now been complicated by smoke breaks, among other developments since the worst moments of the oil spill.

At the end of last week, the federal court overseeing the oil-spill case demanded that Transocean turn over internal records which the rig operator had been refusing to release.

As some analysts have contended all along, BP may be the only company so far to take a charge against earnings for the oil spill, but it won't be the last (read: Anadarko, which owns 25% of the well).

Amid all the developments since the Macondo well was capped in July and BP shares began a climb back to the $40 territory, it can't go unnoticed that oil prices have been testing the $90 per barrel level. While BP has become synonymous with another way to quantify the price of an oil barrel -- based on the formula for fines under the Clean Water Act -- the general bullishness on oil prices has lifted the entire sector.

Globally, the outlook for energy in 2011 is more bullish. GE announced last week its second big purchase of an oil services company this year, global deepwater player Wellstream, tapping the argument that the global slowdown in oil and gas exploration won't be a drag on the energy sector for much longer.

Also last week, Barclays Capital released a new estimate that global spending on oil and gas exploration and production would rise by 11% to $490 billion in 2011, led by increased spending in Latin America, the Middle East/North Africa and Southeast Asia.

Barclays estimates that outside North America specifically, E&P spending is seen increasing by 12% in 2011 to $363.3 billion, pushed by higher spending levels from the integrated oil majors.

Meanwhile, the oil service firms like Halliburton and Schlumberger ( SLB) are trading at or near 52-week high levels, as are Chevron ( CVX) and Exxon Mobil ( XOM). Halliburton, for one, hit another 52-week high on Tuesday.

Exxon is up 18% in the past three months, while BP shares have risen 15% during the same period.

So is BP merely benefiting from the general uplift in oil stocks, and given the oil spill liabilities, can't rise any higher? Or should BP be right back where it was before the Macondo well ruptured?

After all, BP was a $60 stock on the day before the oil spill crisis unfolded.

Anadarko Petroleum shares have rebounded by 50% since their oil spill low; rig operator Transocean ( RIG) shares have rebounded by 43%. Halliburton's Tuesday 52-week high equalled a 50% rise in share value since its oil spill low.

BP shares are slightly behind on the oil spill comeback trail, up roughly 40% from the $26.75 low water mark.

Meanwhile, the price of crude oil isn't just flirting with the $90 level; many oil industry experts are predicting that oil will easily top $100 in 2011.

So will 2010's biggest market villain be the comeback stock of the year in 2011? Will the sun shine on BP's global energy empire in 2011, or is BP just as likely to throttle investors with a larger-than-expected oil spill price tag, before all is said and done in the multi-year process of dealing with the disaster's aftermath?

Indeed, it all raises the simple investor question, especially for those who didn't buy BP at $26.75 and already cash out of that easy (and for a tree hugger, morally fraught) pay day: Where will BP shares trade in 2011? Take our poll below, to see what TheStreet predicts.

Where will BP shares trade by the end of 2011?

$40 or below
$40 to $50
$50 to $60
$60 or above

-- Written by Eric Rosenbaum from New York.

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