NEW YORK ( TheStreet) - Big Oil stocks have been stuck in place to start 2012, with big earnings getting a big yawn from investors. BP ( BP - Get Report), though, is up 9% so far this year headed into its fourth quarter report on Tuesday, and the company isn't out of stock catalysts either.

Sometimes it's good to be the sector laggard, since the Macondo oil spill overhang has given BP room to rise unrelated to the larger narrative of global oil majors facing an uphill battle in growing production.

BP's peers have been shunned by the market this earnings season for typical reasons: Production coming up a little short of expectations, while the capital investment required to find new sources of oil goes higher. Weak refining margins haven't helped this quarter, either, and that's after refinery profits had been a major earnings tailwind last year.

Big Oil companies have already received plenty of credit from investors for high oil prices and the safety of dividends, too, so it seems the prospects for near-term upside has diminished.

There are two issues specifically related to the Macondo oil spill, though, where resolution from BP could help shares distinct from the sector outlook. One is financial and the other is legal. There also continues to be a locked-up catalyst in BP's delayed effort to sell U.S. refineries.

Rewarding shareholders
BP had to suspend its dividend in the oil spill aftermath and then brought it back at a lower rate. BP had been far and away the biggest dividend payer among the Big Oil stocks and, at a 3.6% forward yield currently, is still well above the rate paid by Exxon Mobil ( XOM), which is at 2%.

Some analysts are hoping that BP has on its mind some cash rewards for shareholders who have been patient through the oil spill years.

"I don't know if people have expectations, but I'm interested," said Raymond James analyst Stacy Hudson.

"I tend to think the view is toward raising the dividend," said Phil Weiss, analyst at Argus Research.

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Refinery sales
An issue tied up with any increased, shareholder reward, though, is BP's ongoing effort to sell two of its U.S. refineries, Texas City and Carson. It has not been a good market for refinery sales and it has already taken BP longer than originally thought to sell the two refiners.

Raymond James' Hudson added, "Selling a refinery in the U.S. is not too easy right now."

Valero ( VLO) is on record as being interested in Texas City but said on its recent earnings call that it can't talk about a deal given confidentiality agreements associated with bids. The company also remarked on a lack of any action in the bidding process.

"An increased dividend may come out in conjunction with the refinery sales," said Weiss of Argus Research.

A deal would "free up billions for BP," said Fadel Gheit, Oppenheimer & Co. energy analyst.

Gheit, though, believes it's wishful thinking to bet on an immediate dividend, given the refinery sales outlook and more specifically, his belief that it's not necessary right now. "There's no urgency. The dividend is plenty high," Gheit said.

For the Oppenheimer analyst, the longer-term upside is the reason to buy BP. Gheit has a $55 price target on BP and cited three reasons why the stock should rise, though over a year to 18 months, as opposed to on earnings specifically:
  • BP has a high weighting to oil in its production mix
  • BP already has a higher dividend yield than peers
  • BP is still the largest player in the Gulf of Mexico and its new projects have high profit potential that isn't being reflected in shares
  • The oil spill price tag continues to be the fear factor for BP, though, and a landmark date in the oil spill legal process is coming up.

    The Feb. 27 court date
    In recent weeks, the judge handling the BP oil spill case in New Orleans issued two rulings that were favorable for Halliburton ( HAL) and Transocean ( RIG) in terms of honoring indemnity these companies have from contracts with BP.

    Yet BP has trended up alongside these companies, as opposed to being judged by the market as a loser in the wake of these court decisions.

    The bottom line is that the market expects Halliburton and Transocean to still strike deals with BP, and the prevailing wisdom is that the deals will be reached before Feb. 27, when the court case is supposed to begin. If Halliburton and Transocean were given a little leverage by the court in the recent decisions, it didn't change the prevailing view that they still prefer to settle out of court with BP.

    "For all of these companies, putting out a settlement number would be a plus," said Weiss of Argus Research. He said the BP is limited in what it can extract from these companies because of the indemnification clauses.

    "The bottom line is that indemnity exists, and if they were to extract too much, the fundamental operating model between these companies in the oil exploration and production business would have to change," Weiss said, but he added, "It's still in everyone's best interest to find a number that makes all parties happy."

    "Everyone thinks Transocean and Halliburton want to settle before Feb. 27," Gheit said, adding that the New Orleans judge overseeing the case, Carl Barbier, has more or less asked the companies to settle.

    For the Oppenheimer analyst, though, the big ticket settlements for BP are already on the books, with its operating partners Mitsui and Anadarko Petroleum ( APC). Gheit says the best reason to be optimistic about the oil spill overhang being removed is not the expectation of a deal with Halliburton or Transocean. Rather, it's the prospect of a deal with the U.S. government.

    "The reason they want to settle with these companies soon is that then they only have the government to settle with, and the indebted government could get some billions and move forward," Gheit said.

    That will take more time, but Gheit still thinks BP is a buy. "This stock is a far cry from what it could be but I don't think it gets there soon. I'd be happy if it gets there in 12 months. They've still got to reassure investors that there is no skeleton in the closet when it comes to Macondo," Gheit said.

    -- Written by Eric Rosenbaum from New York.


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