It’s been more than four years now since the Deepwater Horizon gusher was finally capped, and forecasts for BP (LSE: BP) (NYSE: BP.US) are still suffering.
We did see a two-thirds rise in pre-tax profit and a doubling in earnings per share (EPS) for the year ended December 2013, after EPS fell by more than a half in 2012, but there’s no reliable trend set in just yet — and City analysts are currently forecasting a 44% EPS drop this year to 43.8p, followed by a 5% rise next year.
Erratic forecasts
As if to illustrate how unreliable such prognostications are so far in advance, a year ago the same folks were predicting 55p per share. Then six months on that had dropped to 48.2p, and it’s kept on sliding to today’s 43.8p, 20% down.
On top of that, the trend for next year is downwards too. Six months ago were were looking at a consensus of 50.9p per share, but today that’s down 10% to just 45.9p. That’s a 5p drop in a rise that now only stands at 2.1p, so the range of potential change over the next year looks to be wider than the actual current forecast — better not put too much faith in it yet, then.
So why is everyone so glum?
The problems
Well, we have the still-escalating costs of the Gulf of Mexico disaster for one thing, and the recent legal conclusion of “gross negligence” could send the final penalties skywards — at Q3 time the company told us the costs so far had reached $20bn, and there’s plenty more to come.
A number of other things have not been going BP’s way either. For one, BP has a stake of approximately 20% in Russian oil giant Rosneft, and the pain of economic sanctions against Russia in the wake of the Ukraine crisis is starting to be felt — it’s going to have a material impact on the year-end bottom line.
Then we have the falling price of oil, with the black stuff currently selling at four-year lows of around $80 per barrel when a few months ago it was up around the $115 level. That’s partly due to Chinese growth actually starting to slow, as many have been predicting all year — figures for October showed a slowing rate of industrial expansion, and a knock-on effect on oil demand could leave us with a glut.
Dividends
On the upside, dividend forecasts have been rising over the past six months. Back then, we had estimates of 23.6p and 24.8p for this year and next — those have since been boosted to 24.3p and 25.4p respectively. With cover around two times and the third-quarter dividend having been increased, we can probably be reasonably confident of those.