BP difficulties a sign of the times for oil companies?

BP yesterday presented losses of $4bn for the fourth quarter when last year it earned more than $1bn, while Exxon Mobile presented better than expected results, however its share buyback program was cut.

Airlines are also being affected by the freefall in oil prices. Ryanair announced last week that its profits would be hit following the firms strategy of hedging the price they pay for oil at $ 90 a barrel. With such turbulence being caused by oil prices, it begs the question: Is this the new reality that large firms have to face up to?

“The price of oil has begun to pick up. This week the prices of companies in the US recorded increases of 3%. Repsol seems to have also risen steadily on Tuesday. The oil prices have bottomed out. Also a number of the proposed fracking projects which were taking place in the US have halted. That coupled with the better looking economic situation could cause the price of oil stabilise. It will probably be later in the year, but we will see the barrel rise to $ 60 in 2015,” says market analyst José Benito.

So how should investors and markets react?

“If the oil price, as expected, is still rising, oil would be better to buy than to sell. Do not forget that they have already suffered a lot. The contributions of these companies have already priced far beyond the price effect low on oil. Repsol, for example, has risen from €18 to €19 having touched the €16 mark,” Mr. Benito added.

Oil companies traditionally have a policy of paying high dividends to shareholders, but are we going to see this strategy revised?

“I think so. It will not just be dramatic decreases in dividends, there will have to be a reworking of 2015 estimates. As a consequence, shareholders will suffer in this regard. In the case of Spain and Repsol, the Ibex should not be affected too gravely. The way of distributing dividends is somewhat different – a firm can choose between capital or payment in cash- and could withstand the euro are paying,” Mr.Benito said.

 

*Image: BP