Is BP plc Set For Electrifying Earnings Growth In 2014?

Today I am weighing up the potential risks versus the possible rewards set to define BP’s (LSE: BP) (NYSE: BP.US) growth prospects in 2014.

Gulf saga set to come to a head

For BP, the fallout surrounding the Deepwater Horizon blowout in 2010 continues to weigh heavily. The firm’s recent decision to again lift its total cumulative charge for the incident — this time by $100m, to $42.5bn — indicates the scale of expected losses when a final court decision, likely in the next few months, is made.

The multi-year Gulf of Mexico saga has had its fair share of twists and turns, from accusations of evidence destruction by the firm’s employees, through to allegations of false damage claims made by local businesses. And the potential for plenty more intrigue could exacerbate the final bill. Elsewhere, the company also faces separate lawsuits related to allegations of energy price rigging in the US and Europe, scenarios which could also result in huge financial penalties for BP.

Another significant roadblock to earnings growth in 2014 and beyond could materialise in the form of escalating weakness in the oil price. The US Energy Information Administration (EIA) anticipates the average Brent crude price — which dropped to $108.01 per barrel this year from $111.65 in 2012 — to erode further in 2014, to $103 per barrel.

The organisation cites the effect of rocketing output in the US, which is expected to surge by 1m barrels a day to 8.5m barrels. On top of the potential for worsening supply, a continuous stream of patchy data from emerging and developed markets alike also points to weak demand prospects for the coming year.

Still, City analysts expect BP to follow an expected 28% surge in earnings per share this year, to 47.5p, with an additional 15% increase in 2014 to 54.6p.

These projections leave the oil colossus dealing on a P/E rating of 8.7 for next year, comfortably locked down within bargain terrain below 10, while a price to earnings to growth (PEG) readout of 0.6 — underneath the value marker of 1 — underlines its attractive price relative to its growth prospects, on paper at least.

Get the printers rolling with this Foolish pick

But for many investors, BP’s high risk profile outweighs the potential for significant rewards, even at current low prices. The business of oil exploration and production is fraught with uncertainties over potential payloads. And for BP the effect of exploration write-offs, and continued divestments to cover legal costs, continues to crimp output, and group production dipped 2.3% during July-September to 2.2bn barrels of oil equivalent per day.

Combined with other market and legal concerns looking into 2014, I believe that current earnings projections for BP could come under significant pressure. But if you are looking for other top blue-chip selections with blistering growth potential with a lesser risk profile, I strongly recommend that you take a look at this special report which identifies a sterling stock pick in the publishing sector.

The company in question boasts a compelling turnaround story which is forecast to deliver stunning returns in the coming years, and has been declared "The Motley Fool's Top Growth Share"! Click here NOW to download this exclusive report -- it's totally free and comes with no further obligation.

> Royston does not own shares in BP.