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Forecasts For BP plc Are Still Sliding

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.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.