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BP plc, Royal Dutch Shell Plc And Tullow Oil plc Slump Further As Oil Hits New Record Lows

The price of Brent Crude slumped below $55 a barrel yesterday for the first time in more than five years, and there are fears now that it could even dip below $50.

That is not helping our oil and gas producers, to put it mildly — and it’s not just the smaller and higher-risk companies that are suffering.

BP is hurting

BP (LSE: BP) (NYSE: BP.US) dropped 22.3p on the day, for a 5.4% fall to 388p. And with crashing oil prices added to the company’s still-unfinished Gulf of Mexico business, the shares are now down 26% from their July 52-week high of 527p.

There’s a 48% fall in earnings per share (EPS) expected for the year just ended, followed by a further slip of 11% in 2015, but there’s a recovery of 17% currently penciled in for 2016. Those will be rerated downwards should oil slip further, but we are looking at P/E values of 11 for 2015 dropping to just over 9 for 2016, with dividends yields in excess of 6%.

Dividends could be cut if oil drops much lower, but cover for 2016’s predicted payout currently stands at 1.66 times — it could be better, but that’s not too bad.

Same goes for Shell

Things are bad for Royal Dutch Shell (LSE: RDSB), too, with its shares suffering a loss of 112.5p (5%) yesterday to 2,123p. That’s well on the way to reversing the mini-recovery that looked to be starting in mid-December, and takes the shares down 29% now from their 12-month record of 2,991p.

The forecast picture for Shell is rosier, albeit still at the mercy of further oil falls, and there’s a 32% EPS rise expected for 2014 followed by -15% and +10% for the next two years.

Shell is facing similar P/E multiples to BP, of 9.7 for 2014 rising to only 10.4 by 2016. And though predicted dividend yields are a bit lower at around 5.5%, cover should be slightly stronger at 1.73 times for 2016.

Exploration risk

The worst performer of the three, by far, is Tullow Oil (LSE: TLW). Its shares dropped 18p yesterday to end 4.3% down at 396p, but that’s only a small part of the story — from a 52-week high of 920p set almost a year ago, the Tullow price has plummeted by 57%!

The problem with Tullow is its much higher risk compared to the other two, as it’s an explorer that’s expected to record a loss per share for 2014. The prognostications for the following two years are good, but low oil prices might mean a cutback in some of the firm’s exploration plans heading into 2015 and beyond.

Would buying up oil stocks while they might be cheap fit well in a decent retirement portfolio right now? Over the long term, I reckon you could do well with a portion of your cash in oil.

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