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Full-Year Results Should Give BP plc A Nice Boost Next Week

BP (LSE: BP) (NYSE: BP.US) shareholders could do with a bit more good news, and they did get some on 16 January when the latest court ruling in the US potentially lowered its eventual oil-spill fine by around $4bn.

But will there be any cheer when we get BP’s 2014 full-year results, due on 3 February?

Oil sector results are obviously overshadowed by the low price of oil right now, with Brent Crude having remained steady at around $48 a barrel for the past two weeks after a precipitous slide. And BP boss Bob Dudley has told the BBC that he expects the price to remain low for “certainly a year, I think probably two and maybe three years”.

Glut

The problem is there’s a glut of oil on the market these days, with supply running ahead of demand — and it’s widely acknowledged that that’s due, at least in part, to Middle Eastern producers opening up the taps to flood the market and see off the fledgling oil shale industry.

But is that so bad for BP? Well, analysts’ forecasts for BP’s earnings have been scaled back significantly since the oil price has started to drop, and while it is unlikely to make much difference to 2014 results, we’ve seen earnings per share (EPS) forecasts for 2015 slashed by a third in the past three months, lifting BP’s forward P/E multiple to 13.7.

But that’s still a shade short of the FTSE 100 long-term average of around 14, and it’s very much geared towards the short term. In the long term, I think BP is looking good. The company has already announced job cuts in the North Sea along with reducing its capital expenditure on new exploration and development, and we’ll surely be hearing more abut that when we get next week’s results.

Efficiency

Average per-barrel production costs have been estimated at around $65, which makes much of the world’s production unprofitable at today’s retail prices. So over the next few years it’s all going to be about competitiveness, and BP’s wide range of assets with various per-barrel production costs mean it has greater ability than many to last out a period of cheap oil while others may go to the wall.

So when we get BP’s results next week and read its outlook thoughts, I expect the focus will be on cost-cutting in the short term but with a view to profiting in the long term from the war of attrition that is currently being waged.

Should you buy BP shares in these fraught times? I reckon you could do worse.

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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.