Headlines
• BP (LON:BP – 360p) – Downstream Saves it for BP
• Egdon Resources (LON:EDR– 7p) – Managing the Cycle
In Brief
• BP (LON:BP – 360p) – Downstream Saves it for BP: While not usually company that we comment on, today’s results from BP indicate, to our mind at least, what we believe is the stabilisation in the wider oil market. While you can’t compare the last quarter in a financial year with the first quarter of financial year, due to year-end effects, year-on-year the fact that they are broadly in line despite what has been one of the worst nadirs in the oil markets since 1998. In the UK specifically, however, what is an interesting feature has been the strength of the downstream segment, which unlike the upstream segment, has broadly benefited from lower crude prices and relatively “stickier” product prices. Nevertheless, looking through the inertia associated with larger companies, and BP’s specific problems, we see signs of a strengthening oil market, in the near term at least, and while we believe that this will be good for profits in the wider segment, in reading these results we do not get any confidence that management teams are returning to the larger “world scale” projects that will have an impact on the global supply/demand balance. As a consequence, we still believe that the overall outlook for the oil price continues to strengthen, especially the further out you look.
• Egdon Resources (LON:EDR – 7p) – Managing the Cycle: Today’s news results announcement has been confirmed what we thought we already knew. However, what is interesting to note is that despite the fact that the Company has almost £5mm in the bank, the Company is still pursuing a “zero cash” operating cost policy. While this will inevitably mean that the Company may miss out on some opportunities, it does mean that you can be fairly confident that as we come through the current oil price environment that it will be in a stronger position to take advantage of any opportunities that have been created by those that haven’t.