Investment column: BP shows its mettle

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The Independent Online
THE OIL sector was one of the glory boys of the stock market last year, driven upwards by a soaring crude price and huge "elephant" discoveries in new areas like Angola and the Caspian.

How quickly the industry has fallen from grace. Investors have pulled out of oil stocks faster than Michael Schumacher clears the pits. The share price of exploration and production companies has plummeted the most. The oil price is stuck around the $14 per barrel mark.

City opinion is divided on whether the sector has been oversold and is ripe for a comeback. Certainly there are noises from within the Organisation of Petroleum Exporting Countries that a second production-cutting package might be on the cards. If that happened and prices did finally begin to rise towards the Opec goal of $17 then a rerating of the sector would certainly be in order.

But regardless of oil price changes, some stock prices have managed to weather the storm. Shell has risen by 20 per cent year on year while BP is up by a healthy 36 per cent.

BP showed more of its mettle yesterday by beating 22 out of 24 analyst predictions in announcing first quarter profits, before exceptional items, of pounds 582m. That was 22 per cent down on last time but oil majors generally have averaged a 38 per cent fall and earnings at Chevron and Texaco have almost halved.

The oil price was $7 lower than the same quarter last year but BP was cushioned by a strong performance in the downstream sector, where profits rose by 32 per cent on last time.

Chief executive John Browne summed up the situation, describing the results as "good in a very tough climate". He added: "We've seen improvements in trough-cycle performance in all businesses, and there is more to come in the rest of the year." But the reality is that unless Opec gets its act together, BP's earnings are likely to look pedestrian for the next year or so.

Profit taking pushed BP's share price down 13.5p to 939.5p yesterday. SG Securities has the oil major on 1998 profits of pounds 2.3bn, putting it on a forward multiple of 24. Hold.