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BP to bring focus onto oil, with and Big Tech under microscope later


BP reports after difficult period Amazon, Alphabet and Alibaba reporting on Tuesday, along with coronavirus vaccine maker Pfizer

There will be Big Oil news on both sides of the Atlantic, with BP PLC‘s (LON:BP.) fourth quarter results being the first from Europe’s integrated oilers, and later in the data followed by US oil giants ExxonMobil and Conoco-Phillips.

“2020 was a significant year for BP – a change in CEO to Bernard Looney from Bob Dudley and a significant pivot in strategy towards a broader energy approach,” said analysts at UBS.

For these numbers, the Swiss bank expects production to be down 3% on the third quarter, excluding the stake in Russia’s Rosneft, and down 16% year on year to reflect higher maintenance and disposals.

“With the prospect of higher oil prices in 2020 than envisaged six months ago we see the prospect of BP’s debt levels allowing for the start-up of share buybacks around 4Q21.

“BP’s strategic 2020 shift towards becoming an integrated energy company received a mixed reception from investors. We think this can be traced to some nervousness around the economic outcomes from the investment into renewable activity and the scale of this shift. We also see it as a concern over the scale of the exit from Upstream (which continues to be the primary incentive for mainstream to invest).”

“Investors will also look for further evidence of the pivot from being an integrated oil firm to an integrated energy company after BP’s entry into offshore wind via a strategic partnership with Equinor and recent contract wins for Chargemaster. The company also has exposure to biofuels in Brazil and solar energy via BP Lightsource,” said AJ Bell analyst Russ Mould.

The FTSE 100 supermajor has been somewhat supported by the improvement in crude prices in recent weeks, but these numbers come after a tough period.

“Sentiment has not been helped by a dividend cut, heavy losses in the second quarter and break-even result in the third, thanks in part to weak commodity prices and in part to US$22bn of asset impairments and write-downs relating to the value of exploration assets in Angola, Brazil, Egypt, Canada and the Gulf of Mexico,” Mould said.

“The write-downs have only stoked fears that BP may be left sat on stranded assets and that its US$82bn net asset (or equity) value may still be too high.”

Moreover, there will also be plenty of eyeballs on strategy and the proposed diversification into alternative and renewable energy businesses.

Recent reports of an exodus out of BP’s exploration department – which is now said to have less than 100 staff compared to 700 – is a sign of these transitory times for both BP and the wider industry.

“Near-term financial performance, however, will still be driven by upstream (production and exploration) and downstream (refining and petrol stations).”

Amazon grace?

Amazon has already demonstrated how it’s the king of e-commerce during the pandemic so these numbers, said Susannah Streeter, senior analyst at Hargreaves Lansdown, will serve to show how comfortable the company is on its the throne as lockdowns lead to a fresh surge in online shopping.

Despite investing billions gearing itself up to operate through the coronavirus crisis, Amazon’s profits have remained huge, helped by its retail arm being boosted by a huge range of contracts for its cloud computing arm, AWS.

Streeter expects AWS to grab the headlines as these contracts bode well for future growth but Microsoft’s Azure platform is now snapping at the heels with a 50% leap in revenues of its cloud computing business.

“Amazon is facing some regulatory obstacles in its path,” she noted, with the European Commission has threatened it with a fine of up to 10% of its turnover accusing it of damaging retail competition by using its power and data crunching ability to give it an unfair advantage over smaller companies that sell through its platform.

“This move to address the might of Amazon comes at a significant time, now that Joe Biden has become US President. With Europe making a play to limit Amazon’s power, it could add to the chorus of voices for the US to do the same.”

Significant announcements expected on Tuesday February 2:

Trading announcements: SSE PLC (LON:SSE), Gem Diamonds Ltd (LON:GEMD), Virgin Money UK PLC (LON:VMUK), Glencore PLC (LON:GLEN)

Finals: BP PLC (LON:BP.), Idox PLC (LON:IDOX), Sureserve Group Plc (LON:SUR)

Interims: Filtronic PLC (LON:FTC), NWF Group plc (LON:NWF)

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