BP plc (BP): An Attractive Income Investment Emerges From the Shadows

The company expects four new major upstream projects to come online by the end of 2013, namely Angola LNG, North Rankin 2 in Australia, Na Kika 3 in the Gulf of Mexico, and the Chirag Oil project in Azerbaijan. A further six major projects are expected to commence production in 2014, and the major upgrade of the Whiting refinery in Indiana is expected to yield benefits from the second half of 2013. Next year, the company expects underlying production of oil and gas to grow but estimates the total number of oil-equivalent barrels produced will drop about 150,000 per day given asset divestitures

The Competition

Like BP, the other integrated energy producers, Chevron Corporation (NYSE:CVX) and Exxon Mobil Corporation (NYSE:XOM) , were also able to reap the benefits of integration with strong downstream earnings compensating for the decline in upstream earnings.

For Chevron, sales and other revenues for the quarter were $56 billion, down from $58 billion year on year, primarily because of lower crude oil volumes.  However, full-year 2012 earnings were $26.2 billion (EPS of $13.32 per diluted share), only down 3% from $26.9 billion (EPS of $13.44 per diluted share) in the previous year because of the downstream contribution.

For Exxon Mobil, there was an increase of $550 million or 6% year on year in earnings to $9.95 billion, and EPS was $2.20, which is a growth of 12% from the same quarter of the previous year. Upstream earnings were $7.76 billion in the quarter, a decline of $1.06 billion year on year, but downstream earnings were $1.76 billion, up $1.34 billion from the same quarter of the previous year.

In contrast, ConocoPhillips (NYSE:COP), which has separated its upstream and downstream businesses, reported fourth-quarter 2012 earnings of $1.4 billion, or $1.16 per share, compared to fourth-quarter 2011 earnings of $3.4 billion, or $2.56 per share. A part of this was due to the lower realized prices for oil, which were not offset by increased margins from the downstream business.

Conclusion

BP remains a strong and profitable company. I believe that it will emerge from the shadows of the oil spill disaster as a stronger company. It is currently an attractive investment, especially for income investors, with its most recent dividend increase of 12.5%, and the yield is now in the region of 5%, compared to 3% for Chevron and around 2.5% for Exxon Mobil. If you were looking for an attractive income investment opportunity, I recommend looking at BP.

The article An Attractive Income Investment Emerges From the Shadows originally appeared on Fool.com and is written by Jordo Bivona.

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