BP tops Q3 estimates, aims $7 billion in cost savings

On November 1, the oil and gas company BP Plc (NYSE: BP) reported fiscal 2016 third-quarter results that beat analysts’ estimates by a wide margin. The company had reported a loss in the previous three quarters.

Ironically, the stock lost about 10% in the past two weeks. Having anticipated the downfall, we had recommended purchasing a one touch put option on October 5, with a target price of more than $33. The stock, which was trading near $36 when we gave the recommendation, achieved the target in three weeks’ time.

Now, the probable Fed rate hike in December threatens to increase the operating expenses of the oil company. Still, we believe that it is the right time to buy the stock due to the reasons provided below.

The London-based company reported a $9 billion drop in the third-quarter revenue to $48.04 billion, from $57.30 billion in the third-quarter of 2015. For the quarter ended September, the replacement cost profit rose to $1.66 billion or $8.82 per share, from $1.234 billion or $6.63 per share in the corresponding period last year.

BP

Excluding impact of non-operating items, among others, the underlying replacement cost profit in the Q3 2016 almost halved to $933 million or $4.96 per share, from $1.82 billion or $9.92 per share in the Q3 2015.

During the quarter, the company met the production estimates of 2.11 million barrels of oil equivalent per day.

Cost reduction program was the primary reason for the company to return to profit, amid weak oil price and poor refining margins. The company announced that it now anticipates the capital expenditure to be $16 billion, instead of the $17 billion to $19 billion guidance range provided earlier.

Excluding capital expenditures, BP anticipates the overall costs to decline by $7 billion, compared to 2014. BP stated that it would use the saved money to invest in new barrels and meet dividend obligations. BP is expected to maintain its quarterly dividend payout of $0.10 per share.

Finally, the OPEC body announced last week that it is hopeful of finalizing a rate cut by the end of November. The analysts believe that the crude price would get a boost if the OPEC is able to materialize a production cut deal and also convince the non-OPEC members, mainly Russia, to agree on limiting its output. An increase in the oil price would correspondingly result in an increase in the top line and bottom line of BP.

The stock has once again found support at 33.50 levels. On the upside, the major resistance exists at 36. The stochastic oscillator is currently in the oversold region. So, a bounce back can be expected in the share price.

To capitalize on the opportunity, a binary trader can purchase a one touch call option. With a target level of $35.50 and an expiry date in the third week of December, a trader can count on his chances of realizing gains of up to 92% in a short span of time.