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BP is now in danger of becoming a ‘jam tomorrow’ business

Damian Reece

By 12:17PM BST 26 Jul 2011

Management, led by Bob Dudley, is gradually losing the trust of shareholders who have sat through one failure after another, most recently the Macondo oil spill and then the spectacular blow up of its Russian strategy.

BP

I expect one of the big pictures to emerge form this week’s results from the big oil companies is the marked divergence in the fortunes of BP and Royal Dutch Shell. Since BP’s fatal accident in the Gulf of Mexico, its shares are off a third while Shell is up 15pc.

BP has slumped to a market value of £89bn while Shell, the world’s biggest dividend payer, is valued at £144bn. The latter seems to have a far more settled and cogent strategy, including an overarching desire to diversify away from oil and have gas production account for half its business.

Production was down 11pc from a year earlier and BP is in danger of becoming a “jam tomorrow” business, constantly promising better days ahead but having a patchy delivery record. The company’s woes have now led to analysts highlighting the break up value of this once great company.

Dudley is already embarked on a post-Macondo sell off of some fields but analysts have now come to the inevitable conclusion that after the year it has had, the business is trading at a substantial discount to the sum of its parts, that discount being attributable to a lack of confidence in management.

HSBC suggests an accelerated “shrink to grow” strategy which could add 160p a share to the company’s value. JP Morgan Cazenove has said a full break-up would create $100bn of cash for investors. Clearly these City figures place far more reliance on Dudley’s ability to sell assets than growth them.

Today’s results continue to give that view credence.

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