Exxon Mobil’s (NYSE: XOM) stock should have outperformed BP plc’s (NYSE: BP) over the last two years, but it has not. Exxon’s shares are up 40% over the period. BP’s are 38% higher. The difference between the two is only how their prices moved over the time.
Exxon’s shares have risen higher fairly consistently with a dip as the price of oil fell early last year. Exxon’s stock has essentially been a proxy for oil cost per barrel, so it has risen sharply since the start of 2011.
BP has rallied from $27 when the Gulf incident was at it worst. It trades at $49 now, the beneficiary of its asset sales, the lack of harsh reaction to Deepwater Horizon, and the soaring price of crude.
As Exxon, the world’s largest oil company, has plodded along, the victim and beneficiary of oil prices, BP has reversed its course due to luck and a shrewd new management group.
The BP saga is actually more luck than anything else, proof that even the biggest companies can benefit from good fortune. Shortly after the explosion in the Gulf as environmentalists and industry experts said they expected the spill to go as far east as the Atlantic, some financial experts said BP would need to go bankrupt to protect its assets. BP may actually not even have to pay out all of the $20 billion fund it has set up to settle claims from the spill, at least according to Kenneth Feinberg who runs the fund.
BP bought time after the Gulf spill as new management sold assets off to bring in over $10 billion and also sold debt in the capital markets. Those moves gave the markets confidence that BP could be self-funding. At about the same time, the leaking well was capped.
Exxon shareholders wish that they were rewarded for steady and prudent management over the last two years. BP’s recovery shows circumstances which fall in a company’s direction overcome management’s power to control a firm’s fortune. That is something Wall St. investors would rather not admit.
Douglas A. McIntyre