Low oil prices, fines and competition have all hurt the BP stock price.

The oil price has recently begun to recover since its crash from over $100 per barrel down to the current price of $49.03 in 2014.

Major oil producers have all had to adapt to the new economic realities created by the price collapse, but BP (NYSE:BP,LSE:BP) is in an especially challenging position due to the Deepwater Horizon oil spill.

The company is still feeling the impact of heavy fines stemming from the 2010 spill in the Gulf of Mexico. It has spent another $1.7 billion on fine payments in Q4 of 2017 alone, and its share price has never fully recovered to its pre-spill level. For that reason, many investors are still wondering about the BP share price before the Deepwater Horizon spill.

The spill’s impact

The Deepwater Horizon spill, considered the worst of its kind in US history, released an estimated 3.19 million barrels of oil before a leaking pipe was finally capped after 87 days. BP agreed to pay $18.7 billion in fines related to the spill back in 2015.

BP’s stock price was sitting at roughly $59 prior to the spill, and so far the company’s share price has fallen short of that mark; it stands at $44.88 currently. It has been on an overall upward trend in recent times, having traded within a 52-week range of $33.90 to $44.89.

Not surprisingly, the spill coincided with one of the biggest drops for the BP share price since 1978. The company’s share price lost 54 percent on the NYSE between April 20 and June 25, 2010, bouncing back slightly before the wellhead was capped on July 15, 2010. BP stock lost a similar amount in London over the same period.

Previously, the company had lost roughly 45 percent of its share price value in New York between May 23, 2008 and October 10, 2008 — that fall came during the global financial crisis.

The selloff in the wake of the Deepwater Horizon spill was also marked by the largest trading volumes in BP share price history by a long shot. Volumes peaked at 735.76 million in New York on June 11, 2010, compared with daily averages of closer to 30 million. Check out the spike at the bottom left of the BP share price chart below:

bp share price

Chart via Google Finance.

The road to recovery

Oil prices crashed in 2016, going as low as the mid 30s for both WTI and Brent crude oil. But prices have experienced an upward trend with WTI currently standing at $67.45, and Brent at $73.13 on May 1, 2018. According to Bloomberg, BP has increased its payouts this year, going from $2 million in 2017 to $3 million in 2018. The liability payouts are humming along due to oil’s price rebound, which has bolstered BP’s accounts. BP’s CFO, Brian Gilvary, conveyed his vote of confidence “The charge we are taking as a result is fully manageable within our existing financial framework, especially now that we have the company back into balance at $50 per barrel.”

Since BP agreed to settle all government claims against the firm in 2015, the company has had the green-light to expand the company once more. The company has been selling off assets in order to raise the money for payouts, and has two decades to pay the full sum to the government, which has made these payments more manageable.

Along with reduced costs, an increase in credit rating and improved production paint a picture of recovery for the oil giant as it looks to keep up with its competitors. In fact, the BP share price is the highest its been in five years, despite lower profits related to a canceled project in Angola. The bump has been attributed to increases in the company’s oil and gas projects and production in 2017. In the first quarter of 2018, BP’s profits have risen a whopping 71 percent. All of this has been good for the BP share price.

Price and sustainability concerns

Oil market optimism can still be found amongst investors despite a steady stream of bearish headlines. Andy Lipow of Lipow Oil Associates saw reductions in petroleum reserves and recovering demand as important indicators of a good market for the past six to 12 months and was correct in his prediction that oil would exceed $50 in 2018.

That being said, OPEC’s production restrictions played a part in oil’s price rebound therefore, there’s always a chance for some volatility should OPEC’s deals change in the future. As a result, some are concerned about issues of oversupply and price fluctuation.

BP’s high dividend yield is also a point of discussion amongst investors and analysts. At 6.6 percent, the yield is significantly higher than average in the oil sector. BP’s debt accumulation and previous struggles with profitability have created doubts about the sustainability of such a high yield. But with current oil prices, the books are balancing, so the only question remains is – how long will it last?

What do you think about the BP share price and its dividend?

This is an updated version of an article originally published by the Investing News Network in 2016.

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Securities Disclosure: I, Amanda Kay, hold no direct investment interest in any of the companies mentioned in this article.

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