Sweta Killa: Europe’s third largest oil company, BP plc (NYSE:BP), reported second-quarter 2014 results before the opening bell on July 29. The company missed our earnings estimate and warned of potential losses in its Russian business in the wake of tough sanctions imposed by the Western powers.
This is especially true as BP owns a nearly 20% stake in Russian oil giant Rosneft. The threat of more sanctions by the U.S. or European Union against Russia could worsen BP’s relationship with Rosneft and hamper its production, reserves and reputation. Notably, Russian sanctions so far had no impact on the company’s business but new measures could dilute its profits in the upcoming quarters.
Additionally, the company expects third-quarter production to fall on seasonal maintenance and turnaround activity, mainly in the higher-margin Alaska and Gulf of Mexico regions.
The British oil giant reported earnings per ADS of $1.18 per share, which missed the Zacks Consensus Estimate of $1.20 but was well above the year-ago earnings of 86 cents. Revenues rose a marginal 0.13% to $95.83 billion.
3 ETFs to Avoid
Based on the company’s cautious outlook, shares of BP dropped 3.3% on the day of the earnings announcement on elevated volume. This trend is likely to continue at least in the near term as the European Union and the U.S. have imposed further tough sanctions targeting the Russian oil industry, defense sector and state owned banks, according to the latest media reports (read: After Crimea, Where Do Russia ETFs Go Now?).
As such, investors should avoid or write-off the ETFs having the largest allocation to this big oil giant. Some of the funds are detailed below:
SPDR S&P International Energy Sector ETF (NYSEARCA:IPW)
This fund provides exposure to the energy companies of developed markets excluding the U.S. by tracking the S&P Developed Ex-U.S. BMI Energy Sector Index. It is less popular and illiquid with AUM of $22.7 million and average daily volume of around 7,000 shares. The ETF charges 50 bps in fees per year from investors (see: all the Energy ETFs here).
In total, the fund holds about 131 securities in its basket. Of these firms, BP occupies the second position with 10.23% of total assets. About 91% of the portfolio is allocated to oil gas and consumable fuels, and the rest to equipment & services. In terms of country exposure, United Kingdom takes the largest share at 34.5% while Canada and France also get double-digit exposure at 29.6% and 11.7%, respectively. The product lost 0.91% in yesterday’s session.