Talk about frustrated! Some British Petroleum (Stock Quote: BP) shareholders are running around with their hair on fire over the latest round of company earnings. Many are wondering that if there’s a growth strategy, they don’t know what it is. And that, investors fear, is what’s holding back BP's share price.

BP's stock price has drifted downward from a February, 2011 high of $48 per share, to about $42 per share in late June. The stock price has rebounded moderately, to $45 per share last week.

Not that BP was the only oil giant with shareholder satisfaction problems. Chevron (Stock Quote: CVX) and Exxon Mobil (Stock Quote: XOM) were among a larger group of oil and gas companies that saw their stocks prices tumble last week. It could be that oil stocks, like most shares, suffered from the twin terrors of the U.S. Commerce Department downward GDP revision, and the debt ceiling debate finally finishing up in Washington.

For the week, "big oil" stock prices fell along the following lines:

Company Stock Price (in %)

  • Exxon Mobil -5.5%
  • Conoco Phillips -3.7%
  • Chevron -3.8%
  • Royal Dutch Shell 0.0%
  • BP -1.0%

The news was hardly devastating to BP – the company got the go ahead last week to launch deepwater drilling off the coast of Brazil, after a year-long wait.

And BP profits were up for the quarter (with a few caveats). The company reported a 37% uptick in revenues, to $103.85 billion, which was way ahead of analyst expectations (Zacks Consensus estimates put that number at about $97.2 billion).

But earnings-per-share, the figure shareholders really care about, underperformed against analyst expectations, clocking in at $1.76 per American Depository Share (ADS) (Zacks had EPS at $1.97 for the quarter).

What led to BP’s under-performance – a question every BP shareholder might be asking this week? Here are a few possible reasons:

Lower production volumes, coupled with a negative impact from divestments. Oil and gas production fell 11% from the same quarter in 2010

Higher production costs, especially from rig costs in the Gulf of Mexico, which stalled production as demand for oil weakened during the quarter.

Continued fallout from the 2010 Gulf of Mexico oil spill, which decimated BP’s stock, lower production volumes, and led to significant losses.

The real story for BP is one of unmet investor expectations, and management paralysis stemming from item “number three” on the above list - the 2010 oil spill in the Gulf of Mexico. A year later, BP executives are still wrestling with the spill’s aftermath, and analysts and investors alike are left wondering how long it will take BP to get back to its pre-Gulf spill financial health.

"I think we have to be patient," Stuart Joyner, analyst at Investec, who believes that it will take BP years to recover from the Gulf debacle. "In fact management has been quite explicit about telling investors that at least for the remainder of this year, and possibly into next year.

"In terms of when BP will organically start to improve, I think we're looking at a couple of years out. It could take even longer than that if you look at the two key strategic plans [CEO Bob] Dudley has made. By their very nature they are very long-term, which is not to criticize, but realistically it means that anything they do in India and Russia will probably not impact the portfolio for the best part of a decade."

Slow-Motion Reaction

Joyner, like many oil and gas analysts, is vexed over BP’s management; specifically it's slow-motion reaction to the Gulf oil spill. BP's executive branch just can't catch a break – it's also been battling another public relations disaster, the fire in one of its drilling locations in the North Sea earlier this year, which led to more criticism from global governments and environmental groups over safety issues.

The British-based oil company also is grappling with the collapse of a major exploration deal in Russia, leading investors to wonder just how many fires BP can handle at one time.

For its part, BO execs don't seem too alarmed. Chief Executive Robert Dudley says his company has made "rapid progress," and that 2011 was viewed by company insiders as a year of consolidation following the drastic events of 2010.

But analysts aren’t buying it. "BP appears to be running a business as usual strategy and we are not convinced that the market will put up with this for much longer," notes Doug Youngson from Arbuthnot Securities. "BP has been significantly underperforming the peer group for some time and this looks set to continue."

BP doesn't have a lot of time left on the clock to show improvement. The company does say that 2011 production should be up – to about 3.4 million barrels per day. BP also says that its petrochemicals production volumes should improve significantly, given its facilities at Decatur, Texas City, and Cooper River. So far, however, BP has not managed to move the needle on its stock price.

Zacks says growth will come for BP, but likely at a glacial speed.

We see a slow but gradual economic recovery, focus on upstream exposures through the trimming of downstream operations and increases in oil prices as favorable for BP.

However, the company expects operational interruption in the GoM, the ensuing acquisitions and divestments, as well as seasonal ramp-up in turnaround activity to be reflected in the third quarter production.

While the GoM tragedy has affected BP’s share performance, we expect the company to recover and hence, stick to our long-term Neutral recommendation.

Observers can only hope the second half of the year plays out more positively than the first half.