By Tom Bergin
LONDON, Jul (Reuters) - BP boss Bob Dudley is under pressure to clear up confused strategy and revive the oil giant's share price when it reports second-quarter earnings next week that will lag well behind its peers.
A year after BP staunched the massive leak at its Gulf of Mexico well, investors say Dudley still has not set the company on the road to recovery and big plans for emerging markets growth have fallen flat.
On Tuesday BP unveils its second-quarter earnings, which will reflect a drop in production after it sold some oil fields to pay for the cost of the U.S. spill.
While a 50 percent jump in crude prices is predicted to boost BP profits 21 percent to $6.0 billion, the improvement is likely to look anemic compared to BP's rivals. Exxon Mobil and Royal Dutch Shell Plc are both forecast to report a 50 percent jump in second-quarter net income.
Earlier this year Dudley -- who replaced Tony Hayward as chief executive nine months ago -- announced an emerging markets growth strategy. It involved a flurry of deals constructed around a centerpiece $16-billion share-swap and multi-billion dollar Arctic exploration deal with Kremlin-controlled Rosneft.
That deal fell apart in the face of opposition from BP's partners in another Russian venture, TNK-BP. Meanwhile analysts have concluded that the other deals in India, China and Indonesia are mostly not material and offer only tight margins. The deal-making has since dried up.
"Investors feel that the company has slightly lost its way," Paul Mumford, fund manager at Cavendish Asset Management.
"You need to have some clear guidance on where the company is going in the future, and how they are going to advance their strategy," he added.
Compounding the confusion, BP has made much of the strategic importance of the North Sea to its future growth at a time when investors have been pressing oil firms to shift the focus away from its declining reserves toward more prospective oil basins.
BP decided earlier this month to invest 3 billion pounds in the extension of a North Sea field.
In addition to receiving detail on Dudley's broader vision for BP, investors will also want some reassurance that the Russian spat, which flared up again this week, will not prove a major risk to BP's TNK-BP stake or require major payments to settle.
Analysts had predicted a rapid share price recovery after BP's leaking Gulf of Mexico oil well was capped in September last year, bringing to an end the daily vilification of the company by the U.S. media.
BP has since received a $1 billion contribution toward the cost of the spill from well partner Mitsui, and equipment provider Weatherford agreed to pay $75 million. The Mitsui settlement means BP is unlikely to face a charge of gross negligence -- which could cut the potential cost of the spill bill by tens of billions of dollars.
Nonetheless, the London-based company's shares have gained little in the past nine months. BP's market capitalization still stands at a 50 percent discount to the value of its assets, analysts at Bank of America Merrill Lynch estimate.
This kind of scenario would normally expose a company to takeover but in BP's case this seems unlikely. The only companies large enough to do it are state-owned Asian energy giants such as CNPC -- whose bid would probably be blocked by Washington because of BP's US assets -- and rivals Exxon, Chevron and Shell.
However these last three would be reluctant to buy a company with so many legal uncertainties hanging over it, and analysts say only some of BP's assets would be of interest.
Some analysts, bankers and investors are beginning to ask whether the best way for BP to address its valuation discount is to break itself up.
"The risks to the ownership structure are greater now than they were 12 months ago. Twelve months ago the board could say, 'we've got to deal with Macondo'. Now they have no excuse," a banker who has advised the company said.
ConocoPhillips's decision to spin off its oil refining and fuel retail unit last week boosted its shares and some observers have suggested that BP should do the same.
However, following the sale of individual refineries and service station chains over the past decade and other planned refinery sales, only a small fraction of BP's capital is tied up in 'downstream' operations.
Analysts are increasingly arguing in favor of something more dramatic -- the spin off of BP's U.S. assets into a new company, the sale of its Russian unit TNK-BP, and the creation of a new company focused on BP's assets in places such as Angola, Brazil and Asia.
"Bob Dudley should go the whole hog and hive off the US ('Amoco') and N Sea ('Britoil') businesses to renew BP - no longer 'Beyond Petroleum' but as 'BRIC-ish Petroleum' - a higher growth global player," analysts at Investec argued in a research note last month.
Such a big move is not expected while tens of billions of dollars worth of lawsuits remain outstanding. However, some legal experts predict the biggest cases and potential fines will be settled before the U.S. presidential election next year, paving the way for such a breakup.
(Editing by Sophie Walker)