Factors That Can Lead To An Upside In BP’s Stock Price
BP Plc. (NYSE:BP), the London-based integrated oil and gas company, has always been in the news, mostly for the wrong reasons. Not only has the company been suffering a dent in its reputation due to the 2010 Deepwater Horizon Oil Spill, the ongoing turmoil in the commodity markets has taken a severe toll on its profitability. However, in the last quarter, the company finally managed to reasonably estimate the outstanding claims arising from the oil spill. The cumulative pre-tax charge for the incident is estimated to be roughly $61.6 billion. Though this obligation weighed on the company’s cash flows over the last 6 years, we now expect the oil and gas major to direct all its execution capabilities and financial resources towards enhancing its future prospects. We have a price estimate of $36 per share for BP Plc., which is roughly 6% higher than its current market price. However, below we discuss the factors that can lead to a further upside in the company’s stock over the next couple of years.
Firstly, after having estimated the final charge for the 2010 oil spill, BP is now moving towards the path of expansion. The company has laid out a detailed plan under which it aims to add production capacity of close to 800 MBOED (thousand barrels of oil equivalent per day) by 2020. Of this, 500 MBOED are expected to come on-stream in the 2016-2017 time frame. Below, we present how the company has been progressing on its 2020 targets.
Source: BP website
Secondly, despite having experienced a downfall over the last few quarters, BP has managed to keep a check on its production costs in these volatile market conditions. The oil giant has reduced its production costs from around $12 per boe in 2014 to almost $10 per boe in 2015, and aims to cut it further to close to $8 per boe in this fiscal year. This is significantly lower compared to its closest rivals – Exxon Mobil, Royal Dutch Shell, and Chevron – and will prove to be a huge competitive advantage for the company as and when the commodity markets rebound.
Lastly, with the oil spill charges no longer on BP’s priority list, the company’s dividend pay out has improved over the last few quarters. Contrary to suspending its dividends in 2010, when the incident took place, the integrated company reverted to paying a dividend of 60 cents for each ADR in the third quarter of 2014. While there is still room for a further rise in the dividend payments, the company’s dividend yield is amongst the highest in the oil and gas industry at the moment. This could be a crucial factor for reinforcement of investor interest in the company’s stock in the coming quarters.
Have more questions about BP Plc. (NYSE:BP)? See the links below:
- Here’s Why We Believe BP’s Stock Is Worth $36 Per Share
- Weak Refining Margins And Depressed Commodity Prices Weigh Heavily On BP’s 2Q’16 Earnings
- How Will BP’s Revenue Move If Crude Oil Prices Rebound To $100 Per Barrel By 2018?
- How Will BP’s Revenue Move If Crude Oil Prices Average At Around $50 Per Barrel Till 2018?
- How Does BP Plan To Manage Its Operating Margins In The Current Commodity Downturn?
- How Will BP’s Production Grow Over The Next Five Years?
Notes:
1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for BP
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