The oil spill in the Gulf of Mexico in 2010 forced some dramatic changes for BP (NYSE:BP) and CEO Bob Dudley. At $40 billion, even a cash generating machine like BP is bound to feel the cost of the clean up, and they have. After starting a $30 billion disposal program last year, it was clear to management and investors that the company would have to get smaller in the near term to allow for growth in the long term. Unfortunately, the recently failed $7 billion sale of BP’s 60% interest in Argentinean unit Pan American Energy is the second deal this year that has gone south, leaving investors wondering where the growth will come from.  The first failed deal was a $16 billion share swap and exploration deal with Rosneft that fell apart in May. Management’s longer-term plan is to grow via acquisition and investment in exploration in order to keep up with competitors such as Chevron (NYSE:CVX) and Exxon Mobil (NYSE:XOM).
Not All is Lost
- BP Q1 Earnings: Revenues And Profits Suffer Due To Low Oil Price Environment, Cash Outflows Still Greater Than Inflows
- What’s BP’s Fundamental Value Based On Expected 2016 Results?
- By What Percentage Can BP’s Revenues Grow Over the Next Five Years?
- How Are BP’s Revenue & EBITDA Composition Expected To Change By 2020?
- What Has Led To More Than A 25% Decline In BP’s Revenues & EBITDA In The Last Five Years?
- How Has BP’s Revenue Composition Changed In The Last Five Years?
While it would be easy to point fingers at CEO Dudley, as many have, BP continues to generate positive earnings and cash flow. With 37% of the Trefis stock price estimate coming from oil and natural gas production, oil prices soaring and the prospect of China’s consumption going forward, there are still a few bright spots for BP investors. The company’s dividend is another feather in the cap of management, at least for now, at nearly 4% in today’s low interest environment.
So, What Now?
To maintain market share and continue to grow anytime in the near future, BP’s management needs to get a deal done. Keeping up with Chevron, Exxon Mobil and others in the industry won’t happen as long as deals keep disintegrating. The deals that aren’t happening make it difficult for investors to project growth; something BP desperately needs.
The Trefis price estimate for BP’s stock is about $55, 25% ahead of the current market price.Notes:
- Cnooc Purchase of BP’s $7.1 Billion Argentine Unit Scrapped, Businessweek, Nov 2011 [↩]