BP’s Robust Project Pipeline To Drive Its Value In The Short Term

by Trefis Team
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The year 2017 has been a good one for BP Plc. (NYSE:BP). On the one hand, the European company’s performance improved drastically backed by the rebound in commodity prices in the last few quarters. On the other hand, the company delivered six out of its seven major upstream projects, setting a positive tone for 2018. In consequence, the integrated energy company has witnessed a 7% jump in its stock price through the year, indicating the increased investor confidence in the company. In this note, we discuss how BP’s robust project pipeline is likely to drive its upstream performance in the near term. We have a price estimate of $41 per share for BP, which is in line with its current market price.

See Our Complete Analysis For BP Plc. Here

Like most of the oil and gas companies globally, BP’s profitability and cash flows suffered severely in the last three years owing to the industry’s worst-ever commodity downturn. This, coupled with the hefty annual claims related to the 2010 Deepwater Horizon oil spill, further pulled down the company’s ability to sustain its margins in the oil slump. However, in the latter half of 2016, BP had managed to undertake a final estimation of the total oil spill charges to be paid over the next few years. This allowed the company to set aside its divestment proceeds to meet its oil spill charges, while it could focus its operational cash flows to meet its capital spending and dividend needs.

Consequently, the London-based company decided to direct all its execution capabilities and financial resources in enhancing its future growth prospects by increasing its production capacity. For this, the company chalked out an extensive plan to expand its upstream operations. Under this plan, the company aims to start-up a number of upstream projects in the 2016-2020 time-frame that are expected to add a production capacity of close to 800 Mboed (thousand barrels of oil equivalent per day) by 2020. Of this, the projects that were slated to come on-stream in 2016-2017 are likely to contribute 500 Mboed of capacity to BP’s existing capacity.

Above, we present the seven major projects that BP had planned to bring online in 2017. Out of this seven, the company has successfully completed six projects year-to-date, while the one project remaining is also likely to commence operations by the end of the year. These projects will contribute incremental production capacity to the company’s existing base, which will enable it to capitalize the anticipated recovery in commodity prices in the coming years. In addition to this, the remarkable execution on part of the company will help in reinforcing investor confidence in the company and its ability to survive the commodity down-cycle and revert to its pre-2010 levels.

Below, we show how BP’s new projects will bolster its revenue and profitability in the next five years. You can create your own scenarios about the expected impact of these projects on the company’s top-line as well as bottom-line using our interactive platform.

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