The shares of BP (NYSE: BP) have retained their strength despite incurring $14 billion impairments associated with its stake in Rosneft. It has largely been due to the high price environment which has pushed the carrying value of inventories on BP’s balance sheet and expectations of strong cash generation in the coming quarters. In recent filings, the company reiterated its long-term profitability targets considering Brent at $66/bbl in 2025 and $73/bbl in 2030. While oil & gas prices are likely to be marred by geopolitical risks of the Russia-Ukraine war, even the EIA (U.S. Energy Information Administration) expects prices to calm down in the coming years. Thus, BP’s strategy to execute buybacks, lower net debt, and expand its low carbon energy business to assist cash generation as benchmark oil prices trend lower. Trefis highlights the historical trends in BP’s revenues across segments in an interactive dashboard analysis.
Comparing BP’s 2019 and 2021 financial performance
In 2020, BP introduced its new strategy to transform into an integrated energy company by introducing convenience & mobility and low carbon energy as new focus areas. Per 2021 filings, BP’s key segments, Gas & low carbon energy, Oil production & operations, Customers & products, and Other businesses contribute 17%, 1%, 81%, and 1% of total revenues, respectively. While the revenue contribution has been similar since 2019, the share of capital allocation increased by 8-percentage-points for Gas & low carbon energy segment and declined by a similar amount for Oil production & Products segments (The Oil production and Customers & products segments largely represent BP’s upstream and downstream businesses). The total capital expenditure fell from $19.4 billion in 2019 to $12.8 billion in 2021. Notably, the company has planned $25 billion of divestments until 2025 and have received $12.8 billion of proceeds in the past two years. In-line with divestment targets, BP’s total hydrocarbon production declined by 21% from 1.6 MMBOED in 2019 to 1.3 MMBOED in 2021.
High price environment assisting debt retirements and share buybacks
In Q2 2020, the company introduced a plan to utilize surplus cash (operating cash + divestment proceeds – capital expenses – dividends) to incentivize shareholders and debt retirals after achieving the net debt target of $35 billion. Due to recovering benchmark oil prices in late 2020, the company achieved its net debt target of $35 billion in Q1 2021. Thus, $3.5 billion of buybacks were executed in 2021 with $4 billion targeted for 2022. Per Q1 2022 filings, the net debt has further declined to $27 billion – almost a 43% decline since 2019. (related: Invest In BP Stock To Realize Capital Gains)
|S&P 500 Return||4%||-10%||92%|
|Trefis Multi-Strategy Portfolio||5%||-13%||243%|
 Month-to-date and year-to-date as of 5/5/2022
 Cumulative total returns since the end of 2016