BP Plc’s 2 Greatest Strengths

Two standout factors supporting an investment in BP plc (LON: BP).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

When I think of oil major BP (LSE: BP) (NYSE: BP.US), two factors jump out at me as the firm’s greatest strengths and top the list of what makes the company  attractive as an investment proposition.

1) Promising exploration pipeline

BP described 2013 as its best year for upstream exploration in ten years. The firm drilled 15 wildcat exploration wells and seven found potentially commercial quantities of hydrocarbons in places such as India, Egypt, Angola, Brazil, and the Gulf of Mexico.

bp2014 kicked off with nine exploration wells in operation as the firm’s strategy since the Gulf-of-Mexico disaster digs in. Since the disaster, BP has re-focused and pursued a policy of more active portfolio management, selling assets in order to focus on high-impact exploration opportunities around the world. 2013’s deal in Russia seems part of that plan, where BP collaborated with, and now owns a 19.75% stake of, Russian state-controlled oil and gas enterprise Rosneft. However, perhaps counter-intuitively, the firm has been ramping up its operations in the Gulf of Mexico too and now has a company record of 10 drilling rigs in operation there and, in December, announced its third significant Palaeogene oil discovery in the region.

Currently, BP is also pursuing exciting developments in the Middle East, Azerbaijan, Brazil, Angola, the UK North Sea, and Greenland. Upstream activities lead to tomorrow’s production and BP’s renewed exploration vigour since 2010 bodes well for the companies forward growth prospects. With 2013’s full-year results the firm’s reserves replacement ratio was running at about 129% for the year, excluding the impact of acquisitions and disposals, and at around 199% including net growth in BP’s Russian portfolio. That’s encouraging, as anything above 100% represents reserves growth.

 2) Strong cash flow

Active exploration fuels cash flow, which provides the means for investment in further growth and to support the firm’s progressive dividend policy. BP’s record on cash generation is impressive:

Year to December 2009 2010 2011 2012 2013
Revenue ($m) 239,272 297,107 375,517 375,580 379,136
Net cash from operations ($m) 27,716 13,616 22,154 20,397 21,100
Adjusted earnings per share (cents) 88.49 (19.81) 135.93 60.86 123.87
Dividend per share (cents) 56 21 29 34 37

Strong cash flow is one reason that BP managed to navigate through the choppy waters left in the wake of 2010’s Gulf of Mexico oil disaster. When the financial obligations resulting from the oil blowout finally trail off, BP will be able to put even more investment into exploration growth. On that point, the future looks bright.

What now?

BP’s forward dividend yield is running at about 5.2% for 2015, which looks attractive. However, I’m mindful of the cyclicality inherent in the oil industry, which could hold back the firm’s share-price progress.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Kevin does not own any BP shares.

More on Investing Articles

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »