Should I Invest In BP plc Now?

Can BP plc (LON: BP) still deliver a decent investment return?

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BPAt today’s share price of 433p, BP (LSE: BP) (NYSE: BP.US) looks attractive again.

Post 2010’s Gulf of Mexico disaster, buying the share price dips worked out well for investors, and I think there’s potential to repeat that trick now.

Why the weakness?

In June, the shares stood at about 525p, so we are quite well down now. Malaise in the sector set in during the year as crude prices dropped around 25% to a four-year low near $85 a barrel.

Then there’s the prospect of an earnings’ collapse from BP’s Russian venture with Rosneft, thanks to Western sanctions over the Ukraine affair.

On top of that, the District Court for the Eastern District of Louisiana has declared BP grossly negligent with respect to the Gulf-of-Mexico accident, opening the door to higherfines under the Clean Water Act — $4,300 per barrel of oil spilled, rather than $1,100 per barrel in the case of ‘simple’ negligence.

Cash still flowing

Crude oil prices wiggle up and down, we can’t change that but, during the recently reported third quarter of BP’s trading year, the effect of lower prices on BP’s revenue was offset by growing underlying production of oil and gas and a good downstream performance.

The firm generated $25,507 million of cash from operations by three-quarter time, compared to $15,686 million during last year’s equivalent period. Such cash-generating ability is what keeps me enthusiastic about BP despite its setbacks.

 The firm’s cash performance so far this year tops an impressive record:

Year to December

2009

2010

2011

2012

2013

Net cash from operations ($m)

27,716

13,616

22,154

20,479

21,100

Getting things in perspective

Some estimate a gross-negligence assessment in the Gulf of Mexico could end up costing BP $18 billion dollars in fines instead of about $4.6 billion. BP will get over it, if it has to. The firm has met every one of its Gulf-related obligations so far and is still standing.

Meanwhile, in Russia, earnings hitherto only account for about 14% of BP’s total income, so losing that source of funds for a while, if it comes to it, won’t sink BP.

What next?

BP’s continuing strong cash flow reassures. Buying share-price weakness has proved a good tactic with BP since 2010 — the shares have always bounced back as the outlook improves and the firm works through its challenges. I think the shares look attractive right now, too.

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 Godbold has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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