BP Still at Neutral - Analyst Blog


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We maintained our Neutral recommendation on BP plc ( BP ) on Jan 7, 2014. BP's position in the Woodford, Haynesville, Fayetteville, Eagle Ford and Utica shale plays, in association with its vast resource base and profound knowledge in unconventional gas, will aid its natural gas in the future. However, headwinds from a number of global macro issues, such as sovereign debt risks, defaults on sovereign credits and changes in U.S. policies, are concerns for the British oil major. BP carries a Zacks Rank #3 (Hold).

Why Maintained?

BP has a strong pipeline of projects and expects four additional upstream ventures to commence by the end of 2013. Five more project start-ups - Na Kika 3, Kinnoull, CLOV, Sunrise 1 and Mars B - are expected in 2014.

Altogether, BP has about 50 major assignments through the decade. Of these, 11 involve more than $10 billion in total cost. BP's organic capital expenditure is estimated at $24 billion to $27 billion annually from 2014 until the end of the decade, while offloading non-core $2-$3 billion worth of assets annually. BP reiterated its target of growing operated cash flow by over 50% in 2014.

The company's Whiting refinery has been upgraded to process more Canadian heavy crude. It is expected to generate over $1 billion in annual cash flow. The company also continues to expect its U.S refining system to deliver superior performance as it wraps up its re-positioning after the sale of Texas City and Carson.

During 2013, the company plans to drill 15-20 explorations wells, up from 9 in 2012. The company has already completed 4 wells in Brazil, North Sea and India, with 11 more exploration wells underway in the Gulf of Mexico (GoM), Brazil, Angola, Egypt, Jordan, India and Indonesia. BP's upstream spending budget of $2.5-$3 billion in 2013 has also doubled over the last few years.

However, BP projected full-year 2013 production level to be lower than 2012 due to the impact of divestitures. For the fourth quarter of 2013, the company expects production to remain flat sequentially following the major turnaround activity and repairs in high-margin North Sea, planned maintenance in Alaska as well as the effect of the ongoing divestiture program. For 2013, BP expects refining margins to experience a downfall from the 2012 level due to turnaround activity.

Stocks That Warrant a Look

While we expect BP to perform in line with its peers, one can consider Zacks Ranked #1 (Strong Buy) stocks Harvest Natural Resources Inc. ( HNR ), Cheniere Energy Partners L.P. ( CQP ) and Helmerich & Payne, Inc. ( HP ) as good buying opportunities for the short term.

BP PLC (BP): Free Stock Analysis Report


HARVEST NATURAL (HNR): Free Stock Analysis Report

HELMERICH&PAYNE (HP): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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