Why BP Will Get Better

BP (BP) is trying to negate the impact of the weakness in the crude oil market by lowering its cost base. The company has been able to deliver improvements in both the upstream and downstream segments of late, driven by its focus on improving operational performance.

For instance, its upstream business now looks pretty good with new contracts and natural gas development projects in the North Sea and the Mediterranean Sea in Egypt.

These new projects will further drive its upstream growth in the future. Its chief executive officer Bob Dudley said that, “around 80% of our potential investments are currently expected to breakeven below a $60 Brent oil price, and we would expect this breakeven to move lower as we further take advantage of deflation.”

Downstream business is offsetting the weakness in upstream

BP, during the third quarter, reported replacement cost of profit of $2.6 billion for its downstream segment, a rise of more than 117% from $1.2 billion in the same quarter last year. This is due to better refining performance through lower costs growth in retail volume and margin. Also it saw remarkable improvement in its lubricants business.

In addition, BP is strategically strengthening its petrochemical business. It is taking steps to significantly improve the cash break-even performance of the business through portfolio repositioning, improved operational performance and efficiency benefits. In fact, it is expected to create additional value from its distinctive technologies such as the recently announced licensing agreements for BP’s latest generation PTA technology in Oman and China. These moves should keep its downstream revenue intact in the future.

Conclusion

BP has a lot of upside potential with its upstream business, which has recently started getting materialized. The investors will see better results for its upstream business in the upcoming quarter and into 2016. Also, it is strategically building its downstream business that should enhance its performance in the future. The company has solid balance sheet that carries total cash of $31.95 billion and has total debt of $57.40 billion, as of September 30, 2015. It has operating cash flow of $20.57 billion for the trailing twelve months.

 

Published on Nov 11, 2015
By Harsh Singh Chauhan

Copyrighted 2016. Content published with author's permission.

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