Should Investors Buy BP?BP) is doing right thing by streamlining its downstream portfolio that should help the company to take advantage of these refining as well as gasoline product growth in the coming years.
BP had started the year on a positive note but lost its bearing of late. Its shares have lost approximately 16% of their market capitalization in the second-half, after a robust performance in the first-half. However, this drop in its share price in my opinion offers an opportunity for value investors to buy more of the shares as the company continues to benefit from its downstream business that is offsetting the decline in the upstream segment.
BP’s replacement cost profit for the third-quarter came in at $1.8 billion, up 39% from the second-quarter of 2015. This strapping performance in its replacement costs profit can be attributed to strong refining margins and its efforts of significantly lowering its unit cash costs as well as improvement in the capital efficiency.
Limiting capital expenditure
For instance, these initiatives have allowed the company to lower its capital expenditure this year. BP now expects its capital expenditure to be in the range of $19 to $20 billion as against the previously stated capital expenditure of $24-$26 billion for the year. In fact, the company expects its organic capital expenditure to remain in the range of $17 to $19 billion per annum through to 2017.
In addition, the company is significantly divesting its non-core assets. In fact, it plans to achieve approximately $10.00 billion in divestment programs by this year end. Also, expects around $3 to $5 billion of divestment in 2016 and approximately $2 to $3 billion in 2017.
BP is making this divestment as these non-core assets are not competitive at the current price environment. This divestment of the non-core assets will help the company to strengthen its balance sheet and invest in more productive assets that remains competitive against peers.
BP is taking various initiatives in order to remain competitive during this lower commodity price environment that should withstand its growth. It has right-sized its business and reducing its operating costs meaningfully. Also, it is investing in the downstream business that offers plenty of opportunity to benefit from during the low oil and gas prices.
Published on Jan 12, 2016By Vinay Singh