Here's How BP plc's Focus Will Fuel its Future

BP is now a slimmer, more streamlined company than it was before the oil spill in the Gulf. Here's why management is still totally confident in what the future holds.

Apr 17, 2014 at 12:07PM

Bp

On April 10, BP (NYSE:BP) held its 105th annual meeting in London. Among the company's topics presented, its strategies to generate growth were the most pressing issues. BP is obviously a much smaller company in the years since the Gulf of Mexico oil spill. While management acknowledges the intense challenges that continue to haunt BP, it also feels it now has an opportunity in front of it.

BP believes its new status as a slimmed down oil and gas company will allow for greater focus on pursuing only the best, most profitable opportunities in the years ahead. While it may come as a surprise, one of its biggest opportunities will still be in the Gulf of Mexico.

A strategy that delivers value over volume
That's how management describes its over-arching goals over the next few years. BP is now a much different company than it was before the oil spill in the Gulf of Mexico. In the years since, BP has had to slim down, primarily to finance the massive legal fees and other associated penalties it's been forced to pay. Those fees have totaled more than $40 billion so far, a staggering sum that has, not surprisingly, required BP to raise cash.

But, in addition to setting money aside for those expenses, BP has its future as an oil and gas company to worry about. The company still wants to grow, and to accomplish all these goals, it's pursuing a strategy of value over volume. Over the next few years, BP will keep selling assets. Through next year, it plans to unload approximately $10 billion.

In addition, it's going to limit capital expenditures to roughly $24 billion this year, and won't spend more than $26 billion per year through 2018. This represents a much lower level of capital spending than BP's rivals, and shows how much smaller of a company BP has become in the years since the oil spill. For example, both ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX) plan to allocate $39.8 billion to capital expenditures this year, down roughly $2 billion for both companies.

BP's two rivals are trimming spending for a slightly different reason, which is that last year represented a peak year of investment. ExxonMobil and Chevron are now hoping the huge amounts of spending over the past couple of years will pay off with projects coming on-line.

Despite its capital restrictions, BP maintains its growth forecasts, which are to increase operating cash flow to $30 billion by the end of this year. This would represent a more than 50% increase from 2011. The company plans to achieve this with its smaller but more focused asset base, with fewer assets that are more streamlined. One specific area of focus will be deep-water exploration and production, where BP has several projects it expects to contribute in short order.

Among its global deep-water operations, BP is actually back to business in the Gulf of Mexico. It may be a surprise, but it's indeed true, thanks to a recent agreement reached with U.S. government. BP has reached an agreement with the Environmental Protection Agency that effectively resolves BP's suspension from new Gulf of Mexico contracts.

As part of the agreement, BP is once again able to enter into new contracts and bid for new deep-water leases in the Gulf of Mexico. In all, BP operates 10 drilling rigs in the deep-water Gulf of Mexico, and plans to increase future activity and investment there, which will be possible thanks to the agreement.

BP's focus will shape its future
BP has had to sell off tens of billions in assets and cut capital expenditures to strengthen its balance sheet and fund the more than $40 billion it's paid in financial penalties since the oil spill in the Gulf of Mexico. That's not deterring the company from making ambitious plans for the future. Rather, management is entirely confident it will achieve strong growth in operating cash flow and continue to return cash to shareholders.

This sense of confidence is due to management's focus on only the highest-performing assets in the best oil and gas fields across the world. This includes, but is not limited to, the Gulf of Mexico, where BP is once again a major player.

BP remains a solid dividend payer, just like these companies
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That’s beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor’s portfolio. To see our free report on these stocks, just click here now.

 

Bob Ciura owns shares of BP p.l.c. (ADR). The Motley Fool recommends Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers