BP (NYSE:BP), like most oil stocks, has struggled with the continued volatility in the oil market over the past few years. On the one hand, the oil giant has produced a total return of more than 28% in the last three years, which has outperformed the roughly 16% rise in the global oil benchmark over that time frame. BP, however, has trailed the S&P 500's total return of more than 42% over that period.

While BP hasn't beaten the market in recent years, the company is working on a strategy that it hopes will fuel outperformance in the years to come. Here's a look at the bull and bear cases for buying shares of the oil giant.

An offshore oil production platform at sunset.

Image source: Getty Images.

The bull case for BP

BP is working to transform its portfolio so it can prosper at lower oil prices. The company's five-year strategy is to invest in low-cost, high-return opportunities that will grow both its production and its margins. The goal is to generate increasing free cash flow, with a target of $14 billion to $15 billion in 2021, assuming oil averages $55 a barrel. That will give it the funds to support and grow its high-yield dividend as well as buy back meaningful amounts of its stock.

The company is taking a broad-based approach to fueling this growth. It expects to bring 20 major projects online over the next three years in places like the Gulf of Mexico and the North Sea. These large-scale developments alone will add 900,000 barrels of oil equivalent per day (BOE/D) to BP's production base by 2021 and contribute one-third of the company's upstream cash flows.

The other driver of BP's growth will be its U.S. shale business. It boosted these operations last year by acquiring a portfolio of assets from global resources giant BHP. The $10.5 billion deal -- BP's biggest since 1999 -- gave it drillable land in the oil-rich Permian Basin and Eagle Ford shale of Texas. The company expects to drill more wells in both areas in the coming years, which will boost its production and cash flow.

Meanwhile, there is plenty of upside to BP's base plan. For starters, oil prices, while volatile, have the potential to rise well above BP's $55-a-barrel baseline (they're currently at $59 per barrel), which would enable it to produce even more cash. It also has a strong balance sheet, which it could use to make another needle-moving acquisition to enhance its ability to grow free cash flow. 

A man holding a barrel of oil with caution written on it in one hand and cash in the other hand.

Image source: Getty Images.

The bear case for BP

The biggest threat to BP's cash flow growth strategy is oil prices. While the company set a low baseline of $55 a barrel, crude prices have fallen below that level several times in the past few years. The main factor weighing on oil prices is that supplies continue to outpace demand. While OPEC is currently holding back supplies to prop up prices, production continues to grow in places like the U.S., which is counteracting these efforts. Meanwhile, demand growth has started cooling off as the global economy has weakened. If a recession hits, crude will likely tumble, which would negatively affect BP's ability to hit its free cash flow target.

Another concern with BP is that it's highly dependent on offshore drilling to drive growth. That poses two distinct risks. First, BP is still dealing with the aftermath of the Deepwater Horizon disaster. It had to sell billions of dollars in assets so it could pay for the damages and other charges. Because of that, another major offshore drilling disaster would almost certainly sink the company's stock.

An additional worry with BP's offshore focus is that it's currently benefiting from lower costs due to that sector's multi-year downturn. In BP's view, its projects will have 20% lower development costs than they did in 2015. Offshore costs, however, have started going up as the industry is finally beginning to recover. If they rise too much, which was the case before the oil market downturn, it could negatively affect BP's returns and cash flow expectations.

Verdict: BP is a good buy

BP has a solid plan in place to generate significant future cash flow at a low oil price point. While oil prices and its offshore focus are always a concern, the company's strong balance sheet, low-cost structure, and operational improvements help reduce those risks. Because of that, the company should have the funds to increase its already attractive 6.7% dividend as well as buy back a meaningful amount of stock. Those growing shareholder returns should give BP the fuel to outperform the market in the coming years. That makes it a solid oil stock to consider buying, especially for those seeking an above-average income stream.