BP's (BP.) shares surged 5% today as the company raised its quarterly dividend by 6% to 9.5 cents per ordinary share and also committed to $10 billion in further share repurchases beyond the buyback plan already announced. Our outlook for 
BP remains unchanged. Cash flows will be growing in the coming years; its balance sheet is in great shape, and returning increasing amounts of cash to shareholders is something BP is now very well-positioned to do in the coming years. This optimistic outlook is despite our projection of $27 billion of Macondo after-tax cash outflows during the next decade.
Put another way, 2010 to the present has been very difficult for BP, as the Macondo oil spill forced BP to sell almost $40 billion of non-Russian assets, which had materially shrunk cash flows as well as oil and gas reserves. The process of shrinking itself to ensure it can handle its oil spill liabilities as well as fund its capital expenditure needs has finally ended, and we think it can be said with a high degree of confidence that a multiyear period of cash flow growth will begin next year.
Regarding BP's $30 billion operating cash flow growth target for 2014, many investors have had a difficult time understanding how such a target is possible given that operating cash flows thus far in 2013 have only been $15.7 billion. The answer, fortunately, is a simple one: As working capital has increased by $5.7 billion since the beginning of the year, and 70%-80% of this buildup is expected to be worked off by the end of 2014. Adding back this working capital and operating cash flow would have been $21 billion, which equates to an annual run rate of $28 billion. Adding to the re-commissioning of the Whiting refinery and a few key upstream project startups, $30 billion next year is very realistic, assuming oil prices remain around $100 per barrel.
On the Macondo legal front, our early October BP note reviewed the recent Fifth Circuit Court of Appeals ruling, which has temporarily paused business/economic loss, or BEL, payments. This was a positive ruling for the company, albeit a temporary one: BEL pay-outs will again be debated in court starting on Dec. 2. Beyond this issue, most near-term Macondo litigation won't take place until calendar 2014, and our sense remains that it will be many years before the major lawsuits will be settled. Despite the flurry of news during the last few quarters, our valuation estimate of future Macondo liabilities is little changed: it presently reduces our fair value estimate by $5.50 per ADS (10 common shares), which is the present value of $27 billion of after-tax cash flows paid throughout the next decade.
