BP Finally Moves On from Oil Spill

After a multiyear period of shrinking because of the Macondo oil spill, BP finally is about ready to begin growing again

Stephen Simko, CFA 5 March, 2014 | 2:19PM
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It’s been a pretty busy few days for BP, as multiple events affecting the company have unfolded: the separation of BP’s Onshore U.S. business, a material Macondo oil spill court ruling, and political turmoil in Ukraine and Russia. That said, these events don’t collectively change our long-held view of the company, which is that BP has finally turned the corner from the Macondo oil spill and is about to embark on a multiyear period of operating cash flow growth. Indeed, management today unveiled 2015 to 2018 cash flow targets that support this notion.

Our expectations remain that BP can handily meet its $30 billion-$31 billion cash flow target for this year and thereafter expanding annual operating cash flow to $34 billion-$35 billion by 2017/18.

Regarding the separation of Onshore U.S. Upstream, details remain scarce as to what BP’s intentions are for creating a separate company to run the upstream portion of its onshore U.S. business. On the one hand, shale gas - which is where all growth in these assets will come from, is a very different game than conventional oil and gas, and management may have realised that the culture required to succeed is different than its own. But it’s also possible that BP is preparing to spin off this business in the future; if so, the company’s primary motivation won’t be known for some time, as BP disclosed it will not begin disclosing financials for this new segment until 2015.

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Stephen Simko, CFA  is a senior stock analyst at Morningstar.

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