Why BP plc (ADR) (BP) Stock MIGHT Be Worthy Again

As of the most recent look, BP plc (ADR) (NYSE:BP) sports a market cap of $107.6 billion, qualifying it as one of the world’s 100 biggest publicly traded entities. The oil and gas giant also operates on six continents and in 70 different countries, making it as “international” as it gets. In that light, it’s tough to imagine the future of BP stock riding so heavily on one country — a country that produces less than 1% of the world’s oil, in fact.

Why BP plc (ADR) (BP) Stock MIGHT Be Worthy Again

Yet, if the company’s bottom line and the BP dividend of 60 cents per share are to remain healthy (and grow), Egypt is going to play a prominent role in its success.

Owners of BP stock may want to keep especially close tabs on what’s going on in North Africa.

Egypt Gets Serious

With just a passing glance, last week’s news that BP had completed its deal to buy a 10% stake in Egypt’s Shorouk concession is easy to dismiss. After all, 10% isn’t much, and Eqypt is anything but an oil powerhouse in terms of production.

When one reads the fine print of all the recent news about BP’s interest in Egypt though — and reads between the lines (or not even between the lines) — current and prospective owners of BP stock are forced to recognize that the British oil company sees something well worth its while in the central-southern edge of the Mediterranean Sea.

In many regards, Egypt is going through a “coming of age” crisis. It was once a net exporter of hydrocarbons, but a swell of demand stemming from a successful economic overhaul has now made it a net importer. Simultaneously, the same savvy governmental leadership recognizes the nation is best served by becoming a stable hub for the trade energy commodities … natural gas in particular. The nation aims to ramp up its gas production 50% by 2018, and is encouraging foreign investment to reach that target.

BP Gets Serious Too

BP has taken notice, and quietly taken aim as opportunities have emerged. Aside from the 10% stake in the Shorouk concession, the company owns one-fourth of the Nooros gas field found in the Abu Madi West concession in the Nile Delta.

What’s most amazing about both fields is their age and potential output.

Nooros was only discovered in 2015, and within ten months it had begun production. It could be yielding roughly 1 million cubic feet per day before the end of this year. Shorouk — the largest natural gas discovery in the history of the world, holding up to 30 trillion cubic feet — was only uncovered in the latter half of 2015, and BP holds a major stake in it as well.

It’s enough to make Egypt BP’s top priority. As the company’s CEO Bob Dudley recently noted, “In 2016-17 we’re investing more money in Egypt than any country in the world, so this is important for us, we have confidence in the government.” Some suggest BP is going to deploy $13 billion worth of capital in the country’s rekindling energy business by the year 2020. For perspective, the company budgeted roughly $18 billion for capital expenditures in fiscal 2016.

Looking Ahead for BP Stock

For some owners of BP stock, it looks like an awfully big commitment for a region not exactly known for its political stability, not to mention an uncertain future for energy prices. There’s a method to the madness though and it’s worth the risk.

If nothing else, being on good speaking terms with the Egyptian government positions BP well for deals on any future discoveries. And, most observers are confident that there’s more gas to be found. Shorouk and Nooros were both surprises that arguably should have been found long ago, leaving one to wonder what else has yet to be found.

A government that’s looking to capitalize on an opportunity rather than crimp it also bodes well for BP.

Perhaps the biggest upside of all, though, is the one that’s most difficult for BP stock holders to quantify. As Wood Mackenzie’s upstream analyst Adam Pollard recently explained:

“Egypt it is different, because the gas price for newer contracts is relatively high and you are insulated because there is a price floor and a ready market. EGAS [the state gas company] is willing to negotiate the price to encourage investment, meaning that Egypt is bucking the global trend of reduced spending.”

Besides, with oil prices seemingly unable to clear the $60 per barrel BP needs, a stronger focus on natural gas is essentially a must-do.

In other words, BP is barking up the right tree.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2017/03/bp-plc-adr-bp-stock-worthy-again/.

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