Rising Oil and Future Projects Make This the Time to Buy BP plc Stock

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BP stock - Rising Oil and Future Projects Make This the Time to Buy BP plc Stock

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BP plc (ADR) (NYSE:BP) stock has stumbled this year, with the return at -5.5%. But other mega oil operators have posted losses as well. So with oil price at over $70 a barrel, might BP stock be at an attractive entry point? Or should investors hold off?

Well, when it comes to BP stock, there has been a long track record of disappointment. Yet I still think – going forward – there are clear reasons to be optimistic.

Now it’s true that BP stock continues to be weighed down from the lingering impact of Deepwater Horizon explosion, which happened eight years ago. During the recent quarter, the company announced a $1.7 billion charge (keep in mind that the total bill has come to a staggering $63 billion).

However, BP has still been able to manage these liabilities and get back to profitability. During 2017, the company reporter earnings of $2.8 billion, compared to a loss of $1 billion in the prior year. It was actually the first full-year of profits since 2014.

BP Stock and Oil Prices

The rise in crude oil price was certainly a key driver for BP’s bottom line. Can the momentum continue? I think so. For the most part, the supply-demand fundamentals look particularly attractive.

On the demand side, the world economy continues to grow at a robust pace. Recently the IMF boosted its 2018 and 2019 growth forecasts to 3.9%, up 0.2%. Oh, and the International Energy Agency has raised its estimate for daily demand for crude to 99.3 million barrels, up by about 1.5 million

As for the supply side, it looks like OPEC (Organization of the Petroleum Exporting Countries) will remain vigilant. Saudi Arabia’s Energy Minister, Khalid al-Falih, recently indicated that there would continue to be output reductions through 2019.

And yes, the volatile geopolitical situation is also having an impact on crude prices. There are indications that the Trump Administration may impose sanctions on Iran, which could lead to more conflict. The hiring of John Bolton as National Security Adviser may also signal a more hawkish stance in the Middle East.

The BP Stock Price and Production

Over the years, it has gotten tougher for major oil companies to find new reserves and boost production. Some of the challenges include the difficulties in dealing with different countries as well as the problems of extracting oil in harsh environments.

But as for BP, the company has been able to find ways to deal with the issues. Note that last year production jumped by 12% (this is after excluding the stake in PAO Rosneft, which is a state-run Russian oil company). Within the next two years, BP expects to increase the number of barrels produced by 800,000 a day.

Then again, the company has been successful with its exploration efforts. Consider that last year BP started seven new projects – all of which were on schedule and under budget. The company also discovered 1 billion barrels of oil equivalent reserves.

Bottom Line on BP Stock

CEO Bob Dudley has done a great job with his restructuring. He has slashed costs and unloaded various divisions and properties – while, in the meantime, he has found ways to increase production.

BP stock is also trading at cheap levels, with the forward price-to-earnings ratio at 13.7X. By comparison, Exxon Mobil Corporation (NYSE:XOM) trades at 15.5X and Chevron Corporation (NYSE:CVX) is at 18X. What’s more, BP stock has a standout yield –at a hefty 6.1%.

And of course, the company should continue to benefit from rising oil prices. During the past year, the break-even per barrel went from $60 to $50 (by 2021, the estimate is for $35 to $40). In other words, there is likely to be strong continued growth on the bottom line, which should help get BP stock back on track.

Tom Taulli is the author of High-Profit IPO StrategiesAll About Commodities and All About Short SellingFollow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

Tom Taulli is the author of various books. They include Artificial Intelligence Basics and the Robotic Process Automation Handbook. His upcoming book is called Generative AI: How ChatGPT and other AI Tools Will Revolutionize Business.


Article printed from InvestorPlace Media, https://investorplace.com/2018/03/bp-stock-rising-oil/.

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