Is BP Ready for Lower Oil Prices?

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Is BP Ready for Lower Oil Prices? PART 1 OF 17

BP Aims to Balance Cash Flows within $35–$40 Oil Price Range

BP’s financial framework

BP (BP) targets to balance its cash flows at an oil price range of $35–$40 per barrel by 2021. BP also aims to make its cash flows resilient to the volatile oil price environment. It plans to grow earnings and add value to its shareholders’ wealth—even at a subdued oil price level.

BP also plans to expand both its Upstream and Downstream segments and to maintain strict financial discipline in terms of cost, capex, and portfolio.

BP Aims to Balance Cash Flows within $35–$40 Oil Price Range

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Upstream and downstream earnings growth

BP expects its Upstream segment earnings to grow in the next five years due to higher hydrocarbon production and lower costs. It plans to add around 1000 Mboepd (thousand barrels of oil equivalent per day) of new production by 2021. Around 800 Mboepd is expected to come from its key projects, and around 200 Mboepd is expected to come from new portfolio additions.

BP expects its Upstream development costs to decline by 20%. Its operating cash margins are also expected to rise 35% steadily over 2015 levels. Higher production and improved margins should help BP achieve its aim of balancing cash flows, even at lower oil price levels.

BP expects its downstream portfolio to achieve $3 billion in earnings growth by 2021. BP expects its competitive downstream advantage to complement the benefit created by its Upstream segment, creating an integrated value chain.

Series overview

In this series, we’ll examine BP’s financials and market performance after its 2Q17 earnings release. We’ll review BP’s major upstream projects, segmental performance and outlook, debt position, and liquidity situation. We’ll also look at the analysts’ ratings and dividend outlook and examine BP’s stock performance, price forecast based on implied volatility, changes in short interest, institutional holdings, and valuations.

Continue to the next part to look at BP’s financial discipline details.


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