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Is BP Ready for Lower Oil Prices?

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Part 7
Is BP Ready for Lower Oil Prices? PART 7 OF 17

Understanding BP’s Cash Flow Trend in 1H17

BP’s cash flow

In 1H17, BP’s cash flow from operations stood at $7.0 billion—22% higher than 1H16. BP’s cash outflow from investing stood at $7.8 billion in 1H17, compared with $7.3 billion in 1H16.

BP’s cash flow from financing activities mostly included debt changes and dividend payments. Its cash inflow from financing stood at $0.2 billion in 1H17, compared with $1.1 billion in 1H16.

Understanding BP’s Cash Flow Trend in 1H17

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Peer cash flows

ExxonMobil (XOM) saw a 62% YoY rise in its operating cash flows to $15.1 billion in 1H17. Chevron (CVX) saw a whopping 142% YoY rise in its operating cash flows to $8.9 billion in 1H17.

Royal Dutch Shell (RDS.A) saw a seven-fold increase in its operating cash flows. Shell’s operating cash flow rose from $2.9 billion in 1H16 to $20.8 billion in 1H17.

Analyzing BP’s cash flow strategy

In 1H17, BP generated $7.0 billion in cash from operations, but the company had a cash outflow of $8.6 billion in the form of cash capital expenditure or capex and $2.9 billion in the form of dividends paid, amounting to a total $11.5 billion of cash outflow.

But how did the company make up for the difference of $4.5 billion in cash flows (operating cash inflows $7.0 billion and cash outflows of $11.5 billion in capex and dividend)?

BP filled the gap by resorting to fresh debt and divestment proceeds. It raised $3.1 billion of net debt in 1H17, received $0.7 billion from divestment of assets and business, gained $0.4 billion in currency translation, and used some portion of its cash reserves.

What to expect from BP’s cash flows

Rising oil prices have given investors hope that BP’s cash flows can improve, and its robust upstream project pipeline is likely to bring in higher production in 2H17. With BP’s strategy—of optimizing capex, reducing cost structure, and keeping Gulf of Mexico spill charges under control—and its higher production, BP could see an improvement in its liquidity position—if oil prices keep improving.

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