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Did BP’s Cash Flow Position Weaken in 2018?

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BP’s cash flow analysis

BP’s (BP) cash flow from operations rose 21% YoY (year-over-year) to $22.9 billion in 2018. Let’s review how well these inflows cover essential expenses like the capex and dividends.

BP had a cash outflow of $23.7 billion in the form of capex and acquisitions and $6.7 billion in the form of dividends, which adds up to a cash outflow of $30.4 billion. BP’s cash flow from operations fell short by $7.5 billion ($22.9 billion of inflows minus $30.4 billion of outflows) in covering the vital capex and dividend outflows.

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BP bought back $0.4 billion of its shares and invested $1.4 billion in joint ventures and associates. To cover the shortfall, buybacks, and investments, BP raised its debt, sold non-core assets, and utilized its cash reserves. BP had $3.2 billion of debt inflows in 2018. BP had $2.9 billion of divestment inflows in 2018. BP’s cash and equivalents fell from $25.6 billion at the beginning of 2018 to $22.5 billion at the end of 2018.

BP’s cash flow compared to its peers

If we estimate BP’s shortfall as a percentage of its earnings capacity (cash flow from operations), it was 33%. Royal Dutch Shell (RDS.A) and Suncor Energy (SU) had cash flow surpluses in 2018. However, Total (TOT) had a cash flow shortfall in 2018.

What does BP’s cash flow analysis reveal?

BP saw a cash flow shortfall in 2018, which isn’t a good sign. BP’s shortfall has risen from 22% the previous year.

However, the rise in the shortfall was due to the acquisition of BHP’s onshore assets, which led to higher capex and acquisition outflows resulting in a higher shortfall. The acquisition is expected to result in higher upstream production and earnings for the company in the coming years.

Going forward, BP will have to strike the right balance between growth and liquidity.

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