This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

BP, One Year After the Spill: A Slick Buy?

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

  • A Leaner BP is a Good Thing Financially


  • From the perspective of Argus Research analyst Phil Weiss, the sudden financial strength of BP is a plus, but a share repurchase wouldn't be his choice as a catalyst for BP shares. Weiss noted that BP lowered its debt as it has increased cash and the company wants to have financial flexibility given the oil spill liability overhang. The Argus Research analyst thinks the wisest use of a BP flush with cash is accelerated spending in exploration projects, especially if the Rosneft deal falls apart.

    Considering BP the cash cow and Argus Research analyst Weiss' comments about pouring cash into exploration leads directly to the recent asset divestitures made by BP.

    In the same way that Oppenheimer's Gheit argues the oil spill had the unintended, and good, consequence of forcing the BP dividend down, analysts believe that the oil spill pushed BP to sell off non-core assets quicker than it might have otherwise done, especially in the case of some specific asset sales that should have been made all along.

    "These large oil companies should be looking to sell off those assets they can't devote attention to, or put capital into, which are worth more in the hands of someone else," said Argus Research's Weiss. "There are so many other more lucrative projects, and it's better to monetize assets through regular asset divestitures. BP wasn't as aggressive as it could have been in selling assets before the oil spill," Weiss concluded.

    While BP was forced to sell, the so-called "fire sale" never occurred, says Oppenheimer's Gheit. In fact, BP was fortunate that it was a buying market and many wanted to make bids on its assets. "The seller got a fair price in my view and as a result BP is sitting on $24 billion in cash from sales with $6 billion more to go," the analyst said. "This company is not liquidating. This company is selling assets it believes to be much more valuable to others and BP wants to grow the company from a smaller and stronger base, with more financial flexibility," Gheit concluded.

    Raymond James analyst Molchanov added that the assets BP sold were generally low margin or low growth assets in places like Argentina, Vietnam and Pakistan. "The oil spill compressed the sales in a short period of time, and in that sense the oil spill was a catalyst to help BP take stock of its portfolio and re-conceptualize it. BP ends up with a high margin asset base," the analyst said.

    Indeed, the sudden cash bulge at BP raises the issue of whether BP's new management team led by CEO Bob Dudley can effectively deploy the cash. "More cash flow presents the opportunity to take capital and put it to good use -- and, on the other hand, the risk that the cash is mismanaged," Molchanov said.

    With earnings coming up on April 27, a big question for BP is what it does with the surplus cash flow that it didn't budget for, whether it's increasing the dividend, stock buybacks or increasing the spending budget.

    "The management responsibility here is to provide clarity on BP spending priorities," Molchanov said.

    3 of 6

    Check Out Our Best Services for Investors

    Action Alerts PLUS

    Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

    Product Features:
    • $2.5+ million portfolio
    • Large-cap and dividend focus
    • Intraday trade alerts from Cramer
    Quant Ratings

    Access the tool that DOMINATES the Russell 2000 and the S&P 500.

    Product Features:
    • Buy, hold, or sell recommendations for over 4,300 stocks
    • Unlimited research reports on your favorite stocks
    • A custom stock screener
    Stocks Under $10

    David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

    Product Features:
    • Model portfolio
    • Stocks trading below $10
    • Intraday trade alerts
    14-Days Free
    Try it NOW
    Only $9.95
    Try it NOW
    14-Days Free
    Try it NOW

    Check Out Our Best Services for Investors

    Dividend Stock Advisor

    David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

    Product Features:
    • Diversified model portfolio of dividend stocks
    • Updates with exact steps to take - BUY, HOLD, SELL
    Trifecta Stocks

    Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

    Product Features:
    • Model Portfolio
    • Intra Day Trade alerts
    • Access to Quant Ratings
    Options Profits

    Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

    Product Features:
    • Actionable options commentary and news
    • Real-time trading community
    Try it NOW
    Try it NOW
    Try it NOW
    To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
    Submit an article to us!
    SYM TRADE IT LAST %CHG
    BP $39.61 0.00%
    COP $62.93 0.00%
    CVX $104.28 0.00%
    RDS.A $60.48 0.00%
    TOT $50.82 0.00%

    Markets

    DOW 17,712.66 +34.43 0.19%
    S&P 500 2,061.02 +4.87 0.24%
    NASDAQ 4,891.2190 +27.8570 0.57%

    Partners Compare Online Brokers

    Free Reports

    Free Newsletters from TheStreet

    My Subscriptions:

    After the Bell

    Before the Bell

    Booyah! Newsletter

    Midday Bell

    TheStreet Top 10 Stories

    Winners & Losers

    Register for Newsletters
    Top Rated Stocks Top Rated Funds Top Rated ETFs