Barclays Expects Top Oil Pick BP to Gain 30%

BP is "heading toward a sweet spot" according to Barclays analysts.
By Paul Whitfield ,

The last time BP (BP) - Get Report traded at 600 pence ($8.00) was over six years ago, in the days before the devastating explosion and oil spill at its Macondo prospect in the Gulf of Mexico. Now, Barclays think shares in Britain's largest energy company are heading back to that level again.

"Our NAV-based price target of 600 pence implies close to 30% potential upside," Barclays analysts Lydia Rainforth noted on Friday. "BP is...heading towards a sweet spot offering top-line momentum, better operational efficiency and lower costs."

BP, led by CEO Bob Dudley, will cover its capital expenditure and its dividends from organic cash flow at oil prices of $50 to $55 a barrel in 2017, according to Barclays. The 600 pence target is based on a long-run oil price of $60 a barrel and would imply a dividend yield of close to 5%, the bank said.

It also implies a bullish view of the direction that petrol prices will head. Brent Crude traded Friday at $47.48, and last traded above $60 a barrel a year ago.

BP shares traded Friday at 454.35 pence, down less than 1% on their Thursday close of 454.65. The stock had traded at above 650 in April of 2010 before the deadly explosion at the Deepwater Horizon rig in the Gulf of Mexico sent them plummeting to 305 pence within a month.

Barclays prediction came a day after BP announced an estimation of all its remaining material liabilities from the Macondo disaster, noting that it would take an after-tax non-operating charge of around $2.5 billion in the second quarter, relating to a pre-tax charge of $5.2 billion. Those charges take to $61.6 billion the total pre-tax cost to BP from the spill.

"We've made significant progress resolving outstanding Deepwater Horizon claims and today we can estimate all the material liabilities remaining from the incident," said BP's CFO Brian Gilvary.

Goldman Sachs analysts described the announcement as a "small positive" as it reduces uncertainty but noted that the additional charge "is material in the context of the business." Goldman has a 12-month price target of 405 pence per BP share and rates the stock neutral.

Tudor Pickering Holt analysts said the $2.5 billion post-tax charge was $1.5 billion higher than their estimates. TPH has a BP price target of 452 pence and rates the stock a hold.

TheStreet Ratings team rates BP PLC as a Hold with a ratings score of C.

Loading ...