BP Is 'On The Cusp' of Delivering Huge Oil and Gas Results - Goldman

Goldman Sachs reminded us just how bullish it is on BP PLC  (BP) . 

With a "buy" rating on the oil giant, analyst Michele Della Vigna wrote in a note to clients that "BP is on the cusp of delivering one of the industry's strongest pipelines of new oil & gas projects." That, coupled with several other factors, indicated to Della Vigna that BP could be headed for a "free-cash-flow sweet spot." 

With a 12-month price target of $59 a share, roughly 35% above its current level, Della Vigna cited a double-lift to BP's cash flow. The double-lift is simple: More money coming in, less out. 

Record Oil and Gas Pipeline Projects

"The delivery of a record pipeline of upstream projects is progressively bringing BP closer to the sweetspot of its E&P transformation, which we believe will materialize in 2019, with production from nine major upstream projects rapidly ramping up to peak capacity, and capital expenditure commitments falling," the analyst wrote. And those projects are simply better than the competition, he added. "We estimate that BP's portfolio of new projects is more profitable today and is now among the best in the industry."

Macondo Oil Spill Payments Are Coming Down 

"Macondo payments are winding down to <5% of BP operating cash flow by 2020," Della Vigna said. "We expect BP to reach its sweetspot by 2020, particularly once Macondo-related cash payments fall to $1 billion." 

That cash-flow sweetspot isn't a mere improvement. The increase will be pretty significant. "We expect BP's FCF yield to grow to >10% by 2021E, as the company not only delivers a record pipeline of upstream projects but does so in a more favourable environment, with higher oil & gas prices," Della Vigna said. 

BP shares fell 0.9% to $43.63 on Thursday.

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