BP (LSE: BP) (NYSE: BP.US) has been in deep water for years but the misery can’t last forever. Here are five ways it could make you rich.
1) By continuing its fragile recovery
BP’s share price is still down nearly 27% since 20 April 2010, almost four years ago, when news of the fatal Deepwater Horizon oil spill broke. Oil production is down 17% since then. BP is still in conflict with the federal authorities. The US Department of Justice is keen to retain the ban on BP competing for government contracts. All of this will take time to settle, especially with BP in a more combative mood. But the pain won’t last forever. If you want to get rich on the stock, you need to buy while trouble is still its business.
2) Finally getting out of Deepwater
The next leg of the Gulf of Mexico oil spill is fast approaching. District Judge Carl Barbier of New Orleans still has to rule on whether BP was guilty of ‘gross negligence’, which would open it to another $18 billion of penalties, or simple ‘negligence’. If the ruling goes against BP, brace yourself for another share price plunge/buying opportunity. This won’t be the end of it, because state finds and federal penalties could also follow, but the bulk of the pain may soon be over.
3) By continuing its exploration success
BP has just enjoyed its best year in exploration in a decade. Last year, it completed 17 exploration wells, which resulted in seven discoveries, a healthy hit rate. BP also started three major upstream projects last year, the Chirag Oil project in Azerbaijan began production on 28 January, and another five are set to follow this year. Chief executive Bob Dudley says 2013 is the year BP will start to build momentum, and has set an ambitious operating cash flow target of £30 billion, up from £21 billion in 2013. He was also bullish about BP’s risky decision to take a near 20% stake in Rosneft, controlled by the Kremlin. It is good to hear some optimism, after the 22% drop in full-year profits. The future may be brighter.
4) Because it is meaner and leaner than it was
BP has slimmed down considerably since Deepwater. The smaller, tighter business makes it easier to manage risks, Dudley says. It has divested $38 billion of assets, to fund its legal bills and clean-up costs. The sale of its interest in TNK-BP has helped fund $6.8 billion worth of share buybacks, with another $1.2 billion to come. BP is now lining up another £10 billion of divestments before the end of 2015, with most of the money earmarked for further buybacks.
5) By becoming even more shareholder friendly
BP has praised its patient shareholders in the past, and wants to reward them by becoming even more shareholder friendly. It now yields 4.4%, and that is forecast to hit 5.1% by December, then 5.3% by December 2015. In the longer run, dividends are the surest route to riches. And at a forecast price/earnings ratio of nine times earnings for December, you aren’t overpaying for the stock either. The share price has gone nowhere for the past year, but that will change one day. If you want BP to be your wealthy friend, now may be a good time to renew your acquaintance.
