Will BP Make a Comeback?

BP PLC or British Petroleum is a British petrochemical corporation that has become one of the biggest oil companies in the world after its merger with the US-based Amoco Corporation in 1998.

The company was first incorporated on the 14th of April 1909, as the Anglo-Persian Oil Company, Ltd. It was renamed the Anglo-Iranian Oil Company, Ltd., in 1935, and changed its name to the British Petroleum Company Limited in 1954. The name of British Petroleum Company PLC came into existence in 1982. Following the merger with Amoco in 1998, the corporation adopted the name BP Amoco before being rebranded as BP PLC in 2000. The headquarters of the company are in London.

Anglo-Persian Oil Company

The Anglo-Persian Oil Company was established for the purpose of managing and funding a concession granted by the Iranian government through an English investor William Knox D’Arcy. The first oil wells were excavated at Masjed Soleymān, and crude oil was piped to a refinery built in Ābādān, from which the first cargo of oil was shipped in March 1912.

Other fields and refineries were built in Iran, and by 1938 Ābādān had the greatest refinery in the world. The concession was revised in 1933, was superseded in 1951–53, and renewed in 1953 in a consortium with other oil companies.

The deal of its time: BP goes private in the 1980s

In 1914 the British government became a principal stockholder and continued being so. The British Petroleum holding company came into effect on the 1st of January 1955. From 1977, when the UK government started selling its British Petroleum shares to public, and in the late 1980s it completely handed over British Petroleum to private ownership by selling its remaining shares. 

It was in March 1987 when BP was privatised for £7.2bn but the deal was closed later on 19th of October. The majority of BP was initially state-owned, and the British government privatised the company in stages starting from 1979 until 1987. This paved the way for British Petroleum to absorb Britoil PLC, an autonomous oil corporation that extracted crude oil from North Sea fields.

Building several oil fields across the world

The British Petroleum firm built oil fields in several countries apart from the famous Prudhoe Bay oil field in the United States and the United Kingdom’s sector of the North Sea. The latter one was where it made the discovery of natural gas in 1965 and the discovery of a major oil field in 1970.

Beginning in 1970, British Petroleum (BP) merged its assets in the United States with those of the Standard Oil Company (Ohio) where it (BP) acquired a controlling stake. In 1987, BP acquired the rest of the Standard Oil Company for about $8 billion. In 1998, when the US oil company Amoco merged with BP to form the giant BP Amoco.

The latter became one of the biggest petroleum companies in the world. In 2000, following the mergers of Atlantic Richfield Company (known as ARCO brand gasoline in the western parts of the US) and Burmah Castrol (a leading oil and gas company in Britain), the company changed its name to BP PLC.

BP and Environmental catastrophes

BP had been involved in various environmental catastrophes and incidents in the period between 1988 and 2015.  The largest marine oil spill ever known in history occurred in 2010, in the Deepwater Horizon, a drilling rig that belonged to Transocean and was leased by BP.

The rig exploded and sank, resulting in an oil well riser failure. It has been estimated that 4.9 million barrels of oil entered the Gulf of Mexico. Furthermore, the company was forced to pay billions of dollars in damages to individuals and businesses affected by the spill. In 2012, BP agreed to pay around $4.5 billion in penalties and fines to the US government while pleading guilty to 14 criminal charges. In 2015, during a civil suit, it consented to pay about $20 billion.

BP and Renewable energy

In the late 20th century, BP was one of the major investors in renewable energy, and in 2003 the company adopted the slogan “Beyond Petroleum.” However, within a decade BP reduced its renewable energy projects all together. More importantly, in 2012 the firm discontinued its solar energy unit.

BP shares making a comeback?

According to an article in Barron’s (dated 21 Jan. 2024), BP is back to focusing on what it does best—and this could be great news for its underperforming stock.

To the dismay of its shareholders, BP announced in 2020 that it would look to cut hydrocarbon production by 40% and increase investment in non-fossil fuels such as electric vehicle charging stations, biofuels, hydrogen, and renewable power. In spite of the fact that climate-oriented Europeans saw BP as a typical energy company, American investors preferred Exxon Mobil and Chevron, which stuck to the core oil-and-gas business.

• U-turn

BP has made a U-turn. The company has shifted back to the oil-and-gas business of which the US-oriented operations are by far the best and are undervalued on both sides of the Atlantic. BP is one of the two oil majors in the Gulf of Mexico and enjoys a prominent position also onshore in the Permian, Haynesville, and Eagle Ford regions of Texas. By 2030, BP envisions more than 50% increase in its American oil-and-gas producing capacity and bringing half of that output—which is around 2 million barrels a day in the US.

• Shares remain cheap

However, this has not had an effect yet in terms of its shares, which are trading around $34 after hitting a 52-week low in January. What is interesting is that the stock goes for $5 a share, which is considered very cheap even for big European energy companies which tend to trade at a significant discount compared to their American peers.

• High dividend

BP’s 5% dividend yield is the highest among oil majors, and the dividend remains a top priority: The company targets a growth of 4% annually even when WTI prices drop to $60 a barrel from the current $80,

• Buy-back program

The company is also buying back shares under an active share-repurchase plan. Most likely, price was around $8 billion in 2023, which represents about 8% of its market capitalisation. It is estimated that $4 to $6 billion worth of shares will be purchased back throughout 2024.

• New CEO of BP

The new CEO of BP, Murray Auchincloss, was on an interim basis since September. Auchincloss was the former CFO and is a Canadian who started his career with Amoco. Later, he was acquired by BP during the late 1990s when it bought Amoco. Many believe he is a shareholder-friendly person who may stand up to climate activists and European institutional investors who have been pushing BP and Shell in the UK to de-carbonise their portfolios. Clint lauded the new CEO, stating that “Auchincloss is widely known and well respected” among investors.

• Doubling production by 2030

The company intends to double its production to 650,000 barrels per day by 2030 and could even generate $4 billion in free cash flow annually.

BP plans to generate around $55 billion in Ebitda by 2030, up from the estimated $43 billion in 2023. Its transition business is targeted to contribute approximately $12 billion, an increase from $4 billion in 2022. If it achieves this total number, the company should be able to make dividend payments and buy back their shares.

The company owns a lot of oil and natural gas beneath the surface. BP believes that its current recoverable resource base stands at 18 billion barrels of oil equivalent, enough to keep the company going for another 20 years at this production level.

The energy sector

Investors are dissatisfied with BP’s wind business. Last year, the company made a $440 million charge for a financially unviable offshore project in New York state in partnership with Norwegian oil company Equinor.

Instead, investors want the company to concentrate on the profitable and growing mobility and convenience division which incorporates its gas stations, convenience stores, and EV charging stations.

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