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BP Continues to Bank on Upstream Projects, Debt Levels High

Nilanjan Banerjee

BP plc BP is one of the leading integrated energy players in the world. The company has a strong portfolio of upstream projects, which have been driving impressive production growth. Let’s delve deeper to find out why this Zacks Rank #3 (Hold) stock is worth retaining in your portfolio at the moment.

Factors Favoring the Stock

Since 2016, BP has placed 23 key upstream projects online. All the key projects BP has been delivering over the years have helped the company see record production levels. Notably, the projects that were placed into production will not only help fetch significant cash flow but will also boost production by 900 thousand barrel of oil equivalent per day (MBOE/D) by 2021.

BP is also on track to capitalize on the global economy's transition to lower carbon fuels. Apart from focusing strongly on oil production growth, the company has been investing in renewable energy business with a plan to ramp up capital spending for non-oil and gas business. In fact, BP has plans of becoming carbon-neutral by 2050.

Moreover, the energy giant has a strong commitment to return cash to shareholders through buybacks and dividend payments. Through 2019, BP spent $1,511 million on the repurchase of 235 million ordinary shares. Moreover, the company raised quarterly dividend by 2.4% in the December quarter. Notably, as compared to composite stocks belonging to the industry, the company has mostly been paying higher dividend yield over the past decade.

Importantly, the oil spill incident is no longer a major threat to BP’s outlook. In fact, BP has successfully settled almost all litigation related to the disaster with relatively insignificant cash outlays remaining.

Factors Deterring the Stock

Although the energy giant cleared $1 billion of net debt in the December quarter of 2019, the company’s debt load is significantly higher than its peers. BP’s debt-to-capitalization ratio stands at almost 40% higher than its peer group’s 13.7%. In fact, the company probably needs to go a long way to make its balance sheet as flexible as that of its peers.

Moreover, oil prices are now in the bearish territory owing to lower global energy demand and oversupply in the commodity market. Weak crude prices, which are unlikely to recover soon, are thus affecting the company’s upstream business.

BP p.l.c. Price

BP p.l.c. Price

BP p.l.c. price | BP p.l.c. Quote

 

Stocks to Consider

Some better-ranked players in the energy sector are Precision Drilling Corp. PDS, Antero Resources Corp. AR and Hess Corp. HES. While Hess carries a Zacks Rank #2 (Buy), Precision Drilling and Antero sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Precision Drilling beat the Zacks Consensus Estimate for earnings in the prior four reported quarters.

Antero is likely to see earnings growth of more than 270% in 2020.

Hess’ bottom line for 2020 is expected to climb 93.7% year over year.

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Hess Corporation (HES) : Free Stock Analysis Report
 
BP p.l.c. (BP) : Free Stock Analysis Report
 
Precision Drilling Corporation (PDS) : Free Stock Analysis Report
 
Antero Resources Corporation (AR) : Free Stock Analysis Report
 
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