British supermajor BP Plc (BP) intends to boost its capital expenditure in the upcoming years to cope with the drastic changes in its portfolio. The Rosneft deal as well as the divestment plan post-Macondo has largely altered the oil giant's portfolio.
Currently, BP targets to employ capital expenditure in the range of $24 billion to $27 billion per year through 2014 and 2020. The company also aims to enhance its operating cash flow by about 50% to over $30 billion by 2014 versus 2011's level of $18.5 billion. BP has also pledged to double the unit operating cash margin of new upstream projects from the 2011 average.
BP remains busy in reshaping its portfolio through the divestment of smaller non-core properties to pay spill-related costs, while holding onto potential big resources. The ongoing divestiture program sees the British major getting rid of its mature, non-core upstream assets to create a portfolio with stronger growth potential from a smaller base.
BP plans to focus on higher-margin deepwater oil plays -- Angola, Azerbaijan, the US Gulf of Mexico and the North Sea -- and proposes to spend the majority of its capital expenditure on these plays in the near future. The company plans to finance its increased capital expenditure from the proceeds raised through asset sale.
The oil giant had set a goal to divest around $38 billion worth of assets by 2013, of which it has contracted to sell assets valued at nearly $37 billion till date. This includes the closure of a $5.5 billion cash deal with Houston's Plains Exploration & Production Company (PXP) relating to the divestment of various oil and gas fields in the deepwater US Gulf of Mexico in November 2012.
The company plans to divest assets worth another $2 billion to $3 billion, in view of the increased liability of $3.85 under the plea deal on criminal charges related to the Macondo disaster and still faces a potentially costly civil trial over the 2010 spill in February 2013.
However, BP is working on an integration plan with Rosneft, wherein it will gain a stake of 19.75% from the sale of its interest in TNK-BP likely to be completed in the first half of 2013. Per the plan, BP intends to create synergies with Rosneft to grow cost efficiency and optimize its portfolio. The pair also proposes to explore opportunities abroad along with the developments in and around Russia.
BP holds a Zacks #3 Rank (short-term Hold rating). Longer term, we maintain our Neutral recommendation.