5 Things BP's Management Thinks You Should Know

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This past quarter, BP (NYSE: BP) looked like it was on the precipice of something big. Not only were earnings starting to look better, but BP is about to enter a rather impressive growth phase as several major projects come on line.

On the company's most recent conference call, BP CFO Brian Gilvary touched on this major growth phase and how it will impact the bottom line as well as the overall economics. And, of course, no BP discussion would be complete without some discussion of the Macondo oil spill and the ongoing costs. Here are several quotes from the company's most recent conference call that should help give you a better understanding of BP's mind-set headed into the rest of the year.

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Oil price projections moving again

BP has been waffling quite a bit lately on how it is planning for the future. Integrated majors typically use some future oil price as a means to develop budgets and value prospective finds. Less than a year ago, the company was looking to achieve a breakeven of $50-$55 per barrel of Brent crude. Then, last quarter, CEO Bod Dudley said that the corporation would be able to "re-balance its financial framework" at $60 a barrel. This past conference call, CFO Brian Gilvary added a few new numbers into the mix.

If you are a little confused by all these numbers being thrown around, you aren't the only one. The difference here seems to be that, at present, an oil price of $50-$55 per barrel is enough to cover its current capital spending as well as its dividend payments. That $60 a barrel is sufficient to achieve both of these things as well as eliminate the scrip dividend and lower its total debt levels to the desired range of 20%-30% of the capital structure. Finally, that range of $35-$40 per barrel is what breakeven will be several years from now when many of its major capital projects have come on line and spending is lower. That last one is a little harder to believe, though, since the company will likely embark on new spending projects once those under construction come on stream.

Big cash bump

2017 is slated to be a big year for BP's oil and gas production. By the end of the year, it expects to have seven major capital projects completed and producing. When asked what kind of impact that would have on the company's cash flow, Gilvary was pretty clear that it will lead to a significant bump in operational cash, and it will have an impact on breakeven prices.

Shoring up its Lower 48 operations

For a while now, one of the largest stains on BP's quarterly results has been its U.S. operations, notably its ventures into shale. It wasn't that long ago that the company internally spun off its Lower 48 operations into an independent business that runs within BP to better respond to the fast-paced nature of shale drilling. It hasn't worked out so well thus far. This past quarter, U.S. upstream operations only accounted for 12% of upstream earnings even though it was 30% of total production. When asked what the company's capital plans were for the U.S., here's what Gilvary had to say.

The thing that should be a little concerning here is that the company is still doing experimental drilling to determine the best path forward for shale. Compare that with ExxonMobil and Chevron, which both have plans to grow significantly in the Permian Basin over the next few years. Part of BP's slower response is that the company's shale assets are much more related to gas -- hence the breakeven results given in natural gas prices.  Still, BP is going to have to figure out how to turn these operations into higher rates of return, because they aren't getting it done today.

Cutting even more?

At the top of the conference call, Gilvary said that BP's capital spending would likely be in the $15 billion to $16 billion range, which was the lower end of its initial projections. Those plans were contingent, of course, on oil prices in a certain range. When asked if there was room to cut spending or if this was about as low as it gets for the year, Gilvary said there was still some wiggle room.

That last part is important because oil prices have dipped below that $50-a-barrel mark. Don't be surprised if we get a lower capital budget projection in the coming months.

Homestretch on Macondo

It seems that the Macondo well spill is the issue that just won't go away. While the company did settle with the U.S. government, which will involve annual payments for more than a decade, the company still has some outstanding claims from businesses that claimed the spill impacted their operations. These led to some large spill costs this year, but Gilvary noted that almost all claims have now been processed and that we can expect outlays related to the Macondo spill will decline soon.

Management expects that total costs for the Macondo in 2017 will be $4.5 billion to $5.5 billion depending on these claims. In 2018, costs will drop to $2 billion in 2019, and then down to $1 billion per year for several years starting in 2019.

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Tyler Crowe owns shares of ExxonMobil. The Motley Fool owns shares of ExxonMobil. The Motley Fool recommends Chevron. The Motley Fool has a disclosure policy.