Shares of BP plc (ADR) (NYSE: BP) rose 10% in April, which was a huge move for the oil giant since it added about $13 billion to its market cap. Several factors combined to drive the stock higher, led by the continued rebound of crude prices.
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Oil was red-hot last month. Brent, the global oil benchmark, jumped 7.7% to nearly $75 a barrel. Not only was that its highest level since late 2014, but it was the biggest monthly gain since September of 2017. Several factors fueled crude last month, including continued strong demand growth, which when combined with OPEC's efforts to cut back supplies, led to much tighter market conditions. That optimistic oil market drove the view that BP and its peers will make more money, which is just what happened in the first quarter when the company rode those higher prices to its best results in three years.
Another factor fueling BP's rise last month was a string of announcements from the company relating to its future. In Indonesia, the company said it now plans to load 119 LNG (liquified natural gas) cargoes per year from its Tangguh project once it completes the third liquefaction train in 2020. Meanwhile, the company also announced the development of two new oil fields in the North Sea and sanctioned the second phase of Oman's Khazzan gas field, which will come online in 2020 and 2021, respectively. Finally, the company got the green light to start exploratory drilling off Canada's east coast. Those project approvals show the increasing confidence that oil companies like BP have in the future.
A third factor fueling last month's rally was a research note from Goldman Sachs, which upgraded BP's stock from neutral to buy and set a $54 price target. The bank cited BP's growing cash flow and improving returns, which make it an attractive turnaround story. Further, Goldman noted that BP's portfolio of new projects are more profitable today at $60 oil than similar ones would have been in 2014 when crude was $100, which is a testament to the company's efforts to drive out costs in recent years.
BP's cost-cutting moves positioned it to thrive if oil prices stayed lower for longer. The upside of that strategy is that the company would produce a gusher of earnings and cash flow if crude prices strengthened, which has been the case in recent months. Even if oil slips a bit from here, the company is well positioned to grow production and cash flow, which has the potential to create even more value for investors in the coming years.
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