Citi Likes A Simpler BP, Upgrades To Buy

Shares of BP plc (ADR) BP has been volatile year-to-date, as the company proceeds with a multi-year simplification initiative, which saw a restructuring in Norway last week. The benefits of a leaner organization are closing the returns-gap between BP and its peers, Citi’s Alastair R Syme said in a report.

The sharper business focus is likely to “offer further gains over the coming period,” on the back of improved asset utilization and cost-control, analyst Alastair Syme commented. He upgraded the rating for the company from Neutral to Buy, while raising the price target from £3.70 to £4.10.

Sustainable Gains

The analyst mentioned that due to the shift in strategy, BP now leads the Big Oil group on several key metrics:

1. Upstream units cost reduction of 22 percent between 2013 and 2015, versus peer median of 14 percent
2. A 210 bps returns advantage on Upstream projects sanctioned since 2013, “partly stemming from the ability to fill existing infrastructure hubs (e.g. Thunder Horse)”
3. The lowest exploration intensity in the peer group

“These sustainable gains provide the basis for full dividend cover at $55-60/bbl oil 2017/18E, including required Macondo payments of c. $1 B/year,” Syme wrote.