20th Mar 2024. 9.04am

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Fuelling growth: BP’s strategic momentum in a strong market

With brent crude breaking to a four-month high this week, we’re turning our attention to BP (BP.) which has high-quality financials and plenty of bullish momentum.

A key catalyst behind last week’s breakout in Brent crude was the release of a report from the International Energy Agency (IEA), which highlighted a tightening market outlook for 2024.

The IEA revised its projection for 2024 oil demand growth upwards for the fourth time since November, citing disruptions in Red Sea shipping due to Houthi attacks. However, it cautioned that the ongoing global economic slowdown presents an additional challenge to oil consumption.

The IEA anticipates a 1.3 million barrels per day increase in oil demand for 2024, reflecting a rise of 110,000 bpd compared to the previous month but remaining below the 2.3 million bpd growth seen last year. Additionally, the IEA adjusted its 2024 supply forecast downward, now expecting oil supply to climb by 800,000 bpd to reach 102.9 million bpd this year.

BP’s share price has mirrored the breakout in brent, the shares have broken above a key area of resistance at 2530p created by the dual February swing highs. This breakout signals a change in trend and momentum and potentially opens the door for a retest of last year’s highs as the price of Brent crude continues to climb.

Despite challenging market conditions during the last year, BP has maintained a robust financial performance, providing investors with confidence in its resilience and stability.

Whilst headline revenue declined, the company’s profitability metrics remain strong. For example, BP’s operating margin and return on capital employed (ROCE) have remained solid at 11.8% and 12.8% respectively, reflecting its operational efficiency and effective cost management.

Furthermore, BP’s strong cash flow generation capabilities have enabled it to sustain dividend payments and undertake strategic investments while maintaining a healthy balance sheet.

BP paid a dividend of 28.6p (4.57%) last year (FY23), this is expected to rise to 30.4p (4.86%) this year (FY24) and 32.4p (5.18%) the year after (FY25). These payouts are comfortably covered in excess of 2x forward earnings.

Another highlight in BP’s recent trading update was the announcement of a $14 billion share buyback program.

The buyback plan, spanning over several years, demonstrates management’s confidence in BP’s intrinsic value and its commitment to enhancing shareholder returns. This significant repurchase initiative not only signals BP’s belief in its future prospects but also indicates its intention to deploy excess cash in a manner that benefits shareholders.

By reducing the number of outstanding shares in the market, BP effectively boosts its earnings per share (EPS) and return on equity (ROE), increasing shareholder value. This news has been positively received by investors, contributing to the upward momentum in BP’s share price.

In 2023, BP embarked on a significant expansion journey by initiating four major oil and gas production projects. BP anticipates these projects to play a pivotal role in achieving its target of around 200 thousand barrels of oil equivalent per day (mboe/d) from ten new major projects by 2025.

Each of the four projects initiated by BP represents a significant milestone in the company’s expansion strategy:

  • Mad Dog Phase 2: Located in the US Gulf of Mexico, the Mad Dog Phase 2 project commenced operations in April 2023. This deepwater oil project features a new semi-submersible floating production platform capable of producing up to 140,000 gross barrels of crude oil per day. The project is poised to achieve peak annual average production of approximately 120 thousand barrels of oil equivalent per day (mboed).
  • KG D6 MJ: The MJ project, part of Block KG D6 development off the east coast of India, started production in June 2023. Operated by Reliance with BP as a partner, the project aims to tap into conventional gas resources, with peak annual average production projected at around 90 mboed.
  • Tangguh Expansion: Located in Indonesia’s Papua Barat Province, the Tangguh Expansion project focuses on LNG production capacity enhancement. With BP as the operator the project expanded the existing LNG facility’s capacity to 11.4 million tons per annum. The addition of a third LNG process train and supporting infrastructure positions the project for peak annual average production of approximately 125 mboed.
  • Seagull: The Seagull project, situated in the Central North Sea, commenced production in November 2023. Operated by Neptune Energy in collaboration with BP and JAPEX, the project targets conventional oil resources. With tie-back to existing infrastructure and strategic offloading arrangements, Seagull is expected to achieve peak annual average production of around 30 mboed.

Unlike Shell, BP has made significant strategic investments beyond traditional oil and gas operations. The company’s ventures into renewable energy, electric vehicle infrastructure, and innovative technologies align with broader industry trends towards decarbonisation and energy transition.

For instance, BP’s acquisition of solar offshoot Lightsource and investments in wind and biofuels projects showcase its commitment to expanding its presence in the renewable energy sector. Additionally, BP’s partnerships in electric vehicle charging infrastructure and energy storage solutions position it as a key player in the evolving energy landscape.

These strategic initiatives not only mitigate risks associated with fossil fuel dependency but also tap into new revenue streams and growth opportunities.

In summary, the combination of multiple catalysts, including a tightening oil market, BP’s share buyback program, strong financial performance, and strategic investments beyond oil and gas, collectively contribute to the attractiveness of BP as a high-quality value and income play.

BP. 3-Year Chart

BP. 3-Year Chart


All content is provided for general information only and should not be construed as any form of advice or personal recommendation. The provision of this content is not regulated by the Financial Conduct Authority.


All content is provided for general information only and should not be construed as any form of advice or personal recommendation. The provision of this content is not regulated by the Financial Conduct Authority.