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The share price of BP (LSE:BP.) closed marginally down (0.05%) at 479.75 after reaching 484.20 in intraday trading, up at the point by 0.875%. BP continues to trade nearer to the low end of its 52 week range if 364.40 to 526.80. But today’s story is not so much about its share price activity today as it is about what CEO Bob Dudley said at the IHS CERAweek forum in Houston, Texas.
“IHS CERAWeek is the premier annual international gathering of energy industry leaders, experts, government officials and policymakers, leaders from the technology, financial, and industrial communities – and energy technology innovators.”
Dudley’s main messages were
- The North Sea oil industry is going to face a “dramatic squeeze” as the ready supply of crude oil continues to expand.
- It feels like the world is awash in oil.
- The North Sea is a very high cost basin.
- We’re going to see massive restructuring.
- It’s going to be a painful adjustment.
- U.S. shale producers are “remarkably resistant.”
- There could be unintended consequences for the entire world.
- BP has been positioning itself to avoid a takeover.
Last Things First
Wait a minute! I thought that the rumor mill is expecting a takeover of BP by ExxonMobil (NYSE:XOM). I strongly agree that ExxonMobile is well-positioned among major oil producers. In fact, I wrote precisely about that on 23 and 24 December 2014.
Regardless of the Dallas Business Journal’s braggadocio about it’s patron saint of the oil industry, according to Mr. Dudley, there will be no takeover of BP. Although Dudley’s comments about massive restructuring could be taken as implying massive M&A, he did not say “M&A.” He said, “restructuring.” And that is precisely what BP has been and is continuing to do.
The People at BP Did Not Just Fall Off the Turnip Truck
This company, despite five years of bad publicity, does know what it is doing. In fact, Dudley actually clarified his restructuring comments by adding that he does not see a wave of consolidation in the near future. Although I take that to be an all-inclusive observation, he was also quite clear that BP has taken strategic steps to keep itself in excellent financial condition from both a P&L and a balance sheet perspective. He told the forum that, “We’ve got a good portfolio. We like our portfolio. We work hard to get our portfolio in the right shape.”
In particular, he said that, “We have been able to divest $40 billion of assets. This has reduced risk and left us in a better position to weather the storm facing our industry. We are making some very tough decisions.” In addition, it was announced today that the company is seeking to divest itself of another $2 billion worth of pipelines and terminals in the U.S. That is not a move of desperation, but of exactly the restructuring that Dudley was addressing. Neither is it unusual. Approximately 66% of BP products are moved to marketing through third party assets.
What I Think Bob Dudley Was Saying
I think that he was saying that BP is in a good place. Perhaps even in a better place than they are given credit for being. Traders in New York (NYSE:BP) seem to agree as shares have increased by 1.01% approaching the final hour of trading.
Perhaps TheStreet summed it best up for those who might be overly concerned. They said, “We rate BP PLC a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company’s strengths can be seen in multiple areas, such as its good cash flow from operations and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself.” I completely agree.
