Initiating BP At Neutral

We have recently initiated coverage on BP Plc. (NYSE:BP) with a Neutral recommendation and $55 target price. 

London, England-based BP Plc (BP) is one of the world’s largest energy companies, providing its customers with fuel for transportation, energy for heat and light, retail services and petrochemical products. It operates in three segments: Exploration and Production, Refining and Marketing, and Other Businesses and Corporate. 

BP has maintained an industry leading track record for long in terms of reserve replacement ratio; its 2009 ratio was 129%. 

BP has been successfully accessing substantial new resource opportunities including a major new entry into Iraq with Rumaila field, one of the greatest oil fields of the world. Additionally, exploration success in Tiber discovery, a giant field in Gulf of Mexico (GoM), coupled with appraisal success on Mad Dog South helps to underpin the potential for continued growth in the deepwater GoM. 

The company’s cash flows showed an increasing trend despite a weak natural gas price environment, reflecting management’s ability to properly balance sources and use cash. In addition, with management’s determination to drive down costs, we believe that BP is well positioned for growth. 

Despite higher refinery utilization rate, the weak refining margin environment continues to weigh on the stock and offer limited upside from current levels.