Buy-recommended BP plc (NYSE:BP) offers unlevered appreciation potential of 35% to a McDep Ratio of 1.0 where stock price would equal Net Present Value (NPV) of $85 a share. Not to shrug off the sinking of a drilling rig in the deep Gulf of Mexico, we raise estimated NPV from $80 a share on the basis of first quarter results released today (see call transcript). Unlevered cash flow (Ebitda) exceeded our expectations of three months ago in the upstream business. Supported by cash flow and reserve life, natural gas outside North America increases to 12% of NPV and oil increases to $201 billion.
Under Chief Executive Tony Hayward, BP has boosted its profitability in upstream operations toward the higher levels of peer companies. Meanwhile, an oil spill has yet to be contained following the rig accident. There may be an adverse regulatory impact that restricts supply of deep water oil, the otherwise most promising source of new conventional supply. That could further strengthen the upward trend in oil price indicated by current quote for the next six years at $93 a barrel compared to the 40-week average of $85.
BP’s dividend at the current yield of 5.8% could be especially attractive in a U.S. Individual Retirement Account because there is no 15% withholding tax usually charged by most non-U.S. sources.
Originally published on April 27, 2010.
