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BP (NYSE:BP) is now almost two years out from the widely reported 2010 oil rig disaster in the Gulf of Mexico. The massive oil leak hurt the company's reputation, production levels and cash flow. In the wake of the disaster BP management instituted a new business strategy to rebuild the company and increase returns to shareholders.

Over the last year, the BP share price has performed in line with the other major integrated oil companies. Some of the company's major changes to implement the business plan will occur over the next few years. If successful, these steps may allow BP to move ahead of its peers.

The BP recovery plan is a 10 point strategy, but the major ideas of the plan can be broken down into three main ideas.

The company will divest itself of assets which do not meet the desired levels of return vs. investment. By the end of 2013, the company plans to have sold or reached agreements to sell $38 billion out of the targeted $45 billion worth of assets. Of course, a significant chunk of the money from asset sales go towards the BP Gulf of Mexico U.S. Trust Fund.

Invest in new upstream projects with operating margins double the rate earned in 2011 from existing projects. In 2012, the number of exploration wells drilled will double to 12 compared to 2011 as the company starts six new projects. In 2013 and 2014, exploration wells will be drilled at a rate of 15 to 25 per year. Production will also grow as operations in the Gulf of Mexico get back up to speed. Drilling activity in the Gulf restarted in the third quarter of 2011.

Increase operating cash flow by 50% from the 2011 level by 2014. This would result in an annual cash flow of $33 billion. Of the 50% increase in cash flow, half would go for continued investment and half for other purposes - possibly distributions to investors. Also, one-half of the increase is already a distinct probability since that is the amount of money BP will no longer be paying into the U.S. Trust Fund after 2012.

The bottom line that is the company wants to increase cash flow by increasing efficiency, selling unproductive assets and focus on the company's strengths of deep water drilling, natural gas value chains and developing giant energy fields anywhere in the world.

BP stopped paying the company's very attractive - 84 cents quarterly - in 2010 to conserve cash to pay for the Gulf oil leak costs. The dividend was resumed in the first quarter of 2011 at half the pre-disaster rate. To start out 2012, BP increased the quarterly dividend by 14% to 46 cents quarterly.

The current dividend puts BP near the top of the yield chart for large, integrated oil companies. The current yield for Exxon Mobil (NYSE:XOM) is 2.7%, Chevron (NYSE:CVX) yields 3.48%, Total (NYSE:TOT) has a current dividend yield of 6.42% and Petroleo Brasileiro has a reported yield of 4.57%. The current yield for BP is 4.65%. BP pays its dividend quarterly in the American style with a regular dividend rate denominated in U.S. currency. Foreign oil companies tend to pay semi-annual dividends with varying pay-outs and currency exchange rates.

The major question about BP is whether the company can hit the aggressive production growth and cash generation plans. It is a difficult task to get a $100 billion dollar company to act lean, mean and efficient. Another question around the company is the large portion of production which is natural gas production. Gas currently is near record low prices, hurting revenue and profits. The BP 50% growth in cash flow goal is based on $100 per barrel Brent crude prices. Oil is currently about $10 above that price.

Over the last year, the share price of BP has slightly - about 6% - under-performed the shares of Exxon Mobil and Chevron. That performance is not too bad, considering BP is still suffering from the aftermath of the Gulf of Mexico incident. With the higher dividend yield and the company expectations for the next three years, it is very possible investors will do better with shares of BP than with the two large U.S. based, integrated energy companies.

Share values of the big energy companies have not produced real returns so far in 2012. Investors should watch BP for improving production results out of the Gulf of Mexico and new projects plus increased profitability from the refining and retail divisions of the company.

Source: BP's New Recovery Plan Could Generate Upside In 2013